WTO/FTA Negotiation and Recent Trend of Rice Market

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WTO/FTA Negotiation and Recent Trend of Rice
Market
Korea-Japan Joint Workshop, on World Rice
Consumption Strategies July 23, 2004

• Masaru KAGATSUME
• Professor
• Graduate School of Agriculture,
• Kyoto University, Japan

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Abstruct
1. WTO/FTA negotiation and agreement
2. Reform of Rice Distribution System
3. Situation of Rice Import Reserve Stock
4. Determining Factors of Rice Demand
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1. WTO/FTA negotiation and agreement
Outline of Agricultural Negotiation Result of the
Uruguay Round on Rice
Agreement Dec 15, 1993
Implementation Jan 1, 1995
(1)  Tariffication is not carried out. Tariff
equivalent is not set. ( Import Quota system is
maintained) (2)  State Trade system is
maintained (3)  Minimum Access is accepted.
Following this, the government charges the
mark-up through the state trade from the imported
rice.   minimum access quantity 4
equivalent (1995) of the domestic consumption in
basis period (1986-1988), increasing to 8
equivalent (2000) lt 379 thousand tons
milled rice (1995) to 758 thousand tons milled
rice (2000) gt   Mark-up Setting based on the
gap between selling price and buying price of the
imported rice (Thailand Rice) purchased by the
government food agency in the basis period
(1986-1988). ltSpecific taxgt
( maximum \292/kg ) (4)  others   The
simultaneous buying-selling system (SBS) is
introduced in order to establish reasonable
domestic market evaluation of the imported rice
following the minimum access   The same is
applied to the rice processing commodity
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Content of rice tariffication in Japan

• 1.    Date of implementation
  1999.4.1
• 2.    Basic Tariff Equivalence (TE) \402/kg
  (milled rice, upper grade)
• --------------------------------------------
  -----ltCalculation Basisgt--------------------------
  ---------------------
• Base year International Price (A)
  Domestic Pricre (B) B-A ( average in
  the 3
• (import
  cif price) (wholesale price)
  years 1986-88 )
• --------------------------------------
  --------------------------------------------------
  ----------------------------------------
• 1986 \29/kg
  \438/kg \409/kg
• 1987 \31/kg
  \435/kg
  \404/kg \402/kg
• 1988 \37/kg
  \429/kg
  \392/kg
• -----------------------------------
  --------------------------------------------------
  --------------------------------------------
• 3.    The second tariff rate (over quota
  rate)
• 1999 \351.17/kg
• 2000 \341.00/kg
• 4.    the minimum access quantity (paddy)
• 1999       724,000 mt (6.8 of
  domestic consumption in the base year)
• 
  lt43000mt less than the case of the old special
  measuregt
• 2000       767,000 mt (7.2 of
  domestic consumption in the basis year)
• 
  lt85000mt less than the case of the old special
  measuregt

() Under the agricultural agreement the basic
tariff equivalent has to be reduced 15 for 6
years to 2000.
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Shifting into the rice tariffication system in
April, 1999
the annual growth rate of the minimum access
quantity had reduced by 50 in comparison with
the case of continuing the
non-tariffication with special measures (i.e.
0.8/year to 0.4/year).

1999 767 ---? 724 thousand ton ( paddy ) lt
682 ---? 644 thousand ton ( milled rice) gt 2000
852 ---? 767 thousand ton ( paddy ) lt
758 ---? 682 thousand ton ( milled rice) gt
 a) abolishment of licensing of rice trading
Licensing system of rice export-import is
abolished, following this, the compulsory selling
of rice imported through permission to
government is abolished
b) implementation of payment to government for
rice import
For rice which is imported under the second (over
quota) tariff rate, the government can charge
one part of second tariff rate as a payment to
the government ( \292/kg ) . This payment to the
government from the rice import is appropriated
for the imported food administration account of
the staple food administration special account.
c) implementation of the notification system on
rice import-export
the rice import-export have to be notified to the
government.
d) setting the second ( over quota ) tariff rate
(1)the basic primary rate( \402/kg ) is set to be
tariff equivalent based on the agricultural
agreement (2)the second ( over quota ) rate is
calculated based on the agreement. The rest of
the second rate from which the payment to
government is deducted is set to be the
preliminary rate.
Second rate of which, preliminary rate
1999 \351.17/kg
\59.17/kg 2000
\341/kg \49/kg
(3) rice can be protected by the special
emergency tariff system ( special safeguard
system)
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The mechanism of the switching to rice
tariffication



