International Trade Affects Costa Rican Rice Industry

By Natalie Cheng and Marie French

LIBERIA, Costa Rica — When it comes to Costa Rican rice, the whiter the better.

Arroz Sabanero is one of four major Costa Rican rice plants. Photo by Natalie Cheng

Arroz Sabanero is one of four major Costa Rican rice plants. Photo by Natalie Cheng

The preference for white rice started several generations ago, according to Eric Villalobos, head of production at the Arroz Sabanero plant outside Liberia.

“When the men emerged from the rice paddies, they were up to their necks in mud, rats and other gross things,” Villalobos said through a translator. “So when people saw the dirty, sweaty, shirtless men, they wanted to wash and wash the rice until it was white.”

Rice is a staple food for Costa Ricans and the national dish is gallo pinto – or rice and beans. This strong cultural attachment to rice might contribute to continuing price supports for domestic rice production in Costa Rica.

But now, economic interest conflicts with this traditional support for rice producers, as rice imported from the United States is much cheaper than Costa Rican rice.

According to Villalobos, a sack of Costa Rican rice can cost about two times as much as a sack of rice the same size from the United States. In 2010, the price in U.S. dollars paid to rice producers per ton was 629 in Costa Rica compared with 273 in the United States, according to the United Nations Food and Agriculture Organization, or FAO.

RICE

Imports of rice have increased from 43,451 tons in 2000 to 66,055 in 2010, according to FAO data.

The interplay of government policies, international trade agreements and the rice industry combine to influence the changing story of rice in Costa Rica. The government of Costa Rica has traditionally supported domestic rice producers. However, it has agreed to limit subsidies of the rice industry as part of free trade agreements.

The National Rice Corporation or CONARROZ regulates nearly every piece of the rice industry, including price fixing. As a result, the price plants like Arroz Sabanero pay to Costa Rican rice growers is entirely determined by the Costa Rican government. CONARROZ states on its website that price fixing protects the profitability of large and small scale producers while high tariffs allow domestic producers to compete on a level playing field.

The fixed prices and high tariffs, however, have increased the price Ticos pay for rice. Consumers in Costa Rica paid the fourth highest price for rice in the world in 2011, according to a statement by the Ministry of Foreign Trade in Costa Rica.

The lower cost of importing rice from the United States has already caused five of 12 Costa Rican rice companies to collapse, Villalobos said. He predicted that of the seven remaining, the three smaller companies will be absorbed by the major four. Arroz Sabanero is one of the four major rice companies.

Arroz Sabanero is run as a cooperative effort with more than 20 Costa Rican rice farmers. The company sells Costa Rican rice and imported rice at the same price, making a profit but also causing a conflict of interest in selecting sources for rice. Villalobos estimated Arroz Sabanero currently imports about 50 percent of the rice it sells.

Costa Rica joined the World Trade Organization in 1995.

As a signatory of a WTO agreement that year, Costa Rica agreed to limit its support of the domestic rice industry to $15.95 million. The price fixing system is considered a subsidy to the industry that severely distorts trade by the WTO.

Villalobos said this agreement and others have made it difficult for the Costa Rican rice industry to survive.

Other WTO members first questioned the size of the subsidy in September 2010 at a meeting of the agricultural committee, when Costa Rica reported to the WTO that the government subsidy to the rice industry had actually exceeded $100 million.

The Costa Rican government planned to cut that price paid in November 2010 by 17 percent, making the price more competitive with the price of United States rice. However, a temporary judicial decision in January 2011 rescinded that law and established a higher price after farmers sued.

In 2011, the subsidy to the rice industry was again more than $100 million.

Then, in a July 2012 decision, the Costa Rican court raised the price again to $616 per ton, according to the November 2012 Rice Market Monitor report. This decision makes it more difficult for the Costa Rican government to fulfill its obligation to reduce agricultural subsidies for rice.

The United States government also subsidizes its domestic rice industry, contributing to lower rice prices, Villalobos said. In a 2006 paper written for the CATO Institute, Daniel Griswold put the value of direct subsidies to the rice industry overall at about $1 billion per year.

“Globally, U.S. policy drives down prices for rice by 4 to 6 percent,” Griswold wrote. “Those lower prices, in turn, perpetuate poverty and hardship for millions of rice farmers in developing countries, undermining our broader interests and our standing in the world.”

One explanation for the lack of WTO attention to United States subsidies is the fact that, for the most part, they are decoupled from production and output. This means the amount of subsidy is not directly related to the amount produced. This type of subsidy is notas heavily scrutinized by the WTO because it is not considered to be as trade distorting.

It is unclear what the future of domestic rice producers in Costa Rica holds but Villalobos staunchly prefers native-grown rice.

Despite the better price, he said quality of imported rice based on the color after it is cooked is not as good as Costa Rican rice.

“The two kinds of rice look the same uncooked,” Villalobos said. “But I can tell if someone is cooking Costa Rican rice just by smelling it.”

Edited by Jenna Lewis

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: