The impacts of trade liberalisation on the world rice market

Abstract

Rice is the most important basic staple food for about one-half of the world's population and provides over 20 percent of the global calorie intake (FA0,2000). As a result of increases in population and economic growth, rice consumption has increased faster than production, resulting in increases in price of rice in the world market over the last decade. Asia is responsible for slightly less than 90 percent of global rice production and consumption, about 50 percent of imports, and 72 percent of exports (FA0,2000). Although rice is widely grown and consumed, less than 6 percent of world production is traded annually compared with about 18 percent for wheat, 25 percent for soybeans, and almost 13 percent for corn (USDA, 2001). The rice market is "thin" or "residual" in the sense that the ratio of exports to production is smaller than for other grains (USDA, 2001). One of the main reasons for this small ratio of trade to production is the trade barriers in both developed and developing countries. Cramer, Wailes, and Shui (1993) identified import quantity restrictions, import tariffs, and customs taxes are the major import barriers and deficiency payments, input subsidies, currency overvaluation as indirect trade distortion policies on world rice trade. The high level of intervention in rice trade clearly has significant impact on consumption, production and welfare. Therefore the Lincoln Trade and Environmental model (LTEM) is used to examine the impact of rice trade liberalisation on the selected countries under four different policy scenarios. The policies specified are full liberalisation in all the countries in the model; liberalisation of deyeloped countries (Australia, EU (15), Japan and US); the Uruguay Round Agricultural Agreement; and the liberalisation of Japan and South Korea. The results from analysis suggest that total welfare is predicted to increase in all the importing countries such as Bangladesh, Brazil, EU (15), Indonesia, Japan and South Korea under all policy scenarios. However, total welfare is predicted to decrease in the exporting countries such as Australia, India, Pakistan, Thailand, United States and Vietnam under the liberalisation of developed countries and liberalisation in Japan and South Korea. Total welfare is predicted to decrease in Australia, Pakistan, United States and is predicted to increase in India, Thailand, Vietnam under full liberalisation and the URAA. The model predicted a net total welfare gain under all policy scenarios. Full liberalisation in all the countries in the model predicted the highest net welfare gain of $ US 40.S billion. Developing countries as a group would benefit more than the developed countries under this scenario. Liberalisation in Japan and South Korea predicted the second highest net welfare gain of $ US 20.3 billion. All the importing countries in the model are predicted to gain while all the exporting countries are predicted to lose under this scenario. Japan and South Korea is predicted to gain by the withdrawal of the government intervention in rice industry in these countries. The predicted total net welfare gain under liberalisation of developed countries is $ US 13.6 billion and it is experienced almost exclusively by the developed countries. Thus, impact on developing countries under this scenario is negligible. This is not surprising, however, given that in most developed countries rice is only a marginal food, while in developing countries it is a major staple food. Furthermore the results indicate that the effect on the world rice market with liberalisation of rice policies in South Korea is higher than the cumulative effect of developed countries such as US, EU (15) and Australia. The total net welfare effect of the URAA is predicted to be insignificant.