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This report is restricted to use within the Bank

No .. E 65

RESTRICTED

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROSPECTS FOR THE MARKETING OF ECUADOREAN RICE

October 5, 1949

Economic Department

Prepared by: Maurice F. Perkins

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TABLE OF CONTENTS .. Page -

I. The "\[orld Position (a) rrorld Production at Prewar Levels .".0. 1 (b) ',\forld Trade Considerably Below Prev>Tar • II 1 (c) Deficit Rice Consum;ing Areas 'Now ConsUriJ.':'

ing More of other Grains \) ••• 0 ..... 9.. 2

II. The Influence of the Far East on Horld Rice Prices (a)

(b)

(c)

(d)

IntenTar Relationship of Rice Prices to that of Wheat 0.'..,.000 •••• 11 ...... 0 ••• 009

Vfueat Agreement Prices and Future Long~ run Rice Prices .1.11 •••••••••••••••••••

Rice Producer Prices Compared llith Selling Prices •••• 0 •••••••••••• 0 ••••

Conclusion as to Long-run Horld Rice Prices ••••••••••••••••••••••••••••••

III. The Western Hemisphere Position

3

4

4

5

(a) Lilcely Maximum Prices oo .. u ........ o.. 5 (b) Likely Surplus Position in the Western

Hemisphere •• QO...................... 6 (c) Effect of a Surplus on Prices in the

YJestern Hemisphere ••• II., ... ". n'....... 7 (d) Effect of Lov{sr Prices on He stern Hemi;';"

sphere Production Plana 000 •••••• 0 •••• 8 (e) Effect of Preferential Earkets uuoou 9

IV. The Position of Premium Quality Rice (a) Long and Short Grain Rice ••• 0 .•••. 0... 9 (b) Price Differentials for Premium Quality. 10 (c) Actual Export Unit Values Received .0 •• 11 (d) Restricted Harkets for High Quality Rice 12

V. The Ecuadorean Position (a) Ecuadorean Markets •• o.~ ••••.•. i ••••• ~. 13 (b) The QualityFactor ' •• ~O&o.oo ••••• "oo. 14 (c) Prospective Prices for Average Quality

Rice OQ ••••••••••• O •• 3.~ •••••••• ~O •• O 14 (d) Prospective Price~ for Premium Quality

Rice 0 •••• ' •••••••••••••••••••••••• 0. 15 (e) Effect of l'Jon .. Colllpetitive Conditions •• 15

Pl1.0SPECTS FOR THE Vu\.RlillTING OF ECUADOREAN RICE

SU1il!ARY

1. During the interwar period, f.oob. export values of rice in world trade varied from 2 to 4 cents; the 2-cent price represents average quality (the bulk of the rice trade), the 4-cents represents premium quality rice ex­ported from the United states in relatively small quantities compared to total world trade.

20 At the present time, rice export prices f.oob o vary from 7 to 12.5 cents. These high prices are abnonaal and are not expected to continue in the long-run.

3. For the next three or four years" however, prices are expected to average above long-run levels Q

4. In the long-run under competitive conditions rice prices are likely to adjust dormward to a closer relationship vdth the prices of other grains. Compared vlith 'wheat prices fixed under the International -,iheatAgree­ment, this would mean a price for average quality rice of 2.5 cents f~oobo per pound in the Far East. Such a price is considered liberal as it is roughly 20 percent higher than comparable prewar averages.

5. After allovving for freight charges and the prospect of a large surplus in the Western Hemisphere, the prospect is for a competitive price of 3 cents c .. iof. Hestern Hemisphere import markets, assuming surplus rice can be disposed of elsewhere.

6. Under such conditions Ecuador could be expected to market average quality rice in the ·long ... run.at a price of 2.S cent's.per pound feoQ'b.,.

7e Insofar as Ecuador can improve the quality of her rice above prewar levels and market approximately the qualities the United states ''Nas able to export, a return of 5 cents per pound could be expected. The mary~t for such qualities, however, is more restricted than for average qualities and keen competition could be expected from the United States.

