Rice Exporters Benefit From Trade Promotion Programs example essay topic

Introduction: The international market for rice is segmented by type and quality. Soil and climate conditions determine which types are economically viable in a given region. According to Siam walla and Harkin there are possibilities of substitution in production. In terms of consumption, Childs and Bur-debt argue that there is only very little substitution due to strong preferences for specific types and qualities, and so world rice prices tend to be more volatile than other grain prices. There are four types of rice that are traded internationally: indica, japonica, aromatic, and glutinous rice. Indica rice accounts for 80% of world rice trade.

These grains are long and slender, and remain separated when cooked. Indica rice is grown in tropical and sub-tropical climates. Japonica rice accounts for 10% of world trade and is grown in temperate climates. These grains are short and round, and tend to become slightly sticky when cooked. Aromatic, or fragrant, rices account for just under 10% of the world market and are primarily jasmine rice from Thailand and basmati rice from India and Pakistan. The remainder is glutinous rice grown mainly in Southeast Asia.

Both the aromatic and the glutinous rices sell at a premium to indica and japonica. The main exporters of indica rice are Thailand, Vietnam, China, the United States and Pakistan. Other ex-porters include Argentina, Uruguay, Guyana, Burma and Surinam. The primary exporters of japonica rice are Australia, Egypt, China, the European Union and the United States.

As mentioned above Thailand, India and Pakistan export the aromatic rice. The US also has a small amount of aromatic rice exports. Thailand is the main exporter of glutinous rice. A very small amount of Californian glutinous rice is exported to Japan. Rice is traded in three primary forms: fully milled, brown and paddy. A higher price is usually obtained due to the higher degree of milling and the lower percent of broken kernels.

Milled rice accounts for almost all internationally traded rice. There are moderate amounts of trade in brown rice and only very little trade in paddy rice. In fact, the United States is the only major exporter of rice in its rough form. According to Childs and Burdett Argentina and Uruguay supply some rough rice within the Latin American region, and Australia has begun exporting small amounts of rough rice to Turkey.

Rice may also be parboiled, a process by which the rough rice is subjected to steam pressure making it hard and therefore less likely to break during milling. Parboiled rice typically sells at a premium to non-parboiled rice. The main exporters of parboiled rice are Thailand, the United States and India. The main importers are Western Europe, the Middle East and South Africa. Rice is of overwhelming importance to the developing countries, particularly those in Asia. In the year 2000 more than 95% of world rice production and consumption took place in developing countries; 90% was produced and consumed in Asia.

By far the largest producers of rice are China and India. Other large rice producers in Asia are Indonesia, Bangladesh, Vietnam, Thailand, Myanmar, the Philippines and Japan. Asia is responsible for slightly less than 90 percent of global rice production and consumption, about 50 percent of imports, and 72 percent of exports The largest non-Asian rice producers are Brazil and the United States. The European Union also produces rice "C in Italy, Greece, Portugal and France "C but this amounts to just 0.3% of world production. Rice is the most important basic staple food for about one-half of the world's population and provides over 20 percent of the global calorie intake. As a result of increases in population and economic growth, rice consumption has increased faster than production, resulting in increases in price of rice in the world market over the last decade.

Although rice is widely grown and consumed, less than 6 percent of world production is traded annually compared with about 18 percent for wheat, 25 percent for soybeans, and almost 13 percent for corn. The rice market is "thin" or "residual" in the sense that the ratio of exports to production is smaller than for other grains. Trade Barriers and the Rice market One of the main factors for small ratio of trade to production in the world for rice producers, Cramer, Wales, and Shui, were import quantity restrictions, import tariffs, and customs taxes, as well as deficiency payments and input subsidies. Currency overvaluation has caused an indirect trade distortion on world rice trade. The high level of intervention in rice trade clearly has significant impact on consumption, production and welfare.

Therefore the Lincoln Trade and Environmental model is used to examine the impact of rice trade liberalization on the selected countries under four different policy scenarios that call for full trade liberalization in all the countries in the model; liberalization of developed countries; the Uruguay Round Agricultural Agreement; and the liberalization of Japan and South Korea. There are basically four kind of trade barriers that affect the international rice market. Tariffs Both tariffs and non-tariff barriers are used to protect domestic rice producers from foreign competition. Many different types of tariff are applied: ad valorem tariffs, specific tariffs, and combinations of the two. Variable levies are also being used. An exception to the general rule of tariffication in the URAA has e.g. permitted the European Union to use variable levies on imports of husked and milled rice.

