International Trade in Rice, Recent Developments and Prospects
1. In the past several decades, the international rice market has undergone major changes, in particular a shift in the general policy setting, a strong expansion in the volumes of trade and a lingering tendency for world prices to decline in real terms and relative to the other two most traded cereals, wheat and maize. Nonetheless, the world rice market continues to be regarded as distorted, thin, segmented and volatile. This paper discusses whether these attributes still portray the market, in the light of the trade liberalization drives prevailing in the 1990s.
2. On the policy front, interventions have diminished in the wake of the market liberalization launched by several countries since the late 1980s. The WTO agreement, in 1994, also disciplined government policies and helped improve market access. Nonetheless, rice continues to be one of the most protected commodities in both developing and developed countries, subject to high tariff and non-tariff barriers, export restrictions or aids, state trading and domestic market interventions.
3. Since the early 1960s, trade in rice has expanded at about 3 percent per annum, not much different from the pace of growth in wheat or maize trade. However, growth has been far from steady. The liberalization thrust of the 1990s coincided with a period of dynamic expansion in the volume of rice trade, which succeeded a decade of relatively lacklustre growth in the 1980s. The volume of rice exchanged rose from a less than 7 million tonnes in 1961 to 24 million tonnes in 2000 and has continued to expand further in the early 2000s, surpassing 28 tonnes in 2001 and 2002. Nevertheless, the international rice market is still small relative to the other major cereals, with an average of 27 million tonnes in 2000-2003, about one quarter of the volume traded in wheat and little over one third of trade in maize.
4. Rising import demand by countries in Asia and Africa were the main forces underpinning trade in rice in the 1990s and early 2000s. The increases in imports were often a reflection of more open trade policies but were also prompted by several production setbacks, for instance in 1997 in the wake of an El Niño weather anomaly. Despite the consolidation of countries in Africa and the Near East as important and stable destinations of rice trade, the demand side of the rice international market remains highly dispersed geographically, with the top ten importers accounting for only 40 percent of the total.
5. Most of the trade expansion witnessed in the past two decades was met by traditional exporters. Thailand, in particular, has maintained its leadership as the top rice exporter since 1980. Major inroads were made by Vietnam, which became the second most important source of trade supplies in the 1990s, a position it was eclipsed from in the early 2000s, when India started granting export subsidies. Despite changes in the relative positions of the major exporters, the supply side of the rice international market is still highly concentrated, with the top four exporting countries (Thailand, India, Vietnam and the United States) supplying 66 percent of trade and the top ten more than 90 percent of the total.
6. Rice is not a homogenous commodity and presently there are more than 50 different published international price quotations for rice. In fact, there are distinct sub-markets featured according to a number of criteria, the most important of which are variety, quality (defined mainly by the percentage of brokens) and the degree of processing.
7. The expansion of trade witnessed in the 1990s was accompanied by small but significant changes in the structure of the world rice market and in the relative importance of each segment. The bulk of global trade continues to be in the form of milled, Indica, higher quality rice (defined as containing less than 20 percent of brokens). However, aromatic rice varieties, lower quality rice, parboiled and paddy have made large in-roads and have increased market shares. Those gains were mainly at the expense of trade in Japonica, of higher quality and of milled rice.
8. Most of the highlighted changes can be associated with shifts in the geographical pattern of trade. The increasing importance of Africa and a number of Asian countries as destinations of rice flows, in particular, has sustained a large increase in the trade of lower quality rice. The growing importance of aromatic rice varieties in global trade reflects brisk imports to the European Union (mainly of Basmati rice, imported under preferential access conditions), the United States, Canada and Australia. However, it can also been associated with large deliveries of Hom Mali rice (a fragrant variety from Thailand), to countries in Africa, particularly Cote d'Ivoire, Ghana and Senegal, albeit with a high percentage of brokens. On the other hand, high degrees of protection in Japonica rice markets such as Japan, the Republic of Korea, the European Union and Turkey have constrained the opportunities for expansion Japonica rice trade. Tariff escalation, whereby the more processed forms of a commodity are assigned higher tariff rates, has favoured a strong expansion of trade in paddy, principally to Latin America and the Caribbean.