8. Only if Ecuador consistently could produce and market a quality of rice equivalent to the best grade of United States rice, could a return above 5 cents per pound be expectede

PROSPECTS FOR THE MARKETING OF ECUADOBEAN RICE M' " . if

(This paper has been prepared as an attempt to guage the prospects for the marketing of Dcuadorean rice in connection ruth the farm mechalritation project submitted by I.B,E.C. In the absence of information requested from I.B.E.C. regarding the quantity and qualities of rice expected to be marketed by Ecuador as a. result of the project, conclusions ha.ve been reached on the basis of average qualities exported prel.'lar with allowances for :i.mproveroent.)

I. TIC ifORID POSITION

(a) World Production at Pre"iar Levels

The production of rice is largely concentrated in the Far Easto Pro­

duction declined to a considerable e:K.tent durinG the 'war but has since largely

recovered:

Table 1.

World Production of Paddy Rice 11 (million metric tons)

Far East Near East Europe (excl. USSR) North America Latin America Africa and Oceania 31

Total

Prewar Average

140.5 1.3 101 1.0 2.0 1Q5

1948/49

1330:7 2.1 1.1 1.7 3.5 2 0 0

14402

1/ FAO estimates; the U.S. Department of Agriculture - estimate Jl948/49 production 2 percent above prewar.

31 Excluding Near East countries,

(b) 'World Trade Considerably Below Prewar

World trade, however, continues to lag far behind prewar levels due

to the failure of production to revive sufficiently in the large exporting

countries-Burma .. Siam, and Indochina". poor transport facilities and the

increase in population in these areas.

- 2.-

Table 2.

International Trade In Rice Willed Basis) (000 metric tons)

Prewar Average 1949 Allocations Exports Imports , ExPorts Imports

Far East Hear East Europe (excl. USSR) North America Latin ~'I.111erica Africa and Oceania ~ Unspecified -

8076 125 183 68 94 18

6267 52

1262 31

364 397 191

2615 348 148 465 217 20 -

2828 81

380 20

277 47

174 - - -Total 8564 8564 3813 381.3 , •

11 Excluding Near East countries.

Noreover, the Far East now (1949) appears as a net importer of some 21.3,000

tons. For a revival in trade to prewar levels production in Burma, Siam,

Indochina, Formosa and Korea in toto 'viII have to exceed pre;;rar levels.

This cannot be expected to take place for anot.ber four or five years at least.

(c) Deficit Rice Consuming Areas Now Cons,uming 1101"6 of other Gr,aip.

Heanwhi1e the rice scarcity in East Asia. (""hiah is a long-term

phenomenon in evidence before the 'Tar) is being partially offset by the intro-

duction of proportionately larger quantities of other foods in the diet,

which are being locally produced" plus the import of other grains, such as

uheat.

Table 30

Supplies of Grain in the Rice Deficit Countries of the Far East I .

(million metric tons)

Rice Other Grains (a) Total I

Prewar Prewar ft'eviar Average 1948/49 Ayeralle 1948/49 Average 1948/49 ....... -- • I •

Production 85.8 82,,5 61()6 64.8 147.4 147.3 Imports 4.5 211>8 103 70 0 5.8 9.8 Exports 0,,2 0.6 0.8 .... Available for

consumptio!l 900 1 85 f1 3 62.3 7l.8 152.4 157<l1 ,$1.1

(a) Excluding millets, so:t;'ghum and bucknheat.

