1. WTO/FTA Negotiation and Recent Trend of Rice Market Masaru KAGATSUME Professor Graduate School of Agriculture, Kyoto University, Japan Korea-Japan Joint Workshop, on World Rice Consumption Strategies July 23, 2004

2. Abstruct 1. WTO/FTA negotiation and agreement 2. Reform of Rice Distribution System 3. Situation of Rice Import & Reserve Stock 4. Determining Factors of Rice Demand

3. (1) Tariffication is not carried out. Tariff equivalent is not set. ( Import Quota system is maintained) (2) State Trade system is maintained (3) Minimum Access is accepted. Following this, the government charges the mark-up through the state trade from the imported rice. ・ minimum access quantity 4% equivalent (1995) of the domestic consumption in basis period (1986-1988), increasing to 8% equivalent (2000) ・ Mark-up Setting based on the gap between selling price and buying price of the imported rice (Thailand Rice) purchased by the government food agency in the basis period (1986-1988). ( maximum \292/kg ) (4) others ・ The simultaneous buying-selling system (SBS) is introduced in order to establish reasonable domestic market evaluation of the imported rice following the minimum access ・ The same is applied to the rice processing commodity 1. WTO/FTA negotiation and agreement Agreement Dec 15, 1993 Implementation Jan 1, 1995 Outline of Agricultural Negotiation Result of the Uruguay Round on Rice

4. Content of rice tariffication in Japan 1. Date of implementation 1999.4.1 2. Basic Tariff Equivalence (TE) \402/kg (milled rice, upper grade) ------------------------------------------------- ----------------------------------------------- Base year International Price (A) Domestic Pricre (B) B-A ( average in the 3 (import cif price) (wholesale price) years 1986-88 ) -------------------------------------------------------------------------------------------------------------------------------- 1986 \29/kg \438/kg \409/kg 1987 \31/kg \435/kg \404/kg \402/kg 1988 \37/kg \429/kg \392/kg --------------------------------------------------------------------------------------------------------------------------------- 3. The second tariff rate (over quota rate) 1999 \351.17/kg 2000 \341.00/kg 4. the minimum access quantity (paddy) 1999 724,000 mt (6.8% of domestic consumption in the base year) 2000 767,000 mt (7.2% of domestic consumption in the basis year) 5. other As for the minimum access import, the current state trade system is maintained. (*) Under the agricultural agreement the basic tariff equivalent has to be reduced 15% for 6 years to 2000.

5. Shifting into the rice tariffication system in April, 1999 the annual growth rate of the minimum access quantity had reduced by 50% in comparison with the case of continuing the non-tariffication with special measures (i.e. 0.8%/year to 0.4%/year). 1999 767 ---  724 thousand ton ( paddy ) 2000 852 ---  767 thousand ton ( paddy ) a) abolishment of licensing of rice trading (1)the basic primary rate( \402/kg ) is set to be tariff equivalent based on the agricultural agreement (2)the second ( over quota ) rate is calculated based on the agreement. The rest of the second rate from which the payment to government is deducted is set to be the preliminary rate. Second rate of which, preliminary rate 1999 \351.17/kg \59.17/kg 2000 \341/kg \49/kg (3) rice can be protected by the special emergency tariff system ( special safeguard system) Licensing system of rice export-import is abolished, following this, the compulsory selling of rice imported through permission to government is abolished For rice which is imported under the second (over quota) tariff rate, the government can charge one part of second tariff rate as a payment to the government ( \292/kg ). This payment to the government from the rice import is appropriated for the imported food administration account of the staple food administration special account. b) implementation of payment to government for rice import c) implementation of the notification system on rice import-export the rice import-export have to be notified to the government. d) setting the second ( over quota ) tariff rate

