Costa Rica’s rice subsidy has strong impact on the rural poor

A.M. Costa Rica file photo When rice farmers protest, as they did here with teachers, they bring in their tractors and other heavy equipment.

Costa Rica’s support of domestic rice production has now reached six times the amount accorded by agreements with the World Trade Organization. High production costs make locally produced grain uncompetitive compared to imports, but political considerations and industry pressure make for heavy protection.

Rice is produced in scattered areas around the country, mostly in Guanacaste, San Carlos, and the southeastern border areas. This year production is expected to be 170,000 tons, according to the Rice Market Monitor from the Food and Agriculture Organization at the United Nations. This is down substantially from 2011 but some land was taken out of production in exchange for guaranteed prices. Consumption is about 350,000 tons per year.

According to calculations by the government’s Ministerio de Comercio Exterior, in 2011 the system amounted to a subsidy of $104 million direct from consumers to the domestic growers. The amount involved grew from $27 million in 2007 to $109 million in 2010.

The country is subject to a complaint brought by 60 other rice-growing countries to the World Trade Organization, for exceeding the $16 million subsidy limit established in the original treaty to that effect. Costa Rica could be subject to retaliatory sanctions as a result of this lack of compliance.

Costa Rica maintains a price-fixing mechanism that controls what growers receive from processors. The industry is obliged to purchase the entire harvest before any grain can be imported, at a price of 22,076.40 colons per 73-kilo (160-pound) sack.

Ultimately, this system results in retail prices substantially higher than what shoppers in neighboring countries pay. According to the Food and Agriculture Organization, Costa Rica has some of the highest rice prices in the world, with a retail index of $1.55 for the higher grades. This compares to Panamá with its open economy, but similar population and consumption, at $1.13. Costa Rica’s price is the second-highest in the world essentially tied with the United States index, far behind Japan’s $5.58 per kilo. Figures are from this February.

A lower grade with 80 percent intact grains can be had at Palí for 600 colons per kilo, or $1.20. This compares to Nicaragua where second quality rice is about 90 U.S. cents.

Even at this lower rate the system has significant social implications, as Costa Rica’s poor, especially in rural areas, often subsist on a diet consisting entirely of rice, beans, and vegetable oil for preparation. The Food and Agriculture Organization figures suggest that the elimination of the price support system would reduce the cost of the staple grain by about 25 percent.

Notwithstanding this heavy protection the rice growers maintain the government has not followed through with other promised logistical support from an agreement last year when a bumper harvest led to logistical bottlenecks. At that time the growers drove their tractors to San Jose and blocked streets. This pressure was successful in getting concessions and will likely be repeated.

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