USDA Rice Baseline, 2004-13
The U.S. rice sector in marketing year 2003/04 (August-July)
is facing extremely tight ending stocks—the second lowest in nearly
two decades—and the highest season-average farm price since
1998/99. U.S. prices are up more than 75 percent from 2002/03,
largely
due to much smaller supplies and strong demand for U.S. rice
in both domestic and international markets. Rice yields continue
to
climb to record levels, a result of the introduction of new,
higher yielding long-grain varieties in the South and generally
favorable
weather in most rice growing areas.
Although accounting for just 1.5 percent of global rice production,
the United States is typically the third or fourth largest rice
exporting country. Despite steady expansion in domestic rice use,
exports continue to account for 45 percent or more of total use
of rice, making the global rice market critical to the viability
of the U.S. rice industry. The United States faces stiff competition
in the global market for milled rice from lower cost Asian exporters,
and has lost substantial market share over the past decade, primarily
in Sub-Saharan Africa and the Middle East. However, rapid expansion
in U.S. rough rice exports—mostly to Latin America—has
offset much of this decline.
Each year, USDA updates its 10-year projections of supply and utilization
for major field crops grown in the United States, including rice
(see Overview of the USDA
Baseline Process for more information). The commodity projections
are used to forecast farm program costs and to prepare the President's
budget. One key use of the projections is as a "baseline" from which
to analyze the impacts of potential policy changes affecting U.S.
agriculture. This discussion summarizes the analysis underlying
the rice baseline projections for 2004-13. Details about the baseline
projections for the U.S. macroeconomy, other U.S. crops, U.S. livestock,
the U.S. agricultural sector, and global agricultural trade can
be found in the Agricultural Baseline
briefing room.
U.S. rice plantings are projected to increase in 2004—primarily
due to high prices at planting—and then decline slightly for
the next 2 years. After 2006, U.S. rice plantings are projected
to remain fairly stable as returns to rice production—including
marketing loan gains—exceed returns from alternative cropping
options. However, prices will not be high enough to pull additional
acreage into rice production. Production is expected to increase
after 2006, primarily due to rising yields. However, yield growth
is projected to slow slightly in the latter years of the baseline
as adoption of high yielding varieties is complete. Imports are
projected to expand each year of the baseline and will account for
a growing share of domestic use.
Total domestic and residual use is projected to climb to record
levels each year, driven by both rising population and higher per
capita consumption. U.S. exports are projected to increase in 2004
and 2005 and then slowly decline over the remainder of the baseline
as the U.S. price difference over Asian competitors widens. Despite
weaker total exports, the U.S. is projected to remain a major exporter
of rough rice throughout the baseline. U.S. ending stocks are projected
to rebuild from 2003's extremely low level and then remain around
25 million hundredweight (cwt) for the remainder of the baseline.
Growing domestic demand and higher global prices push the U.S.
season-average farm price higher each year after 2004. The U.S.
season-average price is projected to exceed $7.00 per cwt by 2013.
With U.S. prices rising faster than global prices, the U.S. price
difference over major competitors increases throughout the baseline,
reducing U.S. competitiveness in world markets. Despite expectations
of higher global prices, marketing loan benefits are projected throughout
the baseline.
Supply
Several factors underlie the long-term trends in both plantings
and yield growth that will determine the size of the U.S. rice crop
during 2004-2013.
Rice remains "best" planting option for many. Despite a
decline in the season-average farm price for rice each year from
1997/98 to 2001/02 and only a fractional increase in 2002/03, annual
U.S. rice acreage has averaged nearly 3.3 million acres since 1997,
well above the 2.9-million average for the previous decade. In fact,
at 3.5 million acres, rice plantings in 1999 were the second highest
on record. Prior to 1996, rice plantings were often limited by supply
control measures, policies that were terminated with the 1996 Farm
Act.
Several factors account for the relatively high level of rice acreage
since 1997 in the face of both declining rice prices and planting
flexibility. First, marketing
loan benefits—which are based on the difference between
the government set loan rate and the adjusted world rice price—augment
producer returns in years of low global rice prices, even when U.S.
rice prices are strong. Second, rice is often grown in areas that
have few, if any, viable alternative planting options. This is especially
true for the Gulf Coast and California. Third, rice farms typically
have much larger area, much higher capital investments, and higher
per acre operating costs than other major field crops—such
as wheat, corn, and soybeans—making it very difficult for producers
to reduce plantings and still cover all costs. Finally, much of
the machinery and infrastructure for growing and processing rice
is highly specialized. These factors make rice plantings less responsive
to short-term price fluctuations than most other field crops.
Rice yields have climbed to record highs. U.S. rice farmers
have achieved record yields each year since 2000, primarily due
to the adoption of new, higher yielding long-grain varieties in
the South. The effect of these record yields has been to offset
much of the impact of declines in acreage in the past 2 years. All
Southern rice growing States except Texas—which experienced
weather problems—achieved record yields in 2003. Texas growers
achieved record yields in 2002. Higher yields have reduced per unit
production costs and enabled farmers to grow rice at lower prices.
In contrast, California producers achieved record field yields in
the first half of the 1990s, with current yields well below record.
Weather problems and environmental regulations—such as the
phase-down of straw burning—have been largely responsible for
California's lower yields over the past decade. If California growers
could achieve yields comparable to those achieved in the early and
mid-1990s, substantially more medium-grain rice would be available
for export and domestic use.
Record yields limit production declines. Despite weaker
plantings, U.S. rice production has declined only slightly since
the record 2001 crop, as record yields have partially offset smaller
plantings in 2002 and 2003. In fact, the 2002 crop was the second
highest on record. Also, as farmers take land out of rice production,
they typically remove the least productive land first. This tends
to increase average yields.
Imports, a growing share of domestic use. Since 1980/81,
rice imports have increased almost every year and have accounted
for a growing share of domestic use. Currently, imports account
for more than 13 percent of total domestic use (not including seed
use). The bulk of U.S. rice imports are aromatic or fragrant rices—primarily
jasmine from Thailand and basmati from India and Pakistan. These
varieties—classified as long grains—are not currently
grown in the United States and are mostly consumed by Asian immigrants.
U.S. researchers are trying to develop U.S. varieties to compete
with these aromatic imports. In addition, the United States has
imported medium-grain rice from Australia and China each year since
2001/02. Puerto Rico accounts for virtually all of these purchases.
Tight U.S. supplies of medium-grain rice and lower prices from competitors
are behind the imports of medium-grain rice by Puerto Rico.
Demand
Several factors will determine the long-term demand for U.S. rice
in both the domestic and international rice markets, including changes
in per capita consumption levels in the United States, U.S. population
growth, and the size and composition of global rice trade.
Despite competition, U.S. remains a major exporter. Once
the world's largest rice exporting country, the United States has
faced increasing competition from lower cost Asian competitors over
the past two decades. First, Thailand in the 1980s, and then Vietnam
in the 1990s surpassed the United States as a rice exporter. In
addition, since the mid-1990s, India—and to a lesser degree
China—have shipped more rice than the United States in some
years. The U.S. share of the global export market declined from
24 percent in the early 1980s to 11 percent in 2000. However, despite
higher costs and more competitors, the United States is still the
third or fourth largest rice exporter. In fact, in 2003, the United
States shipped a record 3.84 million metric tons (product-weight)
of rice into global markets. High-quality, the reliability of U.S.
supply, year round delivery, and versatility of products offered—including
rough (unmilled) rice—account for U.S. resilience in the global
export market.
Rough rice, a growing share of U.S. rice exports. While
the United States has lost substantial market share in the international
market for milled rice, which accounts for the bulk of global rice
trade, it has quadrupled its level of rough rice exports since 1995.
In fact, U.S. rough rice exports have reached record highs the last
3 years and, in 2003/04, account for a record 40 percent of total
U.S. rice exports. The bulk of U.S. rough rice exports are long
grain purchased by countries in Latin America, typically Mexico
and Central America. South America, primarily Brazil, sometimes
imports substantial amounts of U.S. rough rice as well.
The United States is the dominant supplier of rice to Latin America
from outside the region. Several factors account for the high U.S.
market share. First, the top Asian exporters do not ship rough rice.
Second, except for the Caribbean, most Latin America buyers prefer
to import rough rice instead of milled rice. Also, in addition to
a locational advantage over Asian shippers, the United States has
trade agreements—such as the North American Free Trade Agreement
with Mexico and Canada—that assist U.S. exporters in this region.
