Mexico has diversified its suppliers in 2022, causing U.S. market share to plummet. The United States has accounted for less than half of rice exports to Mexico during the first 8 months of 2022 compared to nearly 90 percent for the same period in 2021.
The United States has historically been the key exporter to Mexico, traditionally supplying over 95 percent of rice imports. However, more South American rice has recently entered the country primarily due to the temporary tariff suspension2 and high U.S. prices.
In May 2022, the government of Mexico announced a one-year suspension of import tariffs for paddy rice in an effort to battle inflation. The import tariff for paddy rice had been 9 percent, but the United States and Uruguay both had preferential duty-free access. Since then, other exporters including Paraguay and Brazil have seen market share expand rapidly.
U.S. rice faced a similar challenge between 2017 and 2020 when Mexico implemented duty-free tariff rate quotas for all types of rice. However, the 2022 policy does not limit the amount of paddy rice entering duty free.
Paddy rice accounts for 80 percent of total Mexico rice imports. With substantial milling capacity, Mexican importers prefer to bring in paddy rice. The United States has been the largest supplier of paddy rice to Mexico and Mexico is the largest paddy market for the United States.
So far this year, Mexico is buying more paddy rice from South American suppliers, primarily Brazil, Paraguay, and Uruguay than from the United States. Brazil accounts for almost two-thirds of South American exports to Mexico, which reached 364,000 tons3 in January-September 2022. Since the new policy was implemented, U.S. exports have declined significantly.
In August and September, the United States exported less than 10,000 tons to Mexico each month. In contrast, Brazil’s exports to Mexico in September surpassed 70,000 tons. Beyond the 9 percent tariff reduction, another primary cause of the loss of U.S. market share has been rising U.S. prices. U.S. paddy rice sold to Mexico averaged $424/ton FOB compared to Brazil’s average price of $315/ton FOB.
Looking ahead, U.S. prices are remaining firm given the tighter supplies in 2022/23. As a result, it is not expected to regain competitiveness with South American rice in the near future. Brazil and other South American suppliers are likely to continue shipping large quantities of rice to Mexico while paddy rice imports are duty free. At current prices, however, even if a paddy rice tariff is reintroduced in Mexico, U.S. rice prices remain uncompetitive at current prices.
Brazil Exports Surge on More Paddy and Broken Rice Shipments
In 2022, Brazil has become a formidable Western Hemisphere exporter, primarily for paddy and broken rice. Brazil is the top rice producer and consumer in the Western Hemisphere and the second largest rice exporter in the region after the United States.
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Despite a smaller crop earlier this year, Brazil rice exports are expected to increase. In the first 9 months of 2022, Brazil exports have been strong, exceeding exports from the prior calendar year. Key factors supporting exports include competitive prices compared to U.S. paddy and increased opportunities to ship broken rice amid India’s absence.
The primary driver of increased exports has been a surge in paddy rice shipments to the Western Hemisphere as Brazil’s paddy prices have become more competitive compared to the United States. As described in the previous article, Brazil has benefited from duty-free access for its paddy rice into Mexico and has made significant gains there. Thus far in 2022, Brazil’s exports of paddy rice to Mexico have surpassed its shipments to Venezuela, making Mexico the largest destination.
Brazil’s paddy exports to its key market Venezuela increased in 2022, despite increased competition from Uruguay. In addition, the United States has not exported rice to Venezuela in 2022, allowing Brazil to capitalize on the absence of the United States. Brazil also saw an increase in paddy exports to Central America, particularly El Salvador and Guatemala, despite slight reductions in exports to Costa Rica and Nicaragua.
Brazil’s second largest export category is broken rice, which has also witnessed growth. Already in the first 9 months of the year, Brazil’s broken rice exports are up compared to the prior year and the outlook is favorable for those to expand further. Brazil exports are positioned to increase further following India’s export ban on broken rice, particularly to West Africa.
Similarly, in 2022, Brazil has also exported 25 percent more milled rice than the same period last year. The biggest area of growth has been its tremendous increase in exports to Cuba, with the largest shipments since 2015. Brown rice exports are also up, mainly to the European Union.
Looking forward, Brazil’s production is expected to drop slightly in 2022/23 (harvested mostly next April- May). Thus, with a second consecutive crop reduction, exports are projected to decline marginally in 2023.
