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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, tariffication will be expected.
• Future import expansion will have the direct effect 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 1975- 2003
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 consump
tion 64.4kg in 2014 3) Long-term Projections in Comprehensive Strategy for
Rice Sector by MAF in February 2004 - 800,000ha, Self-sufficiency 90% in 2013
<Table 1> Statistics of Major Variables
Year
Acreage (1000ha)Inventory(1000 M/T)
Per CapitaConsumption
(Kg)
Self -Sufficiency
ratio (%)
Average Annual Change
AverageInventory
RatioAverage
Growth Rate
Average
1980-89 1236 2.4 1335 24.2 127.9 -1.1 95.6
1990-99 1113 -19.1 1207 22.5 107.7 -2.2 98.3
2000-03 1056 -12.5 1215 23.7 88.2 -3.7 102.5
1990-2003 1097 -17.2 1209 22.9 102.1 -2.7 99.5
Acceptable Levels of Import Expansion
• Tariff Quota Expansion - Acreage 800,000 ha, Inventory ratio < 25%,
Self-sufficiency > 95%, Per capita consumption around 65kg
• Tariffication - Acreage 750,000 ha, Inventory ratio < 25%,
Self-sufficiency > 92%, Per capita consumption around 65kg
• Maximum Acceptable Tariff Quota
- Developing Country: 7% in 2014
- Developed Country: 5.5% in 2009
Effects of Tariff Quota
<Table 2> Projections by Tariff Quota
Tariff Quota(MMA)
Acreage(1000ha)
Production(1000M/T)
Import(1000M/T)
Per CapitaConsumption
(kg)
InventoryConsumer
Price(won/80kg)
Self-Sufficiency
ratio(%)
Amount(1,000M/T)
Rate
2003 1016 4451 180 83.2 1098 21.7 185433
2014
DevelopingCountry
4% 815 4205 205 64.4 990 23.8 239554 101.4
5% 810 4180 257 64.7 1005 24.0 235853 100.5
6% 805 4155 308 65.1 1021 24.3 232292 99.7
7% 801 4131 359 65.4 1036 24.6 228799 98.8
8% 796 4107 411 65.8 1051 24.9 225304 97.9
9% 791 4083 462 66.1 1067 25.1 221942 97.1
10% 787 4059 513 66.5 1082 25.4 218643 96.2
DevelopedCountry
5% 805 4155 309 65.1 1021 24.3 232223 99.6
6% 796 4107 411 65.8 1051 24.9 225304 97.9
7% 787 4059 513 66.5 1082 25.4 218643 96.2
8% 778 4012 617 67.2 1115 26.0 212104 94.6
9% 769 3967 719 67.9 1147 26.5 205931 93.0
10% 760 3923 821 68.6 1179 27.1 199985 91.4
Effects of Tariffication
1) Estimation of Tariff Equivalent - 517% Estimated by using Korean CS, 1
989-91 Average Price 2) Effects of tariffication by tariff reductio
n scenarios - 10 Tariff reduction scenarios - Import price(c.i.f.) : $330/ton, $440/ton - Current exchange rate : 1150 won/$
<Table 3> Tarrification Scenarios
Scenario Formula
DevelopedCountry
D1D2D3D4D5
Maximum tariff rate: 100% for 5 yearsTariff reduction: 60% for 5 yearsTariff reduction: 45% for 5 yearsTariff reduction: 36% for 6 yearsTariff reduction: minimum 15% for 5 years
DevelopingCountry
L1L2L3L4L5
Maximum tariff rate: 200% for 10 yearsTariff reduction: 40% for 10 yearsTariff reduction: 30% for 10 yearsTariff reduction: 24% for 10 yearsTariff reduction: minimum 10% within 10 years
Tarrification Results
• Results at a exchange rate of 1150won/$ and TE 517%
• Only two scenarios acceptable from 20 scenario1) Developed country : No acceptable scenario2) 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
<Talbe 4> 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
2003 1016 4451 180 83.2 1098 21.7 185433 97.4
Import
Price
$330
D1 368 1900 3302 151.1 700 8.4 32789 23.3
D2 368 1900 2919 135.9 700 9.2 32789 25.7
D3 423 2181 2010 109.5 700 11.2 48045 39.2
D4 550 2839 1252 89.4 700 13.2 93815 56.8
D5 650 3353 754 78.0 700 14.6 139585 72.8
L1 561 2895 1194 88.1 700 13.3 98366 58.4
L2 619 3193 903 81.3 700 14.2 124329 67.6
L3 650 3353 754 78.0 700 14.6 139585 72.8
L4 668 3445 671 76.2 700 14.9 148739 75.8
L5 707 3648 493 72.5 700 15.4 170098 82.8
<Table 4> 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
2003 1016 4451 180 83.2 1098 21.7 185433 97.4
Import
Price
$440
D1 408 2106 2663 129.5 700 9.6 43718 29.6
D2 408 2106 2336 116.5 700 10.6 43718 32.5
D3 472 2436 1484 94.1 700 12.7 64061 49.9
D4 620 3201 762 77.1 700 14.8 125087 72.1
D5 735 3793 206 67.9 700 16.2 186114 91.3
L1 633 3265 706 75.9 700 15.0 131155 74.2
L2 699 3608 428 70.4 700 15.8 165771 85.3
L3 735 3793 206 67.9 700 16.2 186114 91.3
L4 756 3899 205 66.6 819 19.2 198319 94.8
L5 801 4133 205 64.6 1015 24.3 226798 101.9
Projections of per capita consumption : Developing Country (Exchange 1150won/$, Import price $440/ton)
63
68
73
78
83
88
93
2000 2002 2004 2006 2008 2010 2012 2014
T40% T30% T24% T10% MMA4% MMA7%
73.0
69.5
67.7
64.8
Per capita consumption (kg)
83.2
Relation between per capita consumption and self-sufficiency ratio in 2014
Self-sufficiency (%)
Per capita consumption (kg)
T40%
MMA9%MMA10%
62.0
64.0
66.0
68.0
70.0
72.0
74.0
78.0 83.0 88.0 93.0 98.0 103.0
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.
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