Research Reports
Evaluation of Soybean Procurement Program
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AuthorKim, Myunghwan
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Publication Date2004.12.01
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Original
The Government procurement prices for soybean were higher than market prices in 1980s, and turned to be lower in 1990s so that the government procurement volume became nil. The government raised the procurement price for the soybean produced in paddy field in 2002 to boost soybean cultivation from rice which is in oversupply structure, while the price for soybean produced in upland fixed. The policy change increased the paddy soybean production, but it resulted unfairness problem for the upland soybean farmers and market distortion. This study focuses on the analysis of supply and demand structure of soybean, estimation of welfare effects of the procurement program, and to suggest policy alternatives.
The acreage response functions for the paddy land soybean and upland soybean, yield function, and demand function were estimated. Major findings from the estimation are; (1) Own price elasticity of demand is -0.35, Income elasticity is 0.21, and there is a structural demand shift in 2004 for non-genetic modified domestic product, (2) The coefficient of the soybean paddy field with respect to lagged relative procurement price of soybean to rice is 0.93, and the coefficient of the soybean upland with respect to lagged relative market price of soybean to dried red pepper is 0.08. and (3) Yield is predicted to increase to 174 kg per 10 are in 2015 from 141 kg in 2000-2004 olympic average.
To predict the supply/demand change and welfare effects of the procurement program, three scenarios were set; (1) Baseline scenario is to stop the government procurement, (2) Scenario 1 is to continue to procure for only paddy soybean at the current procurement price for paddy soybean which is similar to the current program, and (3) scenario 2 is to extend the procurement for paddy and upland soybean at the current procurement price for paddy soybean.
Due to the differences of market prices and procurement prices for paddy or upland soybean, total soybean acreage was predicted to decrease less in scenario 2 than in scenario 1 which would decrease less than baseline. Acreage of paddy soybean would increase and be the same for scenario 1 and scenario 2. Acreage of upland soybean in scenario 1 would decrease more than baseline, while the acreage of upland soybean in scenario 2 would decrese less than baseline.
Producers' surplus of scenario 2 is the biggest, and scenario 1 is lower than baseline. Consumers' surplus are almost the same for the three scenarios. Government outlay and deadweight loss for scenario 2 are the biggest, scenario 1 is the next, and zero for baseline. With respect to the social net welfare, baseline is the best, scenario 1 is the next, and scenario 2 is the worst.
The market price and relative income of the domestic produced soybean is predicted to rise, the government intervene to the market through purchase and sell is recommended to be replaced by direct payment program which stabilize the soybean farming income. Target price for paddy soybean would be fixed at the current procurement price for the next three years.
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