madagascar - rice policy...

Discussion Draft (July 15)

1

Madagascar - Rice Policy Note

Summary and Key Recommendations

Successful achievement of Madagascar’s rice policy objectives will depend on the government’s ability to strike a balance between the competing interests of producers and consumers. In the short run, there is a need to ensure that sufficient quantities of affordably-priced rice will be available during the upcoming lean season (soudure). Over the longer term, there is a need to ensure that rice farmers continue to produce for the market, so the nation does not have to rely on unreliable and costly imports. The government must quickly decide a strategy for pursuing these objectives and communicate its strategy publicly, to reduce uncertainty and facilitate rational decision making by market participants.

Short run measures

Even though rice is abundantly available in the market today, three factors—all linked to the current political and economic uncertainty—could lead to shortages during the upcoming lean season: (1) farmers may not plant the same area during the approaching contre saison as they did last year; (2) traders may not accumulate adequate stocks and place them into storage; and (3) importers may not place orders for fourth-quarter 2009 / first-quarter 2010 delivery.

To ensure that adequate supplies of rice are available during the coming months, the government should take the following actions:

1. Refrain from releasing imported rice into the market at subsidized prices, to allow paddy prices to revert more quickly to longer-term trends;

2. Provide technical assistance and financial support to ensure that farmers have access to improved seeds and fertilizer during the current contre saison and the upcoming main season;

3. Expand grain storage capacity at the farm and village level and support incentives to store grain (e.g., through warehouse receipts schemes);

4. Prepare to implement safety nets to protect vulnerable groups (for example, conditional cash transfers that boost purchasing power of vulnerable groups).

Given the uncertain supply prospects, the government may also want to consider establishing on a temporary basis a limited reserve stock to protect vulnerable groups, to be released in case of emergency through transparent rules and in close cooperation with private traders.

In the short term, these measures are likely to be more effective than fiscal policy measures, which might not be effective and which could provoke political difficulties. Protectionist measures such as the reintroduction of the rice import tariff and the value-added tax (VAT) on rice should not be necessary, because the price of imported rice, while lower than last year, is still well above the cost of production of local rice. If markets function efficiently, farmers should be able to sell at a profit. Reintroduction of the rice import tariff (previously 18 percent) and the VAT on rice (previously 20 percent) would increase the retail price of rice to above 1,300 Ar/kg, a level that might lead to politically unacceptable pressure on consumers.


2

Longer term measures

Managing rice prices: Policy makers should be cautious about using price controls or direct market operations (buying and selling) to manage rice prices over the longer term. Price stabilization is difficult to accomplish and can generate large fiscal costs. Such actions might however be justified under two scenarios:

(i) Import parity price falls far below domestic cost of production: Should this situation persist, low-priced imports could flood into the country, lowering paddy prices and undermining incentives for local producers. Farmers might respond by cutting back plantings, reducing the income of rural households and leaving the country reliant on imports. In this case, government might want to consider reintroducing the import tariff on rice. Benefits to Malagasy producers from this protectionist approach would have to be weighed against the higher rice prices paid by consumers.

(ii) Import parity price rises far above the domestic cost of production: Should this situation persist, domestic prices could rise significantly, placing a heavy burden on consumers. While Malagasy producers would be expected to respond over the longer term by increasing production, the government might want to consider importing rice for targeted distribution to vulnerable groups at subsidized prices.

Stimulating rice production: Over the longer term, considerable potential exists to increase rice productivity and lower production costs. Malagasy producers could become suppliers for the region and beyond. This will require interventions in a number of areas (e.g., production technology, infrastructure, finance, market coordination). A key priority must be to increase storage capacity at the farm and village levels, since this will enable producers to avoid post-harvest distress sales and allow them to sell grain later in the year when prices are favorable.

Introduction

1. The quantity and price of rice available in the market in Madagascar during the coming months will be affected by many factors, including:

(i) International rice prices. International rice prices have receded from their earlier highs but remain well above long-term trend levels. International rice prices expressed in local currency are influenced also by the exchange rate; during recent months, depreciation of the Ariary has made imports even more costly.

