An Economic Study on Government Rice Stock Operation in Taiwan

160 p.Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1980.Since 1972, the rice policy was shifted from consumer protection to farmer protection in Taiwan. Through the guaranteed price purchase program, the government raised farmers' income, also accumulated more than one million M.T. of rice in government warehouses, which became a heavy financial burden on the government.In this study, a monthly econometric model is built for policy simulation. It is a block recursive model, including four seemingly unrelated equations in a supply submodel and six simultaneous equations in a demand submodel. By applying the Box-Jenkins method, the residuals of demand equations are adjusted to improve forecasting power. One random variable is incorporated in each submodel, which characterizes a stochastic model. Because the model is linear, the reduced form approach is used in simulation.Five sets of alternative programs with different rice stock operation rules were designed. Computer simulation was carried out for four years (48 months). Performance measures of each alternative program such as farmers' income, consumers' expenditure, government financial burden and price stability are calculated and compared with the current rice policy program.The major findings of this study are as follows: (1) Negative income elasticity shows rice is an inferior good in Taiwan. This result which is in accord with other research should encourage the government to shift rice policy objectives from consumer protection to farmer protection. (2) There is no one policy program that can serve to achieve all policy objectives. For each policy objective there might exist one optimal policy program. (3) The balance stock operation is the best program to depress market prices and reduce consumers' food expenditure, but it also results in the heaviest cost on farmers' income. (4) Guaranteed price purchase with a total amount limitation induces the highest price variation, yet provides little effects on farmers' income and consumers' expenditure. Ending this program is proved to be a correct decision by the government. (5) Guaranteed price purchase with a per hectare limitation is the best program to increase farmers' income with only moderate costs on consumers' expenditures and government payments. (6) Since with the per hectare purchase limitation, the farmer can sell only several hundred kilograms of rice to the government, the rice collection operation is very inefficient. In order to improve the operating efficiency, the government could buy the same amount of rice from the market rather than from farmers, and pay the price difference to the farmers as a difficiency payment. (7) Either increasing the guaranteed price or per hectare purchase is effective on farmers' income. When there is a small difference between the guaranteed price and the market price, increasing the guaranteed price is more powerful than increasing per hectare purchases. (8) When the opportunity for rice export is small, increasing the guaranteed price to strengthen farmers' income is easier to handle than increasing per hectare purchase, because the government is able to avoid the massive rice stocks. (9) A buffer stock operation offers the best method of price stabilization and causes a moderate reduction of farmers' income. However, a poor decision on the trigger price level (release price and acquisition price) might cause a serious shortage in government stock and damage the security function of maintaining rice reserves. (10) By using a dynamic model with stochastic fluctuations in supply and demand, Waugh's argument still continues to hold, that is any program designed for price stabilization would reduce consumers' benefits on the average. Only a society with high income and a low Engle's coefficient can affort to cause consumer sacrifice at least in any substantial degree.U of I OnlyRestricted to the U of I community idenfinitely during batch ingest of legacy ETD