Who really benefits from rice protection?<\/p>\n
Abdul Bayes, The Daily Star, Asia News Network, Dhaka<\/p>\n
Few persons would, perhaps, favor a forthright liberalization
\nof rice trade. The reasons are not far to seek. Rice is the
\nstaple food crop in most of the Asian countries -- in fact 90
\npercent of world rice is grown in this continent. In these
\ncountries, more often than not, politically pointed \"pro-poor\"
\nramifications tend to reign over economics as far as any decision
\npertaining to rice is concerned.<\/p>\n
That is why -- despite a history of taxing agricultural sector
\n-- many of them insulate their domestic rice markets from the
\ninternational ones. Ipso facto, rice prices tend to remain
\nsubstantially above the current world price levels, allegedly,
\nresulting in high effective rates of protection. But suspicion
\nlooms large whether the protection accorded to rice actually
\nhelps or hurts the poor.<\/p>\n
In a recent research paper, David Dawe of the Social Sciences
\nDivision of IRRI confronted the issue of rice trade protection.
\nHe argues that the protection to rice in the Philippines, in
\nfact, goes to benefit the rich farmers at the cost of the poor.
\nAlthough he directs his pen at the Philippines, I presume, the
\nobservations made and the conclusions reached could cover, more
\nor less, some other countries in this region that have a firm
\nfaith on an inward looking strategy for rice to propagate a pro-
\npoor policy.<\/p>\n
Rice is the single most important commodity in the Philippines
\naccounting for 40 percent of calories intake, 30 percent of
\nprotein and nearly one-third of total agricultural area
\nharvested. On average, half of the farm household income
\noriginates from rice and roughly one-fifth of the expenditure of
\nbottom one-fourth in the income distribution hovers around rice.
\nThe ratios are, admittedly, lower compared to Bangladesh where, I
\nguess, roughly more than two-thirds of calories come from rice
\nand it costs more than half of the budget of the lower deciles.<\/p>\n
For the last two decades or so, domestic rice prices in the
\nPhilippines, reportedly, ran much above the prices in other
\ncountries or world markets. The domestic retail prices often
\nreach levels higher than 100 percent than would be the case under
\nan unrestricted regime.<\/p>\n
David Dawe succinctly summarizes the considerations.<\/p>\n
First and the foremost perhaps, is that the driven edge
\nresulting from the price incentives, drives towards the
\nproduction of more rice and little of other crops. In economic
\njargon, it is called \"deadweight\" loss to the economy since more
\nvaluable crops could be grown in the absence of distortions.
\nSecond, it transfers income from rice consumers to producers.<\/p>\n
The triangle in the imaginary diagram, depicting producers'
\nsurplus, gets bigger while that of the consumers' surplus suffers
\na squeeze. Whether the losers in the battle are poor or not is an
\nimportant empirical question and several authors have addressed
\nthis on theoretical as well as empirical plane pertaining to
\nindividual countries.<\/p>\n
The third effect of higher rice prices is reduced employment.
\nHigher rice prices (or any food items) prompt workers to raise
\nhue and cry for higher wages (since unions in the Philippines
\nreportedly have a say in setting wages). And in the face of fiery
\ndemands for increased wages, irritant investors invariably
\nrespond by laying off the workers. \"The higher wages do reduce
\nemployment, however, creating a larger pool of unemployment than
\nwould exist if food prices were lower\".<\/p>\n
And finally, as rice is the dominant crop, very high price is
\nlikely to put a pressure on land values making it more difficult
\nto go for land reforms. \"If rice prices were to fall
\nsubstantially, the government would probably have to pay less to
\npurchase the land and transfer it to someone with less or no
\nland\".<\/p>\n
A pertinent question props up: Would the poorest of the poor
\nnecessarily benefit from lower rice prices even if they were net
\nbuyers? David Dawe -- drawing upon another prominent researcher
\nM. Ravallion -- devotes a part of his paper on the evidence from
\nBangladesh. Ravallion argues that many of the poor consumers eke
\nout a living from wages from other farms. High prices of rice
\nresults in increased production and hence demand for labor and
\nthat in turn pushes up wages.<\/p>\n
Thus, the net effect would hinge on their net consumption
\nposition in rice on one hand and the effect of rice prices on
\nwages -- the main source of their income -- on the other.<\/p>\n
David Dawe's data show that \"the poorest of the poor in the
\nPhilippines are net consumers of rice, not net producers\". There
\nare four categories of them. First, urban poor with one-fourth
\nbelow the poverty line and accounting for 30 percent of the poor
\nin the country. Second comes rural landless \"who are often
\noverlooked in many popular discussions of the rural sector\".<\/p>\n
Various surveys show that the head of an agricultural labor
\nhousehold in the Philippines earns 22 percent lower than that of
\nfarm household and two decades back, the difference was
\ndevastatingly higher (47 percent). The third group comprises non-
\nrice farmers and the most recent agricultural census shows that
\nalmost half of all farmers grow no rice at all.<\/p>\n
Other than rice, common crops in this country are coconut and
\nmaize -- also far behind rice earnings but upfront on pervasive
\npoverty. And the final group comes from small rice producers who
\ndo not produce enough rice for family consumption.<\/p>\n
How would a regime of more imports and consequent lower rice
\nprices affect these various groups? According to the researcher,
\nlower rice prices (with a surge in imports) would put up upward
\npressure on the wages of unskilled labor.<\/p>\n
The effect on wages tends to be the function of land markets,
\nthe arbor intensity of alternative crops to rice, and the
\ninfluence of urban sector wage to rural wage. \"With lower prices,
\nrice farming must remain profitable for those farmers who
\ncontinue to grow rice.<\/p>\n
For farmers who cannot restore profitability in the face of
\nlower prices, must necessarily give up rice farming and use the
\nland for some other purpose\". Profitability can only be restored
\nthrough adjustment in input prices especially of nontradable land
\nand labor prices. Pesticides and fertilizers -- tradable inputs
\n-- could cast little impact in terms of cost minimization.<\/p>\n
Arguably, lower rice prices would lower rental prices for land
\n(and increase land tenancy). Farmers might go for diversification
\nand make up the loss by growing maize for which demand growth
\nsurpasses that of rice. Both use similar quantities of labor per
\nhectare to arrest any decline in labor demand as a result of the
\nshift.<\/p>\n
By and large, lower rice prices are unlikely to cause a fall
\nin wages as espoused by the critics of liberalization. First,
\nland market will absorb some of the shocks through lower land
\nrents. Second, alternative crops grown e.g. maize and vegetables
\nwould take care of a part of the problem and finally, given an
\nintegration of rural and urban sector, agricultural wages are
\nunlikely to face adverse effects.<\/p>\n
The writer is a Professor of Economics at Jahangirnagar
\nUniversity.<\/p>",
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