(ii) Government programs. The political crisis has disrupted implementation of many government programs designed to promote rice production, raising questions as to whether recent production levels will be maintained.

(iii) Policy signals. Unclear and conflicting messages sent by government in recent months have created uncertainty for key market participants, including producers and traders.

2. Rice policy design in Madagascar has a short-run dimension and a long-run dimension. In the short run, there is a need to ensure that sufficient quantities of affordably-priced rice will be available during the “lean season” (soudure) that can be expected to occur prior to the harvest of the main 2010 rice crop. Over the longer term, there is a need to ensure that rice producers will


3

have incentives to grow rice for the market, to ensure that the nation remains self-sufficient or close to self-sufficient in rice and does not have to rely on unreliable and costly imports.

Rice in Madagascar

3. Rice is economically and politically important in Madagascar. It is the leading crop grown by the vast majority of rural households and the main food staple, accounting for 48 percent of total calorie consumption. In addition, it is an important wage good whose price indirectly influences the real incomes of most households.

4. Despite efforts by successive governments to increase rice productivity and production, the rice sector in Madagascar has been static for quite some time. Most rice is still grown using traditional techniques. Adoption of modern varieties has been negligible, and fertilizer use has leveled off at around 10 kg/ha, far less than in most other countries where rice is the leading crop. Average paddy yields remain low, about 2.6 t/ha.

5. Over the past 35 years, rice production has increased by only 1.2 percent per year, reflecting the combined effects of slow area expansion (0.4 percent per year) and sluggish productivity growth (0.7 percent per year). During the same period, the population grew at an annual rate of 2.7 percent. As a result, rice production per capita fell from 275 kg/person/year in 1970 to 179 kg/person/year in 2004.

6. Most rice produced in Madagascar is retained for home consumption. Out of total paddy production of around 4 million tons, only one-quarter to one-third is marketed.

7. Madagascar is the largest rice producer in sub-Saharan Africa, but imports are still needed to meet national consumption requirements. During each of the past three years, consumption of rice averaged about 2.5 million tons per year, of which 150,000 to 300,000 tons was met through imports.

Current rice market situation and prospects for the lean season

8. Rice production in Madagascar increased by an estimated 10-15 percent in 2009 relative to the previous year, mainly because of increased plantings in response to high paddy prices prevailing in 2008 and favorable weather during the cropping season. Today there is an excess of supply on the domestic market, as reflected by low producer and retail prices.

• Producer prices currently average about 450 Ar/kg, approximately 25 percent lower than the 600 Ar/kg that prevailed 12 months ago. Producer prices in some production zones have fallen much lower, reportedly to 100 Ar/kg at times. Low paddy prices are due in part to the recent large harvest, which has left markets awash in paddy. However an additional factor depressing paddy prices has been the reluctance of traders to offer higher prices. Traders justify the low buying prices on the grounds that market prospects remain very uncertain; they argue that they will lose money if they pay high prices for paddy and the government then resumes selling rice at concessional prices. Low paddy prices are reducing the incomes of many producers.

• Retail rice prices are falling in response to the low paddy prices, and possibly also because of the presence in the market of low-cost imports. Retail prices in many major


4

markets are below the prices that prevailed at this time last year. This has brought some relief to consumers.

9. Given the importance of rice for most households in Madagascar, rice availability and prices have major consequences for political stability. For now, with the main rice harvest still making its way through the market, supplies are abundant, and prices are low. This provides several months of breathing space for the government, affording it with an opportunity to put in place rice policies that can meet both the short-term goal of ensuring adequate supplies at affordable prices, as well as the longer-term goal of raising productivity and production to lower costs and ensure national food security. However, the government must quickly decide a strategy for pursuing these objectives and communicate that strategy to the public, in order to reduce uncertainty and facilitate rational decision making by all market participants.

10. Even though rice is abundantly available in the market today, three factors—all linked to the current political and economic uncertainty—could lead to shortages during the upcoming lean season: (1) rice farmers may not plant the same area during the contre saison as they did last year; (2) rice traders may not accumulate adequate stocks and place them into storage; and (3) rice importers may not place orders to for fourth-quarter 2009 / first-quarter 2010 delivery.

11. Three key groups of market players—producers, traders, and importers—now find themselves facing considerable uncertainty about what will happen next.

• Producers fear that if prices remain low, production for the market will become unprofitable. Many are expressing reluctance to invest in improved inputs during the upcoming contre saison. This could lead to a steep fall in production, generating the need for increased imports.

• Traders are reluctant to accumulate large stocks of local rice for fear that these stocks might be confiscated or undermined by government sales of subsidized imported rice (as happened to Magro earlier in the year). Government’s reserves are also low, estimated at only 20 000 tons.1

• Importers are reluctant to place orders to meet the (possibly) increased need for future imports because they are unsure whether the government will also import rice and possibly sell it at subsidized prices.

12. For these reasons, despite the favorable current harvest, there is risk that demand during the upcoming lean season is unlikely to be satisfied by local production and imports, resulting in possible shortages and upward pressure on retail prices.

1 Anticipating the usual shortage during the lean season, the government made arrangements to import 35,000 tons of rice. Orders were placed during the first quarter of the year. Beginning in April, about 15,000 tons of imported rice was released into the market, mainly in urban centers. This rice was sold at a retail price of 500 Ar/kg, about one-half of the normal retail price, ostensibly to mitigate the impacts of the political crisis on the poor.

Rice policy objectives and possible

13. Successful achievement of the government’s rice policy objectives will depend critically on its ability to strike a balance between the competing interests of producers and consumers. This will require interventions on two frontsrice remains high enough to provide incentives for rice producers, yet not so high as to impose an unacceptable burden on consumers. Second, farmers to boost production (though lower costs or higher productivity) supplies of domestically produced rice come on to the market.

1. Managing rice prices

14. Rice prices in Madagascarof year (see Table 1). For approximately six months following the main season harvest when supplies of local rice are abundant, prices are determined For the remaining six months when supplies ofdomestic prices align closely with the import parity price. this way have remained in a rangemarket while keeping rice affordable to most consumers.

15. Market forces sometimes result in prices that are considered either “too low” or “too high.” “Too low” is generally understood to mean prices that have fallen to a level below the local cost of production. “Too high” is that imposes an unacceptable burden on consumers. Neither of these levels is subject to precise definition. For example, the local grown using improved production techniques

Table 1. Prices of local and imported rice, Madagascar (2007)

Discussion Draft

5

and possible strategies

Successful achievement of the government’s rice policy objectives will depend critically on its ability to strike a balance between the competing interests of producers and consumers.

interventions on two fronts. First, price policies must ensure that the price of rice remains high enough to provide incentives for rice producers, yet not so high as to impose an unacceptable burden on consumers. Second, production support policies must e

(though lower costs or higher productivity) to ensure that adequate supplies of domestically produced rice come on to the market.

ice prices in Madagascar are determined in two different ways, depending on the time . For approximately six months following the main season harvest when

supplies of local rice are abundant, prices are determined by domestic supply and demand forceswhen supplies of local rice have run out, imports are needed,

domestic prices align closely with the import parity price. In recent years, prices established in this way have remained in a range that has provided incentives for producers to produce for the

e keeping rice affordable to most consumers.

arket forces sometimes result in prices that are considered either “too low” or “too high.” “Too low” is generally understood to mean prices that have fallen to a level below the

oo high” is generally understood to mean prices have risen to a level burden on consumers. Neither of these levels is subject to precise

local cost of production ranges from less than 250 Ar/kg for grown using improved production techniques to 350 Ar/kg or more for paddy



Successful achievement of the government’s rice policy objectives will depend critically on its ability to strike a balance between the competing interests of producers and consumers.

policies must ensure that the price of rice remains high enough to provide incentives for rice producers, yet not so high as to impose an

policies must enable rice to ensure that adequate

depending on the time . For approximately six months following the main season harvest when

by domestic supply and demand forces. imports are needed, and

In recent years, prices established in that has provided incentives for producers to produce for the

arket forces sometimes result in prices that are considered either “too low” or “too high.” “Too low” is generally understood to mean prices that have fallen to a level below the

ave risen to a level burden on consumers. Neither of these levels is subject to precise

cost of production ranges from less than 250 Ar/kg for paddy paddy grown using



6

traditional methods. Similarly, while retail prices up to 1,000 to 1,100 Ar/kg generally are deemed acceptable, many poor households clearly have difficulty meeting their food needs when rice is priced at this level.

