Dilemmas and Challenges of Korean Rice Economy

after the Rice Negotiation

Doo Bong Han¹⁾

Abstract

The special treatment of rice import in Korea called to the Minimum Market Access (MMA) will be extended for the next 10 years. Korea was allowed to import rice by the MMA as a kind of quota system from 1995 to 2004 in the Uruguay Round Agreement of Agriculture. Korea negotiated with nine countries to extend the special treatment of rice and submitted the revised Country Schedule (CS) to WTO in December 30, 2004. The objectives of this study are: (1) to describe the importance of Korean rice economy, (2) to review the results of rice negotiation, (3) to analyze the impact of the rice negotiation on rice sector, (4) to discuss dilemmas and challenges of Korean rice economy after the rice negotiation. According to the simulation results of the rice negotiation, Korean rice economy would fall into severe excess supply problem and accumulate huge inventory in the near future since production sector would be highly protected under the MMA system. Unless Korea would prepare everything to increase rice consumption for food and processing, the special treatment might be diverted to tariffication at a heavy cost before 2014, the end year of the extension period as Japan did in 1999.

JEL Classification: Q170

Key Words: Rice Negotiation, MMA, Korean Rice Economy

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1) Professor, Department of Food and Resource Economics, Korea University, Anam Dong, Sungbuk Gu, Seoul, 136-701, Tel: +82-2-3290-3035, e-mail: han@korea.ac.kr

Introduction

Rice as a main staple has contributed more than 30 percent of daily per capita calories supplied in the respect of national nutrition and is also of importance in farm economy since the income from rice farming is about 50 percent of farm income. Rice policies such as production encouragement and price support have been the core of agricultural policy in Korea. According to the importance of rice in production as well as consumption, Korea was allowed to import rice by the special treatment called to the Minimum Market Access (MMA) for the past 10 years from 1995 to 2004 in the Uruguay Round Agreement of Agriculture and will extend the special treatment again for next 10 years from 2005 to 2014 by the result of rice negotiation with nine countries[1] in 2004.

Dilemmas of Korean rice economy are the excess supply of rice caused by declining consumption and the accumulation of public storage. Although Korea tries to protect rice farms by extending the MMA for next 10 years, it would fail to protect them. The reason is that the excess supply of rice will drop price and also will induce huge government expense for maintaining and disposing the huge public storage of rice. Therefore, it is demanded for Korea to find every solution to turn back the declining trend of rice consumption.

The objectives of this study are: (1) to describe the importance of Korean rice economy, (2) to review the results of rice negotiation, (3) to analyze the impact of the rice negotiation on rice sector, (4) to discuss dilemmas and challenges of Korean rice economy after the rice negotiation. A Korean rice model for projections and policy simulations was developed to analyze the impact of the rice negotiation and also to discuss the implication of rice import expansion for both farmers and policy makers. The information from the model simulation would be helpful for rice farmers to make future production decisions, and for the Korean government to introduce a new policy programs such as new storage program and the program for promoting rice consumption.

Importance of Korean Rice Economy

Rice in Korean Agriculture

Rice is the most important staple crop in Korea. While the number of farm households cultivating paddy rice decreased more than 50% from 2,011 thousands in 1970 to 945 thousands in 2003, its dependency of farm households is still dominant since the proportion of farm households cultivating rice is 74.8% in 2003 as shown in Table 1.

The acreage under rice cultivation decreased from 1,203 thousand ha in 1970 to 1,016 thousand ha in 2003, which accounts for 55% of total arable land in Table 1. Even though government has spent a sizable budget to expand the acreage of paddy field per rice farm for increasing international competitiveness in 1990s, the acreage of paddy field per rice farm increased slightly from 0.60 ha in 1970 to 1.08 ha in 2003, which is relatively very small compared to that of western countries.

While the proportion of farm income earned from rice to farm household income decreased from 34.4% in 1970 to 20.0% in 2003 due to the relatively rapid growth of off-farm income, the proportion of rice to farm income has been increased from 42.2 % in 1980 to 50.8% in 2003 because rice market has been protected by the MMA and government purchase with price support for rice has been maintained last 10 years.

