USDA: “Brazil is set to become a net importer of rice again”

Route of Rice asked Economist Patricio Mendez del Villar to analyze USDA’s report published last March, 14th. The expert on international markets and rice chains of West Africa, Madagascar and Latin America will take part in Santa Fe, rice port, congress “From region to the World” to be held at Salones del Puerto Dique II on May 4th.

US Department of Agriculture (USDA) has painted a bleak future for Brazil’s rice industry this year, while saying that rice trade across the globe would decline as rice production increases in top importers.

In its latest World Supply and Demand Estimates, the USDA says that Brazil’s rice exports would more than halve to 600,000 tons in 2011-12, down 54% from 1.3 million tons in 2010-11, mainly due to smaller supplies. The USDA has lowered its forecast for the South American nation’s rice exports in 2011-12 by 100,000 tons, from its February forecast of 700,000 tons. The US agency also lowered its production estimates for Brazil by 136,000 tons to about 7.7 million tons from its February estimates of about 7.8 million tons, milled rice basis.

The USDA states that Brazil is set to become a net importer of rice again and that 2011-12 rice imports by the country would climb 40,000 tons to 640,000 tons, from its February estimates of 600,000 tons. The country consumes about 8.4 million tons of rice annually.

The USDA also noted that the overall global rice trade in 2011-12 would decline by almost 7% below the 2011 record of 35.1 million tons due to weaker demand for imports from several top buyers, particularly Bangladesh and Indonesia. While the agency expects exports from Australia, Egypt, India and Pakistan to increase in 2012, those from Argentina, Paraguay, Thailand, Vietnam and the US are projected to decline. The USDA says exports from Thailand would decline significantly this year due to the government's rice pledging scheme.

The US agency raised its estimates for 2011-12 global rice production by 2.65 million tons to 465.4 million tons. It predicts Australia, Bangladesh, China, Egypt, the EU, India, Indonesia, Pakistan, and Sri Lanka to account for most of the projected year-to-year increase in global production this year. The USDA attributed the rise in global production to a significant increase in global harvested area, which rose 2% to 160.2 million hectares in 2011-12.

The agency also said that revised milling rates resulted in higher production forecasts for several countries. The agency revised average 2006-07 to 2011-12 milling rates for about 40 countries. While the USDA made substantial revisions for Burma, Nigeria, and Turkey, it kept them unchanged for India and China.

Nevertheless, specialist Méndez del Villar sent us, from Montpellier, some details about market opportunities for Mercosur nations.

He has obtained the Doctorate in Economics, granted by Montpellier University (1987). From 1988, he has been an investigator at CIRAD, headquartered in Montpellier (France). International rice trade specialist. Analyst of international markets and rice chains in West Africa, Madagascar and Latin America. Analyst of agricultural dynamics (rice, soya, cotton and maize) and biotechnological impacts on Brazil’s savannah and amazon flora. InfoArroz editor, a monthly report on international rice market. At present, he is consultant at a study on rice markets and food safety in cooperation with World Food Programme, FAO and Permanent Interstate Committee for drought control in the Sahel (CILSS).

By: Patricio Méndez del Villar, investigator at CIRAD, France

2011 was an exceptional year for new rice exporter nations, such as Brazil, whose exports reached 1.3 million tons (equivalent to 2 million of wild rice), doubling its average external sales during the last three years.

Several factors led to this success story. First, global demand has broken an historical record reaching 35 million tons, progressing 8%, in contrast to the relative stability of market exchanges, during past five years, of around 30 million tons. This increase can be attributed to Africa’s and South Asia’s demand.

Second, international prices stabilized, especially during last half of 2011, thus providing Brazil and Mercosur nation’s rice increased competitiveness. International prices tension was primarily caused by Thailand’s, the most important global rice exporter, new internal prices policy based on strong revaluation (+50%) of prices paid to producers. This caused rising anticipations among export markets, and generated new market opportunities for the rest of global exporters such as Vietnam, Pakistan and India.

In fact, the latter’s return to the export market, during the third quarter of 2011, took place at the worst moment for Thailand, who counted on India’s absence to impose higher prices at international markets. Finally, internal export promotion mechanisms were the last factor that contributed to Brazil’s exports rise. More than 1 million tons could be exported thanks to these subsidies.

Sub Saharan Africa will be the only import center to keep rice demand high, around 10 million tons, i.e. almost one third of imports around the globe. Chronic deficit in Sub Saharan Africa and its high demographic rate create a highly strategic market for all global exporters. Brazilian exporters, together with Uruguay and Argentina, see the African market really promising. Trade delegations from Mercosur that visit the continent attest strategic interest. In the case of Brazil, exports to Africa represented almost 60% of overall exports in 2011.

But, if trade achievements are made through competitive prices, markets conquer and consolidation is also obtained through offer regularity as well as product quality homogeneity and perseverance. Therefore, to compensate for 2012 rice production plunge due to a drought that affected south regions where more than 2 thirds of the nation’s production is generated, Brazil will probably have to keep importing around 650.000 tons from Mercosur to fulfill its consumption needs, which will exceed 8 million tons in 2012.

As regards global offer, leading exporter countries will see a drop in their sales in 2012, except for India, whose prices continue being the most attractive of the market thus forcing the rest of Asiatic exporters to significantly lower their prices. Thailand must, however, keep higher prices due to its internal prices policy. In fact, it is estimated that Thai exports will reduce 30% with respect to 2011. Vietnam’s exports will remain relatively stable, whereas the great winner will be India who, together with Thailand and Vietnam, could reach the top positions in the global ranking. United States, for its part, continue losing space in almost all of its markets, including Central America and the Caribbean, which have been considered, so far, captive markets for American exports. Rice coming from Mercosur is entering these markets, as well as Middle East, where Uruguay, for example, is reinforcing its position against United States. These have seen a sales drop in the region of 50% in 2011 in comparison to previous year.  

Globally, food safety will be maintained along 2012 due to an increase in production and inventories. A lesser degree of tension of international prices is also expected as a result of a reduction in global trade. However, in the long term, global population will rise above 9 billion in 2050, half of them living in areas with high levels of rice consumption, and rice needs should increase an annual rate of 1.7% reaching nearly 1,200 million tons by then.  But, global production with a current annual average growth rate of 1% would reach only 1000 million tons by that date. There could exist, then, the risk of future deficit of 200 million tons, representing 30% of current global production.

In a context of lack of lands, climate change and global environmental issues, particularly in Asia, these trends can represent additional opportunities for Mercosur countries, where the extension of agricultural territories is still possible. This sets important parameters to face future global challenges. Significant efforts in terms of productive investments will be required to increase a production that usually takes decades to show positive results.