• TABLE OF CONTENTS
HIDE
 Front Cover
 Title Page
 Acknowledgement
 Table of Contents
 List of Tables
 List of Figures
 Executive summary
 1. Introduction and objectives
 2. Wheat in Thailand -- An...
 3. Trends in wheat production,...
 4. Wheat marketing and processing...
 5. Policies affecting the wheat...
 6. Costs and returns to wheat...
 7. Conclusions
 References
 Appendices
 Copyright






Title: Wheat in Thailand
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 Material Information
Title: Wheat in Thailand a subsector study
Physical Description: ix, 99 p. : ill. ; 28 cm.
Language: English
Creator: Tiravattnaprasert, Boonterm
Publisher: Kasetsart University
International Maize and Wheat Improvement Centre
Place of Publication: Bangkok Thailand
s.l
Publication Date: 1992
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Genre: non-fiction   ( marcgt )
Spatial Coverage: Thailand
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Statement of Responsibility: Boonterm Tiravattnaprasert ... et al..
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Table of Contents
    Front Cover
        Front Cover
    Title Page
        Title Page 1
        Title Page 2
    Acknowledgement
        Page i
    Table of Contents
        Page ii
        Page iii
        Page iv
        Page v
    List of Tables
        Page vi
    List of Figures
        Page vii
    Executive summary
        Page viii
        Page ix
        Page x
    1. Introduction and objectives
        Page 1
    2. Wheat in Thailand -- An overview
        Page 2
        Page 3
        Page 4
        Page 5
    3. Trends in wheat production, trade, consumption, and prices
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
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        Page 24
        Page 25
        Page 26
    4. Wheat marketing and processing in Thailand
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
    5. Policies affecting the wheat subsector
        Page 34
        Page 35
        Page 36
        Page 37
        Page 38
        Page 39
        Page 40
        Page 41
    6. Costs and returns to wheat production
        Page 42
        Page 43
        Page 44
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    7. Conclusions
        Page 70
        Page 71
    References
        Page 72
    Appendices
        Page 73
        Page 74
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    Copyright
        Copyright
Full Text
















Li




















Wheat in Thailand: A Subsector Study


Boonterm Tiravattnaprasert

Kiatichai Vesdapunt

Nongnut Soratana

Larry Harrington

John Connell


















Kasetsart University, Bangkok, Thailand

International Maize and Wheat Improvement Centre (CIMMYT)


November 1992

















Wheat in Thailand: A Subsector Study 1/


Boonterm Tiravattnaprasert 2/

Kiatichai Vesdapunt 2/

Nongnut Soratana 2/

Larry Harrington 3/

John Connell 4/




















1/ Opinions expressed are not necessarily those of Kasetsart University or CIMMYT.

2/ Department of Agricultural and Resource Economics, Faculty of Economics and
Business Administration, Kasetsart University, Bangkok, Thailand

3/ CIMMYT Asian Regional Economics Program, Bangkok, Thailand

4/ CIMMYT Wheat Program, Chiang Mai, Thailand











Acknowledgements


The authors wish to express their appreciation for the constructive comments

and suggestions of Dr. Cristoph E. Mann and Dr. Derek Byerlee of CIMMYT.

Valuable assistance in field data collection and interpretation was provided by Mr.

Supote Ruanwong; Mr. Veera Suriwong and staff of the Office of Agricultural Exten-

sion in Fang District, Chiang Mai Province; Mr. Sumphon Mongkon and staff of the

Office of Agricultural Extension in Pua District, Nan Province; Mr. Niwat Papopbun

and staff of the Office of Agricultural Extension in Pai District, Mae Hong Son Prov-

ince; Mr. Songsak Supamanee and staff of the Office of Agricultural Extension in

Mae Sai District, Chiang Rai Province; and Miss Arlai Massjaroon, staff of the North-

ern Region, Office of Agricultural Extension. In addition, Dr. Phattakun Chandha-

namutta, Mr. Tasana Larpruey, Department of Agricultural Extension and Mr.

Vichien Lertphokanont, UFM Food Center Co., Ltd, provided invaluable information

on wheat production, marketing and policies. Numerous friends and colleagues in the

Office of Agricultural Economics, Ministry of Agriculture and Cooperatives, provided

constructive comments. Finally, we wish to express our sincere appreciation to Dr.

Boonjit Titapiwatanakun, for his advice and counsel; to Mr. Somporn Isvilanonda for

his helpful comments; and to Miss Suda Sangthongsakullert, for her hard work in data

collection and analysis. Authors are responsible for any remaining errors.









Contents


Acknowledgements 1

Contents

List of Tables vi

List of Figures vii

Executive summary v 1i

1. Introduction and objectives 1

2. Wheat in Thailand -- An overview 2

2.1 Objectives 5

3. Trends in wheat production, trade consumption, and
prices 6

3.1 Production, area and yields 6

3.1.1 Development phases 6

3.1.2 Phase Three Recent trends by production
environment 9

3.2 Import and export of wheat a Id wheat products 11

3.2.1 Imports 11

3.2.2 Exports 16

3.3 Consumption and utilization 16

3.3.1 Past trends 16

3.3.2 Expected increases in wheat consumption 19

3.4 Wheat and flour prices 23

4. Wheat marketing and processing in Thailand 27

4.1 Methods and data sources 27

4.2 Market flows in the wheat subsector 29

4.3 Marketing of domestically produced wheat 29

4.4 Marketing margins within Thailand 33










4.5 Flour milling 34

5. Policies affecting the wheat subsector 34

5.1 Tariffs and taxes on imports 34

5.2 "Mill offer" price 38

5.3 Subsidies for purchased inputs used in domestic production 41

6. Costs and returns to wheat production 42

6.1 Wheat production systems in Thailand 42

Rainfed areas, till and row seed (Rd/Row) 43

Rainfed areas, till and broadcast (Rd/Bc) 43

Rainfed areas, tractor plowing and broadcast (Rd/Trac) 44

Irrigated areas: Till and row seed (Ir/Row) 44

Irrigated areas: Direct drilling (Ir/DD) 44

Irrigated areas: Broadcast seeding (Ir/Bc) 45

New systems under development (Ir/New) 46

6.2 Enterprise budgets for wheat systems 46

6.2.1 Private budgets 50

6.2.2 Private full cost budgets 54

6.2.3 Breakeven yields 54

6.2.4 Profitability of wheat vs. soybean 56

6.2.5 Social budgets 59

6.3 Prospects for profitable wheat production 65

6.3.1 Expected yields vs. current yields 65

6.3.2 Machinery costs and the irrigated broadcast system (Ir/Bc) 66

6.3.3 Prospects for zero-tillage systems 67

6.4 Profitability of domestic wheat production A summary 68

7. Conclusions 70

References 72









Appendix Table 1: Private t budget: Rainfed areas, till and row seed.
(Rd/Row) 73

Appendix Table 2: Private budget: Rainfed areas, till and broad-
cast. (Rd/Bc) 74

Appendix Table 3: Private budget: Rainfed areas, tractor plowing
and broadcast. (Rd/Tr;ac) 75

Appendix Table 4: Private budget: Irrigated areas, till and row seed.
(Ir/Row) 76

Appendix Table 5: Private budget: Irrigated areas, direct drilling.
(Ir/DD) 77

Appendix Table 6: Private budget: Irrigated areas, broadcast seed-
ing. (Ir/BC) 78

Appendix Table 7: Private tull cost budget: Rainfed areas, till and
row seed. (Rd/Row) 79

Appendix Table 8: Private tull cost budget: Rainfed areas, till and
broadcast. (Rd/Bc) 80

Appendix Table 9: Private lull cost budget: Rainfed areas, tractor
plowing and broadcast. (Rd/Trac) 81

Appendix Table 10: Private full cost budget: Irrigated areas, till and
row seed. (Ir/Row) 82

Appendix Table 11: Private full cost budget: Irrigated areas, direct
drilling. (Ir/DD) 83

Appendix Table 12: Private full cost budget: Irrigated areas, broad-
cast seeding. (Ir/Bc) 84

Appendix Table 13: Private full cost budget: Wheat when compet-
ing with soybean in irr: gated areas, broadcast seeding. (Ir/Bc) 85

Appendix Table 14: Private full cost budget: Soybean when compet-
ing with wheat in irrigated areas 86

Appendix Table 15: Social full cost budget: Rainfed areas, till and
row seed. (Rd/Row) 87

Appendix Table 16: Social I ull cost budget: Rainfed areas, till and
broadcast. (Rd/Bc) 88

Appendix Table 17: Social full cost budget: Rainfed areas, tractor
plowing and broadcast. (Rd/Trac) 89

Appendix Table 18: Social full cost budget: Irrigated areas, till and
row seed. (Ir/Row) 90









Appendix Table 19: Social full cost budget: Irrigated areas, direct
drilling (Ir/DD) 91

Appendix Table 20: Social full cost budget: Irrigated areas, broad-
cast seeding. (Ir/Bc) 92

Appendix Table 21: Estimation of fuel cost per hour for tractors and
power tillers 93

Appendix Table 22: Estimation of interest on tractors and power
tillers 93

Appendix Table 23: Estimation of depreciation for tractors and
power tillers 94

Appendix Table 24: Growth rate equations for wheat and rice
prices, and per capital GDP 94

Appendix Table 25: Private budget: Irrigated areas, broadcast seed
ing. (Ir/Bc) Representative tillage costs 95

Appendix Table 26: Private full cost budget: Irrigated areas, broad-
cost seeding. (Ir/Bc) Representative tillage costs 96

Appendix Table 27: Social full cost budget: Irrigated areas, broad-
cast seeding. (Ir/Bc) Representative tillage costs 97

Appendix Table 28: Private full cost budget: Irrigated areas, broad-
cast seeding, zero tillage 98

Appendix Table 29: Social full cost budget: Irrigated areas, broad-
cast seeding, zero tillage 99











List of Tables


1. Harvested area, production a:id yield of wheat in Thailand,
Phase 1 1965-69. Phase 2 1970-86. Phase 3 after 1986. 7

2. Breakdown of wheat and wheat product imports (1975-1990)
(ooo tons) 14

3. Wheat consumption in Thailand, 1975-90 (metric tons of wheat
equivalent) 17

4. Wheat utilization by product class (1980 vs. 1990) 20

5. Wheat and flour prices in Thailand, Baht/kg 25

6. Local wheat buying centers, 1990-91, DOAE wheat promotion
project 32

7. Traders' marketing margins for wheat grain farm to Bangkok flour
mill (Baht/kg) 35

8. Traders' marketing margins for wheat vs. soybean farm to Bangkok
(Baht/kg) 36

9. Tariffs and taxes on imported wheat and flour 1984-1991 39

10. Effect of taxes on wheat grair prices in Thailand 1990 (Baht/kg
unless otherwise specified' 40

11. A summary of 1990 wheat-related prices 48

12. Budgets for irrigated areas, broadcast seeding (Ir/Bc) Effect of
adjusted tillage costs 67

13. Budgets for irrigated areas, broadcast seeding effect of conven-
tional tillage vs. zero tillage 69












Figure 1.

Figure 2.

Figure 3.

Figure 4.


Figure 5.

Figure 6.

Figure 7.

Figure 8.

Figure 9.

Figure 10.

Figure 11.

Figure 12.

Figure 13.

Figure 14.


Figure 15.


Figure 16.


Figure 17.


Figure 18.

Figure 19.

Figure 20.

Figure 21.

Figure 22.

Figure 23.


Wheat production areas in Northern Thailand, 1990-1991

Wheat area and yields in Thailand, 1965-1990

Wheat area by production environment, 1987/88 1991/92

Maximum and mean wheat yields by production environ
ment, 1987-1990

Imports of wheat and wheat products, 1975-1990

Wheat trade and consumption in Thailand, 1975-1990

Wheat utilization in Thailand 1990

Projections of wheat consumption in Thailand: 1990-2000

Wheat and flour prices in Thailand, 1981-1990

Processing margin and import taxes for wheat, 1981-1990

Marketing flow of wheat and wheat products, 1990

Marketing of locally produced wheat, 1990

Capacity of flour mills in Thailand, 1981, 1991 and 1992

Wheat yields by environment mean, maximum and ex-
pected yields

Non-harvest labor days per ha by production environment
and technique

Returns to land and management by production tech-
nique: Rainfed

Returns to land and management by production tech-
nique: Irrigated

Breakeven, current & expected wheat yields, by technique

Wheat vs. soybean returns to land and management

Wheat vs. soybean breakeven yields vs. current yields

Social returns and ROR to land and management

Breakeven wheat yields by environment and technique

Breakeven world prices by environment and technique









Executive summary


The objective of this study is t: examine the prospects for domestic wheat
production in Thailand. The study examines trends in wheat production, consump-
tion, utilization, trade and prices, and analyzes the current state of production tech-
nology and marketing. Private and social costs and returns for domestic wheat pro-
duction are then examined. Results of this paper should be used with caution,
however, as wheat production technology and marketing arrangements continue to
evolve.

Wheat in Northern Thailand is grown under both rainfed and irrigated condi-
tions. In some rainfed upland areas, wheat follows wet season maize. In these areas,
wheat is planted in mid-October and relies on late rains and residual moisture for
growth. In some lowland rice areas, wheat follows the main rice crop. Wheat produc-
tion in this environment is most suitable where dry season water is relatively scarce,
i.e., where the efficiency with which wheat can use scarce moisture gives it a competi-
tive edge.

Over the last several years, centers of wheat production have been developed
in seven districts in six of the eight provinces located in Northern Thailand. Wheat
area has increased to almost 1000 ha,, from a low of less than 200 ha in 1980. Wheat
production in 1990 reached 361 t. Clearly, wheat is not at present an important
component of the Thai agricultural economy, but there is considerable opportunity
for expansion.

