The precious things are not pearls and jade but the five grains," runs an old Chinese saying. And in Asia, with nearly 90% of the world’s rice production and consumption, rice has always ranked first among grains. The movement toward more open markets in recent years has boosted global rice trade to record levels, as this elite grain has steadily gained favor among consumers in many regions of the world, despite losing "stomach share" in some countries of traditionally high consumption.
Production under Consumption
In 2002-03 (aggregate of local market years) for the third year in a row, worldwide production of rice at 380 million tonnes is projected to fall well short of worldwide consumption, according to the USDA. The shortfall will cause a precipitous drop of 27.5 millions tonnes in world rice stocks to 105 million tonnes by the end of 2002-03, the smallest since 1986-87. In 2002-03, ending stocks are projected to be just 26% of world rice consumption, the lowest level since 1983-84.
The reasons for the production deficit may have to do with adverse weather patterns in some places, but also to an underlying factor: a halt to the extraordinary increase in average per ha rice yields achieved in the last 3 decades. This yield growth, averaging 2.2% for the period 1967 to 1987, has slowed significantly since then, and has virtually halted since 1999.
The green revolution permitted rice production to keep up with population increases, especially in Asia, without greatly expanding the sown area. Indeed, in many Asian countries, rapid urbanization and cutbacks in government supports have resulted in a big reduction of the sown area. Japan, South Korea, and Taiwan have seen the land dedicated to rice reduced by 50%, 46% and 42% respectively since the 1960s.
There has also been a marked decline in per capita rice consumption in developed Asian countries, such as the three above, where prosperity has led to the substitution of meat and vegetables, and wheat-based products for rice. In South Korea, the average person consumed 120 kg of rice yearly in 1990 compared to 87 kg in 2002, a drop of 37%. The trend is taking hold in China, where close to one third of all rice is produced and consumed. Starting as early as 1995, USDA statistics show an identifiable drop in per capita rice consumption in China.
On the other hand, since 1998, the countries of the Middle East and Africa have increased rice consumption more than any other region, by close to 20% to a total of nearly 24 million tonnes. With the exception of Egypt, which is a sizeable exporter of rice, the regional harvest increase of 9% did not keep pace with consumption gains. Net shipments to the Middle East and Sub-Saharan Africa went up by 3.5 million tonnes from 1998 to 2002, accounting for the largest share of the increase in global rice shipments during the four-year period.
Record Global Trade
Rice shipments among countries are projected to remain robust in 2003 at 26.7 million tonnes (milled basis), fractionally below this year. The climb in global rice trade has been extraordinary, from a level of 7.5 million tonnes in 1974 to more than 27 million tonnes in 2002. Today’s trade level represents almost 7% of total world rice production compared with only about 3% of total production in 1974. Global rice trade was a record 27.6 million tonnes in 1998, with the spike in growth due to El Niño crop damage in Southeast Asia.
During the 1980s, global rice trade was nearly stagnant, at 11 to 12 million tonnes a year, stymied by protectionist policies in most major importing countries. However, since 1990-91, global trade has climbed from 12.3 million tonnes to today’s level.
What explains the rising trade in rice over the past 12-plus years? Senior USDA economist Nathan Childs said, "population growth, trade liberalization, and — for some countries — higher incomes are the driving forces."
Childs points out that in the 1920s and ’30s, 8 to 10% of rice production was traded annually in international markets. "But World War II damaged much of Asia’s rice economy, especially the major exporters," he said. "In the post-war years many importers strove for self-sufficiency in rice, primarily by controlling (or banning) imports and providing producers input subsidies." These actions severely limited trade growth.
Robust trade growth in the Middle East and Africa in the 1970s and ’80s was largely due to higher incomes and larger populations. This trade expansion partially offset weaker imports by Asian countries during those decades.
Since the late 1980s, regional trade agreements followed by the creation of the World Trade Organization in 1995, have led many countries — especially in Asia and Latin America — to abandon efforts at total self-sufficiency and at least partially open their rice markets to imports. Indonesia, which briefly achieved self-sufficiency in the mid-1980s, was one of the first to back away from that policy. The Philippines, which was actually a small exporter during the late 1970s and early ’80s gave in to competition-enhancing imports soon after. Agreements under the WTO have partially opened rice markets in Japan, South Korea, and Taiwan.