-.3-

The average East Asian prefers rice to most other foods due to in-

grained consumption habits. Rice scarcities and high prices, however, have

forced Governments to import less rice and more of other types of grains,

particularly wheat, The consumer, therefore, has been forced to adopt a

more varied diet, to a certain extent,

II~ TIE IlJFLUENCE OF Tm FAR EAST ON WORLD RICE PRICES

(a) Interwar Relationship of Rice Prices to that of Vfueat I

In view of the necessity for substitution in the diet and the obvious

limitations of the average Asiatic consumer in terms of purchasing povler,the

price of rice cannot long remain considerably above the prices of cheaper

foods. It is maintained that the long-term price of rice must adjust itself

more in conformity 1lith the price of wheato This is likely to occur, however,

only under competitive conditions. The market is at present not competitive

as rice still in short supply and the trade is under allocation o Y For

these reasons, rice prices are at present high, as compared \uth substitutes,

The relationship bet'ween the price of rice and other grains in the

Far East has in the past varied \1Jith c hanging relationships between supply and

demand for particular grains at various centres of consumption. On the average

in the large Indian urban centres rice is reported to have enjoyed a premium

of 25 percent over the price of vrheat!'Y This is partially explained by the

fact that milled rice as compared vuth the wheat grain (the foro in 'ldhich wheat

is largely consumed in the Far East) has a 15 percent greater calory value,

thoucih as compared ~~th wheat flour the relationship is about equal pound

for pound;) • t I ..........

1/ Allocations vd.11 be terminated at the end of 1949.· 2/ For the 2P-year average 1920/.39 the price of Australian vfheat laid dorm in - the Orient appX'ox;i.mated 2 cents per pound; this compares with an average

price of 2.1.cents for Siamese rice foo:tb. Siam, as shOl.;n in Table 9. After allovung for freight charges on rice to Oriental import markets (say one­half cents per pound) the corresponding rice price would be 206 cents per pound or 24 percent above the v1heat price. For the period 1935/.39 the premium on rice was also 2.5 percent.

-4-

(b) YJheat Agreement Prices and Future Long-Run Rice Prices ,

As a method of detenaining the long-run price of rice1! from these

relationships" the prices for wheat laid dovm in the Far East as determined

by the maxima and minima under the International -,!neat Agreement may be taken

as a basis. These vary from a maximum of 3.5 cents for each of the four years

of the Agreement (1949/50 to 1952/53) to a minimum of 205 centsY in the fourth

year,. Considering the long-term average prewar price for 'wheatll the likelihood

is that the minimum price is that which v{ould prevai~ 4 or 5 years ~ence under

competitive conditions, Assuming a 25 percent premium for rice price would

be about 3 cents per pound c.i.f, Assuming a freight charge of one-half cent

per pound from Far Eastern rice exporting countries to Far Eastern importing

countriel?, the resulting f .• o.b .. price, port of export, would be 2.5 cents ..

This represents roughly a 20 percent increase over the prewar long-term average

export value, f.oob. Siam, of 2.1 cents per pound.

(c) Rice Producer Prices Compared rlith Selling Prices

There is no doubt that present rice prices in the Far East could be

cut consideraoly ~~thout affecting producers! costs. Prices to producers from

millers in Siam ranged from 75 to 90 cents (UoS.) per bushel for rough rice in

19400 This represents a milled price of 2&4 to 2.9 cents per pound. The

millers in turn are required to sell to the government at prices ranging from

207 to 3.1 cents per pound depending on grade" The difference between these

latter prices and the present export price of 6.3 cents for No. 1 Tillite repre-

sents largely a profit to the State. Slliular conditions as to prices eJdst

11 The argument as here developed refers toaver~ge quality milled rice as e~ - ported from the Far East vn.thout regard to differentials for premium

qualities; this latter aspect is considered below. Y These represent ce.iof. prices of North American wheat laid dovm in Oriental

consuming markets& Australian wheat vmuld be cheaper due to the freight differential, but the marginal suppliers would be the United States and Canada 0

3/ For the period 1920/39 the average price for wheat in North America ".laS

- ~)l.lO per bushel f.a.b ... compared rdth the minimum price under the Inleat Agreement of ~)1.20 per bushel, all ;in United States currencYG

