ABSTRACT
In Korean agriculture, rice holds not only the status of being a staple food but it also remains the predominant crop for a significant proportion of farmers. However, a persistent trend of structural oversupply of rice has been ongoing since the late 1990s, with an overproduction of about 3.5% compared to production in the last 10 years (2013-2022). The surplus of rice can be attributed to several factors. Firstly, rice consumption has been steadily decreasing due to an increase in the consumption of livestock products. Secondly, as rice is a staple food, the government has implemented various measures to stabilize rice income, resulting in higher income stability compared to other crops. Thirdly, rice boasts of a very high mechanization rate, making it the preferred choice in rural areas where there is an aging agricultural workforce. To address the issue of rice oversupply, the government is actively promoting the distribution and cultivation of rice varieties intended for processing rather than for meal consumption. This strategy aims to alleviate the decline in rice consumption. Additionally, direct payments compensating for income from other crops are provided to support the transition from rice to soybeans and forage. Continuing the government's policy response to the decline in rice consumption is crucial. It not only preserves income when other crops are grown instead of rice but also involves developing additional measures to raise income stability between rice and other crops to a similar level. Policy development should encompass these considerations. Lastly, ongoing support is essential to elevate the convenience of cultivating other crops to the same level as rice.
Keywords: Rice industry, rice surplus, Strategic crop direct payment, powdered rice
INTRODUCTION
Rice is not only a staple food in Korean agriculture, but is still the most important crop based on various indicators. Although its importance has weakened compared to the past, rice accounts for the highest proportion of agricultural production and the proportion of farmers growing rice among all farms. For example, as of 2021, the rice production amount is KRW9.5263 trillion (US$7.33 billion, assuming 1 dollar is KRW1,300), which is 16.1% of the total agricultural production amount, and the number of rice farmers is about 390,000. It accounts for 37.8% of all farms.
Therefore, rice supply and demand conditions, rice prices, and rice income are also of great interest to many farmers, and from the perspective of Korean agriculture, they are also very important in maintaining the sustainability of rice production. Rice supply and demand has continued to be oversupplied since the late 1990s when supply began to exceed demand. Based on the announcement by the Ministry of Agriculture, Food and Rural Affairs, an annual average of 139,000 tons was oversupplied over the past 10 years (2013-2022), which was 3.5% of the average production during this period. Production and consumption show an overall decreasing trend, but the greater decline in consumption is the fundamental cause of rice oversupply. For example, the rice cultivation area decreased by an average of 1.6% per year from 2012 to 2021, while per capita rice consumption decreased by 1.9% during this period.
Hence, we aim to examine the current issues pertaining to the supply and demand of rice, which continues to hold a significant position in Korean agriculture. Additionally, we will explore policy directions aimed at addressing these challenges.
RICE SUPPLY AND DEMAND SITUATION
As observed earlier, over the past 10 years (2013-2022), rice consistently experienced surplus in most years, with an annual average surplus of 139,000 tons (3.5% of average production). The trend in rice production is on the decline, primarily due to a decrease in cultivation area. However, the more significant decline in rice consumption indicates a structural oversupply trend.
While there were years, such as 2015, when the surplus reached 8.2% of production, in 2019 and 2020, rice supply fell short due to poor crop conditions. Nevertheless, examining historical cases reveals that such a substantial decrease in rice production is highly unusual. In these instances, the response involved utilizing public reserves accumulated in preparation for emergencies, preventing a significant shortage of rice in the market.
FACTORS CONTRIBUTING TO RICE OVERSUPPLY
Rice consumption continues to decline, primarily attributed to the increased consumption of livestock products resulting from higher income levels. Over the past decade (2012-2021), per-person rice consumption has decreased at an average annual rate of 1.9%, and over the past two decades (2002-2021), it has decreased by an average of 2% per year. In contrast, meat consumption, comprising of beef, pork, and chicken, has seen a steady increase. Over the last decade, from 2012 to 2021, meat consumption rose by an average of 3.7% per year, climbing from 40.6 kg to 56.1 kg. Notably, pork and beef exhibited the highest growth rates, with consumption increasing by an annual average of 4.1% and 4.0%, respectively, during this period.
As rice is a staple food, the government has implemented various income stabilization support measures to safeguard it. Consequently, despite oversupply, rice prices have been maintained above a certain level, ensuring stable rice income compared to other crops.
The coefficient of variation for the monthly average price of rice is approximately 5%, whereas the coefficient of variation for other crops like potatoes, cabbage, and radishes is much larger, ranging from 30% to 40%. This difference can be attributed to the government's support policy, which addresses price risks and is exclusively implemented for rice.