9. An international commodity market is considered "thin" when it represents a relatively small proportion of global production. The international rice market represented only 3 percent to 5 percent of global production in the 1980s, but a strong expansion of world trade since the mid-1990s has made it "deepen", as it has come to represent 7 percent of global production in recent years. Nonetheless, the international rice market remains "thin", compared with wheat or maize, the trade of which now accounts for some 18 percent and 13 percent of global production respectively.
10. Thin commodity markets are often subject to large swings in volumes, since relatively small changes supply or utilization in important producing country may give rise to large increases or contractions in their exports or imports. In general, however, such countries have preferred to balance their domestic markets by building-up or drawing supplies from stocks, with trade considered only a "residual" option.
11. Global trade in rice has fluctuated widely over the past two decades, from a minimum of 10.6 million to 28.3 million tonnes, and variability measured by the coefficient of variation (CV) was high at 37 percent compared with a 12 percent variability of global rice production. It was also much higher than variability of wheat and maize trade, which had a CV of 6 percent and 8 percent, respectively. Variability of rice trade measured decade-by-decade pointed to a greater stability. In the 1980s, volumes exchanged on the international rice market fluctuated within a relatively small range of 11 million -14 million tonnes, resulting in a measure of variability in the order of 8 percent, not very different from that prevailing on the wheat and maize markets. Trade fluctuated within a much broader band of 12 million - 28 million tonnes in the 1990s, which gave rise to a much higher CV of 26 percent. Thus, the strong tendency for international trade to grow in the 1990s was associated with much greater volatility in volumes.
12. The international rice market has been also characterized by a long- term tendency for world rice prices (represented by the Thai 5% broken rice, fob Bangkok) to fall in real terms (deflated by the Index of Unit Value of Manufactured Goods) between 1961 and 2003. The decline in constant US$ has been of 3 percent per annum and, in 2003, rice was worth less than 40 percent, in real terms, of its 1961 value. Rice prices also declined relative to wheat and maize. If one tonne of rice could be exchanged for 2.5 tonnes of wheat in 1961, it could only be bartered for 1.3 tonnes in 2003. A similar loss of value was evidenced relative to maize world prices.
13. Although variability in the volume of rice trade rose in the 1990s compared with the 1980s, this did not cause the variability of world prices to follow suit. On the contrary, rice prices have become more stable over time, to the point of achieving levels of volatility similar to those exhibited by wheat and maize prices. Actually, on an annual frequency basis, prices in the 1990 were more stable for rice than for wheat or maize, in sharp contrast to the pattern prevailing in the 1960s and the 1980s. Stabilization of world rice quotations was also evidenced on a monthly frequency basis.
14. Thus, the rising variability of trade flows was not associated with more volatile world prices, which have instead, stabilized. Several explanations can be offered to explain this paradox. First, the "deepening" of the international market has meant a greater dependability of supplies. The existence of large buffer stocks, the improved flows of information on markets and prices, as well as the introduction of disciplines on national and international policies are also believed to have fostered price stability on the market, in spite of the wider fluctuations in the volumes of trade.
15. In summary, it can be said that international trade in rice has become less distorted, less "thin", more unstable volume-wise, but more stable price-wise and more dependable. This might have important implications for policy makers by encouraging them to lower domestic protection to the rice sector and increase their countries reliance on trade. However, there is still much uncertainty on whether the tendencies observed in the 1990s will linger into the rest of the 2000s and in the decades to come. Against this backdrop, the outcome of the on-going multilateral trade negotiations will be of particular importance in shaping the future of the international rice market.
Concepción Calpe - World Rice Research Conference 2004 - Tsukuba, Japan, 5-7 November 2004
