An economic evaluation of the European communities' import quota on Thai cassava

Abstract

Cassava has become one of the most important crops for the Thai economy since the mid 1970's. It is produced mainly for export as a grain substitute for livestock feed in the European Community (EC). Cassava imports by the EC are clearly a case of "trade diversion" resulting from the EC's Common Agricultural Policy. They illustrate the weaknesses of such policies. The trade between Thailand and the EC represents the bulk of cassava trade in the world market. The export of Thai cassava to the EC has been restricted since 1983 by a Voluntary Export Restrictions Agreement (VERA) between Thailand and the EC. Thus Thailand has had to reduce its cassava export to the EC from 6 million tons to 5.25 million tons in 1983 and 1984 and 4.75 million tons in 1985 and 1986. In contrast to normal EC import quotas, however, Thailand is able to allocate the quota. The main consideration in allocating the quota is the maintenance of the producer price of cassava to protect cassava farmers. This study analyzes and quantifies the impact of the VERA and Thai government policy on the cassava industry in Thailand, and how the economic rents arising from the VERA are allocated amongst cassava traders and farmers. The cross effects on grain and livestock production in the EC and world markets are analyzed using a partial equilibrium model to asses the impact of the VERA on coarse grain use in the EC. Various scenarios, including the possibility of Thailand not signing the agreement with the EC are simulated. Prospects for new markets for cassava as livestock feed are explored. Show more