-5-

in Burma and French Indochina. Under more competitive conditions, therefore,

rice prices could decline considerably vdthout affecting producer returnso

Iioreover, an appreciable expansion in production could take place at present

cost 1eve1so According to the report of the FAO Rice Ueeting at Baguio in

1948, SOLle 6 million hec'tares of rice land had been abandoned at the end of

the r:ar due to a loss of vlOrk animals, disturbed social conditions and lack

of consumers goodsj most of this land has as yet not been brought back into

production, Such land could produce some 8 to 10 million tons of paddy rice,

if rehabilitated, at present cost levelso

(d) ~~g ... Run World Rice Prices

The conclusion to be dra,m from this discussion is that once the acute

shortage stage in rice supply in the Far East is over in terms of effective

demand, under competitive conditions rice prices in that region will level off

in the long-run at roughly 2.5 cents (U.S.) per pound for average grades in

Far Eastern exporting areas o As the proportion of rice consumed in the Western

Hemisphere and the amount moving into commercial channels represent small pro­

portions of total world production and trade, the Far Eastern rice market

effectively controls ,,/Orld prices. Under such conditions prices in imp~

markets in the Western Hemisphere cannot rise much above Far East pri~s plus

freight cos~; othendse rice will flow from the Far East irrespective of

supply conditions there, in the absence of inter-goverrunental agreenlelYGS to

control the movement of supplies or the level of prices.

III. THE YffiSTEHN HEHISPHER.E POSITION

(a) Likely llaximum Prices

Conditions ruling in the Far East are thus likely to dictate a long­

run maximum price of 305 cents per pound coiof. for average qualities on

,

Western import markets,lI assuw~ng supply and demand o~ th~~ market is in

equ~librium i~thout imports from other areas.

(b) Likely Surplus Position in the Western Hemispher~

The situation in the TJestern Hemisphere, however, precludes such an

equilibrium. Production has risen to the point that in 1948 there was an

e;;:portable sv.rplus of around 387, 000 tons milled; under various plans for

expansion of production (under the assumption of present day prices) in a

number of countries, this surplus may fall to 32$,000 tons milled in 1950/$1

after allovung for a considerable further increase in consumption, particularly

in Brazilo

Production

Table 40

Western Hernisphere Rice Balance (000 metric to~s milled)

Preymr Average ~34 I

Domestic Requirements 2173

1948 321.i8' 2861 -

Estimated 19$0/51 3765 3440 -

Surplus (+) or Doficit (-) - 239 + 387 + 325 -This surplus, hO'VJever, is calculated after the requirements of Uestern Heui-

sppere importers have been satisfied. Import markets in the -~lestern Hemisphere

are likely to require around 330,000 tons in 1950/51:

Table 5. 1950 51

Cuba 221 Canada 30 Br. Hest Indies 35 other North America 11 Vene~uela. . 10 Peru 13 other South America 10 -Total 330

17 On the basis of data supplied by Transportation Section conrerence freight rates from the Far East to the Caribbean area are about one cent per pound for riceo In actual practice contract rates '.!ould likely be lower than thiso

For purposes of the argument l it is assumed how"ever that rates from the Far East to the Caribbean area and to Europe are one cent per pound and from exporting"to importing areas "within "t,he Yfestern Hemisphere, one-halt cent per poundl (although evidence indi~ates that at present conference charges from Ecuador to Cuba is greater than this). .

