The China Factor in Global Rice

China has been a savior for the global rice market in the past year, importing 2.3 million tonnes, and it has continued that role so far this year.

It is very likely China will hold the top spot in 2013 with 3 million tonnes of imports. However, some now speculate that Chinese rice imports may go even higher because of the discovery of 0.21 to 0.4 mg of cadmium per kilogram of rice in half of 18 samples from Hunan tested in the past three months relative to a permissible level of 0.2 mg of cadmium per kilogram.

This should provide much-needed support for rice prices. But if China sources most of these additional imports from Thailand – which has 17 million tonnes in warehouses because of its rice subsidy program – through government to government deals, then the overall impact on global rice prices may be significantly muted. However, the continuation of imports through private traders will definitely give a boost to global rice prices.

Source: IRRI

It is still intriguing to many as to why China is importing so much rice since there has been no apparent shortfall in domestic production in the past few years and the carryover stocks according to the Food and Agriculture Organization of the United Nations and the US Department of Agriculture seem to suggest that these stocks have been steadily rising since 2007. A plausible explanation, shared by many, could be that the large price spread between domestic and international rice prices is making it attractive for Chinese traders to import cheap foreign rice.

Another reason could be that Chinese consumers are increasingly diversifying their food consumption, thus creating demand for different types of rice such as sticky rice from Vietnam, Jasmine rice from Thailand, and long-grain rice from Pakistan. But, whatever the reason might be, it is amply clear that the Chinese government is allowing imported rice to enter the country and is rebuilding domestic stockpiles through a government purchase program.

This raises another important question: Will China go back to its traditional insignificant role in the global rice market (low imports and exports) and remain self-sufficient or will it continue with the recent trend and evolve as a dominant importer in the coming years?

It is difficult to predict what China will do. However, the government is trying to expand rice production to keep up with demand, but the rapidly rising costs of production and pressure on rice area from other competing crops are likely to keep imported rice a lot cheaper than producing rice domestically.

Unless the Chinese government is strongly determined to achieve rice self-sufficiency through trade measures, it is reasonable to assume that imports will continue in the near term to mid-term.

If China remains in the global rice market as a dominant player for the long haul, then it becomes essential that a consistent and accurate set of supply and use data be available for the market. Two major sources of supply and use data (USDA and FAO) differ significantly in their estimates of Chinese data. For example, as shown in the chart above, the FAO projects Chinese rice stocks to be more than 50 percent greater than those of the USDA in 2012-13 (94.2 million tonnes vs 46.2 million tonnes).

In the past three years, the FAO estimates indicate more than a 20-million-tonne rise in Chinese stocks compared with only 6 million tonnes in the case of the USDA. Similarly, there is more than a 10-million-tonne difference in domestic consumption between USDA and FAO estimates for China.

All these disparities in supply and use data didn't matter much as long as China was mostly self-sufficient and didn't trade much. But accuracy and timely availability of this information will be essential for proper functioning of the market once China becomes a dominant player in the global rice market.

(Dr Samarendu Mohanty is head of the social sciences division at the International Rice Research Institute in the Philippines. This is adapted from Sam's rice price and market blog)