16. Often when rice prices have been “too low” or “too high,” the government has intervened in the market. When prices have been “too low,” the government has used an import tariff and/or a VAT on rice to exert upward pressure on prices. The import tariff increases the cost and reduces the supply of imported rice. The VAT increases the price of all rice, since it applies uniformly on domestically produced and imported rice. (In reality the VAT also acts as a protection measure, since the evasion rate is higher on locally produced rice.) When prices have been “too high,” the government has imported rice and sold it into the local market, sometimes at a cost below the purchase price.

17. Are current rice prices “too low” or “too high,” and if so, is intervention needed? Table 1 provides insights into the competitiveness of Malagasy rice producers by comparing the production cost of local rice to the import parity price. Under the baseline scenario (Scenario 1) in which the suspension of tariff and VAT remains in effect, and based on the current international price of rice of USD 340/MT (milled rice, 25 percent brokens, FOB Karachi), the import parity price in the Antananarivo market is estimated to be 972 Ar/kg. Adjusting for domestic transport and handling costs, and accounting for the milling conversion ratio, this works out to 458 Ar/kg of paddy at the farm gate in the Lac Alaotra area, a major production zone. Since the cost of production of paddy is estimated to range from 250 Ar/kg (improved production technology) to 350 Ar/kg (traditional production technology), this means that local rice is competitive with imported rice. (For simplicity, the discussion here does not take into account quality differences between local rice and imported rice.)

18. If paddy prices are currently still above the cost of production in most areas, why are farmers complaining so loudly? No doubt a major reason is that paddy prices this year are below those that prevailed last year, meaning that farmers’ profit margins have eroded. Most farmers are probably still selling at a profit, but because the quantities of paddy they sell are generally quite limited, the margins they are earning are now so small that total net revenues do not allow them to make a decent living.

19. What policy options are available for addressing the concerns of producers that paddy prices are too low? The first option would be to reintroduce the import tariff and/or the VAT on rice, which would make imports more expensive. Since market prices align with the import parity price during the lean season, the margins on local rice would likely increase as a result, not only at the retail level but also at the farm level. This effect would be realized too late to influence the price of paddy that is currently in the market, but it could provide additional incentives for local producers to plant during the upcoming contre saison.

20. Table 1 shows the projected impacts of reintroducing a 20% tariff on rice imports (Scenario 2), a 20% VAT (Scenario 3), or both (Scenario 4). These measures would raise the import parity price, both at the retail level (for rice) and at the farm level (for paddy). To the extent that paddy prices would rise in the face of decreased competition from imports, this would strengthen the incentives for growers to maintain plantings during the upcoming cropping season. However, imposition of the tariff and/or the VAT would also exert upward pressure on retail prices. As shown in Table 1, the import parity price at the retail level would rise from 972 Ar/kg (in the absence of the tariff and the VAT) to almost 1,300 Ar/kg (with the tariff and the


7

VAT). Use of these instruments would impact on government revenues: if imports total 150,000 tons, the import tariff and the VAT would generate about 13 billion Ariary, reducing the fiscal gap and potentially helping to finance safety nets.

21. Use of fiscal measures such as the import tariff and the VAT requires a balancing act, however. When imported rice becomes more expensive, prices of local rice have room to rise, and to the extent increases at the retail level are passed through to the farm level in the form of higher paddy prices, this encourages farmers to plant. However any additional incentives provided to producers would come at the cost of higher rice prices paid by consumers. In addition, the extent to which higher paddy prices would encourage producers to increase plantings remains unclear, because farmers’ planting decisions are linked to other factors, including the availability and cost of improved seed and fertilizer.

