Sticky Rice Problem
By Andy Jackson
Koreans have too much rice. It is not a matter of bulging waistlines but of bulging grain stores.
For the second year in a row, Korea has experienced above average harvests. This year's rice harvest is expected to total 4.65 million tons, above the normal haul of 4.57 million. Last year's harvest was even larger at 4.84 million. The nation is awash with rice.
The problem for Korea's farmers is that the resulting glut of rice has decreased prices, meaning that many farmers will be making less money despite having a good year in the fields. To make matters worse, overproduction is only one of several factors ― including changes in consumption patterns and the gradual opening of Korea's agricultural market ― that are driving prices down.
If farmers are not getting the price they want for rice, the logical thing to do is to grow something else next year on some of their land. Such a shift in production would cut the supply of rice, causing upward pressure on prices, while adding needed diversification to many farmers' sources of income.
However, there are two barriers to rapid diversification and the resulting relative flexibility in Korea's agricultural market.
The first barrier is physical. Korea's rice farms, with their systems of dykes and paddies, are designed for rice production and little else. Korea's farmers have also invested heavily in specialized equipment and facilities for rice cultivation. However, that is a relatively minor problem.
Korea does not need all of its farmers to leave rice production pell-mell. Rather, it needs marginal rice farmers to switch to other products or leave the business. It also needs farmers to diversify their production rather than switch wholesale to something else.
The problem is that no other sector of Korean agriculture brings in as much government largess as rice.
Which brings us to the primary reason Korea's agricultural system is relatively inflexible and undiversified: government intervention. For decades, the government has supported rice production with the goal of achieving total self-sufficiency in the nation's staple grain. It has succeeded, but only at the cost of supporting inefficiency and warping consumer prices.
For years, the Korean consumer has been the victim of that concerted effort between the government and powerful agricultural interests to keep rice prices (and production incentives) artificially high.
To make matters worse, the cost of government rice support to consumers is greater than the benefit to farmers. A report by John C. Beghin and Jean-Christophe Bureau of Iowa State University in 2002 noted that for every 10 won gain in farmer income due to government subsidies, the Korean consumer lost 15.8 won in income. Not only is the government stealing from Peter to give to Paul, it is doing so inefficiently.
Of course, consumers are not without power of their own. The National Statistical Office (as reported by the JoongAng Ilbo on Oct. 2) stated that per capita rice consumption has been falling by about 2 percent per year. Koreans consumed 99.2 kilograms per person in 1998 but only 75.3 kilograms per person today.
Much of the decrease in rice consumption can be attributed to changes in the Korean diet. However, the artificially high price of rice makes other options that much more appealing.
While the Lee administration may find it politically expedient to buy off rice farmers this year by supporting artificially high price levels through government purchases, it is hardly a long-term solution to a problem of overproduction that has itself been mainly caused by government support of rice production.
As the current inefficiencies in Korea's rice production are primarily the result of state action over the past several decades, it may be appropriate to temporarily assist farmers as they wean themselves off government support. However, such support must be measured and temporary.
Fortunately, both the unification and agriculture ministries have rejected the idea of tying the current rice surplus to food aid for North Korea. The latter is a humanitarian concern that must be addressed in consideration of verification of where the aid is sent and certainly should not be tied to annual variances in South Korea's rice harvest.
In any case, Korea's rice overproduction problem will likely go away by itself over the next decade as the nation's aging population of rice farmers, over half of whom are over 60 years old, retire or die.
By that point, Korea's agricultural industry will either have to increase efficiency to maintain rice production with fewer farmers, accept more migrant farm workers to maintain the agricultural labor pool, or accept greater rice imports. All of those options would likely lower rice prices for consumers.
Either way, the trend over the next 10 years is toward lower prices even as the number of Korea's rice producers decreases.
Until then, there is no need to reintroduce large-scale subsidy programs or other long-term ``solutions" to what is in all likelihood is a short-term problem.
Andy Jackson has taught courses on American government and has been writing on Korean politics and other issues for four years. He is the chairman of Republicans Abroad-Korea. He can be reached at firstname.lastname@example.org.