The Effect of Rice Price-Pledging Scheme on Price Transmission of Rice Markets in Thailand
The rice price-pledging scheme is a price support program that aims to provide a loan at low interest rate to farmers. The government lends the farmer money equivalent to the value of the pledged rice. This policy has been criticized that it may distort the market mechanism. Therefore, this paper analyses the effect of the rice-price pledging policy on price transmission of rice markets in Thailand over the period of 2001-2009 using time series techniques. A co-integration analysis reveals existence of a long-run equilibrium relationship among farm gate, wholesale, retail, and export prices. Based on Granger causality test, a unidirectional causality was detected, running from farm gate to export prices, and from wholesale to export prices. In addition, there was bidirectional causality in other three price relationships: between retail and export prices; between wholesale and retail; between farm gate and retail. The results from Granger causality test together with the Wald (2) coefficient test confirm that changes in predetermined farm gate price by government provided the largest effect to export prices. Consequently, exports are at a disadvantage when the rice-price pledging policy is launched.
Volume (Year): 2 (2012)
Issue (Month): 5 (November)
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