International Trade In Rice Recent Developments And Prospects Economics Essay

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Rice is a major food crop and serves as a food of almost half of the world. It is central to the food security of almost half of the world population which is comprised of diverse cultures of many communities. Because of this, rice is considered as a major "strategic" commodity in many countries. Consequently, it is subject to a wide range of government controls and interventions.1 The production and trade of rice is highly protected and regulated. It continues to be one of the most protected commodities in both developed and developing countries and has been subjected to high tariff and non-tariff barriers, export restrictions or aids, state trading and domestic market interventions. The world rice market has been regarded as distorted, thin, segmented, and volatile.2 In fact, only five percent to seven percent of the world's rice production is traded around the world.

During the 1990s, the global rice production grew at a rate of 1.8 per year which was slightly above the population growth rate. By the year 2000, production reached about 400 million tonnes (Mt). Developing countries account for about 95 percent of the total production. China and India are two of the world's major rice producers and are responsible for over half of the world output. Productivity gains, rather than land expansion, is said to have helped sustain the increase in production. The decreasing growth and production of rice in recent years has been an issue of concern. Certain factors pose a significant challenge to the development of the rice sector, such as the competition for basic resources (e.g. land and water) from other agricultural and non-agricultural sectors, as well as the negative impacts associated with rice cultivation. Global trade in rice grew on average by seven percent a year to about 25 Mt. However, the international rice market is still considered to be thin since it accounts only for five to six percent of the global output. Unlike other bulk commodities, the international rice market is segmented into a large number of varieties and qualities. The ordinary indica are the most commercialized (comprises about 80 percent of international trade by the end of the 1990s); followed by aromatic rices (Basmati and fragrant) at ten percent; medium rices at nine percent; and glutinous rices at one percent. These segmentations are not easily interchangeable because of strong consumer preferences.

Developing countries account for 83 percent of imports and 85 percent of exports, making them the main players in the world rice trade. The concentration is particularly high on the export side with Thailand, Vietnam, China, the United States, and India covering about three-quarters of the world trade. The volume of rice traded across countries rose from less than seven million tonnes in 1961 to 24 million tonnes in 2000. This has continued to expand further in the early 2000s, surpassing 28 million tonnes in 2001 and 2002. Despite the growth of rice trade, the international rice market is still relatively small compared to other major cereals, like wheat and maize, which averaged 27 million tonnes in 2000 to 2003.

1 Calpe, Concepcion. Status of the World Rice Market in 2002. Rice in World Trade. http://www.fao.org

2 Calpe, Concepcion. International Trade in Rice, Recent Developments and Prospects. http://www.fao.org

Institutional support to the rice sector is common among producing countries. Subsidy or government support is provided principally through government research programs, extension and input subsidies on seeds, fertilizers and irrigation. Some developing countries also grant subsidies on rice processing, storage and transportation.

Despite the tariffication process undergone with the implementation of the Uruguay Round Agreement, there is still a wide array of trade measures that shield domestic rice markets from international competition, including high tariffs, variable levies, minimum import prices, statetrading import controls, special safeguards and outright import bans.3

Now what is the effect of liberalization to rice trade?

Studies show that liberalization will raise world market prices and increase trade. According to the a study conducted by the Food and Agriculture Organization (FAO), full liberalization, namely the removal of domestic and trade distortions, will raise international (export) prices in the order of 10 to 14 percent and expand trade by between 29 and 47 percent.

The implications of higher world prices in a liberalized market will mainly depend on the net trading position of individual countries. For instance, the net importing countries would lose from rising international prices, especially if their base tariff level is already relatively low and the scope for further tariff cuts is limited. The opposite will be the implication for net exporting countries with low current protection. These countries, on the other hand, will gain from market liberalization. This means the implication of market liberalization to countries are likely to depend on whether their countries are net importers or exporters. These issues raise several concerns to policy makers. In particular, questions are being raised about the emphasis and extent to which developing countries will accept or remove policies often aimed at improving food security or protecting the livelihoods of the rural poor from external shocks.

This paper also aims to examine the effect of trade liberalization in the rice sector of the Philippines.

In the Philippines, about 1/3 of the agricultural lands or 4 million hectares out of the total 13 million hectares is planted with rice. Households spend about nine percent of their income on rice. It constitutes about 1/3 of their total food consumption. It also provides jobs for about 2.5 to 3 million farmers which comprise 30% of the total labor force employed in agriculture. The Philippines is now one of the world's major importers of rice. It has now been called the "basket case of Asia". It is ironic how a tropical country like the Philippines became a major importer of rice. We have vast agricultural lands and we have a favorable weather condition suitable for growing rice. According to the Agreement on Agriculture, countries should only grow crops which they are efficient to produce. Crops which the country cannot efficiently produce should be bought outside. This means the Philippines will veer away from rice and corn production since the country has inefficient rice and corn production. The Philippines has been encouraged to focus instead on cash crops. This has encouraged crop conversion. From rice, the

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3 Rice liberalization: Predicting trade and price impacts. <ftp://ftp.fao.org/docrep/fao/008/j5931e/j5931e01.pdf>

country has focused on producing cash crops like asparagus, broccoli, cauliflower, and honey dew melon. These crops are exported to other countries. Crop conversion has caused the shortage of rice production in the country. It caters more to the needs of foreign interests rather the needs of Filipino people. Furthermore, trade liberalization has opened the Philippine market to the entry of rice imports which are cheaper than the prices of rice in the domestic market. This has encouraged the Filipinos to buy rice from imports. The local farmers cannot compete with the price of these imports because of the high production costs they have spent on their produce. The country has been drowned by cheaper imports and has greatly affected the Philippine agricultural sector. Production trends in the last four decades show that rice production, except for a few years ofhigh growth in the 70s has been stagnating. As productivity and growth in the rice sector stagnated, food insecurity worsened. Gaps in production and aggregate rice demand persisted as evidenced by the country's growing dependence on rice imports.

Figure 1. International Rice Prices

Figure 2. Global rice production and consumption, 1990s to 2000

Figure 3. Major rice producers, 1998-2000

Figure 4. Major rice exporters and export shares, 1998-2000

Figure 5. Major rice importers and import shares 1998-2000

Sources/References

Calpe, Concepcion. Status of the World Rice Market in 2002. Rice in World Trade. <http://www.fao.org/DOCREP/006/Y4751E/y4751e03.htm>

Calpe, Concepcion. International Trade in Rice, Recent Developments and Prospects. World Rice Research Conference 2004 - Tsukuba, Japan, 5-7 November 2004. <http://www.fao.org/es/ESC/en/15/70/81/highlight_79.html>

Rice liberalization: Predicting trade and price impacts <ftp://ftp.fao.org/docrep/fao/008/j5931e/j5931e01.pdf>

Cowen, Tyler. As demand for rice climbs, international trade falls. The New York Times. <http://www.nytimes.com/2008/04/28/business/worldbusiness/28iht-rice.4.12404841.html?_r=1>

Glipo, Arze, Vibal, Val and Caingle, Jayson. Trade Liberalization in the Philippine Sector: Implications of HB 3339 on Rural Employment and the Country's Food Security. < http://www.irdfphil.org/docs/04.pdf>

A Summary of the Final Act of the Uruguay Round. <http://www.wto.org/english/docs_e/legal_e/ursum_e.htm#aAgreement>

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