RICE: INTERNATIONAL COMMODITY PROFILE

1. Introduction
Rice, a strategic agricultural and food commodity
Rice is a major food staple and a mainstay for the rural population and for household food
security. It is mainly cultivated by small farmers in holdings of less than one hectare. Rice also
plays an important role as a “wage” commodity for workers in the cash crop or non-agricultural
sectors. This duality has given rise to conflicting policy objectives, with policy makers
intervening to the rescue of farmers when prices fell too low or in the defence of consumer’s
purchasing power, in cases of sudden prices hikes.
Rice is of special importance for the nutrition of large reaches of the population in Asia parts of
Latin America and the Caribbean and, increasingly so, in Africa. As a result, it plays a pivotal role
for the food security of over half the world population. It is also a central component of the
culture of a number of communities. For those reasons, rice is considered as a “strategic”
commodity in many countries, both developed and developing, and has consequently remained
subject to a wide range of government controls and interventions
Rice Varieties
There are only two major species of cultivated2 rice:Oryza sativa, or Asian rice, and Oryza
glaberrima, or African rice. The rice varieties grown across the world belong overwhelmingly to
the O. Sativa (O.S) species, while cultivation of the O.G is confined to Africa. Even in that region,
however, O.G varieties are fast being replaced by the O.S, which displays much higher yields
than the O.G., a characteristic that has prevailed over the special advantages afforded by the
O.G, in the form of weed tolerance, pest resistance or fast maturing growth. In the late 1990s,
the Africa Rice Centre, WARDA, managed to cross the two species into an inter-species hybrid
called “NERICA” (standing for "New Rice for Africa"), which combines the ruggedness of local
African rice with the high productivity of the Asian rice.
Although there are many Oriza Sativa varieties cultivated commercially, they belong to two
major subspecies: the Indica, long grain rice, characterized by a wide adaptability to different
environments and the Japonica, round grain, rice, distinguished by its strong responsiveness to
fertilizer applications. Japonica rice is mainly cultivated (and consumed) in temperate and
tropical-upland climatic zones, in Australia, China (in the three northern Provinces of
Heilongjiang, Jilin and Liaoning and the eastern central provinces of Anhui, Jiangsu and
Zhejiang), the Chinese province of Taiwan, the Democratic Republic of Korea, the European
Union (EU), Japan, the Republic of Korea, Russia, Turkey and the Unites States (California State).
Overall, some 80 million tonnes of Japonica rice were estimated to have been gathered in 2000-
2005, about 13 percent of world output. Indica rice varieties, which are especially well adapted
to tropical climates but also thrive in temperate climatic conditions, account for the bulk of
world rice production. Many of the rice hybrids available to producers derive from the basic
Indica varieties, including the semi-dwarf rice varieties, the introduction of which led to record
yield increases throughout Asia in the 1960s and 1970s. Although also belonging to the Indica
long grain rice family, fragrant rice is often considered separately, because of their distinctive
perfume that commands a price premium. The principal varieties defined as aromatic are the
fragrant “Hom Mali” rice produced by Thailand and the various types of Basmati exclusively
grown on the Himalayan foothills by India (in the states of Haryana and Punjab) and Pakistan (in
the state of Punjab).
Although research into genetically-modified (GM) rice has intensified since the decoding of the
rice genome in 2002, no GM rice has been officially released for commercial production as of
2006. Genetic modifications on the rice crop have concentrated on (i) improving the nutritional
qualities of the grain with, for example, the “Golden Rice” customized to contain high levels of
vitamin A; (ii) reducing input applications, by developing pest-resistant Bt (Bacillus
thuringiensis), fungal (e.g. bacterial blight) -resistant or herbicide (e.g. glufosinate) -tolerant rice
strains; (iii) extending the rice production frontier, by engineering seeds to withstand
submergence, drought or salinity. Despite those breakthroughs, governments have refrained
from authorizing farmers to plant GM rice, not only because of concerns over the impact of GM
rice on human health or the environment, but also because of fears that a loss of the GM rice-
free status could jeopardize access to key rice markets. The recent discovery of unauthorized
Liberty Link GM rice in rice consignments from the United States provide an instance of
potential disruption, when those findings triggered the imposition in many countries of tight
testing requirements on imports of US rice. On the other hand, pressure to adopt GM rice
varieties is intensifying in the developing countries, especially in those facing resource
constraints and large populations. Chinese farmers were already alleged to be growing GM rice
varieties, although not formally authorized by the Government for commercial release.

