Rice Commentary – Rice Farmers Need to Consider a New Business Plan

    If one were to look at the rice business today without any prejudice, it would appear to be headed for extinction.

    • There is no water in California or Texas.
    • “Farmer-owned” cooperatives drive down the price received by growers due to their primitive marketing tactics.
    • Our government has withdrawn all subsidies and most forms of assistance.
    • Our foreign competitors, with help from their governments, do whatever it takes to make sales at our expense.
    • But most critically, the market is telling rice growers to plant soybeans, the demand for which seems to never diminish.
    • With the exception of one major domestic user, companies that rely on rice as an ingredient in their products act as though the supply is limitless and their job is to squeeze the price as low as possible.

    In my opinion, this bleak picture is about to brighten. China and the U.S. will soon announce the completion of a phytosanitary agreement that will open the Chinese market to U.S. origin rice.

    A lot has been written about this effort, led by the U S Rice Producers Association, and yes it is worrisome that the negotiations are not yet completed. This is not surprising, however, when one understands that certain parties in the U.S. did not want this to happen. But it will happen, and the consequences will be uneven and unfair.

    There will be a market in China for rice grown, milled and packed in the U.S. The size of this market will be larger than we can supply, because the Chinese consumer has lost faith in the ability of its own growers and processors to follow elementary rules of food safety.

    Food products from the U.S. will be considered safe and good, and command high prices. Since China can consume every grain of rice we grow in about 2 weeks, the demand will be overwhelming.

    It gets worse – or better depending on your circumstance. China will only purchase the best quality rice. So farmers who do not do everything possible to grow, harvest, and store top quality will lose out. Mills that do not Identity Preserve rice by variety and quality will not be able to sell. Mills that cannot pack rice in consumer sizes will not be able to sell. Mills unwilling to be inspected by Chinese inspectors will not be able to sell.

    The current list of mills who can do this business today is pretty small, meaning that a lot of changes have to be made. Those changes will upset some players, and the benefits will be uneven. A two-tier market could develop, with some rice going to China, and the rest selling at a lower price. Maybe a much lower price.

    I think another development is about to happen which will turn the rice business completely on its head.  As if the opening of the China market is not enough, it feels like our horribly ancient and misguided embargo of Cuba will end soon. It is increasingly logical to predict that this will happen before our current President leaves office. When the average American can freely travel to Cuba, there will be money to purchase food from the U.S., and that is exactly what the Cubans will do.

    The combination of the new markets in Cuba and China could easily add one million tons of export demand to our books. One million tons of all or mostly all milled rice – in consumer packaging and containers. This will change the rice industry from top to bottom, and require that a lot of parts of the value chain be modified.

    In my opinion, the industry is not even considering the possibility of these 2 new markets, is not planning for their development, and therefore will be sitting on the sidelines when the games begin.

    The time for rice farmers – individually or in small groups – to get into the milling business will likely never be better. In many ways the future looks very bright, even if no one sees it today.

    The Rice Advocate

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