GLOBAL RICE ECONOMY: LONG-TERM PERSPECTIVES^[1]

Mahabub Hossain, Lead Economist, Social Sciences, IRRI and Josephine Narciso^[2]

ABSTRACT

Rice is the dominant staple food crop in developing countries, particularly for the humid tropics across the globe. Almost 90 percent of rice is produced and consumed in Asia, and 96 percent in developing countries. Rice production has increased faster than population over the last three decades, despite being produced on small and marginal and tenant farms in countries with extreme population pressure on limited land resources. Most of the growth in production originated from technological progress in the irrigated and the favorable rainfed ecosystems.

The growth in rice consumption has started slowing down because of urbanization, increases in per capita income leading to diversification of the diet, high levels of rice consumption already reached in many countries, and progress in reducing population growth. But, the growth in rice supply has also slowed down because of the yield approaching economic optimum for the irrigated ecosystem, decline in relative profitability of rice cultivation, increasing concerns regarding environmental protection, and limited progress in developing improved technologies for the unfavorable ecosystems.

Two contrasting developments may substantially affect the rice economy in the future. First, the prosperous rice-growing countries may increasingly find it difficult to sustain producers' interest in rice farming. The move towards free trade in agricultural production, begun with the Uruguay Round of GATT, will affect the sustainability of rice farming in these countries. There will be economic incentives for the movement of land, water and labor out of rice to other economic activities. Second, the potential for increased productivity for the irrigated ecosystem, created by the dramatic technological breakthrough in genetic enhancement of seeds that initiated the green revolution has almost been exploited while improved varieties for the unfavorable ecosystems expected from the on-going gene revolution are still on the horizon.

This paper aims to explain the above statements. As a background, Section I outlines some stylized facts about the global rice economy. Sections II analyzes the forces governing the trends in rice consumption in major rice growing countries. Section II assesses the trend in rice production and the factors contributing to the recent deceleration in the growth of rice production. The authors perspectives on the demand-supply balances for different regions for the near future are presented in section IV.

L’economie mondiale du riz: perspectives à long terme^[3]

Mahabub Hossain, Économiste principal, Sciences sociales, IIRR (Philippines) et Josephine Narciso^[4]

RÉSUMÉ

Dans les pays en développement, en particulier dans les régions tropicales humides, le riz est la principale culture vivrière de base. La production et la consommation de riz s’élèvent à près de 90 pour cent en Asie et à 96 pour cent dans les pays en développement. Depuis les trente dernières années, bien que le riz soit souvent cultivé sur des exploitations de petite taille, marginales et en métairie dans des pays où la pression démographique est extrêmement forte sur des ressources en terre limitées, la production rizicole a augmenté à un rythme supérieur à celui de la population. Cet accroissement est surtout dû aux avancées technologiques réalisées dans les écosystèmes irrigués et dans les écosystèmes pluviaux propices à la riziculture.

La hausse de la consommation de riz a commencé à ralentir sous l’effet de l’urbanisation, de l’augmentation des revenus par habitant qui induit une diversification de l’alimentation, des niveaux de consommation déjà élevés dans de nombreux pays et des mesures de réduction de l’essor démographique. Les approvisionnements en riz ont toutefois également cessé de progresser pour plusieurs raisons: les rendements sont proches de l’optimum économique pour les écosystèmes irrigués, la rentabilité relative de la culture du riz a baissé, les préoccupations suscitées par la protection de l’environnement ont pris une importance grandissante et la mise au point de techniques plus performantes a peu progressé pour les écosystèmes peu adaptés à la riziculture.

Deux évolutions opposées risquent de profondément modifier l’économie rizicole dans les années à venir. D’une part, il risque d’être de plus en plus difficile, de continuer à intéresser les producteurs à la culture du riz dans les pays rizicoles prospères où la tendance vers la libéralisation des échanges des produits agricoles amorcée par le cycle de l’Uruguay du GATT se répercutera sur la durabilité de la riziculture. Des mesures d’incitations économiques seront prises pour que la terre, l’eau et la main d’œuvre soient détournées de la riziculture en faveur d’autres activités économiques. D’autre part, le potentiel d’augmentation de la productivité pour l’écosystème irrigué obtenu grâce aux progrès technologiques spectaculaires résultant de l’amélioration génétique des semences qui sont à l’origine de la révolution verte a pour ainsi dire été exploité alors que la création de variétés plus productives en faveur des écosystèmes peu adaptés - conséquence escomptée de la révolution génétique en cours - n’a pas encore abouti.

