This chapter begins with a brief explanation of the different ways public stockholding policies can affect domestic and international markets, and the structure of the overall report. It then describes the functioning of public stockholding programmes for rice in eight Asian countries. It identifies for each country the agencies in charge of public stocks, the main purposes for keeping public stocks, the trade restrictions in place, how rice is procured and released from public stocks, and the associated prices. It also develops a framework that generalises the process of acquisition and release by identifying three distinct ways in which countries can procure rice for public stocks, and three distinct ways in which they can release rice from public stocks.
The Economic Effects of Public Stockholding Policies for Rice in Asia
Chapter 1. The functioning of public stockholding policies
Abstract
1.1. Introduction
Governments have a long history of using stockholding policies as part of their efforts to stabilise domestic food markets. Recourse to these policies intensified following the world food crisis of 2007-08, when the governments of numerous developing countries used the management of stocks as a way of isolating their consumers from higher prices on world grain markets. However, these programmes can also, depending on how they function and their size, have additional and unintentional impacts on domestic and international markets (Box 1.1).
Stockholding policies that aim to stabilise markets internally are controversial as they can have the effect of exporting instability onto international markets. Thus the pursuit of national food security through stockholding can potentially threaten food security in other countries.
The issue of stockholding is also closely related to the rights of developing countries to employ policies that have the effect of supporting prices to farmers (there are no constraints on supplying cheap or free food specifically to the poor). Such support policies naturally place farmers in other countries at a competitive disadvantage.
The trade-offs between domestic rights and international obligations came to a head at the WTO’s 2013 Bali Ministerial Conference, where stockholding was selected as a specific issue to be addressed, with a view to unlocking the stalled Doha Round of trade negotiations. No consensus was achieved at that meeting; however, a “Peace Clause” provided some latitude to developing countries, by shielding their domestic support policies from legal challenge.
WTO members agreed that the “peace clause” would remain in force until a “permanent solution” was agreed. A permanent solution to the issue of stockholding (and associated support) should in principle account for the potential interactions between domestic and international objectives.
This report helps address a key part of the puzzle by examining the extent to which alternative levels of public stocks might influence prices and availability, both domestically and internationally. It also examines their effects on incentives for private storage and implications for public finances.
More specifically, this report takes the case of public stockholding programmes for rice in eight selected Asian countries and examines their potential domestic and international market impacts over the medium term (2018-2030). Before conducting any analysis, it is crucial to understand how these programmes function as their impacts on markets differ depending on how they are implemented. Chapter 1 therefore presents an in-depth review of these programmes, describing the agencies in charge of public stocks, the main purposes for keeping public stocks, and the accompanying trade restrictions that are in place. In addition, a framework is developed that generalizes the ways in which countries can procure and distribute rice from public stocks. A main advantage of this framework is that it facilitates translating the complex functioning of these programmes into the economic model.
Chapter 2 describes the model and the data and explains how the baseline scenario is constructed. This baseline scenario assumes a business-as-usual situation whereby countries maintain the current functioning of their stockholding programmes over the projection period (2018-2030). Chapter 3 then examines what would happen to domestic and international markets if the eight selected countries collectively scale up or down their public stockholding programmes.
Box 1.1. How can public stocks affect markets?
Stockholding programmes can impact domestic and international markets in different ways. First, they can affect domestic prices. When governments procure commodities from domestic producers to build stocks, they reduce the domestic supply in the domestic markets. If the country is not fully integrated into the world market because of trade or other barriers, then the reduction in domestic supply can lead to higher domestic prices. Likewise, when governments release their stocks on the domestic market and implement policies that limit trade, the higher domestic supply can lead to lower prices domestically.
The fact that public stocks can influence domestic prices is one of the reasons why governments implement public stockholding programmes. These stocks are usually called buffer stocks and have the explicit goal to stabilise prices. In principle, governments build buffer stocks when commodity prices fall below a certain level and release them when prices rise above a specified level. In this way, buffer stocks attempt to reduce price volatility and aim to protect producers from price drops and shield consumers from price hikes.
Public stocks can also have spill-over effects in international markets and affect trade flows and international prices. Countries that are traditionally exporters but decide to use surplus production for stock building rather than for trade will reduce the amount that is available for exports. Furthermore, governments implementing buffer stock schemes sometimes decide to implement export restrictions, which lowers export volumes even more. If the reduction in global supply is sufficiently large, it can lead to increases in international prices. Likewise, governments that decide to build stocks with imports can potentially cause world prices to rise. Conversely, the release of large quantities of public stocks on the world market can depress world prices.
The potential impact on domestic prices, international prices and trade increases with the volume of public stocks that are accumulated or released. Moreover, the prices at which commodities are purchased and released also matter. If governments buy stocks at prices that are much higher than the market prices, then the effects on domestic and international price levels will be larger. Similarly, releasing excessive amounts of stocks onto domestic (or international) markets at low prices will depress domestic (or world) prices.
Besides their impact on prices and trade, public stocks can also affect production. Governments can use public stocks not only to influence prices, but also as a way to support producers. That is, by acquiring public stocks at prices that are above the prevailing market prices, governments in fact assist producers. The higher prices in turn incentivise producers to increase their output of this particular commodity. In this sense, public stock programmes operate similarly to price support programmes and can create the same market-distorting effects.
