Question

4. It is sometimes asserted that rice in very poor Asian countries might be an inferior good. Even though there is no evidence that this is indeed the case, explain the reasoning behind this assertion.

Answer 1

Rice and food security in Asia

More than 90% of rice is produced and consumed in Asia. In terms of food consumption, what distinguishes Asia from the rest of the world is its great dependency on rice: it is the basic staple for the majority of the population, including the region’s 560 million poor. Other regions rely more heavily on other cereals.

Indeed, as a poor person’s food, rice is a sensitive topic in many Asian countries; governments can “make or break” themselves with the fall and rise of rice prices. In many of these countries, rice is deeply engraved in their rich culture and tradition. Asian countries also take immense pride in having a vibrant rice farming system, and the reaffirmation of many countries after the 2008 rice price crisis to revitalize the domestic rice sector and achieve food security through rice self-sufficiency is a good example of what rice means to many countries in the region.

In line with the rising rice consumption, per capita calorie intake also increased by more than 40% from 1,891 in 1960 to 2,706 in 2009. Similarly, life expectancy and infant mortality witnessed significant improvements during the post-Green Revolution era. Altthough the contribution of rice to total calorie intake dropped in Asia during this period (from 38% in 1970 to 29% in 2009), it still accounts for 45–70% of the total calorie intake in many rice-consuming countries in the region, including, Bangladesh, Cambodia, Indonesia, Vietnam, and many other Asian countries.

Changing consumption patterns

Since the early 1990s, strong economic growth in many Asian countries, particularly in China and India, halted the upward trend in Asian per capita rice consumption as consumers diversified their diet from rice to high-value foods such as meat, dairy products, fruits, and vegetables. Between 1992 and 2005, per capita rice consumption in Asia as a whole declined from 103 to 96 kg. Per capita rice consumption in India began to decline after the economic liberalization in the early 1990s. In China and India, per capita consumption declined by 10 and 8 kg, respectively, between 1992 and 2005. Nevertheless, total rice consumption in Asia has continued to rise on the back of population growth and the rise in per capita rice consumption in other Asian countries.

However, the declining trend in per capita rice consumption in large countries such as China, India, and Indonesia has been reversed in the last few years and per capita consumption has started rising again. This upswing contributed to the recent surge in total annual Asian rice consumption by 40 million t over 7 years. Household consumer expenditure data collected by India’s National Sample Survey Organization confirm the flattening in per capita consumption in recent years from the declining trend in the 1990s in all four regions of India.

In other Asian countries such as Bangladesh and the Philippines, per capita rice consumption remains strong across income groups in both urban and rural areas. National representative household consumption survey data collected between 2000 and 2010 from both the Philippines (Family Income and Expenditure Survey) and Bangladesh (Household Income and Expenditure Survey) confirm this trend. Even high-income groups in both rural and urban areas consume more rice with a rise in income. Unlike the Philippines and Bangladesh, per capita rice consumption is on a downward trend in other Asian countries such as Malaysia, Thailand, and Vietnam.

Asia

Rice and food security in Asia

More than 90% of rice is produced and consumed in Asia. In terms of food consumption, what distinguishes Asia from the rest of the world is its great dependency on rice: it is the basic staple for the majority of the population, including the region’s 560 million poor. Other regions rely more heavily on other cereals.

Indeed, as a poor person’s food, rice is a sensitive topic in many Asian countries; governments can “make or break” themselves with the fall and rise of rice prices. In many of these countries, rice is deeply engraved in their rich culture and tradition. Asian countries also take immense pride in having a vibrant rice farming system, and the reaffirmation of many countries after the 2008 rice price crisis to revitalize the domestic rice sector and achieve food security through rice self-sufficiency is a good example of what rice means to many countries in the region.

The introduction of high-yielding varieties in the late 1960s, which marked the beginning of the Green Revolution, has more than tripled Asian rice production in the past four-plus decades, from 200 million t (paddy equivalent) in the early 1960s to more than 600 million t in 2010. This has been possible with the introduction of modern varieties in tandem with assured irrigation, subsidized inputs (such as fertilizer, fuel, and pesticide), and guaranteed prices. During this period, more than 1,000 modern varieties were released to farmers in Asian countries, with adoption going from 30% in 1970 to about 70% in 1990.