Le présent document développe les arguments ci-dessus. Pour référence, la première partie décrit certaines des principales caractéristiques de l’économie rizicole mondiale. La deuxième partie analyse les forces régissant les tendances de la consommation de riz dans les principaux pays producteurs. La troisième partie évalue la tendance de la production rizicole et les facteurs qui contribuent au fléchissement récemment observé. Dans la quatrième partie, les auteurs exposent leurs prévisions sur les bilans de l’offre et de la demande établis dans différentes régions pour les prochaines années.

Economía mundial del arroz: perspectiva a largo plazo^[5]

Mahabub Hossain, Economista superior, Ciencias sociales, IRRI, Filipinas, y Josephine Narciso^[6]

RESUMEN

El arroz es el principal producto agrícola básico en los países en desarrollo, en particular en los trópicos húmedos de todo el mundo. Casi el 90 por ciento del arroz se produce y se consume en Asia, y el 96por ciento en países en desarrollo. La producción de arroz ha aumentado a mayor velocidad que la población en los últimos tres decenios, a pesar de que se produce en pequeñas propiedades, marginales y en arriendo, en países que sufren presiones demográficas extremas y tienen recursos territoriales limitados. La mayor parte del crecimiento de la producción se originó a partir del avance tecnológico que se verificó en los ecosistemas de riego y de secano adecuados.

El crecimiento del consumo de arroz ha comenzado a desacelerarse debido a la urbanización, el incremento del ingreso per cápita (que conduce a la diversificación del consumo), los elevados niveles de consumo de arroz previamente alcanzados en muchos países, así como a la contención del crecimiento demográfico. Pero el crecimiento de la oferta de arroz también se ha desacelerado debido a que en los sistemas de riego se ha obtenido un rendimiento casi óptimo desde el punto de vista económico, así como a la disminución de la rentabilidad relativa de la producción de arroz, a la preocupación cada vez mayor por la protección del medio ambiente, así como al escaso adelanto en la creación de tecnologías mejoradas para los ecosistemas que no son favorables para este cultivo.

Hay dos situaciones contrapuestas que podrían repercutir considerablemente en la economía del arroz en el futuro. En primer lugar, podría ser cada vez más difícil para los países prósperos productores de arroz mantener el interés de los agricultores en la producción de este cultivo. La liberalización del comercio en el sector agrícola, iniciada con la Ronda Uruguay del GATT, repercutirá en la sostenibilidad de la producción de arroz en estos países. Se darán incentivos para dedicar las tierras, el agua y la mano de obra a otras actividades económicas en vez de al arroz. En segundo lugar, casi se han agotado las posibilidades de incrementar la productividad en los ecosistemas de riego, creadas por el espectacular adelanto tecnológico que representa el mejoramiento genético de las semillas que puso en marcha la revolución verde, a la vez que la revolución genética en curso todavía no produce variedades mejoradas para ecosistemas desfavorables.

Este trabajo tiene como objetivo desarrollar los conceptos mencionados. En la sección I, como información general, se presentan algunos datos generales sobre la economía mundial del arroz. La sección II analiza las fuerzas que rigen las tendencias del consumo de arroz en los principales países productores de este cereal. La sección III evalúa la tendencia de la producción de arroz y los factores que contribuyen a la reciente desaceleración del crecimiento de esta producción. En la sección IV se presenta la perspectiva de los autores sobre el equilibrio entre la oferta y la demanda en las distintas regiones en el futuro próximo.

