Rice producers all over the world are confronted with the same problem — high production costs — the result of which could contribute to lower world production and higher world prices in 2006, according to Bob Papanos, vice president, U.S. Rice Producers Association.
Papanos, speaking at the Conservation Systems Cotton and Rice Conference in Tunica, Miss., said that farmers in Bangladesh “are not planting their summer crop because the price of diesel has tripled. Farmers can't afford to run their irrigation pumps. So instead of planting rice, they're out at gas stations protesting the price of diesel.
“What happens when a peasant farmer in Indonesia doesn't have enough money to buy herbicides, pesticides and fertilizers?” he asked. “He doesn't buy them. That leads to a very subtle yield decline, a very subtle erosion of domestic production.”
The new cost factor is changing the entire supply-demand situation in Asia, according to Papanos. “You could have a pantry-loading effect in China and India where people realize that stocks are low and buy 20 pounds of rice to stick in the pantry.”
How high prices go in the United States, which is the world's fourth largest exporter of rice, “is a fairly simple equation at this time,” Papanos said. “The lower the planted acres this spring, the higher the price. And given the numbers of between 7 percent and 40 percent reductions in various areas of the United States, a very conservative estimate is rice in the $5 to $6 per bushel range, sometime in 2006. It could happen fairly early. Medium grain is going to stay very strong, because California cannot plant enough to meet its demand long term.”
Papanos noted that domestic consumption of U.S rice “has been steady, at about 55 percent of production. Despite a lot of really bad weather during the growing season last year, U.S. rice farmers managed to grow the largest long grain crop on record. That coupled with a very large carryover from the previous crop has been drying up prices all year long.”
Carryover is expected to decline going into this crop year, “but that happens only if exports continue at a record pace. We're off to a very good start, but must continue at a record pace if we want to get that carryover down. If carryover doesn't appear to be going down, prices can't go up.”
There are four major export markets for the United States — Mexico, Central America, Iraq and Cuba, noted Papanos. “The story in Iraq is encouraging. We sold 310,000 tons last year. That's a very big important market that we've taken back and it's going to make a lot of difference for prices in the long run.
“Rice sales to Cuba are down 25 percent this year, but every indication is that Cuba is going to buy all they can from Vietnam on credit, then buy the rest from the United States. Despite the best efforts of some in the White House to frustrate that business, it's going to continue. It's very important to the development of better prices, and critical to the long-term health of our rice industry.”
Over the last 10 years, exports of U.S. rough rice to Mexico have remained strong, noted Papanos. “The major benefit is that those of you who farm in the Delta along a tributary to the Mississippi River now have a second market, which relieves some of the problems you've had dealing with only one buyer.”
Both China and India are expected to start to work toward self-sufficiency in rice production, according to Papanos. “Both countries have water problems and land problems, and populations are increasing. That's why we feel that over the next few years they are going to be large producers of GMO rice — that's the only way they can reach the yield plateau necessary to feed themselves.”
On the other hand, the income disparity between China's 1.5 billion farmers and urban dwellers is rising, Papanos says. “The problem is that everybody wants to leave the farm and go to the city. The government has got to raise the standard of living for farmers to prevent this migration, and most importantly, to keep people on the farm to grow food.
“Those governments realize that they can't import their way out of the problem. China will look to import things they don't grow well, like soybeans and meat, but they're not going to import rice.”
China uses 440,000 tons of rice each day, noted Papanos. “If we sold them every grain of rice we produced in the United States, what we export and use domestically, it would last them less than three weeks.”
The ability of the U.S. rice industry to increase rice yield adds another layer of complexity to rice prices, Papanos added. “If demand doesn't rise commensurate with yield, then somebody is going to have to get out of the business or prices are going to go back down.”
Rice prices could also rise as the market strives to replace what U.S. farmers could lose in subsidies, according to Papanos “We have very high input costs and our inputs are not subsidized like they are in other countries. However, U.S. rice farmers through the 2002 farm bill do receive fairly high subsidies when prices fall well below loan.
“Unfortunately, subsidies are not popular these days, with the WTO and the rising U.S. budget deficit. On average, from fiscal years 2003 through 2005, rice farmers received $1.268 billion in government payments. If you divide that number by acres, it comes out to $282 an acre. Most rice farmers will tell you that they didn't get that, but some people didn't get much money and some people got a lot of money.
“The point is that this is public information that Greenpeace and other organizations use to contend that rice farmers are all rich and living off the government. Right or wrong, that's what is influencing your lawmakers to take it away from you.”