The success of the Green Revolution in the 1960s witnessed a steady rise in Asia’s per capita rice consumption from 85 kg in the early 1960s to nearly 100 kg by 2010; on the other hand, global per capita consumption rose from 50 to 65 kg during the same period. The rising per capita consumption in combination with the growing population resulted in a tripling of total Asian rice consumption during this period from 150 to 450 million t (milled rice equivalent).

In line with the rising rice consumption, per capita calorie intake also increased by more than 40% from 1,891 in 1960 to 2,706 in 2009. Similarly, life expectancy and infant mortality witnessed significant improvements during the post-Green Revolution era. Altthough the contribution of rice to total calorie intake dropped in Asia during this period (from 38% in 1970 to 29% in 2009), it still accounts for 45–70% of the total calorie intake in many rice-consuming countries in the region, including, Bangladesh, Cambodia, Indonesia, Vietnam, and many other Asian countries.

Changing consumption patterns

Since the early 1990s, strong economic growth in many Asian countries, particularly in China and India, halted the upward trend in Asian per capita rice consumption as consumers diversified their diet from rice to high-value foods such as meat, dairy products, fruits, and vegetables. Between 1992 and 2005, per capita rice consumption in Asia as a whole declined from 103 to 96 kg. Per capita rice consumption in India began to decline after the economic liberalization in the early 1990s. In China and India, per capita consumption declined by 10 and 8 kg, respectively, between 1992 and 2005. Nevertheless, total rice consumption in Asia has continued to rise on the back of population growth and the rise in per capita rice consumption in other Asian countries.

However, the declining trend in per capita rice consumption in large countries such as China, India, and Indonesia has been reversed in the last few years and per capita consumption has started rising again. This upswing contributed to the recent surge in total annual Asian rice consumption by 40 million t over 7 years. Household consumer expenditure data collected by India’s National Sample Survey Organization confirm the flattening in per capita consumption in recent years from the declining trend in the 1990s in all four regions of India.

In other Asian countries such as Bangladesh and the Philippines, per capita rice consumption remains strong across income groups in both urban and rural areas. National representative household consumption survey data collected between 2000 and 2010 from both the Philippines (Family Income and Expenditure Survey) and Bangladesh (Household Income and Expenditure Survey) confirm this trend. Even high-income groups in both rural and urban areas consume more rice with a rise in income. Unlike the Philippines and Bangladesh, per capita rice consumption is on a downward trend in other Asian countries such as Malaysia, Thailand, and Vietnam.

Future consumption trends

As we look ahead, income growth, urbanization, and other long-term social and economic transformations are likely to influence the composition of the future food basket. Normally, one would expect diversification away from rice to more high-value foods such as meat, dairy products, fruits, and vegetables in the diet as income rises. But, the diversification rate in many Asian countries will also be influenced by the extent of government interventions in price control and subsidized food grain distribution.

India is a good example, where the government has a new and elaborate food subsidy program to provide highly subsidized food grains (rice and wheat) for 65 million below-poverty-line households, including nearly free food grains to 20 million Antyodaya Anna Yojna households, the poorest of the poor households. Each of the 65 million households receives 35 kg of grains every month at 74–86% below the procurement cost. The above-poverty-line families are also given 15–35 kg of grain every month depending on availability at less subsidized prices. In 2011-12, the food subsidy bill amounted to nearly $14 billion.

Overall, it may be reasonable to assume that diversification away from rice will be slow in many Asian countries and the minimum threshold level of rice consumption for each country will be different.

In addition, 700 billion more people will have to be fed in the next 30 years, based on the United Nations’ 2010 population projections—the Asian population will reach nearly 5 billion by 2035 and 5.15 billion by 2050. If Asian per capita rice consumption follows the trend it has seen in the past two decades, total consumption will grow at the rate of population growth. Total consumption growth may even exceed population growth if the recent uptrend in per capita consumption in the “big three” countries (China, India, and Indonesia) continues.

