Rice Consumption And Comparative Advantage In Thailand Economics Essay

The research job under consideration is about Thailand ‘s capableness of achieving a comparative advantage in the international rice market, since there is guess of a growing in the ingestion of rice in the planetary market.

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Specifying the Research Problem

The planetary researches being conducted on the hereafter of trade goods consumption reveal that one of the trade goods whose ingestion is assumed to be on the rise is ‘rice ‘ . It has besides been speculated that the expected growing in rice ingestion, and later a rise in its demand, would be up to 2.7 % . In the similar context, there would be definite advantages for the states that have major parts towards the exports of this harvest. Thailand, despite being ranked as the 6th largest planetary manufacturer of rice, is ranked as the universe ‘s largest exporter of rise ( Rice today, 2006 ) . Comparative advantage is a term used to specify the ‘advantage ‘ that a state has over the others in footings of its efficaciousness in bring forthing a peculiar merchandise, and Thailand decidedly has a comparative advantage when referred to rice harvests, as seeable from the fact that despite being the 6th largest manufacturer, it is ranked as the largest rice exporter ( Pugel, 2004 ) . Keeping such a comparative advantage, the inquiry arising, as addressed in this research, is that how Thailand can take most advantage out of this lifting demand place.

Research Methodology

For developing a decision on how Thailand can develop a comparative advantage based on the projected rise in ingestion of rice globally, both primary research and secondary researches have been used. Secondary research would represent literature reappraisal in the following subdivision, and primary research would be discussed in the subdivision buttocks to that.

For secondary research, assorted literatures available on the given subjects such as articles, intelligence updates, analytics, and other text has been referred, while for primary research, unstructured and unfastened ended inquiries have been prepared and respondents where persons fiting the profile of a rice importer and those persons who coordinate rice export activities being in export publicity agency or have clearing-and-forwarding constitutions. Unstructured interviews have been chosen as primary research mechanism because ( 1 ) it gives the respondent the freedom to show their sentiment, instead than curtailing them to the pre-defined replies ( 2 ) even with lesser figure of respondents, it gives a deeper penetration affecting sentiments and statistics ( 3 ) frequently this signifier gives hints for research that can non be determined via reappraisals and primary research.

Literature Review

4.1 Comparative Advantage and its Retention

The opinion of comparative advantage provinces that it merely exists when person has an efficient productive procedure, and this efficaciousness is the way towards a comparative advantage. Using the same regulation to the basicss of economic sciences, it would be seeable that efficiency in production does non connote that the harvest is yielded to the upper limit, nevertheless, there are other variables associated. For illustration, a state Ten may non be a immense manufacturer of oil but may be the largest exporter of it, merely because it might hold lesser local/internal demand or efficient procedures that would connote greater production in footings of end product or both. The later is the instance whereby a comparative advantage is retrieved. Quite similar is the instance with Thailand that despite being merely 6th ranked in footings of production of rice, it yet stands on top of the rankings of the biggest exporter of rice. Keeping the major portion of the pie, Thailand needs to size up the state of affairs of how it can acquire the most of the increasing ingestion volume ( Hossain, 2007 ) . However, the literature states that there are hurdlings to this. For retaining its comparative advantage, Thailand needs to work on its production end product either from harvest or through its production procedure ( Dilday, 2003 ) .

4.2 Unfavorable Fortunes for Demand of Rice

Fortunes may non be extremely favourable in this respect. Because ( School of Farm Mechanisation, 2009 ) :

The rice manufacturers and providers across the universe are confronting crisis, and it may hold a harmful impact on the growing in production, as the scarceness of land, labour and H2O are a major cause of the same. However, the steady addition in ingestion, in conformity with many analysts and research workers, would stay between 3 and 4 % on a twelvemonth to twelvemonth footing. A instead diluted figure developed after statistical patterning sing economic factors and variables, has been approx. 2.7 % grade, which illustrates a instead slow growing in ingestion ( Industry Outlook, 2007 ) . This can be attributed to assorted other factors such as poorness amongst the low income category ; nevertheless, this treatment falls beyond the range of treatment at this point in clip.

