The Benefits and Costs of Basmati Rice - Case Study Example

Geographical Indicators and Basmati Rice Basmati rice is reputed to be one of the highest quality rice in the world, with an accompanying expensive price (Rangnekar 3). In the recent past, the production of Basmati rice has witnessed growing attention, both from local producers, consumers, and international markets. This attention stems from the introduction of regulatory controls that target the production of this kind of rice and the accompanying naming of the rice produced in other parts of the world. Basmati rice is mainly farmed and produced in the Indus Basin that spans the India/Pakistan border. The introduction of intellectual property rights to the name Basmati rice is a fact that necessitates the need for geographical indication. This need is emphasized by the recent developments in the rice industry, where other rice producing countries seek to market their products under the name Basmati rice. Geographical indicators refer to a type of regulation that enables a particular region to be the only source of production of a product, based on the location. This means that since Pakistan and India share the Indus region, the production of Basmati rice is done by the two countries. However, the introduction of a geographical indicator that covers only India would mean that the production in Pakistan would go to waste or loss. The introduction of geographical indicators would regulate the rice market, since the rice produced in the region would have exclusive rights to the name Basmati. Hence, rice produced in other regions would not be called Basmati, thus granting a monopoly to the Basmati rice produced in the Indus region. The international trading community is faced with the growing tension between India, Pakistan and foreign producers of rice, hence the debate whether to patent the name Basmati. The emergence of foreign produced Basmati has necessitated the need to introduce regulatory controls over its production, therefore, this paper will analyze the effects of the introduction of geographical indicator on the production, marketing, and subsequent sale of the Basmati rice. This will focus on the major stakeholders in the Basmati rice industry, namely the local consumers in India and Pakistan, the local producers, the export and import companies, the regulatory agencies, the patent holders of new basmati-like varieties, and global consumers. The introduction of geographical indicators to protect the production and marketing of local products is not a new phenomenon (Maskus 8). The use of geographical indicators can be traced back to the European Union, and seeks to protect cultural, historical, and aesthetical ideology. According to research, the introduction of geographical indicators is mainly meant to protect the cultural and aesthetical aspects of a country or region, thus the introduction of geographical indicators concerning Basmati rice will have multiple effects on the local consumers. Rangnekar (18) indicates that the total rice production of the Indus production is either exported or consumed locally, with about a third of the production being consumed locally. This indicates that the introduction of the geographical indicators about Basmati rice will affect the local consumers. The consumers in India and Pakistan would be faced with a price advantage with the introduction of geographical controls. If the foreign producers are allowed to market their product under the name Basmati, the price in the local region is likely to fall, since the imported product would likely introduce market irregularities. However, with the introduction of a geographical indicator, the consumers would be favored because the quality of the rice produced locally is assured. The benefit of introducing the geographical control in India only would mean that the consumers in Pakistan would be faced with competing resources on their shelves. This means that the market in India would be favored, since they would have the sole responsibility of exporting the Basmati rice, even to Pakistan. This would present a huge rise in costs for Pakistani consumers since they would not be able to produce the rice in their own country under the name Basmati. The second effect would be faced by the rice farmers in both Pakistan and India. Research indicates that more than half of the rice produced in Pakistan is Basmati rice; therefore, the introduction of geographical indicators in India only would adversely affect the producers in Pakistan. This is because Pakistan would not be able to market their product under the Basmati name, and given the associated cost of the rice, the farmers are liable to lose a lot of income. The farmers would be forced to produce their rice under a different name, which means that the brand of produce would be affected. Conversely, the Indian farmers would benefit from the introduction of the geographical indicator in their region, because they would have the sole monopoly over the Basmati name, meaning that the farmers would face improved production. As expected, a fall in production from Pakistan would necessitate an increase in the Basmati produced in India, meaning that the farmers would increase their production. The increase in production costs would be offset by the increasing revenue; therefore, the Indian farmers would benefit largely than the Pakistani farmers. The price advantage that Basmati rice has over other brands of rice in both the Indian and Pakistani regions is another factor that would be affected by the introduction of geographical indicators in the region. As already stated, the introduction of geographical indicators in India only would serve to favor the Indian market. The exporters of rice in the Basmati producing region in India would be faced with an increase in revenues. The introduction of geographical indicators in the Indian region only would effectively create a monopoly in the region; therefore, the exporters would face an increase in the revenues collected. This would be due to the expected increase in the cost of Basmati rice, since it would only be produced in one region. Conversely, the exporters in Pakistan would be faced with a reduction in the income. This is because the introduction of a geographical indicator in India would