Rice Price Volatility: A Dilemma for Public Policies in Asia and Europe?

Abstract

In 2008 the world’s attention was focused on the global food crisis and, as consequence, on the global food security. By mid-2009, commodity prices have dropped sensitively, nevertheless most of them still remain at or above past trend levels.

Fluctuations in prices are not rare in agricultural markets where volatility is a common characteristic.

Among cereals rice has a strategic importance. It is source of nutrition for more than a half of the world population and of income for about two million of farmers. Even if it is produced and consumed everywhere, production and consumption are concentrated in Asia.

Because of its strategic importance, rice is and has been subject to a host of policy interventions that have made it feature among the most distorted of all agricultural commodities.

Export policies have typically been applied by net exporting countries and one of the most commonly applied policy measures, adopted by net importing countries, is the removal or reduction of import duties and taxes on food commodities.

Various forms of producer support measures were introduced, including input subsidies, output price support and an easing of cropland set-aside requirements.

Policies to support consumers and vulnerable groups have included: direct consumer subsidies, tax reductions, distribution from public stocks, price subsidies, public-sector salary increases and social safety net programmes. Self-targeting food-for-work programmes have been put in place by some countries.

Although the EU rice trade represents only 0.4 per cent of world trade a common organisation market (COM) for rice was set-up. It is a complex system aiming at maintaining European rice production destined for domestic and external markets.

This paper aims to expand the above statements. The objective is to review and compare the policies adopted in Asia and in the EU and assess their impact form the point of sustainability (in a broad sense) with the ultimate aim to advance some interpretations and suggestions in the short and long run, having in mind the variables that affect the supply, the demand and the trade.

As a background, the paper first outlines the characteristics of the rice market. Through a regression analysis that could help to understand how the rice price changes. It also considers the policies adopted in Asia and in the EU, highlighting their results on prices from an economic and social point of view. This paper concludes with a number of issues to be borne in mind when interpreting the volatility or rice prices (according to the regression analysis results), the expected policy impact and distortions, and, finally, the “relatively” new strategy: move from food security to self-sufficient food security, one of the long terms goals of the Treaty of Rome (to secure availability of supplies).

Keywords: food security, rice market, public policies, regeression analysis

JEL Classification: Q1, F4, H2