ECONOMIC POLICIES

- International market and rice policies of the main exporters and importers
- Common Organization Market of the European Union
- US rice policy
- Japan rice policy
- The International Rice Commission (IRC)

International market and rice policies of the main exporters and importers

Policies in most producing countries aim at self-sufficiency by increasing seeded areas and productivity. FAO estimates that the threshold of food security for rice corresponds to 18 percent of projected annual consumption. The major producers are developing countries for whom rice is an essential part of the population's diet. As harvests are always subject to risks, a potential exporter may temporarily become a rice importer, consequently changing its trading policy.

Earlier on, the main measures used in price policies consisted of applying minimum prices at the production level, making official purchases with guarantees and controlling imports through semi-public facilities. Market liberalization, however, has caused a reduction in policies that regulate domestic production and international trading (mainly subsidies and price regulations).

The chart below denotes the importance of rice production and international trading in the major exporting and importing countries, as well as their trading policies.

The United States, Japan and the European Union have adopted specific policies to support production, while still conforming to WTO rules (reduction of both import tariffs and export incentives, as well subsidies).

The policies of the other countries, generally leading producers, are based on the following principles:
- export tariffs if domestic market has rice deficit;
- export subsidies if domestic market has rice surplus.

Common Organization Market of the European Union

Although the European Community rice trade represents only 0.4 percent of world trade, a common organization of the market (COM) for rice was created as a consequence of the Marrakech agreements. This complex system intends to maintain rice production destined for internal markets and exports. After the latest WTO negotiations on agriculture, the European Commission proposed the COM reform. The main points of the COM for rice (120KB) are as follows:

Source : UNCTAD Secretariat, from Regulation 395R3072 (in the web site europa, click on legislation, enter 1995 in "year" and type the above number) and the reform proposal from the European Commission.(776KB). Fore more recent information on this issue, please consult "EU Rice Round Up for 2004/05 - Intervention, Imports and Tariffs", USDA, 2005.

US rice policy

US rice policy is also based on assisting producers, mainly by:
- price support through production flexibility contracts (PFC), settled between the government and the producer;
- marketing loan payments, made available when world prices are lower than the reference price determined for a specific rice quality.

Currently, the different types of rice have an average reference price equal to US$ 6.5 per hundredweight in the domestic market (10.71 cents per pound for the long grain paddy rice and 9.71 cents per pound for the short and round grain).

The Farm Bill rice policy is available in: USDA, Fact sheet.

Japan rice policy

In Japan, the government intervenes in prices and rice imports.

Price system

In 2000, the selling price of rice in the Japanese domestic market was approximately four times higher than FOB prices in California. Private firms are allowed to sell rice, but the state trading enterprises are responsible for most of the sales. According to WTO rules, Japan has to import at least 8 percent of its annual consumption. Normally the imported rice is not distributed to the Japanese domestic market (see the paragraph below), which contributes to keeping domestic prices much higher than those elsewhere.

Imports

The rice that enters Japan, in accordance with WTO imposed policy to open up borders, is not immediately traded. It is warehoused for about one year before being distributed, in the majority of cases, as food aid. Some of the imported rice, however, is destined for industrial use (e.g., sake, beer). Thus the Japanese domestic market remains isolated from the world market.

Production

For a long time the Japanese rice production surpassed internal consumption, due to the attractiveness of subsidized prices to growers. Recently there has been a decrease in rice stocks due to a decrease in production because the government has offered financial incentives to growers to replace rice with other crops. Producers who do not adopt this diversification program are taxed and the money goes to those farmers who have adopted it.
This system has led to a 35 percent decrease in rice-seeded area in Japan, when compared to its levels in 1975.

The International Rice Commission (IRC)

The International Rice Commission (IRC) was established by the FAO in January 1949 with the object of promoting national and international action in respect to the production, conservation, distribution and consumption of rice. Matters relating to trade are under the responsibility of the Intergovernmental Group On Rice (GIR). The Commission is open to all FAO Member Nations and Associate Members who accept the constitution of the IRC. Currently there are 61 members that represent all the rice-producing regions of the world. The Commission deals with the scientific, technical and economic problems relating to rice, encourages and coordinates research, and organizes cooperative projects. In addition, it reports to the member countries and the Director-General of FAO on appropriate action to action to be taken to reach its objectives. Further information available at: http://www.fao.org/docrep/v6017t/v6017t06.htm

Within the framework of the FAO, guidelines for national and international action on rice were discussed in the 39th session of the Intergovernmental Group. The purpose was to guarantee close cooperation in order to ensure the food security of developing countries, as well as progressive reductions in market-distorting interference and a reduction of distortions and restrictions in the world rice market. Further information available at: http://www.fao.org/docrep/meeting/x2793f.htm#P57_1047