Changes in the Structure of the World Rice Market by Tom Slayton1

While representing only 8% of world production,2 the international rice market has expanded sharply over the last several decades - fueled by petro-dollar wealth, increased production in exporting countries, the continuing global urbanization, and changing diets which are World Rice Trade (million tons) driven, in part, by the placing of a premium on the ease of food preparation. USDA recently reported that Decades Qty world trade jumped by 3 million tons last year to over 1970s 8.8 1980s 11.9 39 million tons. Last year's record volume was up 1990s 18.2 more than 11 million tons over that averaged during 2000s 27.9 the turn of the century (2000-09). World trade was 2010 31.6 2011 36.2 buoyed by record import demand from China and 2012 39.2 Nigeria, as well as higher-than-normal bookings by 2013 1/ 38.6 Senegal and the Ivory Coast. (Nigeria, Senegal, and Source: USDA (May) the Ivory Coast are the three largest importers in Africa - a key regional driver in the volume of rice traded internationally.) The combined imports by these four markets soared by over 4 million tons in 2012. A detailed look at the composition of last year's trade shows global trade in white brokens jumped 1.3 million tons to over 3.0 million tons as demand for fragrant brokens withered by over 150 TMT to an estimated 660 TMT. Equally important, Senegal (the world's largest importer of white brokens) increased its imports by 275 TMT and brokens figured prominently in China's purchases in Pakistan and, to a lesser extent, Vietnam. Record purchases by Nigeria bolstered global parboiled demand to an unprecedented 7.8 million tons, up 165 TMT from the already rich year-earlier volume. A halving of Bulog imports led to a 700 TMT decline in shipments of medium quality white rice. Modest gains were observed in high quality white rice movement, but strong African (and, to a lesser extent, Chinese) bookings contributed to a 1.4 million ton rebound in the low quality white rice trade to over 5 million tons.

1 2

This analysis updates estimates made in 1998 in "Pieces of the world rice market puzzle." As reported by USDA for the last three years.

What is less well known, are the dramatic changes in the structure in world trade which are continuing to occur. These changes are being driven by changes in the sources of import demand, shifts resulting from relative prices, etc. The changes in the composition trade reflect: The largest growth since the mid 1990s, has been in higher qualities imports of aromatic, white & parboiled rice have roughly tripled and now represent 56% of world trade; Low grade white rice represents a declining share of the world rice trade; Declining consumption in Asia has resulted in its share of world trade declining to 31%, down from 39% in the mid 1990s; Japonica markets grew in 1990s due to U.S. market-opening efforts in the WTO targeting Japan, South Korea, and Taiwan, but trade volumes have since leveled off;
World Trade: Est. Trade by Qualities (million tons, milled basis) Quality Basmati Jasmine 1/ Jasmine Bkns 2/ Glutinous Japonica Long Grain Rough Brown Parboiled High Medium Low Brokens Total mid 90s .89 1.20 NA .28 1.50 .50 .60 2.15 3.20 2.50 3.86 .83 17.50 05-07 2.00 1.90 0.91 0.34 2.58 2.07 0.70 4.37 5.10 2.85 5.27 1.82 29.54 10-12 3.64 2.52 .73 .46 2.42 2.36 .64 6.07 8.32 2.97 4.63 1.83 36.60

Removal of state buying monopolies due to IMF pressure allowed the African market to diversify from importing just low grades of rice to a 1/ For mid 90's includes fragrant brokens mix of qualities; 2/ Does not include Patum brokens Africa's share of world trade has climbed from 31% in the mid 1990s to 39% during 2010-12;
Source: Slayton & Associates

With import monopolies disbanded in Mexico and Central America, local elites which owned the rice mills captured rice import policies by banning Asian milled rice imports ostensibly due to "phytosanitary" reasons and shifted purchases to rough rice - supplied primarily by the U.S.

Consumers with higher incomes upgrade quality they consume, e.g. Bulog switches from 25% to 15%, NFA adds 5% & 15% to its 25% purchases, Iran shifting purchases from 5% white rice to Pusa 1121 (a Basmati variety) etc.; Shifting import needs from specific markets, e.g. reduced NFA & Bulog buying frees up Viet 5% & brokens, etc.; High prices impact demand between grades, e.g. fragrant3 at +$1,000 curtails demand for fragrant brokens. From +1 million tons in 07, Thai fragrant exports were halved by 12, while total exports white brokens hit 2.5 million tons; Low prices shift marginal import demand to higher grades of rice; and, A steep decline in U.S. rice shipments (which were primarily medium quality rice - 20%) under food aid.

A look at changes in the composition of world trade over the last two decades: Fueled by two years of back-to-back record movement, world trade is estimated to have averaged 36.6 million tons during 2010-12 or more than double that experienced two decades earlier. As indicated above, the growth in world trade has been accompanied by significant changes in the composition of world trade. Generally speaking, that growth primarily reflects increased demand for high quality rice, be it aromatic, parboiled, or long grain white rice. Scented or aromatic rice accounts currently accounts for almost one-fifth of total world trade. Aromatic rice exports exceeded 7 million tons last year nearly 4.1 million tons of Basmati, 3 million tons of Jasmine rice (including the milled equivalent of 600,000 tons of Cambodian paddy), 75,000 tons of Patum Thani 1 (a nonphotoperiod sensitive HYV grown in Thailand), and over 650,000 tons of fragrant brokens. Included in these figures are Vietnams fragrant exports which topped 550,000 tons last year,
3

World Trade in Aromatics (TMT) Year 90-94 avg 1/ 95-99 avg 00-04 avg 05-09 avg 2010 2011 2012 Fragrant F 100% & 5% Brokens 967 NA 1,240 NA 1,275 741 1,752 861 1,993 712 2,031 814 1,917 660 Basmati 769 1,101 1,458 2,255 3,078 3,778 4,062

1/ Basmati average is for 1991-94 Note: Includes Thai F 5% beginning in 2002, Vietnam starting 2005 and Cambodia in 2010. Does not include Patum.

