Subsidies and other protections for rice farmers harm some of the world’s poorest people
IN MANY Asian countries, painstakingly inscribing individual grains of rice with minuscule letters is a traditional craft. Just imagine, therefore, what bureaucrats in such places can get up to when they have a whole crop to work with. Tariffs, quotas, floor prices, ceiling prices, producer subsidies, consumer subsidies, state monopolies—no measure is too meddlesome (see article). As a result, the market for rice is more distorted than that for any other staple. Rice growers pocketed at least $60 billion in subsidies last year, according to the OECD, twice as much as maize (corn) farmers, the second-most-coddled lot.
The bureaucrats’ urge to interfere is understandable. Rice feeds more people than any other crop. Almost half the world’s population eats it every day. It accounts for more than 20% of the calories consumed by the average Asian, and 50% of the intake of the poorest 500m. No Asian government can afford to be cavalier about rice prices.
Unfortunately, governments’ energetic manipulation of the rice market is counterproductive. All subsidies breed inefficiency and raise costs, whether for consumers, producers or taxpayers. But the ones affecting rice are especially pernicious, in that they drive up prices for those least able to afford it: the poorest citizens of relatively poor countries such as Indonesia and the Philippines. Even small increases in the price of rice can lead to higher rates of malnutrition and a greater incidence of poverty in these places. And the impact on the price from misguided policymaking is anything but small. Rice costs twice as much in the Philippines, for instance, as it does in Vietnam, just across the South China Sea.
The biggest cause of such discrepancies is the effort in rice-importing countries to stimulate domestic production. This is bad enough in rich places like Japan, which levies an average tariff on imported rice of 322% and spent roughly $12 billion last year on handouts to rice farmers, or South Korea (where the figures are 218% and $5 billion). Such policies certainly harm local consumers and taxpayers—the price of rice in both countries is more than three times the world average—but at least relatively few of them are on the verge of destitution. Sadly, the same cannot be said of consumers in China, Indonesia and the Philippines. All three countries have high tariffs on rice to protect local farmers. The three also set a minimum price for home-grown rice, and restrict imports in various ways. The result is domestic prices that are 50-100% above international ones—in effect, a fiercely regressive tax on the hungry.
Exporting countries bear a share of the blame, too. Their rice farmers have a natural advantage, in that they live in vast tropical river basins, where rice grows most readily. But instead of allowing nature to take its course, countries like India, Thailand and Vietnam also have a record of interference. India and Vietnam both curbed exports in 2008, when the international price began to rise, causing it to spike. When prices were falling in 2012-13, Thailand, then the world’s biggest exporter, wasted $16 billion on a failed effort to boost them through hoarding.
Such policies are destructive for several reasons. They exacerbate swings in international prices, with grim consequences for the poor in other countries. They also deprive local farmers of potential income from exports. But most damagingly, they provide a justification for importing countries to meddle with the market. The exporters, in other words, are shooting themselves in the foot, giving their best customers an incentive to try to grow their own rice.
Paddy power
The irony is that the world does not appear to be short of rice. Prices fell by over 4% a year on average from 1969 to 2007. India, Myanmar and Vietnam have all become big exporters in recent years, thanks mostly to the lifting of some of the regulations smothering rice farmers—one of the reasons that Thailand’s attempt to corner the market failed. Importing countries should have the confidence to dismantle their subsidies and buy more rice abroad, a step exporters ought to encourage with deregulation of their own. For the apparatchiks of rice, alas, that would go against the grain.
This article appeared in the Leaders section of the print edition under the headline "Hare-grained"