Whereas the acquisition of public stocks aims to influence the producer side of the market, the release of public stocks targets the consumer side. Public stockholding programmes are often implemented with a view to supporting consumers. This support could be by guaranteeing lower food prices, distributing food at subsidised prices or even offering food for free during emergency situations. As such, another way in which stockholding programmes affect markets is by stimulating the consumption of the commodities that are kept in public stocks.
The effects of stockholding programmes on prices, production, consumption and trade can be compounded through their impact on the government's budget and the private sector. Previous OECD work shows that most buffer stock programmes have not been successful in reducing price volatility, which implies that allocating public funds to these programmes comes at the expense of other policies that might actually be better suited to curbing price volatility (Deuss, 2015). In fact, some buffer stock programmes have even been found to increase price volatility (World Bank, 2012).
Another way in which public stockholding programmes affect markets is by their impact on the private sector. Large and unpredictable government involvement in markets through public stocks discourages private sector investment and participation. As the private sector withdraws from storage and trading activities, fewer actors remain in the market to stabilise prices, which eventually can lead to higher price volatility.
Sources: Deuss, A. (2015), “Review of the performance and impacts of recent stockholding policies”, in Issues in Agricultural Trade Policy: Proceedings of the 2014 OECD Global Forum on Agriculture. World Bank (2012), “Using Public Food grain Stocks to Enhance Food Security”, Report Number 71280-GLB.
1.2. The working of public stockholding programmes for rice in Asia
This section is the result of a thorough examination of the functioning of public stockholding programmes for rice in eight Asian countries: Bangladesh, the People’s Republic of China (hereafter “China”), India, Indonesia, Japan, Korea, the Philippines, and Thailand. These countries were selected because they have public stockholding programmes for rice and are individually represented in the Aglink-Cosimo model, which provides a mechanism to assess their market impacts.
A distinction is made between two types of stocks based on who actually owns the stocks. If the stock is owned by a public entity or state trading enterprise, then it is referred to as public (or official or government) stock. If the stock is owned by private actors (i.e. farmers, households or commercial traders), then the stock is referred to as private stock. The scope of the public stockholding policies in this work covers all types of stocks managed by the public sector, and is not limited to public stockholding for food security purposes as defined in item 3 of Annex 2 in the WTO “Agreement on Agriculture”.
Public stockholding programmes are complex and how they work can be very different from one year to the next. Variation in domestic production, revised trade and agricultural policies, a new government or changes in macro-economic conditions can each result in minor or major adjustments in a country's public stockholding policy. Documenting all these changes in detail is beyond the scope of this report, which aims instead to present a comparative description of the functioning of these programmes up to the end of 2016 and structured around the following key questions:
Which agencies are in charge of public stocks?
What are the main purposes1 for keeping public stocks of rice?
How does the country acquire rice for its public stocks and at what prices?
How does the country release rice from its public stocks and at what prices?
Are there any trade restrictions in place?
In this chapter, the process of acquisition and release of rice from public stocks is generalised to a situation where countries can procure rice through three channels and can release rice through three channels. Specifically, governments can acquire rice for their public stocks from the international market or from the domestic market. Acquisition from the international market occurs at the import price, while rice can be bought in the domestic market at procurement prices or at market prices. Governments can release public stocks to consumers in the domestic market at a subsidised price or at the market price, or they can sell the rice in the international market at the export price.
Figure 1.1 provides a schematic representation of this process. This figure is adapted for each country to properly reflect its acquisition and release process.
Figure 1.1. The general functioning of public stockholding programmes
The terms procurement price, market price and subsidised price are used to indicate whether the government acquires or releases rice in the domestic market at set prices or at prevailing market prices. In particular,
The term “procurement price” is used to indicate that the government has a mechanism in place to buy rice from farmers at a specific price and that this rice is added to the public stock. This procurement price can be above or below the farmgate price or the market price, depending on the country and the way the procurement price is calculated. In the Philippines, for example, the procurement price has, on average, been higher than the farmgate price, and Thailand set the procurement price well above the market price during its rice pledging schemes. In Indonesia, however, the government-purchasing price for wet paddy has on average been lower than the farmgate price, but much higher than the world market price.
Procurement (release) is assumed to occur at market prices when the government buys (sells) rice in the domestic market at the prevailing prices or when the government organises auctions to buy (sell) rice for (from) its public stocks.
The term “subsidised price” is used when the government distributes rice from its public stocks at prices below market prices or for free.
This chapter focuses on stockholding policies by considering only those situations whereby the government physically buys or releases rice from its public stocks. This implies that other types of producer support, e.g. area payments or deficiency payments, are not considered. Likewise on the consumer side, consumer support that does not include the actual distribution of rice from public stocks, for example cash transfers or food vouchers, is not described. In addition, if a country implements a price subsidy programme for consumers but there is no clear evidence that rice from public stock is explicitly used for that programme, then rice from public stocks is assumed to be distributed at market prices.
Trade policies can influence the working and objectives of stockholding programmes. A country that attempts to stabilise prices through public stockholding policies will need to be able to control trade flows. This explains why in several countries the agencies that execute stockholding policies are also involved in rice trade. This chapter therefore also describes the relevant import or export restrictions for each country. Figure 1.2 traces the net-trade positions of the eight Asian countries. Since 2011, India and Thailand are net-exporters of rice, while the remaining six countries are net-importers.
Figure 1.2. Net exports of rice in the eight selected Asian countries, 2000-2016
Source: OECD/FAO (2017).