Climate change

Apart from the various constraints described above, the anticipated changes in global climate in the form of rising temperature, increasing amount of carbon dioxide in the atmosphere, greater frequency of extreme weather events (e.g., floods and droughts), and greater incidence of pests and diseases are likely to make things more complicated for rice production. A large share of rice production is already lost to various abiotic stresses (flood, drought, and salinity) and biotic stresses (pests and diseases). Among the abiotic stresses, drought is the strongest constraint, affecting nearly a third of the total rice area in Asia and causing significant economic losses to poor rice producers in the region. The average production loss due to drought in three regions (eastern India, northeastern Thailand, and southern China) adds up to $200 million annually. Floods regularly cause severe rice yield damage on 16 million ha of flood-prone rice in Asia. The annual loss in rice production in South Asia alone is estimated to be 4 million t. Salinity, though not as big a stress as drought and flood, still affects 10 million ha of coastal and inland areas. But, growing rice is the only option available to farmers in the saline-prone coastal regions where nothing else can be grown, and this crop is critical to the food security of these resource-poor farmers.

Future supply prospects

In the first three decades of the Green Revolution, the higher productivity growth, more than 2% annually, provided incentives for farmers to bring additional area into rice production. Part of the area expansion has been possible because of greater cropping intensity through the adoption of short-duration varieties. A combination of productivity growth and area expansion provided the production growth needed to keep rice prices affordable and meet global needs. However, yield growth has slowed significantly, falling below 1% by the early 2000s but increasing again after 2005. The effect of the overall decline is evident with two food price spikes since 2007 and a steady rise in rice prices since 2001. From 2001 to 2007, rice prices nearly doubled primarily because of the supply-demand imbalance. Between November 2007 and May 2008, the rice market witnessed the tripling of international rice prices. Although prices went down quickly after May 2008, they settled at a much higher level of $500–600 per ton vis-à-vis $300–400 before the crisis.

The current rice area is at an all-time high at around 160 million ha compared with 120 million ha in the early 1960s. Further expansion of rice area in the future is not a viable option for most Asian rice-growing countries, where additional land is no longer available and pressure on the existing rice land from urbanization and other nonagricultural uses is growing rapidly. For example, China’s rice area has declined by more than 5 million ha (15%) in the past three decades and this downtrend may continue. Although a similar downtrend has not been evident in other rice-growing countries in the region because of government interventions, it is hard to foresee how governments can continue with such interventions in the face of rising costs, water shortages, and growing pressure from competing sectors.

Market distortions

Historically, rice production in Asia has been subjected to extensive market distortions because of its strategic and political importance. For decades, governments in the major rice-growing countries in the region have attempted to minimize the market risk faced by farmers through various policy measures such as subsidized inputs (fertilizer, seed, fuel, pesticide, machinery, etc.) and a guaranteed price for paddy. The goal was to support farm income and at the same time keep rice affordable for millions of urban poor. To make domestic programs work, most Asian countries have tried to insulate the domestic market from global uncertainty through a slew of trade measures, including state trading, export bans, import bans, import tariffs, export quotas, and others. However, since the rice price crisis in 2007, countries have renewed their efforts to expand rice production by raising support prices at a much faster rate than in the past. For example, in India, the minimum support price (the price at which the government purchases crops from the farmers) for rice increased by 75% between 2007 and 2011, whereas it took from 1994 to 2006 for the minimum support price to increase by a similar proportion.

The recent rice price crisis in 2007 has forced many rice-growing countries to take measures to achieve food security through self-sufficiency and move away from their dependence on foreign rice, a trend that will depress rice trade in the future. Exporters such as Pakistan, Thailand, and Vietnam would cut back on their production to reduce the exportable surplus and use their land for planting other profitable crops. A smaller market will lead to greater price volatility, with a rapid rise in rice prices in years of low production and vice versa. This will particularly affect the food security of poor countries that cannot afford to buy rice at higher prices from the international market.