Different speculations were made on the causes for the rice crisis: hoarding by some landlords who were anticipating a better rice price after the implementation of the "land-to-the-tiller" program, seasonal shortage before the harvesting of the new crop, wastages of rice in the rural community, possible smuggling to Okinawa or Japan, etc. Some even doubted about the figures of rice production made public by the authorities concerned. All these allegations had their proper grounds. But, in addition to these factors, an analysis would reveal that the extremely low price of rice during the past few years also had something to do with the recent rice shortage.
Price, as generally admitted, is the propeller of all economic activities. It is price which determines the marginal profit of the producers as well as the traders. A good price can give an impetus to production. It can also make the hoarders put their stocks on sale. On the other hand, low prices undermine the incentive of the producers and discourage their new efforts for additional output. It also may result in some unconscious wastages. It is quite true that the low price of rice in Taiwan during the past few years has contributed a great deal to the stability of commodity prices and, consequently, of the island's economy as a whole. But in the long run, it may also have some evil effects.
In order to have a clear concept of the present state of rice price, it is necessary to make a comparison between the rice price on the world market and that in Taiwan. Around the world, rice price has registered considerable increases ever since World War II. In the rice-producing countries in Asia, such as Burma, Thailand, Indo-China, etc. rice price rose by 200-300% as compared with the pre-War level. In Burma, for instance, the rice price in 1937 was US$1.31 per 100 pounds according to the International Financial Statistics published by the United Nations, but in December 1952, the market price rose to US$6.88 per 100 pounds. As the value of the U.S. currency in the pre-War days was approximately twice its present value, the price of rice in Burma has actually increased by over 250%. In Thailand and Indo-China, the same trend could be seen. In the United States, rice price also went up from US$3.60 per 100 pounds in 1937 to US$10.75 in December 1952. So, practically all over the world rice price has gone upward appreciably in the last fifteen years.
Different Situation
But here in Taiwan, a quite different situation has been prevailing. Rice price has run much below the pre-War level if the value of the currency is taken into account. In 1937, the wholesale price of polished Ponlai rice was TW$16.63 (old Taiwan currency) per 100 K. G., according to the Taiwan Monthly Commodity Price Statistics published by the Bureau of Accounting and Statistics of the Taiwan Provincial Government. The general index of the wholesale prices in Taipei at the end of 1952 was 1793.87 taking 1937 as the base equalling 100, according to the same source. That is to say, the value of the old Taiwan dollar then was about 17.94 times that of the New Taiwan currency at the end of last year. So, the price of Ponlai rice in 1937 per 100 K. G. was 16.63 X 17.94, equalling $298.34 (New Taiwan dollars) of its value at the end of 1952. But the actual wholesale price of the same kind of rice was only NT$180.79, showing a decrease of about 39%.
If the calculation is based on the exchange rate, the same trend could be seen although the decline is in a slighter degree. Thus, in 1937, the average exchange rate of the Old Taiwan Currency was US$28.74 to TW$100.00 according to the book entitled "Taiwan's Statistical Data during the Past 51 Years", i. e., the price of Ponlai rice per 100 K. G. in terms of U. S. currency was 16.63 X 0.2874, equalling US$4.78, which is equivalent to about US$9.56 of its present value per 100 K. G., or US$4.35 per 100 pounds (1 K.G.=2.2 lbs). In December 1952, the average exchange rate on the open market was US$1.00 to NT$23.10. So, the wholesale price of polished Ponlai rice in terms of U.S. dollars was US$7.83 per 100 K. G. or US$3.56 per 100 pounds, being about 18% below the pre-War level.
The difference between the above two calculations, based on the commodity prices and the exchange rate respectively, has mainly resulted from the irregular movement of the latter during the past three years. The wholesale rice price (Ponlai) in terms of the local currency was NT$83.92 per 100 K. G. in December 1950, NT$122.49 in December 1951, and NT$180.79 in December 1952, showing a very regular and even up-going trend. But after being converted into U. S. dollars, a quite different situation is seen. Thus in 1951, for instance, the rice price registered a rise of about 50% in terms of the New Taiwan dollars as compared with that of the preceding year, but showed a perceptible drop in terms of U. S. dollars. This was entirely due to the sharp rise in the exchange rate which went up from US$1.00 to NT$12.70 in December 1950 to US$1.00 to NT$24.00 in December 1951. During 1952, the rice price in terms of the local currency moved exactly with the same pace as in 1951.
It was only the decline in exchange rate, (US$1.00 to NT$23.10) in December 1952 that caused a seemingly steeper rise in terms of U. S. currency and brought it close to the pre-War level. However, it still did not coincide with the general trend on the world market. The following table may serve as an indication of the whole picture:
Country Rice Price in US$ per 100 Pounds
equivalent to1937 US$ at its 1950 1951 1952
present value
Burma 1.31 2.62 4.99 5.25 6.88
Thailand 1.47 2.94 7.23*
Indo-China 1.37 2.74 4.72 5.10 9.23*
United States 3.60 7.20 8.60 9.80 10.75
Taiwan 2.17 4.35 3.04 2.32 3.56
Note: (1) The average exchange rate on the open market in December 1950 was US$1.00 to NT$12.70; in December 1951, US$1.00 to NT$24.00; and in December 1952, US$1.00 to NT$23.10.
(2) Rice price of Thailand in 1952 was the exporting price to Japan.
(3) Rice price of Indo-China in 1952 was the price in October of that year.
Since the beginning of this year, rice price has shown a much steeper rise than before. During the first three months of the year, it went up by about 18% as compared with the price in last December. But it was not until April that the price boom took place due to the sudden shortage.
It should be noted also that the figures in the foregoing table represent the wholesale prices of rice on the open market in Taipei. The price in rural districts is below this standard. The purchasing price, which the Government set for buying up the surplus rice of the big farmers, is still lower than that. Therefore, what the farmers could actually receive from their crops during the past three years was much less than the market price.
Looking Forward
Looking forward, an immediate drop in rice price can not be expected in view of the wide gap between the demand and supply on the world market. The devastating World War II ruined a vast parts of the farmlands, destroyed a large number of cattle and caused great damage to the farming installations. In Asia, which yields over 90% of the world rice production, the Japanese invaders had occupied most of the important rice-producing countries for a long period with great destructions which the region had never experienced before. As a result, rice production in all those countries registered a drastic decrease at the end of the war.
After the war, much effort has been made in the recovery of rice production by all countries. But no sooner had the pre-war level been nearly reached than Communist aggression led to the worsening of the situation. The loss of the China mainland to the Reds, the outbreak of the Korean and Indo-Chinese wars, and the incessant disturbances in Malaya have brought about a general decline in rice production. According to the statistical figures compiled by the United Nations, the annual world production of rice in the period 1934 - 1948 was 93,092,000 M/T. In 1949, the total yield was 92,932,000 M/T. But in 1950, it came down to 89,261,000 M/T. And in 1951, the output further dwindled to 88,354,000 M/T. The situation in Asia is similar to that of the whole world, where the total annual rice production was 89,918,000 M/T in the period 1934 - 1948, 87,432,000 M/T in 1949, 83,522,000 M/T in 1950, and 83,418,000 in 1951.
On the other hand, the population throughout the world has shown a continuous increase which causes a greater demand for foodstuffs. In Asia, as rice is the staple food of the people, the increase in population and decrease in rice production have consequently brought about a general rice shortage during the recent few years. According to the Monthly Bulletin of Statistics compiled by the United Nations, the total population of 52 countries, excluding Soviet Russia and some other small countries, in 1937 was estimated at 1,672,553,000. In 1949 the figure went up to approximately 1,752,627,665. In Asia, the annual increase in population was estimated to be 12,000,000 to 18,000,000 persons, while the increase of the whole world is about 26,000,000 to 32,000,000 persons, according to the same source.
The recent advance of the Communists in Southeast Asia, which is the rice bin of the world, is threatening to deprive the free world of its source of rice. So a much more serious rice shortage and further rises of the price can be forecast.
Inside Taiwan, a glance over the statistics of commodity prices would enable one to notice the unique feature of the parity relationship of rice price in the local price structure. All price index numbers of different sources show that the group index of cereals was the lowest one during the past three years. Among prices of the various items, on which the compilation of the group index was based, rice price was again the lowest. According to the index numbers of wholesale prices in Taipei compiled by the Bureau of Accounting and Statistics of the Taiwan Provincial Government, the general index in December 1950 was 1,132.92 while the group index of cereals was 838.20, taking 1937 as the base equalling 100. In December 1951, the general index climbed to 1,735.27 and the group index of cereals to 1,306.11. In December 1952, the former went up to 1,793.87 and latter to 1,579.13. The detailed indices arc as follows:
Period General Cereals Clothing Fuel & Metals Building
Index Light & Elec. Materials
Materials
Dec.
1950 1,132.92 838.20 1,572.12 1,542.09 1,254.56 1,200.97
Dec.
1951 1,735.27 1,306.11 3,644.69 1,664.40 1,975.99 2,066.31
Dec.
