rice stocks and trade policy in asia- paul dorosh

Rice Stocks and Trade Policy in Asia:

A Role for International Stock Arrangements?

Paul A. DoroshInternational Food Policy Research Institute

Agricultural Transformation in Asia: Policy Options for Food and Nutrition SecuritySiem Reap, CambodiaSeptember 24, 2013

Thanks to Abigail Childs for research support on this work.

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Plan of Presentation

• International Rice Reserves in Asia

• Bangladesh Rice Trade and Stocks• 1998 Flood and Rice Imports• India’s Export Ban in 2008 and Implications for National

Stocks

• ASEAN Plus Three Emergency Rice Reserve• Thailand’s 2011 Stock Buildup and World Prices

• Concluding Observations


International Rice Reserves in Asia

Name Stocks GoalsSAARC: South Asian Association for Regional Cooperation (1987-present)

Members contribute a prescribed amount every year, grain is held within country No explicit goals

Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka Stocks are earmarked for reserve

AERR: ASEAN Emergency Rice Reserve (1979-2004) Voluntary contribution of stocks by

country with the end-goal of a regional stockpile

• Strengthen food security in the region• Enhance international competitiveness of ASEAN food• Enhance ASEAN cooperation

Brunei, Cambodia, Indonesia, Lao, Malaysia, Myanmar, Philippines, Singapore, Thailand, Viet Nam

• Develop and accelerate the transfer and adoption of new technologies

Stocks are earmarked for reserve• Enhance private sector involvement• Sustainable development

EAERR: East Asia Emergency Rice Reserve (2004-2010)

Countries pledge a certain amount of rice; this rice can be used by other Asian countries in instances of emergency.

• Increased rice trade among participating countries• Promotion of regional cooperation through explicit mechanisms

Brunei, Cambodia, Indonesia, Lao, Malaysia, Myanmar, Philippines, Singapore, Thailand, Viet Nam, China, Japan, South Korea

Stocks are earmarked for reserve • Intra and inter-regional trade

APTERR: ASEAN Plus Three Emergency Rice Reserve (July 2012-present) Members are responsible for

maintaining reserves and in many cases the commitment to the APTERR will come from national food reserves

• Rice is made available during emergencies• Price stabilization of rice sector• Improving farmers income and welfare Brunei, Cambodia, Indonesia, Lao,

Malaysia, Myanmar, Philippines, Singapore, Thailand, Viet Nam, China, Japan, South Korea

• Food security without distorting the international market


International Rice Reserves in Asia (2)

Name Withdrawal Repayment Effectiveness of Rice Reserve

SAARC: South Asian Association for Regional Cooperation (1987-present)

Members can withdraw grains when needed and then replace into the reserve within two years

Price, terms, and conditions for repayment are based on negotiations between member countries.

Small regional trade- has been slowly increasing, but tariffs still exist among member states

AERR: ASEAN Emergency Rice Reserve (1979-2004)

Process of bilateral negotiations between member countries

Terms and price of transaction of rice is determined by the world market

Unused, very little effectiveness. AERR never made a release from its stocks

EAERR: East Asia Emergency Rice Reserve (2004-2010)

Tier 1: releases are made under a special commercial transaction

Terms and price of transaction is determined by the world market

Food crisis of 2007/8 led to the creation of APTERRTier 2: terms of release are governed by

a loan or grant agreement

Tier 3: release for acute emergency

APTERR: ASEAN Plus Three Emergency Rice Reserve (July 2012-present)

Tier 1: specialized emergency contracts

Terms of loans and repayment has yet to be decided by the APTERR secretariat; contract pricing is determined by international market prices

Streamlined proceduresTier 2: release of earmarked emergency rice reserves in response to emergency demand

Potential distortions to international trade

Tier 3: release of physical stockpiles and cash donations for rice purchase to meet acute emergency need

Mobilization issues

Organizational issues


World Rice Stocks (end-year)2005/06 – 2012/13

End Stocks/End Stocks End Stocks Net Prod Net Trade End Stocks/ Trade

2006/07 2012/13 2009/10 2012/13 (Prod+Imps)* 2012/13China 35.9 46.9 115.8 -2.6 39.5% -0.05India 11.4 24.0 90.0 9.0 26.7% 0.38Thailand 2.5 12.5 18.3 6.4 66.4% 0.51Indonesia 4.6 3.6 35.2 -1.0 9.9% -0.28Philippines 4.9 1.4 1.5 -1.5 47.4% -1.06Vietnam 1.4 1.8 21.7 7.3 8.3% 4.05Japan 2.4 2.8 6.4 -0.5 38.8% -0.18Pakistan 0.7 0.7 5.6 3.0 12.4% 4.25Bangladesh 0.4 0.9 28.0 -0.3 3.1% -0.34United States 1.3 1.0 6.0 2.7 15.4% 2.61ROW 9.9 9.8 75.0 -19.5 9.7% -1.99Total 75.5 105.4 403.5 37.6 24.1% 0.36

Notes: Total trade figure is gross exports.* End stocks 2012/13 divided by the sum of 2012/13 net production and 2012/13 imports.


World Rice Stocks (end-year)2005/06 – 2012/13

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120

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

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China India Thailand Indonesia Philippines Japan Rest of World


Bangladesh: Trade Liberalization and the Private Sector Rice Import Trade: 1994-2001

• Bangladesh liberalized its import trade in rice in the early 1990s.

