Monthly Archives: September 2015

How smugglers hamper rice policy, frustrate investors

Apparently to halt the yearly loss of N360 billion to rice importation, the Federal Government came up with a policy aimed at achieving self-sufficiency in local production in 2013. It has a plan to ban rice importation by the end of this year. But, the policy is threatened by smuggling, which has also put investors in the rice value chain under intense pressure. The investors fear their multi-billion naira investment might go down the drain, unless measures are taken now to stem smuggling, writes Assistant Editor CHIKODI OKEREOCHA.

AFTER sinking a princely $100 million into the cultivation of rice on 7, 500 hectares of farm and on the construction of two integrated rice mills, each with capacity to process 150, 000 tons of paddy rice per annum, Messrs Pearl Universal Impex, a major rice importer has every reason to be expectant. The prospect of a bountiful return on on its investment and other spin-offs, have put owners of the company in a joyous mood.

Company Chairman Pulkit Jain personified the owners’ excitement when he gleefully announced that the investment would create over 4, 000 direct jobs and 20, 000 indirect jobs through its out-grower’s scheme. He broke the news when he hosted Niger State Governor Abubakar Sani Bello at the company’s rice farms in the state.

Jain’s announcement was also a sweet melody to residents and rice farmers in Borgu and Bida local government areas of the Northcentral state, host communities of the company’s parboiling mills’ and drying facilities.

“We will also support the out-grower farmers by providing them with technical know-how, improved seedlings, fertilisers, pesticides and subsequently procure high quality paddy from them to feed the rice mills,” he said.

According to him, by investing in the cultivation and milling of scientifically-tested high-yielding varieties of rice, his company was helping the Federal Government achieve its target of self-sufficiency in rice production.

Three years ago, the Federal Government launched a new rice policy and set a 2015 target for the realisation of self-sufficiency in rice production. The policy, initiated by the immediate past administration of President Goodluck Jonathan, is part of the Backward Integration Policy (BIP) and economic diversification agenda, which President Muhammadu Buhari has promised retain and pursue.

The objective is to cut down on daily rice import bill, estimated at N1 billion, encourage local production of rice and offer investors in the rice sub-sector incentives to invest.

It (policy) is directed at saving the country the embarrassing paradox of a nation that boasts of more than 60 per cent arable land and manpower to support local rice production, but spends N360 billion to import rice.

“Our target is that we should produce enough rice locally to feed our people and ultimately become a net exporter of rice,” President, African Development Bank (AfDB), Dr. Akinwumi Adesina said at the launch of the policy during his tenure as the Minister of Agriculture & Rural Development.

Expectedly, many investors bought into the policy in the rice sub-sector and encouraged by a combination of patriotism and anticipation of a highly rewarding investment, investors across the entire rice value chain including farmers, processors/millers, importers, and marketers embraced the policy.

Apart from Pearl Universal Impex, which was importing 350,000 metric tonnes of rice annually, but decided to invest in local production to aid the government’s self-sufficiency target in rice production, Dangote Industries Limited (DIL) has also thrown its hat into the rice production ring.

DIL President Alhaji Aliko Dangote, recently announced in Abuja, the investment of $1 billion (about N165 billion) on rice production and processing in five states of Edo, Jigawa, Kebbi, Kwara and Niger.

The Nation learnt that DIL has acquired 150,000 hectares of land in those states for the project, which when developed, will be the largest single investment in rice production in Africa.

The project, seen as a shot in the arm of government’s on-going reforms of the Agricultural Transformation Agenda (ATA), which was launched in 2011, followed the signing of a Memorandum of Understanding (MoU) between DIL and the Federal Ministry of Agriculture and Rural Development.

According to the MoU, the indigenous multinational will establish two state-of-the-art mills with a capacity to process 120,000 metric tons of paddy each, bringing the combined capacity to 240,000 metric tons, with plans to double the capacity in two years. The rice plant is estimated to produce 960,000 metric tons of milled rice, representing 46 per cent of imported rice.

Olam Nigeria Limited, another major investor, has unveiled plans to increase its stake in the rice industry. Specifically, the company, according to its General Manager, Mr. Reji George, will begin the processing of 200,000 metric tonnes of paddy rice in Doma Local Government Area of Nassarawa State this year. He said his firm’s integration plan will aid local rice production and job creation.

