PLC Panel on Trade and Industry
Rice Control Scheme
This paper informs Members of the latest position of the implementation of the Rice Control Scheme since its review in June 1996, and responds to the concern about the recent rise of rice prices.
2.The Rice Control Scheme (the Scheme) was introduced in 1955 when rice supply was a major concern of the community. The objective of the Scheme is to ensure a regular and adequate supply of rice for public consumption, and to provide a reserve stock to cater for emergency situations or any short term shortage of supplies.
3.The Scheme has its legal basis in the Reserved Commodities Ordinance (Cap.296). Under the Ordinance, rice is classified as a reserved commodity and both its import and export are subject to licensing control. All stockholders (importers) and wholesalers need to be registered with the Director-General of Trade (DGT), and fulfill certain capital, financial, residency and premises and storage availability requirements. Stockholders also need to import rice at specified quantities under the allocated quota. As at end December 1997, there were 50 stockholders the qutoa holding of whom ranges from 8 to 56 units (90 tonnes per unit) of rice. The stockholders are also required to maintain a reserve stock, the aggregate of which (40,000 tonnes) would be sufficient for our population's consumption for 45 days.
Implementation of Recommendations in the 1996 Review
4.A review on the Scheme was conducted in June 1996 with a view to providing a more flexible mechanism for the rice trade and enhancing competition. There were four recommendations, and their implementation is as follows: -
Recent Rise of Rice Prices
- To increase competition, the number of stockholders have been increased from 45 to 50 in 1996.
- The basis of determining the level of reserve stock has been changed from absolute tonnage to number of days of consumption. As a result, the stockholders' reserve stock level has been reduced from 45,000 tonnes to 40,000 tonnes (45 days of consumption for the population) with effect from 1 January 1998. This reduces the cost of operation for the stockholders.
- The criterion on prior experience for registration as a stockholder has been removed. This lowers the barrier for entering the rice trade and, hence, will help to bring in more competition.
- An Optional Quota Scheme was introduced in October 1997. This Scheme allows individual stockholders to vary their import from 90% to 150% of their allocated quota subject to an overall ceiling of 20% above the aggregate quota of the trade for that particular period. This will provide more flexibility especially for the small stockholders, and will encourage competition.
5.The prime objective of the Rice Control Scheme is to ensure a steady and sufficient supply of rice. Although the Reserved Commodities Ordinance provides DGT with the statutory power to set the maximum wholesale price for rice, this power should not be exercised except in an emergency situation. We believe that the prices of rice or the 'spread " between wholesale and retail prices should be determined by the market. Any attempt by the Government to control rice prices would distort the market mechanism, and eventually jeopardize the supply of rice.
6.It is worthwhile to note that over the past ten years, the price of rice has generally been kept below inflation. Within this period, only three years (including 1997) saw the rate of rice price increases surpassing the inflation rate of the same year. We also note that during the period November 1996 to November 1997, the weighted average importers' selling price of the three major types of rice (viz. Thai Fragrant Rice, Australian Inga and Chinese See Mew) has increased by 17% whereas the weighted average retail price of the same types of rice increased by 18%. The increases in retail prices are generally a reflection of increases in import prices particularly Thai rice which constitutes a major supply of rice in Hong Kong. There is no conclusive evidence to suggest that the " mark up " between retail and import prices has increased during the period.
7.We will review the Rice Control Scheme in 1998 in the context of the implementation of the Optional Quota Scheme to examine the need for further liberalising the rice trade.
Trade and Industry Bureau