1. Press Release C. 23-12
th
El Salvador, September 13 , 2012.
Barriers difficult entry to
new rice processors
The Competition Superintendence (CS) has identified legal barriers which difficult the entry of new
competitors in rice imports and allow a limited number of economic agents to participate in this market.
As a consequence of the legal framework currently in force and its particular enforcement, Salvadoran
consumers have paid an estimate of more that US$8.8 millions in the past five years (2006-2011).
Hence, the CS has recommended to impulse amendments to bring competition to this sector.
The CS updated its study on the competition conditions of the rice agro-industry
“The legal framework in El Salvador carried out in 2009. Said update identified potential competition
currently in force problems caused by entry barriers to new competitors and privileges to certain
does not provide economic agents which jeopardize the market and consumer welfare.
market criteria which
favor competition in It is estimated that consumers could have been paying an average of US$1.46
1
million per year in excess, due to the conditions of the legal framework currently
the rice agro-
in force and to the high intermediation margins in the value chain, of which 73%
industry, thus, are transferred to industrials and 27% to rough or paddy rice (rice that has yet to
allowing high market have the outer covering (rice hull) and bran layers removed) producers.
concentration with
few economic agents, The legal framework that regulates the rice agro-industry and determines the
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which jeopardizes access to rice imports from the USA has caused the aforementioned
consumer welfare distortion. Said regulation disincentivizes the participation of new importers and
3
and economic allows disparate conditions in the distribution of rice quotas .
efficiency”, asserted
The legal framework in force together with the composition and behavior of the
Francisco Diaz economic agents in the market harm common welfare when the prices for rice in
Rodriguez, the Salvadoran economy are higher than those that could be paid if the market
Competition. was more open to imports. The access to import quotas is considered one of
the alternatives to bring more competition and reduce prices.
1 As income transfers from consumers to the agro-industry, due to the fact that the prices paid for rice in the
Salvadoran economy are higher than those which could be paid if the Salvadoran market was more open to imports.
2 General conditions applicable to both, rough or paddy rice which is the raw material of agricultural origin, and for
white (polished) rice, industrial product destined for final consumption.
3 The tariffs (import) quotas are those established for the import of certain merchandise when the import tariffs
applied to the quantities in the quota are lower than those applied to quantities outside the quota.

2. Entry barriers4
The requirements for a new economic agent to have access to the Rough or Paddy Rice Agreement and to
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import with 0% tariff from the USA are: (1) to be admitted by a Supervision Commission formed by its
competitors; (2) the period to obtain the status of historical importer is one year, together with granting the new
participants an import percentage equal to the smaller participation of those industrial economic agents who are
historical importers; and, (3) to invest in quality laboratory and machinery with less than ten years of operating.
These requirements are not obligatory for historical importers and are considered to constitute disincentives for
the entry of new competitors in this market.
The participation structure of the industrialists in the purchases of national paddy rice has not practically changed
since the year 2000 when the Agreement was subscribed, with two economic agents who acquire in total
approximately 80%.
General aspects of the legal framework currently in force
The domestic production of rice only supplies a small portion of the internal consumption (12%), thus, the need to
import. A zero percent tariff is applied to the rice imported from the USA. Nonetheless, the rice imported from
other countries (with the exception of Central America) is subject to a 40% tariff on the merchandise value.
The legal framework applicable to the rice agro-industry is related to the protection this economic activity receives
in order to avoid domestic producers to be displaced from the market in a scenario in which imports prevail. The
domestic regulations that facilitate the enforcement of the DR-CAFTA include the Agreement for Rough or Paddy
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Rice Trade and the Executive Decrees numbers 108 and 109 and link the purchase of domestic production to
the access to the import quota of rough or paddy rice with 0% tariff.
The Agreement for Rough or Paddy Rice Trade is defined as a “private and permanent agreement”.
