WTO/FTA Negotiation and Recent Trend of Rice Market Masaru KAGATSUME Professor Graduate School of Agriculture, Kyoto University, Japan Korea-Japan Joint.

WTO/FTA 　 Negotiation and Recent Trend of Rice Market

Masaru KAGATSUMEProfessor

Graduate School of Agriculture,

Kyoto University, Japan

Korea-Japan Joint Workshop,

on World Rice Consumption Strategies

July 23, 2004

Abstruct 　

1. WTO/FTA negotiation and agreement

2. Reform of Rice Distribution System

3. Situation of Rice Import & Reserve Stock

4. Determining Factors of Rice Demand

(1)  Tariffication is not carried out. Tariff equivalent is not set. ( Import Quota system is maintained)

(2)  State Trade system is maintained

(3)  Minimum Access is accepted. Following this, the government charges the mark-up through the state trade from the imported rice.

・  minimum access quantity

4% equivalent (1995) of the domestic consumption in basis period (1986-1988),

increasing to 8% equivalent (2000)

< 379 thousand tons milled rice (1995) to 758 thousand tons milled rice (2000) >

・  Mark-up

Setting based on the gap between selling price and buying price of the imported rice (Thailand Rice) purchased by the government food agency in the basis period (1986-1988).

<Specific tax> ( maximum \292/kg )

(4)  others

・  The simultaneous buying-selling system (SBS) is introduced in order to establish reasonable domestic market evaluation of the imported rice following the minimum access

・  The same is applied to the rice processing commodity

1. WTO/FTA negotiation and agreement

Agreement Dec 15, 1993 Implementation Jan 1, 1995

Outline of Agricultural Negotiation Result of the Uruguay Round on Rice

Content of rice tariffication in Japan 1.    Date of implementation 1999.4.1• 2.    Basic Tariff Equivalence (TE) \402/kg (milled rice, upper grade)• -------------------------------------------------<Calculation Basis>----------------------------------------------- • Base year International Price (A) Domestic Pricre (B) B-A ( average in the 3

(import cif price) (wholesale price) years 1986-88 ) -------------------------------------------------------------------------------------------------------------------------------- 1986 \29/kg \438/kg \409/kg 1987 \31/kg \435/kg \404/kg \402/kg 1988 \37/kg \429/kg \392/kg --------------------------------------------------------------------------------------------------------------------------------- 3.    The second tariff rate (over quota rate) 1999 \351.17/kg 2000 \341.00/kg • 4.    the minimum access quantity (paddy)• 1999       724,000 mt (6.8% of domestic consumption in the base year) <43000mt less than the case of the old special measure>• 2000       767,000 mt (7.2% of domestic consumption in the basis year) <85000mt less than the case of the old special measure> • 5.   other As for the minimum access import, the current state trade system is maintained.

(*) Under the agricultural agreement the basic tariff equivalent has to be reduced 15% for 6 years to 2000.

Shifting into the rice tariffication system in April, 1999

the annual growth rate of the minimum access quantity had reduced by 50% in comparison with the case of continuing the non-tariffication with special measures (i.e. 0.8%/year to 0.4%/year).

1999 767 --- 724 thousand ton ( paddy ) < 682 --- 644 thousand ton ( milled rice) > 2000 852 --- 767 thousand ton ( paddy ) < 758 --- 682 thousand ton ( milled rice) >

 a) abolishment of licensing of rice trading

(1)the basic primary rate( \402/kg ) is set to be tariff equivalent based on the agricultural agreement

(2)the second ( over quota ) rate is calculated based on the agreement. The rest of the second rate

from which the payment to government is deducted is set to be the preliminary rate.

Second rate of which, preliminary rate

1999 \351.17/kg \59.17/kg

2000 \341/kg \49/kg(3) rice can be protected by the special emergency tariff system ( special safeguard system)

Licensing system of rice export-import is abolished, following this, the compulsory selling of rice imported through permission to government is abolished

For rice which is imported under the second (over quota) tariff rate, the government can charge one part of second tariff rate as a payment to the government ( \292/kg ) .