The United States also ships rough rice to Turkey—a medium-grain
market, but often faces competition from Australia and Egypt. The
large share of total U.S. rice exports going to Latin America—mostly
rough rice—has partially insulated U.S. export levels from
price changes in the global market for milled rice.
U.S. market share declining for milled rice. The United
States has steadily lost market share in the global market for long-grain
milled rice over the past two decades. First Thailand, and then
India more recently, have substantially cut U.S. market share in
Sub-Saharan Africa and the Middle East, primarily due to lower prices
and improved quality—especially for parboiled rice. The United
States is not price competitive in the huge Southeast Asian rice
markets—such as Indonesia and the Philippines—which are
dominated by Thailand and Vietnam. In the European Union (EU), the
U.S. export share has been relatively stable. The EU import market
has shown little growth in recent years.
These four regions—Sub-Saharan Africa, the Middle East, Southeast
Asia, and the EU—import mostly long-grain rice, which accounts
for more than 75 percent global rice trade. Only in Northeast Asia—Japan,
South Korea, and Taiwan—which imports almost exclusively medium/short
grain—has the United States maintained its market share in
the global milled rice market. The imports by Northeast Asia are
all the result of annual World Trade Organization (WTO) requirements.
The United States has supplied almost half of Japan's WTO rice imports
since 1995 and has also been a regular supplier to South Korea and
Taiwan for the past few years. The strength of the United States
in the Northeast Asian medium/short-grain markets has offset some
of the U.S. decline in the global long-grain milled rice markets.
U.S. rice consumption continues to rise. While the United
States has seen its share of global rice trade decline since the
early 1980s, the domestic market has expanded virtually every year,
outpacing population growth and leading to rising per capita use.
In 1980, the domestic market accounted for 41 percent of total rice
use. In 2003, the domestic market accounted for more than 56 percent
of total use. Much of this growth is due to a larger share of the
U.S. population from Asia and Latin America—regions with high
levels of per capita rice consumption. In addition, new product
uses—such as pet foods—have raised total U.S. use of rice.
Although the majority of rice in the United States is still consumed
as direct food, processed food uses—such as pet foods, snacks
and crackers, cereals, and packaged mixes—have grown at a faster
pace than direct food use. In contrast to both direct food use and
processed food use, brewers' use of rice has been flat for 15 years,
primarily due to weak growth in domestic beer sales.
Baseline Projections for U.S. Rice Supply and Use
Highlighted below are the key assumptions regarding factors driving
annual production levels for rice in the United States for 2004-13.
Projection details can be obtained from the baseline's U.S.
rice supply and use table.
Yield growth to slow after 2006. U.S. average rice yields
are projected to increase 1 percent a year from 2004 to 2007, and
then slow to 0.75 percent from 2008 through 2013. These growth rates
are higher than the average rate achieved during the 1990s. The
stronger projected yield growth is based on continued adoption of
new, higher yielding long varieties in the South. Better farm management
and continued consolidation of farms into larger enterprises also
supports rising average yields. As the adoption rate levels off,
yield growth is expected to slow.
Planted area to stabilize after 2007. U.S. rice plantings
are projected to increase to 3.25 million acres in 2004—a result
of high prices and tight supplies in 2003—and then decline
slightly in 2005 and 2006, as lower prices cannot sustain that level
of rice acreage. After 2006, rice acreage is projected to stabilize
at around 3.15 million acres, nearly 150,000 acres above the 2003
level. However, rice acreage remains well below the record 3.83
million planted in 1981 and even below the 1999 level of 3.53 million.
Among U.S. rice growing regions, some acreage is expected to continue
shifting from the Gulf Coast—the highest cost region in the
South—to the more competitive Delta. This shift has been occurring
for more than two decades. California's rice acreage is projected
to remain relatively stable after increasing in 2004. California's
export market—almost exclusively medium/short grain—is
expected to be more stable than the market for Southern long grain.
The bulk of California's rice exports are purchased by Japan, South
Korea, and Taiwan as part of their annual WTO commitments.
U.S. rice production to climb after 2006. U.S. production
is projected to increase to nearly 217 million cwt in 2004—a
result of greater plantings and higher yields—and then decline
in 2005 and 2006 as reduced plantings more than offset record yields.
After 2006, U.S. rice production is projected to increase each year
in the baseline, a result of near-steady acreage and rising yields.
