The Outlook of Long-Term Rice Consumption by Import Scenarios

2004 Korea-Japan Joint Symposium On 

Rice Consumption Promotion Strategies

July 23, 2004

Doo Bong, Han Department of Food and Resources Economics, Korea University

Introduction

• Rice negotiation in 2004 to continue tariff quota

• For the tariff quota extension, an additional market access is inevitable

• In the case of failure of the rice negotiation, tariffication will be expected.

• Future import expansion will have the direct effect on the consumption of rice.

Implication of the Rice Negotiation on Consumption

1) Under the closed economy, the increase of rice consumption will have a positive effect on production because it shifts demand curve.

2) Under the open economy, the increase of consumption by market opening will collapse the foundation of rice production.

- the move on the demand curve with declining price

- A vicious cycle, which consists of a decline in price, a rise in consumption, a increase of import and a shrinkage of production, will be repeated.

Objectives of This Study

1. Overview Various Conditions of Market Opening by the Rice Negotiation

2. Projections of Rice Supply and Demand, mid as well as Long-Term Rice Consumption by Market Opening Conditions

3. Implication of Long-Term Projections of Rice Consumption and Suggestions

Structure of rice model

• 5 behavioral equations (planted acreage, yield, per capita consumption, consumer price, farm price) and 4 identity equations (production, supply, demand, stock)

• Data: Annual data on 1975- 2003

Analysis of Import Expansion

• Various market opening scenarios based on the DDA negotiation of WTO and the UR agricultural agreement

1) Increase tariff quota and MMA

2) Analysis of tariffication

- Estimation of Tariff Equivalent

Acceptable Levels of Import Expansion

• Establish acceptable levels of import expansion based on below 3 data.

1) Past trend of Rice supply and demand : Table 1

2) Baseline simulation results under 4% of MMA - 815,000ha, inventory ratio 23.8%, per capita consump

tion 64.4kg in 2014 3) Long-term Projections in Comprehensive Strategy for

Rice Sector by MAF in February 2004 - 800,000ha, Self-sufficiency 90% in 2013

<Table 1> Statistics of Major Variables

Year

Acreage (1000ha)Inventory(1000 M/T)

Per CapitaConsumption

(Kg)

Self -Sufficiency

ratio (%)

Average Annual Change

AverageInventory

RatioAverage

Growth Rate

Average

1980-89 1236 2.4 1335 24.2 127.9 -1.1 95.6

1990-99 1113 -19.1 1207 22.5 107.7 -2.2 98.3

2000-03 1056 -12.5 1215 23.7 88.2 -3.7 102.5

1990-2003 1097 -17.2 1209 22.9 102.1 -2.7 99.5

Acceptable Levels of Import Expansion

• Tariff Quota Expansion - Acreage 800,000 ha, Inventory ratio < 25%,

Self-sufficiency > 95%, Per capita consumption around 65kg

• Tariffication - Acreage 750,000 ha, Inventory ratio < 25%,

Self-sufficiency > 92%, Per capita consumption around 65kg

• Maximum Acceptable Tariff Quota

- Developing Country: 7% in 2014

- Developed Country: 5.5% in 2009

Effects of Tariff Quota

<Table 2> Projections by Tariff Quota

Tariff Quota(MMA)  

Acreage(1000ha)

Production(1000M/T)

Import(1000M/T)

Per CapitaConsumption

(kg)

InventoryConsumer

Price(won/80kg)

Self-Sufficiency

ratio(%)

Amount(1,000M/T)

Rate

 2003 1016  4451  180  83.2  1098  21.7  185433   

2014

DevelopingCountry

4% 815  4205  205  64.4  990  23.8  239554  101.4 

5% 810  4180  257  64.7  1005  24.0  235853  100.5 

6% 805  4155  308  65.1  1021  24.3  232292  99.7 

7% 801  4131  359  65.4  1036  24.6  228799  98.8 

8% 796  4107  411  65.8  1051  24.9  225304  97.9 

9% 791  4083  462  66.1  1067  25.1  221942  97.1 

10% 787  4059  513  66.5  1082  25.4  218643  96.2 

DevelopedCountry

5% 805  4155  309  65.1  1021  24.3  232223  99.6 

6% 796  4107  411  65.8  1051  24.9  225304  97.9 

7% 787  4059  513  66.5  1082  25.4  218643  96.2 

8% 778  4012  617  67.2  1115  26.0  212104  94.6 

9% 769  3967  719  67.9  1147  26.5  205931  93.0 

10% 760  3923  821  68.6  1179  27.1  199985  91.4 

Effects of Tariffication

1) Estimation of Tariff Equivalent - 517% Estimated by using Korean CS, 1

989-91 Average Price 2) Effects of tariffication by tariff reductio

n scenarios - 10 Tariff reduction scenarios - Import price(c.i.f.) : $330/ton, $440/ton - Current exchange rate : 1150 won/$

