Adapting importation policy to global commodity markets: implications of rice import allocation in Singapore

Abstract

Structural changes in the global commodity markets have particularly serious implications to the food security of import-dependent countries. Adapting importation policy to that global change is essential given that many commodities are imported to fulfill domestic demand. Using Singapore as a case study, this paper examines rice (Oryza) import allocation for seeking adaptive measures, which have broad implications to import-dependent countries. Its quarterly trade data (between 1999 and 2008) have been analyzed using an almost ideal demand system (AIDS) model. Our findings in respect to expenditure elasticity reveal that Singapore will continue its importation from its current range of suppliers, and add new import sources, fulfilling its national diversification strategy. New sources that located in different regions will also strengthen Singapore’s regional diversification strategy. Both national and regional diversification strategies enable any country to tap into associative import sources when unfavorable events deplete supply from a normally preferred supplier. In addition, the results in respect to own-price elasticity suggest that Thailand is Singapore’s primary preferred source while other exporters are secondary suppliers. Supported by the outputs of cross-price elasticity, secondary sources are substitutable. Within a diversified import portfolio, their competitive relationship gives an import-dependent country a strategic position to hedge against price manipulation and escalation, and to substitute expensive suppliers with cheaper alternatives. For these reasons, an import diversification policy is recommended both as an adaptive measure in response to the global change in commodity markets and, at the same time, as a mean for sustaining food security in import-dependent countries.