Spend Matters welcomes a guest post from Jade Savage, of Mintec.
Over the past year, the price of rice has risen considerably in the tiger cub economies of the world. Thailand, India, and Pakistan account for 30% of world rice production and 60% of world exports. But how much will their rice prices impact import demand in the US, which grows over 60% more rice than it consumes?
The US typically produces around 6-7m tonnes of rice each year. Half of this is exported, mainly to Mexico and Central America, while the remainder is consumed domestically.
The US only imports 600-650,000 tonnes of rice each year. This volume is mostly made up of jasmine rice from Thailand and basmati rice from India and Pakistan, both of which have a more distinct aroma and flavour than the non-aromatic rice which is primarily grown in the US.
Jasmine rice, also known as Thai Hom Mali, is the most common variety of rice used in Southeast Asian dishes, while basmati rice is preferred in South Asian and Middle Eastern dishes. Demand for both types of rice is on the rise in the US, but how have their prices evolved over the past year and what effect could that have on US demand?
Indian basmati rice prices are up almost 75% year-on-year due to a smaller crop and higher input costs including electricity, fertilisers, and wages. Planted area for basmati rice was reduced as an increase in the minimum support price (MSP) offered from the government for non-basmati rice gave farmers some incentive to switch to growing non-basmati varieties.
In Pakistan, basmati rice prices are up more than 30% year-on-year, supported by higher input costs and reduced plantings of basmati rice in favour of other, higher yielding rice varieties. Over the past three years, there has been a 27% reduction in basmati planted area.
In Thailand, jasmine rice prices began rising in July 2011 after the victory of the Pheu Thai party in Thailand’s election. The party had promised to buy large volumes of domestic rice (including jasmine rice) at above-market rates in order to support farmers’ incomes, and their victory in the election led to widespread hoarding of rice by farmers who awaited guarantees of higher prices. The scheme was first implemented in October 2011 and renewed in October 2012, and prices have remained firm as a result. Prices are up 13% year-on-year.
But will this surge in prices lead to a shift in demand toward more of the US’s home grown rice, which has seen very little price movement in comparison? It appears not, as the most recent forecasts peg rice imports into the US at 700,000 tonnes in 2013, an increase of 8% on last year’s 650,000 tonnes. Even with all this roaring there’s just no substitute for the sweet taste of aromatic rice.