Contribution of Agricultural Investments to Stabilizing International Rice Price Volatility under Climate Change

Tatsuji Koizumi and Hideki Kanamaru, Climate, Energy and Tenure Division, FAO

Abstract

The purpose of this study is to suggest policies for alleviating climate risks of rice production systems and rice markets using a partial equilibrium model. Rice Economy Climate Change (RECC) model covers rice markets in 15 countries and regions (Thailand, Vietnam, Indonesia, Malaysia, the Philippines, Cambodia, Lao PDR, Myanmar, China, Japan, South Korea, India, USA, EU27 and the rest of the world). The RECC model includes equations for projecting rice yield and area harvested impacted by climate change. We examine how future agricultural investments will have an effect on world rice market. As a result of our simulation, we conclude that a constant increase of agricultural investments in ASEAN 8 countries, especially in Thailand and Vietnam, has a crucial role in stabilizing the international rice price under the future climate change.

Study design

The purpose of this study is to suggest policies for alleviating climate risks of rice production systems and rice markets utilizing a partial equilibrium model. We examine how future agricultural investments will have an impact on world rice market, especially the volatility of international rice price, under the future climate change.

Rice Economy Climate Change (RECC) model covers rice markets in 15 countries and regions (Thailand, Vietnam, Indonesia, Malaysia, the Philippines, Cambodia, Lao PDR, Myanmar, China, Japan, South Korea, India, USA, EU27 and the rest of the world). The base year is 2010 (3-year average for 2010-2012). Each country’s market consists of production, consumption, export, import and ending stock up to the year of 2030. The RECC model includes equations for projecting rice yield and area harvested impacted by climate change (Fig.1).

Figure 1 The structure of RECC model

 

The baseline projection is a projection without any policy shocks, and uses a set of assumptions for the general economy, agricultural policies and technological changes during the projection period. We assume that current agricultural policies will continue throughout the projection period. We also assume historical rates of technological innovation will continue. Climate variables (minimum and maximum temperature and precipitation) in each country and region are exogenous to the model. For the future climate projections, we utilize outputs from BCM2 (Bergin Climate Model Version 2) Global Climate Model on A2 greenhouse gas emission scenario. Agricultural investments (land development[1] and machinery & equipment) are exogenous variable to the model. We assume that current growth ratio of agricultural investments from 2000 to 2007 in each country will continue during the projection period[2].

Results

Under these baseline assumptions, world rice production and consumption are projected to increase at the rate of 0.8% per annum from 2010/12 to 2030. World rice export and import are projected to increase at the rate of 1.7% per annum during the same period. The international rice price (milled 5% broken f.o.b. Ho Chi Minh price) was 451 USD/ton in 2010/12 and is expected to follow fluctuations during the projection period. The international rice price in the year 2030 is projected to be 606 USD/ton. The coefficient of variation (CV) of international rice price from 2010/12 to 2030 is projected to be 0.076.

This study makes projections under several policy scenarios as in Table1.

Table 1 Policy scenarios and simulation results

 

The simulation results suggest that a constant agricultural investment increase in ASEAN 8[3] countries will contribute to a decrease in the international rice price volatility under the future climate change. The same investment increase in Thailand and Vietnam will also contribute to a decrease in the international rice price volatility. However, the rice price volatility will increase if agricultural investment in ASEAN 8 countries will not grow during the projection period.

Figure 2 Impact on international rice price Figure 3 The coefficent of variation (CV) of international rice price (2010/12-2030)

 

We conclude that a constant increase of agricultural investments in ASEAN 8 countries, especially in Thailand and Vietnam, has a crucial role in stabilizing the international rice price under the future climate change. Covering sub-national rice markets in the Philippines (Provincial Agricultural Market model), Thailand, Lao PDR, Vietnam, Indonesia, Malaysia, Cambodia, Myanmar, China, Japan, South Korea, India and USA is the future study. Expanding RECC model to cover African, middle Eastern countries rice markets is also future study.


[1] Land development includes irrigation, soil conservation works, flood control structure and others.
[2] The growth ratio of land development in ASEAN 8 countries are ranging from -0.1% to 1.9% and that of Machinery & Equipment in ASEAN 8 countries are ranging from -0.1% to 1.0%.
[3] Thailand, Vietnam, Indonesia, The Philippines, Malaysia, Cambodia, Lao PDR and Myanmar.

Acknowledgements

The authors thank colleagues at IRRI, JIRCAS, PRIMAFF, EST/FAO, RAP/FAO, and NRC/FAO for helpful comments ans suggestions.The study was funded by the Asian Regional Rice Initiative of FAO and AMICAF project.

last updated:  Wednesday, February 26, 2014