Global production reached a new record in 2008/09, Vietnam fully re-entered the market, massive buying ceased, and overall demand was dampened by the global financial and economic crisis. Rice prices rapidly declined from 2007/08 record highs, even though Egypt and India continued to restrict sales. Prices would have fallen further in 2008/09 without the policy actions of Thailand. In the face of declining global prices, Thailand implemented an intervention buying program in October 2008, purchasing rough rice from farmers at a 20-percent premium. At its peak, the government held about 6 million tons of current and previous crop rough rice off the market. Despite holding substantial amounts of rice in government stocks, Thailand did not restrict private sales, and available supplies were adequate for commercial needs.

With lower prices and larger global supplies, U.S. exports declined, especially for long-grain rice, the dominant type of rice grown in the U.S. Both Sub-Saharan Africa and the Middle East—large global markets for long-grain rice—turned away from U.S. rice in favor of lower priced Asian competitors. The U.S. lost sales even in the substantial Mexican and Central American rice markets, where the U.S. supplies almost all imported rice, as buyers drew down stocks. The total quantity of U.S. rice exports fell 10 percent in 2008/09, with long-grain shipments plummeting 14 percent.

In contrast, the U.S. was able to maintain export markets for its medium/short-grain rice, as Egypt continued its export restrictions and Australian production saw only a minor recovery. Global prices for medium/short-grain rice declined very little in 2008/09, and Oceania, Israel, and Jordan imported record-high amounts of U.S. rice.

Asian monsoon and El Niño lift U.S. exports in 2009/10

The situation reversed again in 2009/10. Weather problems in several major growing areas—most importantly South Asia, Southeast Asia, and South America—combined with policy decisions by major traders, made U.S. rice prices competitive in many markets and increased U.S. sales. The total quantity of U.S. rice exports increased more than 15 percent in 2009/10.

India, the world’s second largest rice producer, suffered a 10-percent drop in production due to an erratic monsoon season. The country did not import any rice, instead using its buffer stocks to offset the smaller production. India maintained its ban on nonbasmati exports, thus supporting global rice prices.

In 2009/10, the El Niño climate pattern and several typhoons caused a 9-percent decline in rice production in the Philippines. To offset this shortfall, the Philippines is expected to import a record 2.6 million tons of rice in 2010. Large tenders by the Philippines in December 2009 temporarily reversed an 18-month decline in global rice prices, enabling the U.S. to expand shipments to Sub-Saharan Africa and the Middle East, where the U.S. faces its stiffest price competition with Asian suppliers.

The U.S. also was able to continue selling rice to nontraditional buyers, especially Venezuela, thanks to severe weather problems in much of South America in 2009 and 2010. Venezuela suffered a devastating drought in 2009 and 2010, but for political reasons did not import the usual quantities of rice from neighboring Colombia. Brazil also turned to the U.S. for rice in 2010, due to a large decrease in domestic production and a smaller crop in neighboring Uruguay—one of its primary suppliers. The long-term sustainability of these markets as U.S. buyers is unknown.

Thailand’s policies continue to support global prices. Thailand maintained its intervention program through October 2009 and then began to phase in a price insurance scheme that provides income payments to producers instead of purchasing rice at above-market prices. However, direct purchases continued as a means to stabilize domestic prices. By the end of 2009, government purchases pushed total stocks to 4.8 million tons (on a milled basis), a 77-percent increase from a year earlier. The Government of Thailand tried to sell these stocks in early 2010 but failed because global prices had fallen substantially below levels sought by the Government. Depending on how the Government of Thailand releases its stocks, global prices would likely decline when Thailand eventually releases these stocks, reducing U.S. competitiveness in some markets.

Free and open markets are key to reduced price volatility

The U.S. will likely benefit from any production shortfall and policy response—either export bans or rapid buying by major importers. Expanded U.S. shipments of rice into the world market would reduce the harmful impacts of reduced supply availability and at least partially limit price increases. Because rice is heavily consumed in low-income countries, the U.S. role as a residual supplier of rice supports economic welfare in less wealthy regions during periods of market turbulence.

However, the best cure for price volatility and temporary supply shortages is a larger global market that could easily respond to a production shortfall in a major consuming country. In addition, global efficiency would increase and resource use would decline if high-cost producers curtailed output and relied on the global market for rice. Southeast Asia—an extremely competitive rice-growing region—is a likely source for additional exports if global prices and trade were sustainable at higher levels. Although not low-cost producers, both the U.S. and South America would likely export more rice if prices remained high.