The plan came on the heels of the introduction of the company’s locally-produced rice to the Nigerian market in Lagos. Olam’s Business Head for Rice, Anil Nair, explained that the company is into commercial rice production with 6, 000 hectares in two cities. The 12,000 hectares would definitely assist in bridging the demand and supply gap.

According to him, Olam’s involvement in local rice production will assist Nigeria in becoming self-sufficient in rice production.

Spanner in the works

However, palpable fear and apprehension has gripped investors over the fate of their investments following the rising wave of rice smuggling into the country.

The latest figures made available by the Patriotic Rice Association of Nigeria (PRAN), show that 80,000 metric tonnes of rice are smuggled into the country through the porous land borders with Benin Republic every month, with the revenue loss hitting N10 billion.

In the conservative estimate given by the Nigerian Customs Service (NCS), the economy lost over N27 billion to rice smuggling through the land border with Benin Republic in the last four months.

According to reliable sources, thousands of metric tonnes of rice from India, Thailand, Singapore and other Asian countries berth at the ports of Benin Republic and Cameroun for onward dumping in the country.

The President, Rice Millers Importers and Distributors Association of Nigeria (RiMIDAN) and Chairman, Rice Investors Group, Mr. Tunji Owoeye, echoed the frustrations of investors when, at a meeting with the Presidential Committee on Trade Malpractice in Abuja, he lamented that while the local rice producers are working hard to aid government’s self-sufficiency plan, some importers are taking advantage of the free trade zones to import rice and deny the country of much needed revenue.

Owoeye alleged that neighbouring countries are taking advantage of the disconnect in the rice policy to exploit Nigeria.

“They ship in quite a large number of parboiled rice into Benin Republic and Cameroun, but we know that the rice is destined for Nigerian markets and government has taken note of that,” Owoeye told the Committee, claiming that the country loses $1 billion daily on rice smuggling.

Why smugglers hold the ace

Apparently to achieve self-sufficiency in local production, the Federal Government increased the tax on imported rice from 50 to 110 per cent in January 2013. That was a 60 per cent increase. The tax was to encourage locally produced and processed rice and significantly trim down import, that has been gulping N360 billion annually in foreign exchange before a total ban this year.

However, government’s solution in form of a higher tariff regime on importation became the problem. The tariff imposed on the commodity and the consequent higher market prices opened the floodgate for smugglers to push large volumes of rice into the local market with zero duty, a development that is now making the self-sufficiency target in rice production to hang in the balance. Also at stake are the multi-billion investments of by private investors in local production.

Some industry operators told The Nation that as soon as Nigeria announced the tariff hike, some

neighbouring countries such as Benin, Niger, Cameroon, Chad and Gabon, among others, pulled a fast one by quickly lowering their own tariffs on rice. The duty differentials between Nigeria and its

West African neigbours encouraged smuggling from all parts of the globe.

For instance, in response to Nigeria’s 110 per cent tariff on imported rice, the Republic of Benin and Cameroun are said to have crashed their import duty on rice to as low as 30 per cent. Some unscrupulous Nigerian businessmen also relocated their businesses to Benin and Cameroon, a development that is further fuelling smuggling.

Benin and Cameroon have become the destinations of choice for rice imports meant en route the Nigerian market. For these neighbouring countries, Nigeria’s large market size of 170 million people and over 300 entry points are too tempting to ignore. Through such illegal entry points, shipments diverted to neighboring countries by major rice exporters from South and Southeast Asia found their way into the country.

The illegal routes are located in Lagos, Ogun, Oyo, Kwara, Cross River, Rivers, Taraba, Borno, Adamawa, Kastina, Sokoto and Zamfara states.

With the influx of cheaper rice through these routes, local rice producers and processors have been losing sleeps because they cannot compete with the prices of smuggled rice.

Globally, Nigeria ranks next to China in rice importation, consuming between 5.5 million metric tonnes and six million metric tonnes of rice yearly at an estimated value of N360 billion, according to Dr. Olusegun Aganga, the former Minister of Industry, Trade & Investment.

While 1.8 million metric tonnes are produced locally, the country imports 3.7 million metric tonnes annually. More than 50 per cent of this 3.7 million metric tonnes that find their way into the country are said to be smuggled in through the land borders and other unapproved routes.