Imports of wheat and wheat products exceeded 350,000 t in 1990, with imports
projected to increase to over 600,00( t by the year 2000. Most of this wheat is used
for bread, instant noodles, wet noodles and Chinese pastries, and biscuits. A surpris-
ingly large percentage, however, is u;,ed for animal (especially, prawn) feed. The
structure of the wheat processing industry is, not surprisingly, organized to facilitate
the processing of imported wheat. Nonetheless, flour mills have helped foster domes-
tic wheat production by offering to purchase it on favorable terms.

International market prices for wheat, adjusted for inflation, have shown a
declining trend over the past 15 year ;. Real wholesale flour prices in Bangkok have
also declined over this period, althoLgh there is some reason to believe that increased
processing margins have been partially masked by lower taxes on wheat imports. In
1990, after-tax prices for imported wheat grain were around B/6.2 per kg (US$ 161/t),
compared to CIF prices of B/4.6 per kg (US$ 120/t). Marketing of domestic wheat
was found to be surprisingly efficient., given the small size of the market. Marketing
margins were found to be around B/1.09 per kg, mostly accounted for by transporta-
tion costs from producing locations i 1 Northern Thailand to Bangkok flour mills.

A total of six wheat production technologies were identified, three each for
irrigated and rainfed production environments. Three enterprise budgets were
developed for each technology:

a private budget (representing costs and benefits from the farmers' view-
point, with all taxes and subsidies in place);

a private full cost budget (w here farmers are charged for external inputs --
seed and fertilizer -- that in practice :ire provided free by the Department of Agricul-
tural Extension); and


Viii









a social budget (where all inputs and products are valued at their opportuni-
ty costs -- particularly wheat grain, which is valued at border price equivalents).
Results of the analysis show that domestic wheat production is highly profita-
ble when all subsidies are in place (private budgets), and that it continues to be
reasonably profitable when subsidies on inputs are removed (private full cost budg-
ets). Social profitability (when wheat grain is valued at border price equivalents) is
more elusive. However, the evidence suggests that domestic wheat production can
also be socially profitable under a well-defined set of conditions. It is encouraging
that these assumptions do not appear impossible to attain:

farmers continue to learn and gain experience in wheat cultivation, so that
average yields continue to rise;

wheat production systems are restricted to rainfed broadcast technologies,
and the lower-cost alternative broadcast systems for irrigated areas being developed
by farmers;

wheat production is concentrated where it does not compete with soybeans
or other winter crops for land and water resources.








1 Introduction and objectives


Demand for wheat products is growing quickly in many parts of the world,

especially where urbanization and economic growth are proceeding rapidly. These

include a number of tropical and subtropical countries such as Thailand, where wheat

has little history of successful commercial cultivation on a large scale. As demand

increases in these countries and imports soar, many agricultural researchers, policy

makers, and private-sector investors find themselves wondering if locally grown wheat

might not prove to be a competitive substitute for imports.



Thailand has been actively promoting wheat production in the cooler Northern

Region since 1987. In the past several years, wheat area has risen to nearly 1,000 ha.

Wheat production is now, however, at a watershed. Recent gains in wheat area are

the result of a program implemented by the Ministry of Agriculture and Cooperatives,

whereby farmers receive free wheat seed and fertilizer. However, there is as yet little

evidence of independent and dynamic expansion of planted area outside of this

program.



Assessing the potential for wheat in a non-traditional setting such as Thailand

is not easy -- several issues need to be considered:



Technology: The relative profitability of wheat depends on production tech-

nologies available to (and used by) farmers. As a non-traditional crop, however,

wheat production technologies are still being developed. Farmers experimenting with

wheat cultivation have had little time to assess alternative production techniques and

incorporate them into their farming systems. Precise estimates of profitability may be

premature as a consequence.








Markets: Input supply and grain marketing for wheat is relatively risky and

expensive due to a low level of mar cet development. Traders are less likely to be

aware of profitable opportunities for arbitrage between farmers and flour mills

(assuming these opportunities exist). Existing marketing links are heavily specialized

towards the processing of imported wheat.



Policy and Incentives: Prior ty given by policymakers to food security or food

self-sufficiency may not extend to n on-traditional food crops like wheat. Some poli-

cies hinder local wheat production, while other policies promote it. After cutting

through the effects of policy, it mus: be ascertained whether wheat production is a

wise use of domestic resources, both in terms of efficiency and equity.


2 Wheat in Thailand -- An overview



Many areas of Northern ThE iland are left uncropped during the cool season

because of lack of moisture. Given wheat's known adaptation to conditions of mois-

ture stress (especially compared to alternativee winter season crops, e.g., garlic, tobac-

co or soybean) it would seem likely that the introduction of wheat into farming sys-

tems might offer an opportunity to make use of idle farm resources. Moreover, wheat

typically has a relatively low cash input requirement, and uses little labor.



Small areas of wheat have been grown for some time in Northern Thailand,

especially Chiang Rai and Chiang MNai Provinces (Fig. 1). Typically, little of this

wheat has made its way to flour mills. Most has been used in small-scale

production of glucose syrup (ba sae) and soy sauce. At the same time, wheat imports,

and consumption of wheat products have soared. Imports currently exceed 300,000

tons per year and are growing at around 8.3% per year. Local production supplies

























20N ------












\ MAE H<
sor

180N ----'


.-%-I-

Pua%\
(irrig.)


NAN
>


CHIANG MAI


--- International boundary
-- Provincial boundary
Production centers


S0 30 60 km




Figure 1. Wheat Production Areas in Northern Thailand, 1990-1991.


'7








less than 1% of the country's wheat requirements.


Early efforts to foster wheat production in Northern Thailand date from 1962,

when the Ministry of Interior initiated a Production Support Program for this crop.

Under this program wheat area reached a peak of about 5,700 rail (912 ha) in the

late 1960's. At that time, support for the program declined and area gradually de-

clined to less than 1,000 rai (around 60 ha).



At the beginning of the 1980's, there was a renewed interest in wheat research

within the Department of Agriculture (DOA). Similarly, the Department of Agricul-

tural Extension (DOAE) has revived efforts to promote the local production of

wheat. In 1983, DOAE began a series of multi-location trials. Expansion of wheat

area was endorsed as a goal in the Sixth National Economic and Social Development

Plan (1986-1991). In 1987, DOAE initiated a major crop promotion campaign, fea-

turing farmer training, and free provision of wheat seed and fertilizer, in eight prov-

inces in Northern Thailand.



How likely is it that this renewed promotion of wheat will succeed'? Apart

from the DOAE promotional activity es, wheat has enjoyed favorable policy treatment

(e.g., import tariffs, price policies, etc.). Why hasn't wheat area expanded more rapid-

ly? Will farmers continue to grow w~ eat when current subsidies on seed and fertilizer

are ended?



Is wheat a suitable crop for cultivation in Northern Thailand -- one that can be

expected to spontaneously increase iii importance, regardless of subsidies? Or is it a

less suitable crop which has been promoted prematurely? Has wheat production


1. 1 ha = 6.25 rai.








technology advanced to the stage where this crop can compete effectively with alter-

natives? Or are further improvements in input and product marketing needed before

domestic wheat production can accelerate? Is the quality of locally produced wheat

an important consideration? These are the kinds of questions that this paper aims to

address.



2.1 Objectives



The objective of this study is to examine the prospects for domestic wheat

production in Thailand. The study will assess trends in wheat production, consump-

tion and utilization, trade and prices, and will then analyze the current state of pro-

duction technology and marketing. Private and social costs and returns for wheat

production in Thailand will be estimated. These factors will be placed in the context

of public policy, past and present.



This study builds on earlier efforts to assess the potential for wheat production

in Thailand. Titapiwatanakun et al (1982) gave an early picture of wheat production

technology and marketing. Harrington and Sat-thaporn (1984) assessed the social

profitability of domestic wheat production compared to alternatives. Wheat produc-

tion technology and wheat input and product markets, however, have evolved consid-

erably since these early papers. The present study uses updated field information on

farmers' wheat production practices, and takes account of changes in the wheat

marketing system, especially the apparent willingness of domestic flour mills to

purchase locally produced wheat at attractive prices. The results of this paper should

still be used with caution, however, as wheat production technology and marketing

arrangements still continue to evolve.








3 Trends in wheat production, trade, consumption, and prices



3.1 Production, area and yields



3.1.1 Development phases:

Three distinct phases can be recognized in the overall development of wheat

production in Thailand. In the first phase, the Ministry of Interior1 Production

Support Program fostered an increase in wheat area and production, peaking in 1967.

This program ceased around 1969 arid wheat area began to decline.


In the second phase, a few far mers that had been involved in the MOI pro-

gram (perhaps less than a dozen) continued to produce wheat commercially. These

farmers had developed efficient cultivation practices and had established links with a

specialist market using wheat in the ]production of ba sae or glucose syrup. In this

market, wheat could be sold at reasonably high prices (9-11 baht per kg). These

(relatively large) farmers are concentrated in Mae Sai District, Chiang Rai Province

and have maintained wheat area at around 1,000 rai (160 ha) per year, at least until

the mid-1980's.


The third and current phase began with the DOA program of wheat research

(supported by the CIMMYT Wheat Program) and commencement of the DOAE

program of multi-location trials and the provision of free inputs. Wheat area and

production increased, although yields showed a tendency to fall off (temporarily, it is

felt, as new farmers become accustolned to production technology). Market links

with flour mills in Bangkok were forged and glucose syrup factories ceased being the



1. The DOAE was not established until 1967. The MOI project was implemented by district
administrators, who fall under the jurisdiction of the DOI.











only source of demand for domestic wheat. Table 1 and Fig. 2 show wheat area and


yields for each of the three phases.


Table 1
Harvested area, production and yield of wheat in Thailand
Phase 1 1965-69. Phase 2 1970-86. Phase 3 after 1986.


Harvested
Area
Year a/ (rai)


1965
1966
1967
1968
1969
1970
1971


1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990*


4895
5312
5694
3567
4925
3331
2300


800
670
950
947
1053
1000
1000
1211
1306
na
2700
3148
4757


Production Yield
(MT) (kg/rai)

177 36
330 62
306 54
188 53
215 44
446 134
na na


100 125
124 185
175 184
170 180
189 179
185 185
200 200
227 187
210 161
270 na
330 122
353 112
361 76


a/ "1965" is used for the crop year "1965-66", similarly for other
years. Data from 1972-77 not available. Note that: = prelimi-
nary data; na = not available; 1 ha = 6.25 rai.


Source: Department of Rural Administration, Ministry of Interior
(1965-71); Office of Agricultural Economics, Ministry of Agricul-
ture and Cooperatives (1978-86); and Department of Agricultural
Extension, Ministry of Agriculture and Cooperatives (1987-90).


Yield
(kg/ha)


226
388
336
329
273
837
na


781
1157
1151
1122
1122
1156
1250
1172
1005
na
764
701
474
















Fig. 2. Wheat Area and Yields
in Thailand, 1965-1990


1970 1975 1980 1985
Years


Source: Table 1
Note data not available for
some years
1 ha = 6.25 rai


-- Area -- Yields


8000


7000


6000


4000-

3000-

2000-

1000


Phase 3
-- /hsS


Phase 1
. .. ... .


+r 4


1600

1400

1200

1000

-800

-600

-400

-200


(~I


II


1965


1990
1990


I


I I I


Phase 2








3.1.2 Phase Three Recent trends by production environment:

Recent changes in wheat production and area in Thailand have been dominat-

ed by the promotional activities of the DOAE1. These activities have concentrated

on two distinct production environments: rainfed and irrigated.



In some rainfed upland areas, wheat may follow wet season maize. In these areas,

wheat is planted in mid-October and relies on late rains and residual moisture for growth.

Note that rainfed upland maize area in Northern Thailand covers about 700,000 rai (or

about 112,000 ha) and that the cultivation of a second crop after maize is not common.



In some lowland rice areas, wheat may follow the main rice crop. In these areas,

irrigation water typically becomes increasingly scarce as the dry season progresses.

Numerous crops are currently grown after rice in the winter season, e.g., soybean, garlic,

peanut, tobacco, especially where dry season water is relatively abundant and where soil

texture and fertility are suitable. Wheat production in this environment is most suitable

where dry season water is relatively scarce, i.e., where the efficiency with which wheat can

use scarce moisture gives it a competitive edge. Note that about 300,000 rai (48,000 ha) of

soybean are grown after rice in lowland areas in Northern Thailand.



Initially, DOA research & DOAE promotion of wheat focused on irrigated

areas, where higher yields were expected. This effort gave the appearance, however,

that wheat was competing with soybean, another priority crop from the viewpoint of


1. The story of wheat promotion in Northern Thailand is an interesting one. Progress with wheat has
been painful and slow compared to progress with export crops such as maize and cassava. Expansion
of wheat production was not aimed to the export market; rather it aimed to replace imports. Areas
suitable for wheat expansion have only recently been clearly identified. Wheat production technolo-
gies were first developed on experiment stations, but truly acceptable practices have only recently
emerged from a process of farmer adaptation. Links with flour mills were weak until 1988. Note that
the government has taken the lead in wheat promotion whereas the private-sector had a strong, if not
leading role, in the promotion of maize and cassava.








policymakers. As a consequence, targeting of wheat promotion was modified to

include rainfed upland areas, and irr gated areas where other winter season crops

"were not suitable". Currently, wheal production is fairly evenly split between the two

production environments.



Over the last several years, centers of wheat production have been developed

in seven districts in six of the eight p eovinces located in Northern Thailand. (Fig. 1).

These centers are concentrated in areas where there is either limited water available

during the cool season, or where few alternative cropping alternatives exist. Most

wheat farmers cultivate less than 5 rmi (0.8 ha) of this crop. Wheat production seems

most attractive to small farmers in u favorable environments who have relative few

options.


