What is in this article?:
- Because only a small share of production enters the global market, the world rice market remains susceptible to substantial price volatility.
- Price volatility is exacerbated by trade policies of importers and exporters seeking to protect their consumers from high prices and ensure adequate supplies.
- For the U.S., this price and trade volatility can translate into short-term export opportunities.
Global rice trade has nearly tripled since the mid-1980s, largely due to market liberalization policies implemented under the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). However, the rice trade remains small relative to other commodities. Rice is one of the top food grains consumed worldwide, but just 6-7 percent of global production, on average, is currently traded in international markets, well below the 20 percent of wheat traded, 11 percent of corn, and 35 percent of soybeans.
“Thin” markets—those with fewer sales, such as global rice trade—may exhibit greater price volatility and larger annual variations in trade levels. Given the relatively small global rice market, if a major consuming country has a crop shortfall and needs to import a substantial amount of rice, little surplus exists. Thus, trading prices have to increase sharply to ration limited supplies. The steep increase in prices typically harms the world’s poorest consumers. Likewise, during years of large global supply, prices are likely to be significantly depressed as import demand by importers is limited.
High yields, ample acreage, consistent high quality, and year-round stocks allow the U.S. to be one of the few consistently reliable suppliers of rice in the global market. U.S. rice exporters are able to rapidly boost shipment levels during periods of tight supplies and high prices. But these price spikes bring only short-term benefits to U.S. rice producers; the increased sales volumes can be lost once prices fall to more normal levels. Long-term growth in the quantity of U.S. rice exported is hampered by highly protectionist policies on the part of importers.
Protectionist policies contribute to thin rice markets
Protectionist policies, common in Asia, ban or sharply limit imports to protect domestic growers and promote self-sufficiency. Asia’s protectionist policies reflect the importance of rice in consumers’ diets and the lack of a viable substitute in production or consumption. The region accounts for almost 90 percent of global rice production and consumption. In addition, many of these countries have experienced significant food shortages, such as Indonesia and the Philippines in the mid-1960s, often caused by political crises and adverse weather, making food security an important public goal.
Many exporting countries also pursue policies to ensure self-sufficiency. China, India, Vietnam, Burma, and Cambodia, all major or mid-level exporters, produce rice primarily for their own markets, with governments allowing only surplus production to be exported. When faced with tight supply situations, these countries typically ban or limit exports. Thailand and Pakistan are exceptions, since their domestic markets consume less than half their crop, well below the domestic share of other regional exporters. Thailand, the world’s largest rice exporter, has not halted sales since 1973. At that time, the domestic market consumed around 80 percent of a normal level of annual production. China, India, Vietnam, Burma, Cambodia, Thailand, Pakistan and the United States account for more than 90 percent of global rice exports.