THE EFFECT OF INCREASED FERTILIZER 0N RICE YIELDS AND. FARM PROFITS IN. THAILAND Thesis for the Degree of M. S. MICHIGAN STATE UNIVERSITY SIRION HONGSANAND 1968 I LIBR.-‘le. I b!” iitIzigR'n . 7 ',‘.'.'.;c' I TflES‘S “ T. . I . I #15; '. 9:5" ”R C:- A J I I I I I I BINDING BY ‘5 HOAB 8 MW RITUK BINDERY INC. BRARV a! lunar..- \E ABSTRACT THE EFFECT OF INCREASED FERTILIZER 0N RICE YIELDS AND FARM PROFITS IN THAILAND by Sirion Hongsanand The primary objective of this study is to investigate the relationship of fertilizer inputs and output of rice in Thailand at the present prices. To find whether at the current price levels of inputs and outputs, output expansion might be achieved by adding more inputs to the present agricultural system. Because of the importance of rice as a national cr0p which plays the most important role in the agricultural economy, and fertilizer as an important factor of the cultivating system, the relationship of fertilizer use to rice yields has been examined using production function analyses. The study is based upon the assumption that other factors are held constant while varying the amount of fertilizer used in the same area of cultivation. Most of the analysis is based upon experimental data from the Rice Division, Department of Rice, Ministry of Agriculture, Bangkok, Thailand, from l958-l962. The rela- tionship of the paddy yield and different levels of Sirion Hongsanand fertilizer use was measured by the use of the correlation analysis with log equation. The study shows a strong relationship of paddy yield and fertilizer over the range of the data. Although the factor prices are high, the increased yield of rice after adding some factors of the production, will be worth much more than the increase in the factor costs. Farm budget analysis was used to determine that farmers would get higher profits by increasing fertilizer use on present varieties of rice. Thus, finally the study shows that even though the price of factors of the agricultural production are unfavorable, one way to expand output is to use more factors of production in the present cultivating system. THE EFFECT OF INCREASED FERTILIZER ON RICE YIELDS AND FARM PROFITS IN THAILAND By Sirion Hongsanand A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics I968 ACKNOWLEDGMENT The writer wishes to express the sincere gratitude to Dr. Dale E. Hathaway, my major professor, and Dr. Vernon L. Sorenson, for their constructive direction and guidance in the preparation of this study. My appreciation is also due to Dr. Richard G. Heifner in completing the mathematical computation. The suggestions and comments made by the committee composing of Dr. Robert Stevens, and Dr. M. Steinmueller, are very helpful. Many thanks to the various officials in the Ministry of Agriculture, the Ministry of National Devel0pment and the National Statistical Office, who provided the valuable data which enabled the completion of this study possible. None of the above-mentioned persons are responsible for any short-comings that may still remain. I alone accept that responsibility. TABLE OF CONTENTS Chapter I INTRODUCTION . II THE THAI ECONOMY . A. Location and Geography . Topography. Climate . . Soil type . 8. Population . . . . . . . . . Size and density. Growth rate . Education level and social structure. C. Income and Employment National income . Per capita income . Employment. Foreign trade . D. General Agricultural Situation Types of farming practiced and location. General marketing system. Relative importance of the major cr0ps . Summary . III SIGNIFICANT FACTORS IN THE AGROCULTURAL ECONOMY. . . . . . . . . . . . . A. Production and Output Rice. . . . Corn. . . Jute and kenaf. Page \OVU'I U1 U1 l0 l2 l2 l3 l3 l6 2] 2l 2I 23 25 26 27 27 27 33 3h Chapter IV FERTILIZER USE, RICE YIELD AND FARM PROFIT . A. C. Resource Use. Fertilizer Use in Thailand. Fertilizer prices Summary . B. Sources and Nature of Data . Methods of Analysis to be Used . Theory of production function . . Results of the Regression Analysis Profitability of Using Fertilizer on Rice: Farm Budget Analysis Summary . v SUMMARY AND CONCLUSION . A. BIBLIOGRAPHY . APPENDIX A . APPENDIX B . APPENDIX C . The Importance of Rice to Thailand . B. Hypothesis Investigated. C. D General Summary of Results . Conclusion and Implications. Page 39 Al #5 48 A9 A9 50 52 53 56 6o 63 63 61+ 64 65 67 7o 75 76 Table IO ll I2 13 LIST OF TABLES Per Capita Income (estimates) by Countries, I959 . Per Capita Income of Thailand, I957-l965 Exports, Imports, and Balance of Trade of Thailand, I950— l963 (In U. S. $ millions) Land Use in Thailand, I963 Average Yield of Paddy per Acre in Selected Rice Producing Countries from I96l-l962/I96h . Maize, Area, Production and Market Value, l928-I965. Kenof, Area, Production and Market Value, l950-l96h. Fertilizer Applications and Cost in Selected Far Eastern and Asian Countries. Consumption of Total Plant Nutrients (N, P205, K) in Selected Southeast Asia Countries Compound Annual Growth Rate in Total Crop Production and Changes in CrOp Area and CrOp Yields, Selected Southeast Asian Countries, l9h8-63. Fertilizer Prices in Thailand, I962. Amount of Fertilizer Use and Paddy Yields by Regions. . . . . . . . Costs and Returns of Rice Farmers in Regions Under Actual and Assumed Levels of Fertilizer Use. Page 17 I9 22 28 32 35 37 A0 #2 an 46 55— 58 LIST OF FIGURES Figure Page I Rice Area Planted in Thailand, l907-I965 . . . 29 2 Paddy Yield in Thailand, I907-l975 . . . . . . 3| CHAPTER I INTRODUCTION Agriculture plays an important role in the economy of the developing countries, and thus increases in agricultural production.is necessary. T.W..SChultzI has said that the farmers in deveIOping economy are in equilibrium given the present prices and technology. He said that although it is obvious that traditional agriculture is niggardly, it is not obvious that niggardliness is a function of an unique set of preferences related to work and thirft. He stresses that it is predominantly a consequence of farmers having exhausted the profitability of the techniques of production which are an integral part of the inputs and knowledge at their disposal, and that there is a little or no incentive to save and invest in order to increase the stock of reproducible capital farmers are employing. Thus, traditional agriculture brings a low rate of return to the investment in agricultural factors of the type that farmers have been using for generations. In order to transform this type of agriculture it will have to ISchultz, W. Theodore, Transforming Traditional Agriculture New Haven and London, Yale University Press, l96fi, pg. vii-vTTi. devel0p and supply new factors of production. In order for farmers to learn how to use the new factors will require new investment - investment in human capital will be required. Thailand is a country of traditional agriculture, so that if Schultz is correct, in order to devel0p the economy of the county it appears necessary to follow a policy of agricultural output expansion. Since the agricultural output is the most important source of the national income, agricultural output expansion will bring an increasing rate of growth in the national income, and per capita income. This is the goal of the national deveIOpment policy. According to Schultz's theory, the way to increase agricultural production is to make the farming systems by providing new and more productive factors. This will result in higher productivity and give more profit. The purpose of this study is to find whether: (1) Thai farmers are using less fertilizer inputs compared to other countries with higher agricultural producti- vity. (2) High factor prices are preventing the use of fertilizer because fertilizer cost is higher than its marginal productivities. (3) At current prices using current varieties, more fertilizer will substantially increase production. (A) It would be profitable to apply more inputs of fertilizer than now used, with current prices of inputs and products. In the following chapters, after showing the background of the economy of Thailand, which is in the Chapter 2 and 3, is a study of the relationship of the inputs and outputs of one major agricultural crop -- rice. The main input which is studied is the fertilizer, for it is one of the most important factors of production in a modern farming system. The output which is examined is ”rice”, since it plays the most important role in the Thai economy. A simple production function relating fertilizer and the paddy field is computed. The raw data were collected from the experimentation of the Rice Division, Department of Rice, Ministry of Agriculture, Bangkok, Thailand, in I962. This experiment shows the combination of the fertilizer tests and yields on farms in the different regions of Thailand. Using production function showing the relationship of the fertilizer and the paddy yield, it is possible to compare the paddy production before fertilization and after fertili- zation. A comparison to farm budgets of the rice farms by regions in I962 were compared with the revised farm budgets computed using new input-output ratios, these included using an optimum level of fertilizer obtained from experiments in farmers fields. The comparison used the average price of fertilizer and the average price of the paddy yield in the region for the year of I962. These results are covered in Chapter A. Chapter 2 is the discussion of the location and geography of Thailand, income and employment, per capita income, foreign trade, and then the agricultural situation which shows the importance of the sector in the Thai economy. Chapter 3 shows the significant factors in the economy of agriculture; those are rice, corn and jute. The farming system, resource use, and the agricultural marketing system, fertilizer prices and the fertilizer use are being shown in the chapter also. Chapter 5 is the conclusion of the study and some suggestions for improving the output expansion program. CHAPTER II THE THAI ECONOMY A. Location and Geography