By 2013, U.S. rice production is projected to have climbed to a
record 226 million cwt, about 14 percent above the 2003 crop and
11 million cwt larger than the current record of 215 million cwt
in 2001.
Imports a growing share of domestic use. U.S. rice imports
are projected to increase 3 percent per year from 2004 to 2013,
1 percentage point faster than domestic and residual use. By 2013,
U.S. rice imports are projected at a record 21.5 million cwt. Aromatic
rice from Asia is expected to account for the majority of U.S. rice
imports during the baseline and account for most of the growth.
Since 2001/02, China and Australia have shipped substantial amounts
of medium-grain rice to Puerto Rico, boosting total U.S. rice imports.
Puerto Rico has not traditionally been a market for imported rice.
The annual rate of import growth in the baseline is down from the
2001-03 average, years when Puerto Rico began importing rice.
Exports slowly decline after 2005. U.S. rice exports are
projected to slowly decline after 2005 as the expanding domestic
market consumes a larger share of production and the U.S. price
difference over Asian competitors widens. U.S. exports are projected
to drop from 103 million cwt in 2005 to 96 million by 2013, well
below the 2002 record of 124.6 million cwt. U.S. prices are not
projected to be high enough to attract sufficient acreage to support
both a growing domestic market and maintain exports. In 2004 and
2005, U.S. exports are projected to increase, a result of larger
supplies, lower U.S. prices, and a smaller price difference over
Asian competitors. Long-grain milled rice exports are expected to
account for the bulk of the decline after 2005. Sub-Saharan Africa
and the Middle East are two markets most likely to face a contraction
in U.S. shipments. In contrast, exports of rough rice—mostly
southern long grain—are likely to continue expanding over the
baseline. Latin America will remain the primary buyer of U.S. long-grain
rough rice. Little change is expected for U.S. medium/short-grain
exports to Northeast Asia.
Domestic and residual use to reach record highs. The U.S.
domestic market is projected to expand each year during the baseline
period, reaching a record 151.7 million cwt by 2013, nearly 28 million
cwt above the 2003 level. The rate of increase is projected at 2
percent per year, about double the rate of expected population growth.
This rate of growth is below the 2.5 percent average estimated for
1993/94-2003/04 and well below the 1983/84-1993/94 average increase
of 4.5 percent. Competition from other foods and stronger consumer
demand for convenience and fast foods are behind the slow rate of
expansion in domestic use. Despite the slower projected growth in
domestic use over the baseline, per capita use of rice—including
the residual (unreported losses in processing, handling, and transporting
rice)—is projected to continue increasing each year. From an
estimated 26.5 pounds (milled basis, not including seed use or U.S.
territories) in 2003, per capita use is projected to reach a record
32 pounds by 2013.
Ending stocks to level off. U.S. ending stocks of rice are
projected to increase in both 2004 and 2005, a result of larger
supplies. By 2006, the combination of declining rice acreage and
expanding total use causes ending stocks to decline to about 25
million cwt, still above the 22-23 million estimated for 2003, the
second lowest in nearly 20 years. Stocks are projected to remain
around 25 million cwt for the remainder of the baseline as increased
production—resulting from rising yields—is offset by greater
domestic use. The stocks-to-use ratio is projected to increase in
2004 and slowly decline to a little over 10 percent by 2008 and
remain at that level for the remainder of the baseline. The 2003/04
stocks-to-use ratio is the lowest since 1974/75.
Global prices remain below the loan rate. Global rice prices
are projected to increase every year of the baseline, a result of
greater global rice trade and some shift to higher quality rice
by low-income buyers. The global rice price is projected to increase
from $4.10 per cwt in 2004 to $5.35 by 2013. Despite a steady annual
increase of 3 percent, global prices are projected to remain below
the U.S. loan rate of $6.50 per cwt over the baseline, making U.S.
producers eligible for marketing loan benefits each year.
U.S. season-average farm price increases after 2005. The
U.S. season-average farm price for rice is projected to decline
in both 2004 and 2005—a result of greater supplies—and
then slowly increase to $7.22 per cwt by 2013. Projected price increases
after 2005 are the result of rising domestic use offsetting higher
yields. Despite higher U.S. prices, returns to rice production will
not be sufficient to bring in additional acreage. U.S. prices are
projected to increase at a faster pace than global prices after
2005, widening the price difference over major Asian competitors.