( old system )
( after tariffication )






Selling price

Import markup

second rate

(maximum 292/kg)
( 341/kg after 2000.4.1)





Buying price






(minimum access qty)
(minimum access qty)

ltwithin TRQ importgt
ltwithin TRQ importgt
(at
first tariff rate)
lt over TRQ import gt (at second tariff rate )



()import markup means the gap between government
selling price and buying price





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Border Protection Measures

• Agricultural Protection
• rice, wheat, dairy products
• IQ into TQ at the UR
• Tariff Rate Equivalent
• Rice(490), wheat(210), barley(190),
  butter(330), SMP(200), silk(190),
  vegetables(3), fruits(6-20)
• Modality Proposal by Mr Harbinson
• lttariff rategt
  ltaveragegt ltminimumgt
• more than 90 60 ?
  45?
• 15 to 90 50 ?
  35?
• less than 15 40 ? 25 ?

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2.Reform of Rice Distribution System

• 1941 Food Control Law
• 1969 Voluntary Distributed Rice system
• 1990 Voluntary Distributed Rice Price Formation
  Organization
• 1992 New Agricultural Policy
• New Food Law
• 2004 Abolishment of Planned Distributed Rice
  system

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Trading Firms
Imported Rice ( Government Distribution Rice )
Producers Producers Producers
Unplanned Distribution Rice Planned Distribution Rice Planned Distribution Rice
Unplanned Distribution Rice Voluntary Distribution Rice Government Distribution Rice
Unregistered Collection Traders  
Registered Collection Traders of Type 1 ( collection by Farm Cooperatives, Merchant )
Registered Trader of Type 2 ( collection by Economic Farm Coop, Collective Union )
Voluntary Distribution Corporation ( National Federation of Farm Coop, National Federation of Collective Union, etc. )
Voluntary Distribution Rice Price Formation Center (Auction Trade)
Unregistered Selling Traders
Government
Registered Wholesalers
Processors  
Registered Retailers
Consumers  
distribution route of unplanned
distribution rice under the New Food Law
distribution route of planned
distribution rice under the New Food Law
distribution route under the Food Control
Law


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Reservation Stock
Normal Import
Government Rice
Imported Rice
rice distribution flow
SBS Import
Government
Rice Price Formation Center (trading place)
Commodity test (optional)
Rice Consumers
Rice Producers
Private Distribution Rice
Notified Traders
Label Regulation
Shipping Traders
Selling Traders
Rice Stable Supply Support Organization
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3. Situation of Rice Import and Rice Reserve
stock
Rice Import in 2003 fiscal year Rice Import
under the Minimum Access system based on the
Uruguay Round Agreement since 1995 0.77
million tons of paddy ( SBS import 0.10 million
tons) The 0.08 million tons (the twice of usual
years ) of glutinous rice were imported to
stabilize supply All of the 0.10 million tons of
SBS imported rice were sold out through auction
although only 0.05 million tons (half of the
predicted amounts ) of SBS import rice were sold
in the previous year 2002
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Rice import in 2004 fiscal year

• Until the new agreement in WTO is realized, the
  Minimum Access import is maintained at the same
  level of 2000 and so, 0.77 million tons of paddy
  were imported in 2004.
• Also, 0.10 million tons of paddy are imported
• under the SBS import system through the 4
  auctions a year

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Demand for the Minimum Access Rice (million
tons)
Cultivation Conversion is not enforced due to
the minimum access import rice
try to sell for processing demand at low price
which is not enough for domestic rice
redundant stock is aimed to food aids

• Carry over stock in October 2002
• 0.95

Import in 2002 0.77
Rice demand in 2003 0.45
for food aids 0.20
for food 0.04
for processing 0.21
Carry over stock at October 2003 1.27 (
increased by 0.30 from 2002) ltIncluding
reservation stock for feed and aidsgt
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Reserve Stock