Presently, local rice production accounts for less than 50 per cent of the country’s total consumption, leaving a huge demand gap for polished/milled rice imported from India, Thailand and Brazil.

The Chairman of Seaport Terminal Operators Association of Nigeria (STOAN), Vicky Haastrup, puts the local production capacity at 30 per cent.

“It is a fact that local production cannot match local demand, which creates a recipe for smuggling,” she said.

According to her, “our neighbouring countries are profiting from the policy by dropping their own tariffs on rice, and because they are benefitting, they give tacit support to these smugglers.”

She said that rather than encourage local production, the 110 per cent policy will stifle it because of the high smuggling rate.

To Haastrup and other stakeholders, the nation’s chances of achieving the rice self-sufficiency target by this year will continue to getting slimmer unless government stems cross-border smuggling. The country is already in the last quarter of the year and the anti-smuggling campaign has not gathered enough steam for the realisation of the target.

Beyond cross-border smuggling, which has been a pain in investors’s neck, the consumption preference of Nigerians for imported rice to the detriment of locally-produced rice has not helped matters.

The market boasts of high-quality and well-packaged Nigerian rice such as Quarra Rice, Umza Rice, Ebony Super Rice, Eko Rice, Mikap Rice, Ashi Rice, Queen of the Niger, Ofada Rice, Abakaliki Rice and Mama’s Pride, among others, which are more nutritious than foreign brands. But, partly because of their penchant for foreign-made products, and partly because of the price difference between the local and foreign brands, many Nigerians still prefer imported rice.

However, rice investors insist that they have the capacity to meet local demand for rice if the right policy and investment climate are put in place to de-emphasize massive importation of the commodity, which in turn breeds smuggling. The investors are therefore of the view that government should assist rice farmers to boost the rice value chain by helping them secure arable land for rice cultivation and providing other inputs such as pesticides, fertilisers, and high-yielding, disease-resistant varieties, among others.

“We, as Nigerian investors have made sacrifices by paying higher duties for the importation of rice through the official channels, while some of our members have begun the backward integration process for rice value-chain. We cannot allow smugglers to keep destroying these investments,” said Bunmi Owolabi, a local rice farmer in Kogi State.

Economy, investors hurting

The Chairman of PRAN, an association of local growers and legal importers of rice, Alhaji Habilu Maishinkafa, is livid. He said a bleak future is steering investors in the face because of the upsurge in the activities of rice smugglers.

He lamented that the rate of smuggling of the commodity remains quite high, with concomitant effects of loss of investment, market share, job losses, revenue and increase in youth unemployment. The PRAN chair said large scale investments in farming and milling industries by private businesses are being jeopardised by the free reign of rice smugglers.

Explaining the process of rice production, experts say the farmers must plant rice and produce paddy (raw) rice, sell the paddy rice to the processors, who turn the rice into finished products.

They lamented that the processors no longer buy paddy from the farmers in sufficient quantities because the price is not attractive for business.

Noting, for instance, that local rice farms and milling plants have been unable to impact on host communities as they are supposed to following the ugly development, Maishinkafa expressed fears that the rice policy is gradually being eroded in view of the unrestrained activities of economic saboteurs, illegal importers and smugglers. He appealed to the Federal Government to tighten the porous borders.

Against the backdrop of the Buhari administration’s avowed commitment to boost the nation’s agricultural sector, PRAN appealed to the government to help its members contribute to the realisation of the dream of self-sufficiency in rice, stating that it was ready to partner with the administration to realise the dream.

The rice dealers added that there is the need to sustain the synergy earlier formed between the Federal Government and the organisation to achieve the production and supply value chain on rice.

According to them, the new rice policy of backward integration was a step in the right direction, which should not be reversed by the current administration, the group observed that for the first time, the government was making conscientious efforts to jump-start local production and shield investors from the onslaught of international importers and daring smugglers.

Vietnam sees rice exports, stockpiles shrinking

Thai News Service
China, the largest customer of Vietnamese rice, has stepped up purchases after its August imports struck a five-month low, according to officials at the Vietnam Food Association (VFA).

An official at the VFA said the increased orders have been boosting its southern neighbour’s export prices and narrowing the spread between high and low quality varieties pushing Vietnam’s prices too high for other markets.

Just last week Vietnam was forced to revise downwards an initial offer on a Philippine buy tender to win a supply contract along with Thailand for deliveries of 25% broken rice over the period November 2015-March 2016.

