|Global Market Analysis|
International rice prices have remained on the rise for most of 2007, as reflected in the FAO All Rice Price Index (1998-2000 base), which reached 142 in October, a monthly level never witnessed in 20 years. On average, prices for the first ten months of 2007 were 16 percent higher than over the corresponding period in 2006. Yet, the rise was small when compared with agricultural commodities such as wheat or dairy products, the prices of which soared to unprecedented high levels. Although the strengthening of world rice quotations was consistent with the tight conditions faced by the sector worldwide, it also mirrored factors extraneous to the rice economy, in particular exchange rate movements. In fact, part of the commodity price strength observed in 2007 was a mere reflection of the depreciation of the US dollar, in which international prices are denominated, which alone lost 9.5 percent of its value relative to major currencies between January and September 2007. As a result, the impact of the increases in the US dollar denominated prices has been less in countries where local currencies strengthened against the US dollar, as was the case of the African Franc CFA zone, which is linked to the Euro.
The price gains were also uneven across the various types of rice traded internationally: they were more pronounced for the lower quality Indica and for aromatic rice but less for high quality Indica or Japonica1/ rice. Based on the FAO rice price indices, aromatic rice varieties gained 24 percent between January and October, reflecting limited supply in India and Pakistan, combined with strong demand in the European Union and Near East countries. Export quotations of the lower quality Indica rice were also up 18 percent, driven largely by developments in those countries that are the main suppliers to this segment of the rice market, such as domestic price increases in China and Pakistan and the imposition of export restrictions in Viet Nam. The smaller 11 percent gain for the high quality Indica rice was consistent with movements observed in Thailand, the leading rice exporter. The upward drive in export prices in the country has been moderated by an orderly release of supplies from government-owned stocks, a major factor behind the declining price volatility since 2005 and the relatively low monthly fluctuations exhibited by rice prices relative to other commodities (see special feature on price volatility). On the other hand, quotations of Japonica rice gained only 4 percent between January and October as import demand for this variety has been limited so far this year.
As the fourth quarter coincides with the rice post-harvest period in many exporting and importing countries, prices may be under seasonal downward pressure in the next few months. However, they are unlikely to weaken much, especially since India, a key player in the international rice market, announced in October, an indefinite ban on non-basmati rice exports, later replaced by the application of a minimum export price of US$425 per tonne, while Egypt introduced taxes on rice external sales in September, for one year. As a result, unless the sizes of the crops soon to be harvested are much larger than currently foreseen, world rice prices could undergo further increases in the next few months, a tendency that could carry through to the first quarter of 2008.
Table 4. World rice market at a glance
More detailed information on the rice market is available in the FAO Rice Market Monitor which can be accessed at: http://www.fao.org/es/ESCen/20953/21026/21631/highlight_23001en.html
Global paddy production set to increase only marginally in 2007
The 2007 paddy season has reached a critical period, as several of the key producing countries are now harvesting their main crops. Based on current expectations, global paddy production is set to hover around 643 million tonnes in 2007 (equivalent to 429 million tonnes of milled rice). This would be marginally above the estimate for 2006, which has been revised upward substantially since the June issue of Food Outlook, following more buoyant official estimates in countries such as India, Indonesia and Myanmar. Much of the anticipated growth in 2007 would stem from an expansion of the global area under rice, led by expectations of improved returns and government support, while world average paddy yields are presently set to remain unchanged at 4.1 tonnes per hectare.
Paddy production in Asia is forecast to reach 584 million tonnes, only some 3 million tonnes more than in 2006, as adverse weather conditions, in the form of drought, floods, and insect attacks have marred prospects across the region. While still potentially subject to major revisions, the outlooks for individual countries are rather mixed, with large absolute gains anticipated in Bangladesh, China, India, Indonesia and Myanmar, while a contraction is foreseen in Japan, the Philippines, Sri Lanka, Turkey and Viet Nam. In India, the Government recently announced further increases in minimum support prices and measures to entice producers to cultivate more rice over the winter Rabi season. More generally, there is a drive towards heightening support to producers in various countries.
Exceptionally wet conditions prevailed in large parts of Africa this season, but it is still too early to make a proper assessment of the related losses and benefits to paddy crops. Based on current prospects, production in the region would reach 22.2 million tonnes, replicating the positive 2006 production performance. Output is expected to rise in Madagascar, Mozambique, Nigeria, Senegal and the United Republic of Tanzania, while it may fall in Egypt as well as in Cote d'Ivoire and Mali. Despite an early start of the hurricane season in Central America and the Caribbean, production there is set to remain close to last year's level of 2.5 million tonnes. In South America, where the 2007 season is virtually completed, paddy production is estimated at 21.6 million tonnes, 4 percent less than in 2006, a reflection of low prices and of a late arrival of rainfall at planting time. Smaller crops were harvested across the region, especially in Argentina, Bolivia, Brazil, Ecuador, Peru and Uruguay. By contrast, production prospects are positive in Colombia and Guyana. In the other regions, production is estimated to fall in Australia and the European Union, reflecting drought problems, while record high yields are set to boost production in the United States.
Strong import demand sustains an expansion in rice trade in 2007 despite tight supplies in traditional exporting countries
Since June, FAO's forecast of global rice trade in 2007 has been lowered to somewhat less than 30.0 million tonnes, which would represent a 1.7 percent increase from last year's level. The downward revision of the trade forecast was partly triggered by the imposition of export taxes by Egypt in September and the announcement, early in October, that India would prohibit non-basmati rice exports for an indefinite period. These policy measures further restricted the availability of supplies for trade, which had already been restrained by the limitations imposed in the course of the year by Viet Nam under its export quota system.
Trade growth in 2007 is expected to be sustained by increased imports by Bangladesh, the Democratic People's Republic of Korea, Indonesia, Nepal and the Philippines, which would help them overcome severe domestic supply shortages and, in some cases, would be reaching them in the form of food aid. Brazil, Colombia, Cuba, the European Union, the Republic of Korea and the United States are also anticipated to buy more in the course of the year. By contrast, high world prices and/or increased production levels are mostly behind an expected cut of purchases by China mainland, the Islamic Republic of Iran, Iraq, Malaysia and the United Arab Emirates. Many countries in Africa, in particular, Guinea, Mali and Nigeria, are also anticipated to import less this year. In some cases, high export prices combined with soaring freight rates have rendered imported rice very expensive, especially where local currencies did not strengthen against the US dollar.
Thailand is foreseen to be responsible for much of the increase in global exports in 2007, as it is the only traditional exporting country holding ample supplies this year. However, Cambodia, China, Egypt and Myanmar may also contribute to the expansion. In the case of Egypt, the increase would reflect strong sales up to September, when they became subject to export taxes. On the other hand shipments from India and the United States are set to remain close to their 2006 levels, while those from Argentina, Australia, Brazil, Pakistan, Uruguay and Viet Nam may fall amid limited supply availability and rising domestic prices.
Rice trade to rise further in 2008 and cross the 30 million tonnes benchmark for the first time
FAO's first forecast of trade in calendar 2008 points to another record of 30.5 million tonnes, although prospects are still very tentative and tied, to a significant extent, to current expectations over 2007 crops. If confirmed, that would be the first year the volume of rice trade surpasses 30.0 million tonnes. As in 2007, the expansion would be driven by larger imports as supplies available for export are expected to remain tight.
The trade expansion in 2008 is anticipated to be fuelled by increased imports by Bangladesh, China mainland, the Democratic People's Republic of Korea, Iraq, Nepal and Turkey, which would more than offset reduced deliveries to Afghanistan, Indonesia and Malaysia. In the case of Indonesia, the prospected cut of imports presumes a favourable production outcome over the coming season, sufficient to enable the country to rebuild government stocks and keep domestic price rises in check. Imports by African countries are expected to rebound in 2008, largely to meet growing domestic needs. However, it is noteworthy that, under the Economic Community of West African States2/ (ECOWAS) regional agreement, a number of western African countries, including Ghana and Nigeria, have committed to adopt a common external tariff (CET) as of 1 January 2008, under which a 5 percent import duty is applied on paddy rice and 10 percent on husked, milled and broken rice, all subject to an additional 2.7 percent overall surcharge. The implementation of the CET would imply a sharp cut in the level of rice protection in Nigeria, where rice currently attracts import taxes of over 100 percent (50 percent applied tariff, supplemented by a 50 percent additional import levy, plus other taxes). So far, however, there has been no indication that the CET will be extended to all ECOWAS countries at the beginning of next year, as scheduled. The question is of particular relevance to the rice trade, as western Africa (Nigeria, in particular) has become one of the most important destinations of rice flows.
Although several of the major exporters are deemed to face supply constraints during 2008, current expectations of favourable crops in South America, where the first 2008 crops are already in the ground, have eased market prospects somewhat in 2008. Among major exporters, Thailand appears well placed to boost exports again next year, but good crops in Argentina, Brazil, Cambodia, China mainland and Viet Nam would also enable them to ship more rice. Increased deliveries from those countries are expected to more than offset reductions in Egypt and India, where exports will be constrained, at least for part of the year, by the recently introduced export restrictions, but also in Pakistan, given the poor 2007 crop outlook. On the other hand, the expected production recovery should enable the United States to maintain its volume of external sales.
More buoyant production prospects permit to anticipate stable per caput food consumption of rice in 2007/08
More buoyant estimates or expectations over production in 2006 and 2007 have resulted in upward revisions in the global rice consumption forecasts. Based on the latest figures, overall rice availability for food, feed, and other uses would amount to some 429.2 million tonnes in 2007/08, 3.3 million tonnes or 0.8 percent more than in 2006/07. All of the increase, plus some supplies diverted from other end-uses, could be directed to the food segment, now expected to absorb 377.6 million tonnes in 2007/08, 1.0 percent more than in 2006/07. As a result, the average rice food consumption is gauged at 57.1 kg per person in 2007/08, still a slight decline compared with 2006/07. On the other hand, the volumes of rice consumed as feed or for other purposes (seed, industrial use or waste), are estimated to fall, overall.
End of season rice stocks up marginally in 2007
Reflecting the improved 2006 and 2007 production estimates, the forecasts of world rice inventories at the close of the 2006 and 2007 seasons have been raised substantially compared with the figures reported in the June issue of Food Outlook. Rice stocks are now forecast to reach 107.6 million tonnes in 2007, a slight increase from the level held in the previous season. At the forecast carry-over level, the rice stock-to-use ratio, an important indicator of global food security, would fall slightly to 24.8 percent in 2007, implying that there would be sufficient rice to cover almost three months of projected consumption in 2008.
Country-wise, China, Indonesia and Myanmar are forecast to end the season with larger ending inventories, while these are estimated to drop in Australia, Bangladesh, Brazil, Japan, Peru, the Philippines, the Republic of Korea, the United States and Viet Nam. The build-up in rice reserves is estimated to be concentrated in the developing countries, while those held by developed countries are predicted to fall. On the other hand, the volume of rice held by the five largest rice exporting countries (i.e. India, Pakistan, Thailand, Viet Nam and the United States) is not foreseen to vary much compared with last season, remaining in the order of 24 million tonnes. In this context, it is worthy to highlight the role played by Thailand's large public stockpile, which was built up through the operation of the government rice pledging scheme. Released progressively through tenders or under government-to-government transactions, they have acted as a major buffer, helping to smooth the pattern of international trade and prices in recent years. Overall, rice inventories in the five major exporting countries would cover 16.3 percent of their own rice disappearance (domestic consumption plus export) in 2007/08, down somewhat from the previous year, a sign that world market conditions may remain tight in 2008.
1. The composition of the price subIndex for Japonica rice has undergone revision to reflect more appropriately today's global trading environment in medium grain rice.
2. ECOWAS includes 15 countries: Benin, Burkina Faso, Cape Verde, Côte d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo. Of these, Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo already apply the common external tariff.
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