The declining profitability of litchi orchards in northern Thailand: Can innovations reverse the trend?

Litchi is an important crop in the mountainous part of northern Thailand yet its profitability has declined during the last 15 years. The replacement of litchi fruit orchards for seasonal flowers and vegetables has external costs related to increased levels of soil erosion, pesticides, and irrigation water use. Using a combination of financial analysis and agent-based modeling, the paper ex-ante assesses the impact of four technologies—artificial flower induction, small-scale cooperative fruit drying, post-harvest treatments to extend the shelf-life of fresh fruits, and greater irrigation efficiency—in terms of profits, farm incomes, litchi acreage, soil erosion, and pesticide use. The model was calibrated to one watershed in Chiang Mai province where economic development has been rapid. Although each technology substantially increases the profitability of litchi growing, scenario analysis shows that this is not enough to stem the decline in litchi orchards in the study area. To achieve this, the innovations would have to be combined with an increase in the fresh fruit price from about 9 baht/kg at present to at least 12 baht/kg. The sensitivity of the results is tested for variations in the irrigation water supply and liquidity. We report about farmers’ discussions about these results and discuss the implications for other areas in northern Thailand.

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JEL Codes:
Q12; Q16
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Contributed Paper

 Record created 2017-04-01, last modified 2020-10-28

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