Rice is the main staple food crop of Thailand and an important source of national income through the agricultural sector. Rice prices tend to fluctuate over time, for example in early 2008 the world rice price increased dramatically and declined afterwards. The purpose of this paper is to examine the movement of world rice prices and the relationship among rice prices in Thailand by utilizing the techniques of unit-root test and the long-run Granger non-causality test proposed by Toda and Yamamoto (1995). Thai 5% broken rice prices, including farm gate, wholesale and export prices during 1961 to 2009 were used in the causal relationships test. The results suggest that there are unidirectional causal linkages running from the farm gate price to the export price, and from the farm gate price to the wholesale price.
Key words: rice prices, price movement, Granger non-causality
Introduction
Rice is the main staple food crop of Thailand and important for Thai economic and national income through the agricultural sector. Thailand has been one of the major rice producers and exporters of the world. Thailand, with a market share of around 35%, has been the world's top rice exporter for decades. Rice export accounts for about 20% of Thailand's total agricultural export earnings. Moreover, around 17 million or 3.7 million out of 5.6 farm households in the country are engaged in rice farming.
Recently, Thai rice has significantly been at risk due to a global food crisis as global rice storage tends to decrease during this decade. Thus, food security has been major policy in several counties, including Thailand. The export quota or export ban was implemented in India, China and Vietnam. Consequently, rice prices have fluctuated not only in relationship to India and China demand but also on other factors such climate change, production cost or fertilizer and fuel prices among others. (Isvilanonda S. and Bunyasiri I., 2009 and Brian Wright, 2009)
Under a sustainable development policy, the cooperation between the Ministry of Agriculture and Cooperatives and the Ministry of Commerce approved "Thailand's Rice Strategic Plan" for 5 years to enhance "the rice planting and trading system to ensure Thailand's reputation as the leading exporter of high-quality rice". The following is the vision of Thailand's rice plan with the goal of supporting sustainable development. The first rice strategic plan from 2007 to 2011 consists of four missions concerning (1) production management and development of farmers, (2) marketing management and product development, (3) an emphasis on exports, and (4) a speedy and cost-effective product distribution. It also includes guidelines that seek to assist production, producers and products, to manage the marketing system, to stabilize prices, and to support international marketing and logistics. (Foreign Office, The Government Public Relations Department, 2010)
The purpose of this article aims to discover the movement of Thai rice price and examine the statistical relationship between Thai rice price series. This paper uses a time series method to analyze the relationship and causality by introducing the Granger non-causality method (Toda and Yamamoto, 1995) between export, wholesale and farm gate prices representing 5% broken Thai white rice.
Materials and Methods
The rice price data used in this study was for 5% broken Thai white rice from 1961-2009, collected from the following sources: Rice Committee Board of Trade of Thailand data on export price (FOB) during 1961 to 1994 , World Bank data on export price (FOB) from 1995 to 2009, Bank of Thailand and Thailand's Ministry of Commerce Department of Internal Trade wholesale price (WSP) data from 1961 to 2009, and farm gate price (FB) data from 1961 to 2005 collected from the FAOSTAT database and the office of Agricultural Economics, Thailand Ministry of Agriculture from 2006 to 2009.
The stationary test examined unit roots of each data series. The analysis of causality linkages between Thai white rice prices, proposed by Toda and Yamamoto, was introduced through econometric methodology. The Granger non-causality test estimated the relationships among Thai farm gate, wholesale and export rice prices. Furthermore, the Granger non-causality test could be utilized to determine whether the data series are stationary at I(0) or I(1). Next, the Granger non-causality approach of Toda and Yamamoto (1995) examines whether the farm gate, wholesale and export price model engaged in this study is given in the following null hypothesis: FOB does not affect WSP and FB, WSP does not affect FOB and FB and FB does not affect FOB and WSP.
