|No.1 June 2006|
|Global Market Analysis|
International prices in the first four months of 2006 have been remarkably buoyant. The FAO rice price index, which had been stable at 101 from June to December 2005, rose to 103 in January 2006, to 105 in February and to 106 in March and April 2006. The strength lingered into the first two weeks of May, when the index rose to 107.
Particularly strong were the prices of high quality ordinary and parboiled Indica rice, which were sustained by large purchases by countries in Asia, in particular the Islamic Republic of Iran, Iraq and the Philippines. The launching of import tenders by Japan and the Republic of Korea also tended to lift Japonica rice quotations. On the other hand, quotations of the lower quality Indica tended to weaken compared with the latest months of 2005, to some extent reflecting the retrenchment of African buyers. The general strengthening of international rice prices in the first quarter of the year also reflected the effects of government procurement programmes at relatively high prices in Thailand and India and a tightening of export availabilities in some major exporting countries, including Pakistan, the United States and Viet Nam. In addition, the strengthening of the Thai baht relative to the US dollar, in which export prices are expressed, has further contributed to the buoyancy of price quotations since April.
Price prospects in the next few months will largely depend on the policies of the major international trade players, both on the export and import sides. Given the firm stance of governments in Thailand and Viet Nam to keep prices from falling and limited export availability from alternative sources, including from Australia, India, Pakistan and the United States, prices may remain on the rise at least until September/October when several northern hemisphere countries will start harvesting their main 2006 crops.
The ongoing 2006 paddy season is already well-advanced in countries located south of or along the equator, as some had already harvested their main paddy crop by May. Among northern hemisphere countries, the main 2006 crops are still at the development stage in parts of Asia and Africa, Europe and North America, but are barely at the planting stage in major producing countries in Asia where the development of the season largely depends on the pattern of the monsoon. This represents a major element of uncertainty to the 2006 production outlook that will persist at least until August, when the timing and distribution of the monsoon rains will be clearer.
Although still tentative, the FAO current forecast for global paddy production in 2006 stands at 635 million tonnes, only 0.8 percent, or 4 million tonnes, more than last season. This rather subdued outlook reflects concerns over rising production costs and expectations of more normal, less favourable, growing conditions than those that prevailed in 2005. For those southern hemisphere countries where the 2006 season is fairly advanced, production is estimated to increase in Argentina, Australia, Indonesia and Madagascar, while the outlook points to a decline in Brazil, Ecuador, Peru, Sri Lanka and Uruguay. However, most of the expected growth in global production is likely to originate in the major producing countries north of the Equator, especially Bangladesh and China. In Bangladesh strong domestic demand for rice and the maintenance of high subsidies on petroleum prices are likely to sustain growth, while in China, relatively attractive market prices, especially for higher quality rice, and continued government support are expected to sustain the recovery of the sector initiated in 2004. Assuming a normal monsoon, some production growth is predicted in India and the Philippines, but this outlook is still surrounded with uncertainty. Production prospects are positive in Thailand and Viet Nam, the two major rice exporting countries, but also in Nigeria, a major importer, where the Government is actively promoting an expansion of the sector, aiming to reach self-sufficiency in the next few years. By contrast, production is forecast to fall in Japan, after exceptionally favourable conditions boosted yields in 2005 and thwarted government efforts to cut excess supplies. Paddy output may also decline in Pakistan, where insufficient rainfall and water shortages at sowing time have delayed plantings. Similarly, the United States Department of Agriculture (USDA) forecast points to a lower crop in the United States, especially for long grain, Indica rice varieties, reflecting a sizeable contraction in the area prompted by high fuel prices and hurricane damage last year.
In 2005, rising import demand by countries in Africa and Asia provided a major stimulus to rice trade, which rose to an all time high of 29.4 million tonnes. The expansion took place in spite of a contraction of exports from China and Thailand, the shortfalls being more than compensated by a surge of shipments from India, Pakistan and Viet Nam.
FAO currently anticipates a 2.5 percent contraction of world rice trade in calendar 2006 to 28.5 million tonnes, still the second highest level on record. The retrenchment from the 2005 exceptional trade performance is anticipated to result from a general weakening of import demand by countries in Africa, where good crops were harvested in 2005. Nigeria accounts for much of that contraction, where shipments are forecast to drop from 2.0 million to 1.6 million tonnes, reflecting a ban on milled rice imports since the beginning of 2006. Though falling, shipments to Côte d’Ivoire, Senegal and South Africa are likely to remain large, in the order of 800 000 tonnes, with imports from all African countries expected to reach 9.2 million tonnes, or 32 percent of the world total, about 1 million tonnes less than in 2005.
Deliveries to countries in Asia are forecast to remain very close to last year’s level of 13.4 million tonnes, although they may fall in Bangladesh, the Democratic People’s Republic of Korea, and the Philippines, where record crops were harvested in 2005. By contrast, purchases by the Islamic Republic of Iran are anticipated to surge, reflecting tensions on the international front that are encouraging the Government to step up imports to build up reserves. Purchases by China are also likely to rise, following trade agreements with several exporting countries last year and growing domestic demand for quality rice. Iraq, the Republic of Korea, Saudi Arabia and Turkey are also expected to import more this year. As for Indonesia, one of the major traditional rice markets, the maintenance of government restrictions is likely to keep imports in 2006 around the 600 000 tonnes delivered last year.