Yield trends for recent years are best disaggregated by production environ-

ment. Average yields in irrigated areas have increased steadily, reflecting the growing

experience of farmers and extension workers in managing the wheat enterprise (and,

it should be added, in learning to avoid such common management errors as over-

irrigation). Average yields in rainfed areas have not shown a similar improvement.

Wheat area is growing faster in rain ed areas and farmers have, on average, less

experience. In addition, wheat in rainfed uplands is more sensitive to the vagaries of

late season moisture availability. M iximum yields obtained by individual farmers in a

particular year are considerably higher than average yields. These maximum yields

can best be interpreted as the potential that farmers can achieve under good man-

agement and favorable growing conditions.



1. Maximum yields obtained under irrigate d conditions were obtained at higher elevations (500-7(X)
masl) by farmers who used additional fertilizer beyond that supplied by DOAE. Maximum yields for
rainfed conditions were achieved at representative upland sites, where fertilizer use was limited to that
supplied by DOAE.








Trends in wheat area and yield, disaggregated by production environment, are

shown for the last few years in Figs. 3 and 4. More detailed information on wheat

production environments is provided in Section 6.



3.2 Import and export of wheat ard wheat products



3.2.1 Imports:


Wheat imports take the form of grain (including meslin 1), flour, and groat and

meal. Three classes of wheat are imported (mostly from Australia, Canada and the

USA): hard wheat, soft wheat, and durum wheat. Hard wheat has a protein content

of around 12-15%, produces a white flour, has a high content of gluten and is most

suitable for making bread. The protein content of soft wheat varies from 9-11%. Soft

wheat also produces a white flour, but has low gluten content and is most suitable for

making cakes, donuts and pastries. Durum wheat has a protein content of around

14% but has a less elastic gluten. It is most suitable for making pasta.



Most imports are of hard and soft wheat grain. Very little is imported in the

form of finished products, e.g., macaroni, spaghetti, wheat gluten, biscuits, etc..

(Table 2 and Fig. 5). Total imports are growing at about the same rate as consump-

tion -- around 8.3% per year since 1975.


In the past, a surprising amount of inexpensive flour has been imported

directly, much of it from Japan. This flour is normally of low bread-making quality.

This trade in flour stems from an artifact of Japanese policy: if Japanese mills export

flour manufactured from domestic wheat, they are entitled to an expanded quota for




1. Meslin is a mixture of soft and hard wheat (classifications used by the Dept. of Customs).














Fig. 3. Wheat Area by Production
Environment, 1987/88 1991/92


87/88 88/89! 89/90 90/91 91/92
Year


Source: DOAE
1 ha = 6.25 rai


SFainfed M Irrigated
















Fig. 4. Maximum and Mean Wheat Yields
by Production Environment, 1987-1990
-U


6000-


5000-


4000-


3000-


2000-


1000-


0


1988


1989


Max Irrigated

Max Rainfed


Mean Irrigated

Mean Rainfed


1990


Year


1
1987

Source: DOAE


I


.. .............. .... ..










importing higher quality bread whee t. Recently, however, China has emerged as a


market for this flour and may take over Thailand's past role in this regard.


Table 2
Breakdown of wheat and wheat product imports
(1975-1990) (000 tons)


Hard & Sofi
Wheat, and
Year Meslin


Durum
Wheat


Wheat or
Meslin
Flour Other


1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990


Source: 1975-1989, Depa-tment of Customs, Foreign Trade Statistics
of Thailand; 1990, Depa-tment of Commercial Economics, unpublished
data.


Total
Imports


62
136
90
128
168
211
204
150
222
168
169
185
245
291
335
372













Fig. 5.
and Wheat


Imports of Wheat
Products, 1975-1990


1975 1978 1981 1984 1987
Year


Source: Table 2


400
3 5 0- ................... ----- ... .. ...

300-- ...... .

250-


200-

150-

100-


50-


1990


1 MWheat = Durum = Flour F] Other








3.2.2 Exports:

It may be surprising to realize that Thailand also exports (or, more precisely,

reexports) wheat products. Much of this is forwarded to neighboring countries. The

major wheat product export is wheat bran and other milling byproducts, used as an

ingredient in livestock feed. Wheat bran exports have been growing at a rate of

around 10% per year, reaching 54,000 tons in 1990. Major markets include Malaysia,

United Arab Emirates and Bahrain and, more recently, Taiwan, Brunei and Oman.



A considerable amount of wheat flour is used as feed to support a booming

market in exported frozen shrimp. Precise data on the quantity of wheat flour used as

shrimp feed is lacking. It should be noted, however, that shrimp exports have in-

creased sharply from 34,000 tons in 1987 to 91,000 tons in 1991, with a similar in-

crease in export value. Wheat flour is typically included in shrimp feed as a binding

agent and flour utilization for this pt rpose can be expected to have increased propor-

tionately. Much of the wheat flour used as shrimp feed, then, is reexported in the

form of shrimp. Some estimates pla,:e feed uses of wheat products as high as 15% of

wheat equivalent utilization.



Other exports include wheat :)r meslin flour (largely to countries like Laos)

and finished products such as bread, pastry, cakes, biscuits and other bakers' wares.

Altogether, the export of wheat products has been growing at a rate of 13.7% per

year since 1975.



3.3 Consumption and utilization


3.3.1 Past trends:

At present, per capital wheat consumption in Thailand is only around 6 kg per

person per year -- extremely low coripared to almost any other country. During 1975-











1990, consumption grew at an annual rate of 8.3%, almost entirely based on imports.

Consumption grew especially rapidly after 1985 (17.5% annually), which corresponds


to a period of rapid growth in the national economy (Table 3 and Fig. 6). Local wheat


production is trivial in comparison with imports and consumption, and accounts for


less than 1% of total wheat utilization.


Table 3
Wheat consumption in Thailand, 1975-90
(metric tons of wheat equivalent)


Year Production Imports


1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
'1990


AnnuaL
Growth
Rates b/


na
na
na
na
100
124
175
171
189
185
200
227
210
270
330
354




9.6%


62053
136373
89508
127783
168413
211372
203697
150041
222139
168380
169255
185088
244649
291205
334617
372194




8.3%


Exports a/ Consumption


323
82
1145
1942
3346
3804
4482
13823
8602
9149
7017
2958
8066
2041
1819
2379


61730
136291
88363
125841
165167
207692
199390
136389
213726
159416
162438
182357
236793
289434
333128
370169


13.7% 8.3%
(17.5% since 1985)


Source: Department of Agricultural Extension


a/ Use of wheat flour to supply the frozen shrimp export
industry is not counted here as exports, hence these are
probably underestimated.


b/ Calculated by lnX. = a + b Year, where Xi is produc-
tion, imports, exports or consumption.














Fig. 6. Wheat Trade and Consumption
in Thailand, 1975-1990


400

350-

300-

250-


200-

150-

100-


50 1


_ m .- -


1975 1980
Year
Source: Table 3


Production

Imports

Exports
Consumption
Consumption


1985 1990








Utilization of wheat products in Thailand can be classified into the following

categories:

bread, rolls, buns and other yeast-raised products;

instant noodles;

wet noodles, Chinese donuts (pa tong ko), pies, Indian pastries, etc.;

cakes, pastries and Chinese moon cakes;

cookies and biscuits;

and as an ingredient in animal feeds, especially shrimp feed. Over the last 10

years, wheat use for animal feed has grown most strongly. Most other uses of wheat

have declined as a proportion of the total (Table 4 and Fig. 7).


3.3.2 Expected increases in wheat consumption:


It is of considerable interest to determine whether wheat consumption will

continue to increase at the explosive levels (almost 18% per year) seen in the recent

past. Wheat consumption growth rates hold implications for flour mill infrastructure

development as well as for the development of domestic wheat production and

marketing.


Per capital wheat consumption can be expressed as:


W = f( Pw,, Pr, GDP), where (1)


W = domestic per capital consumption of wheat in Thailand (kg per person);

Pw = wheat wholesale price (baht per kg) deflated by the consumer price index;

Pr = wholesale price (baht per kg) of 100% non-glutinous rice deflated by the con-

sumer price index (rice is a substitute for wheat among consumers);

GDP = real per capital gross domestic product (000 baht per person).1



1. Typically, wheat consumption also increases with urbanization. In Thailand, however, urbanization
and per capital GDP are highly correlated (r = 0.927). Consequently, urbanization was not included in
the model.

















Table 4
Wheat utilization by product class
(1980 vs. 1990)


Product


White bread, rolls, buns
and other yeast-raised
products


Instant noodles


Wet noodles, donuts,
wafers, Chinese donuts,
pizza, pies, Indian
pastries


Cookies, biscuits


Cakes and Chinese
moon cakes


Animal feed


Flour
Protein
(%)


13-14


12-13






10-11


8-10



8

na


1980 1990
(%) (%)


29 28


22 20






34 20


10 12



5 5


0 15*


Sources: Titapiwatanakur et at, 1982 (1980 data);
Khun Vichien Lertphokanont, UFM Food Center Co. Ltd. Bangkok
(1990 data)


* Preliminary estimate, may be more than shown here.













Wheat Utilization in Thailand
1990


Animal feed (15.0%)
Cakes (5.0%) i :'. '

Biscuits (12.0%)


Wet noodles, pastries (20.0%)'


Bread, rolls (28.0%)




-Instant noodles (20.0%)


Source: Table 4


Fig. 7.








All variables except for P ar expected to vary directly with the dependent

variable. That is, as the price of rice or as per capital GDP increase, per capital wheat

consumption is expected to increase; as the price of wheat increases, per capital

consumption of wheat is expected to decline.



The above equation (1) was estimated using 15 years of data (1975-1990) by

means of ordinary least squares usin!. a double-log functional form. The estimated

regression equation for per capital wheat consumption in Thailand is shown in equa-

tion (2):



In W = 0.2899 0.8745 In Pw + 0.3421 In Pr + 1.251 In GDP (2)



(-3.03)** (1.77)* (4.45)** 1


R2 = 0.76 D.W. = 1.71 S.E. = 0.17 F = 7.06 **



About three quarters of the v iriation in per capital wheat consumption in

Thailand is explained by the equation. The F value shows the significance (1%) of the

equation in explaining the variation in the dependent variable. The Durbin Watson

statistic indicates that serial correlation is not a problem. All coefficient signs are as

expected, and all have a significant e fect on the dependent variable.


Given that a double-log funct onal form was used, the regression coefficients

can be interpreted as elasticities. As a consequence, a 1% increase in the price of

wheat is estimated to lead to a 0.870 decline in wheat consumption. Similarly, a 1%


1. Numbers in parentheses are t-statistics.
** = significant at the .01 level; = significant at the .05 level








increase in the price of rice is expected to lead to a 0.34% increase in wheat consump-

tion. Finally, a 1% increase in per capital GDP is expected to lead to a 1.25% increase

in wheat consumption.



Per capital wheat consumption can be projected for the period 1990 to 2000 by

using equation (2) in combination with projected levels of the independent variables

for those years. Assuming that trends from the past 15 years will continue into the

future, wheat prices were projected to decline at 2.4% per year, rice prices to decline

at 3.5 % per year and GDP per capital to increase at 3.5% per year (see Appendix

Table 24).


Forecasts for per capital wheat consumption and total domestic wheat con-

sumption for 1990-2000 are shown in Fig. 8. Note that by the year 2000, total wheat

consumption is expected to reach around 650,000 tons, with per capital consumption

exceeding 9 kg per year.


3.4 Wheat and Flour Prices



Wheat and flour prices in Thailand, with a few exceptions, follow international

prices. Table 5 and Fig. 9 show wheat and flour prices from 1981 to 1990. Real (i.e.,

deflated) wheat import prices CIF Bangkok show a declining trend. Nominal CIF

prices have fluctuated, but with little overall change over the time period in question.

Nominal wheat prices, after accounting for import taxes, are considerably higher than

nominal CIF prices, though the difference is much less now than a few years ago (Fig.

10). Additional information on import taxes is given in Section 5.














Fig. 8. Projections of Wheat
Consumption in Thailand: 1990-2000


700


1990 1992


1994 1996
Year


1998 2000


H Total consumption -- Per capital cons.


500

400

300

200

100


.. .. .. .. ..




















Table 5
Wheat and flour prices in Thailand
Baht/kg


WHEAT


Import Import After :
Year C.I.F. a/ C.I.F. a/ Tax b/ :
(nominal) (real) (nominal):


Annual
Growth
Rate d/ -0.2%


-3.3% -1.7% : 2.4% 0.6%


a/ Department of Customs, Foreign Trade Statistics of Thailand
Annual Reports
b/ See Section 5 for summary of policies, especially taxes, that
affect wheat prices.
c/ Department of Internal Trade
d/ Calculated by InX. = a + b Year, where X. represents wheat or
flour price. Real prices deflated by the consumer price index.


FLOUR


Wholesale
Bangkok c/
(nominal)


Wholesale
Bangkok c/
(real)



6.6
6.7
6.4
6.5
7.2
7.5
7.1
6.8
6.4
5.7















Fig. 9. Wheat and Flour Prices
in Thailand, 1981-1990


16

14-

12-

10-

8-

6-

4-

2-

0


1984
Year


1990


1987


WS = wholesale price


1981

Source: Table 5


-U-N
Wheat CIF (nominal)

Wheat CIF (real)

Wheat (after tax)

Flour WS (nominal)

Flour WS (nominal)
Flour WS (real)


. .

. .








Nominal wholesale flour prices show an increasing trend, but real wholesale

prices (i.e., adjusted for inflation) are stable. Interestingly, the processing margin, or

the difference between after tax wheat prices and wholesale flour prices, has been

much higher in the past few years (Fig. 10).



One price "series" not included in Table 5 is what might be called the "mill

offer" price. Since the DOAE restarted the wheat promotion program, local flour

mills have been persuaded to offer premium prices for locally produced wheat. The

offer is valid at the flour mill in Bangkok and is subject to quality standards .