The Rice Variable Direct Payment System, introduced in 2005 and applied to rice farmers until 2019, played a significant role. This policy established a target price and provided support by offering a subsidy equivalent to 85% of the difference between the market price and the target price when the market price of rice fell below the target. Although this system was abolished in 2020, the Rice Price Stability Support Policy, now known as the Grain Management Act, has been reintroduced to replace it. The Grain Management Act involves the government purchasing excess rice during the harvest season, when the surplus production reaches a certain level (more than 3% of production), to maintain rice prices at an appropriate level.
Additionally, in a context where agricultural labor is increasingly scarce due to factors like aging, rice cultivation stands out for its high level of mechanization and the least amount of labor time required per unit area. Over the last three years (2020-2022), the labor hours needed per 10a are 9.5 hours for rice, 17.6 hours for soybeans, and 56.7 hours for corn. Field crops such as garlic require 112.9 hours.
GOVERNMENT POLICY RESPONSE AND LIMITATIONS
To address the concentration of rice production and the resulting oversupply, the Republic of Korea's government has been implementing policies aimed at mitigating the decline in rice consumption and reducing rice production to a more appropriate level. For instance, starting in 2022, the government is promoting the expansion of powdered rice production and demand. Powdered rice cultivation maintains the structure of a traditional rice field and closely resembles edible rice, incurring almost no additional costs for changing crops. This approach provides advantages in terms of production efficiency and helps reduce the production of rice for direct consumption while increasing consumption for processing, thereby directly influencing rice supply and prices.
In the past, the rice flour processing industry development policy relied on wet milling, which incurred significant milling costs and time. Despite high costs, products made from rice flour, such as castella and rice chips, are sold on the market. For example, Starbucks, a famous coffee chain, sells rice chips and castella products made from rice flour in Korea. Recently, they announced plans to use rice flour as a main ingredient for sandwiches. However, with the introduction of a new variety (Baromi 2), dry milling is now feasible, representing a substantial cost reduction.
In 2023, approximately 3,300 hectares across 39 locations nationwide were designated as powdered rice production complexes, with corresponding training and production subsidies provided. The government aims to expand the powdered rice cultivation area to over 40,000 hectares by 2026.
To further reduce rice production to an appropriate level and promote the cultivation of crops with low self-sufficiency rates, such as wheat and soybeans, the government introduced the strategic crop direct payment system in 2023. Under this system, subsidies are provided for growing strategic crops in rice fields, which are crops highly dependent on imports or can replace rice cultivation. Different subsidies are allocated for each alternative crop, with KRW1 million per hectare for soybeans and powdered rice (US$769, assuming 1 dollar is KRW1,300), KRW4.3 million for roughage (US$3,308), and KRW500,000 for wheat (US$385).
CONCLUSION
The optimal solution to address the imbalance in rice supply and demand involves farmers reducing rice production and cultivating other crops in response to decreased demand. However, in reality, a complex interplay of diverse perceptions on how to approach the rice issue and industrial constraints make it challenging to naturally solve the problem.
As highlighted earlier, the high stability of rice income results from various income stabilization support policies, and the ease of cultivating rice is considerably greater compared to other crops.
Therefore, to solve this problem, an environment must be created so that income stability between rice and other crops is at a similar level. Of course, support should also be provided to raise the income from growing crops other than rice to the same level as rice. The 2020 promotion of the reform of the public-purpose direct payment system aimed to diminish the incentive for rice production by transitioning from a rice-centric direct payment system to an unspecified support system for farmland, emphasizing the aspect of maintaining farmland for food security. This policy direction should be sustained. However, despite the reform, rice still exhibits high income stability compared to other crops, and this is attributed to factors like the Grain Management Act. Therefore, crops other than rice also require support to gradually reduce income instability through policy measures.
Furthermore, ongoing support, such as increasing the mechanization rate and enhancing drainage, is necessary to elevate the convenience of cultivating crops other than rice to a level comparable to that of rice cultivation.