Topography The kingdom of Thailand covers Slh, 000 square kilo- meters (almost 200,000 square miles), as large as France, of the lndochinese Penninsular between longtitudes 60 and 200 North and latitudes 970 and l06o East. Listed clockwise, countries bordering Thailand are the Kingdom of Laos and Cambodia on the North and East, the Federation of Malaysia on the South, and the Union of Burma on the West and North. There are four natural regions conveniently divided by the pattern of rivers and mountains in Thailand: I) The North, 2) The central Plain, 3) The Northeast, and 4) The South. With the exception of the South and the Northeast, the political geography of Thailand is that of a nation oriented toward one major river system, Chao Phraya. The Thai gradually moved down the tributaries of the Chao Phraya and on the plain of the river itself, establishing the foundation of the modern state. Northern Thailand includes the area drained by the upper reaches of the Chao Phraya tributaries. It is a 60,000 square- mile region of long, north-south mountain ridges and deep, narrow, alluvial valleys. Villages and towns cluster in the valleys, making use of the alluvial rice soils that exist here. The political and economic capital is Chiengmai. The ridges of this area are thickly forested and yield many types of valuable woods. Southwest of Chiengmai, the ridges reach their maximum height of 8,400 feet above sea level. The Central Plain is the heartland of the Thai nation, it is the great plain of the Chao Phraya, and covers 50,000 square miles. Its northern limit is the Uttaradit area, and it stretches to the sl0pe of the Korat Plateau. Bangkok is the capital of the great city of the plain; it is the center of the economic, political and cultural activity. Today A0 percent of the people live on the lower Central Plain, in a space smaller than 25 percent of the country's area. These millions have stripped the plain of natural cover, replacing it with the rice plant. The area now is a vast rice paddy. Although divided by the rivers, crisscrossed by the canals, dotted heavily by small villages, the paddy is everywhere. From the heavily p0pulated and the intensively cultivated fields of the plain comes one of the world's largest rice crop. This also points to the dominance of rice in the country, for rice is the staple food, principal export, and largest source of the foreign exchange. The Northeast is the least favored region of Thailand, having poor soil and relatively scarce rainfall, and is isolated from easy communication by its position outside the Chao Phraya basin. About 70,000 square miles (one-third of Thailand) is included in this area, and it represents the most serious challenge to the economic hOpes of the central govern- ment in Bangkok. The fourth region, 20,000 square miles, is that of the South. Its economy is based on tin mining as well as tropical agriculture. It is mountainous with narrow valleys plunging to the coast; only the east offers exploitable soils and adequate harbor facilities. The western most mountain range in Thailand is a series of elongated blocks, along which most of the Thai-Burmese border runs, forming the watershed between the Salween and the Chao Phraya. To the south this range of many names becomes the spine of the Malay Penninsula. There are many passes and gaps through the mountains, but there has never been unlimited access, primarily because of military rivalry between Burma and Thailand. Climate The climates in Thailand qualifies in the Koppen classification as a “Tropical Rainy Climate.” The defining Thailand: Physiographic and Administrative Regions Chanrw'is: -—-—-——-———- CAMBODIA pa I? . _ . % _ \; Y, Q 7% GULF or THAILAND N O I) A I. Central 0 g . 1V9N39 :IO AVG Bangkok Plain Southeast Coast Marginal Plains Upper Plain Western Highlands Peninsula WDJUOm3> II. Northeast North South GQO‘U'IFWNO— Chai-Nat Singh-buri LOpburi Sara-buri Aug-thong Ayuthya Nonthaburi Pathum-thani 'I'honburi Phra-nakhorn Nakhornayok Prachinburi Samutprakan Cha-choenglao Cholburi Rayong Chant-buri Trat Chayaphum Nakhornratsirna Buriram Surin Srisaket Ubonratthani Nong-kai Loci Udornthani Sakonnakhorn Nakhornphanom Khan-kaen Mahasarakham Kalasin Roi-ct Mae-honglorn Chiengmai Chiengrai Lamphun Lmnwms Phrae Nan Uttaradit Tak Sukhothai Phitsnulok Kamphaengphet Phichit Phetchbun Nakhornsawan Uthai-thani Kanchanaburi Suphanburi Ratburi Nakhornpathom Samutlongkhram Samutsakhorn Phetburi Prachuap-khirikhan Chum phorn Ranong Phang-nga Surat-thani Nakhornsrithamrat Phukct Krabi Trans Phatalung Samn Song-khll Pattani Yala Nara-thiwat characteristics of this classification are as follows: (a) Warm temperatures throughout the year, with no month having a mean temperature less than 6AOF. (b) An annual rainfall of greater than 750 millimeters, which is largely convectional in origin with heavy showers often accompanied by severe thunder and lightning and cyclonic rains associated with weak trOpical lows.2 There are three seasons in the general classification, the cool season is from November till the end of February, from March to May is what is called the hot season, and the rest is the rainy season. The southwest monsoon breaks over the whole country by June, bringing the season of heavy rains. The southwest monsoon blows steadily from May to September and then gives away to the cooler, drier northeast monsoon which continues into February. The Monsoon pattern is modified by local thunderstorms which arise in the Gulf of Thailand and by cyclonic storms which originate in the South China Sea and pass over North and Northeast regions in June and September. The return of the cyclonic storms in September often results in the heaviest rainfalls of the year in the areas which are affected. 2Nuttonson, M. Y. The Physical Envinanment and Agriculture of Thailand: A Study basedTon field survey data andTon Pertinent Records, MateriaTs and Reports. washington: The AmerTCan Institute of_trop Ecology, I963, p. l2. The variation of the rainfall over Space is determined primarily by the tOpography. The major sources of rain are the Southwestern monsoon, local storms which arise in the Gulf of Thailand and which do not normally venture far inland, and the cyclonic storms which pass over north and northeastern Thailand. Heavier rainfalls are concentrated in the areas which are southwest of the mountain ranges, close to the Gulf of Thailand, and the cyclonic storms from the South China Sea pass over regularly. The Northeast does not receive sub- stantially less rainfall than does the Bangkok Plain and much of the rest of the Central Region. The relative water shortage in the Northeast does not seem to result from either low annual rainfall or wide annual variance in rainfall so much as from the incapacity of the soils to retain much water and the torrential river system. In the Central Region, the rivers are not torrential and large areas, especially in the Bangkok Plain, benefit from runoff of rainfall which actually occured in the North. Soil Type With the exception of the flood plains, the surface soil is generally of low fertility. Once the apparently luxu- riant natural tropical vegetation is destroyed the organic material is quickly oxidized because of the higher temperature, and the heavy rains rapidly leach away the soluble organic IO compounds, as well as any other soluble nutrients. Upland soils tend to be less fertile in the Northeast than in the Central Region because of the finer sandy loams of the North- east are more susceptible to leaching and have a lower lime- stone content. The fine upland surface soils of the Northeast have little capacity for water retention and the underlying impermeable layers of laterite prevent substantial seepage into underground reservoirs. The upland soil structure of the Northeast is a major cause of the relatively torrential river flows and the associated alternation of flood and draught conditions in parts of that region. The flood plain in both the Northeast and the Central Region are constituted of heavy clay soils which absorb water very slowly and which tend to be puddle when wet. Such soils do not permit adequate drainage for most crops, but are suitable for wet rice. The plains are usually overlaid with alluvial deposits. Because the rivers of the Central Region are much more sluggish and flood plains cover a much larger area, the deposition of sediment contributes more to the fertility of soils in the Central Region than in the Northeast. B. Population Size and Density In I965, the population of Thailand is estimated to have ll been approximately thirty and a half million.3 The average density is about llh persons per square mile.4 The most extensive concentrations, over 200 per square miles, are found in the Chao Phraya Valley and the Valley of the Chee and Mun Rivers on the Korat Plateau. The p0pulation is concentrated in the river valleys, where alluvial soils and adequate water allow the traditional rice culture. Most of the people are classified in the agricultural sector, about 7A.6 percent of the whole population of the country in I960. Given the rapid growth of the population living in Bangkok in the post second world war period, pre- sumable an even larger percent of the population lived in agri- cultural households in earlier years. Not all of those who live in the agricultural households receive all of their income from the agricultural production. Many of the agricultural residents work seasonally in the villages or in Bangkok or supplement their income through such activities as lac collection or forestry. The high percent of the total p0pulation which livest in the agricultural households is an indication of the 3Behrman Richard Jere, Suppjngesponse in UnderdeveIOped Agriculture, A Case Study of the Four Major Annual Crops in Thailand, I937FT963,Unpublished—report submittediforTPh.D., University of Pennsylvania, Philadelphia, Pennsylvania, August 22, I966, p. 39. “Wendell Blanchard: Thailang,gits peogle, its society, its culture. New Haven, HRAF