In determining the farm level price, marketing costs are subtracted from the

mill offer price, so farm prices are somewhat lower and vary by location. Farm-level

prices were found to be around B/5.5 to B/6.5 per kg -- similar to after tax prices for

imported wheat placed in Bangkok.



4 Wheat marketing and processing in Thailand



4.1 Methods and data sources



Information on markets were synthesized in two steps: first, information on

market structure and performance was elicited from secondary data, and from expe-

rienced observers, including flour mill representatives and DOAE officials. This

information was spot checked through interviews with farmers and small traders

conducted in several Districts and Provinces of Northern Thailand during the wheat

season of 1990-91. Survey work was based on methods of RRA (rapid rural appraisal).



1. The wheat should be clean from foreign materials, dust, and broken grains. Sprout-damaged wh' a,
is considered particularly unacceptable.


















Fig. 10. Processing Margin
and Import Taxes for Wheat, 1981-1990


5d


1981 1984


1987


-U- Import taxes


-- Processing margin


Import taxes reflect tariffs, standard profile tax, commercial tax and municipal tax. Tariffs were reduced in 1989.
Processing margin estimated as the difference between nominal wholesale flour prices and nominal after tax
wheat grain prices.


19
1990


X-- .


I I I I I


....... .. ... .. ...................... ...... ......... ... ... .
.. ....... ............ .. ...








4.2 Market flows in the wheat subsector:


Trade within the wheat subsector is extraordinarily active, with imports and

exports taking various forms. Wheat is utilized locally in numerous ways, including

bread, instant noodles, wet noodles, cookies and biscuits, cakes and pastries, shrimp

feed, use in glucose syrup manufacture, and seed for future use. (See Section 3.3

above). Marketing flows for the wheat subsector, including imports, exports and

domestic use -- and the proportion of wheat flowing through each channel -- are

diagramed in Fig. 11.1



4.3 Marketing of domestically produced wheat:



Marketing of locally produced wheat in Thailand is still poorly developed, due

to the very small volume of wheat production. During the early phase of the DOAE

promotion program, farmers were encouraged to produce small volumes of wheat for

home consumption. This approach, however, had only limited success. At this time,

almost all domestically grown wheat is sold by farmers to middlemen, who in turn

either sell it to up-country glucose syrup (ba sac) factories, to flour mills in Bangkok,

or to DOAE seed multiplication centers for use as seed in the following wheat crop

(Fig. 12). Farmers selling wheat directly to glucose factories are primarily from Mae

Sai District of Chiang Rai Province. These farmers, who began wheat cultivation

under the MOI Production Support Project, have greater experience in wheat pro-

duction and have forged a close relationship with glucose syrup factory owners. As

wheat production has expanded, the price paid by these factories had declined to B/ 7

or B/8 per kg.



1. Only large flows, accounting for at least 1% of wheat utilization, are shown in Figure 11.














Figure 11
Marketing Flow of Wheat and Wheat Products, 1990


t II
W-t .6odIes,

1" Itc (pa
tc 'g "n)


Hr-r Ial r8YC


L Y He. o- Ire t ir-
pr-oces s :t Lar) t' fr I,-
llprr tro arrd T JU,,j ]or,-r-! i
lios e 4- c ,.,.. r. ig ... Tot, 1 4

SOUPCE: F o- ei r-, a StaIa. ita
Lentre CC Ltd


I a r ,t I I


, ,I[,


1
















Figure 12
Marketing of Locally Produced Wheat, 1990


;our-e: Fv rf sur -i irk d offci a]a 3 of DUHE. Per ritage
are of domistrially r arTod ced wheat









Development of market linkages between farmers, traders and Bangkok flour

mills has been fostered by the establishment of "local wheat buying centers". As part

of its effort at crop promotion, the DOAE negotiated with flour mills to set a guaran-

teed price or "mill offer price" (see Section 3.4) and to designate local traders as

buying centers for the crop. As the volume of wheat production has increased, the

number of buying centers has grown from two (1988/89) to eight (1990/91) (Table 6).







Table 6
Local wheat buying centers, 1990-91
DOAE wheat promotion project

Province District Agent for:

Chiang Mai Fanci Thai Flour Mill Co. Ltd.
Cha- Pakarn Thai Flour Mill Co. Ltd.

Chiang Rai Muang Siam Flour Trading Co. Ltd.

Phayao Muarig Siam Flour Trading Co. Ltd.

Lampang Muarg Siam Flour Trading Co. Ltd.
Ngac Siam Flour Trading Co. Ltd.

Phrae Denchai Siam Flour Trading Co. Ltd.

Nan Pua Laem Thong Sahakarn Co. Ltd.

Lamphun Li Ba Sae Factory (Lampang)

Mae Hong Son Pai United Flour Mill Co. Ltd.

................................................................

Source: Department of Agricultural Extension officials based in
Chiang Mai







Local traders serving as whet t buying centers have been advised to purchase

wheat at a suggested price around B/6.4 per kg. Not all traders have followed this








suggestion. Generally, however, divergence from this suggested price has been small.

Local traders complain that they must purchase very small lots of wheat over extend-

ed periods of time (several weeks), adding to their costs. While local traders have

cooperated with the program initially, it must be remembered that they are free

agents and are unlikely to continue serving as wheat buying centers unless their

margins cover all costs, including normal profits.


Wheat quality has little effect on price now, but may have a larger effect in the

future. To date, mills have not insisted on the maintenance of strict quality standards

(other than to reject lots with sprout damage). Protein content has no effect on price

at present; mills have agreed not to impose discounts based on protein content while

domestic production contributes less than 10% of their requirements. Given current

rates of operation, then, domestic production could grow to over 30,000 tons per year

before protein content becomes an issue. Mills have indicated, however, that they will

gradually become more strict with regard to moisture content and foreign matter.


Seed multiplication contracts with the Seed Division of the DOAE has been

(and continues to be) a significant market for farmers, accounting for nearly a quarter

of production.. Due to stricter standards, this wheat commands higher prices, around

B/ 7 to B/8 per kg.


4.4 Marketing margins within Thailand:


Considering the small quantity of wheat grown and marketed in Thailand,

marketing margins seem reasonably small. Transport from traders' warehouses to

Bangkok for milling is the largest cost item. Marketing profits (residual profit after

costs of marketing functions have been deducted) is typically around 3 to 4% of the

farm level price of wheat. The one exception, where marketing margins seem high, is








due to a low purchase price of wheat. In this case, quality was poor and wheat was

sold before the year's mill offer price was set (Table 7). In general, marketing costs

for wheat appear similar to market ng costs for soybean, a major grain legume grown

in Northern Thailand in or near some wheat production areas (Table 8).



4.5 Flour milling:



At present there are four modern flour mills, all located in the Bangkok area.

One new mill is under construction and is expected to commence operations in early

1992. Milling capacity is growing rapidly (from expansion of existing mills as well as

the construction of a new mill) and will exceed 800,000 tons of wheat per year by

1992. This capacity appears adequate to meet expected increases in demand over the

next several years (Fig. 13).



5 Policies affecting the wheat subsector



Thailand is remarkable in the freedom with which the economy is allowed to

operate. For many commodities, free trade is the rule and market distortions are

kept to a minimum. Exchange rates are kept at realistic levels. As a consequence,

the economy has performed remarkable well, with annual GDP growth rates for the

last several years above 10%. (Brooks, 1989). There are, however, several distorting

policies impinging on the wheat sub.ector.



5.1 Tariffs and taxes on imports:



One policy that affects the wheat subsector is the taxing of wheat grain and

flour imports. Taxes include import tariffs, standard profit taxes and commercial and

municipal taxes. Import tariffs for flour are higher than for wheat grain. These taxes

34




















Table 7
Traders' marketing margins for wheat grain
farm to Bangkok flour mill.
(Baht/kg)


Nan
Category (Pua)


Sack 0.10
Sewing, Loading at
the farm 0.05
Transportation,
farm to warehouse 0.08
Handling at the
warehouse 0.04
Transportation
warehouse to BKK 0.44


Total Operating
Cost 0.71
Wheat Purchase Price 6.40
Total Cost 7.11

Selling Price 7.30
Traders' Profits 0.19
% Farm Level Price 3%


Chiang Chiang Mae
Rai Mai Hong Son
(Muang) (Fang) (Pai)


0.10 0.12 0.10


na 0.01 na


na 0.07 na


0.02 0.02 0.06


0.45 0.43 0.60



0.57 0.65 0.76
6.40 5.50 6.00
6.97 6.15 6.76

7.25 7.30 7.30
0.28 1.15 0.54
4% 21% 9%


Source: March 1991 survey of farmers, traders and flour mills


Average


0.10


0.02


0.07


0.04


0.48



0.71
6.20
6.91

7.29
0.38
5%






















Table 8
Traders' marketing margins for wheat vs. soybean
farm to Bangkok (Baht/kg)


Category


Sack
Sewing, loading at
the farm
Transportation,
farm to warehouse
Handling at the
warehouse
Transportation,
warehouse to Bangkok
Other (tax, interest,
overhead, weight Loss,
etc/)

Total Operating
Cost
Purchase Price
Total Cost


Selling Price
Traders' Profits
% Farm Level Price


Wheat a/ Soybean b/

0.100 0.027


0.020 0.001

0.070 0.042


0.040 0.052


0.480 0.257



na 0.198


0.710
6.200
6.910


7.290
0.380
5%


0.577
5.910
6.487


6.648
0.161
3%


Sources: Wheat Table 7. Soybean OAE.
a/ Data for 1991
b/ Data for 1986














Fig. 13. Capacity of Flour Mills
in Thailand, 1981, 1991 and 1992


900-

800- Bangkok Flour Mill

700- E
Thai Flour Mill
600-:i :
i ...... .: Laem Thong Sahakarn
500- : .. .
0
S400 -,.-.-. Siam Flour Trading
. .. -. .
300- T. United Flour Mill

200-

100-

0--
1981 1991 1992
Year Source: Ministry of Commerce (1981), and
Vicihien Lertphokanont, UFM Food Centre Co. Ltd.,
(1991-92)








make imported wheat and flour more expensive than they would otherwise be, and

make domestic wheat production r ore attractive is warranted in pure efficiency

terms.


At present, the tariff on whe it grain imports is B/ 1.00 per kg. The standard

profit tax (SPT) for wheat grain imports is 10.5% of the CIF price, while the commer-

cial tax is 1.5% of the CIF price after the SPT has been added. Finally, the municipal

tax is currently equivalent to 10% o the commercial tax. Tariff rates have changed

over time, declining from a high of I/ 2.75 per kg in 1985-87 to B/ 1.00 per kg current-

ly. Some attribute this decline in wheat import tariff to requests made by major

wheat exporting nations.



Tariffs on imported flour remain high and are said to encourage flour smug-

gling, especially in Southern Thailand. SPT and commercial and municipal taxes are

somewhat different for wheat grain vs. flour (Table 9).



The total amount of tax paid per kg of imported wheat is illustrated for the

years 1981-1990 in Fig. 10. The effect of these taxes on the after tax price of wheat

grain is shown in Fig. 9. An example of the calculation of wheat price after taking

account of these taxes is shown in T bible 10.



5.2 "Mill offer" price:



Another distortion in wheat ]rices that appears attributable to policy is the

"mill offer" price discussed earlier (Section 3.4). The current "mill offer" price for






















Table 9
Tariffs and taxes on imported wheat and flour
1974-1991


Tariff
(B/kg)


Standard
Profit
Tax
(%)


Commercial
and Municipal
Tax
(%)


2.86
2.86
3.08
3.85


a/ Tariffs for flour include surcharges of 30% to 40%
imposed in different years.
Source: Department of Customs


WHEAT

1974-1981
1982-1984
1985-1987
1988
1989-1991

FLOUR a/

1974-1981
1982-1984
1985-1986
1986-present















Table 10
Effect of taxes on wheat grain prices in Thailand 1990
(Baht/kg unless otherwise specified)


Item a/ Increment

CIF Bangkok (US 120/MT)
CIF Bangkok (baht/kg) 4.606

Import tariff 1.000


Standard profit tax
(10.5% of CIF price)

Commercial tax
(1.5% of CIF price after SPT)

Municipal tax
(10% of commercial tax)

After tax price as a proportion
of CIF price


0.484



0.076



0.008


a/ For some mills, there may be
with barging and handling


additional costs associated


Source: Tables 5 and 9


locally produced wheat1 of B/ 7.3 per kg is well above the "after-tax" price in Bangkok

for imported wheat of about B/ 6.2 per kg2. Moreover, imported wheat has charac-



1. The "mill offer" price is valid at the locatic n of the flour mill. Consequently, farm-level prices are
somewhat less.

2. Initially, the mill offer price was roughly equivalent to the after-tax Bangkok price of imported
wheat. Since then, however, world wheat prices have declined.


Total



4.606

5.606



6.090



6.166



6.173



134.03%








teristics which should command a price premium -- e.g., higher flour recovery rate as

well as greater uniformity. The existence of a relatively attractive "mill offer" price

can be attributed to an agreement between the Department of Agricultural Extension

and individual flour mills, forged in response to criticisms about lack of markets for

locally produced wheat.



It should be remembered, however, that locally produced wheat accounts for

only a minute proportion of utilization in Thailand. Given the variability in quality of

locally produced wheat, and the millers' need for strict uniformity in flour associated

with any particular brand name, it seems likely that the premium paid for domestic

wheat will decline as domestic production increases beyond trivial levels.1



5.3 Subsidies for purchased inputs used in domestic production:


In an effort to foster domestic wheat production in Northern Thailand, the

Department of Agricultural Extension has offered prospective wheat farmers free

inputs, particularly wheat seed, fertilizer and threshing services. Given the inconse-

quential level of local production, this can hardly be classed as a major distortion in

the wheat economy. In the event that domestic production takes off, it seems likely

that these subsidies will be phased out.



A major question, then, is the likelihood that farmers will continue with the

wheat enterprise as subsidies are gradually phased out. This question is addressed in

the next section.





