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  • Forecasting Global Rice Consumption

    Roderick M. Rejesus*, Samarendu Mohanty, and Joseph V. Balagtas

    Corresponding Author:

    Roderick M. Rejesus Department of Agricultural and Resource Economics

    North Carolina State University NCSU Box 8109

    Raleigh, NC 27695-8109

    Phone No.: 919-513-4605 Fax No.: 919-515-1824

    E-mail: rod_rejesus@ncsu.edu

    March 20, 2012

    * Roderick M. Rejesus is Associate Professor, Department of Agricultural and Resource Economics, North Carolina State University, Raleigh, NC 27695-8109 Samarendu Mohanty is Head, Social Sciences Division and Program Leader- Targeting and Policy, International Rice Research Institute, Los Baos, Laguna, Philippines Joseph V. Balagtas is Associate Professor, Department of Agricultural Economics, Purdue University, West Lafayette, IN 47907-2056

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    Forecasting Global Rice Consumption

    ABSTRACT

    This paper examines the time-series properties of global rice consumption data commonly used in studies of consumption trends and evaluates alternative time-series models for long-range forecasts. Using time-series data from 1961-2011, we find that per capita rice consumption and GDP per capita are non-stationary in levels (i.e., they are unit root processes) and are not cointegrated. Thus previous studies that have applied econometric models for stationary data suffer from the well-known spurious regression problem. Out-of-sample performance evaluation of appropriate, univariate time-series forecasting methods suggest that double exponential smoothing may be the preferred approach to forecast global rice consumption. Our forecast results suggest that global rice consumption is projected to increase from 450 million tons in 2011 to about 490 million tons in 2020, and to about 650 million tons by 2050. Moreover, forecast intervals for these point estimates tend be very wide (especially in 2050), reflecting the inherent uncertainty in making long-run forecasts using any approach. These wide forecast intervals suggest a great deal of caution is appropriate when interpreting such forecasts for formulating public policy. Keywords: Consumption, Demand, Food Security, Forecasting, Rice, Time-series Analysis, Unit

    Roots JEL Classification: Q10, Q11, Q18

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    Forecasting Global Rice Consumption

    Introduction

    Rice is the major staple crop of nearly half of the worlds population, and is particularly important in

    Asia, where approximately 90% of worlds rice is produced and consumed (Zeigler and Barclay, 2008;

    Khush, 2004). Global rice production has tripled in the last five decades from 150 million tons in 1960 to

    450 million tons in 2011, thanks in large part to the rice Green Revolution in Asia. Since the introduction

    of high yielding semi-dwarf varieties in 1960s by the International Rice Research Institute (IRRI) more

    than 1000 modern rice varieties have been released to farmers in many Asian countries, resulting in a

    rapid increase in rice yields and global rice production. Global production dropped sharply at the

    beginning of the 21st Century, from 410 million tons in 2000 to 378 million tons in 2003 because of

    severe droughts in parts of Asia, but has recovered by growing 50 million tons between 2005 and 2011.

    Rice is a staple food commodity with inelastic demand (Mohanty, Wailes and Chavez, 2010), and

    with historically inadequate storage infrastructure in most developing countries in Asia (Rolle, 2011).

    Thus trends in global rice consumption largely follow those in global production, rising steadily over the

    last five decades (Figure 1). However population growth has outpaced growth in rice production, such

    that per capita production, and thus per capita consumption, appears to have plateaued starting around

    1990 at around 65 kg per year (Figure 2). Because demand is highly inelastic, reductions in aggregate

    production result in large price increases and consumer welfare losses (See Figure 3 and Wright, 2011 p.

    35). Also, because rice is a staple food that accounts for a large share of income for a large segment of the

    worlds poor, price increases like the one experienced in 2007-2008 may have large income effects,

    reducing income available for other needs (see Wood, Nelson, and Noguiera, 2012 for an application of

    this principle to staple foods in Mexico). Thus, production and consumption trends in rice markets have

    important implications for poverty, food security, and economic development, especially in Asia.

