**3. Methodology**

The approach of Policy Analysis Matrix (PAM) is applied to estimate the comparative ad‐ vantage of soybean production. The PAM is a tool to create policy indicators for which val‐ ues can be estimated, notable among which are the nominal protection coefficient, effective protection coefficient, private cost ratio and domestic resource cost ratio.

Regarding practical issues addressed by the PAM, Monke and Pearson (1989, p.17) pro‐ posed that the application of PAM approach is suitable for three areas of economic analysis:




The PAM is built through double entry book-keeping, with the purpose of ensuring com‐ plete and consistent coverage of all policy influences on the returns to, and costs of, agricul‐ tural production or marketing. Indicators of the economic consequences of policies could be derived from the parameters in the matrix. The main empirical task is to construct account‐ ing matrices of revenues, costs and profits. A PAM is constructed for each commodity sys‐ tem to be analyzed. Thus, the impact of commodity and macroeconomic policies is measured by comparing results in the presence and the absence of policy.

The PAM is comprised of revenues, costs and profits, at private and social (often called 'shadow') prices (Table 1). The top row of the matrix is a budget showing costs of produc‐ tion and marketing at market prices, the only unusual aspect being the division of cost ele‐ ments into two categories: tradable and non-tradable inputs (usually defined as domestic resources – the immovable domestic factors of production).

The second row in the matrix shows the same cost elements expressed at social prices, i.e. social opportunity cost. For tradable products, adjusted world prices are normally taken as social prices, applying import or export parity measures as appropriate. The social price of domestic resources is taken as their opportunity cost, in other words the return at the mar‐ gin in the best available alternative.


Note: Private Profits: D = A – B – C; Social Profits: H = E – F – G; Output Transfers: I = A – E; Input Transfers: J = B – F; Factor Transfers: K = C – G; Net Transfers: L = D – H *Source: Monke and Pearson 1989.*

#### **Table 1.** The Policy Analysis Matrix (PAM)

duction in the study area by doing the cost - benefit analysis (CBA) of soybean production. The third section presents the establishment of, results of, some sensitivity analyses of PAM, and policy simulations to help determine likely changes on PAM's parameters. This will be fol‐

A Comprehensive Survey of International Soybean Research - Genetics, Physiology, Agronomy and Nitrogen

The primary data of this study was collected in a field survey in two agro-ecological areas of the Mekong Delta of Vietnam in 2004. In the Mekong Delta, rice is the main crop. Farmers often apply mixed farming systems such as one-rice and one-fish crop, or two-rice and onevegetable crop to improve income and soil conditions. Consequently, farmers grow soybean once a year. The soybean crop is usually cultivated in January and February after the Win‐ ter-Spring rice crop and harvested in March and April. In this study, farmers who grow

The interviews were conducted in Can Tho Province, representing the lower reaches of the Mekong Delta, and An Giang Province, representing the upper one. The total sample of 113 farmers, of which 58 farmers were in Can Tho and 55 farmers in An Giang, was interviewed following a stratified random sampling procedure. The survey was conducted by the staffs

The approach of Policy Analysis Matrix (PAM) is applied to estimate the comparative ad‐ vantage of soybean production. The PAM is a tool to create policy indicators for which val‐ ues can be estimated, notable among which are the nominal protection coefficient, effective

Regarding practical issues addressed by the PAM, Monke and Pearson (1989, p.17) pro‐ posed that the application of PAM approach is suitable for three areas of economic analysis:


The PAM is built through double entry book-keeping, with the purpose of ensuring com‐ plete and consistent coverage of all policy influences on the returns to, and costs of, agricul‐ tural production or marketing. Indicators of the economic consequences of policies could be derived from the parameters in the matrix. The main empirical task is to construct account‐ ing matrices of revenues, costs and profits. A PAM is constructed for each commodity sys‐


protection coefficient, private cost ratio and domestic resource cost ratio.


two-rice and one-soybean crop were selected for interviews.

lowed with some conclusions.

of Can Tho University, Vietnam.

**3. Methodology**

in desirable directions.

**2. Data**

Relationships

162

An important general point about the PAM is that the opportunity costs of domestic resour‐ ces will be a function of current policy. Thus, strictly, these opportunity costs are only rele‐ vant under a particular set of policy constraints, i.e. they are constrained second best equilibrium values. If policy was to change, so would opportunity costs. For this reason, the PAM is not completely satisfactory in terms of economic theory, being based on a partial equilibrium rather than general equilibrium approach. It is a practical, indicative approach to policy, which recognizes that practitioners of policy analysis will only rarely have the da‐ ta or the time to construct a fully specified general equilibrium model capable of generating useful estimates of opportunity costs under different policy scenarios.

The third row of the PAM is simply the first row minus the second. It shows the net impact of: market failure; distorting policies; and efficient policies (those which correct market fail‐ ure). The signs of the revue and cost terms in the third row indicate whether the net effects of policy and market imperfections for these categories amount to an implicit subsidy or tax. If for example, I letter were positive, the net effect of policy or market failure is that the mar‐ ket price paid to the system is in excess of the social opportunity cost, i.e. output prices are subsidized. The right-hand entry in the third row, L, summarizes the net effect of polices or market failures on the profitability of the system, known as 'net transfers'. If D > H, then the net effect of policy is to subsidize the system. In this case, policy reforms to bring about

greater economic efficiency will reduce the gap between D and H, and this will induce ad‐ justments in the commodity system in question, which may involve changes in the propor‐ tions in which resources are used and, at least in the short term, some contraction in the scale of operation.

Regarding indicators in the PAM, the basis PAM permits twelve indicators of economic effi‐ ciency, six of which are non-ratio indicators and six are ratio-indicators. Ratio measures are more useful for comparison of commodity systems which are dissimilar in the relative pro‐ portions in which they use inputs.

The primary objective of constructing a PAM is to derive a few important policy parameters for policy analysis. Seven of the most commonly used parameters are private cost ratio (PCR), domestic resource cost (DRC), nominal protection coefficient output (NPCO), nomi‐ nal protection coefficient input (NPCI), effective protection coefficient (EPC),Profitability Coefficient (PC) and Subsidy Ratio to Producers (SRP) explained as followings:







