9:46 AM Aug 15, 1996

MARGINAL IMPACT OF UR ON RICE MARKET

Geneva 15 Aug (Chakravarthi Raghavan) -- In the short to medium time frame, the Uruguay Round agreements will have only a marginal impact on rice, and for that matter, on many farm products within the commodity economy, according to an UNCTAD study.

By and large, the study says, the behaviour of rice prices will remain uncertain and, while the multilateral trade regime on farm production and trade will have an impact on global commodity markets, including that of rice, on balance it will be "comparatively modest" and likely to be concealed by other secular developments within the rice economy.

Rice output in most producing countries, says the study on 'Rice and the Uruguay Round Agreements', will continue to reflect the vagaries of climatic conditions. This inherent vulnerability, together with the structural "thinness" of the global export market, render rice prices highly volatile as well as unpredictable.

But one of the unintended by-products of the current wave of domestic economic policy liberalisation and deregulation has been to shift to rice producers and traders the burden of bearing such price risks.

Also, the ongoing dismantling of government intervention in commodity markets, notably through marketing boards, stabilization funds and subsidy/processing arrangements tends to spill over in its impact on the poorer segments of the rural economy, especially the landless agricultural workers.

The study on 'Rice and the Uruguay Round Agreements' refers to the large number of published estimates of the effect of the Uruguay Round Agreement on Agriculture on rice prices and notes that while all of them almost invariably indicate some price updrift, the estimates of price increase vary widely -- from one to 18 percent -- reflecting the several tenuous assumptions in such estimations.

The full trade liberalisation measures agreed to will be in place only after a long gestation period of 6-10 years, and there are considerable ambiguities in certain provisions and modalities of their implementation.

The rules are at most a modest, though important, first step forward, and have many safeguards, guarantees and accommodations. The rice imports into Japan and Korea, for example, will only account for three percent of the volume of global rice exports in 1994.

There are also other factors that may culminate in 'business as usual' in the rice trade.

Generally, the price changes induced directly by the Uruguay Round Agreements may be less than noticeable against the confluence of diverse price movements associated with constantly changing supplies and demand conditions within the rice economy as a whole.

If this be so, then the observed secular decline in real rice prices as well as the consequent adverse (net barter) terms of trade visavis manufactured products are unlikely to be reversed by the Round.

Discounted by the UN index of export unit value of manufactured goods from the industrialized economies, available evidence is reasonably clear that non-oil real commodity prices have been on a generally downward trend over the last several decades. This decline has been particularly steep in the case of tropical beverages, vegetable oilseeds and oils, and food items, including rice, over the 1980s.

This trend is likely to continue under the new multilateral trade regime. There is relative unanimity on the medium-term outlook for world rice prices in terms of direction of change, although the estimated magnitudes vary significantly. And notwithstanding a wide range of caveats and other exogenous occurrences, the real unit values of rice are forecast to go down considerable during the remainder of the current decade.

Analysing the effects of various elements on the Uruguay Round agreements in the area of agriculture, the study says that the updrift in rice prices is likely to be much more limited than anticipated earlier. This is also true of other farm products.

Referring to other implications, the study notes that classical and most widely used government intervention in the rice economy so far included guaranteed price support, mainly through target or procurement arrangements coupled with commensurate import protection and export subsidies. These 'market distorting practices' are currently or will soon be prohibited or discouraged.

In turn it will generate a differentiated impact on various developing economies, among others at different stages of socio-economic development.

Import tariffs and quota allocations or auctions have been a major source of fiscal revenue for Third World countries. But the import tariffication process, and the bound and gradually falling tariffied rates of customs duties will thus limit considerably the scope for policy adjustments among low-income developing countries which are not least developed countries.

In comparative contrast, income supports - whether provided directly or via adjustment/relocation programmes - have an impact on consumer prices and can be initiated or continued. But these and many non-price, decoupled schemes of assistance (such as those in the 'green box' package) involve large fiscal expenditures and can make disproportionate calls on the limited resources of governments in poorer developing countries. And when disbursed through the public treasury, such expenditures are also subject to periodic public scrutiny.