Rice Variety Choice and Subsidy Effects on Market Share

Abstract

The United States has been losing market share because the unintended consequences of policy decisions have influenced what rice to grow, rather than taking the signal directly from buyers. U.S. share of Mexican rice imports has fallen from 100% in 2002 to 67% in 2021 as better perceived-quality product is purchased from other international origins. During this same time, hybrid rice acres have gone from 0% to over 70%. This research develops a theoretical model to evaluate subsidy effects on market-share performance when support for quality rice improvements is considered. Empirical analysis using Granger Causality suggests that planting hybrid rice is the primary factor causing the loss of market share, which significantly reduces competitiveness and decreases industry returns for the overall U.S. rice industry. The implications for farm policy are vast, with the potential suboptimal behavior occurring. A discount for poor quality and subsidy targeting improvements for quality are encouraged.