TRANSITION TO DECOUPLED RICE SUPPORT AND ITS PRODUCTION EFFECTS IN KOREA

Abstract

Abolishing a nearly 50-year-old policy for rice price support, Korea adopted a new direct payment program in 2005. Making the transition to decoupled income support has been governed by the need for operative and effective income safety nets and the WTO disciplines on domestic support. The program aims to deal with over-supply of rice while guarding against the threat of income insecurity. Integrated into a target price mechanism, the fixed and variable payments compensate part of farm income loss arising from adverse market conditions. An empirical estimation based on the farm-level data is performed to test the degree of a linkage between rice support and production. The analysis suggests that rice support have only marginal influence on production with the elasticity of 0.03. To secure a smooth implementation of structural reforms and meet the WTO disciplines, Korea may continue to transfer its support into a decoupled, Green Box type measure.

Abolishing a nearly 50-year-old policy for rice price support, Korea adopted a new direct payment program in 2005. Making the transition to decoupled income support has been governed by the need for operative and effective income safety nets and the WTO disciplines on domestic support. The program aims to deal with over-supply of rice while guarding against the threat of income insecurity. Integrated into a target price mechanism, the fixed and variable payments compensate part of farm income loss arising from adverse market conditions. An empirical estimation based on the farm-level data is performed to test the degree of a linkage between rice support and production. The analysis suggests that rice support have only marginal influence on production with the elasticity of 0.03. To secure a smooth implementation of structural reforms and meet the WTO disciplines, Korea may continue to transfer its support into a decoupled, Green Box type measure.