Research Reports
The Evaluation and Tasks of the Rice Policy Reform
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AuthorPark, Donggyu
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Publication Date2010.10.01
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Original
The rice policy reform of 2004 aimed at the rice price being settled according to the function of the market and for the supply and demand to reach the balance. After 2005, the cultivation area for the rice was 70,000 ha/yearly more than the optimum level. Thus, without the intervention of the government, there was a possibility of significant decrease in the rice price. During 2008 harvesting period, the price of the rice increased 2.8% compared to the previous year. However, without the government intervention, the price would have decreased by 15.8%. Due to oversupply, there was difficulty for the rice price to settle based on the market function.
There are several factors to the oversupply, but it is analyzed that direct payment of the rice affected the product a lot. For the rice farmer to receive variable payment, they should meet the requirement to produce the rice. The production increase effect of the variable payment is expected to be 34,000 ha. Also, fixed payment was planned to be production neutral, but it was analyzed to result in 18,000 ha increase. This econometric analysis result coincides with the farmer survey which noted that the fixed payment is a significant factor for the rice production decision making. 62% of the surveyed farmers answered that the fixed payment affected the rice production. To stabilize the supply and demand of the rice, direct payment shall be constructed not to be linked with the rice production, and the fact that direct payment is production neutral should be educated and promoted. As far as the direct payment affects the production, unit cost shall not be increased.
The introduction of the rice direct payment resulted in a positive effect. In 2009 harvesting period, the rice price decreased 12.3% compared to 2008, but farm received price including the direct payment resulted in only 4.5% decrease. Taking into the consideration of the direct payment compared to the 2005~2009 target price, the farm received price was stable being in the 98% level. Nonetheless, farmers showed sensitive reactions to the rice price. According to the relevant law, the future target price shall be adjusted taking into the consideration of the price change rate. Therefore, the farmers are sensitive to the price decrease and the government is forced to intervene. To solve this problem, the target price should be set in long-term to improve the profitability of the farmer and to enhance the reliability of the policy. It should be noted that the United States is keeping the target price that was used under the Farm Bill in 1996.
It is custom for the farmer to sell rough rice and the decrease of the rice price has significant affect. Farmers usually sells it in rough rice but the price decrease of the rough rice is greater than milled rice. However, rice direct payment is calculated based on the milled rice. Thus, the direct payment level that the farmers are experiencing is quite different from the direct payment level. It is reasonable to change the calculation basis of the direct payment from milled rice price to rough rice price.
To achieve food security, public stockholding was introduced. However, problems arose such as the criteria of the stockholding being unclear, the amount not being managed according to the criteria, and the revolving stockpile policy being not held. Also, public stockholding and stockholding for government’s other use was confused. Likewise the rice direct payment, public reserved rice shall be calculated by converting the milled rice price to rough rice price which will result in approximately 10% price support effect.
Public stockholding should be limited to being reserved for the poor harvesting season and should be operated according to the original purpose. Public stockholding amount can be decided considering the critical yield-condition index and shortfall probability. For example, if the yield-condition index, which the public stockholding rice is being removed, is set to be 98 and the shortfall probability, which is the probability that can bear the shortage, is 6%, the stockholding ratio should be 16%. Also, public reserved rice shall be purchased through the bidding system to reduce the purchase price and administrative expenses.
Policy to stabilize the market during the temporary good harvesting year has not been reviewed during the rice Policy Reform session. For example, if the harvest increases about 5% compared to this year, the rice price can decrease about 7%. Thus, the amount that exceeds 5% of this year’s harvesting, which is about 50,000 ton, shall be excluded from the market to stabilize it.
The amount that should be excluded from the market depends on what % of the decrease can be tolerated. Because the tariffication has been pushed to 2014, so even if it will be changed to tariffication before 2014, there will be no rice import that exceeds the TRQ. Because over production of rice is a concern, changing it to tariffication and reducing TRQ may benefit the farmers and the nation.
Researchers: Dong-Gyu Park, Myung-Hwan Sung, Young-Hoon Kim, Mi-Sung Park, Yong Sagong, and Jung-Hwan Lee
E-mail address: dgpark@krei.re.kr
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