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South Korea Farmers Wary Over Rice Deal WTO GLOBAL TRADE TALKS

Posted on: Tuesday, 13 December 2005, 12:00 CST

By Donald Greenlees

Jung Su Yeong and his colleagues at the local branch of the Federation of Korean Advanced Farmers had erected a plastic tent in a vain attempt to cope with icy temperatures on a sidewalk of this provincial city, which lies at the heart of Korea's prime rice growing region.

As winter approached one mid-November afternoon, Jung and other local rice growers were settling in for an overnight stay outside the district office of the ruling Uri Party of President Roh Moo Hyun. Their aim was to convey anger at a new deal to pry open the domestic market for rice to cheaper foreign imports. Realistic enough to know he could not get the deal canceled, Jung still wanted the government to soften the blow to farmers.

"What we are saying is that the government should come up with some measures to protect farmers' income before it opens the market," he said.

The protest was as vain as the attempt to keep out the cold: A few days later, on Nov. 23, Parliament ratified the trade deal, allowing the amount of imported rice to increase by about 20,000 tons a year between 2005 and 2014, without any additional compensation for farmers. Under a new quota arrangement with nine countries, including major exporters like China, the United States and Thailand, imports will eventually rise from 4 percent of total South Korean rice consumption this year to 7.96 percent by the time the accord expires.

The passage of the rice agreement was accompanied by bitter clashes between farmers and the police on the streets of Seoul. But South Korea, which has one of the most heavily protected rice markets in the world, had no choice. It was obliged to open the market further as part of commitments made to the World Trade Organization during the Uruguay Round of trade negotiations.

For farmers like Jung, who depend on government subsidies and inflated domestic prices to survive, the WTO is the agent of their decline. The offices of South Korean farm groups are plastered with posters bearing messages like "WTO Kills Farmers." Although the latest South Korean rice deal is supposed to provide 10 years of certainty, farmers are afraid there will be no guarantee if a comprehensive agricultural trade agreement is struck within the WTO. Jung and 26 other farmers from his district planned to join protests at the WTO ministerial conference this week in Hong Kong against liberalizing global farm trade under the current Doha round.

But the optimists in Seoul say South Korea has not done too badly in the latest rice deal. As a country that relies on exports like cars, memory chips and electronics for its prosperity, the agreement helps South Korea keep its trade reform credentials intact, while deferring a more expansive opening of agriculture.

"The South Korean government has shown that it will put in a lot of effort to promote a global trade agreement despite the many difficulties it faces at home, particularly in the rice sector," said Kim Dong Su, a director general in the Ministry of Foreign Affairs and Trade.

Still, Roh's government has faced a quandary over rice policy that would be familiar to many governments in the developed world, particularly in the European Union. Seoul has struggled to protect a sector of the economy that is noncompetitive and declining, but also highly politically sensitive, while maintaining its credibility as an advocate of free trade.

In South Korea, as in all countries in Asia, rice is as symbolic a product as cheese or wine are in France. Even urban majorities can be sentimental about farming life, a legacy of the fact that many Asians still trace family links to the countryside. Adding to the political difficulties, surveys show consumers are often fiercely nationalistic about homegrown rice varieties. Rice is a staple of the diet of billions of people from India to Japan, accounting for 31.6 percent of Asia's daily calorie intake, according to 2000 figures from the United Nations Food and Agriculture Organization.

While Europe's willingness to cut subsidies and import tariffs on farm goods has been the focus of the global trade debate in the lead- up to this week's talks in Hong Kong, the rice trade illustrates the complexity involved reforming agricultural markets.

The rice markets in South Korea and Japan, two of the biggest consumers, are among the world's most heavily subsidized and protected agricultural markets. Until the enactment of WTO commitments in 1995, both countries imposed import bans on rice. They have remained the focus of efforts to liberalize the rice trade.

But almost all other Asian governments also protect their rice farmers through tariffs, subsidies or intervention by state marketing bodies. In many countries, even relatively cost-efficient farmers are supported under national agricultural promotion programs.

Alan Oxley, a former trade negotiator and chairman of World Growth, a nongovernmental organization that promotes free trade, said concessions from both developed and developing countries in products like rice are required for agriculture talks "the political linchpin" of the Doha round to succeed.

He points to a study issued by the World Bank this year showing the global removal of agricultural protection would generate $248 billion in economic welfare gains. More than half the gains would go to developing countries and most would come "from removal by developing countries of protection of their own farming," Oxley said.

But there is little sign of Asian countries, which account for 90 percent of global rice consumption and production, embracing the logic of trade economists. Even after the Uruguay round started to pry open closed rice markets, the average trade-weighted global tariff for rice remained at 43 percent in 2000, according to a World Bank report. Restricted market access has helped ensure that the global trade in rice has been limited to about 6.5 percent of global consumption, making it one of the least traded agricultural commodities. Part of the reason for the reluctance of governments to significantly liberalize can be seen in an analysis done for the World Bank showing a huge shift in consumer and producer welfare in both importing and exporting countries.

In a paper on rice trade liberalization for the World Bank, Eric Wailes, an agricultural economist who has extensively researched the rice industry, used an economic model called Riceflow to estimate the impact of removing tariffs and subsidies. He found exporters would benefit from a rise in global prices and production, while importers would experience large falls in rice prices, largely from the removal of their own market restrictions.

In importing countries, rice consumers gained $32.8 billion a year, while producers lost $27.2 billion. In exporting countries, consumers lost $68.8 billion, while producers gained $70.3 billion. Against the background of those shifts between consumers and producers, the net welfare gain globally from liberalizing rice trade was tiny: just $7.4 billion a year

Managing such large shifts between consumers and producers would potentially be a significant political battle for governments in both importing and exporting countries for marginal net gains. The net gain for importers was $5.4 billion; for exporters, it was $2 billion.

Wailes's study showed that in South Korea, removal of quotas and tariffs would triple the level of imports of medium-grain rice, the rice variety preferred by consumers. Prices would decline from $1,952 per metric ton to $840 per metric ton. Price cuts in other varieties would be even greater.

To Jung, the 51-year-old farmer, such price cuts would spell the end of rice growing on his plot of eight hectares, or about 20 acres, a tradition that goes back at least four generations. "I am in my 50s and there is nothing else I can do at my age," he said.

But the tide of politics and commerce is steadily moving against him.

Farmers' groups estimate that about 300,000 people have been leaving the countryside every year since 1990, and complain that the latest rice deal will accelerate the decline.

"The problem is that in the past 10 years," Jung said, "the government has not quite clearly communicated to farmers over the possible impact of liberalization. The opening of the rice market in Korea is inevitable and the government has been aware of that. But there have not been proper preparations for a sudden price drop."

Source: International Herald Tribune

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