2.Basic concept

Overview

Rice cultivation originated in China over 4,000 years ago and remains an important agricultural
commodity in many Asian diets. In addition, its low cost and the high caloric value make rice a
staple commodity for many poor and developing countries. Production occurs in over 50
countries throughout the world, although Asian countries produce well over two-thirds of the
world crop of 430 million tons. U.S. production accounts for less than 2 percent of the world
total, however, the United States is an important exporter due to the relatively small
percentage of rice traded globally. In recent years, over 45 percent of U.S. production has been
exported.

Industry Characteristics and Production

In the United States, rice production is predominant in three areas of the country—the
Mississippi Delta region, the Gulf Coast, and the Sacramento Valley region of California. Of
these regions, the Mississippi Delta is the largest in terms of total acreage, however the
Sacramento Valley historically has produced the highest yields. Agronomic practices between
regions vary based on climate and technological efficiency. Multiple varieties of rice exist
including short-grain, medium-grain and long-grain varieties. The majority of U.S. production
(nearly 70 %) is long-grain. Medium-grain varieties account for the remaining percentage of U.S.
production while short-grain varieties, on average, account for less than 1 percent of U.S. total
production. Over 90 percent of California rice production is medium-grain which accounts for
roughly two-thirds of the U.S. medium-grain supply and California growers are responsible for
almost the entire supply of U.S. short-grain rice varieties. The other distinction is between
japonica rices and indica rices. Japonica rices are typically medium or short grain glutinous rice
in which the kernels stick together. About 80 percent of US rice and more than 90% of world
rice supply is indica varieties. Japonica varieties are those typically consumed in Japan, Korea
and Northern China. In the United States California is the sole producer of japonica rice.

In the United States, long-grain rice accounts for the bulk of U.S. consumption. Long-grain
varieties are predominantly used in processed foods such as packaged mixes and as a side or
main dish. Medium-grain varieties have found an outlet in breakfast cereals and other
processed foods and are also used for desserts, casseroles, and stir-fry recipes, while short-
grain rice is ideal for pudding and other desserts. Short and medium grain japonica rice is used
for Japanese and Korea foods, including sushi. Rice used for manufacturing beer is not limited
to one set of varieties (Economic Research Service (ERS 2002) and Riceland). In addition, rice is
often processed into products including rice flour and vegetable oil and many rice products are
branded. The largest rice miller and marketer in the United States is Riceland Foods, Inc, which
is headquartered in Stuttgart, Arkansas. According to Riceland Inc., 25 percent of the U.S. crop
is marketed through Riceland mills.

U.S. Rice Policy and Government Programs

The Farm Security and Rural Investment Act of 2002 provides rice producers access to federal
government programs designed to increase producer revenue beyond that from market sales.
The three major programs providing payments to rice farmers are direct payments, counter-
cyclical payments, and marketing loan payments. Direct payments are paid to producers based
on historical production and are linked to current prices or output only indirectly. Counter-
cyclical payments use a basis of previous production dependant upon national prices and
marketing loan benefits rely on federal compensation in response to low market prices.
Marketing loan benefits are available when the price of rice in specified international markets is
below the legislated U.S. loan rates. In years where rice prices are low, counter cyclical
payments and marketing loan payments can be substantial (Economic Research Service (ERS)
2005). Eligibility for both the direct payments and the counter-cyclical payments restrict crops
eligible for rice base acres and the 2002 Act allowed farmers to update the base to reflect more
recent planting and yields. In addition, U.S. rice producers are able to take advantage of
government revenue insurance, trade assistance, and conservation programs. Because rice land
provides a wetland-friendly habitat for wildlife, several conservation programs have been made
available to producers in order to enhance, protect and preserve the habitat they utilize. Some
of these programs include the Conservation Security Program, Conservation Planning
Assistance Pilot Program, U.S. Fish and Wildlife Service Conservation Easement Program,
Wetland Reserve Program, Conservation Reserve Enhancement Program, Partners for Fish and
Wildlife Program, and the Wildlife Habitat Incentive Program (California Rice Commission).
These programs typically offer monetary compensation for restoration projects by producers or
compensation for land retirement.

