SESSION 3.

Complementing Regional Rice Reserves with Novel Domestic Reserve Mechanisms

Roehlano M. Briones
Senior Research Fellow Philippine Institute for Development Studies

What to expect
Overview of self-sufficiency policies Storage and food security: background and conceptual framework Options for expanding reserves Review of options Conclusion

Policy options
Flexible self-sufficiency for importing country: domestic production target domestic utilization; import the balance (as needed) Domestic production target:
Productivity-enhancement to target yield and yield and area, such that marginal cost approximates world price Check that domestic production corresponds to capita intake compliant with nutritional norms

Policy options
Example calculation: 60% of 2,000 kcal (daily intake) = 1,200 kcal Of which 80% from rice = 960 kcal Kcal/gram of rice = 3.5 ~ 100 kg/year Compare actual per capita intake: 127.4 kg in Indonesia, 123.3 kg in the Philippines, 141.2 kg in Vietnam

Self-sufficiency policies in practice

Brunei: aims at 60% self-sufficiency Indonesia: 10% import quota Philippines: aims at 100% self-sufficiency Malaysia: aims at 70% self-sufficiency Singapore: 100% dependent on imports

But in the extreme case (mean vs shock):

Thai White 5% FOB mean and 95th percentile
600 550 500 450 400 350 300 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

AVERAGE 22% HIGHER

Mean

95th Percentile

Difference between normal and shocked paddy production (%)

0.0 -1.0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

-2.0 -3.0 -4.0

-5.0 -6.0 -7.0 -8.0 -9.0

AVERAGE 6% LOWER

AVERAGE 3% LOWER
Thailand Vietnam

Difference between normal and shocked milled rice consumption (%)

0.0 -1.0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

-2.0 -3.0 -4.0

-5.0 -6.0 -7.0 -8.0 -9.0

AVERAGE 2.5% LOWER

AVERAGE 2.8% LOWER

AVERAGE 6.2% LOWER

Indonesia Malaysia Philippines

Response to extreme supply shock

Commitment from exporting countries to avoid export bans and restrictions
But subject to negotiation and compliance Example: WTO

Regional rice reserve promising; sizable (787,000 tons); but insufficient to meet very large production shocks Alternative: Increased domestic storage

Utilization indicators
Utilization ('000 tons) Growth (%) 3.9 2.5 1.7 4.6 1.6 0.8 4.3 31.9 -0.3 1.0 Stocks-to-use ratio (%) 2010 57.6 10.9 6.1 8.0 29.4 21.9 22.1 19.2 63.6 29.9 2011 47.2 17.0 4.1 14.2 30.9 20.3 27.6 18.2 65.5 22.3 Imports-to-use ratio (%) 2010 88.2 0.0 0.6 1.3 31.6 0.0 20.0 118.9 0.0 0.0 2011 92.4 0.0 4.1 3.2 41.1 0.0 5.7 128.7 0.0 0.0 Exports-to-output ratio (%) 2010 0.0 35.0 0.0 2.2 0.0 4.9 0.0 42.2 27.8 2011 0.0 35.0 0.0 1.3 0.0 4.9 0.0 45.6 27.0 2010 Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam 32 2,961 39,034 1,748 2,470 19,593 11,898 209 12,120 19,270 2011 34 3,036 39,682 1,828 2,511 19,753 12,414 275 12,084 19,468

Conceptual framework
Economic theory of storage: private sector has incentive to undertake storage Theory is empirically relevant Implies that private storage not sufficient:
Does not take into account risk aversion Does not take into account threshold effects (associated with food security)

Options for expanding storage

STORAGE Stock Sourcing Public Private Option 1 Option 2 Public Traditional scheme Outsourcing of storage and Procurement of stocks even distribution to private from warehouses farmers/traders/millers, Complemented by storage stored in public incentives (concessional warehouse loans, tax exemptions, etc.) Option 3 Option 4 Private Compulsory storage in Emergency food reserves public warehouse by regulation Rarely observed

Evaluating the options

Option 1: public stocks in public storage Based on recent evidence:
Not cost-effective Large fiscal burden Ineffective in price stabilization

Evaluating the options

Option 2: public stocks in private storage Outsourcing: already being implemented Realizes lower cost from storage Can expand to other privatepublic sector participation, such as in importation and logistics (BruSiam Food), distribution (EFAP in Cambodia) But still incurs cost of public stocks

Evaluating the options

Option 4: private stocks in private storage Requires regulatory control by government Malaysia: outsourcing to BERNAS
BERNAS: public company that was privatized Privatization agreement involves maintaining buffer stocks (292,000 tons) Given the right to import (up to 2021); can be assigned to the private sector

Evaluating the options

Option 4: private stocks in private storage Warehouse receipt system: Philippines A-sugar (US market); B-sugar (domestic); Csugar (reserves); D-sugar (export); C-sugar can be reclassified Sugar is homogenous good, amenable to warehouse receipts

Evaluating the options

Option 4: private stocks in private storage Licensing system: RSS of Singapore A multiple of monthly imports required to be stored in government-designated warehouse To be rotated by importer Released by government under emergency

Evaluating the options

Little fiscal burden (but imposes cost on market agents) Require private sector development Adequate price volatility Enabling conditions for investment Monitoring and information system Strong and effective regulatory system

Conclusion
Reliance on private storage and private stocks preferred Requisite market development takes time to develop even with government incentives In the interim: public stocks in private storage other PPP measures Toward sustainable and cost-effective schemes for maintaining adequate reserves

For information, contact:

Roehl Briones
rbriones@mail.pids.gov.ph