Agricultural policy options to boost the producer surplus: Thailand's natural rubber market equilibrium

Abstract

For Thai farmers natural rubber is a significant product and an economic crop. It has also some social benefits of rubber cultivation in this country. Yet, rubber producers of Thailand have not been receiving intended revenues in spite of expanding planted areas and increasing production. Current paper focuses on Thailand's natural rubber market equilibrium which is influenced by global and local impacts. The paper uses two-stage least squares methodology in order to estimate demand and supply response of Thailand. Input costs, planted area, agricultural credit amount dedicated to agriculture, palm oil prices are explanatory variables of supply. Indonesia production, per capita income of the world, car production of the world, exchange rate and rubber production of Indonesia are explanatory variables of demand. Rubber price is endogenous variable while resuming variables are exogenous. The econometric analysis will present opportunities to understand how to increase the producer surplus by simulating abovementioned variables. Producer's surplus is calculated 10,719,174,750 USD/Year in the equilibrium conditions. When financial supports are increased, it caused about 9.5 percent decreases in producer's surplus. The impacts of bilateral agreements was simulated with 10% and the 5% decreases of production amount. There was almost no difference on producer's surplus in case of a production decrease of 5% or 10%.