Rice prices are expected to strengthen in the coming weeks

Feb 12, 2010 Letters

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Dear Editor,
The costly but necessary initiatives currently being undertaken by our government to irrigate rice fields within the drought-stricken rice belt may soon pay dividend as global rice prices continue to strengthen and climb and local farmers are in line to receive far better prices for their paddy than they did in 2009.
Though world rice prices are not yet expected to return to the record levels of 2008 when our farmers received as much as $5,000 per bag of paddy, international rice production and consumption forecasts are pointing in the direction of imminent significant price gains for rice exporting countries.
However, in Guyana’s case, we have to guard against foreign-owned companies which operate here and are known to consistently exploit farmers and millers.
These buyers are in the habit of luring many cash-strapped millers with small advances made against signed low-price sales contracts which translate into low paddy prices to farmers. Some of these buyers have also been using farmers’ paddy to generate cash flow and very often paddy supplied in one crop is paid for in the other crop or, in some instances, as much as one year after purchase. This recurring situation has since forced the government to amend the Rice Factories Act to deal with delinquent millers and buyers.
The shift in global weather patterns which has been causing flooding and droughts in the world’s major agricultural production centres, is putting a squeeze on rice stockpiles in the world’s five largest exporters – Thailand, Vietnam, the US, Pakistan and India – and has also significantly impacted global production.
Stockpiles are forecast to plunge by around a third (33 percent) to the lowest level in five years and this can catapult prices but may not be enough to reach 2008 price levels when the pace-setting Asian rice surpassed US$1,000 per tonne.
However, it has been reported that 2008 record price levels were not triggered by shortages but rather an overreaction by governments and speculation in the market. We may even see a rattling of nerves as rice importing countries again scramble to replenish dwindling stocks, spiraling prices by the second quarter 2010.
This can spell good news for our industry which is currently being seared by an El Nino-inspired drought expected to last until end of March, 2010.
Total stockpiles held by these large exporting countries were forecast to fall to 20 million tonnes late last year, from the 30 million tonnes a year earlier, “on lower-than-forecast crops and rising demands for imports,” according to the UN Food and Agricultural Organisation (FAO).
The weakest monsoon in India in seven years did not bring enough rain and this may result in a significant production cut in India’s current marketing year which begun last October.
Flooding in sections of southern India has also compounded the situation and may even result is a further reduction in output, FAO reported. “Conservative estimates” put India’s milled rice output for 2010 at 81 million tonnes, well below the 89 million tonnes needed for its current annual domestic consumption. The shortfall between Indian production and demand may cause that country’s inventory to drop to 11 million tonnes at the end of the 2009-2010 marketing year, from 21 million tonnes a year earlier, pushing India to import rice this year.
El Nino has spawned a prolonged drought in Guyana and massive flooding in neighbouring Brazil and this climatic phenomenon, caused by the warming of the ocean currents in the Pacific Ocean off the western coast of Ecuador and Peru, may also be responsible for two major storms which wiped out an estimated 450,000 tonnes of rice in the Philippines late last year forcing the country to boost imports this year.
The Philippines, the world’s biggest rice importer, has already “secured 2.2 million tonnes from overseas suppliers for delivery this year” and may even be forced to “import as much as 3.3 million tonnes if El Nino parches crop,” Bloomberg Businessweek quoted Philippines’ National Food Authority spokesman Rex Estoperez as saying. A decision will be made after the local harvest of that nation’s first crop for this year.
The prolongation of El Nino, which can delay rains in Asia and cause flooding (and drought) in South America, is likely to “push global production lower this year, forcing countries to draw down inventories, according to FAO’s Senior Economist Concepcion Calpe.
Though Asian rice prices are reported to have slightly dipped this week as the world’s big producing countries started harvesting,  Thailand, the world’s largest exporter, is now quoting prices close to US$600 per metric tonne  for its benchmark 100 percent B grade white rice.
The downward adjustment in global rice prices are normally associated with the beginning of harvest, but based on the damage inflicted by El Nino, these prices are expected to strengthen in the coming weeks. The US is presently offering its highly-subsidized varieties at around the same price as the Thai’s. Prices at both ends are on the basis of FOB- load port.
India is currently not offering new export contracts because of its production decline and is poised to become a net importer this year. On the other hand, very low quality Pakistani and Vietnam varieties are being offered at close to US$500 per tonne on FOB basis at origin.
FAO recently advised that although the planting of the 2010 paddy crop is well advanced in southern hemisphere countries “the season is opening negatively in South America where drought or excessive rainfall has delayed sowing…..” In Guyana’s case, only about 60 per cent of fields have been planted and not as much is expected to be harvested because of an acute shortage of fresh water and despite government’s irrigation intervention and initiatives. Paddy yields are also expected to be affected.
According to Calpe, El Nino is likely to lower yields on the acreages planted in South America “because if it’s cloudy, they won’t get the proper sun and that’s very important for yields.”
There has already been an apparent decline in rice production in Mercosur, the largest trading bloc of South American countries of which Guyana is not a member. Mercosur, established in 1991 by the Treaty of Asuncion, comprises of Argentina, Brazil, Paraguay and Uruguay. Some other countries such as Bolivia, Chile, Colombia, Ecuador and Peru are associate members.
Current export prices for Uruguayan and Argentine rice are close to US$700 per tonne, free-on-board (FOB) vessel at origin load port. Export supplies from both of these origins are tight, having been hampered by poor weather, also spawned by El Nino.
Brazil, the most populous member of Mercosur, is this year expected to import as much as 750,000 tonnes of rice from the US and Vietnam to meet its domestic consumption needs as El Nino threatens to widen that country’s production shortfall. It is expected that the purchase from the US will be paddy and milled rice from Vietnam. Presently, Guyana and Brazil have a Partial Scope Agreement which includes an annual quota of around 20,000 tonnes of milled rice from Guyana that can enter Brazil duty-free. However, because of logistical problems there has been no rice export to that country from Guyana.
“With the apparent decline in Mercosur production and increased demand in Venezuela, Colombia, Panama and other Central American countries, supplies will be tight and some markets could pay considerably higher prices for imported rice,” according to US Rice Producers Association President Dwight Roberts.
He said that Venezuela rough rice (paddy) imports for this year may be as high as 500,000 tonnes and Colombia’s milled rice imports may be 100,000 tonnes.
Guyana and Venezuela late last year entered into contracts for the supply of 10,000 tonnes white rice and 40,000 tonnes paddy after President Dr. Bharrat Jagdeo and Venezuelan President Hugo Chavez held discussions on the sidelines of a UN meeting in New York last September.
The Presidential initiative to sell paddy and rice to Venezuela was in response to the exploitatively low prices paid to farmers here by the millers with the latter claiming they cannot better the paddy prices since they were receiving low prices from the traditional international buyers.
To date only 5,000 paddy was shipped on the Guyana – Venezuela paddy contract and it is unlikely that both the paddy and white rice contracts will be fulfilled because of problems arising out of delays at both the Guyana and Venezuela ends. Both sides are
expected to soon engage in talks to address the difficulties which caused the delays. Meantime, with the commencement of recovery of international rice prices and positive global forecasts, better days are ahead for rice exporting countries such as ours.
Mahadeo Panchu

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