Table 1 Household, Acreage, and Income for Rice Farming, 1970~2003

	1970	1980	1990	2000	2003
Total Farm Household (1000 households, A)	2,483	2,156	1,767	1,383	1,264
Farm Household Cultivating Rice (1000 households, B)	2,011	1,837	1,506	1,078	945
B/A (%)	81.0	85.2	85.2	77.9	74.8
Total Arable Land (1000ha, C)	2,298	2,196	2,091	1,889	1,846
Land for Cultivating Rice (1000ha, D)	1,203	1,233	1,244	1,072	1,016
D/C (%)	52.3	56.1	59.5	56.7	55.0
Paddy Field per Rice Farm Household (ha, D/B)	0.60	0.67	0.83	0.99	1.08
Annual Farm Household Income (1000Won, E)	256	2,693	11,026	23,072	26,878
Farm Income (1000Won, F)	194	1,755	6,264	10,897	10,572
Income Earned from Rice (1000 Won, G)	88	741	3,097	5671	5369
F/E (%)	75.8	65.2	56.8	47.2	39.3
G/E (%)	34.4	27.5	28.1	24.6	20.0
G/F (%)	45.4	42.2	49.4	52.0	50.8

Source: Ministry of Agriculture & Forestry(MAF),

Korean National Statistical Office

Changes of Rice Production

Rice yields almost doubled from the average level of 2.59 M/T per ha (milled weight) in 1955~59 to 4.95 M/T in 1995~99 and 4.81 M/T per ha in 2000~03 as shown in Table 2. Annual rice yields were very fluctuating since paddy fields were not well irrigated until the late 1960s and the degree of damage by flood and/or drought almost determined the yields. In the 1970s, government invested in large-scale irrigation projects for paddy fields, developed new high-yield varieties, and guaranteed the rice price with government procurement. Consequently, the yield jumped in the middle of the 1970s and has increased slightly afterward. In the last ten years, the yields ranged from 4.18 to 5.18 M/T per ha.

Planted acreage of rice decreased slightly from 1.1 million ha to 1.06 million ha for the past 45 years. As the results of yield increase and a little decrease in planted acreage, rice production has increased about 50% from 3.04 million M/T in 1955~59 to 5.17 million M/T in 1995~99 and 4.95 million M/T in 2000~03. Even though Korea has imported rice since 1995, rice production has not been influenced by the MMA because imported rice was used only for processing or was accumulated in public storage to isolate it from food use.

Changes of Rice Consumption

Per capita consumption of rice in Korea for farm households has decreased since 1971 and that for nonfarm households has decreased since 1986 as seen in figure 1. Per capita consumption of rice for farm households is 135kg/year and that for nonfarm households is as low as 79kg/year in 2003. Per capita consumption of rice is 83kg/ year on average in 2003.

The rate of rice consumption reduction is –0.3 percent during 1970s; -1.1 percent during 1980s; -2.2% during 1990s and –3.7 percent during 2000s respectively. Such a acceleration of rice consumption reduction is known as a big problem too.

Table 2 Yield, Planted Acreage and Production for Rice, 1955~2003

	Yields (Average, M/T/ha)	Planted Acreage (Total, 1,000ha)	Production (1,000M/T)
1955~59	2.59^1	1,102^3	3,037^3
1960~64	3.03^2	1,148^3	3,423^3
1965~69	3.03^2	1,193^3	3,674^3
1970~74	3.43^2	1,194^3	4,056^3
1975~79	4.53^2	1,225^3	5,502^3
1980~84	4.32^2	1,221^3	5,193^3
1985~89	4.60^2	1,250^3	5,710^3
1990~94	4.52^2	1,203^3	5,440^3
1995~99	4.95^2	1057^3	5166^3
2000~03	4.81^4	1056^4	4946^4

1. Yield of paddy rice.

2. 5-year average excluding the lowest and the highest.

3. 5-year simple average.

4. 4-year simple average.

Source : MAF

The reason of rapid reduction of rice consumption in households sector is because consumption of meat and dining out increased due to westernization and convenience trends of daily food system. Table 3 shows the change in food consumption during the last three decades. The proportion of urban household expenditure for rice to total expenditure for food and beverages dropped from 38.6% in 1970 to 6.7% in 2003. On the other hand, consumer expenditure for “away from home” food increased rapidly from 2.1% in 1970 to 45.8% in 2003. As the Korean economy has grown, the Engel’s index for rice, that is the proportion of expenditure for rice to total expenditure, decreased from 15.4% to 1.5% during the period. The share of rice among energy supply per capita per day due to reduction of rice consumption has declined from 49.2 percent in 1970 to 30 percent in 2003.