Global Rice Economy: Long-term Perspectives^[7]

Mahabub Hossain, Lead Economist, Social Sciences, IRRI and Josephine Narciso^[8]

Introduction

Rice is the dominant staple food crop in developing countries, particularly for the humid tropics across the globe. Almost 90 percent of rice is produced and consumed in Asia, and 96 percent in developing countries. Rice production has increased faster than population over the last three decades, despite being produced on small and marginal and tenant farms in countries with extreme population pressure on limited land resources. Most of the growth in production originated from technological progress in the irrigated and the favorable rainfed ecosystems.

The growth in rice consumption has started slowing down because of urbanization, increases in per capita income leading to diversification of the diet, high levels of rice consumption already reached in many countries, and progress in reducing population growth. But, the growth in rice supply has also slowed down because of the yield approaching economic optimum for the irrigated ecosystem, decline in relative profitability of rice cultivation, increasing concerns regarding environmental protection, and limited progress in developing improved technologies for the unfavorable ecosystems.

Two contrasting developments may substantially affect the rice economy in the future. First, the prosperous rice-growing countries may increasingly find it difficult to sustain producers' interest in rice farming. The move towards free trade in agricultural production, begun with the Uruguay Round of GATT, will affect the sustainability of rice farming in these countries. There will be economic incentives for the movement of land, water and labor out of rice to other economic activities. Second, the potential for increased productivity for the irrigated ecosystem, created by the dramatic technological breakthrough in genetic enhancement of seeds that initiated the green revolution has almost been exploited while improved varieties for the unfavorable ecosystems expected from the on-going gene revolution are still on the horizon.

This paper aims to explain the above statements. As a background, Section I outlines some stylized facts about the global rice economy. Sections II analyzes the forces governing the trends in rice consumption in major rice growing countries. Section II assesses the trend in rice production and the factors contributing to the recent deceleration in the growth of rice production. The authors perspectives on the demand-supply balances for different regions for the near future are presented in section IV.

Characterization of the rice economy

Rice is grown on small family farms, except in the Unites States, Australia, Southern Europe, and parts of South America. The average size of a rice farm is typically less than half a hectare in China, Indonesian Java, and the Red River Delta in Vietnam; less than one ha in Bangladesh, eastern India, and the Mekong River Delta in Vietnam; and one to two ha in most other countries in Asia. Only in Thailand, Myanmar, Cambodia, and the Punjab, India is the average farm size over two ha, a major factor behind their comparative advantage in rice production.

A typical Asian farmer plants rice primarily to meet family needs, and hence the marketed surplus is small. Variable natural conditions cause shortages and surpluses to occur from year to year. These in turn produce wide fluctuations in marketable surplus and make prices in both domestic and international markets highly unstable. At the national level, an important political objective is to achieve self-sufficiency in rice production and to maintain stable prices for rice consumers (Timmer, 1989). Rice is seen by many Asian governments as a strategic commodity since it is the single most important element in the diet of the poor and an important source of employment and income for farmers. Large fluctuations in rice prices lead to political disturbances. As a result, governments intervene actively in their country's rice market (Anderson and Hayami, 1986; Childs, 1990). The interventions take many forms: subsidies and taxes on inputs and output, government control on international trade, and direct participation in marketing through procurement and distribution of grains.

In poorer countries, achieving self-sufficiency in food grain production is a key development objective because of the lack of foreign exchange to finance major international purchases. However, a commitment to self-sufficiency is not confined to the governments of poorer countries. Middle- and high-income Asian countries with no financial constraint to importing rice from low-cost sources have also tried to maintain self-sufficiency by providing support to rice farmers. If rice cultivation is abandoned, farming infrastructure such as irrigation and drainage facilities would not be maintained, and at times of crisis it would be difficult for the economy to revert back to rice farming. Japan and South Korea are now arguing for keeping protection for rice farming on the basis of the multi-functionality of agriculture that rice farming provides many external benefits to the society besides producing food (Kaoyama, 2001; Nishio 2001; Kato et al, 1997). At high-income levels, urban consumers complain less about paying high prices for rice to support relatively low-income farmers because the cost of rice is a small part of their food bills and a tiny fraction of their income.

As a result of all these factors, the international trade in rice has remained limited so far. About 6.3 percent of the world's rice production is currently traded internationally, in contrast to nearly 18.1 percent for wheat and 11.6 percent for coarse grains. The global rice market has expanded rapidly, however, over the last three decades. The value of global rice trade is US$8.6 billion about 74 percent of which s on account of developing countries and almost 35 percent on account of Africa and West Asia.