Bangladesh
The main objectives of Bangladesh's public stockholding programme are to maintain grain price stability, provide grains to several social safety net programmes, and implement an effective food grain procurement scheme whereby farmers receive “fair” prices. The Directorate General of Food is in charge of the implementation of Bangladesh's national food policy strategies as well as the management and operation of the country's overall food system (Directorate General of Food, 2016).
Until 2011, the government relied on both imports and domestic procurement for its public stocks. Since 2011, public stocks have been predominantly built with domestically grown rice (GAIN-BG2001, 2012; GAIN-BG3004, 2013). The stored rice is then distributed through the Public Food Distribution System (PFDS) at subsidised prices or for free. Figure 1.3 illustrates the functioning of the public stockholding programme in Bangladesh.
The liberalisation of the food grain market in the 1990s led to increasing involvement of the private sector in rice trade and to a reduction of the public stocks (Dorosh & Childs, 2014; World Bank, 2012). This development changed when the food price crisis hit mid-2007. In response to the rising prices on the international market, Bangladesh exempted all rice from import duties in 2008, imposed an export ban on rice in May 20082, and started to increase its public stocks. Bangladesh lifted its export ban for aromatic rice exports in July 2012, but maintained its export ban of non-aromatic rice exports until 31 December 2015.3 In May 2015, the country implemented a 10% import tariff on semi/wholly milled rice. This tariff was increased to 20% in December 2015, and also applied to husked and broken rice in addition to semi/wholly milled rice. In June 2016, this tariff was raised to 25% (FAO, 2016).
The large involvement of the private sector in the rice trade in the years before the food price crisis had kept domestic prices low and stable, and lowered the demand for public stocks because of the large privately-held stocks. As of 2008, Bangladesh actively expanded its public stock programme: whereas the average annual public stock levels during the period 2002/03-2006/07 were around 531 000 tonnes, this level increased to 856 000 tonnes during the period 2008/09-2013/14 (Dorosh, 2014).
Figure 1.3. Functioning of the public stockholding programme of rice in Bangladesh
Bangladesh has three rice seasons: Boro, Aman and Aus.4 The government procures rice predominantly during the Boro season (the largest rice crop), while the remainder is procured during the Aman season (Alam et al., 2015). Each year, a different procurement target is announced, which has ranged between 1 million and 1.5 million tonnes between 2008 and 2014, equivalent to less than 3% of production (Gain Reports for Bangladesh, several editions). The government procures paddy from farmers and milled rice from millers. The share of milled rice in total domestic procurement averaged around 80% over the last two decades (Alam et al., 2014). As a result, millers have benefited relatively more from the procurement programme than farmers have. The procurement prices for paddy and rice from the Boro and Aman season have been increasing over time. The procurement price for Boro paddy was raised from BDT 18/kg (USD 0.235) in 2012 to BDT 22/kg (USD 0.28) in 2015. Over the same period, both Boro rice and Aman rice increased from BDT 28/kg (USD 0.35) to BDT 32/kg (USD 0.41) (FAO, 2016).
Rice from public stocks is released every month and distributed under the Public Food Distribution System (PFDS) through monetised channels and non-monetised (targeted) programmes (Alam et al., 2015). The share of rice distributed at subsidised prices and distributed for free varies each year. For example, in 2011 only 20% of rice was distributed through non-monetised channels, but this share increased to 80% in 2012. Figure 1.4 illustrates the amount of rice distributed through both channels between 2007 and 2012.
Figure 1.4. Distribution of rice from public stocks through monetised and non-monetised channels in Bangladesh
Note: Calendar years, aggregated from monthly data.
Source: Food Planning Monitoring Unit (2016).
The non-monetised distribution channels of public rice target segments of the population that cannot afford food. These channels include the Vulnerable Group Development (VGD), the Food for Work (FFW), and the Vulnerable Group Feeding (VGF) programmes. The VGD reaches 500 000 beneficiaries annually, the FFW reaches around 1 million beneficiaries, while the VGF is operational in the event of natural disasters and reaches on average 240 000 beneficiaries per year (Banerjee et al., 2014). Under the Open Market Sale (OMS) programme, individuals can purchase rice at a fixed price. In January 2010, the OMS price was BDT 24/kg (USD 0.30). This price was lowered to BDT 20/kg (USD 0.25) in November 2015 and to BDT 15/kg (USD 0.19) in February 2016 (FAO, 2016). Figure 1.5 shows that the OMS price has been lower than the average retail price of rice and the international price (Thai 5% broken) between January 2010 and June 2016.
Figure 1.5. Government-set and retail prices of rice in Bangladesh and the Thai (5% broken) export price of rice
Source: Food Planning Monitoring Unit (2016) and FAO (2016).
People's Republic of China
China's public grain reserve policies are designed by the State Administration of Grain (SAG) and implemented by the China Grain Reserve Corporation, SINOGRAIN (DTB Associates, 2014). The general objective of the stockholding policy is to guarantee grain self-sufficiency. This is achieved through the promotion of domestic production, whereby SINOGRAIN procures grain from farmers at support (floor) prices. In March 2016, the support price for maize was abolished when China ended its state maize stockpiling programme, but the support prices for wheat and rice are still in place (GAIN-CH16027, 2016).