6. The mechanism of the switching to rice tariffication ( old system ) ( after tariffication ) Selling price Import markup second rate (maximum ¥ 292/kg) (¥ 341/kg after 2000.4.1) Buying price (minimum access qty) (minimum access qty) (at first tariff rate) (at second tariff rate ) (*)import markup means the gap between government selling price and buying price

9. Border Protection Measures Agricultural Protection – rice, wheat, dairy products – IQ into TQ at the UR Tariff Rate Equivalent –Rice(490%), wheat(210%), barley(190%), butter(330%), SMP(200%), silk(190%), vegetables(3%), fruits(6-20%) Modality Proposal by Mr Harbinson more than 90% 60% ↓ 45%↓ 15 to 90% 50% ↓ 35%↓ less than 15% 40% ↓ 25% ↓

10. ２． Reform of Rice Distribution System 1941 Food Control Law 1969 Voluntary Distributed Rice system 1990 Voluntary Distributed Rice Price Formation Organization 1992 New Agricultural Policy 1995 New Food Law 2004 Abolishment of Planned Distributed Rice system

11. Consumers Unregistered Selling Traders Unregistered Collection Traders Government Processors distribution route of unplanned distribution rice under the New Food Law distribution route of planned distribution rice under the New Food Law distribution route under the Food Control Law Trading Firms Imported Rice ( Government Distribution Rice ) Producers Unplanned Distribution Rice Planned Distribution Rice Voluntary Distribution Rice Government Distribution Rice Registered Trader of Type 2 ( collection by Economic Farm Coop, Collective Union ) Registered Collection Traders of Type 1 ( collection by Farm Cooperatives, Merchant ) Voluntary Distribution Corporation ( National Federation of Farm Coop, National Federation of Collective Union, etc. ) Voluntary Distribution Rice Price Formation Center (Auction Trade) Registered Wholesalers Registered Retailers

12. Commodity test (optional) Label Regulation Rice Consumers Shipping Traders Selling Traders Notified Traders Rice Price Formation Center (trading place) Government Rice Stable Supply Support Organization Rice Producers rice distribution flow Imported Rice SBS Import Normal Import Reservation Stock GovernmentRice Private Distribution Rice

13. 3. Situation of Rice Import and Rice Reserve stock Rice Import in 2003 fiscal year ・ Rice Import under the Minimum Access system based on the Uruguay Round Agreement since 1995 ・ 0.77 million tons of paddy ( SBS import 0.10 million tons) ・ The 0.08 million tons (the twice of usual years ) of glutinous rice were imported to stabilize supply ・ All of the 0.10 million tons of SBS imported rice were sold out through auction although only 0.05 million tons (half of the predicted amounts ) of SBS import rice were sold in the previous year 2002

14. Rice import in 2004 fiscal year –Until the new agreement in WTO is realized, the Minimum Access import is maintained at the same level of 2000 and so, 0.77 million tons of paddy were imported in 2004. –Also, 0.10 million tons of paddy are imported under the SBS import system through the 4 auctions a year

15. Demand for the Minimum Access Rice (million tons) Carry over stock in October 2002 0.95 Import in 2002 0.77 Rice demand in 2003 0.45 for food 0.04 for processing 0.21 for food aids 0.20 Carry over stock at October 2003 1.27 ( increased by 0.30 from 2002) ・ Cultivation Conversion is not enforced due to the minimum access import rice ・ try to sell for processing demand at low price which is not enough for domestic rice ・ redundant stock is aimed to food aids

16. Reserve Stock 1.63 million tons at June 2003 (exceeding optimal reservation level) 0.73million tons at June 2004 Stock by wholesalers increased to 0.76 at February 2004 Reserve Stock Policy –Optimum level = 1 million tons by Revolving Reserve method by 0.5 million tons a year not by Set Aside method –from Arbitrary Negotiation (Direct trading) system to Auction trading (bidding) system decreased due to strong demand by wholesaler & production decline after August 2003