The contract was for 450,000 metric tons of 25% broken rice at a price of US$460.60 per metric ton, 23% lower than the ceiling price. The balance of 300,000 metric tons was supplied by Thailand at the same price.

Indonesia has been negotiating with Vietnam to purchase 1.5 million metric tons of 5% and 15% broken rice and it has been widely reported Vietnam may share the bidding with Thai traders.

“China has just stepped up buying of all kinds of Vietnamese rice,” a trader at a foreign business in Ho Chi Minh City said recently.

In a sign of the upward pressure put on the Southeast Asian nation’s rice export market, Vietnam has raised its price floor for 25% broken rice by around 3% to US$340 a metric ton, free-on-board (FOB).

“Even before the price increase, Vietnam had difficulties finding rice buyers, so the price hike will just make it even more difficult to locate buyers,” the trader said.

Vietnam’s rice exports in the eight months January-August were down year-on-year having shipped just 3.818 million metric tons of rice valued at US$1.591 billion (FOB) and US$1.641 billion (CIF),

Still, China’s purchases of rice from Vietnam were up about 40% year-on-year in August, with the top buyer’s purchase over the first eight months of the year accounting for nearly 30% of Vietnam’s exports.

China’s purchases – along with the five-month supply contract to the Philippines for 450,000 tonnes of rice – have not only lifted prices, but have also narrowed the gap between 25% broken rice and higher quality 5% broken to as little as US$3-US$5 per metric ton from around US$20.

On the back of the lowered expectations for the year, the VFA has dropped its export target to 6.1-6.3 million metric tons, 700,000-500,000 metric tons less than last year.

The VFA official warned that despite the decline in rice exports, there is not much stockpiled because the central region had a poor crop.

Nearly 1.4 million metric tons on order have not been delivered to customers, nearly 800,000 metric tons of which belong to Chinese customers.

High local rice prices draw in illegal Thai imports

Rice HQ

Imported rice at Wardan Jetty, Yangon. (Photo – Aung Kyaw Htet)

Due to the high price of locally produced rice, illegal imports of rice from Thailand have spiked.

“Rice from Thailand began entering the local market ten days ago. It has been seen for sale in retail shops,” said Lu Maw Myint Maung, Co-Secretary of the Myanmar Rice Federation (MRF).

Although Myanmar officially allocated 80 per cent of its total rice exports to China, China illegally buys more, raising the price of Myanmar-grown rice.

“If we export rice [to China] via Muse, that export is official. But China side buys unofficially. When they unofficially buy our rice, they don’t need to pay tax in their country, so they can buy more Myanmar rice with the money they save. Since tax doesn’t need to be paid for rice bought from our country, both the EU and China buy rice from us. As a result, the price of local rice is higher than in other Asean countries. Then they take advantage of it and enter our local market,” said Lu Maw Myint Maung.

Rice from Thailand is sold in the market in 50 kilogram bags, which are about Ks 2000 to Ks 3000 cheaper than the best local rice on the market.

“The Asean Free Trade Area (AFTA) and Asean Economic Community (AEC) have been intriduced recently. We should prepare our country’s economic data and policies to gauge the effects of AFTA and AEC. Regarding AFTA, we can’t protect the goods entering in accordance with free market and free trade principles. When they enter, our country’s competitive advantage, support and basic infrastructures need to be fulfilled, and the markets, which can compete with international prices, should be implemented. The Myanmar rice market will develop in long term only in these ways,” said Nay Lin Zin, Co-Secretary of Myanmar Rice Federation (MRF).

Indonesia wants to buy Thai, Vietnamese rice

Rice HQ

Indonesia wants to import 1.5 million tonnes of rice from Thailand and Vietnam by next January as the effect of the El Nino weather phenomenon has cut domestic supply.
Chookiat Ophaswongse, honourary president of the Thai Rice Exporters Association, said the Indonesian government announced plans to buy rice through government-to-government deals and its representatives would soon begin negotiations.
Prices could vary as Thai rice was better and more expensive than Vietnamese rice, Mr Chookiat said.
Indonesia might have to import from other sources too because Thailand and Vietnam may not be able to fill the 1.5-million-tonne demand within Indonesia’s timeframe, he said.
Indonesia wanted the rice between November and January. Its own rice harvest season would start in March, he said.
“The 1.5 million tonnes that Indonesia needs is white rice 5% and 15% broken, and it must be new rice. It is good the Thai rice harvest late this year has a market,” he said.
In the first nine months of this year, Thailand exported nearly 7 million tonnes of rice and the Commerce Ministry is confident the export target of 10 million tonnes will be realised this year, Post Today reported.