The most of import facet to this is that since urbanisation is turning at a high speed, some of the fertile rice land has to be utilized for run intoing the demands of this rapid growing of urbanisation.

The feeding wonts are besides on the change way due to curiousness about weight, etc, people are traveling off from rice and wheat and more towards fruits, veggies, etc.

4.3 Major Subscribers of Growth in Rice Consumption

The states that are the primary importers of rice are West Asia, South America, and Africa. Analysts believe that in the hereafter, these would be the premier drivers of the planetary rice trade. Additionally, these parts have been the premier consumers throughout irrespective of their life styles. The interesting fact remains that merely 7 % of the planetary rice production is traded internationally ( Laurent, 2008 ) .

4.4 How to retain Comparative Advantage?

The theory of comparative advantage leads to the decision that if states merely produce what they are efficient at bring forthing, the secular balance can be obtained since each of the states would hold a particular merchandise and would be in a bargaining place – the phenomenon is known as Unique Selling Proposition ( USP ) in marketing nomenclature. There are assorted agencies of retaining comparative advantage.

The first and first method is to use the economic systems – since the holder of a comparative advantage has been practising it, hence, it would be easier for them to cut down costs compared to those who are in the procedure of implementing it, for illustration, a better engineering.

Patents and hallmarks have besides been defined as an effectual resource for retaining a competitory border.

Value add-on is another critical mechanism finely applied for retaining the comparative advantage.

4.5 Decision

After the brief overview of assorted facets of comparative advantage, and facts about rice and its hereafter, the undermentioned subdivision analyzes the assorted inquiries inquired during the interviews that were conducted.

Analysis of the Questionnaire

As mentioned in the research methodological analysis subdivision, assorted gurus were interviewed including those associated to houses that export rice, persons associated with the export facilitators of rice, authorities governments, and other concerned persons. A sum of 10 respondents were interviewed with unfastened ended inquiries, and the questionnaire is attached in the appendix subdivision. Following is a inquiry by inquiry sum-up of the persons interviewed:

What make your foresee about the turning demand of rice in the planetary landscape?

The respondents were of the position that rice is likely the least traded trade good in the international markets, with the figures between 5-7 % of the entire rice production being internationally traded, comparing an about dual figure for coarse grains and a ternary figure for wheat. Additionally, in many states, rice is included in the consumer index for the upper center and upper categories, hence, its ingestion in poorer parts remains on the lower side ; though there are exclusions for illustration Bangladesh. However, they besides indicated some parts of Africa, America, and West Asia being the premier consumers and chance for the ingestion of rice, and said that the growing in ingestion has steadily risen, chiefly imputing to these countries, and any prospect rise in the hereafter would besides chiefly impute to these parts.

Which states may look as a bright chance to take advantage of this lifting demand?

The respondents nem con stated that the Asiatic providers of rice contribute a small over 90 % of the entire rice consumed globally. The respondents stated that rice from Thailand travels the universe ; the Middle East market is captured chiefly by India and Pakistan, while China and Indonesia are the major rivals ( Yuan, 2003 ) . The major importers of Thai rice include Indonesia, Iran, US, Singapore, and Iran. One of the respondents pointed out that there is low quality and high quality rice market bing globally. In the low quality market, India is expected to take advantage of the state of affairs of lifting ingestion since it has really low costs, and Thai portion of the pie is expected to deteriorate. In the high quality market, Thailand may retain its competitory border, nevertheless, with its appreciating currency, importers might happen it expensive to purchase, hence, the pricing needs to be stabilized, if Thailand wants to salvage its portion in this market.

How can a supplier/exporter may take advantage of this state of affairs?

