International Trade in Rice

Few commodities are so heavily influenced by government policy as the international market for rice.Trade policies have often formed a cornerstone of national policies, and the resulting distortions in prices and commodity flows have obscured the importance of economic comparative advantage.Any realistic study of international market behavior, therefore, must be embedded firmly in the political economy tradition.The focus of this essay, as in most commodity studies, is on the operation and effectiveness of the price mechanism.However, the key actors in the international rice market are governments rather than producers and consumers.The widespread use of concessional sales, government-to-government contracts, state trading agencies, and import-export barriers (described in the second section) mean that world prices have little direct relevance for production and consumption decisions in most countries.The most significant property of the international rice market is its use as a mechanism for resolving failures and conflicts among domestic policies.Although world prices still serve as the principal means for eliminating disequilibria, changes in export supplies or import demands arc consequences of policy decisions rather than the actions of producers and consumers.Students of the international market have long recognized the importance of policy in world rice trade (Wickizer and Bennett, 1941).The brief survey of econometric analyses presented in the third section indicates, however, that the market-surplus behavior characteristic of world trade has not been reflected adequately in the construction of economic models.Explanations of poor results have centered instead on inaccurate data, imperfect competition, differentiated products, or a lack of price responsiveness on the part of producers and consumers, rather than on the inadequacy of model structures.The fourth section develops a market-surplus model of international rice trade, in which changes in trade participation of eleven countries explain over 80 percent of the variation in world prices between 1961 and 1977.