|Global Market Analysis|
Export restrictions propel international rice prices to record levels
Rice prices have been skyrocketing in recent months, reaching, in nominal terms, unprecedently high levels. Until November, they had followed a steady, but relatively sluggish, upward trend, especially when compared with other bulk commodities such as wheat or maize. According to FAO's All Rice Price Index (1998-2000=100), international rice quotations rose by just 12 percent between January and October 2007. Since then, prices have gained much momentum, surging by 11 percent in the three months between October and December and by an extraordinary 71 percent between January and April 2008, when the Price Index reached an all time high, in nominal terms, of 280. In the wake of the disastrous landing of Cyclone Nargis in Myanmar on from 2 to 3 May 2008, international price quotations leapt by 10 percent in one week. By early May 2008, prices were more than double their May 2007 level.
The overall price acceleration, which began in November 2007, coincided with the imposition of export curbs in various exporting countries, as part of a package of measures aimed at containing domestic food price inflation. These moves came about at a time when a number of other countries, Bangladesh and the Philippines, in particular, were trying to procure sizeable volumes of rice internationally, either to compensate for losses incurred by floods, or to reconstitute rice reserves. The combination of export restrictions and surging import demand has had a dramatic effect on the market, propelling international prices skyward.
Despite a tapering of supplies in Thailand, the Government so far has resisted from restraining sales abroad. Being one of the few sources of supplies that remains open, Thai quotations have surged since November. For instance, the prices of the Thai white rice 100% B, often taken as representative of the world market, has more than doubled since January, passing from USD 385 to USD 898 per tonne by mid-May 2008. The increase was also particularly marked for the Thai A1 Super, fully broken rice, which was quoted as USD 764 per tonne in May 2008, twice the January 2008 level. The strengthening of prices has also affected the other major exporters. In Viet Nam, the Indica 25 percent broken rice was quoted at USD 810 per tonne in May 2008, up 127 percent from January, and surpassing the Thai counterpart since February. Export rice prices also surged in Pakistan. Reflecting the ban on exports of regular rice, Indian rice quotations have not been available since February other than for Basmati, the price of which has gained 24 percent since January. Export prices in the United States, the other major exporter having refrained from suppressing trade, also registered strong gains in recent months, but not as large as in Asian exporting countries. For instance, the United States No. 2.4% long grain rice was quoted at USD 820 per tonne in April 2008, up 51 percent since January, but below the level paid for the Thai white rice 100% B in April, a situation rather exceptional as the weak dollar has sharpened the United States' rice competitive edge. In May, however, United States' rice prices, at USD 941 per tonne, again surpassed Thai rice quotation.
Current record-breaking international prices1/ stand out against the relatively large production levels gathered globally over the 2007 season, much of which is currently traded, and an even more optimistic outlook for world rice production in 2008. More than the market own fundamentals, the high international price levels reflect the disruption of the normal pattern of trade caused by the export restrictions by key exporting players, which by May 2008 included, India, Pakistan and Viet Nam, and even smaller suppliers such as Brazil, Cambodia, Ecuador and Egypt.
Over the next few months, the global rice market conditions could ease, as new crops are being harvested in both the South and North Hemisphere, which could help reverse the upward trend in prices from their recent peaks. However, world rice quotations are likely to remain extremely strong at least until October-November, when the bulk of the 2008 paddy crops will start being marketed. Until then, availabilities in those exporting countries that have not restrained access will be particularly stretched, especially as a number of large importing nations, including the Islamic Republic of Iran, Malaysia, Nigeria and Senegal, are expected to return on the world market to buy. The pressure would considerably ease if India, which is about to harvest a bumper 2007 secondary crop, would relax its current export curbs.
Critical for a return of prices to more normal levels will be a regular unfolding of the coming 2008 paddy season. The market is indeed likely to react strongly to any shock, as illustrated by the disastrous impacts of the Cyclone Nargis on Myanmar, which reignited prices in the first weeks in May. Over the longer term, however, world (and domestic) prices are unlikely to fall back to the pre-2007 levels, because of rising costs and the need for several countries to rebuild stocks.
Yet another record in global rice production
Based on the current analysis of the world market, world supplies should be sufficient to meet world demand. Global production in 2007, which is about to conclude with the gathering of the 2007 secondary crops, is estimated at a record 652 million tonnes (435 million tonnes, milled rice equivalent), 9 million tonnes more than the preceding forecast and 1.5 percent above 2006. The revision embodies more buoyant output prospects in all regions, either because losses incurred as last September turned out to be smaller than originally thought or because of more favourable expectations regarding the 2007 secondary crops just being harvested. Bountiful secondary crops have particularly boosted prospects in Bangladesh, Cambodia, India and Thailand, which are all expected to end the season with record outputs.