In Latin America, many countries are producing less rice than they did 10 to 20 years ago, and are importing a significant share of consumption. This has been especially true for Brazil, Mexico, and Central America. More open markets and reduced producer support are behind the expanding imports in this region.
Six countries — Thailand, Vietnam, India, United States, China and Pakistan — accounted for 80 to 85% of the world rice exports in each of the past four years. Historically, Thailand, Vietnam, and Myanmar were all major rice exporters early in the 20th Century, exporting at least a million tonnes a year in the 1920s and ’30s.
Thailand has been the world’s largest exporter for more than two decades, with exports ranging from 6.5 to 7.5 million tonnes per year since 1999. However, smaller yield gains than other countries experienced from new hybrid varieties, and labor shortages in the countryside are now eroding its competitive advantage. Thailand’s 2003 exports are projected to bounce back to 7.8 million tonnes from 7 million in 2002.
India has in recent years steadily increased its share of world trade. It surpassed Vietnam for the second spot among rice exporting countries in 2002 — a result of substantial export subsidies. A decision by the grain monopoly, the Food Corporation of India, to reduce the country’s excessive strategic rice reserve is the reason for the country’s sudden rise in the export tables, even though recent crops have been short of domestic consumption. For 2003, exports will be cut back to 4 million tonnes, a result of reduced subsidies and much smaller supplies. Ending stocks are now only 13.8 million, down from 25.1 million a few years ago. A weak monsoon has cut India’s 2002-03 rice crop nearly 15%.
Vietnam returned as an export powerhouse as soon as economic reforms took hold in the country in the late 1980s, after more than three decades of war and political upheaval. Its outbound shipments peaked at 4.6 million tonnes in 1999 but have fallen since to 3.1 million in 2002. Exports are projected to rise to 4.3 million in 2003.
The United States will export a record of 3.4 million tonnes in 2003, nearly 50% of the total U.S. crop. In 1980, about 60% of the crop was exported, but in the past 20 years American consumption has grown sharply.
Consistent high quality has permitted U.S. producers for decades to enjoy a substantial price premium in world markets. However, as countries such as Thailand and Vietnam have modernized their milling industries, that quality premium has been harder to maintain. The need to move this year’s record U.S. crop at competitive prices has further narrowed it. In the last five years, high quality U.S. rice has enjoyed an average premium of $70 per tonne over similar grades of Thai rice, but the current market situation has reduced the premium to $20 to $25 per tonne.
China, as the world’s largest rice producer and consumer, can be a player on world rice markets through manipulation of its strategic reserve even when there is a production deficit. However the country’s exports and imports rarely exceed 2% of total domestic production. Since 2000, China has reduced its ending stocks from 98.5 million tones to 67.3 million by the end of 2002-03. Its exports fell below 2 million tonnes in 2001 and 2002 as stocks are lower and domestic production is 11.5 million tonnes short of consumption this year. Like Thailand and Vietnam, China has faced stiff competition from India. Rapid industrialization and urbanization, and government policy aimed at taking marginal land out of rice production, are already shrinking China’s sown area. These trends will diminish China’s role as an exporter, though major biotech investments may stimulate yields.
Myanmar has rejoined the top tier exporters, as this year’s exports will reach 1 million tonnes, up from only 57,000 tonnes in 1999. A smaller, second tier of export countries, including Egypt, Uruguay, Australia, and Argentina, all consistently sell 300,000 to 800,000 tonnes to other countries.
While rice exports mostly originate in a handful of countries, there are few countries in the world that do not import rice in one form or another. The leading U.S. exporter, Riceland Foods, alone sells to 75 countries. Even a major exporting country like the U.S. still imports nearly 400,000 tonnes, much of it of special varieties for sale to immigrant groups. The record U.S. crops notwithstanding, imported varieties have continued to increase their share of U.S. consumption.
