| Observations on actual trade data and the prevalence of distortionary trade policies in the international market increase the potential of market power for some rice market participants. This is particularly true for the Indica rice type, which dominates international trade. While the majority of previous studies maintained the assumption of perfect competition, studies that addressed market power treated rice as a homogeneous commodity. This study examined the existence and the degree of market power in the international market where rice is differentiated into Indica and Japonica types. Further, the study assessed the impact on welfare of freer trade practices than has prevailed in 1992–93.; A spatial equilibrium model with conjectural variations was used as the analytical framework. Excess supply/demand equations needed for this analysis were estimated using trade elasticity estimates which were in turn calculated from previous domestic elasticity estimates. The structure of the model allows for the co-existence of an oligopoly (oligopsony) and a competitive fringe on the export (import) side of the market while the import (export) side behaves competitively. The study spanned 90 different countries/regions of which 16 were identified as surplus and 74 as deficit regions. This included 12 and 59 surplus and deficit regions respectively, for Indica; and 4 and 15 surplus and deficit regions respectively, for Japonica.; The model was estimated as a linear complementarity problem via MILES, the Mixed Complementarity Problem (MCP) solver of GAMS 2.25. A class of potential oligopoly models, with distinct structures and varying degrees of market power, in addition to an oligopsony model were estimated. A series of multilateral and unilateral trade liberalization scenarios were examined to assess their impacts on welfare. Special attention was accorded to the US marketing loans program and to the Japanese import quota.; Estimation results provided a strong evidence of existence of market power in the Indica international market. An oligopoly model comprising Thailand, US South, China, Vietnam, Myanmar, and Pakistan provided a better fit for the 1992/93 international rice market; the rest of Indica exporters acted as a competitive fringe. However, the degree of market power and its impact on welfare were not significant. The oligopoly model that provided the best fit was associated with a conjectural variation of −0.75. Welfare losses due to oligopoly were estimated at US{dollar}144 million.; Trade liberalization would impact Japonica more significantly than the Indica market. If all the 1992/93 trade barriers were removed, Japonica trade and price would respectively increase by 97 and 130 percent compared to 26 and 18 percent for Indica. Key to the dramatic changes in the Japonica market is the liberalization of Japanese imports. From the US perspective, the marketing loan program is essential to its competitiveness in the Indica market but not in the Japonica market. |