mean that no Basmati rice production is done in Pakistan, meaning that the current production would have to be rebranded. The price advantage that the Basmati rice has over all other brands of rice means that the Pakistani exporters would lose a lot of revenue. The Basmati rice produced is estimated to cost more that twice the cost of other brands of rice. The production of rice in Pakistan would have to use a different name; therefore, the exporters would market their product in a virtually unknown capacity. This means that the export business in Pakistan would suffer considerably, since the other brands of rice present in the region are not expected to fetch the same price as the Basmati rice. The import trading countries in foreign countries would not be affected much by the introduction of geographical indicators in the Indian region, since the rice imported would be of the same quantity. As already stated, the introduction of geographical indicators in the Indian region means that the region would need to produce more Basmati rice to cover the deficit form the Pakistani region. If the production from India matches the current production capacity from both Basmati-producing regions, the import trading companies in foreign countries would face no increase in prices. However, if the production capacity in India is not enough to match the current combined production of both India and Pakistan, it is expected that the import price would increase considerably. According to economic principles, a fall in the supply of a product serves to increase the price; therefore, the foreign importers would face a reduction in revenues earned. The governments in importing countries of the Basmati rice would also be faced with a dilemma in the quality of rice provided to consumers, and the accompanying price change. The price of the Basmati rice would be expected to increase since the producer of the rice is a monopoly. As already stated, a failure by the Indian producers to meet expected production capacity would result in an increase in the price of the Basmati rice; therefore, the governments of the foreign importers would have to impose tariffs to regulate the importation of the rice over other rice varieties. International regulatory agencies like the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO) would also be affected by the intellectual property claim against the Basmati rice. Since the approval by the US patent office for an American company to produce rice under the name Basmati, the intervention by the WTO and WIPO would mean that the two regulatory agencies disregard the decision of the US patent office. This would spark an inter-agency debate over the introduction of the patent to the US firm, and the regulatory control over the Indian and Pakistani origin of the name. The US patent office is a legitimate organization that seeks to protect patents and provide people with originality of their work. The fact that the patent is already approved will introduce a new cost of proving that the patent was originally Indian. This means that the intervention of the WTO and WIPO would be deemed offensive. The two regulatory agencies would also be faced with the problem of introducing the geographical indicator in any one of the two affected countries. As already stated, the Basmati rice is produced in both India and Pakistan; therefore, the regulatory agencies tasked with the introduction of a geographical indicator would be faced with a major problem. The debate over the introduction of geographical indicators was sparked off by the approval of a patent for a US-based company to produce their rice under a variant of the Basmati name. The Texas based company, Rice-Tec, proved that they had created a variant that rivaled the original Basmati rice, and thus, could be named after it. The subsequent lawsuits and the dropping of the Basmati name from the rebranded product locally is important for the effects of the Patent claim and the geographical indicators. The introduction of a geographical indicator in the Indian region would mean that the international holder of the patent would lose their privilege, and hence their revenue. The economic importance of the Basmati rice lies in its price, since the name itself is sufficient to sell the product at a high price. The loss of the already acquired patent would have many implications for the Texas-based company, RiceTec. The first implication is the loss of potential revenue. The costs that went into they development of the rice variant are enormous, so the loss of a market to sell the product would mean that the firm incurs many losses. The political economy would also be affected since the patent itself was legal at the time of acquisition. The approval of the patent for RiceTec was done by a legal entity, the US patent office; therefore, the introduction of a geographical indicator would undermine the working of the patent office. The last party to be affected would be international consumers of the Basmati rice brand, since the production of the rice affects the expected price. As already stated, the production of the Basmati rice would have to be met by the Indian region; therefore, a failure by the region to meet expected production would result in an increase in the cost of the Basmati rice. This would mean that international consumers are adversely affected, since an increase in the cost of production would push the prices of the rice upwards. Global consumers of the Basmati brand of rice would be faced with shortages of the rice, an accompanying increase in cost, and an increase in the demand for the rice. The introduction of a geographical indicator would also serve to increase the quality of the rice used by users, since the main producer is a trusted producer. The production of the same strain of rice, or a variant from the US market would serve to reduce the quality of the rice provided. However, the presence of a specific place top producer, the Indian region, would ensure that the rice received by consumers is of the best quality. Works Cited Maskus, Keith. Intellectual Property Rights in the Global Economy, 2000. Washington,: Institute for International Economics. Rangnekar, Dwijen. The Socio-Economics of Geographical Indications, 2004. UNCTAD, Issue Paper no. 8. Read More