Impacts of protection policies on the agricultural sector of Thailand

• Ministry of Agriculture and Cooperative, Thailand

The agricultural sector still dominates the Thai economy, providing two- thirds of employment and almost half of total exports. However, competition for resources from the industrial and services sectors and depressed world prices for staple agricultural commodities have placed considerable pressure on the very efficient agricultural sector. Unless the consequences of protection are researched and understood, this is likely to contribute to protectionist responses within agriculture similar to those observed in other rapidly growing economies in the region. In the process, the performance of internationally competitive agricultural industries could be hampered by protection provided to less-competitive agricultural industries and to manufacturing.

The project was developed in response to key research needs identified by agricultural economists in Thailand. It is designed to provide information on the effects of protectionist policies on the agricultural sector generally, and on the incomes of vulnerable groups such as small farmers dependent on particular commodities in particular. The research partnership will achieve more than would be feasible for either group working alone: the Australian National University economists are experienced in such work, having analysed the impacts of trade policies on the agriculture sector in a range of countries, including China, and having studied the Thai economy; and the Thai project leader is experienced in modelling the Thai agricultural sector.

Some of the work will be done in Thailand, where detailed data and knowledge of the agricultural sector are more readily available. Other work, such as the initial development of the modelling framework, will be done in Australia, where there is greater familiarity with the modelling software and more help available for modelling problems. Models will be developed on personal computers to allow portability between Australia and Thailand.

Specific objectives of the project are to:

develop a set of models to be used for the analysis of the impacts of protection (both agricultural and non-agricultural) on the agricultural sector of Thailand;

demonstrate the usefulness of these models by conducting a series of applied policy studies; and

make the models available for regular use in the analysis of trade-policy alternatives in Thailand at the Thai Office of Agricultural Economics.

The models - belonging to the general class of Computable General Equilibrium (CGE) models known as Johansen models - will begin with the country's input-output table and supplement this information with equations defining equilibrium conditions in factor markets, domestic commodity markets, and the country's international trading position. Starting from an initial equilibrium, the focus will be on the way endogenous variables adjust in response to specified changes in exogenous variables in the process of restoring economic equilibrium. The models are well suited to analyse a wide range of policy issues, and the economists expect they will subsequently be used for many other applications, such as analysis of the economic effects of technical change in agriculture.

The potential benefits to Thailand are enormous. Strong performance of the agricultural sector is vital to a rapidly growing economy. If integrated into Thailand's policy making, the modelling will have a crucial, catalytic impact on the choice of a more open trade regime. With a completely open trade policy, the short-term gains to the economy as a whole are likely to be of the order of 1-2% of GDP. With Thailand's GDP currently around A$70 billion, even a 1% gain translates into a benefit of $700m a year. The gain would be likely to increase substantially in the longer term, as the economy adapted to take advantage of the new opportunities.

Australia stands to gain both directly and indirectly from more open trade policies in Thailand. Trade between the two countries has grown rapidly in the past decade, and looks set to increase further. More open trade policies in Thailand would benefit Australia by increasing access for Australian exports and by increasing the range of imports to Australia of products that Thailand produces with comparative advantage. Potentially major indirect gains to Australia may also arise from enhancing our common interest with Thailand in free agricultural trade.