Under the price support programme for rice, which was implemented in 2004, farmers can sell their un-milled rice to SINOGRAIN when the market prices drop below the floor price. Local grain depots commissioned by SINOGRAIN are also authorized to make intervention purchases (Gale, 2013) and from 2010 onwards, the China National Cereals, Oils and Foodstuffs Corporation (COFCO) and the China Grain and Logistics Corporation were granted the same permission (DTB Associates, 2014). In order to stimulate production, the government announces the minimum prices before planting decisions are made, usually around six to nine months before the harvest (Gale, 2013). The procurement itself occurs after the harvest season; un-milled early indica rice is procured from July to September, medium and late indica rice from September to January, and japonica rice from November to February (GAIN-CH16027, 2016).
The floor prices for un-milled rice remained unchanged during the first years of the programme, but were increased annually from 2008 onwards (Figure 1.6). In 2015, however, the government decided not to increase the floor price in an attempt to reduce the widening gap between the international and domestic prices, and to slow down the accumulation of huge stockpiles of rice (OECD, 2016). This decision was extended in 2016, with floor prices for japonica and medium and late indica kept at their 2014 levels, while the floor price for early indica was 1.5% lower in 2016 compared to 2014 (GAIN-CH16027, 2016).
Figure 1.6. Procurement prices for un-milled japonica, early indica, and medium and late indica rice in China
Source: Gain reports for China (several editions).
Chinese public stocks are designed to work as a buffer stock, whereby the government releases rice from its stocks when consumer prices are high or demand is large. The release of rice occurs through auctions organised by the government. A minimum auction bid is set, determined by the procurement price and storage costs (Cheng, 2011). However, these minimum auction bids are not often accepted because they are considered to be too high. As a result, the rice is not auctioned off and accumulates in the state reserves (Gale, 2013).
The support price system in combination with the sluggish release of rice from the state reserves has led to excessive public stocks of rice. The exact level of these stocks remains a state secret, and information on the volumes of procurement and distribution are also not publicly available (Carter et al., 2012). Several agencies publish estimates about Chinese total stock levels in their reports. For example, the USDA estimated that by February 2016, the Chinese government had procured 32 million tonnes of rice at minimum prices, which represents 16% of production. The ending stocks of rice for marketing year 2015/16 were estimated at 50 million tonnes (GAIN-CH16027, 2016).
Public stocks are predominantly composed of domestic rice, although they can be supplemented with rice imports (GAIN-CH15014, 2015). Interestingly, China was a net-exporter of rice for many years, but this changed in 2011 (Figure 1.8). In 2016, China's official imports amounted to 3.5 million tonnes of rice. This amount is below its tariff rate quota (TRQ) level of 5.32 million tonnes, which is associated with an in-quota tariff rate of 1%, compared with an out-of-quota tariff rate of 65%. The government controls rice imports tightly, with 50% of the TRQ reserved for state-owned enterprises (Tobias et al., 2012). In 2015, a change in China's TRQ policy was enacted to address difficulties in reducing its excessive rice stocks. In particular, importers could receive an import quota only when they had purchased grain from the state reserves (GAIN-CH15014, 2015). It is not clear whether this policy was applied in 2016.
Figure 1.7. Functioning of the public stockholding programme of rice in China
Figure 1.8. China rice imports and exports
Source: OECD-FAO (2017).
India
Public stocks in India are managed by the Food Corporation of India (FCI). The stated objectives of the FCI are: i) to provide farmers remunerative prices; ii) to make food grains available at reasonable prices, particularly for vulnerable sections of society; iii) to maintain buffer stocks as a measure of food security; and iv) to intervene in the market to ensure price stabilisation (Food Corporation of India, 2016).
Figure 1.9 illustrates the functioning of the public stockholding programme in India. Before planting starts, the Minimum Support Price (MSP) is announced. The MSP is set by the Commission for Agricultural Costs and Prices and takes into consideration the cost of production and aims to offer a “reasonable margin” to farmers. After harvest, the FCI and state agencies procure paddy from the farmers at the MSP. The procurement system is open-ended since the FCI guarantees it will buy all paddies offered by farmers at the MSP, provided the grains meet certain quality specifications.
Figure 1.9. Functioning of the public stockholding programme of rice in India
The procured rice is stored in silos spread throughout the country. A distinction is made between operational stocks and food security stocks (Food Corporation of India, 2016). Operational stocks are used for the distribution of rice through the Public Distribution System (PDS), which is comprised of the Targeted Public Distribution System (TPDS) and Other Welfare Schemes (OWS). Food security stocks are kept to meet shortfalls in procurement due, for example, to natural calamities.
The 2008 food price crisis triggered a rise in public stock levels, which almost tripled between 2007-08 and 2012-13 (Figure 1.10). Stock levels have decreased since then, but are still well above the public stocking norms set by the government. These norms indicate the minimum amount of rice that has to be maintained in the central pool at the beginning of each quarter. The norm for the operational stocks changes on a quarterly basis, with different levels prescribed on the first day of January, April, July and October, while the norm for the food security (strategic) stocks is fixed for the entire year. Procurement of rice peaked during the food price hikes of 2008 and 2011. Since 2013, India has procured each year around 30% of domestic production.
Figure 1.10. Rice production, procurement, public stock level and norm in India
Note: All rice quantities are on a milled basis.
Source: Reserve Bank of India (2017).