Figure 1. Annual Rice Consumption Per Capita (milled rice, Kg)

Source : MAF, Major Agricultural Statistics

Table 3 Annual Expenditure of Food in Urban Household

and Nutrition Intake from Rice in 1970~20003

	1970	1980	1990	1995	2000	2003
Annual Total Expenditure per Urban Household (1000 won, A)	364	2,252	9,065	17110	22607	26688
Expenditure on Food and Beverages (1000 won, B)	145	930	2,634	4376	5364	6113
Expenditure on Rice (1000 won, C)	56	296	446	397	480	410
Expenditure on “Away from Home”(1000 won, D)	3	35	538	1388	2112	2798
C/B (%)	38.6	31.8	16.9	9.1	8.9	6.7
D/B (%)	2.1	3.8	20.4	31.7	39.4	45.8
Engel`s Index for Food and Beverage (B/A, %)	39.8	41.3	29.1	25.6	23.7	22.9
Engel`s Index for Rice (C/A, %)	15.4	13.1	4.9	2.3	2.1	1.5
Daily Per Capita Calories Supplied (kcal, E)	2,533	2,485	2,853	2,959	3,010	2,985
Calories Supplied from Rice (kcal, F)	1,246	1,234	1,175	1,054	997	893
E/F(%)	49.2	49.7	41.2	35.6	33.1	30.0

Review of Rice Negotiation Results

All agricultural products have been liberalized with tariffication as the result of the UR Agreement of Agriculture. However, Korea was able to postpone the rice tariffication since the difficult situation of Korean rice economy was recognized by the WTO members. Therefore, for 10 years from 1995 to 2004, Korea was exempted from rice tariffication but was allowed to import rice subject to the MMA for this grace period as shown in Table 4. The import of MMA increased from 51 thousand M/T in 1995 to 205 thousand M/T in 2004. The volume of the MMA was determined by the percentage of average rice consumption for food in 1988-90.

Table 4 Volume of the MMA by the UR Agreement

Unit :1,000 M/T

Year	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004
Volume (% of food consumption)	51 (1)	64 (1.3)	77 (1.5)	90 (1.8)	103 (2)	103 (2)	128 (2.5)	154 (3.0)	180 (3.5)	205 (4.0)

After the rice negotiation, the revised Country Schedule (CS) was submitted to WTO in December 30, 2004. It is composed of 6 parts: 1) the extension period of MMA, 2) the review of special treatment, 3) the allocation of the MMA, 4) the cessation of special treatment during the implementation period, 5) import mark-up, and 6) the utilization of imported rice. The details of the Country Schedule are as follows.

Special treatment for rice by the Minimum Market Access (MMA) shall be extended for an additional 10 years from 2005 to 2014 and the MMA shall increase in equal annual installments. In the 5^th year, there shall be a multilateral review of the implementation for special treatment. The import of the MMA will be allocated by country-specific quota on existing MMA and global quota on additional MMA. Existing MMA volume of 205,228 metric tons, milled basis, shall be allocated to the past importing 4 member countries as China, the U.S., Thailand and China. Country-specific quotas (CSQs) based on the historical trade flows from 2001 to 2003 are: China 116,159 metric tons from China, 50,076 metric tons from United States, 29,963 metric tons from Thailand and 9,030 metric tons from Australia. However, future growth in the MMA volume shall be administered on an MFN basis (global quota). In the case of the cessation of special treatment during the implementation period or after the completion of the implementation period, the entire volume of the CSQs shall be subject to global quota on an MFN basis. The cessation of special treatment during the implementation period is also specified in the revised country schedule. At the beginning of any year during the implementation period of special treatment from 2005 to 2014, the Republic of Korea may cease to apply the special treatment. In such a case, the products concerned shall be subject to ordinary customs duties in accordance with the Agreement on Agriculture. The tariff rate for the year 2005 established on the basis of a tariff equivalent, to be calculated in accordance with the guidelines prescribed in the Agreement on Agriculture, shall be applied until the entry into force of the outcome of the DDA negotiations. In case the special treatment ceases to apply after the entry into force of the outcome of the DDA negotiations, the tariff rate shall be modified, reflecting such an outcome. After the cessation of special treatment, the Republic of Korea shall maintain the MMA volume already in effect at such time. In case such volume is not equivalent to the volume determined in accordance with the outcome of the DDA negotiations, the greater of the two shall be applied.

