Research Reports
A Study on Ways to Balance Rice Supply and Demand
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AuthorPark, Donggyu
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Publication Date2009.12.01
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Original
As a result of a good harvest in 2009, the price of rice during the harvest season of 2009 has fallen about 12% over the same period in 2008. Farmers' groups claimed price stabilization measures. However, the self-sufficiency rate of grains and soybeans stayed low at 26% and 7% respectively while that of rice was maintained close to 100%. Thus, there is the concern for distribution efficiency of resources. in order to balance the supply and demand. for rice, a wide variety of measures were examined.
If the current policy for rice is maintained, the producers' price of rice may fall to below ￦140,000 and ￦130,000 per 80kg in 2013 and 2018 respectively. As the producers' price falls, there is also the possibility of target price falling to around ￦150,000 and ￦140,000 in 2014 and 2019, respectively. This situation conflicts with the farmers' calling of a target price raise due to rising production cost. Also, the producers' price received, including direct payment, may fall to ￦147,000 in 2014 and ￦138,000 in 2018 from ￦170,000 in 2009. This is the reason why rice farmers respond sensitively about the price drop.
If the target price gets fixed, rice cultivation area will decrease and, therefore, the producers' price is projected to fall to around ￦110,000/80kg in 2019. Even if rice price drops, the price received, including the direct payment, can be maintained at the ￦160,000 level. The problem with target price fixing is that it would be difficult to work the direct payment program for rice since the variable direct payment will exceed the AMS limit in 2015. The variable direct payment is projected to exceed ￦1.51 trillion in 2015, thus exceeding the AMS ceiling of ￦1.49 trillion. When the AMS gets reduced due to the settlement of DDA negotiations, the direct payment program for rice can be even more difficult to function.
The desirable way to approach this problem is to ease the payment condition of "rice cultivating" while maintaining the target price. In many other countries, policies are shifting to decoupled direct payments to stable farm income. Since the degree of fall in the cultivation area of rice will be larger than when only the target price is fixed, the production amount is expected to decrease. In the case of easing the condition of the variable direct payment, the cultivated area of rice is projected to stand at 830,000 ha in 2019, a reduction of 24,000 ha more than when only the target price is fixed. Since the selling price at farms is determined by supply and demand, there is the advantage of allocating resources more efficiently. Even if the conditions for rice cultivation are eased, it will not be a threat to food security since rice cultivated area will decrease immensely.
Although the supply and demand for is balanced, there could be a temporary oversupply due to weather conditions. If the harvest index exceeds the level of tolerance (e.g. 3%), it is considered desirable to restrict the use of excess rice and segregate it from the market. Even if an oversupply is projected, this can ease the anxiety of market participants since it is possible to forecast the amount of rice to be supplied to the market
It is analyzed that when rice price increases, the reduction rate of consumption rises. To facilitate the consumption of rice, any measures artificially raising the price of rice is not desirable. The market for processed rice products has activated due to the high price and the problem of processing technology.
Since the price of domestic rice is 5 times higher than that of wheat, which is a substitute, and the processing cost, too, is higher by more than 2.5 times, there is a limit to utilizing rice as a resource for processed food products. In order to expand the demand for rice for processing, the price of rice to be supplied for processing has to fall to the level of wheat. In addition, providing rice to underdeveloped countries in food aid should be positively considered.
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