<Table 3> Tarrification Scenarios

Scenario Formula

DevelopedCountry

D1D2D3D4D5

Maximum tariff rate: 100% for 5 yearsTariff reduction: 60% for 5 yearsTariff reduction: 45% for 5 yearsTariff reduction: 36% for 6 yearsTariff reduction: minimum 15% for 5 years

DevelopingCountry

L1L2L3L4L5

Maximum tariff rate: 200% for 10 yearsTariff reduction: 40% for 10 yearsTariff reduction: 30% for 10 yearsTariff reduction: 24% for 10 yearsTariff reduction: minimum 10% within 10 years

Tarrification Results

• Results at a exchange rate of 1150won/$ and TE 517%

• Only two scenarios acceptable from 20 scenario1) Developed country : No acceptable scenario2) Import price of $330 per ton: No acceptable

scenario.3) Developing country : Two acceptable scenarios with

$440 per ton - 24% tariff reduction for 10 years - 10% tariff reduction for 10 years

<Talbe 4> Projections by Tariffication Scenarios

 Acreage

(1000ha)

Production

(1000M/T)

Import

(1000M/T)

Per Capita

Consumption

(kg)

Inventory

Consumer

Price

(won/80kg)

Self-

Sufficiency

ratio

(%)Amount

(1,000M/T)rate

2003 1016  4451  180  83.2  1098  21.7  185433  97.4

Import

Price

$330

D1 368  1900  3302  151.1  700  8.4  32789  23.3 

D2 368  1900  2919  135.9  700  9.2  32789  25.7 

D3 423  2181  2010  109.5  700  11.2  48045  39.2 

D4 550  2839  1252  89.4  700  13.2  93815  56.8 

D5 650  3353  754  78.0  700  14.6  139585  72.8 

L1 561  2895  1194  88.1  700  13.3  98366  58.4 

L2 619  3193  903  81.3  700  14.2  124329  67.6 

L3 650  3353  754  78.0  700  14.6  139585  72.8 

L4 668  3445  671  76.2  700  14.9  148739  75.8 

L5 707  3648  493  72.5  700  15.4  170098  82.8 

<Table 4> Projections by Tariffication Scenarios

 Acreage

(1000ha)

Production

(1000M/T)

Import

(1000M/T)

Per Capita

Consumption

(kg)

Inventory

Consumer

Price

(won/80kg)

Self-

Sufficiency

ratio

(%)

Amount

(1,000M/T)rate

2003 1016  4451  180  83.2  1098  21.7  185433  97.4

Import

Price

$440

D1 408  2106  2663  129.5  700  9.6  43718  29.6 

D2 408  2106  2336  116.5  700  10.6  43718  32.5 

D3 472  2436  1484  94.1  700  12.7  64061  49.9 

D4 620  3201  762  77.1  700  14.8  125087  72.1 

D5 735  3793  206  67.9  700  16.2  186114  91.3 

L1 633  3265  706  75.9  700  15.0  131155  74.2 

L2 699  3608  428  70.4  700  15.8  165771  85.3 

L3 735  3793  206  67.9  700  16.2  186114  91.3 

L4 756  3899  205  66.6  819  19.2  198319  94.8 

L5 801  4133  205  64.6  1015  24.3  226798  101.9 

Projections of per capita consumption : Developing Country (Exchange 1150won/$, Import price $440/ton)

63

68

73

78

83

88

93

2000 2002 2004 2006 2008 2010 2012 2014

T40% T30% T24% T10% MMA4% MMA7%

73.0

69.5

67.7

64.8

Per capita consumption (kg)

83.2

Relation between per capita consumption and self-sufficiency ratio in 2014

Self-sufficiency (%)

Per capita consumption (kg)

T40%

MMA9%MMA10%

62.0

64.0

66.0

68.0

70.0

72.0

74.0

78.0 83.0 88.0 93.0 98.0 103.0

T30%

T24%

MMA8% MMA7%

MMA6% T10%

MMA5% MMA4%

Conclusion and Suggestions

• Excessive rice import expansion would collapse the basis of domestic production.

• Acceptable import expansion conditions:

(1) Long-Term Grace Period such as 10 years and the position of a developing country are needed.

(2) Tariff quota should be less than MMA of 7% by 2014

(3) Tariff reduction should be less than 24%

Conclusion and Suggestions

• Keep the position of a developing country and ensure rice to be defined to a special item or a sensitive item in the rice negotiation and the DDA negotiation

• Government should prepare the rice negotiation with a desirable vision of future rice sector about 10 to 20 years ahead

Conclusion and Suggestions

• In the case that rice import is increased gradually, the increase of rice consumption by the shift of demand curve may bring the Win-Win effects that benefits both importing countries and exporting countries

• If a sudden import expansion is allowed, the basis of rice production would be collapsed and then the position of rice as a chief food would be threaten.