Indonesia, with its population of 210 million, ranks third in rice production with 32.5 million tonnes of milled production. But it is by far the world’s biggest rice importer, taking more than 3 million tonnes in three of the last five years. No other country has imported as much in that time frame. Indonesia imported nearly 6 million tonnes of rice in 1998 due to El Niño related crop damage.
Iran, Nigeria, Saudi Arabia, Philippines, Bangladesh, and Iraq have all imported one million milled tonnes or more in at least one of the last five years. The third tier of importers, those who have bought between 500,000 and one million tonnes per year, speak to the prominent place of rice in the world diet, including the EU, averaging 800,000 tonnes; Russia; Cuba and Brazil in Latin America; South Africa, Senegal, and Ivory Coast in Africa; and Japan and Malaysia in Asia.
Politics, geography and economics dictate some special two-way relationships in the world rice trade. Japan routinely takes half of its imports from the U.S.
Vietnam and Thailand supply most of Indonesia’s requirement, with inter-Asean governmental protocols dictating the relationship.
Intense lobbying from the U.S. rice industry contributed to the lifting of the U.S. trade embargo on Cuba for some food products, leading to last year’s resumption of U.S. rice exports to the nearby country. Shipments in 2002 exceeded 150,000 tonnes, and officials at the U.S.A. Rice Federation optimistically suggest the annual figure could reach 600,000 tonnes, nearly Cuba’s total requirement, replacing supplies from former socialist bloc allies Vietnam and China.
Before imposition of the embargo more than 40 years ago, Cuba was the number one importer of American rice. Since then politics has suddenly shut U.S. rice exporters out of their largest markets on two other occasions: Iran in 1979 and Iraq in 1991.
Rice is the most important grain crop in whose trade the major multinational grain companies do not play a dominant role. International trade remains vibrantly fragmented, with every major export country having a large contingent of companies engaged in rice exports, despite heavily regulated domestic markets.
In Thailand, the largest exporter, Capital Rice, accounted for a 20% share of the total exports in a recent period, but the next two had less than 10% each. Altogether, 38 companies are registered to export from Thailand. Vietnam has around the same number of mostly state-owned companies licensed by its Ministry of Trade. Pakistan boasts 16 active exporters, while India has many more companies targeting the diaspora of non-resident Indians with specialty products in addition to bidding on government tenders.
The plethora of rice exporters can be partly explained by the many varieties and forms of rice and also by numerous options for shipping rice. Much less goes in bulk in vessel holds in comparison to the big three of world grain trade: wheat, maize and soybeans. Official statistics are hard to come by, but perhaps less than 10% of the world rice trade is in bulk vessels — mostly rough rice from the U.S., Egypt, Argentina and Uruguay —compared to perhaps 90% for other grains. Most rice is shipped in bulk containers or in 20, 50 or 100 kg bags in containers or break bulk. Bagging is the traditional way of handling rice in Asia where most the world’s rice shipments originate. Small containerized shipments open up the trade to smaller players.
Forms of Rice
Perhaps 90% of the world’s trade is in milled rice, where the husk and part or all of the bran layer have been removed. Milling before export adds value and provides business to rice millers in the export country. For this reason, few of the Asian rice exporting countries allow the exportation of rough rice (paddy or unmilled).
On the other hand, more than a third of U.S. rice exports are now paddy, compared to less than 5% in the late 1980s. Most of the U.S. exports to Mexico and Latin America are paddy, where liberalized markets resulted in a decline in domestic rice growing, higher imports, and underutilized domestic milling capacity.
Carl Brothers, senior vice president of export sales for Riceland Foods, points out that the restrictions on milled rice imports by these Latin American countries combined with the Asian ban on rough exports make those countries a good market for U.S. producers. Argentina and Uruguay oblige with rough rice and provide some competition.
Brown rice is also increasing its share of the trade from a low base. One case in point is the U.K. where there has been big growth in rice consumption, thanks to the large Asian immigrant population. Many new rice mills have been built to process brown basmati coming from India and Pakistan. Lower EU import tariffs on brown rice than fully milled product, originally meant to protect Italian and Spanish rice millers, could explain this new investment. Another factor is that retention of part of the bran layer alleviates breakage during shipment, according to Shamik Patel of Satake UK, which has supplied much of the equipment to the new mills.