On aggregate, shipments to countries in Latin America and the Caribbean are likely to rise slightly compared with 2005, reflecting a recovery in imports by Brazil, following the production shortfall experienced this season. By contrast, imports by Peru may fall, while those to other countries in the region are likely to change little. On the policy front, it is worth noting the implementation, in 2006, of the free trade agreement signed between the United States and six countries in Central America and the Caribbean ( Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua). As rice was granted long transition periods (between 18 and 20 years) for the complete elimination of border tariffs, the free-trade area (FTA) is not expected to have a major immediate impact on the volume of imports of the member countries but may displace traditional suppliers from those markets by granting preferential access to the United States through duty-free quota.
Table 3. CAFTA-DR-US FTA: Rice duty-free quota to the USA – First year of implementation 2006
* Paddy rice converted into milled rice by applying a standard multiplying factor of 0.65
Sources: CAFTA, FAO
FTAs were also signed earlier this year between the United States and Colombia and between the United States and Peru, but have not yet reached the implementation phase.
In the rest of the world, imports by the United States are officially forecast to rise strongly. In the EU, the reform of the rice import system, which has entailed a strong reduction of duties on husked rice and milled rice imports, may also help to lift the level of rice deliveries to the EU in 2006. Under the new regime, milled rice will be subject to a duty of either €145 or €175 per tonne and husked rice of either €30, €42.5 or €65 per tonne, depending on the actual level of imports. By contrast, purchases by the Russian Federation may fall, following a bumper crop last season and imposition of a permanent import duty of Euro 70 per tonne.
Viewed from the export side, the expected contraction of international trade in 2006 is likely to reflect smaller shipments from those countries that witnessed a surge in 2005, in particular India, which shipped an estimated 5.3 million tonnes last year, second only to Thailand. In 2006, India’s rice sales are forecast to be much smaller, in the order of 4.4 million tonnes, as large government procurement purchases are reported to have lifted rice prices above other competitors’ levels, except for parboiled rice. Exports from Egypt, Pakistan, the United States and Uruguay may also decline, as the four countries are anticipated to face a tightening of supplies in 2006. On the other hand, Thailand’s rice competitiveness has been eroded since April by the strength of the baht relative to the US dollar, which, together with the Government’s rice pledging scheme, has contributed to a rise in export quotations, resulting in a 4 percent contraction in shipments in the first four months of 2006 compared with the same period last year. However, strong sales to the Islamic Republic of Iran and Iraq and government-to-government deals are likely to enable the country to keep overall exports in 2006 around last year’s volume of 7.5 million tonnes.
Viet Nam’s shipments are currently forecast to remain in the order of 5.2 million tonnes, the government set target, especially as availabilities from the 2005 season will be less, which may prompt the Government to impose intermittent restrictions on exports again this year. By contrast, shipments from China, which remain under government control, may rebound somewhat. Similarly, the ending of the drought and the resulting recovery of production in 2006 should enable Australia to recapture some of the markets lost in the past four years. In Latin America and the Caribbean, sales by Argentina are expected to rise, especially in view of an expected rebounding of imports by Brazil and higher prices from the United States, a major competitor in the region.
Given its relatively high costs of production, rice remains essentially a food commodity, with only a small share destined to feed usage. Large gains in production in the 2005 season are estimated to have boosted global rice utilization, even allowing a small increase in per caput rice consumption from 56.9 kg in 2004/05 to 57.0 kg in 2005/06. However, this gain was mainly concentrated in the developed countries, where per caput demand has been following a marked upward trend in recent years. By contrast, per caput rice availability remained unchanged for the developing countries as a whole, at some 68.7 kg, and even declined for low-income food-deficit countries (LIFDCs), a reflection of developments in China where fast income growth is fostering a shift of consumers towards livestock products.
Table 4. World rice market at a glance
Although still very tentative, world rice utilization in 2006/07 is forecast to increase marginally, given expectations of limited gains in production in 2006. This will constrain the availability of rice for food consumption, which may elicit a fall in average per caput availability to 56.8 kg. The drop would affect all country groupings, including LIFDCs.
World rice inventories at the close of the 2005/06 marketing seasons are estimated to have reached 102 million tonnes, up from 99 million tonnes in the previous year. This would mean that production in the 2005 season was not only sufficient to meet consumption needs at a slightly higher average per caput level, but also allowed a rebuilding of global rice reserves, which had been falling since 2000. Stocks in China, the country that has driven much of the recent downscaling of global rice inventories, are estimated to end higher, reflecting growth in production and a lingering tendency for per caput rice demand to weaken. Production increases in 2005 also facilitated a rebuilding of inventories in Bangladesh, Cambodia, the Islamic Republic of Iran, Myanmar and Thailand. By contrast, carryovers are estimated to have fallen below their opening level in Indonesia and Viet Nam. In Africa, the anticipated contraction in imports to the region in 2006 also contributed to a fall in end-of-season stocks in most countries. This was also the case with Egypt, where reserves were drawn down to meet a strong domestic and export demand. The larger crops harvested in 2005 in South America also allowed some rebuilding of rice reserves in the subregion, mainly concentrated in Brazil and Peru. Among developed countries, inventories increased in Japan but declined in the United States.
Preliminary forecasts for closing rice inventories at the end of the 2006/07 marketing seasons point to a continuation of the stock rebuilding process initiated in 2005, with global rice inventories expected to increase to 106 million tonnes. The rise, however, is likely to be mostly concentrated in China, with some larger reserves also foreseen in Thailand. However, stocks in most of the other countries might end lower, including those held by major rice exporters, such as India and the United States.
|GIEWS||global information and early warning system on food and agriculture|