Rice and “the bad economic thinking”
The events which take place on the World rice markets during the last 10-15 years deserve very serious attention. Sometimes it is very difficult to explain the meaning of the expression "bad economic thinking", however I think that this story gives a very good idea about it. Naturally, the specific reason to be interested in the World rice market is the so called "rice crisis" which we face at present. In the simplest variant the crisis is expressed as a shortage of rice on the World markets (including due to the cyclone in Myanmar) and the drastic increase of its price. During only the last few months, the price of rice has doubled and now some analysts are already showing that it might double again and respectively repeat the record high rice prices from the crisis in 1974.
It is apparent that the response to the crisis is hidden in Japan. The country of the "rising sun" imports every year very large quantities of rice which in practice ….. are never consumed! What is the actual reason for this strange behavior? In the beginning of the 90's Japan was one of the major rice producers in the World (after China, India and Indonesia). In spite of that, the country is totally isolated from the World markets, follows an active protectionist policy and provides significant subsidies to the local producers. This is something which the US does not like at all and they kept pressing Japan to remove all obstacles to free trade. The different points of view of the two Governments met at the "Uruguay round" – a number of meetings within the framework of the General agreements on custom duties and trade. The round in question continued from 1986 to 1994 (twice longer than originally planed), and its most significant achievement was the establishment of the World Trade Organization.
Another factor, however, dictates the US interest. At that time the US had a very large commercial deficit with Japan and it is considered that the liberalization of the rice trade will help to balance it. At the end, the US managed to force their opinion and it was decided that the rice trade will be liberalized and Japan will open its markets. The practical solution however is more than senseless – Japan undertakes to import rice from the US within 10% of the domestic consumption. This is heralded as a success and the trade is called "free".
The US is happy with the "victory" and by the fact that they got a certain buyer of their rice for years to come. The Japanese side, however, does not remain behind – the local production should not be threatened, thus all the rice imported from the US (under the obligation) will be kept in storage and never reaches the local markets. Naturally the subsidies to the local producers remain in force.
Regardless how strange it sounds, these events continue to take place even today. Japan imports very large quantities of rice from the US (approximately 700 000 tons this year), after that it stores it and relies on the local production, which is sufficient to cover the needs of the population. At the end of the day, what happens to the rice in the warehouses?
We must mention here that at present the Japanese reserves of rice are 1 500 000 tons, which is 5% of the World rice trade. Usually the rice is kept until the quality begins to worsted and after that is used as food to the livestock (400 000 tons for the last year)! Someone could ask: Why Japan does not simply sell these reserves to other countries? Because, the agreement in question "about free trade" from 1994 clearly states that Japan has no right to export the rice which was imported (mainly from the US) without the expressed consent of the exporting country! Recent information suggests that Japan had received a partial permission to sell 200 000 tons of rice to the Philippines and another 20 000 tons to some African countries. This, however, this is not likely to solve the problem!
According to some calculations, about 3 billion people around the Globe depend daily on rice and at least half of them are extremely poor. While these people starve, Japan must import annually enormous quantity of rice, which is never consumed. At the same time – China, India, Vietnam and Egypt put hold on their exports of rice in order to limit the growth of domestic prices. All these policies and measures sound absurd but are the explanation of the meaning of "bad economic thinking".