It is also allowed for Korea to impose import mark-up according to the UR Country Schedule. It is a distinct characteristic of the rice negotiation different from the UR that the utilization of imported rice for table and non-table is specified in the Country Schedule. Rice utilization is specified since Korea imported rice only for non-table or processing purpose for the past 10 years. The volume of imported rice distributed into the Korean market for table use (hereinafter “table rice”) shall be phased in from no less than 10 percent to no less than 30 percent of the total MMA volume by the sixth year of implementation period, in equal increments over the six year period as shown in Table 5 . Table rice including quality rice shall have access to normal marketing channels, wholesalers, distributors and end users. Table rice shall be marketed in a timely fashion so that its quality for table use is not adversely affected by the storage time. Separate from and in addition to the utilization of table rice as stipulated above, volume of imported rice distributed into Korea for non-table use shall reflect recent patterns of distribution.

Korea extends rice import by the MMA for another 10 years from 2005 to 2014 and the volume of the MMA shall increase from 225,575 M/T to 408,700 M/T by equal annual installments as 20,347 M/T as shown Table 5. The volume of the MMA is not small amount since rice consumption has decreased significantly because the volume of MMA in 2014 as 408,700 M/T would be about 13% of expected rice consumption for food use in 2014. Different from the UR Agreement of Agriculture, the revised Country Schedule specified the volume of the MMA for table and non-table uses as shown in Table 5. Even though the percentage of table use in import rice will be constant to the 30% of total MMA after 2010, the volume of table use will increase 6.1 thousand metric tons because total MMA also increases.

Table 5. Volume of the MMA for Table and Non-Table Uses

Unit :1,000 M/T

Year	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014
Total volume of MMA	225.6	246.0	266.3	286.6	307.0	327.3	347.7	368.0	388.4	408.7
Table Use (%)	22.6	37.7	52.8	67.9	83.1	98.2	104.3	110.4	116.5	122.6
	(10)	(15)	(20)	(24)	(27)	(30)	(30)	(30)	(30)	(30)
Non-Table Use (%)	203.0	208.2	213.5	218.7	223.9	229.1	243.4	257.6	271.8	286.1
	(90)	(85)	(80)	(76)	(73)	(70)	(70)	(70)	(70)	(70)

Structure of Rice Model and Estimation

A rice model is developed to analyze the effects of import expansion expected in the Korean rice negotiation as shown in Table 6. The model is composed of demand and supply components. The components of supply are acreage, yield, import and inventory. Production (Prod) is derived from the multiplication of two estimated equations, acreage and yield. To analyze the factors of production changes, acreage and yield are estimated separately because acreage is in a decreasing trend but yield is increasing continuously. Because it is hard to transfer paddy land to upland or other purposes in the short-run, planted acreage, as shown in (1) equation, is specified to a function of previous real farm price as a proxy of expected price, previous yield and trend considering technology change. Real farm price is calculated by nominal farm price (FP) divided by the GDP deflator (GDF). Previous yield is included in acreage equation since current planting decisions are affected by previous harvest, which is mostly determined by yield.

General factors affecting rice yield are the speed of spreading out new varieties, technology and weather. As shown in equation (2), yield is specified to a function of trend and dummy variables to consider technology and weather. The variable, DM1, is 1 in 1980, 1993 and 2003, which were years of cold weather damage, and it is 0 in other years. The variable, DM2, is 1 in 1997 and 2001, which were exceptionally good harvest years, and it is 0 in other years. The supply in identity (4) is defined as the sum of previous production, previous ending stock (Stock) and import (IM). Inventory (Stock) is composed of private and government inventory. It is assumed that government inventory should be maintained to at least 0.7 million metric tons for food security from 2004 to 2014. On the other hand, private inventory is endogenously determined by an excess supply of rice market after satisfying government inventory.

To estimate rice demand, the per capita food consumption (PerCon) in equation (5) is specified to the function of own real consumer price (CP/GDF), real income (PGDP/GDF) and previous per capita consumption since no substitute of rice was found because rice has been a unique staple food in Korea. Real income is nominal per capita GDP (PGDP) divided by the GDP deflator. Real consumer price (RP/GDF) is specified to a function of per capita supply (Supply/Pop), per capita consumption demand ((Demand – Stock)/Pop) and to the previous real consumer price as shown in equation (6). Pop represents population. Total demand is composed of food consumption, processing, seed, loss, export (EX), and ending stock. Total demand and total supply are equated by two bridge equations of consumer and farm prices to satisfy the market-clearing condition. Farm price (FP) is specified as a function of consumer price (CP) in equation (9).

