Global Markets: Rice – Mexico Slashes Paddy Tariff to Diversify Suppliers

    Rice heads at sunrise. Photo: University of Arkansas

    On May 16, the Mexican government announced an effort to combat food price inflation with the elimination of import duties on a range of commodities for 1 year, including paddy rice.

    Unlike many other rice importing countries, Mexico has substantial milling capacity and imports mainly paddy rice. The United States is by far the largest supplier of paddy rice to Mexico and likewise it is the largest paddy market for the United States.

    In the past, the United States represented nearly 100 percent market share of paddy imports, especially after the implementation of the North American Free Trade Agreement. Over time, U.S. market share has declined with more competitively priced rice coming from other Western Hemisphere suppliers.

    Mexico paddy imports from January through March are roughly 300,000 tons, with U.S. rice accounting for 75 percent. According to U.S. export sales, outstanding sales to Mexico are 80 percent lower compared to last year. U.S. long grain prices have increased over $46 to $396/ton for the average of the first quarter 2022 compared to the first quarter in 2021, reflecting tighter supplies.

    Rice entering Mexico duty-free is not an entirely new development. The United States and Uruguay both have free trade agreements allowing rice to enter the country duty-free. Between 2017 and 2020, Mexico also had duty-free tariff-rate quotas for all types of rice.

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    Prior to this announcement, other paddy exporters faced a 9 percent tariff. To export paddy rice to Mexico, countries need to negotiate phytosanitary agreements. Countries that already have phytosanitary protocols will benefit the most due to the period needed for their establishment.

    Exporters such as Brazil, Argentina, and Guyana may see some gains from this new tariff elimination as they have shipped paddy before.

    While the temporary removal of duties may provide some advantage to South American paddy exporters, high freight costs and longer transit times may limit demand for South American rice. Shipments from some South American exporters could take months due to congested ports. Paddy rice from the United States can arrive via rail or ship in a matter of weeks, helping the United States to remain a competitive and a steady supplier.

    With the majority of Mexico rice already coming in duty-free from the United States and Uruguay, the removal of tariffs on paddy is not expected to result in a dramatic increase in overall imports nor a significant decline in prices. However, it is expected to cause more competition for U.S. exporters, particularly in light of the smaller U.S. crop expected in 2022/23 and the potential for sustained high prices.

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