Demand

Nearly 460 million tons of rice are consumed globally each year. In less developed countries,
increasing per capita income typically results in decreased per capita rice consumption. This is
because increased income leads to diversification in diet and an ability to buy more expensive
foods. China and India far outpace consumption patterns compared to any other country. In
2004, Chinese consumption totaled 135 million metric tons while India consumed 84 million
metric tons. Together, these two counties accounted for just over 52 percent of total world
consumption in 2004 (Foreign Agricultural Service (FAS)). In comparison, 3.6 million metric tons
of rice were consumed in the United States during the same year. Rice consumption in the
United States has continued to increase due to an increase in Asian and Hispanic populations,
growth in overall national population, the introduction of new rice-based food products and
industry advertising efforts (ERS 2005). Direct food use accounted for 65 percent of total U.S.
domestic use in 2003, while processed foods accounted for 18 percent, and rice used in beer
production accounted for 17 percent (ERS 2005).

Exports

ERS statistics indicate only 6 to 7 percent of total world rice production is traded internationally
each year, 75 percent of which is long-grain rice. Although China and India dominate world rice
production, they do not dominate the world export market. In 2004, Thailand was responsible
for 38 percent of total world exports while the United States ranked fourth with 11 percent of
total tonnage behind Vietnam and India. U.S. exports in 2004 were valued at almost $1.2 billion
dollars. Although the traded share of rice has increased due to increased market access over
the last 15 years, a number of countries, especially in Northeast Asia, have also implemented
policies which have restricted imports (ERS 2005). As a result of trade barriers and production
subsidies, rice prices are lower than they would otherwise be. According to FAS statistics, in
2004 the top destinations for U.S rice exports in terms of value were Mexico and Japan, which
each received exports worth approximately $182 .Though much smaller in terms of value,
Canada received just below $100 million worth of U.S. rice exports in 2004 and Haiti received
nearly $80 billion worth. Historically Canada and Haiti have alternated between the third and
fourth largest U.S. export destinations. World wide, the three largest importers are Indonesia,
Bangladesh and Sub-Suharan Africa. Rising populations and limited room for expanded rice
production, coupled with increased competition for alternative crops are factors that have led
to expanded export markets in these and other regions (ERS 2005). Exports of rice have
accounted for at least 45 percent of total U.S. production in recent years. U.S. exports of milled
rice have declined due to lost market share to Africa and the Middle East. However, the U.S.
industry has capitalized on the rough rice (i.e. unmilled paddy rice) export market relinquished
by top Asian exporters, offsetting losses in milled rice exports (ERS 2005). High quality, supplier
reliability, year round delivery, versatility of products including rough or unmilled rice and WTO
imposed policy in the Northeast Asian markets have helped the U.S. remain competitive in
export markets (ERS 2005). U.S. rice, mainly from California, accounts for nearly 50 percent of
Japan’s WTO commitment to import 8 percent of annual consumption of rice, and also regularly
supplies South Korea and Taiwan as well.

Supply

According to FAS 2004 statistics the world’s largest consumers of rice are also the world’s
largest producers. China’s production totaled 112.5 million metric tons in 2004 followed by
India’s 87 million metric tons. Combined they account for 50 percent of world rice production.
Comparatively, in 2004, U.S. rice production was 6.4 million metric tons, or 1.6 percent of total
world production. U.S. rice production acreage has remained relatively stable, averaging 3.3
million acres since 1997, with 2004 estimated acreage at 3.4 million .Prior to 1996, acreage was
often restricted by supply control measures subsequently eliminated under the 1996 Farm Act.
While acreage has changed minimally, average U.S. yields have increase by 931 pounds per acre
since 1997, with an average yield in 2004 of 6,828 pounds/acre. Notably, the increase in
precision leveling and the introduction of new, semi-dwarf varieties has greatly contributed to
increased yields (ERS 2005). Real prices for rice (in 2000-dollars) have continued to fall since
1980. Prices fell most dramatically in 1986 (to $5.34/cwt), 2001 (to $4.15/cwt) and 2002
($4.31/cwt). By 2004, prices rebounded slightly to $6.69/cwt. Typically, U.S. rice producers do
not respond as expected to market forces or changes in prices. This is best illustrated by the
increased plantings in 1997 despite falling prices. Several factors contribute to producer
responses. First, in years when world prices are low, U.S. marketing loan benefits and counter-
cyclical payments compensate farmers for lower prices, so anticipated losses from a decrease in
world prices are minimized. Second, the large capital investments, high operating costs of rice
production, and specialized machinery specific to rice production make exit or decreased
production costly for many producers. Third, because much of the acreage dedicated to rice
production in the U.S. is unsuitable for other viable planting options, it is less common that rice
cropland is converted to alternative crops. Lastly, increased yields lead to increased production,
regardless of market prices (ERS 2005).
Imports