The outlook for world paddy production in 2008 is even more buoyant, with FAO's preliminary forecast at 667 million tonnes (445 million tonnes, milled rice equivalent), corresponding to a 2 percent growth and a new record. However, because the bulk of the 2008 crops are gathered in the last quarter of the year, the influence of the additional supplies on prices will not be immediate. Positive return expectations are seen to drive much of the increase, which could even be more pronounced if recent appeals and incentives to grow rice translate into a larger than presently anticipated expansion of plantings.
All of the growth in world production in 2008 is set to stem from gains in the developing countries, foremost in Asia but also in Africa and in Latin America and the Caribbean (LAC), while developed countries are foreseen to experience a decline for the fourth consecutive year. For the first time, paddy production in Asia may surpass the 600 million tonne benchmark in 2008. The current forecast, at 605 million tonnes, would represent a 13 million tonne increase from 2007. Major gains are expected all across the region, as producers respond to attractive prices and to government incentives promoting rice cultivation. Bangladesh, China, India, the Democratic Republic of Korea, the Philippines, Thailand and Viet Nam are now expected to register the largest gains, in absolute terms. Despite the disruption caused by Cyclone Nargis, production in Myanmar is also expected to record a sizable expansion in 2008. Among southern hemisphere countries, where the season is well advanced, production prospects are positive for Indonesia and Sri Lanka, despite some recent flood-incurred losses. Assuming a normal rainfall pattern in the coming months, production in Africa is forecast to grow by nearly 4 percent to 23.2 million tonnes in 2008, with substantial increases anticipated in Cote d'Ivoire, Egypt, Ghana, Guinea, Mali and Nigeria. However, production is forecast to change little in Madagascar and to decline in Mozambique, reflecting recent flooding episodes in the two countries. Paddy production in Latin America and the Caribbean is set to rebound by 7 percent to 26.2 million tonnes in 2008. Although some expansion is expected in Central America and the Caribbean states, the bulk of the increase is expected to originate from larger crops in South America, in particular from Argentina, Bolivia, Brazil, Colombia, Uruguay and Venezuela, where many of the paddy crops are already at the harvesting stage. In the other regions, production prospects are negative for Australia, which, owing to severe water constraints in late 2007, could only sow a fraction of normal rice area. The outlook is slightly negative for the European Union, where competition from other crops may depress rice output this season, and for the United States, largely reflecting a delay in plantings, which may negatively affect yields.
Global trade in rice likely to slump in 2008 after reaching an all time high of 31 million tonnes in 2007
Since the November 2007 issue of Food Outlook, the forecast of world rice trade in 2008 has been lowered by 1.6 million tonnes to 28.9 million tonnes, largely reflecting more difficult access to international supplies after a growing number of countries imposed restrictions on exports. At the same time, following the submission of new official export or import data, the estimate of trade in 2007 has been raised by 1.1 million tonnes to an all time record of 31.0 million tonnes. As a result, trade in rice in 2008 is forecast to decline by 7 percent, or 2.1 million tonnes, from the 2007 record level. The drop is largely supply-led and heavily influenced by the restrictive export policies adopted by several of the major traditional suppliers to the international market. At the forecast level, trade in rice would account for 6.5 percent of global milled rice production, down from 7.1 percent in 2007.
The world rice market is thin, in that only 6 to 7 percent of global production is traded internationally. In a thin market, a relatively small percentage variation in supply or utilization may translate into a much larger percentage change in trade, exerting substantial pressure on international prices unless the variation can be accommodated through the administration (retention or release) of stocks. When stocks are unavailable for trade, either because they are non-existent or because of policy restrictions, world prices tend to react more sharply to shocks.
High prices and difficulty in sourcing supplies likely to depress global rice imports in 2008
FAO's anticipation for a decline in world imports in 2008 would partly be the result of the much higher prices that countries would have to pay on international markets and of the difficulty in securing supplies from exporters. Indeed, several of the governments responding to an FAO questionnaire indicated a level of planned imports in 2008 larger than that retained by FAO, as not all of the intended purchases may be realized, despite the cut or suspension of import duties in many countries.
Asian countries are expected to be responsible for much of the contraction in world imports in 2008, as deliveries to the region are forecast down 11 percent from the previous year to reach 12.9 million tonnes. In particular, smaller shipments to Bangladesh, Indonesia, the Islamic Republic of Iran, and Saudi Arabia are expected, which would more than offset increased deliveries to the Democratic People's Republic of Korea, Iraq and the Philippines. Current import forecasts for African countries point to a 5 percent drop to 9.3 million tonnes in 2008, as high international prices are expected to depress rice purchases, in particular by Guinea, Senegal and South Africa. Transactions by countries in LAC are set to remain in the order of 3.5 million tonnes, as larger deliveries to Brazil, Colombia and Ecuador could compensate for declines in Mexico, Nicaragua and Peru. In the rest of the world, Australia, the United States and the European Union are all foreseen to import more in 2008.