Press, I958, p. #9. l2 important role that the agricultural sector plays in the Thai economy.5 Growth Rate The annual rate of the population growth in recent years has been approximately 3.2 percent. These growth rates suggest that in the Central Region, population is growing relatively quickly in the upper plains, in Cholburi, and the Bangkok area. In the Northeast, p0pulation is growing relatively fast in the northern cities close to the Mekhong and in the western cities. In both regions, therefore, there is evidently some tendency for net migration out of the more densely settled flood plains. Education Level and Social Structure The government school in the rural areas became wide- spread only after the I932 revolution. In the post World War II period, attendance has been required until the student has become fourteen or has passed the fourth grade (Prathom IV). There is some tendency towards higher literacy rates in the heart of the Central Region than anywhere. The highest literacy rates are in the Bangkok Plain and the lowest are in the Northeast and Western highlands.6 In the recent years, SBehrman,,Richard Jere, 22. cit., p. 39a. 6Ibid., p. 49. l3 more informal educational programs associated with the community deveIOpment and extension services are being expanded. The dominant religion in Thailand is Buddhism, including 93 percent of the population. The other religions are Islam, Christianity, Bramanism and Touism; but these affect only small fractions of the p0pulation and none are expanding. The concept of the supernatural power affecting human relations, the arts, and even the economic organization are Buddhist religious beliefs and institutions that are changing, but many of the basic concepts remain unchanged. The Thai economy, in general, is controlled by the Thai- Chinese people. They are still important to the agricultural sector, because they dominate the marketing system, the agri- cultural processing industries, and the agricultural export trade. They became predominant in commercial, financial and nfinHHJactivities, while the Thai's concentrated in agricultural production and government services. C. Income and Employment National Income The statistical data of the office of the National Economic Board, shows that Thailand's Gross National Product (GNP), or the value of all goods and services produced, reached IA an all time high of 3.86 billion dollars in I965. Growth rates of GNP since I957, although fluctuating, have always been positive and have averaged over 7 percent a year, a rate which is more than double the estimated growth in p0pulation (3 percent per year, approximately). Per Capita GNP in I965 was over l20.6 dollars, up from 86.8 dollars in I957. Agriculture is still the predominant sector of the national economy of Thailand. The value of agricultural out- put increased from 849 to l,8l9 million dollars from I957 to I965, while the national income increased from 2.00h to 3,332 million dollars in the same period. Fluctuation in the over-all growth rate ranged from a low of +0.8 percent in I958 to +l0.7 percent in I960. Such variations were caused by the instability of agricultural output and its impact on other sectors of the economy. In the past few years agricultural output has stabilized at a high level and the growth rate since I963 has been a little over 5 percent a year. The basic activity of the Thai economy, or that from which most of GNP is directly or indirectly derived, is agriculture. Although only 37.3 percent of value added originates directly from this sector, over half of manufacturing involves the processing of agricultural products and a significant part of trade and transportation is devoted to the marketing of these l5 products. Consequently, when agricultural product varies, there is a direct income multiplier effect. The structure of the Thai economy has changed considerably in the course of deveIOpment, particularly during the first phase (l96I-l963) of the First Economic DeveIOpment Plan (l96l-l966). Total output grew at over 5 percent a year in agricultural sector. During the second phase (l96A-l966) of the plan, total output (GNP) grew at an annual rate of over 7 percent, while agriculture grew at only 2 percent annually. Per Capita Income A certain minimal level of income per person is consi- dered an important factor for raising yields because where incomes are still at the subsistance level there is little capital available to purchase the yield-raising inputs such as fertilizer or improved seeds. The level of income per person is also the most commonly used indicator of the level of economic devel0pment, thus, establishing the fact that high income countries can raise yields rapidly may be to infer not only that these countries have a great deal of capital for investment in agriculture but also they are advanced countries, almost by definition, possess a much greater yield raising capability. l6 Most of the world's major rice producing countries are chacterized by very low per capita incomes. Eleven of the thirteen leading rice producers have per capita incomes below $I50 per year (as.shown in Table l). The exception are Japan and the United States, where per capita incomes are $350 and $2,280 per year. Both countries have had much more success in raising rice yields than any of the low income countries. The low income, rice producing countries had uniformly modest increase in yields during the 2A years from l935-l939 to l960-l962. Thailand, which experienced a decline in yields, was the only exception. Annual rates of increase in the other countries ranged from 0.3 percent per year in the Philippines to 0.9 percent in Taiwan. In Thailand, the average per capita income shows a slight upward trend. It presently varies from $60 in the Northeast area to $I68 in the Central Plains, which includes the Bangkok area. The national per capita income is estimated for I965 at $l0h (Table 2). Employment Increases in the population throughout the nineteenth century and well into the twentieth century led neither to general overcrowding nor to an exodous from the land. The growing world demand for rice was an incentive for increased Table I. Per Capita Income (estimates) by Countries, I959 Country Annual Income North America Canada U.S.A. Latin America Argentina Brazil Chile Colombia Quatemala Mexico Western EurOpe France Germany (West) Greece Italy Portugal Spain U.K. Africa Algeria UAR (Egypt) Morocco Tunisia South Africa Asia Burma Ceylon China (Taiwan) l,560 2,280 300 I70 th 200 ISO 3I0 l,0l0 l,020 330 SIG 230 300 I,l00 230 l20 I20 l30 350 50 I20 90 l8 Table l, Continued Country Annual Income Asia, cont. India 60 Japan '350 Korea (South) I00 Pakistan 50 Philippines I50 Thailand 80 Iraq I60 Turkey lhO Oceania Australia l,l00 Source: Brown, R. Lester, Increasing World Food Output; Problems and Prospects,TForeign Agricultural Economic Report No. 257’UTS.D.A.; Economic Research Service; Foreign Regional Analysis Division, April I965, p. 47. .I9 Table 2. Per Capita Income of Thailand - I957-I965 -II’--r-"° £355“ IiiIHSIs'Béfilib TEA???“ We" I957 2h,lh8 40,083.l I,662 79 I958 2h,873 hl,579.l I,670 79 I959 25,6l9 AA,358.6 I,730 83 I960 26,388 h8,9l0.6 l,85h 88 I96l 27,l80 52,308.2 l,928 92 I962 27,995 56,863.5 2,032 97 I963 28,835 58,8l8.7 2,0A0 97 I964 29,700 63,0l0.8 2,I25 l0l I965 30,59l '66,64A.3 2,I80 l04 Source: (a) Statistical Yearbook I965, p. Al. (b) Ibld: 20 production, and new lands were brought under cultivation. Agriculture remains the Thai's preferred occupation, and no economic pressure developed to force him into others. New OCCUpatlonS coming into existence as a result of foreign invest- ments in the extractive industries provided employment for Chinese rather than Thai labor. The rice cultivator is generally a small Operator working land which he owns or rents and which he farms with the help of his family. Farm wage laborers are not more than 6 percent of the agricultural labor force, yet, they represent more than one-third of all the wage earners in Thailand. Recent reports indicate that there is, at the present time, little urban unemployment. Seasonal unemployment and underemployment, however, remain widespread in agriculture. In recent years government-sponsored road and irrigation projects have provided employment for many whose agricultural pursuits have several months of the year available for other work. Other agricultural workers, particularly from the North and Northeast, find jobs as unskilled laborers in Bangkok for a few months each year or two. 2l Foreign Trade Thailand's foreign trade is extremely important to the economy. The export of raw materials provides foreign exchange for the import of manufactured products, including capital goods. Foreign trade represents a substantial prOportion to the national income, and government economic policy has diverted a large part of this income to the treasury. Direct levies on trade, particularly exports, produce probably one-half of government revenue. The three principal exports -- rice, rubber, and tin made up more than 70 percent of the exports in recent years. Rice represented more than A0 percent of the total. Imports consist primarily of textiles, machinery and transport equip- ment, fuel, food, and chemicals. With rare exceptions the yearly value of imports exceeds that of exports. The imports have been increasing at a higher rate than the rate of expansion in exports. This results in a negative balance of trade. Despite the negative balance of trade, there is no balance of payment difficulties, because of the significant inflows of international aids and private capital. 0.. The General Agricultural Situation Types of Farming Practiced and Location Thailand is a part of monsoon Asia, lying entirely within the tropics. The present area has been held by the 22 Table £3 Exports, Imports and Balance of Trade of Thailand, 1950-1963 (In usé millions) Exports Total Balance Year Rice COther ’TTOtal' Imports of Trade I950 79.6 85.8 I65.A I25.0 +AO.A I95l 86.8 I23.3 2l0.l I76.A +33.7 I952 I25.2 94.7 2l9.9 263.I -43.2 I953 I78.A 96.A 274.8 308.2 -33.A I95A IA7.0 IA7.I 29A.I 33A.A -AO.3 1955 1A9.2 189.9 339.1 357.3 -18 2 I956 l36.2 I93.5 329.7 364.5 -3A.8 I957 I72.5 I87.5 359.0 A06.3 -A7.3 1958 141.3 165.7 307.0 392.2 -8A.2 I959 l22.7 l37.3 360.0 929.0 -68.0 I960 I22.A 287.8 AIO.2 A58.2 -A8.0 l96l l7l.3 309.7 476.0 A89.9 -I3.9 I962 I5A.3 299.5 453.8 547.8 -9A.O 1963 163.0 297.8 A60.8 609.7 -148.9' Source: Agricultural Statistics of Thailand, I963 Tables 80, 8|. 23 Thai's for more than l00 years. Its physical features are varied and fall into four natural regions. The North (north- west) region toward the border of Burma is mountainous and forested. The Northeast region bounded on the east by the Mekong River (the Laos border) is a vast plateau. The Central Region is a well-irrigated and very fertile rolling plain. The South Region extends down the Malay Penninsular to the border of the Federation of Malaya and is mainly mountainous. 0f the total land area of l26.5 million acres, approxi- mately 22 million are under cultivation and some 75 million are forested lands. There is no precise information available on the use of the remainder -- nearly a quarter of the land. Agricultural techniques in Thailand have not changed substantially from those used a hundred years ago. It is a kind of traditional farming system. The methods varied according to the climate condition, the topography of the land, and the nature of the soil. Yield per rai«(2.5 rai = l acre) is low. The tools are simple, such as a wooden plough, a wooden harrow, and a wood-handled sickle. The average area per family is approximately l0 acres. General Marketing System According to theory, to induce higher output, the farm output prices must be suitable and stable, and provide an incentive for using productive inputs. Improvement in 24 productivity of farming is important. Farmers have low income because: I. They have the contracts with the loaners to sell the products at the prices lower than the market prices; 2. No storage available for them. They have to sell the products after threshing and harvesting. This causes the lower prices during the harvesting time. 3. The purchasers who are the merchants, retailers and the loaners tend to cheat the illiterate peasants in measuring and pricing. Rice farms in Thailand are large in number but small in the area owned. It is estimated that there are approximately 2.8 million farms with an average size of 26 rai (l0 acres). These farms are scattered around the whole kingdom, but con- centrated most in the Central Plain. The marketing system of rice is as simple as the other products. These are shipped from the villages to the mills, processed at the mills, shipped from the mills to the ports, and the arrangement for export is all done by separate groups of middlemen. Rivers are important in the transportation; railroads and highways are used where the water transport is not accessible. 25 Middlemen play an important role in the marketing of major crops. Some of them close to the farmers buy and sell paddy, and other farm products; sell imported merchandise and transport goods in both directions. Relative importance of the Major Crogs Among the major annual crops of Thailand, rice plays the most important role, as is well known. It occupies the largest cultivated land area, produces the highest value among the crops, and provides employment Opportunity for the majority of the people. It supplies more than enough staple food for the country, earns the largest amount of foreign exchange, and yields the most Stable revenue for the government. In I963, agricultural products, which always has been the most important source of national income, was estimated at about 35 percent of the national income, while rice con- tributed l2 percent to the gross domestic product.7 The second major cr0p is maize, which is increasing in importance in exports, mostly in the recent years. It is the most important export of the grain cr0ps, other than rice. 7National Income Statistics, Office of the National Economic DevelEpment Board, Thailand, I96A, pp. 90-9l. 26 From l95l to I963, the quantity of corn exported increased at an average annual rate of 36 percent, and it ranked as the third export next to rubber in l96l to I963.8 Jute and kenaf are the fiber crops, which are the third major type of cr0p in the economy. Summary Among the Southeast Asian countries, Thailand is one of the major agricultural exporters. The climate and the soil type are suitable for growing crOps, and cr0p production plays an important role in the economy of Thailand. About 37.3 percent of the national income comes from the agricultural sector, and the farmers represent the largest share of the p0pulation (7A.6%) as a whole. The rate of the p0pulation growth is approximately 3 percent a year, while the growth rate of the gross national product is 7 percent. Although agricultural development in Thailand has made significant gains, in certain respects it is lagging behind other countries in the use of improved seed and fertilizer. The rate of growth in Thai agricultural output has been significant but still remains lower than Japan and Taiwan. The rest of the study examines some of the implications of removing some of the obstacles to improve yields. 8Behrman, Richard Jere. Supply Response in Underdeveloped A riculture,gA Case Study of Four Major Annual CrOps in Thailand, 7-l963. UfipuEIished materTal submitted for Ph.D., University 0 lennsylvania, Philadelphia, Pennsylvania, August 22, I966, p. 5 . CHAPTER III SIGNIFICANT FACTORS IN THE AGRICULTURAL ECONOMY A. Production and Output Rice \ The economy of Thailand is not only predeominantly agriculture, it is primarily a 'rice economy'. Rice production has been the main economic activity of the peOple.. It occupies Al.3 million rai (2.5 rai = l acre), or l3 percent of the land available for cultivation in I963 (Table A). The area under rice cultivation expanded at breakneck speed from 9.3 million rai in I907 to Al.6 million rai in I962 (Figure I). This increase in acreage is due to the rapid growth of pOpuIation, limited Opportunity for employment in the city, and the fact that rice is the main staple food of peOple.9 Rice can be cultivated everywhere in Thailand, but the heaviest concentration of rice production occurs in the Central Plain zone, averaging about 50 to 55 percent of the total production of Thailand. 9Division of Agricultural Economics, Ministry of Agricul- ture; Bangkok, Thailand, A Study of Rice Production and Consumption in Thailand, I966, p. 5. 27 28 Table A. Land Use in Thailand, I963 Item Rai % Of Land (1,000) Area Used Rice 41,277 12.84 Tree crOps I0,792 3.36 Upland crOpS l0,23A 3.I9 Farm woodland A,22A l.3l Misc. farmland 3,968 l.2A Sub-total: All farmland 70,A95 2l.9A Forest and grazing land I65,AA3 5l.50 All other (roads, rivers, urban areas, wasteland) 85,3l2 26.56 Total Area 32l,250 l00.00 Source: Division of Agricultural Economics, Ministry of Agriculture, Bangkok, Thailand, Agricultural Statistics of Thailand I963, PP. I62. 29 Figure l. Rice Area Planted in Thailand, I907-I965. Million Rai 5.00 LI.00 / 3.0. F ”MAJ o . I907 I920 I930 l9AO I950 I960 Source: Division of Agricultural Economics, Ministry of Agriculture; Bangkok, Thailand; A Study on Rice Production and Consumption in Thailand, I966, p. 6 30 Although more land has been used for rice growing and total production has in consequence increased, average yield per rai has exhibited a declining trend (Figure 2). From the report of the Division of Agricultural Economics, over the entire period there is a downward trend until the I950's with many fluctuations. That may be due to the following causes: (I) The supply of land is fixed and as farming becomes more intensive, suitable land for growing rice is less available. (2) Land is not prOperly taken care of and insufficient fertilizer is used to maintain soil fertility, which has been reduced as a result of crOpping practices and natural conditions. It appears that the declining yield per rai was arrested in I959. Since then, yield has increased by approximately one-fourth -- from 206 kilograms in I959 to 257 kilograms per rai in I96A. There are two reasons given to explain this rise in yield. One is the varietal improvement and an increase in rice under irrigation.‘0 Although Thailand is the first in the world rice exporters, it has one of the lowest yields (as shown in Table 5). From Iolbid., p. 8. 3l Figure 2. Paddy Yield in Thailand, I907-I965. Kilograms per Rai 300 L '\ m , _ \j\/III/ IOOf I970 I920 I930 I9A0 I950 I960 I970 Source: Division of Agricultural Economics, Ministry of Agriculture, Bangkok, Thailand, I966. A Study on Rice Production and Consumption in Thailand. 1966. p. 7 32 Table 55. Average Yield of Paddy per Acre in Selected Rice Producing Countries From I96l-l962/l96A-l965 Average Yield (pounds per acre) Country a l96l-l962 l962-l963 l963-l96A* I96A-l965 (Australia 5,773 5,332 5,293 5,339 Spain A,72A 5,5A6 A,865 - Italy A,868 A,7A0 A,573 5,I27 Japan A,l96 _ A,Al7 A,386 A,5l0 U.S.A. 3,All 3,726 3,962 A,082 Portugal A,l6l A,203 3,897 3,8l2 Peru 3,708 3,l8A 3,527 - Taiwan 3,l30 3,l86 3,36I - Pakistan l,A8A l,35l l,537 - Thailand 1,297 1,339 1,u20 l,A22 India l,36l l,22A l,378 I,378 Philippines l,097 l,099 l,090 l,l26 Cambodia 97A l,0AO l,073 - Source: U.S. Department of Agriculture. C., January l96A, pp. 28-29 Washington, D. (*l963-I96A, l96A-I965 data are preliminary). Rice Situation, 33 the table we can see that in l963-l96A, the productivity of rice per acre in Australia was 3.7 times as high as that of Thailand; in Japan 3.l times as high, and in the United States, 2.8 times.ll 9.2m Corn or maize can be grown under high temperatures, high rainfall and a fairly long growing season. The degree of concentration of corn production has been increased because of the improvement of transportation, which increases returns to producers. The second reason is that because of the comparative soil characteristics, high corn yield can be obtained in the north of the Central Region where corn has become concentrated. In cultivating corn, sometimes three bean crops are interplanted among them, since these kinds of crop will increase the nitrogen organic material, which replenishes the soil fertility and makes the second crop of corn more produc- tive. This kind of practices are being followed for the other crops also. The cultivation techniques which are used for corn in Thailand are simple. Even so, corn production has been IIKrisnamis Phriach, Paddy Price Movements and Their Effects on the Economic Situation ofTFarmers in the Central Plain of ThaiTand, June I967, p. T0. Unpublished report suEmitted for Ph.D., Indian University, Indiana. 