This payment to the government from the rice import is appropriated for the imported food administration account of the staple food administration special account.

b) implementation of payment to government for rice import

c) implementation of the notification system on rice import-export the rice import-export have to be notified to the government.

d) setting the second ( over quota ) tariff rate

The mechanism of the switching to rice tariffication

( old system ) 　　　　　　　　　　　 ( after tariffication )

Selling price

Import markup 　　　　　　　　　　　　　　　　　　　　　　　　　　 second rate

(maximum ¥ 292/kg) (¥ 341/kg after 2000.4.

1)

Buying price

(minimum access qty) 　　　　　　　 (minimum access qty)

<within TRQ import> 　　　　 <within TRQ import> (at first tariff rate)

< over TRQ import >(at second tariff rate )

(*)import markup means the gap between government selling price and buying price

Border Protection Measures

• Agricultural Protection

– rice, wheat, dairy products

– IQ into TQ at the UR

• Tariff Rate Equivalent

– Rice(490%), wheat(210%), barley(190%), butter(330%), SMP(200%), silk(190%), vegetables(3%), fruits(6-20%)

• Modality Proposal by Mr Harbinson

<tariff rate> <average> <minimum>

more than 90% 60% ↓ 45%↓

　　　　　 15 to 90% 50% ↓ 35%↓

　　　　　 less than 15% 40% ↓ 25% ↓

２． Reform of Rice Distribution System

1941 Food Control Law

1969 Voluntary Distributed Rice system

1990 Voluntary Distributed Rice Price Formation Organization

1992 New Agricultural Policy

1995 New Food Law

2004 Abolishment of Planned Distributed Rice system

Consumers

Unregistered Selling Traders

U

nre

giste

red

C

olle

ction

Tra

ders

Government

Processors 

distribution route of unplanned distribution rice under the New Food Law distribution route of planned distribution rice under the New Food Law distribution route under the Food Control Law

Trading Firms

Imported Rice ( Government Distribution Rice )

Producers

Unplanned Distribution Rice

Planned Distribution Rice

Voluntary Distribution Rice

Government Distribution Rice

Registered Trader of Type 2( collection by Economic Farm Coop, Collective Union )

Registered Collection Traders of Type 1( collection by Farm Cooperatives, Merchant )

Voluntary Distribution Corporation( National Federation of Farm Coop,National Federation of Collective Union, etc. )

Voluntary Distribution Rice Price Formation Center (Auction Trade)

Registered Wholesalers

Registered Retailers

Com

modity test (optional)

Label R

egulation

Rice C

onsumers

Shipping

Traders

Selling T

raders

Notified Traders

Rice Price Formation Center

(trading place)

Government

Rice Stable Supply Support Organization

Rice P

roducers

rice distribution flow

Imported Rice

SBS Import

Normal Import

Reservation S

tock

Governm

ent R

iceP

rivate Distribution R

ice

3. Situation of Rice Import and Rice Reserve stock

Rice Import in 2003 fiscal year

・ Rice Import under the Minimum Access system based on the Uruguay Round Agreement since 1995

・ 0.77 million tons of paddy ( SBS import 0.10 million tons)

・ The 0.08 million tons (the twice of usual years ) of glutinous rice were imported to stabilize supply

・ All of the 0.10 million tons of SBS imported rice were sold out through auction although only 0.05 million tons (half of the predicted amounts ) of SBS import rice were sold in the previous year 2002

Rice import in 2004 fiscal year

– Until the new agreement in WTO is realized, the Minimum Access import is maintained at the same level of 2000 and so, 0.77 million tons of paddy were imported in 2004.

