Global paddy production fell in 2002 to its lowest level since 1996, reflecting adverse weather conditions in several important producing countries. Although rebounding, production still fell short of consumption in 2003 and 2004, resulting in depleted world rice inventories. Reduced stocks along with a brisk demand for imports sustained world prices, which started recovering by mid-2003 after four years of decline. The international market therefore changed radically, passing from a situation of relatively ample supplies and falling prices in 2002 to a sudden tightening by mid-2003. In 2004, the surging world prices and freight rates started to be felt sharply in some domestic markets, putting pressure on governments to sustain production or to take action through direct price controls and border measures to lessen the impact on consumers.
On the policy front, the international scene has been dominated since 2000 by discussions over the modalities that will govern the process of liberalization of agriculture in the forthcoming WTO Multilateral Trade Negotiations. Meanwhile, developing countries were still implementing the commitments taken under the Uruguay Round Agreement, a process due for completion by end-2004. A number of governments, however, went beyond such commitments and moved forward to further align their national rice policies along the basic WTO principles, by increasingly shifting support to the rice sector away from market distorting measures (classified as amber box), towards production-controlled (classified as blue box) and minimally trade-distorting (classified as green box) measures.
Rice production policies fall within two broad categories: on the one hand, measures directly impinging on production, including research, extension, investment in irrigation and infrastructure, reclamation of new lands or land diversion programmes in particular; on the other hand, market-related interventions aimed at stabilizing prices through market procurement and stock management. Policies pertaining to the first category generally address long term objectives often integrated in multi-year development plans or strategies. Market-stabilization measures, on the other hand, are subject to much more frequent changes, depending on prevailing market conditions.
Consumption, marketing and stock policies
A number of important rice producing countries have gradually moved toward more competitive marketing systems. However, because of the significance of rice as a staple, governments have preserved substantial discretionary power to influence the rice market, for instance in the form of privileged shares in State-controlled firms or through market price controls. In the past two years, many governments have widened the breadth of their policies to influence the sector along the various phases of the commodity chain and adopted legislation to improve the efficiency of the marketing channels. The strong rise in international rice prices and freight rates since 2003 resulted in soaring domestic prices, especially in Africa but also in Asia, putting pressure on governments to take action to keep retail rice prices affordable.
Global rice stocks at the end of the 2003/04 marketing seasons were at their lowest level in the 1990s. The contraction was particularly pronounced in countries such as India, Thailand, Viet Nam and the Republic of Korea but also in Australia and the United States. Although some governments attempted to shift the responsibility of holding rice stocks to the private sector, major rice consuming countries maintained a mandatory minimum level of rice for food security reserves, including China, the Philippines, Malaysia and Indonesia. At the regional level, the Association of South East Asian Nations (Asean) reiterated in October 2003 the need to set up a rice reserve for food emergencies in the region, at some 85 000 tonnes.
International trade policies
Global rice imports remained high compared to the pre-1998 levels, reflecting production shortfalls but also the openness of trade regimes, especially in Africa. By contrast, in 2004 a number of major Asian importers have been reducing their purchases, thus contributing to a global contraction in trade. Despite higher international rice prices and a surge in freight rates, several governments maintained high tariff and non-tariff barriers, while, in the face of rising domestic prices, others took steps to reduce border protection.
Despite China's accession to the WTO, the Government has retained a monopoly on rice exports, which are carried out through state trading enterprises, in particular COFCO. The country did not notify export subsidies on rice over the past two years.
Food aid in rice
Food aid in rice has complemented domestic reserves in several countries. Total shipments rose from 1.2 million to about 1.5 million tonnes between 2000 and 2002, and diminished by about half a million ton in 2003. A novel feature during the period was the growing importance of a number of developing countries as donors, in particular the Republic of Korea and China (mainland) which, respectively, ranked second and fourth largest among donors in 2003. Among recipients, the principal beneficiary has been the Democratic Republic of Korea, followed by Indonesia, Iraq, Indonesia, the Philippines and Mozambique.
Despite a general drift towards reduced public interventions in agriculture, rice has retained a special status in governments' agenda, because of its political, economic and social significance, both as a major food security commodity and as an important wage good. As a result, governments continued to exert considerable discretionary power to influence the sector.
Faced with a prolonged fall in international prices since 1999, major exporting countries reassessed their rice production policies in 2002 and 2003, putting greater emphasis on reducing cultivation in marginal lands, consolidating rice farms into more efficient concerns and promoting quality in rice cultivation and processing. At the same time, several of them stepped up support to producers to enable them to weather the impact of low prices, including through direct income payments. This policy context changed in mid-2003, when world prices started to recover, which led to the re-establishment of expansionary production policies, especially in China, the world's major rice producer. On the other hand, large importing countries maintained commitments to self-sufficiency and kept their assistance to the sector high, for instance, through input efficiency-enhancing measures and high levels of border protection.
Between 2002 and 2004, a number of governments activated large procurement schemes and adopted debt alleviation programmes to support producers in the wake of lingering low prices. However, direct market intervention was minimal in Africa and in Latin America and the Caribbean. Although developing countries had large scope for increasing assistance to rice producers under the WTO Agreement on Agriculture de minimis provision, most of them were constrained by a lack of budgetary resources or by the terms of their agreements with other international institutions. For this reason, several of them promoted instruments other than public market intervention to shield the sector from large price variations. These included subsidized insurance schemes and futures trading, which rather than stabilizing prices per se, transferred the price risk onto other players. On the other hand, several developed and middle-income developing countries, adopted production-cutting measures, while raising compensatory or emergency payments to farmers, but also moved to improve the sector competitiveness by fostering a consolidation of rice farms and productivity gains.
A number of countries moved towards more market-based rice distribution system and, rather than guaranteeing cheap supplies to all consumers, increasingly targeted their public rice distribution to the needy. As the responsibility of state enterprises in distribution lessened, fewer governments exercised controls over wholesale and retail prices. Governments also widened the scope of their policies to encompass the full rice marketing chain, from production to consumption, in an attempt to improve the efficiency of the distributions systems. In many instances, they also took measures to bolster the role of the private sector in the various phases of the commodity, from production to processing and marketing.
Up to 2003, some governments were pressured to reduce the size of publicly-held rice reserves, principally for financial reasons, and reacted with different strategies. China elicited production-cutting measures and drew from inventories to meet consumption needs, thereby internalizing the adjustment. By contrast, India chose to promote exports and to transfer the burden of the adjustment process onto the world market. A general tightening of rice supplies since mid-2003 prompted some reversal in policies, with governments engaging in stimulating production and replenishing public stocks to minimum security levels. However, there appears to be a consensus among governments to reduce their role in stock management and to cut the physical and financial burden associated with the accumulation of excess supplies that had resulted in burgeoning stocks by the end of the 1990s.
The private sector was also called to play a more active role in the sphere of rice trade. Nevertheless, developing countries' governments still continued to make extensive use of border trade policies to stabilize their markets, given their limited ability to carry out large procurement or distribution schemes. Indeed, the prevalence of low international prices in 2002 and 2003 encouraged several importing countries to raise tariff and non-tariff barriers. In many instances, this tendency continued to 2004, notwithstanding the increase in world market prices. While a few countries made extensive recourse to the WTO safeguard clauses in reaction to import surges or low priced imports, some also resorted to phyto-sanitary measures or to outright bans to protect their markets. Some countries, however, reduced border protection to relieve pressure on domestic prices, especially in 2004. As export competition stiffened in 2002, greater assistance was provided to rice exporters, but this was reduced in mid-2003, in the face of local supply constraints and recovering international prices.