3A increased in both acreage and yield (in Table 6), because of the improvement of the transportation to market, the develop- ment of new varieties, and also the impmyement of soil fertility. The recent rate of increase of the corn production and corn export has been very high. In the period of l95l-53 through l96l-63, corn production has increased at an average of annual rate of over 27 percent and the quantity exported has increased at an average of annual rate of almost 36 percent. Jute and Kenaf Jute and kenaf are produced mostly in the north- eastern region of Thailand. Farmers are concentrating more on the production of kenaf than quebecause of the market demand. As shown in Table 7, the production increased from l8l,000 tons to 339,000 tons from I960 to l96l, resulting from an expansion in the area planted. Production declined in I962 since the world price drOpped extremely. Sometimes the kenaf and jute yields have dropped in some areas reflecting a reduction in soil fertility. Next to India and Pakistan, Thailand is one of the most important fiber crOp exporters. The government is trying to improve and support the production of jute and kenaf, also stressing the quality of the products. 35 0..0 0m.. 0.00 .0. 0mm .mm :00. o.mm om.. ...m mm. mmu mmu mmm. ..00 00.. 0.00 00. .AN .0N ~00. w.~m om._ m..: mo. 0mm mmN .mm. ..0~ 00.. 0.0N km. ..N 00m 000. 0 0 “.00 AN. ~00 0.0 000. p 0 ~.k. 0m. 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N. 000. 0.0 00.0 0.0 0.00. :. 0. 000. 0.0 0~.N 0.. 0.00. o. o. 000. :.0 00.. 0.. 0.00. 0 0 :00. 0.. oo.. 0.. o.om. o. .. 000. :.: .:.: 0.. m.~:. 0 0 ~00. 0.0 00.. 0.0 0.0:. .0 mm .mm. 0.0 00.. 0.0 0.0:. 0. 0. 000. 0:00 .00 0:00 .00 .mm .mm 00.... .00 0000 000.. .00 .00 000.. 000.. .0.0 m:.m> 00.00 0005003. U.O.> pmumO>Lmz 000cm.a 00000: m.mmO.oL3 co.0u:vo00 OmmLO>< mme< mOL< me> UO:c_ucoo .0 0.0m» 39 B. Resource Use The traditional farming system in Thailand is being devel0ped° Since the farmers have to pay the high rate of interest to the loaners, the Thai Banker Association offers a low rate of interest loan to the farmers to buy fertilizers and improve their mechanical use. Besides, the government is providing the policies of double cropping system, new strains, and different kinds of fertilizer to the farmers. Along with the improving in the storage facilities, that will prevent the high wastage of the grain to be Spoiled through insects and pest damage. Fertilizing is the first thing that should be done. In the past, fertilizer was imported and was so expensive compared with the other countries (as shown in Table 8), that farmers believed only crOps such as sugar cane, tobacco, and vegetables could return enough to pay for its use. From a government survey, it was reported that only 20 percent of the cultivated land was under fertilizer in I965. The pre- vailing high prices of fertilizers for a time defeated efforts to increase their use. The government is working on a program of subsidization of fertilizer. It has been shown by experimentation that certain fertilizers can increase rice yields from 25 to 200 percent.‘2 A West German consortium IZWendelI Blanchard: Thailand, Its PeOple , Its Society, its Culture, New Haven, HRAG Press, I958, p. 3l9. #0 Table ELFertilizer Applications and Cost in Selected Far Eastern and Asian Countries Average application, 1958-59a (Kilograms per hectare) Kilograms of Rough Rice Equivalent in Value at Country Local Prices to one Kilo- Nitrogen PhOSphates Potash gram of (N) (P2 0;) (K20) Nitrogen (l) (2)' (3) (4T Burma .15 .101 9.53C Cambodia .12 1.33 .12 Ceylon 25.20 1.45 15.92 India 1.23 .20 .12 4.40 Indonesia 1.57 .73 .28 5.39 Japan 132.90 58.30 85.30 1.44 South Korea 76.16 68.10 2.16 Malaya 7.67 1.53 3.19 3.98 Pakistan .63 .04 .00 Philippines 3.54 1.24 1.24 4.83 Taiwan 104.80 39.97 30.73 4.10 Thailand .19 .25 .41 6.70 South Vietnam 5.67 .44 .69 5.98 aBrown [V-8, p. 14] bVon Vexkuell, "Obstacles to Using Fertilizers for rice in Southeast Asia," World Crops, March, 1964, as presented in Bachman, gt El° cAverage for all crops. [VI-3' p. 41]. 4| constructed a fertilizer plant which began Operating in Northern Thailand at the beginning of I967. Working at full capacity, this plant could product half the ammonium sulphate and urea needed by the country. C. Fertilizer Use in Thailand The use of the chemical ferilizers in Thailand started after the World War II and still is in the initial stage. 0f importance to Thailand and other Southeast Asian countries with devel0ping economies is the fact that most of the increased fertilizer use is needed in the countries where the present level of usage is quite low. Ideally, it would be advantageous if countries which must increase fertilizer use on a large scale were also those countries which would and could construct the additional productive capacity needed. Even in developing countries such as Thailand, with a present low level of fertilizer use and no food deficit problems, the tremendous increases in estimated population growth indicate a close scrutiny of the potential for fertilizer production and use should be made. A rather substantial growth in the use of fertilizers is occuring in Thailand (Table 9). In terms of total fertilizer used on a country basis, Thailand compareslavorably with its close neighbors -- Burma, Cambodia and the Republic 42 Table 9:. Consumption of Total Plant Nutrient (N,P205,K) in Selected Southeast Asia Countries (1,000 metric tons) Country 1957-58 1962-63 IEEEESQE Burma 1.8 4.6 177 Cambodia .1 .9 800 China (Taiwan) 172.3 105.2 -4 India 224.6 555.4 147 Indonesia 40.3 149.4 271 Japan 1240.4 163.8 32 Korea ‘ '218.6 316.1 45 Pakistan 3.3 53.1 1509 Philippines 26.1 105.1 302 Thailand 7.9 21.8 176 Vietnam 17.6 22.5 28 Total 1953.0 3033.9 ‘ 55 Source: Present State and Future Plans for the Development of the Fertilizer lndustryg in the Region; Kiev, Ukranian, USSR, 43 of Vietnam. The use of fertilizer in these countries is quite low eSpecially when compared to Taiwan, Japan and Korea. In terms of the fertilizer growth rate, only Indonesia, Pakistan, Cambodia and the Philippines have surpassed Thailand. However, because of the extremely low base levels of use in Thailand and other countries in I957-I958, the fertilizer growth rates are relatively unsatisfactory measures of progress for country comparison.‘3 In a country which has never had a scarcity of food and is presently exporting large quantities of food in the world market, it is difficult to present a case to farmers for increasing fertilizer use. But, the data indicate that a tremendous untapped potential for expanding agricultural production exists in Thailand. Should the need deveIOp for an increased rate of agricultural output, changes in the agricultural policies with regard to internal pricing of agricultural commodities and fertilizers might quickly alleviate the problem. The data also indicate that Thailand has the potential to increase its share of the world market for agricultural products. Since 1948, the annual growth rate in total crop production in Thailand has been 4.4 percent (Table 10). This is about the average for other Southeast Asian countries. In Thailand, the increase in crop production has been equally accounted for '3Bond J. Billy, Kelso M. Thurman, Woodward 0. Robert: A Report on the Thailand Fertilizer Situation and Potential: Agency for International Development, May T0,Vl966, p. 39. Table I 44 0. Compound Annual Growth Rate in Total CrOp Production and Changes in Cr0p Area and CrOp Yield, Selected Southeast Asian Countries, 1948-63 Compound annual Change In Country growth rate in Cr0p Area Crop Yield CrOp Production (percent75 (percent) .(percent) China (Taiwan) 4.5 12 44 India] 3.1 ‘ 26 14 Japan 2.8 l 31 Philippines 5.2 67 13 Thailand2 4.4 30 31 I1948-1962 21948-1961 Source: Economic Research Service, U.S. Department of Agriculture 45 by increased the land devoted to crop production and by increase in cr0p yields from improving the production techni- ques. As the acreage of land available for cultivation in Thailand is brought into production, greater emphasis must be shifted to increasing crop yields as a means of increasing agricultural production. At such a time, the need for increased fertilizer use should become an important factor in Thailand‘s agriculture. In summary, Thailand has an extremely low level of fertilizer use. Although fertilizer use is increasing, the present rate of growth must be greatly accelerated if the 14 output is to be increased to any significant degree. Fertilizer Prices As shown in Table 11, there are variations in the pricing of fertilizer to both dealers and farmers. The re- lationship in summary is: Average Price per Ton Average Price per Ton to dealers to farmers Cash Credit Cash Credit 1,948 baht 2,093 baht 2,211 baht 2,531 baht ‘L‘Ibid., p. 43. 