17. ailand

18. Year ・ Term

19. ・ Term

20. Year ・ Term

21. 4. Determining Factors of Rice Demand （１） ClusterAnalysis Overall images of price gaps between rice brands distinguished by production area （２） Hedonic Regression Analysis The significance of each variables as the determining factors of price gaps

26. Table 1 Relation between Price and Taste Evaluation ( Tokyo market ) High Evaluation in TasteLow Evaluation in taste Hitomebore produced in Iwate pref. Sasanishiki produced in Miyagi pref. Hitomebore produced in Miyagi pref. Akitakomachi produced in Akita pref. Sasanishiki produced in Yamagata town Haenuki produced in Yamagata town Sasanishiki produced in Shounai town Haenuki produced in Shounai town Hitomebore produced in Fukushima pref. Koshihikari produced in Fukushima pref. Koshihikari produced in Ibaraki pref. Koshihikari produced in Tochigi pref. Koshihikari produced in Chiba pref. Koshihikari produced in Nagano pref. Koshihikari produced in Niigata town Koshihikari produced in Uonuma town Koshihikari produced in Ishikawa pref. Koshihikari produced in Toyama pref. Sasanishiki produced in Akita pref Sasanishiki produced in Iwate pref Hananomai produced in Yamagata town Domannaka produced in Yamagata town Domannaka produced in Shonai town Sasanishiki produced in Fukushima pref Hatsuboshi produced in Fukushima town Kinuhikari produced in Ibaraki pref Yukihikari produced in Hokkaido Kirara397 produced in Hokkaido Mutsukaori produced in Aomori town Mutsuhomare produced in Aomori town Tsugaruotome produced in Aomori pref Akitakomachi produced in Iwate pref Hatsuboshi produced in Chiba pref Echigowase produced in Niigata pref Niigatawase produced in Niigata pref Yukinosei produced in Niigata pref High Price Rice Low Price Rice

27. High Evaluation in TasteLow Evaluation in taste Hitomebore produced in Iwate pref. Sasanishiki produced in Miyagi pref. Hitomebore produced in Miyagi pref. Akitakomachi produced in Akita pref. Sasanishiki produced in Yamagata town Haenuki produced in Yamagata town Sasanishiki produced in Shounai town Haenuki produced in Shounai town Hitomebore produced in Fukushima pref.. Koshihikari produced in Nagano pref. Koshihikari produced in Niigata town Koshihikari produced in Uonuma town Koshihikari produced in Toyama pref. Koshihikari produced in Ishikawa pref. Koshihikari produced in Fukui pref. Koshihikari produced in Mie pref. Koshihikari produced in Shimane pref. Koshihikari produced in Okayama pref. Hatsushimo produced in Gifu pref Koshihikari produced in Shiga pref. Kinuhikari produced in Shiga pref. Koshihikari produced in Tottori pref. Koshihikari produced in Kagawa pref. Sasanishiki produced in Iwate pref Hananomai produced in Yamagata town Domannaka produced in Yamagata town Domannaka produced in Shonai town Sasanishiki produced in Fukushima pref Hatsuboshi produced in Fukushima town Kinuhikari produced in Ibaraki pref Yukihikari produced in Hokkaido Kirara397 produced in Hokkaido Mutsuhomareproduced in Aomori town Akitakomachi produced in Iwate pref Echigowase produced in Niigata pref Niigatawase produced in Niigata pref Yukinosei produced in Niigata pref Notohikari produced in Ishikawa pref Hohohonoho produced in Ishikawa pref Fukuechizen produced in Fukui pref Nihonbare produced in Shiga pref Akebono produced in Okayama pref Yamahoushi producedinYamaguchi ref Yamahikari produced in Yamaguchi pref Hinohikari produced in Kumamoto pref Hinohikari produced in Oita pref Table 2 Relation between Price and Taste Evaluation ( Osaka market ) High Price Rice Low Price Rice