Notwithstanding the above cited, the Salvadoran Ministry of Agriculture and Livestock subscribed said agreement
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setting forth obligations to public institutions; its use by the public administration generates a “co regulation”
status. In this agreement, after its amendment, since the DR-CAFTA came into force (2006), access to imports is
subject to the performance requirement established in said Treaty and links the purchase of domestic
production with the access to the import quota of rough or paddy rice with 0% tariff. Meaning, that as an
industrialist who is part of the aforementioned agreement purchases paddy rice to domestic producers, such
industrialist shall be able to have access to imported rice with 0% tariff; if not that economic agent will have to pay
a 40% tariff. Nevertheless, as long as no market criteria for assigning volumes within the paddy rice quotas exist,
the economic agents may have access to the domestic production and, ergo, to 0% tariff imports based on the
4 Factors that impede, limit, or difficult the entry of new economic agents to a sector or to an economic activity.
Glossary of Competition Terms; CS, 2009.
5 Formed by 17 representatives of the private sector who signed this Agreement, 20 in total, 7 of whom are
representatives of the industrial sector. The above cited situation presents an evident conflict of interests which
might impede issuing objective decisions since said conflict opens up the possibility to go against the participants´
interests.
6 “Regulations for the Administration of Tariff Quota for Processed White Rice within the Free Trade Agreement
amongst Central America, the Dominican Republic, and the United States of America”, issued on January 30th, 2006
and published in the Official Gazette No. 23, Volume No. 370, dated February 2 nd, 2006; in force since March 1st, 2006.
7 “Transitory Regulations for Assigning the Tariff Quota for White Processed Rice during the First Semester in force of
the Free Trade Agreement amongst Central America, the Dominican Republic, and the United States of America”,
issued on January 30th, 2006 and published in the Official Gazette No. 23, Volume No. 370, dated February 2nd, 2006;
in force since March 1st, 2006.
8 The term “co regulation” makes reference to the cases in which the governments provide support to regulations
issued by economic agents. Organisation for Economic Co-operation and Development, OECD, “Competition
Assessment Toolkit, Version 1.0”, 2007, p. 17.

3. historical registries which have allowed stable participation quotas during the period analyzed by the aforesaid
study.
Recommendations9
The CS issued important recommendations to the Ministry of Economy, Ministry of Agriculture and Livestock, to
the Financial System Superintendence, and to the Consumer Protection Authority.
The CS recommended to the Minister of Economy and to the Minister of Agriculture and Livestock to impulse
urgent amendments to the rice agro-industry legal frame. In order to promote competition in the paddy rice
market, the CS recommended encouraging the approval of a regulation that substitutes the Agreement for
Rough or Paddy Rice Trade which sets forth a mechanism for assigning participations in the paddy rice quota,
incorporates market criteria, supports the expansion of small mill owners that already participate in the market,
and facilitates the entry of new economic agents.
So as to promote competition in the white (processed) rice market, the CS recommended amending the
“Regulations for the Administration of Tariff Quota for Processed White Rice within the Free Trade Agreement
amongst Central America, the Dominican Republic, and the United States of America”, aiming to eliminate the
entry barriers laid out by said regulations. Both amendments are a prerogative of the Republic of El Salvador.
Importance of rice for the consumer
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Rice is part of the daily diet of the Salvadoran consumer, included in the Urban and Rural Basic Food Basket .
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Pursuant to the information provided by the Home Multipurpose Survey , the average monthly expenditure per
home is US$5.60 for precooked rice and US$5.00 for not precooked rice. This generates a total expenditure of
US$2,806,500.00 for the monthly consumption of rice.
Value chain
Approximately 1,785 producers and 7 producer associations of paddy rice exist nationwide; 17 economic agents
own industrial rice mills; and, about 800 wholesale distributors operate in the domestic market. Supermarkets,
small grocery stores, and sale spots located in municipal markets operate in retail distribution.
In order to read the entire report “Study of the competition conditions in the rice agro-industry in El Salvador,
updated to July 2012”, please consult the link: http://www.sc.gob.sv/pages.php?Id=1206
9 This is a summary of these recommendations. For detailed information please go to www.sc.gob.sv
10 The Basic Food Basket is “the group of considered basic products in the population´s diet residing in the country, in
sufficient amounts to adequately satisfy, at least, the protein and energy needs of an average individual”, consult
carried out on July 18th, 2012.
11 Ministry of Economy, 2010 Home Multipurpose Survey, www.digestic.gob.sv