"Fragrant" and "Jasmine" are terms that are used interchangeably in this paper, unless indicated otherwise.

including over 100,000 tons of fragrant brokens. Over the last three years, overall exports of aromatic rice averaged 6.9 million tons, up 43% from 2005-07 and more than three times the 2.1 million tons averaged in the mid 1990s. Aided by Pusa 1121's reclassification as a Basmati variety and Iran's demand for this rice, the Basmati volume traded in recent years is triple that from some twenty years earlier and up over 80% from exports during the 2005-07 period. Trade in the aromatic rices of S. E. Asia has also shown large gains, albeit not as flashy as that of the Basmati. Recent Jasmine/Patum volumes, excluding brokens, have averaged over 2.5 million tons annually - more than 2.5 times that shipped in the mid 1990s, but up "only" one-third from 2007-07. Jasmine brokens were "accidentally" introduced into the West African market in 1997 when a Thai shipper included 200 bags (10 tons) in an-Africa bound shipment of white brokens for Glencore. The end-buyer called Glencore's attention to this special rice and a promotional "gift" by a second Thai shipper followed. With repeat rave reviews by the importer, the Paris-based trading house booked a follow-up order of 3,000 tons and subsequent volumes mushroomed. Informal specifications were drawn up, replaced in 2001 with formal standards that resulted in officially recorded volumes.4 Thai Jasmine brokens topped 1 million tons in 2007, but tumbled the following year as over-imports had occurred. After averaging .9 million tons in 2005-07, import demand for fragrant brokens has declined in the face of exorbitant Thai prices. Notwithstanding increased shipments out of Vietnam, world trade in fragrant brokens fell below three-quarters of a million tons in 2010-12. But Adulteration & Plenty Are Problems. Like other luxury goods, aromatic rice commands a premium due to its quality and relative scarcity. According to FAO, Thai Jasmine values traded over the last three years at an average premium of over $500/ton compared to 100% B the top grade of non-aromatic Thai rice. These premiums have been under pressure as supplies have increased due to the introduction of HYVs, widespread mixing with non-aromatic look-a-likes, and Cambodia and, more importantly, Vietnam. Thai Jasmine 100%
4

Export Prices ($/ton) Year '05-09 avg 2007 2008 2009 2010 2011 2012 Basmati Pak India 740 887 677 768 1,077 1,140 937 1,156 881 1,057 1,060 1,065 1,137 964 Thai F 100% 658 550 914 954 1,045 1,054 1,091

Source: FAO for Pakistan & Thailand; India = avg export values from trade books.

Interview with Mr. Arun Anprasertporn, International Surveillance & Consultancy Co., Ltd., Bangkok, Thailand.

grade B is currently quoted at nearly $1,100/ton, whilst Cambodian is available at a $175 discount, and Vietnamese is selling at only $480. As such, it is not surprising that Vietnamese fragrant rice is rapidly gaining market share. In 2012, Vietnam's share of the overall Hong Kong and Singapore rice import markets was 34% and 25%, respectively. This compares to only 6% in 2009 in Hong Kong and 15% for Singapore. Buoyed by a second year of record import demand from Nigeria, world parboiled trade has averaged over 6 million tons in recent years. Not only has the volume increased, but more high quality rice figured in the mix as the relative importance of Bangladesh and other low quality parboiled buyers has declined. (In parboiled rice, shipments with 10% or more brokens are considered "low quality.") The 2010-12 volume was up 1.7 million tons from that averaged five years earlier and was nearly three times the level experienced in the mid 1990s. Milled long grain (Indica) rice, continues to represent the single largest component of world trade.5 From just under 10 million tons (or 55% of world trade in the mid 1990s, imports of fully-milled long grain rice have increased to just under 16 million tons, but its share of world trade has declined to 43%. More striking is the change in the composition of this trade. Low quality rice (25%, 35%, etc) represented 40% of the total 20 years ago and again in 2005-07, this declined to only 29% in the recent three year period. Indeed, while the volume approached 4 million tons in the first period and increased to almost 5.3 million tons in 2005-07, it has declined in recent years by 640,000 tons as a result of reduced import demand from NFA, the state buying authority in the Philippines. The growth in world demand for medium quality rice has been even weaker. In recent years, just under 3 million tons has been trade - in large measure due to reduced buying by Indonesia's Bulog. This is up less than 500,000 tons from that moving in international trade some 20 years earlier. The stagnation in global demand for medium and low quality white rice stands in sharp contrast with the soaring volumes of high quality milled rice which have nearly tripled. In 2010-12, high quality milled rice represented over half of the milled rice market, up more than 13 percentage points from the almost 39% share in 2005-07 and a mere 33% of the much smaller market in the mid 1990s. Trade in white brokens has not been as buoyant as the high quality white rice market, but has show more growth than that of medium and low quality white rice. Bolstered by last year's heavy buying by China, Senegal, and the Indonesia private sector which is estimated to have topped 2.5 million tons, average shipments over the last three years
5

This discussion excludes brokens.

averaged over 1.8 million tons. While not much changed from that averaged five years earlier, it was more than double the .8 million tons in the mid 1990s. Reflecting import policy changes in Latin American markets and a growing surplus in Cambodia, world trade in rough rice (paddy) rose from .5 million tons (milled rice equivalent) some twenty years ago, to average over 2 million tons in 2005-07 thanks to rising import demand in Latin America and a growing exportable surplus in Cambodia. In recent years, world trade in rough rice is estimated to have further increased by over a quarter of a million tons.