Rice exporters blame State, Centre for basmati growers’ plight

With growers in Punjab lamenting lower prices of PUSA basmati 1509 variety, rice exporters on Sunday blamed the Punjab Government and the Centre for the “plight” of growers saying that they were not discouraged from plantation of the crop despite poor response from buyers.

With PUSA 1509 variety arriving in mandis of Punjab and Haryana, its prices are hovering around ‘1,200-1,300 per quintal which is even lesser than the Minimum Support Price (MSP) of ‘1,450 per quintal for Grade-A variety, traders said.

In Uttar Pradesh and Madhya Pradesh, the variety is fetching price in the range of ‘800-1,000 a quintal, they further said.

“It is the failure of the Governments both Punjab and Centre for not discouraging growers from sowing PUSA basmati 1509 variety in the State despite warning them numerous times that this variety was not acceptable to buyers,” said Punjab Rice Millers and Exporters’ Association director Ashok Sethi.

Sethi claimed that farmers in Punjab brought uncertified and unrecommended seed of short-duration 1509 variety and planted it without considering its results.

Exporters pointed out that rice millers had witnessed high broken content in 1509 variety during processing last year. Besides grain turning weak, rice of this variety became blackish, which was not acceptable to overseas buyers, they said adding that exporters and millers were unnecessarily being accused of not paying higher rates for this crop.

They claimed that PUSA 1509 variety was not suitable for plantation in Punjab and Haryana.

“We had spent ‘8L to ’10 lakh on advertisements just to discourage farmers not to plant 1509 variety. But despite that fact, this year two crore bags of this variety was expected to arrive in mandis in Punjab alone,” he said.

A vigorous campaign was also launched this season in paddy growing areas of Punjab and Haryana, asking growers not to sow PUSA Basmati 1509 before July 15 after basmati exporters complained of high incident of broken content because of pre-mature plantation.

Exporters said that farmers planted crop before July 15 despite being told not do so.

Developed by Indian Agricultural Research Institute (IARI), PUSA Basmati 1509 variety has seen its acceptability among growers both in Punjab and Haryana in a big way because of its high yield and short duration (90 days).

Its yield is about 25 quintals per acre, more than the other aromatic variety of PUSA 1121 whose yield is 20 quintals per acre.

After basmati 1509 variety fetched higher returns in 2013 when this came for the first time, farmers, who planted it early, fetched ‘4,000 per quintal for paddy, industry insiders said.

Published by HT Syndication with permission from Pioneer.

The beleaguered rice market: exports up, prices down

Rice HQ

The rice price in the Mekong River Delta did not move up in the last week despite the news about Vietnam’s attending the bid to provide 750,000 tons of rice to the Philippines later this year and early next year. The price even at times decreased slightly.

In the past, the price would go up at least by VND100 per kilo right after the news about the bidding.

Nong Nghiep Viet Nam quoted rice suppliers as saying that merchants and exporters have not put high hopes on the bidding; therefore, merchants did not speed up the rice collection from farmers.

They also lacked information, and Vietnam’s rice price has fallen sharply in the world market as well.

A rice exporter said though Vietnam’s 5 percent broken rice now sells at $330 per ton only, the sale has been going very slowly.

Meanwhile, Vietnam exported only 4 million tons of rice by the end of August, leaving a big inventory.

Vietnamese rice exporters have had to struggle to win every rice export contract this year. Major export items – 5 percent, 15 percent and 25 percent broken rice – all have been selling very slowly.

Only broken rice products have been selling well because the Chinese government, while restricting rice imports from Vietnam with a quota scheme, allowed Chinese importers to import broken rice without licenses.

A branch of the Northern Food Corporation (Vinafood 1) reportedly exported 40,000 tons of broken rice this year thanks to high demand from China.

The rice exporter complained that Vietnamese businesses were meeting big difficulties in negotiating with importers because of ‘spies’.

