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, ta riffication will be expected. Future import expansion will have the direct e ffect on the consumption of rice.

3. 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.

4. 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

5. 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

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. Statistics of Major Variables Year Acreage (1000ha) Inventory (1000 M/T) Per Capita Consumption (Kg) Self - Sufficiency ratio (%) Average Annual Change Average Inventory Ratio Average Growth Rate Average 1980-8912362.4133524.2127.9-1.195.6 1990-991113-19.1120722.5107.7-2.298.3 2000-031056-12.5121523.788.2-3.7102.5 1990-20031097-17.2120922.9102.1-2.799.5

9. Acceptable Levels of Import Expansion Tariff Quota Expansion - Acreage 800,000 ha, Inventory ratio 95%, Per capita consumption around 65kg Tariffication - Acreage 750,000 ha, Inventory ratio 92%, Per capita consumption around 65kg

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

11. Projections by Tariff Quota Tariff Quota (MMA) 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 20031016 4451 180 83.2 1098 21.7 185433 2014 Developing Country 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 Developed Country 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

12. Effects of Tariffication 1)Estimation of Tariff Equivalent - 517% Estimated by using Korean CS, 1989-91 Average Price 2)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. Tarrification Scenarios ScenarioFormula Developed Country D1 D2 D3 D4 D5 Maximum tariff rate: 100% for 5 years Tariff reduction: 60% for 5 years Tariff reduction: 45% for 5 years Tariff reduction: 36% for 6 years Tariff reduction: minimum 15% for 5 years Developing Country L1 L2 L3 L4 L5 Maximum tariff rate: 200% for 10 years Tariff reduction: 40% for 10 years Tariff reduction: 30% for 10 years Tariff reduction: 24% for 10 years Tariff reduction: minimum 10% within 10 years

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. 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 20031016 4451 180 83.2 1098 21.7 185433 97.4 Import Price $330 D1368 1900 3302 151.1 700 8.4 32789 23.3 D2368 1900 2919 135.9 700 9.2 32789 25.7 D3423 2181 2010 109.5 700 11.2 48045 39.2 D4550 2839 1252 89.4 700 13.2 93815 56.8 D5650 3353 754 78.0 700 14.6 139585 72.8 L1561 2895 1194 88.1 700 13.3 98366 58.4 L2619 3193 903 81.3 700 14.2 124329 67.6 L3650 3353 754 78.0 700 14.6 139585 72.8 L4668 3445 671 76.2 700 14.9 148739 75.8 L5707 3648 493 72.5 700 15.4 170098 82.8

16. 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 20031016 4451 180 83.2 1098 21.7 185433 97.4 Import Price $440 D1408 2106 2663 129.5 700 9.6 43718 29.6 D2408 2106 2336 116.5 700 10.6 43718 32.5 D3472 2436 1484 94.1 700 12.7 64061 49.9 D4620 3201 762 77.1 700 14.8 125087 72.1 D5735 3793 206 67.9 700 16.2 186114 91.3 L1633 3265 706 75.9 700 15.0 131155 74.2 L2699 3608 428 70.4 700 15.8 165771 85.3 L3735 3793 206 67.9 700 16.2 186114 91.3 L4756 3899 205 66.6 819 19.2 198319 94.8 L5801 4133 205 64.6 1015 24.3 226798 101.9

17. Projections of per capita consumption : Developing Country (Exchange 1150won/$, Import price $440/ton) 63 68 73 78 83 88 93 20002002200420062008201020122014 T40%T30%T24%T10%MMA4%MMA7% 73.0 69.5 67.7 64.8 Per capita consumption (kg) 83.2

18. Relation between per capita consumption and self-sufficiency ratio in 2014 Self- sufficienc y (%) Per capita consumption (kg) T40% MMA9% MMA10% 62.0 64.0 66.0 68.0 70.0 72.0 74.0 78.083.088.093.098.0103.0 T30% T24% MMA8% MMA7% MMA6% T10% MMA5% MMA4%

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.