Myths and realities on the rice crisis

The study exposes widely held myths on the rice crises and proposes workable policy options to avoid a repeat of a crisis. Myth claims that abnormal price increases are artificially induced by rent seeking conduct of the rice cartel through hoarding. But a Balance Sheet of rice clearly shows that supply deficits during the lean months are real not artificial. Myth 2 claims that production shortages always lead to abnormal price increases in crisis proportions. But production shortages that are larger than shortages in years when prices increased abnormally did not raise prices at abnormal rates when imports were adequate and timely. Myth 3 claims that import adversely affects all farmers. But if imports are surgical in timing precision only a very limited number of farmers will be affected. Myth 4 claims that the limited engagement of NFA in the market makes its influence on market price very insignificant. But with strategic injection in the lean months NFA's engagement can be substantial to have significant influence on retail price. Myth 5 claims that the Magna Carta for Small Farmers (MCFSF) serves farmer interest without cost. But the MCFSF may backfire to the farmers. Price increases in rice are equivalent to highly regressive tax. A 1 percent increase in the price of rice imposes a maximum equivalent tax of 0.169 percent to the lowest income quartile in rural households but only 0.036 percent to highest income quartile in urban households. Although liberalization of rice importation is always central in policy discussions no real reforms have been implemented. A sore issue delaying policy reforms is who grabs the economic rent from import liberalization. Two policy options are proposed to put into place the necessary trade reforms and at the same time retain a large share of the economic rent in government hands. The first is to bid out the right to import. The second is the charge variable levy that is tied-up to a target price determined to ensure competitive advantage of domestic production