Some rice survey firms, which try to keep good relations with foreign rice importers as they hope to be chosen as rice inspection service providers for the importers, have been regularly providing information to them about rice prices in Vietnam.

The importers use the information they get from their partners – survey firms – in negotiating with Vietnamese rice exporters and then try to force the prices down.

In many cases, rice importers have forced Vietnamese exporters to lower the selling prices the two sides had agreed to before, because they had heard about the domestic price decrease.

In the latest news, Manila Bulletin has reported that Vietnam won the right to provide 450,000 tons of rice to the Philippines in a bid invited by the Filipino National Food Agency (NFA) at $426.6 per ton, lower than the ceiling price set by NFA at $426.83 per ton.

Rice exports face difficulties

Vietnam is encountering difficulties in exporting rice in the face of fierce competition from Thailand, India and Myanmar.

Rice HQ

The statement was made by Vo Hung Dung, Director of the Vietnam Chamber of Commerce and Industry – Can Tho branch, at a workshop in the Mekong Delta city on September 25 to seek solutions for rice producers and exporters.

Statistics from the Ministry of Agriculture and Rural Development showed that in the first eight months of 2015, Vietnam shipped 4.1 million tonnes of rice abroad and earned US$ 1.76 billion, down 8.6 percent in volume and over 13 percent in value compared to the same period last year.

Notably, China, which remains Vietnam’s largest rice importer with 32 percent of the country’s total market shares, is decreasing its imports from Vietnam. In 2012-2013, around 65 percent of China’s imported rice came from Vietnam but the figure reduced to 53 percent in 2014 and 47 percent in the first four months of this year.

In addition, Vietnam’s two other major importers, the Philippines and Indonesia, which account for 12 and 5 percent of the market shares, respectively, are striving to boost production towards self-sufficiency.

At the workshop, Chairman of the Vietnam Food Association Huynh The Nang introduced several measures to help businesses improve their competitiveness.

According to Nang, the long-term solution to effectively stabilising production and exports is to provide loans for export businesses’ rice stockpiles.

He also suggested reducing risks in harvesting, stocking and distributing rice while striving to building trademarks for the Vietnamese product.

The Ho Chi Minh City Development Bank (HDBank) also took the occasion to introduce its programme to support rice exporters.

China: A Growing Appetite for U.S. Rice?

 Rice HQ

Summary

China and the United States are expected to sign an agreement to open up the Chinese rice market to U.S. producers, who have lobbied for the deal for more than a decade. China’s agricultural policies are gradually changing, but the country’s policy of self-sufficiency for rice will likely remain. The policy limits the percentage of total rice consumption that China can legally import, but given how much rice China consumes, it is still a lucrative market for global exporters. However, because of incompatible quality control regulations, up until now U.S. exporters have not been able to tap into the Chinese rice market. Even so, in anticipation of an eventual deal, many U.S. producers have been making the necessary adjustments to bring their crops in line with Chinese standards.

International rice prices are low despite imbalances in supply and demand, though U.S. export prices are currently much higher than those of its competitors. Thus, when the export protocol is signed, U.S. exporters can at best expect to fill niche demand for high-quality rice in China. But regardless of price fluctuations, the long-term potential of U.S. rice exports to China is uncertain because of China’s evolving regulatory environment.

Analysis

There has been much scrutiny of Chinese President Xi Jinping’s controversial first official visit to the United States. But agricultural trade policies have been eclipsed by more exciting topics such as cyber security and the potential implementation of sanctions. However, a deal that has long been advocated by U.S. rice producers and that would allow U.S. rice to enter the Chinese market is set to be signed during the visit. Nevertheless, the market for rice will not be opened up as much as the soybean market was in the 1990s, and Beijing will maintain self-sufficiency policies for rice because of its centrality in the Chinese diet.

For the past 15 years, U.S. rice producers have wanted to enter China, but China has required certain phytosanitary — or pest control — measures at several points along the supply chain, which the United States has been hesitant to agree to. With the implementation of the long awaited agreement on this protocol, in theory, U.S. rice could be exported to China in as little as a month’s time.