Many countries import rice, but on a very small scale. In South and Southeast Asia, the heartland of rice production, the major importers are Indonesia, Bangladesh, the Philippines, Malaysia, Japan, and Singapore. South and Southeast Asia’s imports fluctuate largely from year to year depending on the effect of natural calamities (floods, droughts, and typhoons) on domestic production. Major rice importers whose imports have been growing steadily over time are in the Middle East (Iran, Iraq, Saudi Arabia, UAE, and Turkey), western and southern Africa (Nigeria, Côte d’Ivoire, Senegal, South Africa, Sierra Leone, Madagascar, Guinea, and Benin), and Latin America (Brazil, Mexico, Cuba, Haiti, and the Dominican Republic).

Only a few countries participate in the export market. Major rice-exporting countries are Thailand, Vietnam, India, the United States, China, Pakistan, Australia, Italy, Uruguay, Argentina, Egypt, and Spain. There is a high concentration in the export market. The first five countries account for nearly three-fourths of the supply in the market and Thailand alone controls about 30 percent of the market. Myanmar and Cambodia were major exporters in the world market before the Green Revolution began in the1960s, but since then they have lost the market because of civil disturbances, slow growth in production, and deterioration in marketing infrastructure. These countries have unused capacity for expanding supply in the market. India, Argentina, Uruguay, and Guyana have increased rice exports substantially in recent years. In 2002 exports from India has increased substantially making it the second largest exporter after Thailand.

Perspectives on consumption

Growth in demand for a staple grain depends on (1) the level of per capita income, (2) the rate of growth of population, and (3) the change in prices relative to those of substitute crops. At low levels of income, when meeting energy needs is a serious concern, rice is considered a luxury commodity. With increases in income, people tend to substitute low-cost sources of energy such as coarse grains, cassava, and sweet potato for rice. But, at high levels of income, rice becomes an inferior good (Ito et al., 1989). As incomes rise further, consumers go for a diversified diet and replace rice with high-cost quality food with more protein and vitamins, such as vegetables, bread, fish, and meat. Growing urbanization, which accompanies economic growth and industrialization, further dampens the demand for rice with higher claims of non-food basic needs on the family budget.

Table 1. Changes in rice consumption, selected Asian countries

Source of basic data: FAOSTAT database, FAO 2004.

The trend in per capita consumption of rice in selected Asian countries can be seen in Table 1. Rice consumption has been declining from a high level in the middle- and high-income countries in Asia such as Japan, South Korea, China, Thailand, and Malaysia. Except for Malaysia, population growth in these countries has also reached low levels. Over the next three decades, their population may grow at only about 1.0 percent per year. So, these countries may not experience any further upward pressure on demand for rice.

For low-income Asian countries, such as Indonesia, the Philippines, India, Bangladesh, Vietnam and Myanmar, per capita consumption has reached a high level and may not grow further because of very low income elasticity of demand and rapid urbanization. An increase in consumption by low-income households with a reduction in poverty may be compensated by the decline in consumption by middle- and upper-income groups. Since the unit cost of producing rice is much higher than for maize, rice will unlikely be used as livestock feed, whose demand has been growing very fast with increasing incomes. With an annual population growth from 1 percent to 1.5 percent per year, these countries may face a demand growth of 30 percent to 50 percent over the next three decades.

The major boost in demand will come from countries in West Asia and Sub-Saharan Africa, and South America (Table 2). In many countries, per capita consumption has been increasing rapidly with rural-urban migration of the population that leads to a change in food habit from Maize or root crops based diets to rice or wheat-based diets. With urbanization and women’s involvement in economic activities the preference for rice as a staple food has been growing because it is convenient to cook. Also the population continues to grow at a high rate (except in South America). The population may double in many countries within the next three decades. The demand for rice may increase at 3 percent to 4 percent per year in these regions. Pressure on the world market in terms of increased demand may not be large, however, as these regions account for only 6 percent of the global consumption of rice.