4o Table 1]“ Fertilizer Prices in Thailand, 1962. Type of Dealer Price Interest Farmer Price Interest Fertilizer Cash Credit Rate to Cash Credit Rate to Dealersa Farmersb 16-20-0 2,150 2,300 10.5 2,400 2,800 23.4 20-20—0 2,150 2,350 10.5 2,400 2,800 23.4 13-13-21 2,050 2,200 10.7 2,300 2,800 24.4 13-13-13 2,300 2,500 13.0 2,600 3,200 46.1 14-14-14 2,200 2,350 10.2 2,600 3,200 46.1 15-15-6-4mg 2,250 2,400 9.9 2,550 3,100 43.2 12-12-20 2,350 2,500 9.6 2,650 3,000 26.4 12-24-12 2,300 2,450 9.7 2,500 2,900 32.0 15-10-10 2,350 2,500 9.6 2,600 3,000 30.8 Sulphate of Ammonia 1,400 1,500 10.6 1,550 1,700 19.4 Calcium Ammonia 1,450 g/ -- 1,650 g/ -- Nitrate (21%) Urea (45%) 2,650 g/ -- 2,800 g/ -- SuperphosPhate (20% P205) 1,155 1,255 12.8 1,400 1,600 27.0 Hyperphosphate (30% P205) 1,200 1,300 12.5 1,500 1,700 26.6 Potassium Chloride (60% K20) 1,470 1,600 13.4 1,700 2,000 35.2 Source: Pricing information from distributors and dealers; USOM reports. (a) Interest per annum, credit terms 8 months; (b) interest per annum, credit terms 6 months; (c) sold for cash only. 47 The average mark-up from the dealer to the farmer for cash sales averaged 263 baht or 13.5 percent per ton. Assuming a dealer purchases on credit from distributors and sells to farmers on credit, the normal practice, the average mark-up is 438 baht or 20.9 percent per ton. These computations do not reflect the tons sold of each material, compound or mixture. A weighted average would probably show that the average mark-up is slightly lower. The higher volume sale products in general have the.narrower margins. Since most fertilizers are currently sold on a credit basis, the data indicate that dealers are operating on about a 20 percent margin.‘5 Farmers have to pay high prices for fertilizers largely as a result of weaknesses in the present dealer marketing arrangements: (1) Most local dealers are the operators of the small stores, have no storage, thus the delivery service to the farmers is slow. (2) Most dealers have little information about fertilizers and therefore cannot give the farmers help on agronomic matters. ‘51bid., p. 51. 48 (3) Many dealers by necessity operate on a high cost, low volume basis. Summary According to Schultz, the economic equilibrium is relevant in underdeveloped economies; and for the peasant economies, it is in equilibrium at present prices and technology. He argues that in traditional agriculture, the crucial feature is the low rate of return to investment in available inputs. Thus, he says, the way to transform this type of agriculture is to develop new, more productive inputs. Thailand is a country of traditional agriculture, which needs more modernization in technology, more factor supplies, in order to increase the returns to the farmers. However, it is not clear that farmers in Thailand actually are using inputs at the current prices at optimum levels or what effect so doing would have upon output and returns to farmers. The following Chapter is an analysis of the relationship of paddy yield and fertilizer use. Rice is the most important cr0p in the economy of Thailand, and fertilizer is the most important factor available to increase output. This study assumes current prices and current rice varieties. CHAPTER IV FERTILIZER USE, RICE YIELD, AND FARM PROFIT It is widely known that yields of paddy can be increased substantially and sometimes Spectacularly by the application -of fertilizer. However, in spite of the large amount of experimental work done in this field, there remains a great deal to be learned about the kind and amount of fertilizer required to produce a paddy crop, and about the magnitude of the yield increase which can be expected from applying a 16 given quantity of the required nutrient. A. Sources and Nature of Data The rice area in Thailand is divided into four regions: The Central Plains, Northern region, Northeastern region, and the Southern region. Extensive trials on cultivators' fields in these zones have provided much useful information regarding the fertilizer requirements of rice in Thailand. Data on response to fertilizer are shown in the Appendix A. I6Ibid., p. 9. 49 50 The experimental trials were done by Lusanandana P., Technical Division, Department of Rice, Ministry of Agriculture, Bangkok, Thailand from 1958 to 1962. The experimentation indicates that with the higher levels of fertilizer use, higher yields will result. For the whole test, it is found out that the response to nitrogen was higher than to potassium. The response to the fertilizer in the northern region was substantially lower than in the northeastern region. The single application of each nutrient gave average increase in yield of paddy of 28 percent for nitrogen, 25 percent for phosphorus, and 18 percent for potassium.‘7 B. Methods of Analysis to be Used It is a fact that a farmer's output of products depends upon the quantities of inputs used in production. For example, a farmer might get a yield of 350 kg. of paddy if he sows a given amount of seeds without fertilization on one rai of land. But, if he applies 20 kg. of fertilizer in the production in the same condition, the yield might be 400 kg. of paddy on the same rai of land. These two inputs and outputs indicate yield might vary as the fertilizer input is varied. 171bid., p. 50. 51 This physical relationship between input and output can be described by a mathematical expression called a production function, which in turn, describes the 'response surface'. Theory of Production FunctionI8 A production function estimates the quantity of output that may be expected when particular inputs are combined in a Specified manner. The chemical, physical, and biological prOperties of inputs determine the kind and amount of outputs which will be received from particular combinations of inputs. There are many possible combinations of inputs. Obviously, not all production functions are known. It is the job of research and experimentation to discover the production functions which are chemically, physically and biologically possible. The production function provides very useful information for making decisions by farmers as to input combinations and levels. One of the simplesthroduction decisions involves questions concerning the effects of varying the quantity of one input on the amount of product or output produced. Consider the letter y, to stand for the product which is produced and the letter f before the parenthesis to stand for the phrase 'depends upon', l8Wagner M. Melvin., Chaverot Praphun, Tosunthorn Suphan, A Method for Estimating Fertilizers Need of Thai Rice ProduCtion Based on the Most ProfitabTe Level of ApplicatTOnpperTRai, Faculty of Economics and BusTness Amenistration. ’Kasetart University, Bangkok, Tahiland, January 31, 196. 52 i.e., 'is a function of'. Let the letter x] stand for an input used in the production of y]. The production function y] = f(x]) and tells decision makers that the amount of product y], depend upon, or is a function of, the amount of input (x1), used in the producing y]. For example, the amount of paddy (Y1) depends upon the amount of fertilizer applied, xI ceteris paribus. The symbolic expression, y] = f(x]), does not explain the amount by which y] changes as x] changes. In order to be more useful to decision-makers, information must be available concerning not only the kinds of inputs but also the quantities of inputs used to produce particular quantities of products. When a farmer is considering the question of how much nitrogen to use in paddy production he may consider the other inputs as given or fixed in specified kinds and quantities. In this case, we say that y] = f(x]/x2,xB...xn); that is the amount of y] (paddy) depends upon the amount of x] (nitrogen), given the amount of the other inputs (X2,X3,...Xn) which might be phosphoric acid, potassium oxide, land, seed rice, labor, rainfall, temperature, cultivation practices, etc. In the following analysis, a simple linear regression in logs was used to fit data: log y] = f log (x],x2,...,xn) 53 C. Results of the Regression Analysis Applying the theory of correlation to the input-output data, the relationship of paddy yield and fertilizer Operation in the four regions were found. They were as follows: Northern Region log y = a+b log N = e log P + d log k = 3.4203 + .0375 log N + .0326 log P + .0119 log k SE = .0034) (SE = .0035) (SE = .0038) R2 = 0.9510 R = 0.9747 The standard error of estimate = 0.0157 Northeastern region log y = a + b log N + e log P + 0 log K = 3.1006 + 0.0631 log N + .0712 log P + .0502 109 k (SE = .0093) (SE = .0096) (SE = .0104) R2 .08504 R .0922 The standard error of estimate = 0.0428 54 Central Region log y = a + b log N + e log P + 0 log k = 3.2775 + .0515 log N + .0504 log P + .0163 log k (SE = .0037) (SE = .0038) (SE = .0044) R2 = 0.9634 ' R = 0.9815 The standard error of estimate = .0135 Southern Region‘ log y = 3.3106 + .0487 log N + .0706 log P + (-.0050) log k (SE = .0090) (SE = .0093) (SE = .0116) R2 0.9108 R 0.9544 The standard error of estimate = 0.0244 These show the degree of the relationship of the fertilizer and the paddy yield by varying the amount of nitrogen, P205, 20. The return to the paddy yield when changing the amount of fertilizer is effected most in the Central Region, and next the Northern Region, Southern Region and Northeastern Region, respectively (Table 12). o x_ocoaa< amnmm.um.m mo— oom om: co~___ucom E:E_uao mo m.N - N._\mu mmzn mu~._mezu an: mo. co_umu:QEoo ozu mo co_umLum:___ cm couk X¢u>memz u m>z pom. "ouoz x mm .1 x mo. A mw_v x mo. Ammm. mOJN.m ma... mmom m.mm_ mmm.~ -mmwm~.N m:__. mo:~.m Aomoo.vn mono. Amao. oo_m.m CcmLuJOm x _ .u x mo. Aw mw_v x mo— m_mm. m:m_.m Nm__. m_mN o.mN_ o~mo.~ -N_m:N.N ~w__. m:m_.m mm_o. Jemo. m_mo. mmmm.m .mcucou x mm_m.- x mo_ A OAV X mo— mm_m. namo.m m:m_. Ccmummm m_mm m.m_m mm.~ -moom.N meA. m:m0.m Nomo. N_mo. .moo. moo—.m -zucoz x om_m.