The ad valorem tariff is the only form of import duty that yields a constant percentage edge between the world and domestic price. Yet many agricultural commodities are subject to non-ad valorem tariffs such as specific duties, variable levies, and combinations of ad valorem and specific tariffs. Non-ad valorem tariffs provide varying degrees of protection depending on the prevailing world price. Moreover, they are often less transparent, thereby concealing actual level of protection. Gibson found that the world average of bound ad valorem tariffs on agricultural goods is 58%, while the average ad valorem equivalent of non-ad valorem tariffs is 123%. Another mechanism to insulate domestic prices from world price fluctuations is by imposing an additional duty if the price falls below a certain minimum.

This is known as a minimum price tariff. Quotas An import quota restricts the volume of imports irrespective of the prevailing market conditions, and so in an expanding market a quota will become increasingly restrictive. Unless the quotas are auctioned, an import quota does not generate revenue for the government. An import quota generates quota rent, however, which accrues to those agents "C domestic or foreign "C that have access to quotas.

From an economic point of view the preferred method of quota administration is an auction after which licenses may be sold freely on the market. An alternative is the direct allocation of the right to import fixed amounts of the goods to importing firms free of charge. The government does not earn revenue, but the quota rents accrue to the importing firms. In practice, however, quotas are often allocated according to specific criteria (firm size, trading experience, relations to the government, etc. ), which make it relevant for companies to engage in unproductive lobbying activities to gain access to these licenses. The effect of a binding import quota can be analyzed in a framework similar to that used to illustrate the effects of an export quota.

The demand schedule for imports will have the same kinked form as the demand schedule seen from the exporter point of view in the case of an export quota. An import quota results in forced scarcity of imports, thereby raising the price of the commodity on the domestic market above the price that would prevail in the free trade situation. The rice export quota has typically been allocated in two steps: an initial allocation valid up to September, followed by a second allocation after an evaluation of the domestic crop situation. Voluntary Export Restraints Some countries restrict exports of staple foods such as rice, maize and wheat for food security reasons. Irrespective of price developments on the world markets, exporters are restrained from supplying more than a fixed quantity. A binding export quota will change the demand curve seen from the perspective of domestic exporters.

The domestic price falls to the benefit of the consumers, but at a cost to producers. The net effect is a deadweight loss. Agents with the right to export under the quotas gain what corresponds to the area c. If the country imposing the quota is "large" in the sense that it can affect world market prices by its policy, the world price will tend to rise. The area a shows the potential terms of trade gain. The net effect is uncertain, but a very large country could actually gain from imposing an export quota if demand for its exports is highly inelastic or if the implicit tax of the quota is rather small.

The latter would be more likely if exports of the particular goods in question constituted only a small share of domestic production and if domestic supply and demand are very elastic. In the small country case, there is no impact on the world market price, hence no terms of trade gain, and therefore the country stands only to lose. Just like a variable levy, the difference between an export quota and an export tax is evident as market conditions change. An export tax has a constant degree of negative protection while allowing the volume of exports to change. An export quota maintains a fixed export volume, but allows the degree of protection to vary according to domestic market conditions and the world price. Furthermore, an export tax generates explicit revenue to the government, whereas a quota generates rents that may be distributed in many different ways depending on who has access to the quota.

Non-tariff barriers The participation of state trading enterprises in agricultural trade is not a new phenomenon to the GATT / WTO system "C it is well known in both developing and developed countries. The 1994 General Agreement on Tariffs and Trade defines state trading enterprises as: "Governmental and non-governmental enterprises, including marketing boards, which have been granted exclusive or special rights or privileges, including statutory or constitutional powers, in the exercise of which they influence through their purchases or sales the level or direction of imports or exports". The GATT acknowledges state trading enterprises as legitimate participants in international trade as both a market regulator and an economic agent, but the Agreement also contains guidelines concerning their behavior. In particular, state trading enterprises are subject to the general GATT principles of non-discrimination and most-favored nation treatment. Furthermore, STEs are supposed to act solely on the basis of "commercial considerations". Finally, STEs should not provide protection exceeding that provided by bound tariffs.