28. Table 3 Results of Hedonic Regression Approach ( Tokyo Market ) ( ** : statistically significant at 1% level, * : at 5% level Variablesmeaning of the variablesRegression oefficientt-valuep-value X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13 X14 X15 X16 X17 X18 X19 X20 X21 α appearance smell flavor stickiness softness blend suitability shipment period dummy weak stem dummy strong stem dummy tolerance for falling dummy tolerance for cold weather dummy tolerance for disease dummy Koshihikari dummy Uonume local brand dummy Niigata local brand dummy 1990 year dummy 1991 year dummy 1992 year dummy 1993 year dummy 1994 year dummy 1995 year dummy 定数項 0.009 ** 0.0004 ** 0.013 ** 0.018 ** 0.006 ** 0.012 ** 0.006 ** 0.0007 ** -0.029 ** -0.053 ** -0.012 ** -0.032 ** 0.023 ** 0.343 ** 0.111 ** 0.041 ** 0.088 ** 0.098 ** 0.126 ** 0.064 ** 0.008 * 9.430 ** 5.09 0.22 6.41 9.68 4.91 7.26 3.00 0.26 -8.10 -13.69 -4.26 -6.13 6.67 35.74 16.55 11.24 23.83 26.55 23.89 18.70 2.43 258.65 0 0.82 0 0.002 0.78 0 0.01 0 Sample size = 1140, R2 ( ad. Df. ) = 0.899, AIC = -7.258

29. Variablesmeaning of the variablesRegression oefficient t-valuep-value X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13 X14 X15 X16 X17 X18 X19 X20 X21 α Appearance smell flavor stickiness softness blend suitability shipment period dummy weak stem dummy strong stem dummy tolerance for falling dummy tolerance for cold weather dummy tolerance for disease dummy Koshihikari dummy Uonume local brand dummy Niigata local brand dummy 1990 year dummy 1991 year dummy 1992 year dummy 1993 year dummy 1994 year dummy 1995 year dummy 定数項 0.011 ** 0.003 * 0.014 ** 0.018 ** 0.0006 ** -0.005 ** 0.006 ** 0.006 * -0.014 ** -0.009 * -0.016 ** -0.025 ** 0.034 ** 0.329 ** 0.091 ** 0.037 ** 0.084 ** 0.086 ** 0.118 ** 0.059 ** -0.0003 * 9.837 ** 7.19 2.37 8.20 9.62 0.50 -4.97 3.88 2.24 -3.66 -1.96 -5.39 -4.33 13.45 29.27 13.32 11.24 26.22 28.43 26.86 20.95 -0.12 358.54 0 0.01 0 0.61 0 0.0001 0.02 0.0003 0.049 0 0.89 0 Sample size = 1800, R2 ( ad. fd. ) = 0.862, AIC = -7.15 Table 4 Results of Hedonic Regression Approach ( Osaka Market ) ( ** : statistically significant at 1% level, * : at 5% level )

30. i) Taste elementii) Crop Characteristics element appearance, flavor, stickiness, softness, smell stem strength, tolerance against falling, tolerance to cold weather, tolerance to disease i) advantage in marketing element, ii) brand power element suitability to blend, timing of shipment brand power in variety name brand power in local brand name Non-Quality factor Quality factor Table 5. Factors affecting rice price gaps

31. ＜ Summary ＞ 1. Supply of Blended Rice 2. Consistency between WTO & FTA (1)substantially all commodities, (2) not worsening trade conditions to non FTA members (3) complete of liberalization within reasonable period, (3)intra-industry trade and inter-industry trade (2) rule of origin 4. Coordination of MA import & Reserve Stock/Aid Scheme 5. Consistency with Grain Reserve Stock Policy among East Asia 3. Type of FTA and Related Issues (1) FTA, Tariff Union, EPA, Common Market, Economic Union,,

32. Year ・ Term

33. ailand Year ・ Term

34. ailand Year ・ Term