Although the United States remains a net exporter by nearly one billion dollars, according to
(FAS) statistics, U.S. imports from Thailand in 2004 were worth nearly $160 million and Indian
imports worth $37 million. Milled long-grain rice, primarily jasmine, accounted for most of
these imports. Thailand has accounted for 60-70 percent of total U.S. imports of rice, primarily
because of the inability of U.S. producers to successfully grow specific Asian aromatic varieties.
The United States also imports mainly medium-grain rice from Australia and China, almost all of
which is destined for Puerto Rico.

Related Issues

As the United States continues to use its market power in terms of price support to rice
producers and as the price difference between global and U.S. prices widens, U.S.
competitiveness in world markets is expected to decrease. U.S. competitiveness in the global
market will continue to be an issue of importance to producers. In addition, in the summer of
2004, the EU altered its rice policy and essentially cut its domestic support price by 50 percent
and moved to fixed import levies. Long-run effects from these changes are not yet known.

Major content

A.Global rice production and consumption

During the 1990s, global rice production expanded at a rate of 1.8 percent per year - marginally above
the population growth rate. By the end of the decade, it reached 400 million tonnes (Mt) in milled
equivalent
B.Major rice producers, 1998-2000

Developing countries account for 95 percent of the total, with China and India alone responsible for over
half of the world output. Most of the increase in the 1990s was sustained through productivity gains
rather than land expansion. In recent years the tendency for yield growth to slacken has been cause for
concern. Furthermore, competition for basic resources (in particular, land and water) from other
agricultural and non-agricultural sectors, as well as the negative environmental impacts associated with
rice cultivation, are expected to pose a serious challenge to the future development of the sector.

C.Global rice trade volume and share in global production

D.Major rice exporters and export shares, 1998-2000

Developing countries are the main players in the world rice trade, accounting for 83 percent of exports
and 85 percent of imports. The concentration is particularly high on the export side, since five countries
(Thailand, Viet Nam, China, the United States and India) cover about three-quarters of world trade .This
situation is in contrast to the fragmentation of import markets and the wide year-to-year fluctuations in
individual countries’ purchases, resulting from the fact that importers do not rely consistently on the
international market for rice supplies, but only as a last resort to fill the gap caused by a production
shortfall. Unlike for other important cereals, there is no major international future market for rice.
E.Major rice importers and import shares 1998-2000

During the 1990s, Brazil, Indonesia, Saudi Arabia, Iraq and the Islamic Republic of Iran were the major
destinations in the rice trade. In the last few years, however, following a shift in policies, imports by
African countries have surged, providing a major stimulus to trade.

F.FAO export price index for rice

Falling international prices have been the principal cause for concern in the last few years, for both
importing and exporting countries. The slide in world quotations was a reflection of the dynamic growth
in global production since the mid-1990s, following the implementation of expansionary policies in a
large number of countries. Although world paddy production has fallen in the past 2 years, supply
releases from stocks have kept the downward pressure on prices
Applied Trade Policy

Faced with rapidly increasing food prices from mid-2007 to mid-2008, many countries adopted
policy measures to mitigate the impact of high food prices and increase domestic production.
Most measures were adopted in an emergency, short-term context and focused on the
reduction or suspension of import tariffs and taxes and support to domestic production with
agricultural inputs and credits. Although prices declined through the last half of 2008, rice still
remained 54% above the December 2007 average price in December 2008 (Food & Agriculture
Organization, 2008) and increased 5% over December in January 2009 due to Thailand’s
agricultural subsidies and large government purchases intended to increase domestic supplies
(Food & Agriculture Organization, 2009).