State trading enterprises are of course subject to the disciplines contained in the Uruguay Round Agreement as they relate to market access, export subsidies and domestic support. WTO members must notify the organization of the existence, objectives, methods of operation, and the volumes of trade under the control of STEs. The majority of the notifications relate to state trading enterprises engaged in agriculture and related sector. Apart from the European Union, all the major exporters and importers notify the use STEs to administer some parts of their ag-ri cultural trade. Due to a somewhat unclear definition of state trading enterprises there are still controversies as to whether or not the intervention agencies of the EU ought to be characterized as such since they manipulate markets but are not directly engaged in trade. International rice trade is also affected by non-tariff measures such as quantitative restrictions on imports and exports, seasonal bans, tariff rate quotas, and more or less explicit export support measures.

With the aim of improving market access, the URAA introduced the tariff rate quota (TRY) system as a half way solution between a preferred tariffs-only regime and the previous regimes characterized by import bans and quotas. In the case of rice, however, three exceptions to this rule were made: Japan, Korea and the Philippines were allowed to use a classic import quota to determine their minimum market access level with no commitments whatsoever to import above this level. The minimum market access commitments made by these three countries have generally been fulfilled, but it may be questioned which effect this has had on international rice trade. The number of countries winning the tenders for these imports has been limited. The United States accounts for half of Japan's total imports, while the other large suppliers are Thailand and Australia, and to a lesser extent China. Vietnam, India and Pakistan have not succeeded in gaining noteworthy access to the Japanese market.

There are many possible explanations for this outcome. Due to the consumer preference structure, opening the rice markets of Japan and South Korea increases the demand for japonica rice varieties. Most exporters of japonica rice are developed country producers such as the US and Australia, although China is also a potential supplier. Vietnam, India and Pakistan are indica rice producers. Notwithstanding this plausible explanation, concerns are being raised, however, about the way in which access to the Japanese and Korean markets is being regulated.

Thailand's Export Promotion department, for example, has requested that Japan permits the free market forces to determine the quota allocation and allows importers to freely conduct promotional campaigns. It is argued that the Japanese ad-ministration of the quota amounts to a protectionist measure against free market ex-porters. Another problem relates to the fact that governments and / or their STEs are free to choose which grades and standards of a product may be imported under the minimum market access arrangement and can therefore discriminate against products from certain countries and / or limit competition on the domestic market. Korea, for example, tenders only for low quality rice thereby severely limiting actual competition on the domestic market where demand is for high quality.

The extent to which these problems of quota administration relate to the fact that state trading enterprises are involved is not entirely clear. The URAA allowed significant. freedom of choice in this regard, which seen in retrospect may have generated unintended effects. In some countries such as Japan, Korea and Indonesia, quotas are allocated to STEs, which then determine the conditions of entry and sometimes also the marketing channels to be used. There are concerns that the allocation of import quotas takes place on political grounds rather than on a commercial basis. 48 Perhaps more importantly, Japan and Korea have helped cushion the impacts of the forced market openings by storing imported rice for long periods of time thereby rendering them suitable only for limited uses, by reselling imported rice to the food processing industries rather than directly to consumers, and by re-exporting some of the imported rice as food aid. Reviewing the way in which the quota systems introduced in the URAA have been managed strongly suggests that there is a need for more precise rules so as to avoid the clearly unintentional effects mentioned above.

An important component of such a reform should be to give private traders increased access to competing with state trading enterprises. One obvious change should be to eliminate the possibility of imposing mark-ups on imports in excess of the committed minimum access levels. Efforts are being made to liberalize state trading in Asian rice markets, but the tendency is to relinquish monopoly powers and to move towards a greater degree of private sector participation rather than to completely abandon the principle of state involvement. Moreover, progress on this front is very slow, as the recent reforms of the Vietnamese rice trade regime witness. Countries involved in the international market Vietnam In principle at least, one of the most substantial changes in Vietnamese rice policy in recent years is the elimination of the export quota. This decision declares the abolishment of both the rice export quota and the fertilizer import quota.

