Low Price Non Basmati Indian Rice Holds the Key to Food Security in Africa, South Asia

Rice Varieties

Indica, Basmati/Jasmina, Japonica and Glutinous rice

International Market is thin – Only 6% of Production Reaches World Market – CBOT in Chicago is the Main Commodity Exchange – Government is a Major Player and Market Maker

Protection to Consumers vs Protection to Farmers

Country Exports

TRQs in Japan and Korea – Only 730,000 tonnes opened Up

ACP Preferences in EU

Rice Clause in Philippines at 240,000 tonnes

Little Subsidy to Rice

SPS in URAA

Market Access in Japan

China as a Consumer of 40% of World Rice

State Trading Enterprises Control Half of World Exports and One Third of Imports

Biotechnology (Transgenic Rice)

TRQ in Turkey

Current Rice Situation in Thailand Raises Procurement Price

India Rice – 15 mn tonnes of extra Rice in Stock

Pakistan Rise

Bangladesh – Not Enough Rice to Feed Rising Population

 

Rice is the most important food crop of the developing world and the staple food of more than 3 billion people or more than half of the world’s population living on rice.

Rice Varieties

Rice is traded in three primary forms: fully milled, brown, and rough (paddy). Rough rice is rice that has not been milled, thus both the hull and the bran layer remain attached to the kernel.  Brown rice is rice that has the hull removed but the bran layer is still attached.

Fully milled rice has both the hull and bran layer removed. In addition, the fewer broken kernels, the higher the price.

South Asia is known for exports of aromatic rice (Basmati rice) of high value ($1000 plus per tonne) to the Middle East and the West. India and Pakistan dominate this segment. However, the cheaper variety (Non Basmati) which is in the range of $500 per tonne is what is in demand in the poor and vulnerable countries. India has succeeded in reaching this market over many years, the consumers in Sub Sahara Africa have developed a taste for Indian rice. However, domestic food security concerns weigh in the minds of Indian policy administrators, the export policy of non basmati is frequently revised, the ban on exports, in 2008 has been lifted recently but export is subject to quantity ceiling. Further stocks of the Food Security Agency FCI may not be used in export. Only market procured stocks from private sector can go into the export.

In addition, rice can be parboiled, a process whereby rough rice is soaked in water and steamed under intense pressure.

Parboiling makes the rice less likely to break during milling and pushes nutrients from the bran layer into the kernel.

Parboiled rice typically sells at a premium to non-parboiled rice. Rough, brown, and milled rice can all be exported as parboiled. The major exporters of parboiled rice are Thailand, India, and the United States. The Middle East, Western Europe, and South Africa are the main markets for parboiled rice.

Indica, Basmati/Jasmina, Japonica and Glutinous rice

The global rice market is severely segregated by type and quality, with little substitution among buyers. In fact, tastes and preferences are so strong that prices for various types of rice can move in opposite directions. There is little substitution in production among the various types of rice either, as soil and climate often dictate the type of rice that can economically be grown in any particular area. As a result, global rice prices are typically more volatile than prices for other grains.

There are four types of rice traded globally: indica, japonica, aromatic, and glutinous. Indica rice is the dominant type of rice traded worldwide, accounting for almost 80 percent of global trade. Indica rice cooks dry, separate, and fluffy. It is grown mostly in tropical and sub-tropical areas. U.S. southern long and medium grain rices are considered indica.

Japonica rice, which cooks moist and sticky, accounts for more than 10 percent of global trade and is typically grown in temperate climates. Japonica rice has a more rounded grain than indica. California medium grain rice is a japonica.

Aromatic rices, primarily Thai jasmine and basmati from India and Pakistan, account for almost 10 percent of global trade and sell at a premium to indica and japonica. Aromatic rices are also called fragrant rices. And finally, glutinous rice (or sweet rice), grown mostly in Southeast Asia, accounts for almost all of the remainder. Glutinous rices lose almost all of their shape during cooking and are typically used in ceremonial dishes and in pastes.