To analyze the effects of rice negotiation on rice supply and demand, assumptions on exogenous variables are needed during the period of 2004-2014 year. Exogenous variables are macroeconomic variables as well as variables related to import. Based on various macroeconomic projections, the real GDP growth rate and inflation rate are assumed to be 5% and 3% per annum. It is assumed that the annual growth rate of the processing volume is 4% per annum. Loss volume is assumed to be 7 % of production, which is actual loss rate. Seed volume is assumed to be 0.075 % of previous production.

Table 6 A Structural Model for the Korean Rice Sector

(1) Acreage= f(FP(-1)/GDF(-1), Yield(-1), Trend)

(2) Yield = f(Trend, DM1, DM2)

(3) Prod = Acreage*Yield

(4) Supply = Prod(-1) +Stock(-1) + IM

(5) PerCon = f(CP/GDF, PGDP/GDF, PerCon(-1))

(6) CP/GDF = f(Supply/Pop, (Demand –Stock)/Pop, CP(-1)/GDF(-1))

(7) Demand=PerCon*Population + Processing + Seed + Loss + EX + Stock

(8) Stock=Government Stock + Private Stock

(9) FP=f(CP)

Five behavioral equations for per capita consumption, planted acreage, yield, consumer price, and farm price are estimated by OLS estimation as shown in Table 7. The rice model is composed of behavioral equations and identity conditions and is dynamically solved to get simulated values after the rice negotiation. To evaluate statistical adequacy on estimated equations, several statistical tests are conducted. The statistical tests are the Durbin-Watson test and Godfrey LM test for serial correlation, and the ARCH test for time-varying heteroscedasticity. The overall stability of the model is tested by ex-post simulation since the statistical

Table 7 Estimation Results of Behavioral Equations

LOG(Acreage) =32.43+0.46*LOG(FP(-1)/GDF(-1))-0.10*LOG(Yield(-1))- 0.01*TREND

(18.4)  (8.8)                             (-1.4)                  (-14.2)

Adj-R2 : 0.96         D-W stat : 1.82           Sample : 1990 - 2003

Yield = -4119.21 + 2.30*Trend - 49.60*DM1 + 35.60*DM2

(-2.7)       (3.0)         (-3.8)            ( 2.7)

Adj-R2 : 0.65         D-W stat : 2.09           Sample : 1985 - 2003

DM1 : 1 in 1980, 1993, 2003 and others are 0, DM2 : 1 in 1997, 2001 and others are 0

LOG(CP/GDF) = 0.66 -0.40*LOG(Supply/Pop) +0.32*LOG((Demand-stock)/Pop) + 0.97*LOG(CP(-1)/GDF(-1))

         (0.8)  (-3.5)                                 (2.1) (9.6)

Adj-R2 : 0.82         D-W stat : 1.77           Sample : 1982 - 2003

LOG(PerCon) = 2.54- 0.12*LOG(CP/GDF) - 0.076*LOG(PGDP/GDF) +   0.82*LOG(PerCon(-1))

(6.0)  (-4.1)                     (-6.2)                          (17.4)

Adj-R2 : 0.99           D-W stat : 1.75            Sample : 1977 - 2003

FP = - 541.12 + 0.80*CP

          (4.5)      (56.9)

Adj-R2 :  0.99           D-W stat : 1.33          Sample : 1985 – 2003

significance of a single equation may not guarantee the stability of the whole model. Annual data from 1975 to 2003 are used to estimate the model.

Statistical significance of the individual equation may not guarantee the overall model stability and performance. Ex-post dynamic and static simulations[2] are conducted to evaluate overall model stability from 1990 to 2003.The RMSPE (Root Mean Square Percentage Error) calculated after the ex-post simulations is as shown in Table 8. The rice model turns out reasonably stable because most endogenous variables show below 5 or 10% of the RMSPE in both static and dynamic ex-post simulations.

Table 8 RMSPE of Major Endogenous Variables during 1990-2003

Variables	Dynamic Ex-Post Simulation	Static Ex-Post Simulation
Acreage	3.95	2.10
Yield	3.10	3.10
Production	4.13	3.07
Per Capita Consumption	6.83	2.04
Consumer Price	8.50	3.21
Farm Price	7.49	3.61

Impact of the Rice Negotiation and Dilemmas

This study investigates the effects of the rice negotiation by the MMA increase from 205 thousand M/T in 2004 to 408.7 thousand M/T in 2014. It is generally expected that an adjustment by increasing the MMA would be slower than tariffication because its effect transfers to rice markets and farmers through additional supply, which increases indirectly.