- x mo. A o_v x mo— om_m. mmqm.m owmo. muum :.no_ __mo.N -_meN.N ommo. mme.m m__o. ommo. mmmo. mom:.m acoLHLOZ *> x mo. o_ cmwfip 0. n n n m mco_ om .mco_mom >n >Upmm mo o_o_> 0cm om: coN___ucom mo uczoe< .N_ m_nmh 55 56 From the computation, we can find the yields of paddy with zero level of fertilizer comparing with the yield at the maximum level of fertilizer as computed. For computation of estimated yield with zero level of fertilizer, see Appendix B. 2652 hg/ha 107.4 M u H n 3275 Northern region, at 0 kg/ha. of fertilizer yield Northeastern region, at O kg/ha of fertilizer yield - 1263.33 hg/ha 215.3 M n u n " = 2918.00 n Central region, at O kg/ha of fertilizer yield 1895.67 hg/ha 125 u u H u 2815.00 u Souther region at 0 kg/ha of fertilizer yield 2047.00 hg/ha '39 8 u u H n 3059.00 n D.. Profitability of Using Fertilizer on Rice: Farm Budget Analysis It appears that using fertilizer at the maximum level would increase yields of rice very substantially and that the Optimum yield by increasing present fertilizer use above current levels (as reported in the Statistical Year Book 1965, National Statistical Division, Bangkok, Thailand) would be increased by 70 percent. In order to find the profitability 57 of using more fertilizer, it is necessary to examine farm budgets (Table 13). In the theory of production function, the variables are fixed - except the one that varies. Thus, by increasing the cost of fertilizer until the maximum level is reached, the other costs are assumed constant. Therefore, the maximum return that was calculated assumed that only fertilizer will be varied in the production process. But, in the real world when more fertilizer is used in the field, some other costs also must be changed. The human labor must be increased since when the production increases the farmers need more harvesting, weeding, and threshing. Also the animal use will be increased in the threshing, but not as much as the human labor. The same is true of mechanical use. The interest cost also will be increased since the farmers are assumed to buy fertilizer on credit. The seed, insecticides, rent, tax, depreciation, are constant for they are not affected by the change in the rate of fertilizer use. Only one thing that is left now is 'the others' that will be changed a little since it causes oil, gas, tools, etc. Those are possibly affected by the increasing cost of fertilizer. 58 00.000. .00.0.0 0.0000 .0000 00.0000 00.000. 0.0000 .0000 00.0.00 00.000 0000 .0000 00.000. 00.000 0000 .0000 .0 00. .0.0 0000000. 00.00. .0.0 00000000. 00.00 00.00. 00.00.000000 00.00 00.00 00.00.000000 00.0 00.0 x00 00.0 00.0 .X00 0..0 0..0 0000 0..00 0..00 0000 "mumoo Umx_...._ ”mumou U®X_n_ 00.00 00.0 000000 00.00 00.0 0000000 00.0.0 00.0 0000...0000 00.000 00. 0000...0000 0.. 0.. 000.0.0000. 00. 00. 000.0.00000. 00.00 00.00 .0000 00.0. 00.0. .0000 00..0 00.. .00.000000 00.0. - 0.00.00000E 00.000 00.000 .00.00 00.00. 00.0.. 0.00.00 00.000 00.000 00000 00.000 0..000 000000 "LoamJ "Loam; .00000 .00000 0000 0..000 0000 000. 000000 00 00.0> 0000 0000 0000 0000 000000 0000 00.. 0000 00.. 00.00 00 00.0> 00000 0.00 00000 00.. 00w0w11 0000 00.. 0000 00.. 00.00 00. 00 00000 0000 00000 000. 0.0.0 000000000002 00.000 00000002 0 0 0 0 0 0 00 0000 0000000 Um%kamow dmswow wouxano Am:u0< mEmu_ ocm .mzuo< 000:: mco_mmm c. 00: 0on.__00mm mo m_o>00 00E300< 0008000 00.x 0:0 00 :0suom 0cm mumoo .m_ o_nmp .000: mm: 000.— .0003 mm: 000... .000: mm: 00N___0 .000: mm: 000...“ .Nom 0. E000 000 cu oum0 0000muc_ 0mm0o>m >0 omumE_0mu 0o>o No. mc_mmococ_ >0 pmume_umw 0o>o xm mc_mmo0oc_ >0 ooumE_umm . 0m>o 00. mc_mmo0oc_ >0 00008.00m . 00>o &m_ mc_mmm0oc_ >0 pmumE_0mm . .0000 0: 00003 m_m>m_ 0000 0: 00053 m_m>o_ 0mm o: @0002 m_o>o_ 0mm 0: 00003 m_o>o_ 1011013® 0000000 0 0. 000N...0000 00 00.00 .mom_ .xOOm 0mo> .mo_0m.umum E000 00030800 0. mco .msuom 0:0 00 U_m_> 000 .m 0.000 .mom. . .omo ..0awc _m0:0_:o_0m< .co_m_>_o mU.EOcoom 59 _m0su_3o_0m< :mU.EOcoom .m0su0so_0 < :0 00000000: 8000 00030800 000 00000 rmauo< .0002 00.00 00.000. 0.0000 .0000 00.000 00.00. 0.0000 .0000 00.000. .0 0000 0000 .0000 00.0000 00.0000 0000 .0000 00.0. 00.00. 0000000. 00.00. 00.00 0000000. 00.00 00.00 00.00.000000 0...0 0...0 00.00.000000 00.0 00.0 X00 00.0. 00.0. x00 00 .0 00..0 0000 0..000 0..000 0000 .00000 oox_0 .mumoQ pox_u :m.m m_.om 000000 0m.m: m>.m 000000 00.0. 00.0.0 0000...0000 00.000 0. 00 0000...0000 NO. NO. m®U_U_uUmmC_ ©©.N @©.N mmU_U_uU®mC_ 0..00 0. 00 0000 00.00. 00.00. 0000 u . _mo_cm£ooE . . .mo_cm:ooE 00.0 0..00 .00.00 00.00 00 0. .00.00 0..000 00 000 00000 0..000 00.000 00000 00.0.0. 0..000. "0000 00.000. 00.000. H0000.. ”00000 "00000 0000 000. 0000 0.0000 000000 0000 0000 0000 00.000. 000000 00 o:_m> mo m:_m> 0000 0.. 0000 00.. 00.00 0000 00.. 0000 00.. 00.00 00000 000. 00000 0000 0.0.> 00000 0.00 00000 00.000. 0.0.0 co_mom :0mzusom co.mmm _m00cmp Mum Mum mum 00%A0aom 0dmwwma 000_ 00%A0uom dm0%0@ 0000. .0000 .0. 0.000 60 For the discussion of the farm budget as shown in Table l8, it shows that in the Northern Region the total cost will be increased h#.8 percent after increasing fertilizer used, while the yield increases 39.8 percent and the total income increases by h2.25 percent using the average price of paddy. Thus, the profit to farmers goes up h2.70 percent. For the Northeastern Region, the total cost increases 5l.20 percent, when the increasing in yield is 59.80 percent, and total income is measured 60 percent. Then the total profit goes up by 72.30 percent. In the case of Central Region, with the 22.h0 percent increase in cost will make the yield increase by hl.60 percent and the total income 37.2 percent. This results in the total profit increase of th.5 percent. For the last region, Southern, the total cost increases 25.80 percent making the yield increase 50.2 percent, and the income increases 50.2 percent. So that the total profit goes up to 97.90 percent. Summary The purpose of the study of the relationship of fertilizer and paddy yield is to show that the yield could be increased by a great deal by using more inputs at present input prices. 6] Given the limited time, it was not possible to study the relationship of the paddy yield that might be achieved by varying every kind of inputs, or with new varieties. Also, it was not possible to vary every input at the same time to find the relationship of all inputs to the yield. Thus, all that could be done with the data available was to take all other things as given varying only fertilizer. In this case, by using the experimental data observed in Thailand, in the different regions, measuring the relationship of the fertilizer which is varying while the others are assuming constant, with the paddy yield, it shows that the relationship of the fertilizer to yield is significant. From the relation- ship obtained it was possible to compute the maximum amount of fertilizer that could be profitably used at current prices of fertilizer and rice. Indications are that much higher fertilizer use would be profitable. To check this computation, budget data was used comparing costs and returns to farmers of the computed level of the paddy yield after fertilizing at the Optimum level with actual budget data from Thai farms. This showed the difference in the total costs and total returns using the current varieties and the current price levels. -- u; z’FL‘! 62 It indicates that the profitability of using fertilizer would be high in most regions and that farm income would be increased substantially by higher fertilizer use. This, in turn, suggests that lack of profitability probably is not the major deterent to higher fertilizer use and improved rice yields. Instead, other factors relating to fertilizer use need to be examined. CHAPTER V SUMMARY AND CONCLUSION A. The Importance of Rice to Thailand As a cr0p, rice occupies the largest area of cultivated land, produces the highest total value among the agricultural crops, provides the best employment opportunity of the majority of the peOpIe, supplies the more-than-ample staple food for the Kingdom, earns the t0p amount of the foreign exchange, and yields the most stable revenue for the government. Rice can be grown everywhere in Thailand, and is especially concen- trated in the Central region. The rice farming system is mostly traditional. The trend in national average rice yield from I924 to I950 slowly downward. Since I960 it has gone up resulting from the improvement in the varieties and use of fertilizer, water and other inputs. But the level of yields is one of the lowest among the major producing countries. Improvement of the rice yield is necessary for the economy of Thailand. Price production can be increased bymaking the farming system more intensive. To do so, the new factors of the production are required. 63 64 Because the importance of rice .this study focuses on the relation between paddy yield and fertilizer assuming no new varieties or changes in technology. 8. Hypothesis Investigated The average yield of rice production is relatively low, due to the low use of fertilizer. The farmers use less inputs because the price of inputs are higher than the farmers' income will afford. The study shows that with the current prices of inputs and outputs, yield could be increased. C. General Summary of Results We conclude that if the farmers buy the fertilizer on credit and use the Optimum’level of fertilizer at present prices, the rice yield will be increased much above present levels -- perhaps as much as 70 percent. However, I would like to emphasize that this study was the affect of fertilizer use on the paddy yield only. Comparison of the yield of rice before fertilization and after fertilization at optimum level, using farm budget shows that the total profits increased three fold. The price of the fertilizer, the price of the paddy, rent, taxes, interest, depreciation, etc., were all held constant. Thus, price does not appear to be preventing increased fertilizer use. 65 This study did not include data for the total production function, to the point where yields reached a maximum. Thus some of the optimum results are based on extrapolotion of the data using the fitted curves. D. Conclusion and Implication The study shows that with the current prices and current varieties, farmers can get a higher paddy yields, higher profit by using more fertilizer. We conclude that it can be expanded by using more fertilizer without changes in prices or technology. The study does show that farmers will have to use more capital to increase their input purchases. It should be remembered that if the supply of paddy increases a great deal due to increase in the fertilizer use, prices can be expected to decline