22. In view of the uncertainty about the impacts of fiscal instruments, the government should maintain the current suspensions on the rice import tariff and the VAT on rice and focus instead on measures that will (1) reduce uncertainty in the market, (2) increase rice production, and (3) better manage available stocks. Reintroduction of the rice import tariff and the VAT on rice might be justified in future, however, should market conditions change. A decisive factor will be the price of imported rice (determined jointly by world market prices and the exchange rate). Should the import parity price at the farm-level fall below 300 Ar/kg of paddy, it would become very difficult for most Malagasy farmers to compete with imports, strengthening the argument for the reintroduction of protective measures. However given the latest projections for future trends in international prices as well as likely continuing weakness of the Ariary, the import parity price is unlikely to decrease significantly during the next few months.

2. Increasing rice production

23. While policy interventions designed to affect market prices for rice do not appear to be justified in the short run, the same is not true for interventions designed to affect the supply of rice available in the market. The government can and should take swift action to help boost production during the coming contre saison, to ensure that abundant supplies of local rice come on to the market during the next 12 months.

24. The single most important action that government can take is to promote increased use of production inputs—especially seed of improved varieties and fertilizer. Building effective input supply systems is a long-term undertaking requiring multiple well-coordinated and properly sequenced interventions. While it is unrealistic to expect the process to happen in one year in Madagascar, the intensification campaign mounted in 2008 with the help of World Bank budget support generated a number of important lessons that can be taken on board in the short run.

25. The first lesson concerns the difficulty of entrusting input procurement and distribution activities to public agencies that have limited experience in these areas. Where possible, procurement and distribution should be entrusted to private operators, partly to gain immediate efficiencies but also to establish the basis for a market-led inputs distribution system that could be sustainable over the longer term.

26. The second lesson concerns the need to combine input distribution with technical assistance. Field observations suggests that many of the rice growers who received seed and


8

fertilizer in the 2008 contre saison failed to use these inputs optimally, emphasizing the lack of technical knowledge that still prevails at the farm level.

27. The third lesson concerns the cash constraint faced by many rice growers. Even when improved seed and fertilizer have been available, many rice growers are unable to pay the full price. Although this constraint could potentially be overcome with the help of credit, the lack of access to financing prevents them from taking out loans from banks or microfinance institutions.

28. The fourth lesson concerns the poor repayment record of rice growers who received improved seed and fertilizer on credit. Although the government has not released detailed data on the outcomes of the 2008 rice intensification campaign, discussions with MAEP staff suggest that the repayment rates were very low.

29. The fifth lesson concerns the need for increasing storage capacity at the farm and village levels. This will enable producers to avoid post-harvest distress sales and allow them to sell grain later in the year when prices are favorable.

Needed policy actions

30. As stated earlier, rice policy design in Madagascar has a short-run dimension and a long-run dimension. In the short run, there is a need to ensure that sufficient quantities of affordably-priced rice will be available during the 2009 lean season. Over the longer term, there is a need to ensure that rice growers continue to have incentives to grow rice for the market, to ensure that the nation remains self-sufficient or close to self-sufficient in rice and does not have to rely on unreliable and costly imports.

Short term

31. The short-term policy goal must be to ensure that adequate supplies of rice are available in the market at prices that are affordable to consumers. Achieving this goal will require a coordinated set of actions designed to address the needs of three groups of key players.

Producers

32. In the short run, the most important thing that the government can do to assist rice producers will be to refrain from releasing imported rice into the market at subsidized prices. This will allow paddy prices to revert more quickly to longer-term trend levels.

33. Also in the short run, during the upcoming contre saison the government should ensure that farmers can once again access improved seed and fertilizer, along with the technical assistance needed to ensure that these inputs are used effectively. To the extent possible, private operators should be involved in input distribution activities, so that these do not get carried out by public agencies having limited experience and capacity.

34. Many farmers lack the means to purchase inputs prior to the planting season, so measures will likely be needed to improve the affordability of improved seed and fertilizer, possibly including selective use of market-smart subsidies to reduce the cost. If financing is provided to input distributors or to farmers to ease liquidity constraints, efforts should be undertaken to ensure that credit is fully repaid.