- 7 -

Against this the exportable quantities, as indicated by individual countries'

production plans, are as followSs

Table 6~

Estimated Western Hemisphere E ortable Surpluses 1950/51 000 metric tons milled)

U.S.Ao Mexico Other North America Colombia Ecuador Paraguay Uruguay Brazil Br. Guiana

Total

435 30 5 8

73 9 8

65 (a) 22 -~

(c) Effect of a Surplus on Prices in the ~lestern Hemisphere

Under such circumstances a prol')ortion of the lIestern Hemisphere

surplus must be marketed abroad. The most lil~ely market would be Europe

lil'here the ruling price would be 3 .. 5 cents o.iofo (2.5 cents fooob. the Far

East or the TIestern Hemisphere" plus one cent freight), as the returns irom

the Far East would only y"ield 2 cents per pound (3 cents c,i.i .. less one

cent ireight). With a maximum price in the Western Hemisphere of 3 .. 5 cents

per pound set by potential competition irom the Far East, as ShOlffi above"

T~'estern Hemisphere ex].:)orters could achieve a return of 3 cents per pound

(3.5 cents less one-half cent freight); this would result in their at-

tempting to maxinize returns by selling as much as possible on this

marlcet. Competition would thus force the Ylestern Hemisphere clJi .. f. price

dOYffi to 3 cents per pound where returns to exporters f.o,b. Ylould be

equalized vdth that obtainable in Europe (i~eo 2.5 cents per pound)~ The , (a) This represents an exportable surplus at near prewar levels compared with

1948 exports of 197,000 tons. The reason ior the reduction is that Brazilian policy is to reduce her dependence on imports oi "wheat by ex­panding the production and consumption oi rice o To the extent that she iinds this impracticable or that her policy might change vdth a reduction in the import price of wheat, particularly from Argentina, her exportable rice surplus could increase Significantly. In the event oi such an oc­currence, the II-estern Hemisphere exportable surplus could expand to some considerable extent.

- 8-

effect of a surplus position in the Western Hemisphere, therefore, would be

to force the price below the maximum potential price at which the. Far ~

could compete o

(d) Effect of Lower Prices on TTestern Hemisphere ?roductj_on Plans v • I

If the conclusion that normal yror1d rice prices are likely to fall

below present levels holds true, the size of the ~-restern Hemisphere surplus

may not be as large as estimated above. Some countries in the face of

falling prices may abandon or shorten their expansion plans or presently

active producers may, for reasons of high cost, restrict output. This would

undoubtedly be the case for the United States ,lith its price support and

acreage restriction legislation. As indicated below, the United States

exportable surplus rnight be cut to the size of Cuban and Canadian require-

ments or to 250,000 tons. On the other hand, deficit rice producers (eog~

Cuba) ~~11 in all probability 1vish to maintain present levels of production

as a matter of policy or even increase them should the terms of trade for

their eArports turn unfavourable. Net exporters may attempt to maintain

surpluses in an endeavour to secure foreign exchange. Even if prices should

fall below total costs, the existence of fixed installations for rice pro-

duction such as irrigation facilities, mills and warehouses, as well as a

better local familiarity 1lith rice cultivation may result in a continue.nce

of rice production so long as direct costs are coveredo Because procuction

has increased during a period of scarcity and r~gh prices, it does not

necessarily follow that once these incentives are removed an equivalent

shrinkage will occur, because of the changed factors mentioned above. ~

probability is that for some considerable time there will be a net expo~­

able surplus from the Western Hemisphere-as a broad estir!late, after al101''ling

for a reduction in the United States surpluses, say 150,000 tons milled.

-9-

(e) Effect of Preferential N~kets

An examination of certain preferential marl<:ets enjoyed by the United

States and British Guiana vdll reveal that even a reduction in the over-all

Western Hemisphere surpluses to such an extent vdll not improve the position

of other Western Hemisphere exporters to any considerable degree. The British

West Indies market of 35,000 tons is reserved primarily for British Guiana

(22,000 tons exportable surplus)o The United States enjoys a preferential . tariff" a consumer preference and possibly a quota on the Cuban market (221,-

000 tons) and a strong position on the Canadian market. After deducting these

three markets (although recognizing the fact that some sales 'nill be made there

by other exporters), the remaining import requirerr.ents left in the Western

Hemisphere amounts to 44,000 tons against '1ifhich the remaining exporters could

supply 198,000 tons, leaving a surplus of about 154,000 tons which must seek

other markets. A fairly substantial re~uction in production, therefore, is

unlikely to alter the above conclusions as to prices.