Gauging Demand

Over the past decade, U.S. meat and dairy producers shifted their practices to meet the growing Chinese demand created by the expansion of the middle class. Rice producers now hope to do the same. And despite the slowing Chinese economy, rice is a staple of the Chinese diet and the market for it is expected to remain strong. In fact, consumption will likely continue to rise as long as the population does. Because of food security concerns, Beijing requires rigorous pest control measures along the entire rice supply chain in order to protect domestic crops, and some U.S. farmers, have already begun making adjustments to meet Chinese requirements in anticipation of the agreement.

China is the world’s largest producer and consumer of rice. And Chinese rice imports — sourced primarily from Vietnam, Thailand and Pakistan — increased substantially in 2012 and have remained high since, making China one of the world’s largest importers of rice as well. Beijing’s food security policies keep the domestic price of rice inflated, meaning that imports are economically competitive but are highly regulated. The international food price index recently hit the lowest level in six years, and low cereal prices are a large part of that decline.

Despite this, rice consumption has outpaced milled rice production since the 2013-2014 market year, and prices have stayed low because of factors such as currency depreciation in Thailand and Vietnam, which has lowered minimum export prices to stimulate demand. Self-sufficiency policies in Indonesia and the Philippines have reduced import demand, also contributing to low prices. While we may see some price shifts because of the El Nino weather pattern in coming months, U.S. rice trades at roughly a $200 premium over its Southeast Asian competitors.

Rice HQ

The United States, the world’s fifth largest rice exporter, sells rice to regional trade partners Mexico and Canada, to countries in South and Central America, to the Caribbean and to the Middle East. Japan is the only East Asian country among the top destinations for U.S. rice, though it is because of a previous trade agreement, and only a limited amount reaches the Japanese market. Most is used for foreign aid or as animal feed.

Both price and taste preference could hamper the United States’ push to enter the Chinese market, even once the agreement is signed. But concerns over the quality in domestic rice production and reports of heavy metal contamination in Chinese rice will certainly help boost the desirability and perceived quality of imports. As part of their campaign to export, the U.S. Rice Producers’ Association conducted surveys of Chinese consumers, which indicate that there may be a market for U.S. rice in China after all: the high-end market. This niche market would still represent a potential export increase of roughly 200,000 metric tons and would certainly be a boost to the industry, worth upward of $100 million based on current prices of U.S. rice.

Long term, the U.S. rice industry will likely experience additional regulatory hurdles as China’s food security strategy matures. And whether because of some infestation or disease (China still has a ban on beef imports from the U.S. because of a mad cow case in 2003) or because of contamination from genetically modified strains (corn imports were turned back in 2014 because of alleged contamination), China could still suddenly revoke the privilege to import. In 2006, a genetically modified strain of rice was detected in the U.S. export supply, causing temporary restrictions to be put in place for other export destinations. Considering the resource scarcity much of the world will face in the coming years and decades, genetic engineering is poised to be a growing part of agricultural strategy, and so contamination will only become more likely. Even though there is already domestic development of genetically modified strains of rice, Beijing is likely to be extremely cautious about accepting foreign genetically modified crops, especially for staples like rice. Furthermore, as Beijing seeks to build up its own agricultural biotech sector as part of its food security strategy, we could see regulations shift accordingly.

Excited about Cuba trip, Hutchinson tells rice growers

Gov. Asa Hutchinson on Monday told representatives of the state’s rice industry he is excited about his upcoming trade mission to Cuba and hopeful that Arkansas farmers will have new opportunities to export rice to the island nation.

Also Monday, Hutchinson issued a proclamation of Arkansas’ participation this month in National Rice Month, and Arkansas rice growers marked the event by donating more than 110,000 pounds of rice to the Arkansas Rice Depot to feed hungry families in the state.

During a proclamation ceremony at the state Capitol, Hutchinson, who will visit Cuba next week, told rice growers that politics have limited trade with Cuba in the past, but “I think all of that’s changing.”

President Barack Obama announced in December that the U.S. and Cuba would normalize diplomatic relations. The two countries re-opened embassies on each other’s soil this summer for the first time in 54 years.

Hutchinson said Monday that financing is currently the biggest barrier to U.S.-Cuban agricultural trade.

“Right now we can sell rice, but they don’t have cash to pay for it,” he said, referencing the fact that U.S. exporters are prohibited by the rules of the trade embargo from extending credit to Cuban buyers, but Brazilian exporters are not.

The “first step” to increasing trade is making financing possible, the governor said.

“I think there’s really some opportunity there,” he said, adding that he is excited to visit Cuba next week.