35. These efforts to improve the availability and affordability of production inputs should be combined with efforts to expand grain storage capacity at the farm and village level, to allow


9

producers to store grain following the harvest and sell later in the year when prices have strengthened. Innovative warehouse receipts schemes that have already been piloted in a number of communities should be expanded.

Consumers

36. In view of the large quantities of paddy currently available in the market and the depressed prices, there is no reason why the government should need to sell imported rice at subsidized prices. However, the government should continue to closely monitor rice availability and prices to make sure that rice remains available at affordable prices. The monitoring should include monitoring of rice stocks, including those held by growers, those held by private traders, and those held by the government

37. To establish capacity to deal with unexpected rice shortages that could arise in future, the government might consider establishing on a temporary basis a limited reserve stock that could be released onto the market in case of an emergency. The rules governing the establishment and management of this reserve stock should be open and transparent, with information made publicly available about the size of the reserve stock, the manner in which it will be accumulated, the circumstances under which rice from the reserve stock would be released onto the market, and the method used to release rice onto the market. Opportunities should be sought to involve producers and private traders in the operations of the reserve stock.

38. These actions designed to protect the interests of consumers by making sure that rice markets are working well may have to be complemented by measures designed to protect vulnerable groups who lack the resources needed to access sufficient quantities of rice. Targeted safety net programs could be put in place to ensure that these vulnerable groups are adequately protected. Options to consider include: (i) targeted distribution of food aid, and (ii) conditional cash transfers that boost purchasing power of vulnerable groups without distorting market incentives through the introduction of food aid.

Traders

39. Private traders have been discouraged by the unclear and conflicting messages being transmitted by the government (through its statements and through its actions) concerning its intentions with regard to rice policy. It is imperative that the government regain the trust of this group and actively seek to re-engage them. Measures that will help to begin this process include the following:

(i) Issuing by the government of a statement clearly describing its intentions with regard to rice policies.

(ii) Publicizing by the government of the rules governing the establishment and management of the reserve stock.

(iii) Exploration by the government of opportunities to actively involve private traders in the establishment and management of the reserve stock (e.g., by contracting with private traders to import rice to constitute the reserve, transport rice internally, store rice, and distribute rice).


10

40. A major objective of government rice policy should be to encourage private traders to purchase paddy for storage and eventual distribution throughout the year to rice deficit areas. If private traders are able to perform this arbitrage function effectively, this will greatly reduce the need for the government to maintain a strategic grain reserve. In the past, the arbitrage function for rice was performed mainly by private traders, but their activities were significantly curtailed following the arrival on the scene of the former President’s company, Magro.

Longer term

41. Over the longer term, considerable potential exists to increase rice productivity in Madagascar and lower production costs. The so-called yield gap—defined as the difference between average yields achieved in farmers’ fields and yields achieved under experimental conditions using improved inputs and recommended management practices—is larger in Madagascar than in most other countries. FOFIFA, the national agricultural research institute, reports that researchers are consistently achieving yields of 8 t/ha or more, which compared to the national average yield of 2.6 t/ha suggests a yield gap of around 67.5 percent.

42. The longer-term policy goal must be to ensure that Malagasy farmers continue to grow rice for the market, thereby ensuring that the nation remains self-sufficient or close to self-sufficient in rice and does not have to rely on unreliable and costly imports. The way to do this is by increasing and stabilizing the profitability of rice production. This will require coordinated actions designed to address the needs of three key groups: producers, consumers, and traders.

Producers

43. Over the longer term, the vast potential of the Madagascar’s rice sector must be tapped so it can become an engine for growth and poverty reduction. This can be done by helping Malagasy producers initially to conquer the large domestic market and eventually to position themselves to become suppliers for the region and beyond.

44. Achieving this ambitious agenda will require a multi-dimensional effort involving coordinated interventions in many different areas:

(i) Developing and maintaining irrigation infrastructure;

(ii) Promoting adoption of improved production technologies (e.g., seed, fertilizer);

(iii) Improving market access by expanding the nation’s road and rail networks;

(iv) Supporting development of modern supply chains for inputs and outputs;

(v) Expanding storage capacity throughout the commodity chain;

(vi) Identifying export opportunities and ensuring that required standards can be met; and

(vii) Improving access to finance.