The central government, through the FCI, issues the rice for the PDS to state governments at the Central Issue Price (CIP). States then distribute rice to consumers through the TPDS and OWS at subsidised prices. In 2013, India passed the National Food Security Act (NFSA) which expanded the coverage of the TPDS. Under this act, 75% of the rural population and 50% of the urban population are eligible to receive 5 kg/person/month of food grains at INR 3 (USD 0.04), INR 2 (USD 0.03) and INR 1 (USD 0.01) per kg for rice, wheat and coarse grains respectively (DFPD, 2016). The existing AAY6 households continue to receive 35 kg of food grains per household per month. By November 2016, all 36 States and Union Territories (UT) had implemented the NFSA (Government of India, 2016).
As illustrated in Figure 1.9, rice from public stocks can be released at subsidized prices through the PDS, can be sold in the Open Market Sales Scheme (OMSS) at the Minimum Issue Price or can be exported. Figure 1.11 compares the amount of rice released by the FCI for the TPDS (“TPDS offtake”) with the total amount of rice released (“total offtake”). Between 2003 and 2011, around 60% of the rice in public stocks was released through the TPDS. This share increased considerably in the following years, reaching 90% since 2012-13. The remaining rice is mostly released for the OWS. Since 2012, almost no rice from public stocks has been exported or sold in the OMSS.
Even though India restricted rice exports between 2008 and 2011 through the use of export bans, quotas and minimum export prices, it no longer restricts its rice trade. Since 2012, India is the world's largest rice exporter.
Figure 1.11. Total offtake and TPDS offtake of rice in India
Source: Food Corporation of India (2018).
Indonesia
Indonesia's public rice reserves are administered by the Bureau of Logistics (Badan Urusan Logisitk or BULOG), a state-owned company. BULOG's main functions are to procure rice from farmers and millers at the government purchase price, manage the public rice stocks, distribute rice at subsidised prices to the poor through the Raskin programme, and release rice on the domestic market when retail prices are too high or when emergency situations arise (BULOG, 2016).
Public rice stocks are composed of domestic and imported rice. Priority is always given to domestically-produced rice, but when domestic procurement cannot fulfil the minimum stock and procurement targets, BULOG is authorised by the government to import rice. In 2013, the minimum stock level target was set at 2 million tonnes, but this level changes on a yearly basis (GAIN-ID1318, 2013).
Like many other Asian countries, the government of Indonesia complements its stockholding policies with strong restrictions on rice imports and exports. The Food Law of 2012 and Regulation 19/M-DAG/PER/3/2014 (Republic of Indonesia, 2014) cover most of the recent policy measures. The latter regulation reclassified rice and banned private imports of medium quality rice, giving BULOG a monopoly on these imports. Private imports of specialty rice and rice required for food manufacturing purposes are still permitted (GAIN-ID1412, 2014). All rice imports are restricted in time and are not allowed one month prior to, during and two months after the main harvest period. A Most Favoured Nation (MFN) import tariff of IDR 450/kg (USD 0.034) has been applied to rice since 2008 (WTO, 2016). Rice exports are heavily regulated and only allowed if domestic supply exceeds demand. Indonesia has not exported rice in recent years, due not only to its lack of excess supply of rice, but mostly because its domestic prices are much higher than international prices.
Figure 1.12. Functioning of the public stockholding programme of rice in Indonesia
BULOG procures rice from farmers or millers at government purchasing prices, called the Harga Pembelian Pemerintah (HPP). The government sets different purchasing prices depending on the production form (wet paddy, dry paddy, or rice sold at farmgate, mill or BULOG warehouse) and the quality of the rice (Table 1.1). Since May 2008, the HPP for wet paddy at the farmgate level has been lower than the average farmgate price (Statistic Indonesia, 2016). This is illustrated in Figure 1.13.
Indonesia distributes rice from public stocks for three distinct purposes: price stabilisation, social aid, and emergencies. Table 1.2 lists the ministries in charge of each of these distribution purposes and the corresponding legislative documents. When consumer prices are 10% higher than a calculated average price7 for at least one week, the government will consider releasing rice from its national reserve for price stabilization purposes.
Around 90% of Indonesia's public stock is distributed through the Raskin programme as social aid (Alavi and Htenas, 2014). In marketing year (MY) 2015/16, BULOG allocated 2.795 million tonnes of rice to the Raskin programme, which is equivalent to 7% of domestic demand. This rice will be distributed to more than 15.5 million poor families8 who can buy up to 15 kg/month of rice at the subsidised price of IDR 1 600/kg (USD 0.12) (GAIN-ID1610, 2016).
Table 1.1. Government Purchasing Price (HPP) in Indonesia, IDR/kg, 2007-2016
Table 1.2. Government rice stock distribution in Indonesia: Purpose, ministries in charge, and legislation
Figure 1.13. Average farmgate price and government purchase price for wet paddy in Indonesia, January 2008-December 2016
Note: Prices for wet paddy or Gabah Kering Panen (GKP).
Source: Statistic Indonesia (2016).
Japan
Japan's public stock for food security purposes is composed of domestic rice. This reserve stock, called the Government of Japan (GOJ) stock, is managed by the Ministry of Agriculture, Forestry and Fisheries (MAFF). In addition to the GOJ stock, MAFF also stores rice imported through state trading enterprises under its minimum access commitment. This second type of public stock, composed of Ordinary Minimum Access (OMA) rice, is a working stock for commercial purposes and is unrelated to Japan's food security programme. Figure 1.14 illustrates the overall functioning of the two stocks and Table 1.3 presents the levels of those stocks between 2006 and 2015.
