Rice: A review of the news in 2001   Published on January 21, 2002

General Overview

A major characteristic of rice trading last year was the continuing decline in prices worldwide. Bumper crops were recorded in the U.S. and India, while Vietnam and Pakistan faced limited supplies towards the year-end. This led nations with an abundance of supplies to gain the upper hand late in the year in terms of trade. Nations with plenty of supplies tended to cut prices, contributing to the overall slump in prices worldwide.

In a bid to shore up prices worldwide, Thailand has been touting the formation of a rice cartel among rival producing nations China, India, Pakistan, Vietnam and Myanmar. The idea is that such a pool would help prevent price-cutting, leading to greater stability. The word is out that more concerted efforts to establish this grouping will take place this year.

Thailand

Thailand's rice exports were expected to reach a record 7.55 million tons in 2001, representing a 14.4-per cent increase from the 6.61 million tons recorded in 2000, according to Adisai Bodharamik, Thailand's Commerce Minister. Exports of rice have already long surpassed the previous target, which stood at 6.5 million tons, according to industry sources. However, in value terms, rice exports generated just US$ 1.57 billion, an 8.8-per cent drop when compared with the $ 1.72 billion recorded in 2000. This is being attributed to the global decline in prices during 2001.

The growth in export volume during 2001 can be attributed to several factors. Regular sales and shipments were made to long established markets in Africa and the Middle East, while there was a high level of production and plenty of stocks. The price of Thai rice became more competitive when compared with Vietnamese rice, while the government stepped in to the market through its paddy intervention program. Thailand's rice crop for 2001/02 is expected to reach a record 16.8 million tons (on a milled basis).

Thailand has historically competed with the U.S. when its come to the export of higher quality varieties to the E.U., the Middle East, and South Africa, while Vietnam, India and Pakistan are Thailand's greatest rivals when it comes to exporting low-to-medium quality varieties.

Export prospects for 2002

The volume of rice traded worldwide in 2002 is expected to reach 23 million tons, according to Thailand's Ministry of Commerce. Despite intense competition in the world market, Thailand's rice exports should continue to grow. Lower output will lead to a decrease in rice stocks worldwide amid an increase in consumption. Moreover, China's accession into the World Trade Organization (WTO) should favor Thai rice exports through a much larger import quota. In light of this, Thailand's total rice exports this year are unlikely to fall below seven million tons, according to the Ministry of Commerce.

Vietnam

Vietnam exported 3.55 million tons of rice in 2001, a 1.43-per cent increase over the 3.5 million tons recorded in 2000. However, this fell short of the 3.7-million ton target set by the country's General Statistics Office (GSO).

The value of Vietnam's rice exports also fell in 2001, dropping by 11.8 per cent from last year to $ 588 million due to the global decline in rice prices.

Vietnam's rice exports fared well during the first three quarter of 2001, but were then stalled by a supply shortage during the final quarter of the year. This led to an abrupt hike in prices, resulting in Vietnamese rice losing price competitiveness to rival exporters, such as Thailand and India.

Price levels at the end of the year for 5%, 10% and 15% stood at $ 199, $ 194 and $ 190/ton, respectively, compared with $ 168, $ 163 and $ 157/ton for the same grades at the beginning of 2001. Vietnam's rice prices are presently $ 14-16/ton higher than Thai prices. In order to deal with the supply situation, the Vietnamese government ordered exporters in November 2001 to suspend the signing of any new contracts until the middle of February 2002.

The shortage emerged due to "overselling" early in the year, as well as a half a million-ton drop in output to 31.97 million tons. This is attributed to a reduction in rice planting areas (due to some farmers switching crops), as well as heavy flooding.

A recovery in exports should emerge next month once the winter-spring crop arrives.

Pakistan

Last year was not a very good one for Pakistan's rice exports. Rice exports reached 1.9 million tons, 126,000 tons lower than the record 2.02 million achieved in 2000.

Both domestic and external factors had a negative impact upon exports.

The U.S.-led war against terrorism in neighboring Afghanistan resulted in a sharp rise in premiums (war-risk), resulting in a jump in shipping costs. This led to many buyers to source their supplies from other rice producing nations, including Thailand and India. The appreciation of Pakistan's rupee raised export prices at the cost of competitiveness in the world market.

Output also fell during 2001 due to irrigation problems, while late planting also slowed export growth last year. According to the USDA, Pakistan's 2001/02 rice crop is expected to reach 4.5 million tons, a drop of nearly 200,000 tons on 2000/01. In addition, India's abundant level of supplies led to cheaper prices in India, creating stiffer competition.

Pakistan exports both high quality basmati rice to high-income markets, and lower quality varieties to other markets, including Africa, where it competes with India, Thailand and Vietnam. Last year, the major buyers of Pakistan's rice were African nations, Afghanistan, Bangladesh, Indonesia, the Middle East and the E.U.

India

India's rice exports in 2001 were projected to hit 1.6 million tons, a huge drop from the country's 1998 record of about 4.7 million tons, according to a report by the USDA.

The reasons most commonly cited for this drop in India's export activity are a large reduction in imports by Bangladesh, as well as an internal pricing policy that prices the majority of India's rice out of the international market. However, since May 2001, India has subsidized its rice exports to such an extent that it has allowed the country to expand its rice exports, most notably in terms of parboiled rice to West Africa.

India's 2001/02 rice stocks are projected to reach a record 21.4 million tons, which poses a considerable burden upon the government. These stocks have expanded due to a continuous stream of bumper crops. By the end of last year, India's rice exports gained a significant competitive edge over rivals Thailand, Vietnam and Pakistan. This emerged due to its high level of stocks, low prices, as well as the fact that these rival producers were facing supply shortages.

Russia, South African, parts of sub-Saharan Africa and the Middle East are the major export markets for India's non-basmati rice, while the E.U., the U.S. and the Middle East are principal markets for India's basmati rice. Most non-basmati exports to South Africa and the Middle East are parboiled rice.

The U.S.

U.S. rice exports for 2001 are expected to reach 2.6 million tons. Record supply levels and lower prices helped to spur exports.

The bumper rice crops in 2001 were a result of a sharp increase in planting acreage. Farmers apparently were keen to cultivate rice in 2001 as the prices of other crops were faltering. Total U.S. rice supplies for 2001/02 (August-July) are expected to reach 11.33 million tons, a rise of almost nine per cent over the previous year, and the largest on record.

It is worth noting that the prices of U.S. long grains fell last year due to a record harvest. As a result, the differences in prices between similar varieties of rice in Thailand and the U.S. have narrowed considerably.

In January 2001, the price of U.S. Arkansas long grain stood at $ 275/ton compared with $ 190/ton for Thai white rice 100% B. However, the price of Arkansas long grain this month is $ 216/ton, which is much closer to the $ 200/ton being currently quoted for Thai white 100% B.

The U.S. share of the world market for rice has generally dropped since the mid-1970s because of the emergence of India and Vietnam as major rice exporters. Currently, the U.S. has a share of around 10 per cent of the world market (in volume terms), compared with 28 per cent back in 1975.

Southern long grain accounts for around 80 per cent of U.S. rice exports with Latin America, the E.U., Saudi Arabia, Canada and South Africa its biggest markets.

Source: FoodMarketExchange.com