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Sources and Effects of Instability in the World Rice Market

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  • Jayne, Thomas S.

Abstract

This report reassesses the causal link between domestic agricultural policies and world price instability, using the case of the rice market. Specifically, the report develops a framework for analyzing the effects of domestic policies on international price stability, identifies the conditions required for government policies to destabilize world markets and econometrically examines whether these conditions apply to the trade behavior of seven major rice trading countries over the period 1960-87. This is done by comparing the estimated transmission and absorption effects with those implied under free trade, by incorporating several behavioral restrictions drawn from standard trade theory. Sensitivity analysis is then used to discern how robust the results are to changes in domestic and international price elasticities. The report also identifies major structural and behavioral factors that account for the great degree of price instability in world rice markets relative to other major grain markets, and examines the dynamic effects of these factors on the organization and performance of international rice trade. The analysis indicates that while stabilization policies in some countries have exacerbated world price instability, this was not usually the case. Thus, the link between domestic price stability and world price instability appears, in the case of the rice market, to be exaggerated. Therefore, contrary to conventional wisdom on the subject, movements toward free trade may not contribute greatly toward stability in world rice trade. If domestic agricultural policies have been overemphasized as sources of instability in world rice trade, an explanation is still required for the high degree of volatility in this market. The major factors include: (1) the geographic concentration of world rice production in an area of unstable weather; (2) a persistently thin and fragmented market where price information is difficult to obtain, and where the development of coordination mechanisms to reduce trade uncertainties are thwarted by major traders' tendency to sporadically float in and out of the market; (3) very low consumption responsiveness to domestic prices in the countries examined, which means that the ability of domestic demand to absorb world price instability, even under free trade, is limited; (4) the emerging relationship between the world rice and petroleum markets; and (5) low world stockholdings relative to production, and the absence of a major actor that stabilizes world rice prices through stock and trade policies, as in the wheat and corn markets.

Suggested Citation

  • Jayne, Thomas S., 1993. "Sources and Effects of Instability in the World Rice Market," Food Security International Development Papers 54059, Michigan State University, Department of Agricultural, Food, and Resource Economics.
  • Handle: RePEc:ags:mididp:54059
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    File URL: http://purl.umn.edu/54059
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    Cited by:

    1. Govereh, Jones & Jayne, Thomas S., 1999. "Effects of Cash Crop Production on Food Crop Productivity in Zimbabwe: Synergies or Trade-offs?," Food Security International Development Working Papers 54670, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    2. Jayne, Thomas S. & Jones, Stephen P., 1996. "Food Marketing and Pricing Policy in Eastern and Southern Africa: Lessons for Increasing Agricultural Productivity and Access to Food," Food Security International Development Policy Syntheses 11337, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    3. Seck, Papa A. & Tollens, Eric & Wopereis, Marco C.S. & Diagne, Aliou & Bamba, Ibrahim, 2010. "Rising trends and variability of rice prices: Threats and opportunities for sub-Saharan Africa," Food Policy, Elsevier, vol. 35(5), pages 403-411, October.
    4. Cummings, Ralph Jr. & Rashid, Shahidur & Gulati, Ashok, 2006. "Grain price stabilization experiences in Asia: What have we learned?," Food Policy, Elsevier, vol. 31(4), pages 302-312, August.
    5. Naseem, Anwar & Kelly, Valerie A., 1999. "Macro Trends and Determinates of Fertilizer Use in Sub-Saharan Africa," Food Security International Development Working Papers 54671, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    6. Traub, Lulama Ndibongo & Jayne, Thomas S., 2004. "The Effects of Market Reform on Maize Marketing Margins in South Africa," Food Security International Development Working Papers 54570, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    7. Nelissa Jamora & Stephan Cramon-Taubadel, 2016. "Transaction Cost Thresholds in International Rice Markets," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(2), pages 292-307, June.
    8. Strasberg, Paul J. & Jayne, Thomas S. & Yamano, Takashi & Nyoro, James K. & Karanja, Daniel David & Strauss, John, 1999. "Effects of Agricultural Commercialization on Food Crop Input Use and Productivity in Kenya," Food Security International Development Working Papers 54675, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    9. Howard, Julie A. & Mungoma, Catherine, 1996. "Zambia's Stop-And-Go Revolution: The Impact of Policies and Organizations on the Development and Spread of Maize Technology," Food Security International Development Working Papers 54689, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    10. Mather, David & Donovan, Cynthia & Jayne, Thomas S. & Weber, Michael T. & Chapoto, Antony & Mazhangara, Edward & Bailey, Linda & Yoo, Kyeongwon & Yamano, Takashi & Mghenyi, Elliot W., 2004. "A Cross-Country Analysis of Household Responses to Adult Mortality in Rural Sub-Saharan Africa: Implications For HIV/AIDS Mitigation And Rural Development Policies," Food Security International Development Working Papers 54571, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    11. Rashid, Shahidur & Cummings, Ralph Jr. & Gulati, Ashok, 2005. "Grain marketing parastatals in Asia," MTID discussion papers 80, International Food Policy Research Institute (IFPRI).
    12. Karanja, Daniel David, 1996. "An Economic and Institutional Analysis of Maize Research in Kenya," Food Security International Development Working Papers 54693, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    13. Dawe, D., 2002. "The changing structure of the world rice market, 1950-2000," Food Policy, Elsevier, vol. 27(4), pages 355-370, August.
    14. Jamora, Nelissa & Cramon-Taubadel, Stephan von, 2012. "What world price?," Discussion Papers 142241, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    15. Rashid, Shahidur & Cummings Jr., Ralph & Gulati, Ashok, 2007. "Grain Marketing Parastatals in Asia: Results from Six Case Studies," World Development, Elsevier, vol. 35(11), pages 1872-1888, November.
    16. Maredia, Mywish K. & Howard, Julie A. & Boughton, Duncan & Naseem, Anwar & Wanzala, Maria N. & Kajisa, Kei, 1999. "Increasing Seed System Efficiency in Africa: Concepts, Strategies and Issues," Food Security International Development Working Papers 54578, Michigan State University, Department of Agricultural, Food, and Resource Economics.

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