IV 4l THE POSITION OF PRELIUlI QUALITY IUCE - -The argument above has been based on an average quality rice. The

resultant conclusions must now be adjusted to show likely returns for quality

rice Q

(a) Lon~ and Short Grain Rice

In general there are t1ilO broad categories of rice--long and short

grain-llhich have some1<"(hat different markets, although the general level of

world prices for both types tend to fluctuate in unison, as ShOl,'ll in Table 7.

Eurltese rice represents short- and Siamese, long-grain rice.

Period

1920/24 1925/29 1930/34 1935/39

Table 7.

Bunna (Small lII'i'iSSpecials)

100 92 46 46

and Bangkok

Thailand Clihite No.1)

100 101 52 u9

- 10-

(b) Price Differentials for Pl~mium Quality

United States rice is usually considered of the highest quality; Far

Eastern rice e::(:ported from Burma" Siam and Indochina is inferior in comparison.

This results more from the quality of the milling and the grading than from

any real inferiority in the inherent quality of the grain. In the follordng

table average price quotations of United states medium and long grain rice of

the best quality is compared with the average qualities of long grain rice ex-

ported from Siam.

Table 8.

Yfuolesale Rice Prices in the United States and Siam (U.S. cents per pound milled rice)

Period

1930/34 AVe 1935/39 1\

1946/47 1947/48 {-W;c 1949

United States Blue R~se (a) Extra Fancy

(Nev.r Orleans) Rexoro (b) EJ(.tra Fancy

, p

No quotations 4~7

Siam (ex mill Bangkok) No. 1 ~:hite (c).

1.6 1.3

(a) M:edium grain rice - about 5 percent brokens (b) Lonj; grain rice - about 5 percent brokens (c) Long grain rice - 25 percent brokens Cd) Includes a flat margin representing state

profits. ( e) Pa:rtly e stima ted.

From the above it is aPparent that the highest quality United States rice

enjoyed a premium considerably above that of average quality rice (here repre­

sented by Siamese rice). In spite of this price differential there is a

significant connection bety;een the price of United States rice and that ex-

ported from East Asia:

lIOne of the important factors influencing United States exports has been the price relationship with Asiatic rice in European markets •. Under normal conditions in years past the better quality of United States rice has commanded SUbstantial pre~~ums in European markets.. As the purchasing power in t'onner importing

-11-

countries has declined, however, buyers in those countries have turned to the lower-priced product of the Orient. This price competition has therefore considerably aggravated the inability of the United states! producer to compete vdth the Oriental product and at the same time maintain profitable price levels.

I1Thus from 1927 to 1931 1"-Then the price of American Extra Fancy Blue Rose ranged from 60 to 85 percent above BU1~ No o 2 at London, our exports averaged about 150 million pounds annuallyo From 1932 to 1936, hOllleVer, nhen the price of American rice in London ranged from 114 to 186 percent above Burma No o 2, our exports to Europe averaged 60 million pounds a yearouy

(c) Actual Export Unit Values Received

It must not be taken, however, that the above prices quoted for

United States rice Trere those actually obtained as these represent the maxi-

mum prices for the highest quality whereas ~~e average unit values of United

States exports "{{ere con.siderably below till.s, as is shoTffi in Table 9:

Table 9.

Export Rice Values of :.~i..lled Rice from the enited States.:! Ecuadorwd Sia.m· . -- (UcS" cents per pound I'.o~bo) I ,,---....

Annual Average United States (c) Ecuador Siam

1919 1920/24 Avo 1925/29 !l

1930/34 \I

1935/39 II

1940/44 II

191.~5/48 "

9.2 5.1 4.0 3.1 2.9 5.6 8.9 -

•• 3ftO 3.2 2.2 1.7 5.4

lOcO

-00

20 6 3~1 11.'3 105

.0

(a) 4.2 (b) -20-yr.Avo1920/39 4.1 2.1 Cd) ~ -00 = not available (a) Three-year average (excludes 1948) (b) Three~year average (excludes 1945) (c) Contains small quantities of bro'wn rice (d) Represents a i'veighted average of annual unit

values; a single 20-year unweighted average ie 2~5 cents; the corresponding averages for the United Sta.tes and Siam ShOT. only slight difference.