1. One option that is rarely discussed is the use of domestically produced wheat as flour for use in the
manufacture of shrimp feed, the fastest growing component of wheat utilization in Thailand. The
need for uniform flour quality would seem to somewhat less compelling here.








6 Costs and returns to wheat production


Costs and returns to wheat production in Thailand vary considerably over

different areas (and even within areas when different technologies are used). In this

section, distinct wheat production systems used in Thailand are described. Production

techniques associated with each system are presented, and costs and returns are

estimated.1



Cost and return estimates art. modified in two steps, as the effects of subsidies

and taxes are eliminated. In the firs step, the effects of direct subsidies from the

DOAE promotion program are removed. In the second step, social costs and returns

are estimated by using opportunity costs for the values of inputs, domestic factors and

outputs. The objective of these corn prisons is to ascertain which production systems

(if any) offers the best chance for economically efficient domestic wheat production,

given alternative uses for farmers' resources.



6.1 Wheat production systems in Thailand



There is immense variation in farmers' wheat production practices. Some

wheat is grown in rainfed upland arc as, and some is grown after rice in irrigated

paddy areas. In rainfed areas, the technology used by farmers appears associated

with farm size, wheat area, and farmers' resources (e.g., availability of large tractors).

In both areas, production practices c re still changing and evolving, largely through

farmer experimentation.



1. These estimates were synthesized in two steps: first, information on practices and their correspond-
ing costs were elicited from experienced observers, including wheat scientists and extension workers
active in the DOAE wheat promotion proje ct. These were then spot checked and adjusted through a
series of farm interviews in several Districts and Provinces in Northern Thailand. Quantitative data
on costs and returns are for the wheat season 1990-91.








For convenience, wheat production systems have been defined as follows:



Rainfed areas, till and row seed (Rd/Row):

Wheat in this system is grown in a maize-wheat, groundnut-wheat or soybean-

wheat pattern. Non-wheat farmers typically grow only a single rainfed crop. Land

preparation is carried out by power tillers, or in some cases manual hoeing. Furrows

are opened with a hoe, and seed and fertilizer are dropped into the furrows and

covered with the foot. This method of seeding in rows permits more control over seed

placement1 and allows hand weeding between the rows (though it appears that this is

rarely practiced). This method is labor-intensive and slow, and farmers can typically

plant only a small area during periods of optimum soil moisture condition. Farmers

using this system tend to have smaller sized farms, and largely depend on family labor

for wheat cultivation. However, it appears that many farmers using this system in the

past have dropped it in favor of alternatives.


Rainfed areas, till and broadcast (Rd/Bc):

In this system, land is prepared with a power tiller, then seed and fertilizer are

broadcast. Planking (dragging a log behind a tractor) is used to cover seed and ferti-

lizer. This method is rapid and allows the sowing of a large area during optimum soil

moisture conditions. However, seed depth tends to be variable, with corresponding

variability in plant vigor and development. Hand weeding is not possible, though

chemical weed control might conceivably be used. A combination of family and hired

labor is typically employed. It is felt that this has become the predominant system in

rainfed upland areas. This system and the previous one (Rd/Row) are concentrated



1. Good seed depth (3-5 cm) helps germination by placing the seed in areas with better moisture and
lower temperatures.








in Fang District, Chiang Mai Province, but may be found in most rainfed wheat

production areas. When grown, wheat is typically grown in a soybean-wheat pattern.


Rainfed areas, tractor plowing g and broadcast (Rd/Trac):

Tillage is performed with a l;rge tractor, then seed and fertilizer are broadcast

and covered by tractor harrowing. Hired labor is used for all production practices.

Farmers using this system tend to have relatively large farmers and are concentrated

in Mae Sai District of Chiang Rai Province, and have a relatively long tradition of

cultivating wheat.



Irrigated areas: Till and row seed (Ir/Row):

Following rice harvest, the la nd is prepared with small power tillers, then

raised seed beds (1-2 m. wide) are formed, with irrigation channels between them.

Furrows are opened along the beds with a hoe, and seed and fertilizer are dropped

into the furrows and covered. Irrigation is by seepage into the beds from the chan-

nels. This system is the one that has been officially recommended for irrigated areas,

but appears to be diminishing in importance. At present, it is found in Pua District,

Nan Province. A number of problems have been found with this set of practices.

First, the presence of irrigation chan nels encourages over-irrigation. Some farmers

allow the soil to become waterlogged before draining the field. Second, the use of

line sowing lends itself to overseeding, with consequent problems of interplant

competition and poor tillering. Fina ly, raised beds and dedicated irrigation channels

are not only costly to construct they also take up valuable space in the field and

effectively reduce planted area by 2(0-30%.



Irrigated areas: Direct drilling (Ir/DD):

Wheat in this system is grown in a rice-wheat-soybean or rice-wheat cropping

pattern. Farmers not growing wheat typically use a rice-soybean, rice-garlic or even a








rice-garlic-soybean pattern. Following rice harvest, the field is cleared of straw.

Then, furrows are cut and drainage channels dug around the perimeter and across the

field to facilitate distribution of irrigation water. Seed and fertilizer are dropped into

the furrows and covered. Irrigation is carried out by "flash flooding" and then imme-

diately draining the field. This system eliminates the need for land preparation and,

as a consequence, substantially reduces machinery costs. In addition, it may speed

seeding (important, because late seeding is a major cause of reduced yields). Most

important, less surface area is lost to water control structures compared to the "offi-

cially recommended technology" (Ir/Row). Still, the digging of furrows and drainage

ditches requires very substantial amounts of labor. This system, which may be most

suitable for small farmers without access to power tillers, was developed by farmers in

Pai District, Mae Hong Son Province.



Irrigated areas: Broadcast seeding (Ir/Bc):

Farmers using this system typically use cropping patterns similar to those

described above (Ir/DD). Following rice harvest, the soil is prepared with a power

tiller. Then, seed and fertilizer are broadcast onto the surface of the soil and covered

by harrow or rotovater.1 This system is allows rapid sowing and requires little hand

labor: one farmer can prepare and seed 4 rai (about 2/3 ha) in one day. If wheat

seeding is done after rice harvest but before rice threshing, there is little delay in

wheat planting. However, to use this system a farmer must either own or rent a trac-

tor2, and a higher seed rate must be used to compensate for the variable seed depth

resulting from broadcasting. In addition, fertilizer efficiency may be lower than alter-


1. A common management error made by rice farmers that are not accustomed to wheat cultivation is
in not covering the seed. Note that when rice nurseries are broadcast sown, the seed is not covered.

2. At present, no tractors are owned by farmers in the village where wheat is being grown. Rented
tractors are brought in from towns in a neighboring Province, which adds considerably to the expense.
The profitability of this technology is quite sensitive to tractor rental costs and, therefore, to the like-
lihood that local farmers will eventually purchase their own tractors.







native systems where seed and fertilizer are placed together in a furrow. This system,

like the previous one, may be seen in Pai District, Mae Hong Son Province.



New systems under development (Ir/New):

Wheat production technology es are still being developed, largely by farmers.

One emerging alternative that appears promising for the future consists of broadcast-

ing wheat seed on unprepared paddy land, then covering it with a thin layer of rice

straw mulch. This method is quick, and requires little labor or machinery use. Prelim-

inary observations suggest that plant stands and plant development are good. It is

conceivable that this set of practices could become dominant within a few years if no

unforeseen problems arise. 1



6.2 Enterprise budgets for wheat sy-tems:



Enterprise budgets presented in this section were synthesized from a variety of

sources: expert opinion of wheat scientists and extension workers associated with the

DOAE wheat promotion program; c official DOAE recommendations for wheat

production; and a field survey of wheat farmers conducted in March, 1991. This field

survey followed techniques of rapid rural appraisal and was used to spot check and

adjust estimates derived from the other sources.



Three separate budgets are p resented for each of the six wheat production

systems described in the previous section. The first budget (private budget) uses costs

and returns as observed from the far ners' viewpoint. The second budget (private full

cost budget) is a modification of the first one that includes the costs of inputs provid-



1. For further information on wheat research issues in Thailand, see Saunders and Mann (1991).








ed free by the DOAE, including seed, fertilizer and threshing services. The third

budget (social budget) values all inputs and outputs, including tradeable inputs and

products and domestic resources, at their opportunity costs. Sensitivity analysis is

performed on the private full cost budgets and the social budgets.



A review of wheat price estimates might be useful before proceeding with the

analysis. In the following sections, wheat prices from 1990 are used. These are simi-

lar to a five year average of prices for the preceding years (1985-90). If the declining

trend for wheat prices continues into the future, the use of 1990 prices (or 1985-90

average prices, for that matter) may overestimate the profitability of future wheat

production.1 A summary of 1990 wheat prices is provided in Table 11.



Initially, budgets are intended to represent costs and benefits associated with

the use of recommended levels of inputs when common management errors (i.e.,

overseeding or overwatering) are avoided. Yield estimates are based on the notion of

"expected yields" -- that is, yields farmers would likely obtain when using practices as

described above. Note that these are somewhat above average yields as observed in

the field, but considerably below the yields obtained by the best farmers under good

conditions (Fig. 14). There is reason to believe that it is more sensible to use expect-

ed yields, not current yields, when assessing the longer-run prospects for wheat

production and profitability in Thailand. This is discussed more fully in section 6.3.1.

Sensitivity analysis is used to examine the effect on profits of varying yield levels.


1. Data presented earlier suggest that world wheat prices as measured by real CIF Bangkok wheat
grain prices have declined at the rate of 2.4% per year over the years 1975-90. World wheat prices
have been gradually declining, in fact, for well over 100 years (Reinsel 1991), although price spikes can
occasionally be observed. CIMMYT (1991) notes that world wheat prices collapsed in 1990-91 with a
sharp rise in developed country production and an increase in world wheat stocks. Prices were further
depressed by export subsidies by the US and the EC (which, however, may not be sustainable). Over
the longer term, real wheat prices will probably continue to decline, although some uncertainty exists
with regard to the current GATT negotiations, prospects for area and productivity change in the ex-
Soviet Union, and the possibility of US and EC policy changes.


























Table 11
A summary of 1990 wheat-related prices


Description
-.----------------------------


CIF Bangkok wheat grain b/
After tax wheat grain b/
Mill offer price c/


Marketing margin c/
(N. Thailand to Bangkok:)


Local purchase price
based on after tax pri e c/
based on CIF price d/


Location



Bangkok
Bangkok
Bangkok


Price
(B/kg) ($/t) a/



4.60 120
6.20 161
7.29 190


1.09


6.20 161
3.51 91


a/ In 1990, US$1 = B/26.
b/ Source: Table 5.
c/ Source: Table 7.
d/ Calculated by subtracting the marketing margin from the CIF
Bangkok grain price.














Fig. 14. Wheat Yields by Environment
Mean, Maximum and Expected Yields


4500

4000
Maximum
3500 -
Mean
3000-

2500 Expected

2000

1500 .

1000-


0 L
Rainfed Irrigated
Production Environment
Maximum yields: average from 1988-90. Mean yields: average from 1987-90. Source: Fig. 4.
Expected yields defined as yields knowledgable farmers can obtain when simple management mistakes are avoided.








6.2.1 Private budgets:

Budgets in this and following sections are constructed to take account of dif-

ferences in production environments and techniques, as described in section 6.1.

There are relatively few difference; among budgets in fertilizer use, but large differ-

ences in labor input and machinery use. One production technique in particular,

direct drilling in irrigated areas (Ir/DD), uses immense amounts of labor at crop

establishment (Fig. 15).



The private budgets are intt nded to represent costs and benefits from the

farmers' viewpoint, with all subsidies and price distortions in place. Thus, fertilizer

and seed input levels are noted but given a zero cost, as these are typically provided

for free by the DOAE. Costs include labor, materials, interest on operational capital,

and machinery-related expenses for machinery owners (depreciation, interest, re-

pairs, fuel, etc.). Land is assumed to have a zero opportunity cost, which may be

reasonable for upland rainfed area; and irrigated areas where no winter crops are

grown. This assumption of zero land opportunity cost is relaxed in later budgets.



Benefits are earned from sales of wheat grain produced at the expected yield

level, valued at prices paid by traders in local markets. Using 1990 data, the price of

wheat in producing areas was estirrated to be about B/6.2 per kg, or around US $160

per ton.



Detailed private budgets arc shown in Appendix Tables 1-6. Estimates of

returns to land and management, and rates of return to land and management, are

shown in Fig. 16 and Fig. 17. It should be noted that, under the assumptions used, all

wheat production techniques are p ofitable. Returns to land and management

appear somewhat higher, however, for the rainfed broadcast technique (Rd/Bc) and

the irrigated broadcast technique ( r/Bc).















Fig. 15. Non-Harvest Labor Days per Ha
by Production Environment and Technique


/"


Ir/Bc


Ir/DD

Ir/Row


-.VI


Rd/Trac


Rd/Bc

Rd/Row


Days














Fig. 16. Returns to Land and Management
by Production Technique: Rainfed


Rd/Row


PB PFCB
| Returns


PB


PFCB PB PFCB
[i Rate of return


PB = private budget; PFCB = private full cost budget
Returns and rate of return: tc land and management


6000-

5000-

4000-

3000-

2000-

1000-














Fig. 17. Returns to Land and Management
by Production Technique: Irrigated

Ir/ Row Ir/DD Ir/Bc 300

250

200

150 3
a)
14 100

50


PB PFCB PB PFCB PB PFCB


PB = private budget; PFCB = private full cost budget
Returns and rate of return are to land and management


II Returns [7 Rate of return








6.2.2 Private full cost budgets:

In the event that wheat cultivation expands, it seems unlikely that the DOAE

will be able to continue providing free fertilizer and seed. In the private full cost

budgets, farmers are charged for these inputs at market prices. Other assumptions

remain the same as in the private b widgets. Detailed private full cost budgets may be

seen in Appendix Tables 7-12. Summaries of returns to land and management and

rates of return to land and management are shown in Fig. 16 and Fig. 17. Note that

the profitability of wheat production is greatly reduced when farmers have to pay for

their own seed and fertilizer. The two production techniques based on broadcast

sowing (Rd/Bc and Ir/Bc) continue Io be relatively attractive in terms of returns to

land and management.