The GOJ stockholding programme was significantly reformed in 2011. Before the reform, rice for the GOJ stock was bought after harvest (around December), the amount of rice that was acquired varied each year and the stored rice was sold as food. Since 2011, rice for the GOJ stock is contracted in fixed amounts (of around 200 000 tonnes per year, which is equivalent to 2% of total rice production) before the planting (around April) and is mainly sold as feed. The government abolished the administered price for rice in 2004 (OECD, 2009) and as a result, rice for GOJ stocks is procured from domestic producers through auctions at prices that are close to the domestic market price, but are much higher than the international reference price (e.g. the Thai export fob price of rice). These changes are in line with the new purpose of the programme, where public stocks are held predominantly to guarantee food security in times of unstable supply and should not affect domestic supply, demand and prices (MAFF, 2016b).
Figure 1.14. Functioning of the public stockholding programme of rice in Japan
Note: GOJ stands for Government of Japan; OMA stands for Ordinary Minimum Access.
Table 1.3. Government of Japan (GOJ) and Ordinary Minimum Access (OMA) stock levels (1 000 tonnes, brown rice basis)
Note: Carry-over stock data. Data for GOJ stock refer to the crop year July-June (i.e. 2014: July 2014 – June 2015). Data for OMA rice refer to the period November-October (i.e. 2014: November 2014 – October 2015). These classifications are consistent with Aglink-Cosimo. However, note that in MAFF documents, OMA rice for 2014 refer to November 2013-October 2014.
Source: MAFF (2016a), GAIN-JA5009 (2015) and GAIN-JA6004 (2016).
Rice from the GOJ stock will be sold as table rice only in cases when an emergency situation arises. To determine whether the country faces an emergency situation, MAFF has designed a three-step process which is composed of a regular survey, an urgent survey and a Food Section Meeting. In the absence of an emergency situation, the rice will be stored for a maximum of five years, after which it will be sold mostly for feed use. This implies that MAFF targets holding around 1 million tonnes of rice in the GOJ stocks (Tobias et al., 2012).
Japan uses a TRQ system for its rice imports. In-quota purchases are under the control of the government and the out-of-quota tariff is set at JPY 341/kg (USD 2.97). Under its Minimum Access (MA) commitment, Japan is required to import at least 682 200 tonnes of rice (milled basis), equivalent to 7.2% of its average domestic consumption between 1986 and 1988. These imports enter the country through two different channels: the Ordinary Minimum Access (OMA) and the Simultaneous Buy and Sell (SBS) tender system. The OMA part of the quota is the main channel for rice imports, accounting for more than 90% of rice imports between 2013 and 2015 (MAFF, 2016b). Rice imported through the OMA tender system is stored in the OMA working stocks, and rice imported under the SBS tender system is immediately sold as table rice.
The OMA imported rice is stockpiled and then sold for different uses: as an input in the food processing sector, as feed, or as food aid. Table 1.4 gives an overview of the MA rice sales by use. OMA rice is mainly used for feed. Prices at which rice is sold are close to market prices since they occur through auctions. As a result, the selling of OMA rice for feed use is considered to be a fiscal burden since it is sold at prices similar to corn feed, which are significantly lower than the import price paid.
Table 1.4. Minimum Access rice sales by use in Japan (1 000 tonnes, brown rice basis)
Note: The Japanese marketing year runs from November to October, hence values under 2014 refer to the period November 2013 until October 2014.
Source: MAFF (2016a, 2016b, 2016c), GAIN-JA5009 (2015) and GAIN-JA6004 (2016).
Korea
Korea's Public Rice Stockholding Programme (PRSP) was established in 2005. The PRSP is under the responsibility of the Ministry of Agriculture, Food and Rural Affairs (MAFRA). Contrary to the previous programme, whereby farmers received support prices, the current programme purchases rice from farmers at the market price during the harvest season (October to December). The stocked rice is then released during the non-harvest months at prevailing market prices (OECD, 2016). Under Article 9 of the Grain Management Act, the rice can be sold for different uses, including governmental, processing, public and private uses (Grain Management Act, 2016). The main purposes of the programme are to guarantee food security in times of emergencies (e.g. natural disasters) or when there is a temporary grain shortage due to unstable supply and demand. Because of its latter purpose, the programme is also known as the Public Storage System for Emergencies (PSSE). The level of rice stock is targeted at around 17% of total consumption.
In addition to the public stocks that consist of domestically produced rice, Korea also holds a second type of public stocks which are entirely composed of imported rice (GAIN-KS1613, 2016). These stocks are held separately from the domestic rice stocks (Figure 1.15). Figure 1.16 shows the amount of domestic and imported rice kept in public stocks annually over the period 2005-2013.
On 1 January 2015, Korea replaced its non-tariff barriers by a tariff-based system. As a result, Korea applies a tariff rate of 513% on rice imports and maintains a TRQ of 408 700 tonnes with a duty level of 5%. TRQ table rice is managed by the Korea Agro-Fisheries and Food Trade Corporation (aT), while TRQ rice for processing purposes is imported by MAFRA and managed by local governments. The aT sells table rice through auctions, whereas processing rice is sold at a set price (GAIN-KS1613, 2016). MAFRA exclusively controls the country's rice imports (WTO, 2014; Grain Management Act, 2016).
