Rice Stocks and Trade Policies Shape Food Security in Asia

Rice Stocks and Trade Policy in Asia:
A Role for International Stock Arrangements?
Paul A. Dorosh
International Food Policy Research Institute
Agricultural Transformation in Asia: Policy Options for Food and Nutrition Security
Siem Reap, Cambodia
September 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 Goals
SAARC: 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,
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 welfareBrunei, Cambodia, Indonesia, Lao,
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 procedures
Tier 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)* 2012/13
China 35.9 46.9 115.8 -2.6 39.5% -0.05
India 11.4 24.0 90.0 9.0 26.7% 0.38
Thailand 2.5 12.5 18.3 6.4 66.4% 0.51
Indonesia 4.6 3.6 35.2 -1.0 9.9% -0.28
Philippines 4.9 1.4 1.5 -1.5 47.4% -1.06
Vietnam 1.4 1.8 21.7 7.3 8.3% 4.05
Japan 2.4 2.8 6.4 -0.5 38.8% -0.18
Pakistan 0.7 0.7 5.6 3.0 12.4% 4.25
Bangladesh 0.4 0.9 28.0 -0.3 3.1% -0.34
United States 1.3 1.0 6.0 2.7 15.4% 2.61
ROW 9.9 9.8 75.0 -19.5 9.7% -1.99
Total 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
0
20
40
60
80
100
120
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
MillionTons
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 Imports
1997-2011

Price Stabilization through Subsidized Trade
2002/3 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 Imports
2005-11

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
-
2
4
6
8
10
12
14
16
18
20
22
24
0
100
200
300
400
500
600
700
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
milliontons
$/MT
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
0
100
200
300
400
500
600
700
800
900
0
200
400
600
800
1,000
1,200
Jan-05
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
US$/ton
thousandMTs
Quantity Price

World Rice Exports
2004/05 – 2012/13
0
5
10
15
20
25
30
35
40
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
milliontons
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.

Rice Stocks and Trade Policies Shape Food Security in Asia

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