REFERENCES
Act On Operation Of Direct Payment Program For Promoting Public Functions Of Agriculture And Rural Communities, Act No. 16858, December 31, 2019
KOSIS(Korean Statistical Information Service), Rice production, https://kosis.kr/statHtml/statHtml.do?orgId=101&tblId=DT_1ET0221&checkFlag=N, December 31, 2023
MAFRA(Ministry of Agriculture, Food and Rural Affairs), Size of rice oversupply, internal data of MAFRA, December 31, 2023
Korea’s Rice Supply and Demand Situation and Challenges
ABSTRACT
In Korean agriculture, rice holds not only the status of being a staple food but it also remains the predominant crop for a significant proportion of farmers. However, a persistent trend of structural oversupply of rice has been ongoing since the late 1990s, with an overproduction of about 3.5% compared to production in the last 10 years (2013-2022). The surplus of rice can be attributed to several factors. Firstly, rice consumption has been steadily decreasing due to an increase in the consumption of livestock products. Secondly, as rice is a staple food, the government has implemented various measures to stabilize rice income, resulting in higher income stability compared to other crops. Thirdly, rice boasts of a very high mechanization rate, making it the preferred choice in rural areas where there is an aging agricultural workforce. To address the issue of rice oversupply, the government is actively promoting the distribution and cultivation of rice varieties intended for processing rather than for meal consumption. This strategy aims to alleviate the decline in rice consumption. Additionally, direct payments compensating for income from other crops are provided to support the transition from rice to soybeans and forage. Continuing the government's policy response to the decline in rice consumption is crucial. It not only preserves income when other crops are grown instead of rice but also involves developing additional measures to raise income stability between rice and other crops to a similar level. Policy development should encompass these considerations. Lastly, ongoing support is essential to elevate the convenience of cultivating other crops to the same level as rice.
Keywords: Rice industry, rice surplus, Strategic crop direct payment, powdered rice
INTRODUCTION
Rice is not only a staple food in Korean agriculture, but is still the most important crop based on various indicators. Although its importance has weakened compared to the past, rice accounts for the highest proportion of agricultural production and the proportion of farmers growing rice among all farms. For example, as of 2021, the rice production amount is KRW9.5263 trillion (US$7.33 billion, assuming 1 dollar is KRW1,300), which is 16.1% of the total agricultural production amount, and the number of rice farmers is about 390,000. It accounts for 37.8% of all farms.
Therefore, rice supply and demand conditions, rice prices, and rice income are also of great interest to many farmers, and from the perspective of Korean agriculture, they are also very important in maintaining the sustainability of rice production. Rice supply and demand has continued to be oversupplied since the late 1990s when supply began to exceed demand. Based on the announcement by the Ministry of Agriculture, Food and Rural Affairs, an annual average of 139,000 tons was oversupplied over the past 10 years (2013-2022), which was 3.5% of the average production during this period. Production and consumption show an overall decreasing trend, but the greater decline in consumption is the fundamental cause of rice oversupply. For example, the rice cultivation area decreased by an average of 1.6% per year from 2012 to 2021, while per capita rice consumption decreased by 1.9% during this period.
Hence, we aim to examine the current issues pertaining to the supply and demand of rice, which continues to hold a significant position in Korean agriculture. Additionally, we will explore policy directions aimed at addressing these challenges.
RICE SUPPLY AND DEMAND SITUATION
As observed earlier, over the past 10 years (2013-2022), rice consistently experienced surplus in most years, with an annual average surplus of 139,000 tons (3.5% of average production). The trend in rice production is on the decline, primarily due to a decrease in cultivation area. However, the more significant decline in rice consumption indicates a structural oversupply trend.
While there were years, such as 2015, when the surplus reached 8.2% of production, in 2019 and 2020, rice supply fell short due to poor crop conditions. Nevertheless, examining historical cases reveals that such a substantial decrease in rice production is highly unusual. In these instances, the response involved utilizing public reserves accumulated in preparation for emergencies, preventing a significant shortage of rice in the market.
FACTORS CONTRIBUTING TO RICE OVERSUPPLY
Rice consumption continues to decline, primarily attributed to the increased consumption of livestock products resulting from higher income levels. Over the past decade (2012-2021), per-person rice consumption has decreased at an average annual rate of 1.9%, and over the past two decades (2002-2021), it has decreased by an average of 2% per year. In contrast, meat consumption, comprising of beef, pork, and chicken, has seen a steady increase. Over the last decade, from 2012 to 2021, meat consumption rose by an average of 3.7% per year, climbing from 40.6 kg to 56.1 kg. Notably, pork and beef exhibited the highest growth rates, with consumption increasing by an annual average of 4.1% and 4.0%, respectively, during this period.
As rice is a staple food, the government has implemented various income stabilization support measures to safeguard it. Consequently, despite oversupply, rice prices have been maintained above a certain level, ensuring stable rice income compared to other crops.
The coefficient of variation for the monthly average price of rice is approximately 5%, whereas the coefficient of variation for other crops like potatoes, cabbage, and radishes is much larger, ranging from 30% to 40%. This difference can be attributed to the government's support policy, which addresses price risks and is exclusively implemented for rice.
