BASED ON HARVARD BUSINESS SCHOOL CASE The effects of Rice Subsidy in Thailand 1.
ID: 1102606 • Letter: B
Question
BASED ON HARVARD BUSINESS SCHOOL CASE The effects of Rice Subsidy in Thailand1. Why did the rice price scheme exist and what was the outcome?
QI. Reasons for continued support?
QII. Winners and losers from the policy?
QIII. Which benefited low-income farms the most, the 2006 or 2011 program?
QIV. Assuming the remaining rice can be sold for 10,096 THB per ton, what is the government’s loss?
2. Why is farming so political and the focus of government support?
Describe the advantages & disadvantages of continued use of price supports. Graph.
QI. Describe economic rent and how it is determined.
QII. Explain using elasticity why the rent skyrocketed. What was the amount of water used for the additional rai farmed in the first year of the program? Did the structure of water pricing under or over-estimate the cross-price of elasticity and what are the implications for restructuring prices as a conservation policy?
3. What are alternative methods to support the rice farmers?
4. If you were the General’s chief economic advisor, what plan of action would you recommend for the short-term (year 2015) and long-term welfare of the country? What are the advantages & disadvantages of your recommendation? The Effects of Rice Subsidies in Thailand Jordan A. French, Stamford International University INTRODUCTION It was June 2014 and Dr. Chairat Hiranyavasit pondered what he and his team of economic advisors should recommend to General Prayut Chan-o-cha, who had just seized power from the elected prime minister. Dr. Chairat Hiranyavasit and a team of economics professors from across Thailand were commissioned to advise the General what should be done regarding the former administrations price support scheme for rice. The team had also been asked to make recommendations about the future of Thailand's agricultural economic policy Dr. Hiranyavasit was the director of the MBA program at The National Institute of Development Administration (NIDA) in Bangkok, Thailand. This government uni- versity was regularly called on by the country's leaders for its academic professionals. The university was founded by the King of Thailand after his discussions about eco- nomic development of the country with Mr. David Rockefeller in 1963, and employed some of the top talent in the nation. Dr. Hiranyavasit had received his masters and doctoral degrees in business from Georgia State University in the U.S. prior to his appointment at NIDA. Prime Minister Chan-o-cha, a general in the Thai army, had seized power in May of 2014. The former prime minister was ousted, after less than three years in office, under allegations by the military that their government was spending itself into a hole and that the price support program of 2011, which was buying rice from farmers at 50 percent more than the world price, was inept and hurting the country. The military regime also claimed that the former prime minister was corrupt and aiding her brother overseas, a former billionaire prime minister who had been exiled from the kingdom of Thailand. By late 2013, tens of thousands of rice farmers flooded into the streets of Bangkok seeking promised payments on rice they had sold to the government up to six months previous. In a trend, farmers from across the kingdom began commit- ting suicide, leaving their fields untilled for the first time. The ousted prime minister was arrested by the current government and the military coup was far from bloodless. There were ongoing riots in the streets by citizens, and violent clashes as political party Copyright © 2016 by the Case Research Journal and by Jordan A. French. Review copy for use of the Case Research Journal. Not for reproduction or distribution. Dated November 27, 2015. Revisions submitted May 26, 2016.
Explanation / Answer
First four questions are answered below
1.
The rice price scheme was the subsidy scheme implemented in Thailand wherein the government purchased rice from Thai farmers at above world price rates so as to make them increase production and thus exports. The main purpose of this scheme was to increase production and export income and make farmers self sufficient in the long run.
2.
Reasons for continued support were the obtained results. Exports of rice shot up and so did farmer income and production, making it a win win situation for the farmers. Also, it helped the government gain farmer support which would be helpful for them in the long run political game.
3.
Winners: Farmers of Thailand
Losers: Government (loss of money) and domestic consumers because of high prices and foreign rice producers
4.
The 2011 scheme was more successful because it led to a drastic jump in the production and exports of rice from Thailand, thereby bringing in more money from exports.
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