Former Gov. Mike Beebe also advocated increased trade with Cuba and visited the country in 2009.

Monday’s donation to the Arkansas Rice Foundation will provide 1.1 million servings of rice to needy families in the state. The participating rice mills are Cormier Rice Mill of DeWitt, Windmill Rice of Jonesboro, Riceland Foods of Stuttgart, Producers Rice Mill of Stuttgart, Riviana Foods of Carlisle and Specialty Rice of Brinkley.

“The Arkansas rice industry is pleased to partner with the Arkansas Rice Depot to fight hunger in Arkansas,” Arkansas Rice Council President Steve Orlicek said in a statement. “We are proud to produce a quality food supply in our own backyards that can be used to help feed our neighbors and hungry families across the state.”

Arkansas Rice Depot President and CEO Kim Aaron said, “I can’t express how grateful we are for the Arkansas rice industry’s generous donation. Rice is such a staple across the globe, but we are fortunate to have local growers to donate such a versatile product for us to put into backpacks and pantries.”

The Arkansas Rice Depot is a statewide food bank that works with 600 Arkansas hunger relief programs including food pantries, school food programs, disaster relief organizations and a statewide hunger hot line.

Arkansas is the top rice-producing state in the nation. The rice industry contributes more than $6 billion annually to the state’s economy and employs nearly 25,000 Arkansans, according to the Arkansas Rice Federation.

This year, Arkansas farmers will produce more than 50 percent of the nation’s rice for the first time in history, the federation said.

China, Facing Drought, Accepts US Rice

Rice HQ

China’s President Xi Jinping will sign an agreement to open up China’s rice market to U.S. exports as part of his economic charm offensive this week, after signing a $38 billion aircraft deal with Boeing in Seattle.

U.S. rice producers have been demanding China honor commitments to open up its domestic market to agricultural imports under the World Trade Agreement signed in 2001. But China has kept the world’s fourth largest producer out of the world’s largest market by requiring extraordinary phytosanitary–or pest control–measures along several points along the supply chain, according to Stratfor Global Intelligence.

The United States is the world’s fifth largest rice exporter and sells product to Mexico, Canada, South and Central America, the Middle East and Japan. But despite heavy lobbying of Congress and threats to retaliate, China locked out U.S. rice farmers.

China is on a collision course with the U.S. over cybersecurity violations, and Congress has threatened the “Red Dragon” with the impositions of trade sanctions. However, a goodwill deal that has long been advocated to allow U.S. rice to enter the Chinese market is set to be signed during President Xi’s visit.

After China openedup imports from U.S. soy bean growers in the 1990s, volumes exploded. In the last decade, American meat and dairy producers shifted their practices to meet the growing Chinese demand created by the expansion of the middle class. Rice producers now hope to do the same for their high quality product.

China is world’s largest producer, consumer and importer of rice. But it has been unable to meet its own volume needs as demand has boomed since 2012 from 468 million metric tons to an estimated 493 million metric tons this year. China has been primarily importing rice from Vietnam, Thailand and Pakistan. Beijing’s rigid food security policies that have been used to keep the U.S. out also keep domestic prices inflated. That creates huge financial incentives for U.S. exporters to enter the market.

Beijing has a policy aimed at being self-sufficient in rice production because of “its centrality in the Chinese diet”, according to Stratfor. But facing the risk of huge crop losses, as Asia is expected to swelter under what could be one of the most intense El Niño eventss in history, the long awaited signing of a rice export protocol could start American rice moving toward China in the next 30 days.

Although California is only the second largest producing state in the U.S., its proximity to Asian markets means that most of the American exports will come from rice growers clustered along the Sacramento River and its tributary, the Feather River.

Unlike California farmers in the San Joaquin Valley to the south, who rely on contracts with state or federal water projects and received little or no water during the this summer’s drought, many rice farmers were helped from spring floods and more reliable summer water supply rights.

The international food price index, which includes rice, recently hit the lowest level in six years. But U.S. rice exports command roughly a $200 per metric ton premium over their Southeast Asian competitors.

Concerns over the quality of Chinese domestic rice include reports of heavy metal contamination, and could allow American exporters to ship over 200,000 metric tons initially, with a value of about $100 million based on current prices, according to the U.S. Rice Producers’ Association surveys of Chinese consumers.