Like aromatic rices, they sell at a premium to indica and japonica. The bulk of glutinous rice is grown in Southeast Asia.

Thailand, Vietnam, China, the United States, and Pakistan are the primary exporters of indica rice. Argentina, Uruguay, Guyana, Burma, and Surinam export smaller amounts of indica as well. Australia, Egypt, China, the EU and the United States are the primary exporters of japonica rice. Thailand, India, and Pakistan export the bulk of the aromatic rices, with the United States exporting a very small amount. Thailand accounts for most of the glutinous rice traded. In addition, the United States exports a very small amount of glutinous rice, grown mostly in California, to Japan.

Southeast Asia, South Asia, Sub-Saharan Africa, and Latin America are the primary import markets for indica rice. Northeast Asia and the Eastern Mediterranean are the major import markets of japonica rice. Europe, the Middle East, and the United States account for the bulk of basmati imports. China, the United States, Hong Kong, and Singapore are the primary markets for jasmine rice. Southeast Asia and Japan are the major import markets for glutinous rice. The Global Rice Market Is Stratified by Type and Quality

In addition, rice can be parboiled, a process whereby rough rice is soaked in water and steamed under intense pressure. Parboiling makes the rice less likely to break during milling and pushes nutrients from the bran layer into the kernel. Parboiled rice typically sells at a premium to non-parboiled rice. Rough, brown, and milled rice can all be exported as parboiled. The major exporters of parboiled rice are Thailand, India, and the United States. The Middle East, Western Europe, and South Africa are the main markets for parboiled rice.

International Market is thin – Only 6% of Production Reaches World Market – CBOT in Chicago is the Main Commodity Exchange – Government is a Major Player and Market Maker

The international rice market exhibits greater price volatility than other grain and oilseed markets. The greater price volatility arises from several unique characteristics of the international rice market. First, the international rice market is a “thin” market as only about 6 percent of global production is currently traded annually, well below the almost 20 percent for wheat, 12 percent for coarse grains, and nearly 25 percent for soybeans. Thus, variations in production can cause big movements in trading prices. Much of this “thinness” is due to government policies that bar or limit trade. A large part of the export as well as import is controlled by State Agencies.

Second, nearly half of global rice production—grown in a large swath running from Pakistan, south and east through the Philippines—is dependent on the timing of the Asian monsoon. In fact, 90 percent of rice is produced in Asia. Other grains and oilseeds are produced over a more diverse area and are thus less dependent on any single weather pattern. This should be monsoon perform below standard, prices go for a six.

Third, the international rice market is stringently segregated by type and quality, with little substitution in consumption and production. Market segmentation makes the international rice market even thinner, further contributing to price volatility. More than 75 percent of world rice trade is indica, around 11 percent japonica, almost 9 percent aromatic rice, and the rest mostly glutinous rice.

Protection to Consumers vs Protection to Farmers

Finally, the level of government intervention in the international rice market—i.e., trade barriers, producer supports, and state control of trade—is substantially higher than for the other grains and oilseeds. This is a major factor contributing to price variation in the international rice market. For most developing Asian countries, maintaining adequate supplies of rice and low consumer prices are major policy goals. For higher income Asian countries—principally Japan, South Korea, and Taiwan—the main policy goal is to protect producers from lower priced imports.

The net impact of large government intervention is to shift price instability from domestic markets to the world market and thus magnify price and quantity adjustments. State trading further makes price discovery more costly as state trading enterprises are able to segregate markets by price. Based on quality, the United States, EU, Australia, and Egypt ship almost exclusively high quality rice.

Thailand ships high, medium, and low quality.

Vietnam ships medium quality to the Middle East and lower quality to most other markets.

Country Exports

China exports high quality japonica to Japan and low quality indica to Asia and Africa. Except for aromatic and some high quality Indian parboiled, India and Pakistan ship low quality rice. The quality of Latin American rice varies, with Argentina and Uruguay exporting mostly high quality. Based on quality, the United States, EU, Australia, and Egypt ship almost exclusively high quality rice. Thailand ships high, medium, and low quality. Vietnam ships medium quality to the Middle East and lower quality to most other markets.