6.2.3 Breakeven yields:

The budgets described abovc are all calculated on the basis of "expected

yields", i.e., yields that farmers are expected to experience when using recommended

levels of inputs, while avoiding management errors. It is of some interest to assess the

effect on profits if farmers are not a ble to achieve these expected yields. In order to

do this, breakeven yields were calculated. A breakeven yield is the yield level that

must be achieved in order to cover 11 costs of production, including interest on oper-

ating capital and opportunity costs cf family labor1. If a farmer produces wheat at

precisely the breakeven yield, return s to land and management are zero, but non-

negative.



Breakeven yields (calculated from the private full cost budgets) are shown in

Fig. 18, where they are compared with expected yields and average yields (1987-


1. Opportunity cost of land is still assumed to be zero, that is, wheat is assumed to be grown on land
where it is not possible to cultivate other cr.)ps.












Fig. 18. Breakeven, Current & Expected
Wheat Yields, by Technique
calculated from private full cost budgets


Rd/Row Rd/Bc Rd/Trac Ir/Row
Technique


i Breakeven = Current M "Expected"








1990). The results are of some interest. For all production techniques for both

production environments, breakeven yields are above current average yields, but

below expected yields. At current yield levels, farmers would lose money if it were not

for the DOAE subsidies. This question of "current" vs. "expected" yields is important,

then, and is discussed more fully in section 6.3.1.



6.2.4 Profitability of wheat v;. soybean

In the analysis conducted so far, it is assumed that wheat will not compete with

soybean. Wheat cultivation will be e asier, however, and wheat yields will tend to be

higher and more reliable in well-favored irrigated areas that are (or could be) used

for soybean. In this case, the opportunity cost of land used for wheat production is no

longer zero: rather, it is estimated by the returns that could be earned by producing

soybean. Similarly, the opportunity ,ost of land used for soybean is no longer zero: it

can be estimated by the returns that could be earned by producing wheat.



When private full cost budget s are adjusted for opportunity cost of land, it is

clear that wheat production become; unprofitable. Breakeven yields for irrigated

wheat (Ir/Bc) increase to nearly 1,800 kg/ha (vs. about 700 kg/ha current yield and

1,500 kg/ha expected yield). When expected yields are used, returns to land and

management become negative: costs are not covered. In contrast, when the opportu-

nity cost of land is included in soybean budgets, profitability declines, but breakeven

yields are still below current yields and returns to land and management remain posi-

tive (see Appendix Table 13, Appendix Table 14, Fig. 19 and Fig. 20). It appears that

wheat cannot economically compete with soybean in well-favored irrigated areas












Fig. 19.
Returns to


Wheat vs. Soybean
Land and Management


o0---


Wheat Soybean


Soybean


no competition


competition with no competition Competition with
soybean wheat


4000-


3000-


2000-Y


1000-f


-1000-

-2000-k


Wheat


8111













Fig. 20. Wheat vs. Soybean
Breakeven Yields vs. Current Yields


no competition competition no competition competition
with soybean with wheat

SBreakeven yield F Current yield








where soybean production is feasible.1


6.2.5 Social budgets:

One final source of distortion must be removed to assess the social profitability

of wheat production. As noted in section 5.1, wheat grain imports are subject to taxa-

tion, including an import tariff, standard profit tax, commercial tax and municipal tax.

For 1990, after-tax wheat grain price was estimated to be about 34% higher than the

CIF price (Table 10). These taxes represent transfers from consumers to government

and producers: consumers pay more for wheat products, domestic producers receive

higher prices for wheat grain, and government revenue is increased. Typically,

however, these distortions create a dead-weight loss, or efficiency loss, to the econo-

my. For locally produced wheat to efficiently compete with imported wheat, it should

be profitable for farmers to produce it even after price distortions (of the kind de-

scribed above) are removed. That is, in order to save one dollar of foreign exchange

through local wheat production, the value of local resources (land, labor and capital)

used should be worth less than one dollar.



How profitable is wheat grown in Thailand when price distortions are re-

moved? The answer is found in social budgets, in which inputs and products (wheat

grain) are valued at their opportunity costs2. For tradeable products and inputs (e.g.,

fertilizer, wheat grain), opportunity costs are estimated as the border price adjusted


1. This inference should be used with caution, however. Soybean production in Thailand is also
protected through quotas and subsidies. A complete comparison of the economics o wheat vs. soy-
bean would require estimates of the domestic resource cost for both commodities for common produc-
tion areas, a task that goes beyond the scope of this paper. Nonetheless, the conclusion drawn here --
that wheat research and promotion should focus on areas where irrigation infrastructure is not well-
developed -- is not controversial.

2. The term "social budget" is vulnerable to misinterpretation. For example, some observers might
interpret this phrase as having to do with social costs associated with rapid urbanization, especially
when this is fostered by lack of employment opportunities in rural areas. These social costs are not
included in the present analysis, which is only intended to assess the relative efficiency of enterprises
when the effects of distorting policies (e.g., subsidies and taxes) are removed.








for marketing margins as appropriate. For non-tradeable inputs and resources,

opportunity costs are estimated through the best alternative use of the input or re-

source.



The 1990 after-tax price of wheat in Bangkok was about B/6.2 per kg ($160/t),

and has been declining at over 2% per year. The 1990 CIF price of imported wheat in

Bangkok, however, was only B/4.6 per ($120/t) (Table 11). Given a marketing margin

of B/1.09 from up-country producing locations to Bangkok flour mills, domestically

produced wheat would have to be priced at B/3.51 per kg in order to compete with

foreign wheat, if there were no taxes on wheat imports. This assumes that domestic

wheat and imported wheat are of comparable quality, or that flour mills are willing to

ignore, at least temporarily, some quality considerations. Social budgets, featuring a

decreased wheat price, are shown in Appendix Tables 15-20. Returns to land and

management (with corresponding ra es of return) for wheat produced in different

environments with different techniques, are summarized in Fig. 21.



When wheat prices are adjusted such that domestic wheat production is valued

at border price equivalents, wheat production in both irrigated and rainfed land types

becomes unprofitable. Note that thi; is true even when opportunity costs of land are

considered to be zero, i.e., it is assumed that soybean and wheat do not compete for

land. Returns to land and management are negative.




1. In this paper, opportunity costs of labor are valued at the market wage, while opportunity costs of
capital are set (in real terms) at 12% per year. Opportunity costs of land are considered to be zero
(unless otherwise indicated) assuming that w heat is targeted at areas where there are no competing
crops. Opportunity costs of irrigation water ire ignored. There appear to be few distortions in mar-
kets for fertilizer, so up-country market prices are used as social prices. Social prices for wheat are
estimated as CIF price, less marketing margins from upcountry producing locations to Bangkok flour
mills.













Fig. 21. Social Returns and ROR
to Land and Management
by Environment and Technique


Rd/Row Rd/Bc Rd/Trac Ir/Row Ir/DD Ir/Bc
Environment and Technique

SReturns : Rate of return


Social returns and rates of return calculated using border price of wheat. Source: Appendix Tables 15-20.








This may be somewhat less alarming than it appears. In social budgets particu-

larly, profits are sensitive to yields a id prices. Sensitivity analysis was conducted to

examine the effects of these two fac ors.



First, breakeven yields were calculated (in this case, yields required to repay all

production costs and for wheat to become profitable when wheat is valued at border

prices). These were found to be in the range of 1600-2000 kg/ha. In other words,

farmers need only achieve yields of less than 2 t/ha for wheat to become socially prof-

itable (Fig. 22). These are well above current yields (and even above "expected

yields"), but may be achievable if farmers and researchers continue the rapid pace of

advance in wheat production technology.



In addition, breakeven world prices were calculated (i.e., world prices at which

wheat becomes socially profitable, assuming farmers achieve "expected" yields).

These breakeven prices were calcul ted for two rates of return: 0% (all production

costs repaid, but no additional profits earned) and 16% (all production costs repaid,

and a 16% profit earned -- similar to that earned in soybean production). Breakeven

prices were found to be in the range of $130-160/t (Fig. 23).



In addition, a sense of perspective needs to be kept. The analysis described

above has focused entirely on efficiency objectives. However, the Thai government

undoubtedly has equity objectives as well, e.g., those focusing on rural employment,

equity and income distribution. Subsidized wheat production can help increase rural

employment and provide additional income for low-income, rural farm families. If

these subsidies are ultimately paid by relatively wealthy urban consumers of wheat

products, policy makers may conclude that the small efficiency losses are worth

paying.














Fig. 22. Breakeven Wheat Yields
By Environment and Technique
calculated from social full cost budgets

2500-


2000


S1500 -


a) 1000-


0
Rd/Row Rd/Bc Rd/Trac Ir/Row ir/DD
Technique


Ir/Bc














Fig. 23. Breakeven World Prices
by Environment and Technique

180-
160- '
140
120 -
100-
80-i hl
60-
40 -
20 ii

Rd/Bc Rd/Trac Rd/Row Ir/Row Ir/DD Ir/Bc
Environment and Technique

F ROR = 0% 7 ROR = 16%

Prices required to repay all costs and earn two alternative rates of return to land and manage








6.3 Prospects for profitable wheat production


The analyses presented so far appear to paint a rather bleak picture for wheat.

On the surface, it appears that wheat production in Thailand is only expanding be-

cause of subsidies on inputs and taxes on wheat imports, and that domestic produc-

tion is unprofitable when undistorted prices are used. However, this is not the com-

plete picture.



First, there is reason to believe that "expected" yields may be a more realistic

basis for long-term economic analysis than the lower "current average" yields used in

some of the economic analyses. Second, the costs associated with one of the most

promising technologies described (Ir/Bc) may have been overstated due to a quirk in

local machinery ownership patterns. Third, a new technology currently being de-

veloped by farmers may be potentially far more profitable than any of the technolo-

gies described in this paper. The implications of first three of these for the profitabili-

ty of wheat production in Thailand is examined in turn.



6.3.1 Expected yields vs. current yields

In Fig. 18 it was shown that breakeven yields1 are well above current yields,

but below expected yields. Recall that expected yields are those that experienced

farmers will likely obtain (according to researchers' judgement) when using a particu-

lar wheat production system. The difference between expected yields and current

yields lies in the word "experienced". Researchers and extension workers have ob-

served a learning process among wheat farmers, whereby yield-reducing management

mistakes occurring in the first few wheat seasons are gradually eliminated as these



1. Yield levels required to repay all production costs, including interest on operating capital and
opportunity costs of family labor.








farmers gain experience. Some common mistakes are: over-irrigating wheat (causing

waterlogging), and broadcasting wheat seed without covering it. Both mistakes are

typical of farmers trying to grow wt eat as if it were rice.



Fig. 2 provides a graphic illustration of this process. Wheat yields (using rain-

fed technology) averaged around 1 200 kg/ha for a number of years. However, when

large numbers of inexperienced farmers began experimenting with wheat after 1985,

average yields plummeted. Interestingly, individual farmers that began to experiment

with wheat in 1985 or 1986 (and experienced low yields) are now obtaining much

higher yields -- close to 1200 kg/ha. Average yields continue to be drawn down,

however, by novice wheat farmers who have only just begun to experiment with this

crop.



When economic analysis aims to assess the longer-term prospects for profita-

ble wheat production, it seems sensible to focus on the circumstances of those farmers

who have successfully passed through this learning process. Low current average

yields, then, may be somewhat less alarming than they would appear on the surface.



6.3.2 Machinery costs and the irrigated broadcast system (Ir/Bc)

The costs associated with the irrigated broadcast wheat production system

(Ir/Bc) appear inflated. In the budgets shown in Appendix Tables 6 and 12 (used in

the preparation of several charts presented in previous sections), the actual cost of

tractor hire was used, as reported by farmers in the village where this system was

developed. However, tractor hire i:s about twice as expensive in this village compared

to other villages in Northern Thaila nd, because tractors must be brought in from a

neighboring District. When broadly, representative machinery rental rates are used,

the economics of this system are entirely transformed. As might be expected, abso-

lute returns and rates of return to hind and management are improved across the










board, while breakeven yields decline considerably. This technology is very close to

social profitability when representative tillage costs are used (Table 12).


Table 12

Budgets for irrigated areas, broadcast seeding
(Ir/ Bc) Effect of adjusted tillage costs


Village vs.
Representative
Tillage Cost
Estimates a/

Private budgets:
Village
Representative

Private Full Cost Budgets
Vi LLage
Representative


Returns
to Land
& Mgt
(b/ha)


ROR
to Land
& Mgt
(%)


Break-
even
Yield
(kg/ha)


5688 154% 615
6946 286% 405


Social Budgets
Village -1447 -21% 1975
Representative -189 -3% 1616

a/ Village level estimates for tractor-hire were extremely
high in the one village where this technology was de-
veloped (B/2188 per ha). This was because tractors had to
be brought in from another District. Representative
tracto- hire rates from other villages in Northern
Thailand are considerably lower (about B/1000/ha).

Source: Appendix Tables 6, 12, 20, 25-27


6.3.3 Prospects for zero-tillage systems




In section 6.1, a paragraph was included that describes a new wheat production


system for producing wheat after rice that is being developed by farmers in Pua Dis-








trict, Nan Province. In this system, wheat seed is broadcast on untilled land after the

rice harvest, and is then covered wi :h a thin layer of rice straw mulch. There are no

ditches or furrows to be dug, and no machinery hire for tillage. Land preparation

consists of hand-slashing the rice st ibble close to the soil surface to prevent ratoon-

ing. Only a few farmers have been observed using this system; but these farmers

report wheat yields of 270 440 kg/ ai (1687 2750 kg/ha), with lower yields corre-

sponding to fields with uneven distribution of seed and fertilizer. Note that these

reported yields are well above breakeven yields needed for social profitability (Table

13).



