Spend Matters welcomes a guest post from Loraine Hudson of Mintec.
It’s been a tough time for rice farmers in California since January. Dry weather and competition from other global producers has painted a gloomy picture for the industry. White medium grain rice, of which California is the major producing state, is used mainly for sushi and the price of this popular variety has risen 50 percent since the start of the year.
California’s share of the US rice market has been growing – from 17 percent of total US production in 2005 to over 25 percent in 2013. But in January, a drought emergency was declared with over 90 percent of California’s agricultural sector - including rice - experiencing severe, extreme, or exceptional drought. Rice is particularly susceptible to drought, as without the required amount of moisture, rice yields can fall significantly. It is predicted that as much as 100,000 hectares of usual rice growing land could be left fallow or farmers could plant other crops that can cope with lower moisture levels. A reduction in production would put California’s position as the second largest US rice producer in jeopardy.
In addition to the weather woes, rice in the US is finding it hard to compete in the global market against major Asian rice exporting countries. The US is the source of roughly 9 percent of total global exports and is the fifth largest exporter. Over 60 percent of total US rice production is exported but when compared to other exporting countries US rice is considerably more expensive. As the graph above shows, this is nothing new; however the recent increase in price for Californian rice can only be concerning for the rice producers of America.
Demand for rice within the US is changing too. As the popularity of aromatic rice varieties such as basmati grow, imports from India and Thailand are growing too. Imports of rice into the US have grown 120 percent since 2009/10 to 6.9m tons, with over 50 percent of imports coming from Thailand and a further 20 percent from India. Rice growers in the US have as yet been unable to develop domestic varieties with the same flavour and cooking characteristics as the more common Asian varieties and so imports are expected to continue to rise.
Finally, just to add insult to injury, the price of rice from Thailand has fallen over 30 percent in the past year, thanks to a farmer support scheme put into place by the recently ousted Thai government. The government bought rice from farmers above market price and stockpiled it, in order to create reduce available supply and encourage higher global prices. However, instead, other producing countries had enough supply to ensure demand was met and with their stockpile rising, the Thai government had to abandon the scheme. As the stockpiles are now being sold off at discounted rates the global price of rice has fallen and looks set to remain significantly below the US.