Figure 1.15. Functioning of the public stockholding programme of rice in Korea
Figure 1.16. Composition of public stocks of milled rice in Korea
Note: The Korean rice year runs from November to October. Stock levels of milled rice at end of October.
Source: Gain Reports for Korea (several editions).
The PRSP purchases rice during the harvest period from rice farmers. Purchase quantities for public stockholding are determined through a cabinet meeting presided by the president and the result is announced to the public. In 2014 and 2015, public stock purchases from domestic farmers amounted to 370 000 tonnes and 360 000 tonnes (MAFRA notifications 2014-261 and 2015-133), which represented around 8.7% and 8.3% of domestic production, respectively (Figure 1.17).
Figure 1.17. Government domestic rice purchases in Korea
Source: GAIN-KS1613 (2016).
Philippines
In the Philippines, the government-owned National Food Authority (NFA) is in charge of the country's public stockholding programme. Its mandate is to “ensure national food security and stabilise supply and prices of staple cereals both in the farm and consumer levels” (NFA, 2016a). In addition to managing the government's rice stockholding programme, the NFA also enjoys supplementary powers such as control of rice imports, exports, and post-harvest facilities (Briones & dela Pena, 2015).
The Philippines is a net-importer of rice with strong government involvement. In July 2014, the country received approval from the WTO Council for Trade in Goods to extend its special treatment of rice until 30 July 2017, provided that it relaxed its import restrictions. As a result, the country lowered its in-quota tariffs from 40% to 35% and increased the annual Minimum Access Volume (MAV) from 350 000 tonnes to 805 200 tonnes. The out-of-quota tariff remained unchanged at 50% (OECD, 2017). Private traders are allowed to import rice under the MAV programme through permits and allocations granted to them by the NFA via auctions.
Figure 1.18 illustrates the general functioning of the public stockholding programme in the Philippines. The NFA procures paddy during harvest times from farmers and farmers' organizations at support prices, stocks this acquired paddy, outsources the milling of the paddy, and then distributes the milled rice through different channels to consumers at subsidised prices (NFA, 2016a). At times of rice shortages, the NFA will import rice to guarantee the stability of rice supplies and prices.
The NFA is mandated to maintain at least 15 days of overall national rice consumption in stock at all times for food security purposes. This amount increases to 30 days during the lean months (July-September). In December 2015, 15 days of rice stock were equivalent to 482 386 tonnes (NFA, 2015). In order to maintain at least 99% of its stock fit for human consumption, the NFA stores rice for at most six months and paddy rice for at most nine months (Commission on Audit, 2015). Total stocks, namely those held by the government, households and private warehouses, should be equivalent to 90 days of consumption (SEPO, 2010).
Figure 1.18. Functioning of the public stockholding programme of rice in the Philippines
The NFA builds its stocks with rice procured from the domestic market at a support price (NFA buying price) and with imports. In general, the stocks are mostly composed of imported rice. Paddy procured from the domestic market usually represents less than 5% of production (Figure 1.19). The government sets a target of how much it will procure from the market each year; however, there does not appear to be any consistent threshold level for paddy procurement (Briones & dela Palma, 2015).
The support price is administratively set based on the average domestic cost of production plus a determined mark-up (OECD, 2017). Table 1.5 compares the support price with the average farmgate price during the period 2000-2015. The support price was raised twice during the last 15 years and in most years the support price was on average higher than the farmgate price. When the market prices are higher than the NFA support price, farmers can make use of the Farmers Option to Buy Back (FOBB) Programme. Under this programme, farmers have the option to buy back within six months the same volume of stocks they sold to NFA and sell it to traders at the prevailing market price (NFA, 2015).
The NFA sells milled rice under its distribution programme through three different types of market outlets: accredited retailers, government agencies, and private institutions. The NFA sets selling prices which differ by the type of rice and the market outlet.9 NFA rice can be purchased by anyone and is hence a universal consumer price subsidy (Fernandez & Velarde, 2012). Table 1.5 compares the average annual NFA selling retail price with the average annual market retail price for well milled rice and regular milled rice. In the last three years, the difference between subsidised and market prices has been such that consumers who bought NFA rice saved around PHP 10/kg (USD 0.2) compared to the commercial retail rice. However, the subsidised selling price is considerably higher than the world market price (OECD, 2017).
Figure 1.19. Domestic paddy procurement, rice imports and share of domestic procurement in total domestic production in the Philippines
Source: Domestic paddy procurement and NFA rice imports (NFA 2013, 2014, 2015, 2016b, 2016c, 2016e), domestic paddy production (CountrySTAT Philippines, 2017a).
Table 1.5. NFA buying and selling prices, farmgate prices and retail prices of rice, 2000-2015 (PHP/kg)
Note: WMR stands for well milled rice; RMR stands for regular milled rice.
Source: NFA prices 2000-2014 (Briones & dela Palma, 2015); NFA prices 2015 (NFA, 2015); NFA prices 2016 (NFA, 2016e); average farmgate prices and prevailing retail prices (CountrySTAT Philippines, 2017b and 2017c).
Figure 1.20. NFA distribution of rice in the Philippines
Source: NFA (2014, 2015, 2016e).
Thailand
Thailand has been one of the world's largest net exporters of rice for several decades. Accordingly, its public stockholding policies have been focused on guaranteeing an adequate income to rice farmers by providing intervention prices for their crops. Rice from the intervention stocks is mainly sold on the international market, but the government will also release rice on the domestic markets.