It is too early to tell whether this system will be widely appropriate for use in

other rainfed environments. If it is. however, it could revolutionize the economics of

irrigated wheat in Thailand. Farmers using this system were consulted during survey

fieldwork, and reported information l on costs and returns. These are described in

Appendix Table 28 (private full cost budget) and Appendix Table 29 (social budget).

This zero till system compares favorably with the best alternative irrigated wheat

system (Table 13).



6.4 Profitability of domestic wheat production A summary



At present, wheat production in Thailand is, from the farmers' perspective,

highly profitable. This is hardly surprising, given the high price wheat producers

receive relative to world prices and the free fertilizer and seed provided by the

DOAE. It also helps explain the satisfactory levels of farmer interest in wheat as a

new crop. When subsidies on seed and fertilizer are removed, wheat remains profita-

ble for most production systems. When the price of wheat is reduced to reflect the

effects of tariffs on imported wheat, the profitability of domestic wheat production










disappears -- using preliminary assumptions on yields and production costs.




A closer look at costs and returns reveals, however, that domestic wheat

production in Thailand can be profitable -- even socially profitable -- if several fairly









Table 13

Budgets for irrigated areas, broadcast seeding
effect of conventional tillage vs. zero tillage


Returns ROR Break-
Conventional TilL to Land to Land even
vs. Zero Till & Mgt & Mgt Yield
Estimates a/ (b/ha) (%) (kg/ha)
---------------------------------------------------------


Private Full Cost Budgets
Conventional 3702 65% 945
Zero Till 9375 74% 896

Social Budgets
Conventional -189 -3% 1616
Zero Till 108 2% 1532
---------------------------------------------------------
a/ Conventional tillage based on representative tractor
hire costs, as presented in Appendix Table 26.

Source: Appendix Tables 26-29










specific assumptions are met. It is encouraging that these assumptions do not appear

unreasonable. These conditions are as follows:




"Expected yields" are accepted as being more representative than "current

yields". It has been argued that expected yields are more sensible than current aver-


69








age yields for assessing longer-term prospects, given processes of adaptation and

learning among farmers. As technology improves, even "expected yields" may prove

to be conservative.



Wheat production systems are restricted to rainfed broadcast systems, and

the lower-cost alternative broadcast irrigated systems described in sections 6.3.2 and

6.3.3.



Wheat does not compete with soybean for land and water resources.



When these conditions are met, it appears that wheat production can be both

privately and socially profitable.




Conclusions




The objective of this paper was to examine the prospects for domestic wheat

production in Thailand. Topics covered include trends in wheat production, con-

sumption and utilization, and trade and prices. Wheat marketing channels were

summarized, and policies affecting t ie wheat subsector (especially DOAE subsidies

on inputs used in wheat production, and tariffs on on wheat imports) were described

and their effects on wheat profitability assessed. Finally, the current state of wheat

production technology was examined and private and social costs and returns for

wheat production were estimated fo different production technologies in rainfed and

irrigated land types.








Prospects for profitable wheat production were found to be surprisingly bright,

although a few well-defined conditions must be met. Under the current policy re-

gime, domestic wheat production appears to be exceedingly attractive. If DOAE

input subsidies were to be suspended, the profitability of domestic wheat would de-

cline, but would still remain positive.



When wheat is valued at world prices (not at the higher prices that prevail

after import duties and other taxes are paid) domestic production becomes unprof-

itable for many of the currently available production techniques. However, a sense of

perspective should be kept. The yields required to reach social profitability under

these conditions are not, in fact, very high -- less than 2 t/ha. Moreover, farmers are

developing new techniques featuring zero tillage that reduce costs and increase yields.

These new techniques may transform the economics of wheat production in Thailand,

making it socially profitable under most conceivable circumstances. Further work is

needed to refine and assess these new techniques.



Finally, it should be recognized that narrow efficiency criteria may be inade-

quate for analyzing this subject. Some efficiency losses associated with domestic

wheat production in Thailand may be unavoidable. However, it should be kept in

mind that when wheat import taxes foster increases in domestic wheat production,

wheat producers (largely rural, with relatively low incomes) gain at the expense of

wheat consumers (largely urban, with relatively high incomes). These effects may

help meet national income distribution and employment objectives. Policy makers

may conclude that these equity gains more than compensate for any losses in econom-

ic efficiency.


1. Per capital wheat consumption in Thailand is very low, and is concentrated among foreign visitors
and residents, and the relatively well-off. Most consumers -- and especially low-income consumers --
rely on rice as a starch staple.








References


Brooks, D., 1989. "Reducing Support Using Aggregate Measures, Case Study: Thai-
land". Economic Research Service, USDA. Staff Paper AGES 69-30. July, 1989.

CIMMYT, 1991. 1990-91 CIMMYT World Wheat Facts and Trends: Wheat and
Barley Production in Rainfed Me rginal Environments of the Developing World.
El Batan: CIMMYT and ICARDA.

Harrington, L. and S. Sat-thaporn, 1984. "Wheat in Chiang Rai, Thailand: A Prelimi-
nary Look at Comparative Advantage." Presented at the International Symposium
on Wheat for More Tropical Environments, El Batan, Mexico, September 24-28,
1984.

Reinsel, R., 1991. "A Graphic History of the US Wheat Market". Choices. First
Quarter, 1991, pages 22-23.

Saunders, D. and C. Mann, 1991. "Recent Wheat Research in Thailand: A Review
and Recommendations". Presented at the 1990 Annual Winter Cereals Workshop,
Golden Triangle Hotel, Chiang R ai, Thailand, 24-26 January, 1990.

Titapiwatanakun, B. et al, 1982. "Wheat Marketing and Utilization in Thailand".
Unpublished draft.











Appendix Table 1: Private budget: Rainfed areas, till and
row seed. (Rd/Row)




Value Total
Item Amount Unit (B/unit) (B/ha)
......................................................................

Labor:
land preparation a/ 938
seeding 4.8 days/ha 40 193
fertilizer application 2.4 days/ha 40 98
weed control 1.9 days/ha 40 75
harvesting, collecting 1250 kg 0.58 725
threshing, cleaning b/ 1250 kg 0 0
transport 188


Material Costs:
seed b/ 125 kg/ha 0 0
fertilizer b/ 125 kg/ha 0 0
herbicide 0 0


Other Variable Costs:
interest on working capital c/ 6% 78


Fixed Costs:
land d/ 1 ha na 0


Total Variable Costs 2293
Total Cost per Ha 2293
Total Cost per Kg Wheat (B/kg) 1.83


Wheat Yield (kg/ha) 1250


Price Received by Farmers (B/kg) 6.00
Gross Benefits (B/ha) 7500
Returns to Land and Management (B/ha) 5207
ROR to Land and Management 227%
Total Non-Harvest Labor Days per Ha e/ 9
Breakeven Yield (kg/ha) 382
....................................................................

a/ Hired machinery including labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE
c/ Working capital charges for four months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.
e/ Area planted appears to depend partly on labor availability during
sowing time.











Appendix Table 2: Private budget: Rainfed areas, till and
broadcast (Rd/Bc)



Value Total
Item Amount Unit (B/unit) (B/ha)


Labor:
land preparation a/ 938
seeding 1.1 days/ha 40 43
fertilizer application 0.8 days/ha 40 30
weed control 1.6 days/ha 40 63
harvesting, collecting 1250 kg 0.58 725
threshing, cleaning b/ 1250 kg 0 0
transport 188


Material Costs:
seed b/ 125 kg/ha 0 0
fertilizer b/ 125 kg/ha 0 0
herbicide 0 0


Other Variable Costs:
interest on working capital c/ 6% 64


Fixed Costs:
land d/ 1 ha na 0


Total Variable Costs 2049
Total. Cost per Ha 2049
Total Cost per Kg Wheat (B/ig) 1.64


Wheat Yield (kg/ha) 1250


Price Received by Farmers (B/kg) 6.00
Gross Benefits (B/ha) 7500
Returns to Land and Management (B/ha) 5451
ROR to Land and Management 266%
Total Non-Harvest Labor Day; per Ha e/ 3
Breakeven Yield (kg/ha) 342


a/ Hired machinery including labor. All machinery costs (interest,
fuel, repairs, depreciation paid by machinery owner.
b/ Provided free by DOAE
c/ Working capital charges :or four months for all variable
costs except for interest oi machinery and harvested related expenses..
Annual real interest rate sit at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.
e/ Area planted appears to depend partly on labor availability during
sowing time.












Appendix Table 3: Private budget: Rainfed areas, tractor
plowing and broadcast (Rd/Trac)

Value Total
Item Amount Unit (B/unit) (B/ha)


Labor:
land preparation
seeding
fertilizer application
weed control
harvesting, collecting
threshing, cleaning a/
transport


Material Costs:
seed a/
fertilizer a/
herbicide


Other Variable Costs:
tractor fuel b/
tractor interest c/
interest on working capital d/


Fixed Costs:
land e/
tractor depreciation f/


Total Variable Costs
Total Cost per Ha
Total Cost per Kg Wheat (B/kg)


kg/ha
kg/ha


hours
hours


ha
hours


66.81
41.25
6%


na 0
70.31 352


Wheat Yield (kg/ha)


Price Received by Farmers (B/kg) 6.00
Gross Benefits (B/ha) 7500
Returns to Land and Management (B/ha) 5253
ROR to land and management 234%
Total Non-Harvest Labor Days per Ha g/ 5
Breakeven Yield (kg/ha) 374
. ..---..----------------------------------------

a/ Provided free by DOAE
b/ See Appendix Table 21
c/ See Appendix Table 22
d/ Working capital charges for four months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
e/ Not included, as the budget is designed to estimate returns
to land and management.
f/ See Aopendix Table 23
g/ Area planted appears to depend partly on labor availability during
sowing time.


1.2
0.9
0.6
2.3
1250
1250


days/ha
days/ha
days/ha
days/ha
kg
kg










Appendix Table 4: Private budget: Irigated areas, till
and row seed. (Ir/Row)


Value Total
Item Amount Unit (B/unit) (B/ha)


Labor:
land preparation a/ 1000
seeding 7.5 days/ha 40 300
fertilizer application 5.0 days/ha 40 200
water management 1.1 days/ha 40 43
weed control 1,3 days/ha 40 53
harvesting, collecting 1250 kg 0.58 725
threshing, cleaning b/ 1250 kg 0 0
transport 234


Material Costs:
seed b/ 125 kg/ha 0 0
fertilizer 15-15-15 b/ 125 kg/ha 0 0
fertilizer 21-0-0 b/ 62.5 kg/ha 0 0
herbicide 0 0


Other Variable Costs:
interest on working capital c/ 6% 61


Fixed Costs:
land d/ 1 ha na 0


Total Variable Costs 2616
Total Cost per Ha 2616
Total Cost per Kg Wheat (B/lg) 2.09


Wheat Yield (kg/ha) e/ 1250


Price Received by Farmers (B/kg) 6.00
Gross Benefits (B/ha) 7500
Returns to Land and Management (B/ha) 4884
ROR to Land and Management 187%
Total Non-Harvest Labor Days per Ha f/ 15
Breakeven Yield (kg/ha) 436
.......................................................................

a/ Hired machinery including labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE
c/ Working capital charges f:)r four months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate sel at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.
e/ Yields estimated lower thin for alternative irrigated practices
due to loss of planted area Irom raised beds and irrigation channels.
f/ Area planted appears to depend partly on labor availability during
sowing time.











Appendix Table 5: Private budget: Irrigated areas, direct
drilling. (Ir/DD)

Value Total
Item Amount Unit (B/unit) (B/ha)
......................................................................

Labor:
land preparation a/ 0
seeding 55.3 days/ha 40 2213
fertilizer application 5.6 days/ha 40 225
water management 2.1 days/ha 40 83
weed control 1.1 days/ha 40 43
harvesting, collecting 1563 kg 0.58 906
threshing, cleaning b/ 1563 kg 0 0
transport 234


Material Costs:
seed b/ 125 kg/ha 0 0
fertilizer 15-15-15 b/ 125 kg/ha 0 0
fertilizer 21-0-0 b/ 62.5 kg/ha 0 0
herbicide 0 0


Other Variable Costs:
interest on working capital c/ 6% 154


Fixed Costs:
land d/ 1 ha na 0


Total Variable Costs 3857
Total Cost per Ha 3857
Total Cost per Kg Wheat (B/kg) 2.47


Wheat Yield (kg/ha) 1563


Price Received by Farmers (B/kg) 6.00
Gross Benefits (B/ha) 9375
Returns to Land and Management (B/ha) 5518
ROR to land and management 143%
Total Non-Harvest Labor Days per Ha e/ 64
Breakeven Yield (kg/ha) 643


a/ Hired machinery including labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE
c/ Working capital charges for four months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.
e/ Area planted appears to depend partly on labor availability during
sowing time.











Appendix Table 6: Private budget: Irrigated areas,
broadcast seeding. (Ir/Bc)


Item


Labor:
land preparation a/
seeding
fertilizer application
water management
weed control
harvesting, collecting
threshing, cleaning b/
transport


Material Costs:
seed b/
fertilizer 15-15-15 b/
fertilizer 21-0-0 b/
herbicide


Amount Unit
.......................


days/ha
days/ha
days/ha
days/ha
kg
kg


125
125
62.5
0


kg/ha
kg/ha
kg/ha


Other Variable Costs:
interest on working capital c/


Fixed Costs:
land d/


1 ha


Total Variable Costs
Total Cost per Ha
Total Cost per Kg Wheat (B/g)


Wheat Yield (kg/ha)


Price Received by Farmers (B/kg) 6.00
Gross Benefits (B/ha) 9375
Returns to Land and Management (B/ha) 5688
ROR to Land and Management 154%
Total Non-Harvest Labor Days per Ha e/ 5
Breakeven Yield (kg/ha) 615


a/ Hired machinery including labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE
c/ Working capital charges f:r four months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.
e/ Area planted appears to dpend partly on labor availability during
sowing time.


