The pig cycle and stabilization scheme for the Thai pork sector

Abstract

The pig cycle, which can be described in terms of price and production or demand and supply, arises from the interaction of prices, the level of pig production and the volume of pig slaughterings. The basic theory underlying the pig cycle analysis is the cobweb theorem. The modified models of it used in this analysis follow those of Hartman (1974), who applied the cobweb theorem to the egg cycle. Standard econometric techniques were used to analyse the demand and supply responses. The A.N.U, statistical package computer programs were used throughout. Results from the analysis show that the pig cycle does exist in the Thai pork sector though its length is somewhat longer than the 4 years predicted by theory (Harlow's studies). This is due to the slow reaction of farmers to price changes and to traditional practices in the Thai pig industry. The demand analysis, on the one hand, shows that the relationship between quantity and price is significant in an economic sense. It also shows that beef is a complementary commodity for pork The problem of autocorrelation is solved by either using appropriate statistical computer programs (AUTREGAL) or by including the lagged dependent variable in the demand equation. On the other hand, the supply analysis indicates that the time lags in the price of pork and the feed price are significant up to 21 months or 7 quarters. Seasonal dummy variables were also included in this analysis in order to test whether or not the seasonality in the dependent variable has been accounted for by the independent variables. They were generally found to be significant. An Almon lag prodecure, which shows how the quantity responds to distributed prices for successive time lags was adopted. It revealed a time lag of up to 8 quarters. The stability test (Chow's test) shows that there have been no structural changes in the pig industry during the period studied (1961-1975). Various stabilization schemes arc proposed and discussed in order to overcome the problems of instabilities which exist in the pig industry. Some instabilities are inherent and some are due to intervention by the government which, for example, maintained low prices of pork for the benefit of a small group of consumers but to the detriment of the majority of producers. A fixed minimum price for pork and price controls on feed are the proposed price stabilization policies, while a breeding program and the regulation of supply are the suggested output stabilization schemes. In a Thai situation, the supplementary policies e.g. more free market environment, formation of co-operative or semi co-operative organizations are also discussed. Effective implementation of suggested stabilization schemes will give a welfare gain to both producers and consumers and to the Thai economy as a whole in the long-run.