• In years of relatively poor harvests in the mid- to late 1990s, import parity prices provided a price ceiling for Bangladesh domestic market prices.

• Following the 1998 flood, private sector imports exceeded 200 thousand tons/month for seven consecutive months, stabilizing domestic prices at import parity (based on India wholesale market prices plus transport and marketing costs).


Bangladesh Rice Prices and Imports1997-2011


Price Stabilization through Subsidized Trade2002/3 to 2006/7

• In 2000/01 and again from 2002/03 to 2006/07, Bangladesh prices tracked import parity based on BPL sales prices

• A specific Indian government program existed in 2002/3 for subsidized exports of rice obtained from FCI stocks at BPL prices

• There were no explicit policy statements regarding export subsidies in later years. We conduct econometric analysis to test whether the co-movement of wholesale and import parity prices is statistically significant.


The 2007/08 World Price Shock and Disruption of Trade with India

• In mid-2007 world prices of major cereals rose sharply due to poor harvests in major producing countries and subsequent trade restrictions

• India announced a rice export ban in late 2007, but later negotiated a restricted volume of trade at set prices

• Bangladesh wholesale prices rose rapidly, but did not reach import parity with Thai rice, as international market prices hit record levels.


Bangladesh Rice Prices and Imports2005-11


Rice Trade and Public Stock Policy

• Government policy following the 1998 flood shows that it is possible to have both public stocks (with a substantial PFDS) and to promote private trade at the same time.

• Given the uncertainties of trade with India and the international market, how much should public stocks be increased?

• Simulation analysis of the implications of higher public distribution (and implicitly stocks) in 2008 sheds light on this question


Simulations: Increased Public Distribution

• In early 2008, public stocks were insufficient to allow much more distribution• End April stocks: rice 220K tons, wheat 120 K tons

• Simulations suggest that an extra 1.1mn tons of net distribution (with ½ month of private stock reduction) reduces the real price rise to only 2-3%

• If private stocks do not increase, an extra 300K tons of net distribution is sufficient to keep prices stable


Implications of Low Cost Imports

• Large scale rice imports at BPL parity prices from 2002/03 to 2006/07 (950K / year)• Helped keep Bangladesh prices low and extremely

stable• Benefitted consumers in Bangladesh• Resulted in lower prices for producers (and lower

production)• Had zero direct cost to the Bangladesh government

• Lowering real rice prices to the levels of the mid-2000s through subsidized imports would entail large fiscal costs.


Implications for Bangladesh Rice Stocks

• The analysis suggests that ready availability of approximately 1.0 million tons of rice through drawdown of public stocks or imports would enable Bangladesh to handle similar disruptions in the future. • This figure assumes that private imports can

supplement supplies as in 2007/08, as well.• Otherwise, as much as 2.0 million tons would be

required.


Rice Export Policy:Thailand’s Increase in National Stocks

• Thailand substantially raised its support price for paddy in 2012, increased procurement and reduced exports in an effort to boost international prices and export earnings.

• Stocks have risen from less than 6 million tons in 2010 to more than 15 million in 2013.

• Domestic prices are now above the export price, implying a huge fiscal loss if these stocks are exported.


Thailand Rice Prices and Stocks

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2005 2006 2007 2008 2009 2010 2011 2012 2013

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Stocks A1 Super B (fob) Support Price Paddy (milled equiv)


Thailand’s Export Policy and International Rice Prices

• Thailand’s policy of reducing its exports has not led to higher world prices.

• Other countries have increased their exports and filled the gap in supply• India’s exports rose from 2.23 to 10.25 million tons

between 2009/10 and 2011/12. • Vietnam’s exports also rose, from 6.73 to 7.72 million

tons, in the same period.

• International rice prices have remained stable.


Thailand Rice Export Price and Quantity: 2005-2013

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Quantity Price


World Rice Exports2004/05 – 2012/13

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2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

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Thailand India Vietnam Pakistan United States Cambodia ROW


Concluding Observations:International Reserves

• To date, international rice reserve arrangements have not been used in major emergencies.• There is no evidence that they have added to price

stability.

• Interests of net exporters and net importers differ sharply, especially in the short run.• Exporters have sometimes cut exports to prevent

price increases in domestic markets (India, 2008) or boost international prices and export earnings in the medium term (Thailand 2012-13)

• Consumers in net importing countries are harmed by these policies because of the higher cost of imports


Concluding Observations: National Policies

• Importers have found that international trade often provides for more flexible and lower cost supplies than from international reserves.

• Nonetheless, moderate levels of national stocks provide an insurance against short-term disruptions in trade and can calm domestic markets

• In the medium term, both importers and exporters gain through promoting efficient domestic production


References

Dorosh, Paul and Shahidur Rashid. 2013. “Trade Subsidies, Export Bans and Price Stabilization: Lessons of Bangladesh – India Rice Trade in the 2000s”, Food Policy 41: 103-111 August. http://www.sciencedirect.com/science/article/pii/S0306919213000523

Dorosh, Paul A. 2001. “Trade Liberalization and National Food Security: Rice Trade between Bangladesh and India”, World Development, 29(4): 673-689.

Dorosh, Paul A. 2009. “Price Stabilization, International Trade and National Cereal Stocks: World Price Shocks and Policy Response in South Asia”, Food Security 1(2):137-149.

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