The respondents nem con stated that cost leading is the major beginning of an advantage when it comes to this state of affairs. However, though the lifting demands favours providers, but the cost advantage would give the derived function border to the provider, and later, pull the purchaser. They said, India, for illustration, is making a terrific occupation in the low quality rice subdivision by taking maximal advantage of its low costs.

Where make you see Thailand as a chance for taking the market portion for this growing?

There was a difference of sentiment when it came to reply this inquiry. The respondents that were non related to the authorities or the governments were of the sentiment that Thailand would non be able to prolong its place because India is giving it a tough competition and there is strong grounds to believe that the approaching harvest of Indian rice is better in quality and greater in measure, therefore, giving more bad intelligence to the Thai rice manufacturers. Therefore, the respondents thought that the authorities should take enterprises and supply inducements and purchases to the rice manufacturers and providers to guarantee that the state retains its portion of the pie, if non increase it by any border. The respondents belonging to the authorities governments ensured that the authorities had programs integral to guarantee that even if the market size remains changeless, so excessively their exports would surpass the records on year-to-year footing. They said the authorities had worked out subordinates and inducement programs for providers and manufacturers to protect their funding and maintain a cheque on their costing so that the cost advantage can be achieved. They said that authorities had carried out studies to reason that which division of the production and supply concatenation would necessitate subordinates and alleviations, and in the similar context, work has been done at higher degree.

How can Thailand guarantee that it leads the turning market portion?

The respondents were of the sentiments that the strategic think-tank demands to happen out its USP ( Unique Selling Proposition ) , and make up one’s mind on its quota of production and the sectors of the market where it should concentrate for illustration, doing a scheme of 75-25 high quality to low quality ratio of production. Once the mark has been set, so the concerned governments can specify the market variables, the revenue enhancement issues, etc to guarantee that there are ample benefits for the local manufacturers to provide rice at the best possible pricing, and every bit mentioned, cost leading is the manner to patterned advance in the rice market. When this sentiment of the respondents was put away to the authorities governments being interviewed, they said the authorities had a long term program to take the planetary rice trade market and sooner than non, stairss would be taken up to exemplify the same.

What recommendations/suggestions would you set away?

Not surprisingly, the respondents nem con suggested giving illustrations of other Asiatic provinces that where the state wants to hike its production or exports of any peculiar section, it uses anti-dumping responsibilities, quotas, duties, subordinates, and other inducement plans for back uping their ain trade goods. Therefore, the Thai authorities should look for such inducements throughout the supply concatenation and as a nutshell end product, the costs, and eventually the monetary value would fall. The authorities representatives, nevertheless, added that these things are readily on record and would be taken attention of in the hereafter. Furthermore, it was besides suggested to stabilise the currency para to guarantee that their exports do non go expensive. This has become critical particularly with states holding lesser portion of the planetary market deprecating their currency, therefore, their end products going cheaper for the planetary market. The respondents besides suggested that the import responsibilities on chemicals and fertilisers used for assorted intents should be reduced or removed, because these responsibilities give inducement to local chemical and fertiliser manufacturers for premium pricing, and this besides becomes a critical factor during pricing.

Decision

From the above treatment, it can be clearly viewed that despite holding assorted resources available locally such as a premium quality chemicals and fertilisers, yet Thailand has non been able to crush low cost manufacturers such as India on the planetary platform when it comes to monetary value ; even maintaining foreign exchange rates stagnant, the fact remains valid ( Thailand Secret to World ‘s Largest Rice Exporter And the Future Plan, 2009 ) . Therefore, the authorities and the concerned governments in Thailand should take appropriate steps to guarantee that their production degrees, pricing schemes and other relevant variables are in line for retaining their comparative advantage, and every bit mentioned, they should be able to atleast retain their market portion if non increase it that is. Rice is a merchandise whereby distinction becomes a hard undertaking because its qualities are good defined by agencies of its mixture in assorted proportions, hence, a strategic advantage can merely be obtained by utilizing cost leading advantage.

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