Thailand's Maize Export Agreement Policy: An Economic Analysis

This study is an evaluation of Thailand's maize export agreement policy through economic analyses of prices and markets for Thai maize. Maize export agreements between Thailand and Japan since 1966 and recently Taiwan has played an important role to the overall development of Thai maize. These agreements feature two important policy elements, (a) an export quota and (b) a fixed export price. Some disagreements now exist, however, as to whether these export agreements are more or less desirable for Thailand than free trade. Statistical analyses of the wholesale-export price linkages of maize in Bangkok, using monthly contract data during 1970-1974 crops years, showed that the Bangkok wholesale maize prices were heavily influenced by fixed formula export prices and the export quotas under the agreement contracts. The former has its direct impact on local maize prices and maize stocks. The latter, on the other hand, influence maize stocks which later help to determine maize prices. Since the formula export prices and export quotas are known at least 30 to 60 days before shipments of maize, the local market tends to react to these coming export conditions one to two months earlier. In addition, the local supply conditions and the weather also play a part in the pricing process of Thai maize in Bangkok. The estimated relations between wholesale maize prices and maize stocks revealed that maize stocks in a given month were largely determined by wholesale maize prices in the past one to two months. Also, the price responsiveness of maize stocks was very high when wholesale prices were low relative to export prices and vice versa. The analysis of structural changes in maize exporting firms also showed that the number of very small exporting firms increased substantially while the number of large firms was small and stable. Most large exporters exhibited average apparent size close to maximum size barrier (5 percent) of the quota system. Many small exporters, on the other hand, held, on average, less than 1 percent export share. The apparent export concentration of the firms was between 52 to 64 percent and did not substantially change between 1969 and 1974 crop years. Because of the limited quotas, large firms tended to secure additional export quotas sold by small exporters. The actual changes in size and number of exporting firms were then accentuated by these quota transfers. Moreover, an analysis of export markets for Thai maize showed that Thailand can be viewed as a price taker in either the world or regional maize market. Despite being a price taker, Thailand's maize exports deteriorated in a relative sense through a weakening competition position in the international maize trade. In addition, there is little evidence that the maize export agreements help to offset this relative trade deterioration. The agreements probably prevented widespread market disruption, but at the same time small and inefficient exporting firms are protected by the ensured market demand under agreements. This protection reduces incentives for small firms to be innovative and aggressive and also stifles growth and expansion by larger firms. Finally, the study argues that Thailand's maize export agreement policy should be abandoned in the long run and an adjustment toward free trade should be encouraged.