Recent delegations touring the U.S. rice industry have sparked hope that China may soon become a new market for U.S. rice. Following a September visit by Chinese government officials, two grocery chain representatives are now visiting a number of farms, rice mills, and export facilities.

The government officials from the Chinese plant quarantine service visited the U.S. as the final step to complete a pest risk assessment. Assuming a phtysosanitary protocol is approved under reasonable conditions, the question is whether the China will become a market for U.S. rice. To put this into perspective, consider the following:

In 2011, China produced 195 million metric tons of rice and is forecast to have 42 million MT in stocks at the end of the year, resulting in a stocks/use ratio greater than 30 percent.

China employs several measures to incentivize rice production. The government guarantees farmers a minimum price for rice. If prices drop below that floor, the government purchases and stores it, and the rice may be sold at auction. In January 2009, the National Development and Reform Commission increased the floor price for rice for marketing year 2009-10; it now stands at $264 per MT for long-grain rice and $278 per MT for medium- and short-grain rice.

The government provides a transport subsidy to rice in the northeast to be shipped to the southern provinces. In the southern rice-producing provinces, the government will purchase (paddy) rice at $274 per MT to replenish the state reserve.

Now, consider China’s import policy. The rice trade with China is controlled by a tariff rate quota, meaning that imports are restricted to a certain quantity on which a lower tariff is applied. This TRQ is not a “minimum purchase” agreement — if there is insufficient import demand then the quota need not fill. For rice, the quota is set at 5.4 million MT with an in-quota tariff of 1 percent and an over-quota tariff of 50 percent. In addition, a 13 percent value-added tax is applied to all imported rice.

The most rice that has been imported under the TRQ was 1.1 million MT in 2004. Half of the quota is reserved for state trading enterprises with the other half available for private companies (although state-owned companies are eligible to participate in the private quota). Since imports have never approached the quota limit, the distribution of import certificates has not been an issue for rice.

The World Trade Organization agreement specifies that China is to allocate TRQ certificates to “end users” to allow them to import rice through the trading enterprises that import the physical product. China defines millers and other processors as “end users” but also includes import-export companies, wholesalers and domestic distributors.

The U.S. Department of Agriculture estimates that China will import 540,000 MT of rice in 2011. Through Sept. 30, 485,000 MT had been purchased from Thailand, Vietnam and Pakistan. Thailand held a 51 percent market share, followed by Vietnam with 49 percent and Pakistan at 1 percent. Thailand exported mostly aromatic rice preferred by many consumers in southern China. Much of Vietnamese exports were cross-border trade also in southern China. Imports were conducted by a total of 64 different companies with the largest importing approximately 88,000 MT with COFCO, the state trading enterprise importing 79,000 MT.