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.
World Bank President, Robert Zoellick, 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.
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