Value
(B/unit)




40
40
40
40
0.58
0


Total
(B/ha)



2188
75
40
80
20
906
0
234


6% 144



na 0


3687
3687
2.36











Appendix Table 7: Private full cost budget: Rainfed areas,
till and row seed. (Rd/Row)

Value Total
Item Amount Unit (B/unit) (B/ha)
......................................................................

Labor:
land preparation a/ 938
seeding 4.8 days/ha 40 193
fertilizer application 2.4 days/ha 40 98
weed control 1.9 days/ha 40 75
harvesting, collecting 1250 kg 0.58 725
threshing, cleaning b/ 1250 kg 0.55 688
transport 188


Material Costs:
seed b/ 125 kg/ha 10 1250
fertilizer b/ 125 kg/ha 6.5 813
herbicide 0 0


Other Variable Costs:
interest on working capital c/ 12% 202


Fixed Costs:
land d/ 1 ha na 0


Total Variable Costs 5167
Total Cost per Ha 5167
Total Cost per Kg Wheat (B/kg) 4.13


Wheat Yield (kg/ha) 1250


Price Received by Farmers (B/kg) 6.00
Gross Benefits (B/ha) 7500
Returns to Land and Management (B/ha) 2333
ROR to Land and Management 45%
Total Non-Harvest Labor Days per Ha e/ 9
Breakeven Yield (kg/ha) 861
......................................................................

a/ Hired machinery including labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE, but charged as a cost in this budget.
c/ Working capital charges for six months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.
e/ Area planted appears to depend partly on labor availability during
sowing time.










Appendix Table 8: Private full cost budget: Rainfed areas,
till and broadcast (Rd/Bc)


Value Total
Item Amount Unit (B/unit) (B/ha)
......................................................................

Labor:
land preparation a/ 938
seeding 1.1 days/ha 40 43
fertilizer application 0.8 days/ha 40 30
weed control 1.6 days/ha 40 63
harvesting, collecting 1250 kg 0.58 725
threshing, cleaning b/ 1250 kg 0.55 688
transport 188


Material Costs:
seed b/ 125 kg/ha 10 1250
fertilizer b/ 125 kg/ha 6.5 813
herbicide 0 n


Other Variable Costs:
interest on working capital c/


Fixed Costs:
land d/


Total Variable Costs
Total Cost per Ha
Total Cost per Kg Wheat (B/ki)


Wheat Yield (kg/ha)


1 ha


6% 188



na 0


Price Received by Farmers (H/kg) 6.00
Gross Benefits (B/ha) 7500
Returns to Land and Managemert (B/ha) 2577
ROR to Land and Management 52%
Total Non-Harvest Labor Days per Ha e/ 3
Breakeven Yield (kg/ha) 821
----------------------------------------------------------------------
a/ Hired machinery including Labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE, but charged as a cost in this budget.
c/ Working capital charges fcr six months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.
e/ Area planted appears to depend partly on Labor availability during
sowing time.











Appendix Table 9: Private full cost budget: Rainfed areas,
tractor plowing and broadcast (Rd/Trac)

Value Total

Item Amount Unit (B/unit) (B/ha)
...............---------------------------------------


Labor:
land preparation
seeding
fertilizer application
weed control
harvesting, collecting
threshing, cleaning a/
transport


1.2
0.9
0.6
2.3
1250.0
1250.0


days/ha
days/ha
days/ha
days/ha
kg
kg


200
40
40
40
0.58
0.55


Material Costs:
seed a/
fertilizer a/
herbicide


Other Variable Costs:
tractor fuel b/
tractor interest c/
interest on working capital d/


Fixed Costs:
land e/
tractor depreciation f/


Total Variable Costs
Total Cost per Ha
Total Cost per Kg Wheat (B/kg)


kg/ha
kg/ha





hours
hours


ha
hours


Wheat Yield (kg/ha)


10
6.5





66.81
41.25
6%


1250
813
0



334
206
218


na 0
70.31 352


4810
5162
4.13


1250


Price Received by Farmers (B/kg) 6.00
Gross Benefits (B/ha) 7500
Returns to Land and Management (B/ha) 2338
ROR to Land and Management 45%
Total Non-Harvest Labor Days per Ha g/ 5
Breakeven Yield (kg/ha) 860
...... ...---------------------------------------


a/ Provided free by DOAE, but charged as a
b/ See Appendix Table 21
c/ See Appendix Table 22
d/ Working capital charges for four months
costs except for interest on machinery and
Annual real interest rate set at 12%.
e/ Not included, as the budget is designed
to land and management.
f/ See Appendix Table 23
g/ Area planted appears to depend partly or
sowing time.


cost in this budget.



for all variable
harvested related expenses.


to estimate returns



n labor availability during











Appendix Table 10: Pr ivate full cost budget: Irrigated areas,
till and row seed. (Ir/Row)


Value Total
Item Amount Unit (B/unit) (B/ha)

Labor:
land preparation a/ 1000
seeding 7.5 days/ha 40 300
fertilizer application 5.0 days/ha 40 200
water management 1.1 days/ha 40 43
weed control 1.3 days/ha 40 53
harvesting, collecting 1250 kg 0.58 725
threshing, cleaning b/ 1250 kg 0.55 688
transport 234


Material Costs:
seed b/ 125 kg/ha 10 1250
fertilizer 15-15-15 b/ 125 kg/ha 6.5 813
fertilizer 21-0-0 b/ 62.5 kg/ha 3 188
herbicide 0 0


Other Variable Costs:
interest on working capital c/ 6% 171


Fixed Costs:
land d/ 1 ha na 0


Total Variable Costs 5663
Total Cost per Ha 5663
Total Cost per Kg Wheat (B/k:) 4.53


Wheat Yield (kg/ha) e/ 1250


Price Received by Farmers (li/kg) 6.00
Gross Benefits (B/ha) 7500
Returns to Land and Management (B/ha) 1837
ROR to land and management 32%
Total Non-Harvest Labor Days per Ha f/ 15
Breakeven Yield (kg/ha) 944
......................................................................
a/ Hired machinery including labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE, bul charged as a cost in this budget.
c/ Working capital charges for four months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.
e/ Yields estimated lower than for alternative irrigated practices
due to loss of planted area from raised beds and irrigation channels.
f/ Area planted appears to depend partly on labor availability during
sowing time.











Appendix Table 11: Private full cost budget: Irrigated areas,
direct drilling. (Ir/DD)


Value Total
Item Amount Unit (B/unit) (B/ha)
......................................................................

Labor:
land preparation a/ 0
seeding 55.3 days/ha 40 2213
fertilizer application 5.6 days/ha 40 225
water management 2.1 days/ha 40 83
weed control 1.1 days/ha 40 43
harvesting, collecting 1563 kg 0.58 906
threshing, cleaning b/ 1563 kg 0.55 859
transport 234


Material Costs:
seed b/ 125 kg/ha 10 1250
fertilizer 15-15-15 b/ 125 kg/ha 6.5 813
fertilizer 21-0-0 b/ 62.5 kg/ha 3 188
herbicide 0 0


Other Variable Costs:
interest on working capital c/ 6% 289


Fixed Costs:
land d/ 1 ha na 0


Total Variable Costs 7101
Total Cost per Ha 7101
Total Cost per Kg Wheat (B/kg) 4.54


Wheat Yield (kg/ha) 1563


Price Received by Farmers (B/kg) 6.00
Gross Benefits (B/ha) 9375
Returns to Land and Management (B/ha) 2274
ROR to Land and Management 32%
Total Non-Harvest Labor Days per Ha e/ 64
Breakeven Yield (kg/ha) 1184
......................................................................

a/ Hired machinery including labor. ALL machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE, but charged as a cost in this budget.
c/ Working capital charges for four months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.
e/ Area planted appears to depend partly on labor availability during
sowing time.











Appendix Table 12: Private full cost budget: Irrigated areas,
broadcast seeding. (Ir/Bc)

Value Total
Item Amount Unit (B/unit) (B/ha)

Labor:
land preparation a/ 2188
seeding 1.9 days/ha 40 75
fertilizer application 1.0 days/ha 40 40
water management 2.0 days/ha 40 80
weed control 0.5 days/ha 40 20
harvesting, collecting 1563 kg 0.58 906
threshing, cleaning b/ 1563 kg 0.55 859
transport 234


Material Costs:
seed b/ 125 kg/ha 10 1250
fertilizer 15-15-15 b/ 125 kg/ha 6.5 813
fertilizer 21-0-0 b/ 62.5 kg/ha 3 188
herbicide 0 0


Other Variable Costs:
interest on working capital c/ 6% 279


Fixed Costs:
land d/ 1 ha na 0


Total Variable Costs 6932
Total Cost per Ha 6932
Total Cost per Kg Wheat (B/kg) 4.44


Wheat Yield (kg/ha) 1563


Price Received by Farmers (3/kg) 6.00
Gross Benefits (B/ha) 9375
Returns to Land and Management (B/ha) 2443
ROR to Land and Management 35%
Total Non-Harvest Labor Days per Ha e/ 5
Breakeven Yield (kg/ha) 1155


a/ Hired machinery including Labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE, bu charged as a cost in this budget.
c/ Working capital charges f:r four months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate sel at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.
e/ Area planted appears to depend partly on labor availability during
sowing time.











Appendix Table 13: Private full cost budget: Wheat when
competing with soybean in irrigated areas, broadcast seeding.
(Ir/Bc)

Value Total
Item Amount Unit (B/unit) (B/ha)
......................................................................
Labor:
land preparation a/ 2188
seeding 1.9 days/ha 40 75
fertilizer application 1.0 days/ha 40 40
water management 2.0 days/ha 40 80
weed control 0.5 days/ha 40 20
harvesting, collecting 1563 kg 0.58 906
threshing, cleaning b/ 1563 kg 0.55 859
transport 234


Material Costs:
seed b/ 125 kg/ha 10 1250
fertilizer 15-15-15 b/ 125 kg/ha 6.5 813
fertilizer 21-0-0 b/ 62.5 kg/ha 3 188
herbicide 0 0


Other Variable Costs:
interest on working capital c/ 6% 279


Fixed Costs:
land d/ 1 ha 3437 3437


Total Variable Costs 6932
Total Cost per Ha 10369
Total Cost per Kg Wheat (B/kg) 6.64


Wheat Yield (kg/ha) 1563


Price Received by Farmers (B/kg) 6.00
Gross Benefits (B/ha) 9375
Returns to Land and Management (B/ha) -994
ROR to Land and Management -10%
Total Non-Harvest Labor Days per Ha 5
Breakeven Yield (kg/ha) 1728
......................................................................

a/ Hired machinery including labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE, but charged as a cost in this budget.
c/ Working capital charges for four months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
d/ Returns to land and management in soybean production, when land
used in the production of that crop is given a zero opportunity cost.











Appendix Table 14: Pr ivate full cost budget: Soybean when
competing with wheat in irrigated areas

Value Total
Item Amount Unit (B/unit) (B/ha)


Labor:
Land preparation a/ 19.8 days/ha 40 938
seeding and covering 21.9 days/ha 40 875
fertilizer application 1.6 days/ha 40 63
harvesting, collecting 22.5 days/ha 40 900
threshing, cleaning 1313.0 kg 0.6 788
transport 125


Material Costs:
seed 131.25 kg/ha 10.7 1404
fertilizer 250 kg/ha 6 1500
herbicide 0 0


Other Variable Costs:
interest on working capital b/ 6% 287


Fixed Costs:
land c/ 1 ha 2443 2443


Total Variable Costs 6879
Total Cost per Ha 9322
Total Cost per Kg (B/kg) 7.10


Soybean Yield (kg/ha) 1313


Price Received by Farmers (li/kg) 7.86
Gross Benefits (B/ha) 10316
Returns to Land and Managemert (B/ha) 994
ROR to land and management 11%
Breakeven Yield (kg/ha) 1186
......................................................................
a/ Hired machinery including Labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Working capital charges fcr four months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
c/ Returns to land and management in wheat production, when land
used in the production of that crop is given a zero opportunity cost.











Appendix Table 15: Social full cost budget: Rainfed areas,
till and row seed. (Rd/Row)

Value Total

Item Amount Unit (B/unit) (B/ha)


Labor:
Labor:


land preparation a/
seeding
fertilizer application
weed control
harvesting, collecting
threshing, cleaning b/
transport


Material Costs:
seed b/
fertilizer b/
herbicide


days/ha
days/ha
days/ha
kg
kg


40
40
40
0.58
0.55


kg/ha
kg/ha


Other Variable Costs:
interest on working capital c/


Fixed Costs:
land d/


Total Variable Costs
Total Cost per Ha
Total Cost per Kg Wheat (B/kg)


Wheat Yield (kg/ha)


12% 202



na 0


Price Received by Farmers (B/kg) 3.51
Gross Benefits (B/ha) 4388
Returns to Land and Management (B/ha) -780
ROR to Land and Management -15%
Total Non-Harvest Labor Days per Ha e/ 9
Breakeven Yield (kg/ha) 1472
......................................................................

a/ Hired machinery including labor. All machinery costs (interest,
fuel, repairs, depreciation) paid by machinery owner.
b/ Provided free by DOAE, but charged as a cost in this budget.
c/ Working capital charges for six months for all variable
costs except for interest on machinery and harvested related expenses.
Annual real interest rate set at 12%.
d/ Not included, as the budget is designed to estimate returns
to land and management.




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