Thailand's public stockholding policies have undergone significant changes since 2000. To understand the evolution of its intervention stocks and prices, it is useful to make a distinction between four periods (Table 1.6).
In 2001, the Thai government implemented a national Paddy Pledging Programme which allowed farmers to choose whether to sell their rice on the market at market prices or to the government at intervention prices. Farmers who decided to sell to the government were given a loan by the Bank for Agriculture and Agricultural Cooperatives (BAAC) which was equivalent to the amount of rice they wanted to pledge times the intervention price. The maximum payment per household was set at BHT 350 000. Farmers then had four to six months to redeem the paddy (i.e. to pay the government back) or to transfer the pledged amount of paddy to the government. In the latter case, rice was stored either by the farmers themselves, who received an additional payment for this, or in one of the storage facilities managed by the Public Warehouse Organization (PWO). At the start of the programme in 2001, the government targeted the purchase of 8.7 million tonnes of rice at intervention prices which were 30% above the prevailing market price (Poapongsakorn and Charupong, 2010).
In October 2009, the Rice Pledging Programme was replaced by a Price Insurance Scheme. Instead of acquiring rice from farmers at a support price, the government provided direct payments to the farmers. These direct payments were calculated as the difference between the insured price (a set price based on the average cost of production and allowing for a profit margin of 30% to 40%) and the benchmark price (a weighted average of wholesale market prices). Under the Price Insurance Scheme, no rice was acquired by the government (GAIN-TH9161, 2009). However, the government did still purchase some rice during this period under the Direct Purchase Programme, which was implemented to stabilise domestic prices (GAIN-TH1035, 2011).
Figure 1.21. Functioning of the public stockholding programme of rice in Thailand up to 2014
Table 1.6. Thai government rice purchasing programmes (2001 to present)
The Paddy Pledging Programme was re-established in October 2011. The main differences with the previous pledging programme were that the government did not impose a limit on the amount of rice that farmers could pledge and that intervention prices for both white and fragrant rice were set at 50% above the market price (GAIN-TH5030, 2015). The main purpose of the programme was to raise farmers' incomes. At the same time, the government also reduced its rice exports in an attempt to raise global prices and then sell its stocked rice at a profit. These profits would then be used to recover the costs incurred by setting a high intervention price, and acquiring and stocking large amounts of rice. However, global prices started to decline as India and Viet Nam removed their export restrictions and filled the supply gap in the international market. As a result, the Thai government was left with a huge deficit and an enormous public stock of rice. The Paddy Pledging Programme was abolished in March 2014, and the government has since been trying to offload its reserves of rice. This process has become more difficult over time as the quality of rice deteriorates the longer it is kept in stock.
In November 2014, the government started the “Farmer loans to delay sales of rice paddy” programme. The objective of this programme was to stabilise the prices of fragrant and glutinous paddy by providing loans to farmers to incentivise them to delay their sales of rice paddy (GAIN-TH4120, 2014). While the original target was set at 2 million tonnes, only 350 000 tonnes were pledged in 2014/15 and 540 000 tonnes in 2015/16 (GAIN-TH6029, 2016).
Figure 1.22 illustrates for the first three periods how much rice was pledged each marketing year as well as the average intervention price for white rice. A distinction is made between main crop and off-season rice. The main crop rice interventions run from November to February, while off-season rice is acquired from March through July.10 The fourth period is not represented in this figure as the government only acquired glutinous and fragrant rice as of 2014/15.
Figure 1.22. Rice pledging in Thailand
Note: During period 2, the government only acquired small amounts of rice under the Direct Purchase Programme. The intervention prices during this period correspond to the insurance prices that were set in the Price Insurance Scheme. Main crop rice is acquired between November and February, while off-season rice is acquired between March and July.
Source: Adapted from GAIN-TH4021 (2014) using data from several GAIN reports for Thailand.
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Annex 1.A. Marketing year by country
Annex Table 1.A.1. Start date of the rice marketing year, by country
Source: Based on GAIN reports.
Notes
← 1. It is not uncommon for stockholding schemes to have multiple purposes. When these purposes are contradictory in nature, they reduce the effectiveness of the programme (World Bank, 2012).
← 2. This export ban was mostly symbolic since Bangladesh exports very little rice.
← 3. An exception was made for a shipment of non-fragrant rice to Sri Lanka. http://in.reuters.com/article/bangladesh-rice-srilanka-idINL4N0SM3FO20141027.
← 4. Boro rice is planted in December/January and harvested in April/May; Aus rice is planted in March/April and harvested in June/July; and Aman rice is planted in July/August and harvested in November/December (GAIN-BG3004, 2013).
← 5. All conversions to USD in this report are based on the January 2017 average monthly exchange rate.
← 6. AAY stands for Antyodaya Anna Yojana and refers to the poorest of the poor households in India.
← 7. The calculated average price is the average retail price of rice of medium standard quality during the three months before the price increase.
← 8. A detailed discussion of the beneficiaries of the Raskin programme can be found in OECD (2015).
← 9. The NFA website provides a detailed overview of the different prices: http://nfa.gov.ph/buying-selling-price.
← 10. In marketing year 2002/03, for example, the main crop rice was acquired between November 2002 and February 2003, while off-season rice was acquired between March 2003 and July 2003.