Manon's Econ Blog

Rice in Thailand

Posted on: October 20, 2009



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The price of exported jasmine rice is very volatile. To regulate the price, the government set subsidies: the price cannot exceed a top price and cannot go lower than a bottom price. But these prices (also called mortgage) have been set too high, and therefore no matter what the price was, there was always a surplus, as shown on the diagram below.

Rice mortage in Thailand

Small suppliers had many trouble finding storage for all the rice that was in surplus. The goverment had by consequent to spend money to store it (that is the point of subsidies) but the surplus was so big that too much money was spend, and the small suppliers were left with too much surplus. Since the government seemed enable to solve the problem, some suppliers decide to make a step forward and to increase expectations of the consumers (they created “a strategy of marketing Thai rice for its quality and variety.”) As a result of consequence, the demand curve shifted to the right, as shown on the diagram below.

Increase in demand for thai rice

Now, the Equilibrium (E2) is in between the top and the bottom price, which means all the supply can be sold. When the price goes down (below the equilibrium ), so when there is a shortage, suppliers can sell the old surplus that was stored. With this increase in demand, the government has to spend less money (less to store, and surplus can be sold later) and small suppliers can get richer.

1 Response to "Rice in Thailand"

Well done on the diagrams, they help you explain your ideas.

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