China exports high quality japonica to Japan and low quality indica to Asia and Africa. Except for aromatic and some high quality Indian parboiled, India and Pakistan ship low quality rice. The quality of Latin American rice varies, with Argentina and Uruguay exporting mostly high quality.

Although the import market is less concentrated than the export, it is similarly stratified.

For indica rice, Indonesia, the Philippines, and Bangladesh are the largest buyers, taking mostly low quality.

Iraq and Malaysia are typically medium quality import markets. Iran, Saudi Arabia, and South Africa import mostly high quality indica rice.

Brazil is the largest non-Asian rice market, importing mostly high quality indica rice.

Mexico and the EU are large importers of high quality indica rice, with Mexico taking mostly rough rice and the EU importing “brown” or husked rice.

Africa imports mostly low quality rice and is a major recipient of U.S. food aid.

By type, Japan is the largest importer of japonica rice followed by Turkey, South Korea, and Jordan. Japonica typically sells at a premium to indica in global markets.

Aromatic rice, which trades at prices above japonica, is purchased mostly by higher income countries such as the United States, the EU, Hong Kong, and the Middle East. In addition, higher income urban consumers in China import Thai jasmine rice.

TRQs in Japan and Korea – Only 730,000 tonnes Opened Up

As a developed country, Japan was required to open its domestic market to imports at 4 percent of base period (1986-88) consumption in 1995, rising to 8 percent by 2000. In the case of South Korea, a developing country, the corresponding quota is 1 to 2 percent of base period consumption in the first 5 years, rising to 2 to 4 percent in the next 5 years. The WTO minimum-access imports have been a major factor in expanding global japonica trade and rising & japonica prices. Total imports by both of these countries are now more than 730,000 tons, double the 1995 level, with japonica accounting for the bulk of these imports.

Because climatic conditions limit the area where japonica can be produced, Japan’s and South Korea’s expanding imports have raised prices and shifted japonica supplies from other import markets. The United States, China, and Australia have supplied the bulk of Japan’s and South Korea’s rice imports. Of these three suppliers, only China has the potential to expand area significantly.

ACP Preferences in EU

Major reason EU rice imports have not been greatly affected by WTO commitments is that a large share of EU rice imports result from import concessions. Egypt can ship 32,000 tonnes at a reduced duty level of 25 percent. African, Caribbean, and Pacific (ACP) countries can export long grain rice to the EU at a reduced tariff and Overseas Countries and Territories (OCT), primarily the Dutch Antilles, can export to the EU duty free. Combined ACP and OCT quotas total 160,000 tonnes annually. Excluding inter-EU trade, the EU annually imports more than 500,000 tonnes of rice (milled basis), with the Developing Countries—Several URAA commitments pertained to developing countries.

Rice Clause in Philippines at 240,000 tonnes

Similar to Japan and South Korea, the Philippines invoked a “rice clause” that guaranteed a tariff-rate quota rising to 238,940 tonnes by the end of the implementation period. However, to date imports have far exceeded this level every year since 1995 and are projected to remain well above this quota for at least the next decade.

Indonesia negotiated a separate agreement on rice imports, guaranteeing 70,000 tonnes of imports annually. Like the Philippines, Indonesia’s rice imports have far exceeded this level every year this decade and are projected to exceed 2 million tonnes annually for the next decade.

Little Subsidy to Rice

First, the URAA allowed developing countries “special and differential” exemptions for certain input and investment subsidies, which cover most programs used to support rice production in these countries. Domestic support in these countries is typically provided by fertilizer subsidies, provisions for certified seeds and other inputs at below-market prices, and sometimes credit assistance. Second, trade-distorting support measures such as price supports are not subject to reduction if in total they do not exceed 10 percent of the value of production-the de minimis provision for developing countries. Few developing countries have domestic reduction commitments.

