The impacts of policy alternatives and foreign demand fluctuations on the US rice market

Jong-Pyeong Jeon

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: U.S. Government commodity programs have both direct and indirect effects on farmers, consumers, and taxpayers, and play a leading role in the U.S. agriculture. By some measures announced by U.S. Congress, agriculture receives more federal support relative to importance than any other sector of the economy. Specially, the U.S. rice industry is mostly influenced by the government policy because the rice industry is smaller than other grain industries;Export-oriented policies of Thailand can have dramatic consequences on the U.S. rice industry. Thailand, as the largest exporter and competitor against the U.S., has contributed to price and export variability in the U.S. rice market as well as in the world market;Furthermore, small swings in foreign demand for world rice market are important to analyze the U.S. rice industry because the U.S. rice industry heavily depends upon the world rice market, with more than 60 percent of national rice production as an outlet for exports;Under a Stackelberg duopoly assumption, Thailand as a price-leader and U.S. as a price-follower, an economic supply-demand model that represents economic forces acting in the U.S. rice industry was formulated. Then the effects of alternative policies of U.S. and Thailand, and world demand fluctuations of U.S. rice economy were examined by using this economic framework;Empirical study for 1960-1985 shows that an aggressive export policy of Thailand, an expansionary total production policy of major importers, and market-oriented policy of U.S. Government, might seem to hurt the rice farmers because of the lower farm price and supply, and hence loss of expected returns to rice farmers. Simulation result also shows that the Thailand export policy has much more significant impacts on the U.S. rice market than the U.S. support price policy and the expansionary production policy of major importing countries.

Date: 1989-01-01
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