The Hindu Business Line : The politics of rice

Japan has vast stocks of rice it does not eat. The US rice sector has gained from the global food crisis. Thailand, India and Vietnam have been criticised for restricting rice exports. And the recent FAO summit talks of “volatility in prices”. K. SUBRAMANIAN explains the interplay of these factors.

Millions of lives in several countries in Africa and Asia are at risk from soaring food prices. The United Nations has taken the lead and its Secretary-General, Mr Ban ki Moon, has called for the establishment of a special fund and for co-ordination of the efforts of all UN agencies.

The World Bank President, Mr Robert Zoëllick, has prepared a ten-point plan to handle the crisis and to fast-track $1.2 billion to address immediate needs. The horror staring at the Bank is the prospect of its achievement of poverty reduction getting wiped out in the coming months.

The US administration has also responded by increasing the food aid budget to $2.7 billion. “With the new international funding,” President George W. Bush recently declared, “we are sending a clear message to the world that America will lead the fight against hunger for years to come.” How serious is the message?

Western analysts list many factors leading to the food crisis. Most blame it on the surging demand and changing food habits in emerging economies, mainly India and China. There are references to drought in Australia, global warming, diversion of arable land for industries, using food crops for bio-fuel, lack of investment and innovations in agriculture, etc. The list gets longer each day.

The most serious criticism is of a small number of rice-exporting countries — Thailand, India and Vietnam. Invariably, analysts refer to the restrictions on rice exports imposed by these exporters as the prime cause. Though they concede they are WTO-legal, they resent it so much that they want the issue to be brought under the WTO in the coming rounds!

India began restricting exports in October 2007 and banned the export of non-basmati rice in March 2008. It was an act of self-defence, based on an assessment of supply and prices in the coming years against the backdrop of depleted buffer stocks. Indeed, a country like India, with its large population , can ill afford to risk human lives.

Historically, the entire edifice of rice trade, whether under the WTO or other bilateral or free trade agreements, is riddled with safety clauses. There are problems unique to rice trade, not witnessed in any other commodity. Non-trade concerns overwhelm rice production and trade.

The real story

Against this backdrop, it is not clear why our leaders have not countered the criticism about the export restrictions. They may do well refer to the US reluctance to approve re-export of rice from Japan.

It questions the claim about its “leadership” to fight hunger. What is the story?

Early in May this year, two experts of the Centre for Global Development (CGD) of Washington DC made a proposal that attracted wide attention (“Japan, China and Thailand can solve the rice crisis, but US leadership is needed,” Tom Layton and C. Peter Timmer).

“With India having banned all non-basmati exports, and Vietnam having withdrawn as a seller from now,” they suggested that rice export should be from non-traditional sources: China and Japan.

China was an idea based on the hope that the US could persuade China to export rice to neighbours. However, its reliance was more on export from Japan from its stock. They felt that the release of rice by Japan would prick the speculative bubble that had created the crisis. (And prices did go down marginally on hearing the news about export from Japan.)

The story about growing rice stocks in Japan is weird but true. It dates back to the 1970s and 1980s, when the US waged trade wars with Japan and tried to prise open the Japanese market for US goods with a view to reducing the trade gap. The negotiations covered such items as automobiles, financial services and rice.

The administration negotiated them over several rounds peppered with political drama, tension, use of 301 sanctions and last minute compromises. Though beholden to the US in the post-War bind, the Japanese government withstood American pressure and would not yield on rice.

Significance in Japan

Rice has special significance in Japan’s psyche, its culture and its way of life. It sustained its rural economy with an ageing population. Self-sufficiency in food was a grim lesson learnt from the War years.

The war over rice ended in 1993, with the Uruguay Round (UR). Until the last minute, Japan’s negotiators swore that they would not allow import of “one grain of rice.” Ultimately, there was a political compromise and the then Prime Minister did not want to take the blame for breaking the UR.

Under the UR, Japan had to undertake a minimum import access, which has been around 700,000 tonnes a year in recent years. Japan has about 2.4 million tonnes in storage; 1.5 million tonnes is imported, and two-thirds of this is from the US.

The rice stocks have been piling up over the years. The Japanese are unwilling to consume imported rice, even when it is sold at one half or one quarter of the price of native rice. The stocks, stored in air-conditioned warehouses, are sold in part to bakers or food processors; but a large part is sold as animal feed when it begins to rot. Sadly, under the WTO mandate, Japan cannot export the rice to third countries without the approval of the exporting country, the US

Japan, as a rich country, can afford to buy and hold stocks to save its farmers. Many poor countries without such financial muscle had to face grave food insecurity.

CGD Paper

The CGD paper created waves in the US and elsewhere. Arvind Subramanian of Peterson Institute referred to it in his testimony to a Congressional Committee on the Global Food Crisis on May 14. Excerpts of his testimony were carried in some of our national dailies.

Japanese authorities declared their readiness to supply rice to the Philippines, Sri Lanka and a few African countries, on sale or as aid. Reports show that Japan held two rounds of discussions with the US and has not yet received approval for re-export. Before the commencement of talks, a US official declared that the US would consider export to the Philippines “favourably.”

There is evidence that the issue has become a victim of farm lobbies and trade politics. As a report in the International Herald Tribune (May 24) puts it: “But critics, including some in Washington, worry that it could set a precedent for Japan to dump foreign rice it was obligated to import but never wanted. They say that the Japanese plan risks setting off a trade dispute with the US and may barely dent the price rice.”

There is the view expressed in Japan that the US is obstructing Japan’s efforts to deploy its minimum access rice usefully. Rather, it seems the US is reviving its old ‘rice wars’ with Japan.

A recent report suggests that the US has advised Japan to discuss the matter with other exporters, including Thailand and India. The intention perhaps is that, unless others export, Japan should not. Even if Japan takes up the issue with the others, their response may not be positive in the current state of turmoil, when every country is safeguarding its food security.

Restriction on exports

Commercial reports suggest that the US rice sector has gained from the global food crisis. For 2007-08, its exports are estimated to increase by 20 per cent from the previous year. This is partly because of the restrictions imposed by Thailand and India but more due to the rise in exports to Mexico and Central Africa.

US exporters gain from current high prices and the weak dollar. They would not want the rice price to be depressed. It is significant that the Farm Subsidy Bill of 2007 seeks to compensate US farmers at current prices. It carries two messages: commodity prices are unlikely come down soon; and the rice held by Japan is to appease the WTO, and not for eating.

The issue regarding restrictions on exports was raised in the FAO Summit on Food Security that concluded on June 5. The US delegation wanted to ban restrictions on exports, as they caused inflation. This was countered by a demand for reduction or elimination of subsidies by Western countries.

In keeping with UN lingo, a watered-down version that “countries would not take measures that could increase volatility of international prices” was included in the final communique.

(The author can be reached at subrabhama@gmail.com)

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Food crisis: The blame game
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No short-term relief in world food prices: FAO

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