The Rice Variable Direct Payment System, introduced in 2005 and applied to rice farmers until 2019, played a significant role. This policy established a target price and provided support by offering a subsidy equivalent to 85% of the difference between the market price and the target price when the market price of rice fell below the target. Although this system was abolished in 2020, the Rice Price Stability Support Policy, now known as the Grain Management Act, has been reintroduced to replace it. The Grain Management Act involves the government purchasing excess rice during the harvest season, when the surplus production reaches a certain level (more than 3% of production), to maintain rice prices at an appropriate level.
Additionally, in a context where agricultural labor is increasingly scarce due to factors like aging, rice cultivation stands out for its high level of mechanization and the least amount of labor time required per unit area. Over the last three years (2020-2022), the labor hours needed per 10a are 9.5 hours for rice, 17.6 hours for soybeans, and 56.7 hours for corn. Field crops such as garlic require 112.9 hours.
GOVERNMENT POLICY RESPONSE AND LIMITATIONS
To address the concentration of rice production and the resulting oversupply, the Republic of Korea's government has been implementing policies aimed at mitigating the decline in rice consumption and reducing rice production to a more appropriate level. For instance, starting in 2022, the government is promoting the expansion of powdered rice production and demand. Powdered rice cultivation maintains the structure of a traditional rice field and closely resembles edible rice, incurring almost no additional costs for changing crops. This approach provides advantages in terms of production efficiency and helps reduce the production of rice for direct consumption while increasing consumption for processing, thereby directly influencing rice supply and prices.
In the past, the rice flour processing industry development policy relied on wet milling, which incurred significant milling costs and time. Despite high costs, products made from rice flour, such as castella and rice chips, are sold on the market. For example, Starbucks, a famous coffee chain, sells rice chips and castella products made from rice flour in Korea. Recently, they announced plans to use rice flour as a main ingredient for sandwiches. However, with the introduction of a new variety (Baromi 2), dry milling is now feasible, representing a substantial cost reduction.
In 2023, approximately 3,300 hectares across 39 locations nationwide were designated as powdered rice production complexes, with corresponding training and production subsidies provided. The government aims to expand the powdered rice cultivation area to over 40,000 hectares by 2026.
To further reduce rice production to an appropriate level and promote the cultivation of crops with low self-sufficiency rates, such as wheat and soybeans, the government introduced the strategic crop direct payment system in 2023. Under this system, subsidies are provided for growing strategic crops in rice fields, which are crops highly dependent on imports or can replace rice cultivation. Different subsidies are allocated for each alternative crop, with KRW1 million per hectare for soybeans and powdered rice (US$769, assuming 1 dollar is KRW1,300), KRW4.3 million for roughage (US$3,308), and KRW500,000 for wheat (US$385).
CONCLUSION
The optimal solution to address the imbalance in rice supply and demand involves farmers reducing rice production and cultivating other crops in response to decreased demand. However, in reality, a complex interplay of diverse perceptions on how to approach the rice issue and industrial constraints make it challenging to naturally solve the problem.
As highlighted earlier, the high stability of rice income results from various income stabilization support policies, and the ease of cultivating rice is considerably greater compared to other crops.
Therefore, to solve this problem, an environment must be created so that income stability between rice and other crops is at a similar level. Of course, support should also be provided to raise the income from growing crops other than rice to the same level as rice. The 2020 promotion of the reform of the public-purpose direct payment system aimed to diminish the incentive for rice production by transitioning from a rice-centric direct payment system to an unspecified support system for farmland, emphasizing the aspect of maintaining farmland for food security. This policy direction should be sustained. However, despite the reform, rice still exhibits high income stability compared to other crops, and this is attributed to factors like the Grain Management Act. Therefore, crops other than rice also require support to gradually reduce income instability through policy measures.
Furthermore, ongoing support, such as increasing the mechanization rate and enhancing drainage, is necessary to elevate the convenience of cultivating crops other than rice to a level comparable to that of rice cultivation.
REFERENCES
Act On Operation Of Direct Payment Program For Promoting Public Functions Of Agriculture And Rural Communities, Act No. 16858, December 31, 2019
KOSIS(Korean Statistical Information Service), Rice production, https://kosis.kr/statHtml/statHtml.do?orgId=101&tblId=DT_1ET0221&checkFlag=N, December 31, 2023
MAFRA(Ministry of Agriculture, Food and Rural Affairs), Size of rice oversupply, internal data of MAFRA, December 31, 2023