India responded to the increase in food prices with several protectionist trade policies. In
February 2008, it banned exports of non-basmati rice (Chandrashekhar, 2008). In April, it
imposed a tax of 8,000 rupees per ton on exports of basmati rice (Oryza, 2008). Minimum
export prices were increased throughout the year to increase earnings and slow exports. The
ban on exports eventually was eased and limited exports were allowed to neighboring
countries by mid-October, although minimum export prices were in place (Food & Agriculture
Organization, 2008). India’s goals were to reduce prices and increase supplies in the domestic
market. India also increased assistance to producers harmed by these trade policies. It
maintained and engaged in limited expansion of fertilizer, irrigation, and power subsidies. In
February, the Finance Ministry announced that it was budgeting 600 billion rupees for farm
debt relief to cancel or reduce the debt owed by an estimated 40 million small farmers
(Timmons, 2008). In September, the government’s grain procurement and distribution agency,
Food Corporation of India, made record procurements of rice to stabilize prices in the open
market, intervene if prices rose, and increase aid to the poor. Farmers benefited from an
increase in the minimum support price, which rose nearly 22%, to Rs 695 per quintal (Modi,
2008). 60% of the labor force is employed in agriculture (CIA, 2009). India is the second largest
producer of rice, after China, at a projected 97.5 million tons in 2008/2009. Although it
consumes, on average, 95% of what it produces, India was still the third largest exporter of rice,
after Thailand and Vietnam, with approximately 20% of total rice exports in 2006/2007. After
export restrictions, India fell behind Pakistan and the US (see chart below). India’s largest
trading partners are the US and China (USDA, 2008).

India is the largest producer of basmati rice in the world. Approximately 1% of its rice
production is basmati, but unlike other rice varieties, more than 80% of the basmati rice grown
is exported. The Gulf nations and Europe are its primary importers, which equates to 1.2 million
tons annually (Oryza, 2008). India’s climate is well suited for rice production, which is land and
labor intensive. World rice demand experienced an increase by 2.4% in 2009. Consumers are
expected to increase consumption of less-expensive staple foods due to the global financial
crisis lowering household incomes. On a per capita basis, average rice consumption as food is
estimated to rise from 56.9 kg to 57.3 kg (Food & Agriculture Organization, 2009). Global rice
production is expected to rise nearly 2% above 2007/2008 production to a record 439.7 million
tons. Global rice trade is projected at 29.5 million tons, 1% below 2008 and 8% below a 2007
record (Childs, 2009). Increases in demand and reductions in trade would drive the world price
even higher. A reversal of India’s protectionist policies would act to reduce the world price of
rice and increase the domestic price as domestic supplies are exported, making domestic
consumers worse off while domestic producers gain. Therefore, the national welfare impact
that current policies have becomes 14 very important to avoid mis-timing future policy
reversals intended to assist domestic farmers. The following section reviews the effects of
India’s protectionist trade policies.

Domestic Effects of Trade Policies

Overall, India’s goals were achieved by lowering prices and increasing supplies by 1.5 million
tons in the domestic market, although domestic prices of rice increased throughout 2008
despite
protectionist trade policies and a good rice crop. By November 2008, prices were 22 rupees per
kg,
an increase of 38% year over year (Food & Agriculture Organization, 2008). World prices rose
92% year over year for the same period.
Conclusion