– Also, 0.10 million tons of paddy are imported

under the SBS import system through the 4 auctions a year

Demand for the Minimum Access Rice (million tons)

Carry over stock in October 2002

0.95Import in 2002 0.77

Rice demand in 2003 0.45

for food 0.04

for processing 0.21

for food aids 0.20

Carry over stock at October 2003 1.27 ( increased by 0.30 from 2002)

<Including reservation stock for feed and aids>

・ Cultivation 　 Conversion is not enforced due to the minimum access import rice ・ try to sell for processing demand at low price which is not enough for domestic rice・ redundant stock is aimed to food aids

Reserve Stock

• 1.63 million tons at June 2003

(exceeding optimal reservation level)

0.73million tons at June 2004

• Stock by wholesalers increased to 0.76 at February 2004 <increase by 0.43 from preceding year>

• Reserve Stock Policy– Optimum level = 1 million tons

by Revolving Reserve method by 0.5 million tons a year

not by Set Aside method

– from Arbitrary Negotiation (Direct trading) system to Auction trading (bidding) system

decreased due to strong demand by wholesaler

& production decline after August 2003

Quantity of SBS import rice

0

5

10

15

20

25

30

35

1 2 3 4 1 2 3 4 1 2 3 4 1

2001 2002 2003 2004

Year Term･

Qua

ntity

(th

ousa

nd t

)

U.S.A.ItayｌIndiaAustraliaSpainTh a i la n dChinaPakistanVietnam

ailand

Selling- buying price gap of SBS import rice

0

50

100

150

200

250

300

350

400

1 2 3 4 1 2 3 4 1 2 3 4 1

2001 2002 2003 2004

Year T er m ・

Price

(th

ousa

nd \

/t)

U.S.A buying price

Australia buying price

Thailand buying price

China buying price

U.S.A. selling price

Australia selling price

Thailand selling price

China selling price

Year ・Term

Quantity of MA general import rice

0

20

40

60

80

100

120

140

1 2 3 4 5 6 1 2 3 4 5 6 7 1 2 3 4 5 6 1

2001 2002 2003 2004

Year T er m ・

Qua

ntity

(tho

usan

d to

n)

Thailand

U.S.A.Australia

ChinaVietnam

・ Term

Average price of MA general import price

0

10

20

30

40

50

60

70

1 2 3 4 5 6 1 2 3 4 5 6 7 1 2 3 4 5 6 1

2001 2002 2003 2004

Year T er m ・

Ave

rage

pric

e (t

hous

and

\/t)

Year ・ Term

4. Determining Factors of Rice Demand

（１） ClusterAnalysis Overall images of price gaps between rice brands distinguished by production area　

（２） Hedonic Regression Analysis The significance of each variables as the determining factors of price gaps

Table 1 Relation between Price and Taste Evaluation ( Tokyo market )

High Evaluation in Taste Low Evaluation in taste

Hitomebore produced in Iwate pref. Sasanishiki produced in Miyagi pref. Hitomebore produced in Miyagi pref. Akitakomachi produced in Akita pref. Sasanishiki produced in Yamagata town Haenuki produced in Yamagata town Sasanishiki produced in Shounai town Haenuki produced in Shounai town Hitomebore produced in Fukushima pref. Koshihikari produced in Fukushima pref. Koshihikari produced in Ibaraki pref. Koshihikari produced in Tochigi pref. Koshihikari produced in Chiba pref. Koshihikari produced in Nagano pref. Koshihikari produced in Niigata town Koshihikari produced in Uonuma town Koshihikari produced in Ishikawa pref. Koshihikari produced in Toyama pref.

Sasanishiki produced in Akita pref

Sasanishiki produced in Iwate pref Hananomai produced in Yamagata town Domannaka produced in Yamagata town Domannaka produced in Shonai town Sasanishiki produced in Fukushima pref Hatsuboshi produced in Fukushima town Kinuhikari produced in Ibaraki pref

Yukihikari produced in Hokkaido Kirara397 produced in Hokkaido Mutsukaori produced in Aomori town Mutsuhomare produced in Aomori town Tsugaruotome produced in Aomori pref Akitakomachi produced in Iwate pref Hatsuboshi produced in Chiba pref Echigowase produced in Niigata pref Niigatawase produced in Niigata pref Yukinosei produced in Niigata pref

Hig

h

Price

Rice

Low

Price

Rice

High Evaluation in Taste Low Evaluation in taste

Hitomebore produced in Iwate pref. Sasanishiki produced in Miyagi pref. Hitomebore produced in Miyagi pref. Akitakomachi produced in Akita pref. Sasanishiki produced in Yamagata town Haenuki produced in Yamagata town Sasanishiki produced in Shounai town Haenuki produced in Shounai town Hitomebore produced in Fukushima pref.. Koshihikari produced in Nagano pref. Koshihikari produced in Niigata town Koshihikari produced in Uonuma town Koshihikari produced in Toyama pref. Koshihikari produced in Ishikawa pref. Koshihikari produced in Fukui pref. Koshihikari produced in Mie pref. Koshihikari produced in Shimane pref. Koshihikari produced in Okayama pref.