    It is for this reason that previous work has sought to forecast global rice consumption. This

    important literature seeks to provide information useful for resource allocation by producers, governments

    and aid agencies, and is at the core of food security issues (Timmer, Block, and Dawe 2008, p.140). In

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    this paper we evaluate that literature and propose alternative forecast methods with qualitatively different

    findings. We begin by summarizing key contributions of the extant research and identifying potential

    conceptual and empirical limitations. We briefly discuss limitations of available data for assessing trends

    in global rice demand. Then, taking the data as given, we turn to the development of appropriate

    econometric models for forecasting rice consumption.

    Previous Analyses of Global Rice Consumption: Findings and Limitations

    A number of previous studies analyze and forecast global rice consumption using the global rice

    consumption data plotted in Figure 1. A common prediction across these studies is that global rice

    consumption will fall in the medium or long term. This prediction is based on the recent downturn in per

    capita rice consumption shown in Figure 2, and the observed decreases in per capita rice consumption in

    wealthy East Asian countries like Japan, Taiwan, and South Korea. For example, Timmer, Block, and

    Dawe (2010) estimate a per capita rice consumption equation (in natural logarithm form) that is quadratic

    in GDP, then use this estimated relationship and projections of global GDP to forecast global rice

    consumption. Timmer, Block, and Dawe (2010) find that global rice consumption will increase modestly

    until 2025 before declining rapidly to approximately 360 million tons by 2050.

    Abdullah, Ito, and Adhana (2005) similarly use the USDA data on per capita consumption

    (Figure 2) to project a range of scenarios for per capital rice consumption through 2050, all of which

    forecast reductions in per capita consumption. Two of Abdullah, Ito, and Adhanas (2005) three scenarios

    forecast per capita consumption in Asia to drop sufficiently to cause aggregate Asian rice consumption to

    decrease by 2050, despite continued population growth. The forecast model behind these projections is

    not entirely clear, but the authors state that they assume a continuation of observed trends in per capita

    consumption, and that per capita consumption in developing nations will decline based on the experience

    in relatively wealthy, East Asian countries.

    Rosegrant et al. (2001) project declining per capita consumption but rising aggregate

    consumption of rice through 2020. While they do not provide model details behind these projections, like

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    Timmer, Block, and Dawe (2010) and Abdullah, Ito, and Adhana (2005), they argue that income growth

    and rising urbanization will result in declining per capita consumption.

    In contrast, Seck et al. (2012) project that global rice consumption will rise to 496 million tons in

    2020 and further increase to 555 million tons by 2035. Seck et al. (2012) explain that aggregate global

    rice consumption is still expected to increase through 2035 due to increased demand in Africa, Latin

    America and parts of Asia, despite continued declines in per capita consumption in China and India (and

    other wealthy Asian countries).

    The role of income growth assumed by all of these studies and, more broadly, their projections of

    per capita and aggregate rice consumption require additional inspection for several reasons. First, it is

    well established that income elasticities for staple foods tend to decrease as incomes rises. However,

    evidence on the income elasticity of demand for rice is mixed, with some studies finding negative income

    elasticies for key countries (e.g., Ito, Peterson, and Grant 1989, 1991) and others arguing that such

    estimates are understated or finding larger and positive income elasticies (Huang, David, and Duff , 1991;

    Taniguchi and Chern, 2000; Chern et al., 2002). Moreover, many studies in this literature suffer from

    serious limitations, including a misattribution of unobserved structural changes to income effects (Huang

    and Bouis, 1996).

    Second, the extant research on aggregate rice consumption typically lacks appreciation for

    changes in supply. Data on global or national rice consumption is typically calculated as availability, that

    is, production minus net changes in stocks and trade. Because consumption data tracks production very

    closely, studies of rice demand using aggregate rice consumption data are not likely to yield unbiased

    estimates of structural demand parameters in the absence of a careful econometric identification strategy

    (Yu et al., 2004).

    Third, global rice consumption figures also mask important differences in rice consumption

    across regions, across countrie