This difference increases from $1.25 per cwt in 2005 to $1.87 in
2013, which contributes to weaker U.S. exports.
Baseline Projections for World Rice Trade
Global rice trade declined in 2003 and remains below the record
27.6 million metric tons shipped in 2002, mostly due to weaker import
demand. Asia and Sub-Saharan Africa account for the bulk of the
weaker import demand since 2002. Despite last year's contraction,
global
rice trade is projected to increase each year over the 2004-13
baseline.
International trade in rice is quite thin relative to total production.
In fact, only 6-7 percent of global rice production is currently
traded each year, well below the trade shares for other grains and
oilseeds.
In addition, the global rice market is heavily segmented by type
and quality, with little substitution among types and qualities
by producers or consumers. Long grain accounts for more than 75
percent of global rice trade. Medium and short grain together make
up around 12 percent; fragrant or aromatic rice accounts for around
10 percent. Specialty rices—primarily glutinous rice—account
for the remainder of global rice trade.
Global rice trade to expand. Global rice trade is projected
to increase 2.4 percent per year over the baseline, reaching a record
32.9 million metric tons by 2013. Increased global rice trade is
the result of rising import demand caused by larger populations
and, in some importing countries, limited ability to expand rice
area and competition for arable land from substitute crops. Global
rice consumption is projected to increase over the baseline as well,
largely due to rising populations in Asia and modest increases in
per capita rice consumption in many non-Asian rice consuming countries.
Most Asian countries are experiencing declining per capita rice
consumption caused by diet diversification resulting from higher
incomes. Global rice production is also projected to increase each
year, primarily due to higher yields. Rice area is projected to
increase only slightly over the baseline.
Long-grain rice is expected to account for the bulk of trade growth
during 2004-13. Long-grain rice is imported by a broad spectrum
of countries in South and Southeast Asia, much of the Middle East,
Sub-Saharan Africa, and Latin America. Medium/short-grain rice is
primarily imported by Northeast Asia—Japan, South Korea, and
Taiwan—and eastern Mediterranean countries. Expansion in medium/short
grain trade is projected to be much slower than for long grain.
Rising food demand from Indonesia's burgeoning population is the
main factor behind escalating global rice imports. Already the world's
leading rice importing country, Indonesia's share of global rice
imports grows from 12 to 15 percent in the baseline. Land constraints
and already high crop intensity indicate little opportunity for
significantly expanding production. Sub-Saharan Africa and the Middle
East—major destinations for internationally traded rice—are
also projected to substantially increase rice imports over the baseline.
In both regions, strong demand growth driven by rapidly expanding
populations and rising incomes confronts limited opportunities to
expand production. Among smaller import markets, Central America
and the Caribbean, Mexico, the Philippines, the United States, and
Bangladesh are all expected to increase rice imports during the
baseline. In contrast to these expanding markets, imports are projected
to decline over the baseline for Brazil and remain nearly flat for
the European Union.
Asia accounts for the bulk of rice exports. Six countries—Thailand,
Vietnam, the United States, India, China, and Pakistan—account
for around 83 percent of rice exports throughout the projection
period. Thailand and Vietnam, the world's largest rice-exporting
countries, account for nearly half of all rice exports. Rising production—mostly
due to higher yields—and declining per capita consumption account
for the expansion in exports for both countries. Their share of
global rice trade increases over the baseline as India, the United
States, China, and Pakistan lose market share.
The United States is projected to remain the third or fourth largest
rice exporting country during most of the baseline. U.S. exports
initially increase and then slowly decline after 2006, as rising
domestic demand exceeds production growth. In India, high internal
price supports continue to encourage large production and the accumulation
of stocks. India's exports are projected to be essentially flat
over the baseline period. Rice exports from China—typically
the world's fifth-leading exporter—decline modestly in the
baseline as production shifts to higher quality, but lower yielding
varieties in response to both domestic prices and policy signals.
Pakistan—the sixth largest rice exporting country—has
little ability to expand rice area, and production is confronting
a growing water shortage. As a result, its exports are projected
to be relatively flat over the baseline.
Among countries with smaller rice exports, Australia, Argentina,
and other South America countries (Uruguay, Guyana, and Surinam)
are expected to increase exports over the baseline. Despite steady
growth in consumption, Egypt's exports are projected to remain at
record or near-record levels every year of the baseline. Rice shipments
from the EU are projected to remain at about the same.
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