• 1.63 million tons at June 2003
• (exceeding optimal reservation level)
• 0.73million tons at June 2004
• Stock by wholesalers increased to 0.76 at
  February 2004 ltincrease by 0.43 from preceding
  yeargt
• Reserve Stock Policy
• Optimum level 1 million tons
• by Revolving
  Reserve method by 0.5 million tons a year
• not by Set Aside
  method
• from Arbitrary Negotiation (Direct trading)
  system to Auction trading (bidding) system

decreased due to strong demand by wholesaler
production decline after August 2003
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ailand
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YearTerm
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Term
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YearTerm
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4. Determining Factors of Rice Demand

• (1)ClusterAnalysis
• Overall images of price gaps between
  rice brands distinguished by production area
• (2)Hedonic Regression Analysis
• The significance of each variables as
  the determining factors of price gaps

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Table 1 Relation between Price and Taste
Evaluation ( Tokyo market )
High Evaluation in Taste Low Evaluation in taste
Hitomebore produced in Iwate pref. Sasanishiki produced in Miyagi pref. Hitomebore produced in Miyagi pref. Akitakomachi produced in Akita pref. Sasanishiki produced in Yamagata town Haenuki produced in Yamagata town Sasanishiki produced in Shounai town Haenuki produced in Shounai town Hitomebore produced in Fukushima pref. Koshihikari produced in Fukushima pref. Koshihikari produced in Ibaraki pref. Koshihikari produced in Tochigi pref. Koshihikari produced in Chiba pref. Koshihikari produced in Nagano pref. Koshihikari produced in Niigata town Koshihikari produced in Uonuma town Koshihikari produced in Ishikawa pref. Koshihikari produced in Toyama pref. Sasanishiki produced in Akita pref
Sasanishiki produced in Iwate pref Hananomai produced in Yamagata town Domannaka produced in Yamagata town Domannaka produced in Shonai town Sasanishiki produced in Fukushima pref Hatsuboshi produced in Fukushima town Kinuhikari produced in Ibaraki pref Yukihikari produced in Hokkaido Kirara397 produced in Hokkaido Mutsukaori produced in Aomori town Mutsuhomare produced in Aomori town Tsugaruotome produced in Aomori pref Akitakomachi produced in Iwate pref Hatsuboshi produced in Chiba pref Echigowase produced in Niigata pref Niigatawase produced in Niigata pref Yukinosei produced in Niigata pref  
 
High Price Rice
Low Price Rice  
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Table 2 Relation between Price and Taste
Evaluation ( Osaka market )
High Evaluation in Taste Low Evaluation in taste
Hitomebore produced in Iwate pref. Sasanishiki produced in Miyagi pref. Hitomebore produced in Miyagi pref. Akitakomachi produced in Akita pref. Sasanishiki produced in Yamagata town Haenuki produced in Yamagata town Sasanishiki produced in Shounai town Haenuki produced in Shounai town Hitomebore produced in Fukushima pref.. Koshihikari produced in Nagano pref. Koshihikari produced in Niigata town Koshihikari produced in Uonuma town Koshihikari produced in Toyama pref. Koshihikari produced in Ishikawa pref. Koshihikari produced in Fukui pref. Koshihikari produced in Mie pref. Koshihikari produced in Shimane pref. Koshihikari produced in Okayama pref. Hatsushimo produced in Gifu pref Koshihikari produced in Shiga pref. Kinuhikari produced in Shiga pref. Koshihikari produced in Tottori pref. Koshihikari produced in Kagawa pref.
Sasanishiki produced in Iwate pref Hananomai produced in Yamagata town Domannaka produced in Yamagata town Domannaka produced in Shonai town Sasanishiki produced in Fukushima pref Hatsuboshi produced in Fukushima town Kinuhikari produced in Ibaraki pref Yukihikari produced in Hokkaido Kirara397 produced in Hokkaido Mutsuhomareproduced in Aomori town Akitakomachi produced in Iwate pref Echigowase produced in Niigata pref Niigatawase produced in Niigata pref Yukinosei produced in Niigata pref Notohikari produced in Ishikawa pref Hohohonoho produced in Ishikawa pref Fukuechizen produced in Fukui pref Nihonbare produced in Shiga pref Akebono produced in Okayama pref Yamahoushi producedinYamaguchi ref Yamahikari produced in Yamaguchi pref Hinohikari produced in Kumamoto pref Hinohikari produced in Oita pref
High Price Rice
Low Price Rice
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Table 3 Results of Hedonic Regression Approach
( Tokyo Market ) ( statistically
significant at 1 level, at 5 level
Variables meaning of the variables Regression oefficient t-value p-value
X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13 X14 X15 X16 X17 X18 X19 X20 X21 a appearance smell flavor stickiness softness blend suitability shipment period dummy weak stem dummy strong stem dummy tolerance for falling dummy tolerance for cold weather dummy tolerance for disease dummy Koshihikari dummy Uonume local brand dummy Niigata local brand dummy 1990 year dummy 1991 year dummy 1992 year dummy 1993 year dummy 1994 year dummy 1995 year dummy ??? 0.009 0.0004 0.013 0.018 0.006 0.012 0.006 0.0007 -0.029 -0.053 -0.012 -0.032 0.023 0.343 0.111 0.041 0.088 0.098 0.126 0.064 0.008 9.430 5.09 0.22 6.41 9.68 4.91 7.26 3.00 0.26 -8.10 -13.69 -4.26 -6.13 6.67 35.74 16.55 11.24 23.83 26.55 23.89 18.70 2.43 258.65 0 0.82 0 0 0 0 0.002 0.78 0 0 0 0 0 0 0 0 0 0 0 0 0.01 0
Sample size 1140, R2 ( ad. Df. ) 0.899, AIC -7.258 Sample size 1140, R2 ( ad. Df. ) 0.899, AIC -7.258 Sample size 1140, R2 ( ad. Df. ) 0.899, AIC -7.258 Sample size 1140, R2 ( ad. Df. ) 0.899, AIC -7.258 Sample size 1140, R2 ( ad. Df. ) 0.899, AIC -7.258
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Table 4 Results of Hedonic Regression Approach
( Osaka Market ) ( statistically significant
at 1 level, at 5 level )
     