In addition, developing countries committed themselves to not using export subsidies. However, there is very little use of export subsidies by Asian or Latin American rice exporting countries. In fact, except for small amounts exported by the EU, little rice is exported under subsidies by any country.

The bulk of government involvement in the Asian rice market is through state control of trade, often in the form of state trading enterprises. This is especially true for several major Asian rice importers and exporters.

SPS in URAA

Sanitary and Phytosanitary Measures—The Uruguay Round Sanitary and Phytosanitary (SPS) Agreement imposed new rules and procedures on measures countries may take to protect human, animal, or plant life or health. Such regulations cannot be used as a pretext for protection.

The UR requires SPS measures to be applied in a consistent manner across countries and commodities and does not allow them to be used as an arbitrary barrier to trade. This Agreement could increase the transparency of countries’ SPS regulations and provides an improved means for settling SPS-related trade disputes.

Currently, Mexico and Central America effectively ban Asian rice imports through SPS measures. Phytosanitary requirements, often motivated to protect domestic industry, have periodically stopped shipments, resulting in losses due to demurrage charges and canceled sales.

Market Access in Japan

Several major rice markets are still highly protected, most importantly Japan and South Korea. Without a new agreement, Japan’s tariff-rate quota (TRQ) will remain at 7.2 percent of base period (1986-88) use, or 682,000 tons, after 2000. Recent tariffication by Japan has slowed the increase in minimum access imports and placed a prohibitively high tariff on above-quota imports In the agreement.

China as a Consumer of 40% of World Rice

China agreed to cut tariffs on all agricultural commodities to an average of 17 percent. China will also establish large and increasing tariff-rate quotas for wheat, corn, rice, and cotton with a substantial share allotted to private traders. China also agreed to prohibit the use of export subsidies for agricultural exports, including rice. China produces and consumes both indica and japonica rice. Area is shifting from lower quality indica - mostly grown in the south - to higher quality japonica. The bulk of the japonica is produced in the northeast. It is likely that China would opt to continue exporting high-quality japonica to Japan, a lucrative market.

Policy changes this spring indicate China is willing to adopt more market-oriented policies that would result in declining rice production, especially for lower quality early rice grown in the south. Now that China and Taiwan are in the WTO, they will partially open the rice market to imports. This could have a major impact on the world rice market given China’s massive consumption, nearly 40 percent of total global rice consumption.

In April 1999, China committed to a 2.66-million-ton TRQ for rice in 2000, rising to 5.32 million in 2004. Half the quota is for japonica (medium/short grain), the remainder is for indica (typically long grain). The TRQ is not a purchase commitment, but an opportunity for market access conducted in a fair and transparent manner. China committed to reserve 50 percent of short and medium grain imports and 10 percent of the long grain imports for the private traders. Currently, all grain trade in China is controlled by the government.

Also, it is unlikely China would import very much japonica rice, as only about 2 million tonnes are traded worldwide.

State Trading Enterprises Control Half of World Exports and One Third of Imports

The Doha Round will look to further discipline the activities of STEs. Of major concern is the lack of transparency in pricing by STEs and the possibility that some countries are using STE to circumvent URAA rules. About one-half of global rice exports is by STEs and STEs account for one-third of rice imports.

STEs account for all or the bulk of rice trade for several current WTO members—Indonesia, Malaysia, Australia, the Philippines, and South Korea. In addition, several countries seeking WTO membership such as Russia use STEs to conduct rice trade.

Biotechnology (Transgenic Rice)

The upcoming WTO will likely tackle issues associated with trade in biotechnology products. Differences among countries’ regulations regarding biotechnology pose significant potential barriers to trade in these varieties. Trade in genetically improved varieties could be facilitated through mutual recognition of countries’ regulations, harmonization of existing regulations between countries, and by the negotiation of an international standard. However, trade could be impeded by harmonizing to a stricter standard.