Measures to curb exports may depress trade volumes to their lowest level since 2004
In response to rising inflation and/or civil unrest, a number of important rice exporters, including Cambodia, Egypt, India, Pakistan and Viet Nam, have opted to restrict exports, through the imposition, starting in October 2007, of export taxes, minimum export prices, export ceilings or outright export bans. Since then, less important rice exporters and even traditional importers such as Brazil or Indonesia have followed suit.
Given the thinness of rice trade and the concentration of world rice exports among a handful of countries, the recent measures to limit international sales have caused strong disruptions to the normal pattern of trade. By exacerbating the tendency for prices to rise, they have also resulted in a greater incidence of contract defaults by exporters but also fostered an intensification of government-to-government rice deals, presumably settled at lower prices than those offered by private traders. Export restraints have also raised questions about the dependability of global rice suppliers, a matter of particular relevance to those importing countries that have come to rely increasingly on imported rice to meet their needs.
Much of the contraction in world rice exports in 2008 is likely to stem from reduced shipments from India, but also Egypt, Guyana, Pakistan and Viet Nam, the most important exporters currently restraining international sales. Exports from India, in particular, are forecast to be cut to 2.3 million tonnes, the lowest since 2001, and substantially less than the 5 million tonnes shipped in 2007. Only part of those shortfalls is expected to be compensated by increased shipments from mainland China, Thailand and the United States. Argentina, the Dominican Republic, Myanmar, Uruguay and Venezuela are also anticipated to export more this year.
Despite rising consumer prices, rice per caput consumption may rise somewhat in 2008
In recent months, rice has been at the centre of the public attention, after strong increases in prices were reported throughout much of the world. Where rice is a major staple food, such increases were often associated with social unrest, a reminder of the political significance of the commodity, not only in Asia, but also in parts of Africa and Latin America and the Caribbean. In general, domestic prices have been underpinned by higher production, processing and transportation costs, associated, to a large extent, with the surge of oil prices. In those parts of the world dependent on rice imports or exports, domestic rice prices were also driven upward by a strengthening of international quotations. In general, however, the domestic price increases have been much less pronounced than those witnessed on world markets.
Overall, world rice utilization in 2008 is forecast to grow by 2 percent to 437 million tonnes, in milled equivalent, of which 379 million tonnes are foreseen to be consumed as food, 1.8 percent more than in 2007. As a result, rice per caput food consumption is set to increase slightly to 57.2 kg per year, a sign of the limited responsiveness of rice consumers to price changes. The increase also reflects a shift away from more expensive foods, such as livestock products.
Table 4. World rice market at a glance
1 Calendar year exports (second year shown)
2 Major exporters include India, Pakistan, Thailand, the United States of America and Viet Nam
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/esc/en/15/70/highlight_71.html
* Jan-May 2008
Rice consumption this year is being sustained by policy actions aimed at keeping the price of rice affordable to consumers. Measures span from retail price controls, enlarged targeted distribution of subsidized rice to eligible households, exemption of tax or import duties, controls on exports and public stock releases. Many of these measures have potentially severe implications for government budgets and are, therefore, difficult to sustain over lengthy periods. This is especially the case in countries not benefiting from the oil price windfall, which have to spend much more of their foreign exchange earnings to meet their energy as well as their food bills. The impacts of higher world rice prices are likely to be less in many parts of the world where the local currency has strengthened against the US Dollar, thus preventing the full rise in US Dollar denominated world prices from being passed down to consumers.
Despite increased global production in 2007, world stocks may be down slightly in 2008
Following the upgrading of production in 2007, the forecast of global rice stocks carried over in 2008 has been raised to almost 105 million tonnes, which would imply a slight reduction from the previous year's revised level. Developed countries would be responsible for the draw-down, while stocks in the developing countries are expected to increase marginally above their opening levels.
Stocks held by major exporting countries as a group are set to expand, mainly a reflection of the export restraints applied this year by India, which have enabled the country to rebuild inventories, including those owned by the government. Cambodia, Egypt and Laos are also anticipated to reconstitute stocks somewhat in 2008. By contrast rice inventories are likely to be curtailed in China, Thailand, Uruguay and the United States, largely because of greater shipments abroad. Reserves are also likely to be drawn down in Myanmar, to compensate for the cyclone incurred losses. Most of the traditional net importing countries, in particular Brazil, the Islamic Republic of Iran, Iraq, Nigeria and Senegal, are forecast to cut their reserves in 2008, following cuts to imports. Among the few exceptions, the Philippines would be able to reconstitute inventories, owing to the expected rise in production of 2007 and larger international purchases over the current year. Indonesia is also anticipated to build up somewhat its reserves, thanks to the bumper 2008 crop.
At just over 105 million tonnes, global rice stocks in 2008 would be sufficient to cover around an estimated 24 percent of utilization, fractionally down from the stock-to-utilization ratio of 2007.
1. World prices have reached record levels, in nominal terms. In real terms, they still fall considerably short of the levels witnessed during the world food crisis of the 1970s.
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