India is a major producer and exporter of rice, a staple commodity vital to the food security and
welfare of over half the world’s population. Since it consumes 95% of the rice it produces, rice
prices are an integral part of national welfare to both consumers and producers, forcing the
Indian government to face competing concerns when implementing policy. The protectionist
trade policy actions undertaken in 2008 resulted in an estimated $260 million increase to
national welfare. Consumers benefited from lower prices and the loss to producers was offset
by government aid, including debt reduction. While its policies appeared to limit the
transmission of higher world prices to Indian consumers, India’s monopoly power in the
production of rice could have limited the full effect of the price decrease. In this regard, export
tariffs for all varieties of rice would have been more beneficial in lowering prices and increasing
domestic supply than export restrictions. In reality, the implementation of protectionist trade
policies brings other difficulties since world welfare is reduced at the expense of increased
national welfare. Trading partners will oppose these policies and look for ways to mitigate their
welfare decline or retaliate with protectionist measures of their own. Once India banned all
non-basmati rice exports, other large exporting countries followed, including Thailand and
Indonesia. While these governments could buy rice supplies and flood their domestic markets,
decreasing domestic prices and improving consumer welfare, the impact on the thinly traded
rice market was dramatic as world prices rose sharply. Since India imports very little rice, its
consumers are not affected by world prices as are those from large importing countries like
Indonesia, Iran, and Iraq. Price volatility and shortages in foreign countries from export
restrictions led to serious beggar-thy-neighbor effects.

In the long run, export restrictions could have significant consequences for India and rice
producers. A limited impact on domestic prices and a negative earnings effect for farmers could
encourage smuggling and hoarding, exacerbating the issue. Importing countries could move to
selfsufficiency or alternatives to rice, decreasing trade opportunities, growth, and efficiency
(Christiaensen, 2008). India’s production-oriented aid measures could become fiscally
impossible to sustain. Public sector debt is very high, which undermines capital investment
through heavy debt service burdens (Coface, 2009). Meeting future rice demand will be a
challenge, given the increasing competition for land and water and environmental degradation.
While protectionist trade policies have proved beneficial to India in the short run, the effect is
not sustainable.
Bibliography and References

Chandrashekhar, G. (2008, 02 12). Confusion over rice export ban notification. Retrieved from
The Hindu Business Daily:
http://www.blonnet.com/2008/02/13/stories/2008021350471300.htm

Childs, N. (2009). Rice Outlook, February. Washington, D.C.: USDA. Christiaensen, M. B. (2008).
Rising Food Prices in East Asia: Challenges and Policy Options. Brussels: World Bank. CIA. (2009,
February 24). CIA World Factbook. Retrieved from CIA:
https://www.cia.gov/library/publications/theworld- factbook/geos/in.html Coface. (2009). Risk
Assessment: India. Retrieved from http://www.tradingsafely.
com/sitecwp/ceen.nsf/vwCRA/96AD8A205EECC63DC125720A0045B4FD?OpenDocument Food
& Agriculture Organization. (2008). Crop Prospects & Food Situation, December. Rome: FAO.
Food & Agriculture Organization. (2009). Crop Prospects & Food Situation, February. Rome:
FAO.

Food & Agriculture Organization of the United Nations. (2003). Sustainable Rice Production for
Food Security. Rome: FAO.

Goyal, K. (2009, March 5). India's Inflation Slows to 3.03%, Lowest Since 2002 . Retrieved from
Bloomberg:

http://www.bloomberg.com/apps/news?pid=20601091&sid=aVXvlAV2CFpY&refer=india

Kannan, S. (2008, February 15). India and Pakistan link to protect Basmati . Retrieved from BBC:

http://news.bbc.co.uk/2/hi/business/7246900.stm

Modi, A. (2008, September 10). FCI procurement of rice, wheat touches 50 MT. Retrieved from
Business Standard: http://www.businessstandard.com/india/news/fci-procurementrice-wheat-
touches-50-mt/333894/

Mortished, C. (2008, March 7). Already we have riots, hoarding, panic: the sign of things to
come? Retrieved from Times Online:
http://www.timesonline.co.uk/tol/news/environment/article3500975.ece

Oryza. (2008, April 30). India Imposes Export Tax On Basmati Rice. Retrieved from Oryza:
http://oryza.com/Basmati-Rice- Industry/India-Basmati/8419.html

Oryza. (2008, May 1). India: Export Tax Hampering Basmati Rice Shipments. Retrieved from
Oryza: http://oryza.com/Asia- Pacific/India-Market/8426.html Suranovic, S. (2007).
International Trade Theory and Policy. Retrieved from Trade Policy Effects with Perfectly
Competitive Markets: http://internationalecon.com/Trade/Tch90/Tch90.php