TRQ in Turkey

The WTO panel in 2003 disputes concluded that Turkey's decision, from September 2003 and for different periods of time, to deny, or fail to grant, Certificates of Control to import rice outside of the tariff rate quota, constitutes a quantitative import restriction, as well as a practice of discretionary import licensing, within the meaning of footnote 1 to Article 4.2 of the Agreement on Agriculture. This measure is of the kind which should be converted into ordinary customs duties. In the event, Turkey dropped the measure to balance imports with corresponding domestic production.

Current Rice Situation in Thailand Raises Procurement Price

The Thai government made up its mind its Thai Rice government committee chaired by the Thai prime minister herself that from October 7 government will start buying Thai rough rice around $500 per tonne.

What the Thai government has set in motion today will likely lead to higher Thai prices as the Indian government is releasing tonnage almost equivalent to 10% of global rice trade. The parboiled markets of Nigeria and South Africa – combined imports of about 3 to 4 million tonnes of parboiled rice a year.

Pakistanis are (till now) the cheapest origin showing their parboiled 5% broken numbers around $520 per ton, compared to about $635 per tonne for Thai 100% B parboiled. Thais say their parboiled is of better quality, better received in the destination markets, and they are able to do the volume and are reliable. Indian exporters are expected to price their rice soon. Traders said Indian exporters could ship out non-basmati rice at $550 per tonne, free on board.

In the U.S. physical markets, $25 a barrel and $7 a bushel are the prices bandied about (roughly $340 - $342 per ton) for the new crop long grain paddy depending on the areas where you are and we add there is not much is trading.

Brazil’s paddy rice price index declined the equivalent of about $4 per tonne to about $276 when converted from Brazilian real into U.S. dollars.

In Japan, rice futures traded down the equivalent of about $102 per tonne to $3,177 per tonne when converted into U.S. dollars. 

China’s rice futures were little changed at the equivalent of about $396 per tonne when converted into U.S. dollars

India Rice – 15 mn tonnes of extra Rice in Stock

In its latest forecast, the Indian Government has estimated 2010-11 rice output at 95.32 million tonnes, up from 89.09 million tonnes in the previous year and against consumption which averages around 90 million tonnes a year.

Aug. 1 rice stocks at government warehouses were at 25.27 million tonnes against a target of 9.8 million tonnes.

Top suppliers Thailand and Vietnam together normally ship out around 17 million tonnes of the staple per year.

But the Thai government has doubled the amount it will pay domestic farmers from November, which could push export prices up as high as $870 per tonne, making them uncompetitive.

Vietnamese prices have also risen as a result and the combination could make Indian shipments attractive.

Pakistan Rise

It may be recalled that about 7.0 million tonnes rice of is produced annually in the country, as against the domestic requirements of up to 3.0 million tons, while rest of the produce is exported, which contributes a huge amount of foreign exchange in the nation exchequer.

Pakistan produces different varieties of rice, which are famous across the globe for their enriched taste and fragrance due to natural climate and soil qualities, the official said. The country also earned by exporting such varieties to UAE, UK, KSA, Russia and rest of the world.

Bangladesh – Not Enough Rice to Feed Rising Population

The demand for rice is constantly rising in Bangladesh with nearly 2.3 million people being added each year to its population of about 120 million. Rice production increases must be achieved at a faster rate than in most other countries, while the land planted to rice is not expanding. In addition, Bangladesh is faced with production constraints such as drought, lack of irrigation facilities, flooding and salinity of soils, coupled with fluctuating commercial rice prices.

Yet, rice is central to Bangladesh's economy and agriculture, accounting for nearly 18 percent of the Gross Domestic Product (GDP) and providing about 70 percent of an average citizen's total calorie intake.

Although substantial rice production growth was achieved during the 1976-93 period, growth since then has been negligible. This is mainly due to continued drought in most areas and excessive monsoon flooding in parts of the country.

Future growth in rice production will have to come from expansion of irrigated areas, use of new high-yielding varieties, more fertilizer input, and improved crop management practices.