President Yoon Seok-yeol on Thursday exercised his right of reconsideration (veto) on the amendment to the ‘Grain Management Act’. Due to the composition of the National Assembly, it is unlikely that the bill will be reconsidered. We can’t help but look back at the debate that has been going on since the 2021 Korean rice harvest season and wonder what we are left with besides the ‘abandoned bill’. While the ruling and opposition parties fought over the mandatory market quarantine, the government’s alternative, the Strategic Crop Direct Payment System, was not properly tested and no new alternatives were presented. With the recent analysis by Statistics Korea showing that the profitability of rice farmers deteriorated significantly last year, rice prices are still stagnant. We asked experts for their opinions on what should be checked and discussed in the future for the rice industry, which is still in a precarious situation.
How to manage surplus rice: the core of the debate: in the debate on the Rice Management Act, the ruling and opposition parties fought a localized war over the mandatory market quarantine clause. While the ruling and opposition parties focused their attacks on the word “mandatory,” the necessity and effectiveness of market quarantine, as well as how to manage excess rice, were not discussed in depth.
Experts agree that market quarantine is not a fundamental solution to rice oversupply. “The market quarantine system is a reactive measure that is not precise enough, and it is only a stopgap measure, as the quarantined rice will be released back into the market at some point,” said Yang Seung-ryong, professor of food and resource economics at Korea University.
So what should governments do? “The government needs to stimulate demand through steady market-making policies and promote rice production by giving farmers confidence that the expected income from other crops is greater than rice in the long run,” said Kim Myung-hwan, senior economist at GS&J Institute. He emphasized the importance of proactive efforts to balance supply and demand.
“The government should promote the development of varieties that meet new consumer demands and increase the production of high-quality rice to increase consumer loyalty, while also making efforts to reduce the oversupply of staple rice,” said Kim Jong-in, a research fellow at the Korea Rural Economic Research Institute.
“We need to expand the public rice reserve from the current 350,000 tons to 500,000 to 600,000 tons, and consider increasing the use of rice for alcoholic beverages and welfare, taking into account the trend of rice wine preference and the poverty rate among the elderly,” said Kim Ho, professor of environmental resource economics at Dankook University.
Market quarantine is necessary when there is a temporary surplus due to a major windstorm, but even then, experts agree that the current quarantine system needs to be improved. “If it is mandatory to respond to 3% overproduction or 5% price decline (as proposed by the Democratic Party), policy intervention will occur too often, and policy failures caused by statistical errors may distort market functioning,” said Kim, a senior economist. “It would be preferable to abolish the volume standard in the market quarantine principle and respond to the price decline rate in the range of 5 to 10%.”
“We need to reorganize the collection and analysis system of accurate and reliable rice production, consumption, and inventory statistics before market quarantine,” advised Lim Jeong-bin, a professor at Seoul National University’s Department of Agricultural Economics and Sociology.
Strategic Crop Direct Payment System: Is it Enough?
The core of the government’s alternative to the rice problem is the Strategic Crop Direct Payment System. The idea is to reduce rice production and increase food security by inducing the cultivation of other crops such as Korean wheat, soybeans, fodder, and milled rice instead of rice.
However, there are doubts about its effectiveness. First of all, there are voices that there are not enough incentives to induce the switch to other crops. “The level of direct payments for strategic crops is much lower than similar projects in the past,” said Kim. “Except for summer rice, which has a unit price of 4.3 million won per hectare, the incentives for winter crops (500,000 won), paddy beans and powdered rice (1 million won) are very weak, so there seems to be a problem with the policy design in the first place.”
“Looking at the progress of the government’s 2023 rice production business plan, the (Strategic Crop Direct Payment System) targets for total rice and other crops have not been achieved because it is impossible to predict income for these items,” said Lim Byung-hee, secretary general of the Korea Rice Farmers’ Federation. “Regardless of whether the unit price of each item is high or low, if it is impossible to predict income, it is inevitable that it will be difficult to participate in the project.”
There is also the issue of marketing the crops planted instead of rice. “The gradual increase in the unit price of the strategic crop direct payment system should be accompanied by policy support to secure stable sales,” said Seo Yong-seok, secretary general of the Korea Federation of Successor Agricultural Business Owners.
Lee Geun-hyuk, policy chairman of the National Federation of Farmers’ Associations, also said, “It is urgent to spread storage, processing, and distribution technologies and secure sales channels so that the wheat, soybeans, and milled rice produced do not pile up in warehouses.”
Business continuity is also a hot topic. “The strategic crop direct payment system needs to be sustainable,” Lee said, noting that if it is discontinued, as was the case with the paddy intercropping support program (production adjustment system), it will have a backfire effect (such as farmers reverting to rice). “Even if it doesn’t work as well as expected in the short term, the government should implement policies based on other crops in the medium to long term, such as income preservation (enhancement) and increasing the rate of mechanization of other crops,” Kim said.
But there’s also a darker diagnosis: it’s not sustainable in the first place. “Based on the precedent of the production adjustment system, the effectiveness of the program was low for reasons such as the fact that areas that were not intended to grow other crops were selected for the project, and many farmers reverted to more profitable rice when the subsidy was stopped,” said Kim. “As shown by the fact that the US, Europe, and Japan eventually abandoned the program, it is a policy with a low reduction effect compared to the cost.” New alternatives are needed.
Source: Nongmin.com