Variables meaning of the variables Regression oefficient t-value p-value
X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13 X14 X15 X16 X17 X18 X19 X20 X21 a Appearance smell flavor stickiness softness blend suitability shipment period dummy weak stem dummy strong stem dummy tolerance for falling dummy tolerance for cold weather dummy tolerance for disease dummy Koshihikari dummy Uonume local brand dummy Niigata local brand dummy 1990 year dummy 1991 year dummy 1992 year dummy 1993 year dummy 1994 year dummy 1995 year dummy ??? 0.011 0.003 0.014 0.018 0.0006 -0.005 0.006 0.006 -0.014 -0.009 -0.016 -0.025 0.034 0.329 0.091 0.037 0.084 0.086 0.118 0.059 -0.0003 9.837 7.19 2.37 8.20 9.62 0.50 -4.97 3.88 2.24 -3.66 -1.96 -5.39 -4.33 13.45 29.27 13.32 11.24 26.22 28.43 26.86 20.95 -0.12 358.54 0 0.01 0 0 0.61 0 0.0001 0.02 0.0003 0.049 0 0 0 0 0 0 0 0 0 0 0.89 0
Sample size 1800, R2 ( ad. fd. ) 0.862, AIC -7.15 Sample size 1800, R2 ( ad. fd. ) 0.862, AIC -7.15 Sample size 1800, R2 ( ad. fd. ) 0.862, AIC -7.15 Sample size 1800, R2 ( ad. fd. ) 0.862, AIC -7.15 Sample size 1800, R2 ( ad. fd. ) 0.862, AIC -7.15
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Table 5. Factors affecting rice price gaps
i) Taste element ii) Crop Characteristics element
appearance, flavor, stickiness, softness, smell stem strength, tolerance against falling, tolerance to cold weather, tolerance to disease
i) advantage in marketing element,   ii) brand power element
suitability to blend, timing of shipment brand power in variety name brand power in local brand name
Quality factor
Non-Quality factor
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ltSummarygt
1. Supply of Blended Rice
2. Consistency between WTO FTA
(1)substantially all commodities,
(2) not worsening trade conditions to non FTA
members
(3) complete of liberalization within reasonable
period,
3. Type of FTA and Related Issues
(1) FTA, Tariff Union, EPA, Common Market,
Economic Union,,
(2) rule of origin
(3)intra-industry trade and inter-industry trade
4. Coordination of MA import Reserve Stock/Aid
Scheme
5. Consistency with Grain Reserve Stock Policy
among East Asia
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YearTerm
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ailand
YearTerm
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ailand
YearTerm
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YearTerm
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YearTerm
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YearTerm