Y "Hearings Before a. Subcommittee of the Committee on Agriculture and Forestryll, U.S. Senate 76th Congress, June 30, 1939.)

- 12 -

For the average 20-year interwar period, export values may be s aid to have

ranged from 2 to 4 cents per pound. In the case of the United States, it is

recognized that the export value is q. conglomeration of short, medium and long

grain rice.; the Ecuadorean and Siamese rice represent largely long grain rice.,

(d) Restricted l.Iarkets for High Quali.!:? Rice

Although the United States enjoyed the highest prices, her roarlcet in

anyone country was considerably smaller than was the ca.se for the cheaper

Asiatic product, as sho~~ in Table 10.

Table 10.,

Quant~~y and Import Values of Rice Imported Into Venezuela, Cuba} and the Philippines by Country of Origin, 1935739 Average

Exporting CountrjT Quantity {OOO metric tonsj Import Value(a) (U.Socents per lb.)

Ecuador Siam Totar Importing U.S.Ae> Ecuador Siam lIratar'"

U"S.A. ...QountE":f Imports Impor;ts

Venezuela 00 2 0.3 (b) 9,,6 13.9 3.4 2.2 (b) 201 202 Cuba 5501 (0) 1010 0 2180 5 2.6 (c) 1 0 6 109 Philippines 00 1 16.0 46.8 3('10 103 1:)4

(8.) Import statistics for countries shown are on an i.oob. baSiS, port of export, (b) Average for two years only - 1936 and 1939 - no imports for other yearso (c) Hot shmm separately in importing countryts trade returnsll

The above data is on an f.o.b. basis port of export. For the countries shorm,

the demand is largely for lone; grain rice. In all three markets the United

States enjoyed a premium for quality rice but in two--Venezuela and the

Philippines--her market was minute in compa.rison vrith the Siamese and in the

case of Cuba she was aided by a tariff differential of 1.7 cents per poundo~

17P'rior to 1937 the Cuban Government increased the tariff preferent.ial on - American rice through the device of lowering the tariff from 84 cents per

100 pounds to 42 cents per 100 pounds on United States rice and increasing the tariff on rice from all other sources from :0.111 64 per 100 pounds to ~201.3 per 100 pounds/} In 1937, the first year in 1'."hich the concession became effective, from a nominal amount in the previous year shipments Tlere increased to 13, million pounds and in 1938 to 204 million pounds. At the present time not only does the United States enjoy a tariff preference but a quota is established which grants the United States a SUbstantial proportion of the market e

-13 -

Moreover, in order to sell such quantities the qua1,ity imported was po~

and the price lower than that obtained in Venezue1a~d the Phi1ippin~. In

some countries, such as Cuba, inflated incomes at present have resulted in an

increased demand for better quality rice; whether or not this tl~end 1."11.11

continue should the export prices of commodities exported from these areas

fall is problematical, but in the light of United States experience in :::3urope

(see pa~e 10) the likelihood in periods of fa11in3 prices is for the dewand

to shift to cheaper quality rice.