1952 1,793.87 1,579.13 3,086.86 1,982.73 1,870.69 2,223.17
The phenomenon of the dislocated parity relationship can be more precisely illustrated by a comparison between the rice price and the prices of other commodities. Taking the exchange rate on the open market in the pre-war and post-war years, as cited before, as the standard of calculation, the price of polished Ponlai rice per 100 K. G. would equal 16.63 X 0.2874 X 2 X 12.70 New Taiwan dollars, i.e., NT$121.40, of its value in December 1950; NT$229.49 in December 1951; and NT$220.84 in December 1952, while the actual wholesale prices of the same kind of rice in the corresponding periods were NT$83.92, NT$122.49, and NT$180.79 respectively, being all below the pre-war level. But the prices of other commodities all registered an appreciable rise with only a few exceptions, such as cotton yarn and iron bars due to mass production.
Price Movements
Besides showing that rice price in all the past three years was lower than that of the pre-war days, the foregoing table also reveals the irregularity of the price movements of different commodities. Among the farm products, as rice occupies an overwhelmingly important position, so the rise in the prices of other items has been offset by the low rice price. It would not affect the group index of food very much, because under such circumstances it is the prices of industrial products and imported goods that have been the variable factors of the price structure in Taiwan during the recent few years.
While rice price has been going up constantly and while the prices of other commodities in Taiwan have shown a general increase, how could the rice price here have been kept on a low level alone? The answer is as follows:
A large portion of the total production of rice, of course, is for the consumption of the rural population. According to the 1952 edition of the Taiwan Agricultural Year Book issued by the Department of Agriculture and Forestry of the Taiwan Provincial Government, the total rural population was 4,160,610 in 1951. As generally agreed, their annual consumption of rice totals around 600,000 M/T.
It is estimated that the Government (the Food Bureau) through the measures of collecting the land tax and surtaxes in kind, purchasing the surplus rice of the big landlords, and receiving rice in exchange for fertilizers, cloth and farm loans, can exercise control over 500,000 M/T. So, the quantity that can be put on the open market is comparatively small. With its overwhelming stock, the Government, through the rationing system, could have resorted to dumping to press down the rice price. Besides, a ceiling price policy set for the open market also had some effect of preventing the price from going up.
However, there is a general tendency in the price structure. Whenever the price of a certain item is kept below the general level for a considerably long period, it would seek some chance to jump. And when it jumps, it usually jumps higher than the general level. It would not come down until the balance between demand and supply has recovered. The whole course usually forms a parabola, the peak of which sometimes brings about a panic. This has been the case of the rice price in Taiwan since last April. It was a revolt of the low rice price in the past three years, which happened to coincide with the exhaustion of the government godowns.
Possible Consequences
One possible consequence of a rice price which is kept too low is that it would result in a relative decrease in rice production. As cultivation of rice yields less profit, the producers would naturally tend to shift their labor and capital to other products and, as a result, there would be relatively less rice production.
In the course of distribution, a price which is too low usually encourages hoarding. In view of the low exchange value of rice, the farmers would be reluctant to sell their surplus crop. Besides, cheap rice means meager income and smaller purchasing power of the farmers. This, in turn, may have something to do with the present business dullness. The landlords, food merchants and speculators might also take advantage of the low price to hoard rice with a view to making windfall profits.
The most probable consequence would be the unconscious wastages of rice in the rural community. If rice price goes below the prices of other kinds of fodder, such as bean-cake, which is the common fodder for cattle in Taiwan, people would use it to feed their animals and poultry. Other possible wastages such wine brewing may also be prevailing. According to the Agricultural Year Book, there were 661,125 farming families in 1951. Suppose each family holds 200 K. G. on the average, it means that 132,225 M/T is hoarded. Again, if each family wastes 100 K. G. of rice in feeding animals or poultry annually, then over 66,000 M/T will be gone.
Rice price has the greatest weight in the price structure. A rise of rice price would affect the general price level outright. The stability of money value and the cost of production will be the first to be influenced. The effect might be as bad as the low price or even worse. There is no panacea, indeed. However, in mapping out a policy, it is the majority of the people that should first be taken into consideration. Out of the total population of Taiwan, farmers constitute nearly one half; government employees and armed forces and their dependents, nearly 15%; and laborers, it is estimated about 6%, including communication and transportation workers.
If the livelihood of the government employees and the armed forces could be adequatedly looked after and if wages could be properly stabilized with the government stock, then a free market of rice would benefit the farmers and may not do much harm to the whole economy. Rice rations to ordinary residents are deemed necessary only when there is a serious rice shortage. As to whether the present exchange rates between rice and fertilizers or cloth and the purchasing prices which the government set for buying up the surplus rice of the farmers or redeeming farm loans are fair and reasonable, it is another question to be studied.