and, therefore, the farmers may not get returns which were computed. This portion also suggests that the government should continue to examine the inter- national market for rice. In a program of rice expansion the government should also consider the following points: (I) Establishment of a credit union for the farmers at the low rate of interest, so that they could decrease the cost of production. (2) (3) (u) (5) 66 Assure the greatly increase availability of the factor of production so that the price of the factors will decrease throughout the country. This is another way to lower the factor costs of farmers. Explore ways in which the marketing costs may be decreased so that the farm prices of output will be higher, while the prices at the consumers are constant. Determine whether the government might under- take action to stabilize the interest price to insure farmers against world price inStability. Mount a widespread information program on the profitability and techniques of fertilizer use on current varieties of rice. BIBLIOGRAPHY Behman, Richard Jere, Supply Response in UnderdeveIOped Agriculture, A Case Studyiof the Four Major Annual Crgps in Thailand, I937-l963, Unpublished Report Submitted for Ph.D., University of Pennsylvania, Philadelphia, Pa., August 22, I966. Blanchard, Wendell. Thailand, Its PeOple, Its Society, Its Culture. New Haven, HRAF Press, I958. Bond, L. Billy, Kelso M. Thurma, Woodward, R. A Report on the Thailand Fertilizer Situation and Potential. Agency for International Developmenty, May lO, I966. Brown, R. Lester. Increasing_World Food Output, Problems and Prospects. Foreign Agricultural Economic Report, No. 25, USDA, Economic Research Service, Foreign Regional Analysis Division, April I965. Department of Economic Relations, Ministry of Economic Affairs, Thai Rice, Bangkok, I963. Division of Agricultural Economics, Ministry of Agriculture, Thailand, Economic Farm Survey, I963. Division of Agricultural Economics, Ministry of Agriculture, Bangkok, Thailand. Agricultural Statistics of Thailand, I963. 67 68 Division of Agricultural Economics, Ministry of Agriculture, Bangkok, Thailand. A Study on Rice Production and Consumption in Thailand, I966. FAO Monthly Bulletin of Agricultural Economics and Statistics, Rice: Trade Patterns and G0vernment Controls, Vol. I2, No. 19, September, Rome, I963. "FAO Rice Report,” Food and Agriculture Organization of the United Nations, Rome, I966. Food and Agriculture Organization of the United Nations, Report of the FAO/ECAFE Export Groupfon Selected AspeCts of Agricultural Planning in Asia and the Far‘East. Rome, I963. General Agreement on Tariff and Trade. International Trade 126;. Geneva, I966. Krisnamis, Phirach. Paddy Price Markets and Their Effects on the Economic Situation of Farmers in the Central Plain of Thailand, June I967. Unpublished report submitted for Ph.D., Indiana University, Indiana. Ministry of Agriculture, Thailand. Agriculture in Thailand. Bangkok, l96l. National Income Statistics, Office of National Economic Development Board, Thailand, I964. Nuttonson, M. Y. The Physical Environment and Agriculture of Thailand: .A Study Based on Field Survey Data and on Pertinent Records, Materials and Reports. Washington: The American Institute of Crop Ecology, I963. 69 Office of the National Economic Devel0pment Board. National Income StatistiCS, Bangkok, I964. Pendleton, Robert L. Thailand44AspectS'of Landscape'and Life. New York: Dwell, Sloan and Pearce, I962. Schultz, W. Theodore. Transforming Traditional Agriculture New Haven and London, Yale University Press, I964. Statistical Year Book I965, National Statistical Office, Bangkok, Thailand. U.S.D.A., Rice Situation, Washington, D.C. January I964. The Agricultural Economic Report, Bangkok Bank Limited, July-September, I965. The National Economic Devel0pment Board, Office of the Prime Minister, Thailand. The National Economic Development Plan I96l-l966. Second Phase, l964-l966. Bangkok, I964. United Nations, Economic Survey of Asia and the Far‘Eastg‘r965. Bangkok, I966. Wagner, M. Melvin, Chaverat, Praphun, Yosuntheru Suphan, A Method for Estimating Fertilizers Need of Thai Rice Production BaSed on the Most Profitable Level of Application Per Rai, Faculty of Economics and Business Administration, Kasetsart University, Bangkok, Thailand, January 3l. Wagner, Melvin and Tongpan, Sopin. The Structure of Thai Rice Prices: Some Preliminary_Findings. Paper Presented at the Fourth Conference on Agricultural Economics. Bangkok, Thailand, July I965. APPENDIX 7l .mmma Anamocmcmmdq \w . Hma Hoa mm "mocmumuuac pamoamacmam ummmq . ma mm mummy mo Amnesz mom.~ ~mm.~ aoo.m ma mm mm Nam.~ mmo.m mmm.m ma me o aaa.m mmo.~ Hmm.m mu 0 ma aom.m Haa.m nam.~ 0 mm mm amm.H mmm.a maa.~ me o o ao~.~ mmm.H mmm.m 0 mm o mom.m mmm.a mam.~ o 0 mm omn.a mma.a omm.H o o o coammu cofimmn illl. IIII. II com: cumummmsuuoz cumnuuoz ONM mOmm z Ama\oxv Ama\mxv moan £050“ mo UHmHm pcmEummHu Hmufiawunmm Immma CH mCOHumooa 03¢ um HmNHHHpHmm on abomm mo mmcommmm \H fl NHDmem/w 72 .mmma .mcmecmcMmsq \m I HmH ONH mom am "mucoumuuae unmoauaamam ammoq n mm mm m momma mo ambasz mam.m nmm.~ Hmm.m amo.m m.nm m.um m.am mmo.~ mmn.a om~.~ haw.m m.nm m.sm o ooa.~ mam.a amm.m hmb.m m.am o m.nm anm.N amm.a omm.~ Hoa.m o m.km m.nm _ mam.a Ham.~ mmo.m nam.~ m.hm o c mam.H mma.a an.~ moo.~ o m.sm o mom.a mma.H Hmm.m ama.~ o o m.nm nmm.a hmH.H ana.fl nmm.~ o o o coflmwn coammu coflmmn com: cumummmsuuoz Hmuucmu :Hmnunoz ONM mONm z Ama\mxv Amaxmxv moan swoon mo oawfiw pamfiummnu HmNfikuumm Immma Ga macaomooa mounp um Hmuflaflunmm ou abomm mo mmcommwm \H 73 .mmma .mcmoamcmmsq \M ama as am mma m» mNH FNH 05H omm mma am “monoumMMflw ucmo Jamacmflm ummmq u u m > Am mm ,mm Hm ma a i mummy mo umnasz mam.~ omo.m omm.~ omm.m mam.~ maa.~ mmm.~ mam.~ Ham.m wmn.m mm mm o.om Ham.m mam.~ mam.m mNH.m mam.~ mbo.~ Ham.~ mmh.~ amm.m mma.m 0 mm 0.0m aam.~ mmm.~ mmm.~ mm~.m mm~.~ mmm.a mma.m mmm.~ mam.m maa.m 0 mm m.nm can.m maa.m mam.~ NmH.m who.m mmm.a mab.~ mmm.~ mma.m aam.m 0 mm o.m~ omm.~ mam.m oam.m aam.m Ham.H noe.a «Hm.~ amm.~ Hma.m mom.m o mm m.~a mam.~ amm.m mov.m nan.~ mew.a ana.a omm.m ~ma.m amo.m amo.m 0 mm o mma.m mm~.m vmo.~ hwm.~ mwvta amm.H mm~.~ aoo.m mam.~ akm.m o o m.~H mam.a omo.m mam.a wma.~ mmm.a hmH.H aam.a mmn.a mmm.m Hma.m o o . 0 Head bead Homa omma Hmmfl omma Hood coma Hmma omma 0mm mean 2 Cowman aoflmmu coammu coamwu com: cumsusom cumummmsuuoz Hmuucmu cumzuuoz Ama\wxv Ama\mxv moan swoon mo oaoflw pcwaummnu umuflaapnom Iamma a omma ca mcofiumooH HSOM um umnaafluumm ou mowmm mo mmcommmm \H 74 .mmma ~meom 04m .wamoo .b .h an .Hmuflafluumm ou moam mo mmcommmm one "wousom .mmma .mcmwcmcmmSQ\m n ma mm mm mm mummy mo umnssz ooo.m ooo.m maa.~ Hmm.m amm.m o.mm o.m~ 0.0m mom.~ wmo.m maa.m amm.~ nma.m a o.m~ 0.0m Nam.~ moa.m mmo.~ mmo.m mam.m o o.mm m.hm mak.~ mmo.m mmm.a mmo.~ mam.m o o.mm o.m~ mmm.m Nam.m mmm.H oom.m mmH.m o o.mm m.NH Hmm.m Hmm.~ Ham.a ~m~.~ mmo.m o o.mm o NA~.N Hmm.m Noa.a Hma.m mmm.m o o m.~H oam.a who.m mom.a mmm.a amm.m o o o coflmmu scammu coflmmu coflmmn com: cnmnpsom Gumpmmmnunoz Hmuucmo cumnpuoz ONM momm z ma\mxv Ama\mxv ooflu nmsou mo oamflw pomfiumwuu umNHHHuHmm \H Immma .mcoaumooH usOG um umwaaauumu ou scamm mo mmcommmm 75 APPENDIX B Computation of the Zero Level of Fertilize Yield (a) By the procedure, the paddy yield with zero level of fertilizer -- a, are found by regions in the years of I958-I962. For the simple computation, the average of the last three years are used. Examples of the Northern Region: Year Constant + Coeff. of Dummy a variable I960 3.3l50 0.ll7O 3.4320 l96l 3.3l50 + 0.0892 3.4042 I962 3.3ISO + 0.l098 3.4248 The average of the three years = 3.4203. -Use the same way to the other regions so that: Northeastern Region a = 3.IOO6 Central Region a = 3.2775 Southern Region a = 3.3106 76 APPENDIX 0 Example of Computation of Optimum Fertilizer Level Let x = amount of average mixed fertilizer kg/Ua V x] = amount of N, kg/ua x2 = amount of P, kg/ua X3 = amount of K, kg/ua Px = price of x = 3.0 baht/kga y = amount of output, kg/ua price of y = l.20 baht/kgb Py The average mixed fertilized that is being used has an analysis of 14 percent nitrogen, l4.5 percent P205 and I0.7 percent K20. Thus, the amounts of the three nutrients applied per ua can be expressed as, X] = .IHOX X2 = .l45x x3 = .lO7x Substituting these expressions into the production function we can write a simplified production function where output is a function of one variable, the amount of mixed fertilizer used per ua. 77 log y a + b] log x] + b2 log x2 + b3 log x3 a + bl log (.l40x) + b2 log (.l45 x) + b3 log (.I07x) a + b] log .140 + b2 log .l45 + b3 log .lO7 + (bl + b2 + b}_ log x By inserting the estimated b] for each Northern Region we obtain, 3.4203 + .0375 (log .l40) + .0326 (log .I45) + .Oll9 (log .l07) + (.0375 + .326 + log y .0ll9) log x 3.4203 + .0375 (-.85387) + .0326 (-.85863) + .0199 (-.97062) + .0820 log x 3.3487 + .0820 log x 3.3487 .0820 ID x ‘< II To write an expression for the marginal physical production of fertilizer we differentiate: 3.3487 -.9I80 Ex Mpp = dx = .0820 (ID ) x Converting again to logarithms we have, log MPP = 2.2625l - .9l80 log x Assuming that the price of the output is constant at l.20 baht/kg. we can write, MVP = MPP x Py = MPP x 1.20 78 To maximize returns, we set the marginal value product of fertilizer equal to its price, 3.0 baht/kg. Substituting the MVP into the preceding equation and rearranging we find that MPP will be 2.5 at the optimum: _ 3.0 MPP — 170 = 2.5 To find the corresponding level of x we substitute 2.5 into the marginal physical product equation and solve for x. log 2.5 = 2.2625l - .9l80 log x .9l80 log x = 2.2625l - Iog 2.5 log x = 2.2625l - 39794 .9l80 = 2.03ll x = I97.4 The corresponding level of output is obtained by substituting this value of x into the production function: log y = 3.3487 log lO + .0820 log x 3.3487 + .0820 (2.03ll) 3.5l33 y = 3275 So that the amount of fertilizer use at maximum level in the Northern Region is lO7.4 kg/ha And, the amount of output is 3275 baht/ha.