Furthermore, the practice of directly nominating exporters and importers of these products has been removed. Hence all economic agents (state owned and non-state owned) holding a license to trade food or agricultural commodities can participate in rice exports. Moreover, the Government will still assign the Ministry of Trade to coordinate with Vietnam's Food Association in nominating state owned food companies to deal with the country's main rice markets such as Indonesia, the Philippines, Malaysia and Iraq. The signed contracts will then be allocated to the provinces based on their available rice supply. So although the quantity limitations have been lifted, this decision will not have a significant impact on increasing the participation of private trading companies in rice exports.

Another recent policy initiative that may well meet opposition by WTO members is an agreement that Vietnam has signed with Thailand. Under the deal each of the two countries is to contribute 100,000 tons of 25% broken rice to an international rice pool for sale at USD 152/ton. The intention is to keep the two partner countries from undercutting one another's prices on world markets. Is that the amount and the number of countries involved are too small for it to have any impact. Nevertheless, China and India have expressed interest in the agreement although it is far from clear that such an agreement will be WTO compatible.

At the domestic level this initiative will continue to contribute to domestic rice prices being below border prices. Thailand Comparing the rice policy of Thailand with that of Vietnam clearly reflects the fact that Thailand is a country with a substantially longer and more well established experience in international rice trade. In terms of border measures, the Government of Thailand has in the past used export quotas to control its rice exports and imposed an export surcharge known as the 'rice premium'. Taxing rice exports had the effect of an implicit consumer subsidy by keeping domestic prices low whilst at the same time generating revenue to the government. The quota system was abolished in 1986 and the export premium on low quality rice was removed in acknowledgement that low prices were part of the game when competing with US rice exports. The United States Support to American rice farmers consists of direct income support and export promotion measures.

Under the 1996 Farm Act, which expires in 2002, rice producers are supported by production flexibility contract payments, the marketing loan program, and subsidized crop and revenue insurance. Furthermore, rice exporters benefit from trade promotion programs, food aid programs, export credit guarantees, and market loss assistance. Starting with the instruments that make up the Market Price Support component, there are a number of specific programs that directly and indirectly create a wedge between domestic and border prices. Food aid and export credit guarantees are two such programs that account for the lion's share of government assistance to rice exporters. Total exports under these programs in the fiscal year 2000 amounted to 626,000 tons, with credit guarantees accounting for 225,000 tons and food aid shipments accounting for 401,000 tons. Put together these programs accounted for 19% of total rice exports in fiscal year 2000 and 25% in fiscal year 1999.

In 1999 total program exports reached almost 777,000 tons consisting of 192,000 tons in credit guarantees and 584,000 tons in the Food for Peace program. These are the largest volumes of program exports since 1993 China The main goals for China are to sustain high levels of self-sufficiency, to secure higher farmer incomes, to ensure price stability, and to increase quality. Following five decades of a policy focused on increasing rice production (through modern seed technologies, expansion of irrigated areas, increased use of chemicals and other modern inputs), China is now coping with a new problem: too much rice. And so price stability is of major concern to the Chinese government. Furthermore, as of the mid-1990's China's rice policy has focused on raising farmers' incomes whilst sustaining a high level of rice self-sufficiency.

In China almost all the instruments used to achieve these goals may be classified as Market Price Support measures because they create a wedge between the domestic and border price. The net effect is a negative nominal protection coefficient; domestic rice prices received by rice farmers are lower than the price obtainable on world markets "C a seemingly clear reflection of the self-sufficiency policy. Nonetheless, this gap seems to be narrowing. To achieve the goal of stable domestic food and feed grain markets the State Administration of Grain Reserve (S AGR) has been established to purchase and sell grains. This system represents a traditional approach to ensuring sufficient food supplies through quotas, targets, and input allocation.

China's state trading enterprises are involved throughout the entire chain of marketing organizations at the central and provincial levels in both domestic and international marketing. The central and provincial governments determine the quantities of rice that must be purchased, and they set the purchase price for these procurement quotas. Grain bureaus may purchase above-quota grains at market or support prices. Currently China imposes a quota on rice imports with out-of-quota duties of 114% but has committed itself to expanding this quota and to lowering the associated tariff rates when it joins the WTO. 21 China furthermore levies a value added tax on both imports and domestic products. However, trade contracts have indicated that the VAT is sometimes used to affect trade flows.

