The Outlook of Long-Term Rice Consumption by Import Scenarios

1. 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

2. 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.

3. Implication of the Rice Negotiation on Consumption • Under the closed economy, the increase of rice consumption will have a positive effect on production because it shifts demand curve. • 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.

4. Objectives of This Study • 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

5. Structure of rice model • 5behavioral 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

6. 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

7. 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 consumption 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

8. <Table 1> Statistics of Major Variables

9. 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

10. Effects of Tariff Quota • Maximum Acceptable Tariff Quota - Developing Country: 7% in 2014 - Developed Country: 5.5% in 2009

11. <Table 2> Projections by Tariff Quota

12. Effects of Tariffication • Estimation of Tariff Equivalent - 517% Estimated by using Korean CS, 1989-91 Average Price • Effects of tariffication by tariff reduction scenarios - 10 Tariff reduction scenarios - Import price(c.i.f.) : $330/ton, $440/ton - Current exchange rate : 1150 won/$

13. <Table 3> Tarrification Scenarios

14. Tarrification Results • Results at a exchange rate of 1150won/$ and TE 517% • Only two scenarios acceptable from 20 scenario 1) Developed country : No acceptable scenario 2) 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

15. <Talbe 4> Projections by Tariffication Scenarios

16. <Table 4> Projections by Tariffication Scenarios

17. Projections of per capita consumption : Developing Country (Exchange 1150won/$, Import price $440/ton) Per capita consumption (kg) 93 88 83.2 83 78 73.0 73 69.5 67.7 68 64.8 63 2000 2002 2004 2006 2008 2010 2012 2014 T40% T30% T24% T10% MMA4% MMA7%

18. 74.0 T40% 72.0 70.0 T30% 68.0 T24% MMA10% MMA9% 66.0 MMA7% MMA8% T10% MMA6% MMA5% MMA4% 64.0 62.0 78.0 83.0 88.0 93.0 98.0 103.0 Relation between per capita consumption and self-sufficiency ratio in 2014 Per capita consumption (kg) Self-sufficiency (%)

19. 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%

20. 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

21. 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.