The Rice Market Anomaly That Is China

Oct 28, 2016
Could this be the reason?
Rice-Market-Anomaly-That-Is-China,-potato stall
ARLINGTON, VA -- According to data from the U.S. Department of Agriculture (USDA), global rice production declined by 6.65 million tons in 2015/16, which USDA reports led to reduced consumption of rice in animal feeds and to some extent in food, particularly in India and Thailand.  That situation was reversed in the latest USDA forecast with production forecasted to rebound by 11.17 million tons in 2016/17 to a new record of 482.26 million tons.  Ending stocks are forecasted to rise 5.1 million tons to 120.7 million tons or a little more than 25 percent of consumption.

That is the global situation, now let’s focus on the anomaly that is China’s rice market.  Production is forecasted to rise one percent to 146.5 million tons while consumption remains flat at 144 million tons.  Add imports to the equation and ending stocks are set to rise by 7.2 million tons to 71 million tons or the equivalent of 60 percent of global ending stocks.  In other words supplies in the market, not counting carry-in stocks, will exceed consumption by 7.2 million tons, or nearly the size of the 2016 U.S rice crop.

You need look no further than the recently announced U.S. challenge to rice production subsidy policy in China to understand how this anomaly has arisen.  The domestic price guaranteed to the farmer set by the government is significantly higher than the price of rice in nearby countries with exportable supplies of rice.  As a result, China has become by a wide margin the largest importer of rice in the world, even though self-sufficient in rice production.  In fact, in previous years the “official” import numbers have understated imports by probably a million tons or more that crossed the border from Vietnam unaccounted for and paying no import duty.

Can this trend continue?  Simply put it cannot.  China has essentially capped imports at 5.3 million tons, the level agreed to when China joined the World Trade Organization.  This Tariff Rate Quota allows this level of imports at a tariff of one percent and a 13 percent value added tax (VAT).  Continually growing stocks is not sustainable.  Either of three things must happen to alleviate the oversupply situation:  1) the production subsidies will be reduced to lower the incentive for local production; 2) imports will decline; or, 3) rice will be used for industrial processes such as animal feed (which is a policy adopted by Japan), ethanol, or other industrial use.

USA Rice continues to monitor progress toward market access, but at the same time is preparing ground for entering the market by identifying and building relationships with major rice importers through trade servicing activities.  USA Rice is also building interest in U.S. rice in China by participating in food shows demonstrating the variety of rice types available from the U.S.

USA Rice is planning trade seminars in China to coincide with when market access is gained, and is also planning to bring major importers to the U.S. for them to get a better understanding of the U.S. rice industry to build confidence in the U.S. as a reliable trading partner with high quality rice to sell.