Rice Trade and the Free Trade Area of Americas Agreement

Eric Wailes, Frank Fuller,

Harry Djunaidi, and Alvaro Durand

University of Arkansas

Objective

• Assess the potential impact of the Free Trade Area of the Americas (FTAA) agreement on rice trade.– Review aspects of U.S. rice exports– Western Hemisphere trade– Modeling framework– Results

U.S. Rice Export Share

0%

5%

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35%

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61

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63

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65

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67

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69

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71

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81

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20

01

Share of U.S.Rice Exports to Western Hemisphere

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

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81

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87

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89

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91

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93

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95

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19

99

Pe

rce

nt

U.S. rice exports by type

0500

1000150020002500300035004000

Tho

us. M

T

Rough Brown Milled

U.S. and Other Western Hemisphere Exports

0

500

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3500

1961

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Th

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U.S.

Other Western Hemisphere

Western Hemisphere Rice Imports

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500

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Pe

rce

nt

of

Wo

rld

Imp

ort

s

Volume

Global share

Average Imports tariffs for rice by degree of processing in the

Western Hemisphere

22%

23%

24%

25%

26%

27%

Milled Brown Paddy

Rice Import Tariffs for selected countries

0%

5%

10%

15%

20%

25%

30%

35%

Mexico Costa Rica Brazil Colombia

Milled

Brown

Rough

Regional trade agreements in the Western Hemisphere

• NAFTA• Canada, Mexico, and United States

• To phase out rice tariffs by 2003

• MERCOSUR• Argentina, Brazil, Paraguay, and Uruguay

• Common external rice tariffs

• CACM• Costa Rica, El Salvador, Guatemala, Honduras and

Nicaragua

• Attempt to reconcile common external tariffs

Regional trade agreements in the Western Hemisphere

• CARICOM• Antigua and Barbuda, Barbados, Bahamas, Belize,

Dominica, Grenada, Guyana, Jamaica, Monserrat, St. Kitts and Nevis, St. Lucia, Suriname, St. Vincent, Trinidad and Tobago

• Most apply a common external tariff• Guyana is the dominant export supplier to this group

• Andean Pact• Bolivia, Colombia, Ecuador, Peru, and Venezuela• Most maintain a common external tariff

Free trade agreement of the Americas

• Summit of the Americas• Miami, FL 1994

• Agreed to negotiate removal of barriers– Trade– Investment

• Attempt to complete agreement by 2005

Assess the potential impact for rice trade?

• Spatial equilibrium model– disaggregate by degree of processing

• milled, brown and rough

– disaggregate into 82 regions/countries, especially Western Hemisphere

– express current trade barriers and removal to FTAA members

Model structure

• Quasi-welfare objective function– maximize exporter and importer welfare

surpluses– subject to linear arbitrage conditions

Model parameters

• Derive excess supply and excess demand equations based on:– elasticities– base year (1999) trade and prices– base year trade policies (tariffs)

• Transportation cost matrix from all exporters to all importers

Results: FTAA impact on global trade

Rice type Base FTAA Difference

Milled (tmt) 20,366 20,560 194

Percent change (%) 1

Brown (tmt) 3,574 3,615 41

Percent change (%) 1

Paddy (tmt) 890 1,034 144

Percent change (%) 16

Results: impact on global prices

Rice type Base FTAA DifferenceMilled ($/mt) $235.50 $236.91 $1.41 Percent change (%) 1Brown ($/mt) 348.70 352.44 3.54 Percent change (%) 1Paddy ($/mt) 159.99 175.44 15.45 Percent change (%) 10

Results: impacts on Western Hemisphere rice imports

Rice type Base FTAA DifferenceMilled (tmt) 2,126 2,434 308 Percent change (%) 14Brown (tmt) 341 449 108 Percent change (%) 32Paddy (tmt) 667 819 152 Percent change (%) 23

Trade creation and diversion

Rice type Quantity(tmt)

Percentchange

Milled trade creation 550 26Milled trade diversion -142 -7Brown trade creation 155 45Brown trade diversion -47 14Paddy trade creation 157 24Paddy trade diversion -5 1

Summary and conclusions

• Study limitations– no substitution between rice types

• Limited impact on global rice trade and prices

• Trade increases for all types with the largest increase in rough rice trade

• Trade creation exceeds trade diversion by 568 thousand MT, 3% of world trade.