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, ta riffication will be expected. Future import expansion will have the direct e ffect 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

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 consumption 64.4kg in ) Long-term Projections in Comprehensive Strategy for Rice Sector by MAF in February ,000ha, Self-sufficiency 90% in 2013

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

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

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

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 Developing Country 4% % % % % % % Developed Country 5% % % % % %

Effects of Tariffication 1)Estimation of Tariff Equivalent - 517% Estimated by using Korean CS, Average Price 2)Effects of tariffication by tariff reduction scenarios - 10 Tariff reduction scenarios - Import price(c.i.f.) : $330/ton, $440/ton - Current exchange rate : 1150 won/$

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

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

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 Import Price $330 D D D D D L L L L L

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 Import Price $440 D D D D D L L L L L

Projections of per capita consumption : Developing Country (Exchange 1150won/$, Import price $440/ton) T40%T30%T24%T10%MMA4%MMA7% Per capita consumption (kg) 83.2

Relation between per capita consumption and self-sufficiency ratio in 2014 Self- sufficienc y (%) Per capita consumption (kg) T40% MMA9% MMA10% 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.