Hatsushimo produced in Gifu pref Koshihikari produced in Shiga pref. Kinuhikari produced in Shiga pref. Koshihikari produced in Tottori pref. Koshihikari produced in Kagawa pref.

Sasanishiki produced in Iwate pref Hananomai produced in Yamagata town Domannaka produced in Yamagata town Domannaka produced in Shonai town Sasanishiki produced in Fukushima pref Hatsuboshi produced in Fukushima town Kinuhikari produced in Ibaraki pref

Yukihikari produced in Hokkaido Kirara397 produced in Hokkaido Mutsuhomareproduced in Aomori town Akitakomachi produced in Iwate pref Echigowase produced in Niigata pref Niigatawase produced in Niigata pref Yukinosei produced in Niigata pref Notohikari produced in Ishikawa pref Hohohonoho produced in Ishikawa pref Fukuechizen produced in Fukui pref Nihonbare produced in Shiga pref Akebono produced in Okayama pref Yamahoushi producedinYamaguchi ref Yamahikari produced in Yamaguchi pref Hinohikari produced in Kumamoto pref Hinohikari produced in Oita pref

Table 2 Relation between Price and Taste Evaluation ( Osaka market )

Hig

h P

rice

Rice

Low

Price

Rice

Table 3 Results of Hedonic Regression Approach ( Tokyo Market ) ( ** : statistically significant at 1% level, * : at 5% level

Variables meaning of the variables Regression oefficient t-value p-value

X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13 X14 X15 X16 X17 X18 X19 X20 X21 α

appearance smell flavor stickiness softness blend suitability shipment period dummy weak stem dummy strong stem dummy tolerance for falling dummy tolerance for cold weather dummy tolerance for disease dummy Koshihikari dummy Uonume local brand dummy Niigata local brand dummy 1990 year dummy 1991 year dummy 1992 year dummy 1993 year dummy 1994 year dummy 1995 year dummy 定数項

0.009 ** 0.0004 ** 0.013 ** 0.018 ** 0.006 ** 0.012 ** 0.006 ** 0.0007 ** -0.029 ** -0.053 ** -0.012 ** -0.032 ** 0.023 ** 0.343 ** 0.111 ** 0.041 ** 0.088 ** 0.098 ** 0.126 ** 0.064 ** 0.008 * 9.430 **

5.09 0.22 6.41 9.68 4.91 7.26 3.00 0.26 -8.10 -13.69 -4.26 -6.13 6.67 35.74 16.55 11.24 23.83 26.55 23.89 18.70 2.43 258.65

0 0.82 0 0 0 0 0.002 0.78 0 0 0 0 0 0 0 0 0 0 0 0 0.01 0

Sample size = 1140, R2 ( ad. Df. ) = 0.899, AIC = -7.258

  Variables meaning of the variables Regression oef

ficientt-value p-value

X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13 X14 X15 X16 X17 X18 X19 X20 X21 α

Appearance smell flavor stickiness softness blend suitability shipment period dummy weak stem dummy strong stem dummy tolerance for falling dummy tolerance for cold weather dummy tolerance for disease dummy Koshihikari dummy Uonume local brand dummy Niigata local brand dummy 1990 year dummy 1991 year dummy1992 year dummy 1993 year dummy 1994 year dummy 1995 year dummy 定数項

