Global Markets: Rice – China Strengthens Its Importance in Global Trade

Rice harvest. ©Debra L Ferguson Stock Photography

For several years, China has been the top rice importer, but now its exports are beginning to have a growing impact on trade patterns. Its current dual roles as top importer and re-emerging exporter make it a linchpin to global trade. Although China has had a tariff-rate quota (TRQ) for 5.32 million tons since 2004, for years it was far from filling it.

China emerged as a major rice importer in 2012 as domestic minimum support prices remained high, while many exporters’ prices fell when India lifted its export ban. Since that time, imports have sky-rocketed, with a rising TRQ fill rate and strong trade along the borders. Now, more than a tenth of global exports are destined for China, a critical market for many of its neighboring suppliers.

In 2017, over 10 percent of Thai exports were to China, whereas for Vietnam it was over one-third and for Burma more than half. Despite ample domestic production and near-record stocks, imports are expected to remain strong – so long as the price difference remains between Chinese domestic prices and the lower prices offered by neighboring suppliers. A recent announcement to reduce the out-of-quota tariff for broken rice suggests openness to continued imports.

Yet even in a year of record imports, China is also returning as a rice exporter. In the past few years when its prices have been well above global long-grain prices, it has maintained its core medium-grain markets in neighboring countries.

Although domestic new-crop prices remain high, the old-crop prices are significantly lower. Over the past year, sales from reserve auctions have accelerated, bringing rice as old as 2013 into the market. China’s exports expanded in 2017, primarily low-priced, old-crop shipments to African markets.

The re-entry to the African market (the top destination market around the turn of the century) in the latter part of the year coincided with the downturn of Thai old-crop rice exports to that region as its own government stocks have been nearly exhausted.

To a lesser extent, China is also stepping up its exports to Asian and Mediterranean medium-grain markets and expanding food aid commitments. Exports have not been this high for 15 years, when China sought to reduce its voluminous stocks. During that time, China was a significant exporter and now, certainly has the supplies to become one again.

Asian Exporters’ Quotes Rise With New Indonesian Demand

Indonesia’s sudden return to the global market is one of the key factors in the recent rise in Asian quotes. In January, the Ministry of Agriculture stated that imports would not be required in 2018 due to sufficient stocks.

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However, the government issued a permit allowing 500,000 tons of imports in response to escalating prices the following day. Indonesia is the third-largest producer at 37 million tons and has strived for greater self-sufficiency. In 2017, its imports were scaled back to around 300,000 tons, making this abrupt request for a half-million tons delivered by February even more remarkable.

While this trade is small in relation to Indonesia’s total consumption, even the mere prospect of importation caused suppliers’ quotes (Vietnam, Thailand, India, and Pakistan) to rise notably over the past month.

While the Indonesian demand was the key factor in this sudden rise, import demand from other regions has also spurred prices higher. Thai quotes rose to $439/ton, with additional demand from African markets. Vietnamese quotes are at $444/ton, the highest level since 2014, supported by strong Chinese and Southeast Asian demand.

With its new crop expected to be harvested later this month, supplies are tight to fill these new orders. India and Pakistan quotes are both around $410/ton, supported by continued strong demand from Bangladesh.

Burma Rises as a Major Rice Exporter in Southeast Asia

Burma’s (Myanmar’s) emergence as a significant supplier is intensifying competition among Southeast Asia rice exporters. In 2017, the country positioned itself as a major player in global rice exports, more than doubling its exports from 2016. Burma is forecast to boost its exports again in 2018 to 3.3 million tons, the same amount as the United States.

At one time, Burma was the largest rice exporter in the world. Burma’s rice exports, however, have not been this high since before WWII. It has only been in the last 6 years that its rice exports have been consistently above 1.0 million tons. Burma’s surge in exports has primarily been to meet rising Chinese demand along its border.

It has also been supplying nearby countries such as Bangladesh, Sri Lanka, and Afghanistan. Burma has boosted its exports to the European Union through the Everything but Arms initiative, and more recently, has been expanding its reach to include Africa.

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