The China factor in the global rice market

Categories // Sam's rice price and market blog

The Wall Street Journal on 21 May 2013 reported that the rice sold in the southern Chinese city of Guangzhou, originating from nearby Hunan Province, had been contaminated with cadmium.

According to the report, the authorities found 0.21 to 0.4 milligram of cadmium per kilogram of rice in half of the 18 samples tested in the past 3 months relative to the permissible level of 0.2 mg of cadmium per kilogram. This news comes at a time when there is an excess supply of rice in the global market. This must be music to the Thai government, which is desperately looking for buyers to offload some of its bulging mortgage stocks.

China has been a savior for the market in the past year with 2.3 million tons of imports 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 tons of rice imports. However, some now speculate that Chinese rice imports may go even higher because of the cadmium scare and this should provide much-needed support for rice prices. But, if China sources most of these additional imports from Thailand through G-to-G 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.

Chinese supply and utilization

Figure 1. Chinese supply and use data (2012-2013) (click on image for bigger view)

It is still intriguing to many as to why China is importing so much rice since there is no apparent shortfall in domestic production in the past few years and the carryover stocks (according to FAO and USDA) 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 in the future. However, the Chinese 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 Chinese 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 Figure 1, FAO projects Chinese rice stocks to be more than 50% greater than those of USDA in 2012-13 (94.2 million tons vs 46.2 million tons). In the past three years, the FAO estimates indicate more than a 20-million-ton rise in Chinese stocks compared with only 6 million tons in the case of USDA. Similarly, there is more than a 10-million-ton 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.