In vievl of the direction of United Ejtates exports during the 1920 1s,

the largest quality rice market apparently existed in Europe o World de-

pressionJ increasing price competition from much cheaper Far Eastern exporters,

and the intensification of colonial preference systems, hOVlever, narroYied these

outlets after 1931. The emergence of the hard currency problem vli11 further

restrict such markets in the future for all countries requiring dollars.

v. TIm ECUADOHEAN POSITION

(a) Ecuadorean Markets

The pre-w"ar markets for Bcuadorean rice and the CArport values

received f .0. b. port of export are shoi'il1 belo1:f:

9uantity and Unit Value of Rice Exported from Ecu~ ~1 Count~J cf Destination 1935/39 Average

Country of Destination

Peru Chile (a) Colombia (b) Venezuela (c) Bolivia Panama (a)

Quantity (000 metric tons)

10.2 1.&6 0.9 0 .. 6 0.3 0.,15

Unit f.o.b. Value (US cents per pound)

1.,5 1;,5 207 2.3 2.,1

Total (5-year average) l2!l5 ~ hl (d)

(a) 3-years only. (b) 4-years only. ( c ) 2-ye:c"rs only. (d) Represents & wei:;hted average of annual unit

values.

- 14-

PreVIaI' markets were small and largely confined to immediate areas. The best

quality rice was marketed in Colombia and Venezuela but returns per unit 'v,ere

low'er than that obtained by United States rice. Follo'wing the termination of

Iforld liar II during the present period of acute rice shortages, marl\:ets have

been found in the Far East at lucrative prices. Such conditions are unlikely

to last, hmTever, once the rigid structure of allocations has disappee,l'ed

(scheduled for end 1949) and a greater degree of competition vlith Far Eastern

exporters is encountered.

(b) The Quality Factor

As has been demonstrated above, the problem of the return on

Ecuadorean rice is one of quality; her production is so small in proportion

to the total world market that even a considerable change in exportable

surplus is unlikely to affect the market price, except locally. Ecuador

produces a long grain rice which competes on foreign markets directly T2ith

other long grain producers, c~liefly the United States and Siaf.l, and in-

directly ylith all exporters o In terms of quality, prewar Ecuadorean rice

I'IaS much closer to the Siamese product than the United States r qualities,

as shown by the prices and import values in Table 10 above.

(c) Prospective Prices for Average Quality Rice . -,

In vieY! of the restricted markets offered in Central and South

Lmerican countries as compared nith prevmr, the difficulties involved in

entering restricted marl,ets, such as Cuba and the British ",[est Indies, and

the likely surplus available in the Viestern Hemisphere, a considerable pro­

portion of any increased Ecuadorean exportable surplus (as compared ,\-7ith

prewar) most likely vdll have to be sold abroad either in Europe or the

Far East. For average grades, such as produced prewar, the long-run return

f.o.b. Ecuador would likely be 2.5 cents in the Western Hemisphere, 105

- 1.5 -

cents in the Far East, and 2 • .5 cents in Europe, Assuming freight charges!!

to the Far East and Europe were the same (ioe. one cent per pound), Ecuador

rlOuld receive a larger return by marketing her surplus t above what can be

sold in the Uestern Hemisphere, in Europe rather than in the Far East~

(d) Prospective Prices for Premium Quality Rice

The above conclusions are based on the assumption that the qUulity

of Ecuadorean rice in the future '!In.ll approxilnate that of prewar" i.eo

slightly better than the Siamese average. Insofar as Ecuador can imp:cove

the quality of her rice to meet United States l standards, the long-run

average price received would increase. Applying the prevlar differential

for United States as compared 'with Siamese rice" as shovm in Table 9, of

about 95 percent, a return of about 5 cents per pound f.oobo,could be ob­

tained. At such price levels, however, it should be emphasized that the

market is relatively limited and the competition from the United States

'would be keen. Insofar as Ecuador consistently could produce and market

rice of the highest quality such as the U.S" rexoro extra fancy grade}

quoted in Table 8, then a higher return than .5 cents could be obtained.

(e) Effect of Non-Competitive Conditions

The above estinates as to price were determined under the as­

sumption of competitive conditionso Should restrictive practices prevail

on lIorld price markets, hm'rever" such as the restriction of supply by large

exporting countries or a rice agreeuent .nth the range of prices dete:cmined

by political considerations, the price may well remain above levels dictated

by competitive conditions.

i! See page .5f)