Results and Discussion
The movement in 5% broken Thai white rice price from 1961 to 2009 shown in figure 1 can be explained by 5% broken Thai white rice price series being associated with one another and their trends increasing continually. Why do the rice prices fluctuate over time? Peter Timmer (2009) and Brian Wright (2009) informed that factors significantly influencing rice price are production cost that relies on fuel price, climate change and population growth. Kei Kajisa and Takamasa Akiyama (2003) and Hong Choeun et al. (2006) show that during 1961-1982, the gap between export price and domestic price is higher than the gap after 1982 because Thailand had signed the GATT agreement under WTO in November 1982 and thereby reducing export taxation. Thailand's main price policy change is that price stabilization moved from the taxation to non-taxation or subsidization during the transitional period of 1971 to 1985.
The rice crisis that occurred during the years 1973 to 1975 brought about from the first world oil crisis repeated with the second world oil crisis in 1981 and 1982. The peaks of rice price in 1974 and 1981 are 542 and 483 US dollars per ton. In early 2008 the rice price crisis again appeared by reaching 695.28 US dollars per ton and the domestic price as well as the wholesale price was affected along with the export price, while the farm gate price did not fluctuate. The latest rice price crisis is caused by many factors like its price trend, shortage of global rice stock, oil price and so on. In the future rice prices will be fluctuate more violently, so the pricing policy needed to implement an effective price stabilization mechanism to support food security policy to protect poor consumers takes on increased importance.
Figure 1. The movement of 5% broken Thai white rice price from 1961-2009
Source: 1 Export price during 1961 to 1994 from Rice Committee Board of Trade of Thailand and during 1995 to 2009 from World Bank
2 Wholesale price during 1961 to 2009 from Bank of Thailand and Department of Internal Trade, Ministry of Commerce, Thailand
3 Farm gate price during 1961 to 2005 from FAOSTAT database and 2006-2009 from Office of Agricultural Economics, Ministry of Agriculture, Thailand
The result of Granger non-causality tests found that according to the different market linkages among prices, some null hypotheses are significantly rejected. Farm gate price does not Granger cause wholesale price and farm gate price does not Granger cause export price at respective significance levels 1% and 5% as shown in table 1. Thus, it could be implied that there are unidirectional causal linkages from farm gate price to wholesale price. From table 1, we can see that when farm gate price changes, wholesale price will change in 99%. Another unidirectional causal linkage from farm gate price to export price means that when farm gate price change, export price will change in 90%. No other relationships have a significant causal relationship with each other. However, most small scale rice farmers in Thailand are price takers and have low bargaining power, thereby receiving price levels from middle men or rice mills who determine the rice price at the farm gate. We notice that most rice traders in Thailand are both wholesalers and exporters. They will sell for a higher price while they pay more to farmers. Farm gate price is seen as their input price.
Conclusion
This article introduces the Granger non-causality tests to find out the linkage between 5% broken Thai white rice prices in different market levels from 1961 to 2009. The finding results show a unidirectional causal linkage running from farm gate price to wholesale price and from farm gate price to export price. Other relationships show no correlations, indicating that local rice prices stated as the farm gate price is most important not only for price structure of rice but also for the income of farmers, which make up the majority of Thailand's population. In addition, we observed from rice data that wholesale share is greater than farmer's share and this causes income and welfare distribution problems. Therefore, the Thai government should make efforts to enhance farmers' strength and also improve productivity and competitiveness in rice production.
Table 1. The Granger non-causality tests
Null Hypothesis:
Chi-sq
Probability
WSP does not Granger Cause FOB
1.015049
0.6020
FP does not Granger Cause FOB
5.893436
0.0525*
FOB does not Granger Cause WSP
1.133308
0.5674
FP does not Granger Cause WSP
9.783067
0.0075***
FOB does not Granger Cause FP
0.874072
0.3454
WSP does not Granger Cause FP
36.77400
0.6459
Note: * Significant at 10%
** Significant at 5%
*** Significant at 1%