Imports of certain products are exempted from the VAT in some years to secure lower costs to protected domestic producers. In other years it is increased "C again to protect domestic producers. Japan Assistance to the rice sector in Japan is provided primarily through price support backed up by supply controls, import restrictions and the use of administratively determined internal support prices. Price Support accounts for up to 90% of the value of producer support provided to rice farmers in Japan.

The Government of Japan intervenes strongly in the pricing and marketing of rice resulting in extremely high internal prices and substantial protection against foreign competition. Japanese consumers currently pay four to six times the world price for its rice, only part of which can be explained by higher quality. Under the minimum market access commitment, Japan agreed to allow duty-free imports in 1995 of up to 4% of its average annual consumption in the base period 1986-88. This was then to be following by equal annual increments of 0.8% of base period consumption until reaching 8% in the final year 2000. Even though the minimum access imports faced a zero tariff, the URAA permitted Japan to impose a mark-up of 292 yen / kg (USD 2.56/kg). Japan has had to control the size of its stocks in order to be able to fulfill the minimum market access requirement.

Controversy has furthermore surrounded the tariffication of the Japanese rice import regime. It seems to be yet another case of dirty tariffication. According to Bull and Roberts (2001) the tariff equivalent was calculated on the basis of the price gap between different qualities of domestic and imported rice, namely the Japanese internal price and prices for Thai broken rice. If the Japanese prices had been judged relative to a comparable quality of rice, such as US rice, the tariff equivalent would have been far lower. Several countries, including Australia, the European Union, Uruguay and Argentina have criticized the tariffication method applied. In addition to the tariff rate quota system, special safeguards have been introduced into the Japanese rice import regime.

Under the URAA special safeguards (price-triggered and quantity-triggered safeguards) allow an importer to increase the tariff rate corresponding to the decline in border price or the increase in the imported quantity. The European Union One of the main supporting mechanisms of the EU rice regime is the intervention system that guarantees purchases at a predetermined intervention price. The EU also makes use of substantial border measures to provide supporting to its rice farmers. During the Uruguay Round negotiations the EU tariff ied all its rice import duties and a schedule for reducing them by 36% by 2000/01 was agreed upon.

These rates have not been applied, however, because rice became part of the US-EU Blair House Agreement. This agreement introduced a variable levy on husked and milled rice, which account for the bulk of rice imports into the EU. The EU rice import regime has been constructed to protect EU rice millers. In 1996 the EU struck deals with the United States and Thailand on annual tariff rate quotas for 63,000 tons of milled rice, 20,000 tons of brown rice, and 1,000 tons of broken rice. The quotas are split by country of origin and applications for import licenses take place in quarterly tranches. The EU notifications to the WTO show that the quotas are completely filled (or at least very close to being filled) each year except for broken rice.

Conclusion: What actions can an exporting country do to conquer the influence of foreign trade barriers? The best available evidence is to take the following steps. a. Optimize the species and quality Countries that have particular strengths, due to local geography or superior growing methods will have your-round strengths in the market for their varieties and should exploit these markets. b. Market varieties as brands instead of commodities Rather than focusing on bulk deliveries of rice on the basis of low-price providers, they should, like Vietnam has done, use creative packaging to market special brands to gourmet or quality rice markets at premium prices. c. Create premium quality standards By creating a range of quality standards, a rice maker can quickly differentiate themselves from commodity providers in the global market. Focusing on freshness, taste and recipes, these producers could gain entry to markets they have traditionally not been able to market. d.

Form strategic marketing partnerships with importing countries Because rice distribution has traditionally been dominated by large countries and major rice exporters, many smaller producers can gain access to markets as specialty exporters. They could devise marketing programs to reach gourmet grocery distributors, rice making equipment providers; gourmet chefs and cooking schools, major restaurants. e. Strengthen marketing programs to build differentiation Each rice provider needs a global identity in the market to appeal to new rice buyers in Africa, South America, the Middle East as well as in Europe and North America. Smaller rice producers need to build a profile of unique rice makers to d ispell the notion that all rice cooks and tastes the same. f. Create export lobby groups to influence legislation in importing countries Mostly this is an educational effort to convey to both consumer groups and lawmakers that there are many trade barriers against the importation of rice.

The program could shed light on the fact that consumers are the ultimate losers in the market because they are often not getting the best quality rice due to protective trade barriers.