It should come as no surprise to anyone in the U.S. rice farming and milling industries that low rice prices from South and Southeast Asia have been a cloud hovering over the U.S. domestic market and throughout the Western Hemisphere for the last several years. Today that cloud is quickly gathering strength and appears to be turning into a severe damaging storm looming on the horizon.
Let’s not be naïve folks, remember the effort to import 10,000 tons of bulk Vietnamese rice into Freeport, Texas two years ago? That was all about price difference and putting the economic survival of a rice mill ahead of that of local rice producers.
While imports of SE Asian rice continue to rise in the United States, the lucrative market in Mexico for U.S. long grain rice is now under a serious threat from low priced Vietnamese rice of relatively good quality.
My how times have changed. The rice market in Mexico over the past 20 years has been good for the U.S. rice farmer. Decisions on privatization made by the Mexican government eliminated the old Conasupo system then along came NAFTA that paved the way for the development of the number one market in the world for US long grain rice.
While there were attempts within the U.S. rice sector in the early years to prevent the export of U.S. rough rice, Mexican mills needed the raw material to feed a growing population. The market grew over time to 800,000+ ton yearly export market for gulf coast and delta rice farmers. Today the Mexican market is crowded with Vietnamese rice brokers and exporters.
Numerous Mexican brokers and wholesalers too have jumped on the band wagon and the low priced Vietnamese milled rice prices have lured a steady stream of Mexican rice packers and even millers to travel to Vietnam in search of deals to help them compete in their marketplace back in Mexico. Landed milled rice prices in west coast ports of Mexico have been reported to be from $450 to $480 per ton. This is as much as $150 lower than the cost of U.S. milled rice delivered by rail to the border. Comments in Mexico are that Vietnamese mills have improved quality and are aggressively working the market.
“This weekend I have 30 containers arriving and we are told that a bulk shipment of 15,000-20,000 tons is being finalized,” said one Mexican importer. Another buyer said he has 300 containers of rice coming from Vietnam. Vietnamese rice exporters and government officials are said to be spending considerable time in Mexico City with a large meeting planned next month.
Increased imports of high quality, high amylose rice from Uruguay (expected to reach 50,000 tons this year) clearly indicates that Mexico is really two markets in one. Some 25-30% of the consumer market is for higher priced varieties while the other 70-75% play the competitive price war game. No one plays that game better than SE Asia who are currently swimming in rice stocks with no end in sight. As several Mexican rice mills mentioned this week, “we prefer to import U.S. rough rice but with today’s conditions, we have no alternative but to seek every origin of rice available to us in the world market, whether its in South America or Asia.”
During 2013 rice exports to Mexico rose 2%, but in the first two months of 2014 (most recent data available) shipments to our best customer plunged 22%.
In 2008, Mexico like many other countries dropped import tariffs to zero in order to combat rising consumer food prices. Some tariffs on commodities such as corn and citrus were eventually reinstated when prices returned to previous levels. The 20% tariff on Vietnamese rice was never reinstated but the price spread between the United States and SE Asia was not enough to draw attention.
Now those circumstances that were also a factor in the CAFTA (Central America Free Trade Agreement) have finally presented themselves. Even if the 20% tariff were reinstated, and if the landed prices mentioned this week in Mexico for Vietnamese rice are true, the market conditions are still very difficult for U.S. suppliers. Throw in the fact that Vietnam is a part of the Trans Pacific Partnership as is Mexico and any tariff reinstatement would be largely temporary at the most according to USDA comments.
It is no secret that the US Rice Producers Association has been quite vocal with regards to US quality issues, the problems with the U.S. logistical export system and the need of a more concentrated effort to ship identity preserved rice to markets both in Mexico and Central America. We will be taking a closer look at the numbers, a look at some creative marketing initiatives and how best to serve our next door number one customers. In the meantime, keep an eye on the storm.