0.011 ** 0.003 *

0.014 ** 0.018 **

0.0006 ** -0.005 ** 0.006 **

0.006 * -0.014 ** -0.009 *

-0.016 ** -0.025 **

0.034 ** 0.329 ** 0.091 **

0.037 **

0.084 ** 0.086 ** 0.118 ** 0.059 ** -0.0003 * 9.837 **

7.19 2.37 8.20 9.62 0.50 -4.97 3.88 2.24 -3.66 -1.96 -5.39 -4.33 13.45 29.27 13.32 11.24 26.22 28.43 26.86 20.95 -0.12358.54

0 0.01 0 0 0.61 0 0.0001 0.02 0.0003 0.049 0 0 0 0 0 0 0 0 0 0 0.89 0

Sample size = 1800, R2 ( ad. fd. ) = 0.862, AIC = -7.15

Table 4 Results of Hedonic Regression Approach ( Osaka Market )( ** : statistically significant at 1% level, * : at 5% level )

i) Taste element ii) Crop Characteristics element

appearance, flavor, stickiness, softness, smell

stem strength, tolerance against falling, tolerance to cold weather, tolerance to disease

i) advantage in marketing element, 

ii) brand power element

suitability to blend, timing of shipment

brand power in variety namebrand power in local brand name

Non-Q

uality

facto

rQ

uality

fa

ctor

Table 5. Factors affecting rice price gaps

＜ Summary＞1. Supply of Blended Rice

2. Consistency between WTO & FTA(1)substantially all commodities,

(2) not worsening trade conditions to non FTA members

(3) complete of liberalization within reasonable period,

(3)intra-industry trade and inter-industry trade

(2) rule of origin

4. Coordination of MA import & Reserve Stock/Aid Scheme

5. Consistency with Grain Reserve Stock Policy among East Asia

3. Type of FTA and Related Issues(1) FTA, Tariff Union, EPA, Common Market, Economic Union,,

Buying price of SBS import rice

0

50

100

150

200

250

300

350

1 2 3 4 1 2 3 4 1 2 3 4 1

2001 2002 2003 2004

Year T er m ・

Buy

ing

pric

e (t

hous

and

\/t)

U.S.A.

Itaｌy

India

Australia

Spain

Thailand

China

Pakistan

Vietnam

Year ・ Term

Selling price of SBS import rice

0

100

200

300

400

500

600

1 2 3 4 1 2 3 4 1 2 3 4 1

2001 2002 2003 2004

Year T er m ・

Sel

ling

pric

e (t

hous

and

\/t) U.S.A.

ItayｌIndiaAustraliaSpainTh a i la n dChinaPakistanVietnam

ailand

Year ・ Term

Quantity of SBS import rice (nonglutinous rice)

0

5

10

15

20

25

1 2 3 4 1 2 3 4 1 2 3 4 1

2001 2002 2003 2004

Year T er m ・

Qua

ntity

(tho

usan

d t)

U.S.A.ItalyIndiaAustraliaSpainTh a i la n dChinaPakistanVietnam

ailand

Year ・Term

Quantity of SBS import rice (glutinous rice)

0

2

4

6

8

10

12

14

16

18

1 2 3 4 1 2 3 4 1 2 3 4 1

2001 2002 2003 2004

Year T er m ・

Qua

ntity

(tho

usan

d t)

U.S.A.

Thailand

China

Vietnam

Year ・Term

Selling- buying price gap of SBS import rice(nonglutinous rice)

0

50

100

150

200

250

300

350

1 2 3 4 1 2 3 4 1 2 3 4 1

2001 2002 2003 2004

Year T er m ・

Price

(th

ousa

nd \

/t) U.S.A buying price

Australia buying priceThailand buying priceChina buying priceU.S.A. selling priceAustralia selling priceThailand selling priceChina selling price

Year ・Term

Selling- buying price gap of SBS import rice(glutinous rice)

0

50

100

150

200

250

300

350

400

450

1 2 3 4 1 2 3 4 1 2 3 4 1

2001 2002 2003 2004

Year T er m ・

Price

(th

ousa

nd \

/t)

U.S.A buying priceThailand buying priceChina buying priceU.S.A. selling priceThailand selling priceChina selling price

Year ・Term