As shown in Table 9, planted acreage for rice would decreased about 20% for the next 10 years from 1016 thousand ha to 878 thousand ha in 2009 and 796 thousand ha in 2014. However, production will decrease about 8% for the next 10 years from 4451 thousand M/T in 2003 to 4108 thousand M/T in 2014 because yield increases too. Per capita consumption of rice for food would decrease about 23% from 83.2 kg in 2003 to 65.8 kg in 2014 and per capita consumption for food and processing would also decrease about 14% from 90 kg in 2003 to 77.8 kg in 2014.

Table 9 Projections of Major Endogenous Variables after Rice Negotiation

Year	Acreage (1000ha)	Production (1000M/T)	Import (1000M/T)	Per Capita Consumption (kg)		Inventory		Self-Sufficiency ratio (%)
				Food	Food & Processing	Amount (1,000M/T)	Ratio (%)
2003	1016	4451	180	83.2	90.0	1098	21.7	97.4
2009	878	4428	307.0	70.7	79.7	1305	30.5	106.1
2014	796	4108	408.7	65.8	77.8	1051	24.8	97.9

If the current situation of Korean rice economy is maintained, the self-sufficiency ratio of rice would be at the level of 106% in 2009 and 97.9 % in 2014 because the import would be fully controlled by the government. The discrepancy between production and consumption will increase inventory to the maximum 1.34 million M/T in 2008 and 1.05 million M/T in 2014. Therefore, inventory ratio calculated as inventory over total consumption will increase from 21.7% to the maximum 31.2% in 2008 and 24.8% in 2014. Inventory will increase until 2008 and then decrease steadily. Therefore, it is the task assigned for Korea how to solve the problem of inventory accumulation in the short run and long run.

To reduce inventory ratio, the declining trend of rice consumption should be lessened and the consumption pattern of rice should be diversified to increase the price elasticity of minimum public storage. Korean government is planned to store about 0.84 million M/T as 17% of current consumption for food security. It is needed to diversify processing products of rice to create new demand for rice focusing on young generation in the medium and long run. If Korea succeeds in diversifying consumption pattern, the balance between demand and supply will be obtained and public storage for food security may also decrease.

In the short-run, supply control programs such as acreage reduction program and environmentally friendly farming or organic farming are also needed to balance supply and demand of rice in the short-run. Another way to reduce the inventory in the short run is to increase the portion of table use for imported rice more than 10% to 30 % in the mutual agreement of rice negotiation. In this case, rice price will drop and farm income problem will happen unless government increases the direct payment to compensate the decrease of rice income.

Concluding Remarks

The special treatment called to the Minimum Market Access (MMA) for rice import in Korea will be extended for the next 10 years from 2005 to 2014. Korea dramatically drew the mutual agreement on the condition of the extension of the special treatment with nine countries in the front of the deadline of the rice negotiation in December 2004. According to the successful conclusion of the rice negotiation, rice farms may be protected from the uncertainty of import by tariffication, but Korean rice economy would fall into severe excess supply problem and also accumulate huge inventory in the near future. Unless Korea would prepare everything to increase rice consumption for food and processing, the special treatment might be diverted to tariffication at a heavy cost before 2014, the end year of the extension period as Japan did in 1999

It may be very difficult for Korea to extend the special treatment again after 2014. Therefore, government tries to lessen the gap between domestic and world price for the next 10 years to prepare the tariffication of rice. Even though Korea will extend the special treatment with the MMA for the next 10 years, the reduction of tariff shall be reduced by the results of the Doha Development Agenda (DDA) of WTO. Therefore, the shock of tariffication after 2014 may bring a chaos in Korean rice economy since domestic price will drop down all at once with tariffication. If it is assumed that the DDA would be implemented in 2008 and the tariff would be reduced about 25%, domestic rice price shall be decreased 2% per annum to compete with imported rice under the tariffication after 2014.

In the implementation period of the rice negotiation, Korean government tries to reduce excess supply and huge public storage by diversifying and promoting rice consumption in the medium and long run. In order to balance the supply and demand of rice, supply control programs such as acreage reduction program and environmentally friendly farming or organic farming are also needed in the short-run.

References

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[1] Nine countries are U.S.A., China, Thailand, Australia, India, Argentina, Egypt, Canada and Pakistan.

[2] Gauss-Seidel method is used to conduct static and dynamic simulations using E-Views 3.0.