45. Action plans for implementing these measures are described in greater detail in the government’s national rice development strategy, which is currently being finalized with the help of the development partners.


11

Consumers

46. Generally speaking, the government should be cautious about intervening in the rice market in an effort to manipulate prices. Price controls and stabilization policies are notoriously difficult to implement and can generate large fiscal costs. Interventions might however be justified under two scenarios:

Import parity price falls far below domestic cost of production: Should this situation persist, low-priced rice imports could flood into the country, lowering prices and undermining incentives for local producers. Farmers might respond by cutting back production, reducing the income of rural households and leaving the country reliant on imports. In this case, government might want to consider re-introducing the tariff. Benefits accruing to producers would have to be weighed against the higher rice prices paid by consumers.

Import parity price rises far above the domestic cost of production: Should this situation persist, domestic rice prices could rise significantly, placing a heavy burden on poor consumers. While farmers would be expected to respond over the longer term by increasing production, should prices stabilize at a level deemed unacceptable to consumers, the government might want to consider purchasing rice (in the domestic market or on the international market) for targeted distribution to vulnerable groups at subsidized prices.

Traders

47. Achieving the nation’s long-term rice policy objectives will not be possible unless private traders can be effectively engaged. Their participation will be needed to bring about competition in the domestic market, which will be needed to provide incentives for investment in productivity-enhancing technology at the farm level. Actions will be needed in several areas:

(i) Improving the business climate and reducing the costs of doing business, to increase the returns to spatial and temporal arbitrage;

(ii) Strengthening market information systems; and

(iii) Revitalizing the dialogue between rice producers, private traders; and government.

Final thought: Need to move swiftly

48. The recent favorable rice harvest has created some space for policy makers in Madagascar to decide on a strategy for pursuing the country’s rice policy objectives. Still, the government needs to move quickly in deciding a clear strategy going forward and in communicating that strategy publicly. Establishment of a transparent and stable rice policy framework is urgently needed to reduce the current uncertainty and facilitate rational decision making by all market participants.


12

Table 1. Competitiveness of local rice compared to imported rice under different scenarios, Madagascar

Rice price components

Scenario 1

No tariff or VAT

0 %

Scenario 2

With tariff

20%

Scenario 3

With VAT

20%

Scenario 4

Tariff and VAT

40%

Milled rice, 25% brokens - FOB Karachi US$/t 340 340 340 340

International shipping and handling US$/t 25 25 25 25

Milled rice - CIF Toamasina US$/t 365 365 365 365

Exchange rate (Ar : US$) 1950 1,950 1,950 1,950 1,950

Milled rice - CIF Toamasina Ar/t 711,750 711,750 711,750 711,750

Import tariff 20% 142,350 142,350

VAT (milled rice) 20% 142,350 142,350

Milled rice - CIF Toamasina (including tariff and VAT) Ar/t 711,750 854,100 854,100 996,450

Port charges Ar/t 49,823 49,823 49,823 49,823

Transport & handling (Toamasina to Antananarivo) Ar/t 210,000 210,000 210,000 210,000

VAT (transport & handling - Toamasina to Antananarivo) 20% 42,000 42,000

Milled rice - CIF Antananarivo Ar/t 971,573 1,113,923 1,155,923 1,298,273

Milled rice - CIF Antananarivo Ar/kg 972 1,114 1,156 1,298

Transport & handling (Lac Alaotra to Antananarivo) Ar/t 287,500 287,500 287,500 287,500

VAT (transport & handling - Lac Alaotra to Antananarivo) 20% 57,500 57,500

Import parity price for milled rice - Farm gate (Lac Alaotra) Ar/t 684,073 826,423 810,923 953,273

Import parity price for milled rice - Farm gate (Lac Alaotra) Ar/kg 684 826 811 953

Paddy: milled rice conversion factor 0.67 0.67 0.67 0.67 0.67

Import parity price for paddy - Farm gate (Lac Alaotra) Ar/t 458,329 553,703 543,318 638,693

Import parity price for paddy - Farm gate (Lac Alaotra) Ar/kg 458 554 543 639

madagascar - rice policy...

Documents