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Global rice market overview

Among the essential commodities, rice is one of the most important grains and massively protected by governments worldwide. The global rice market will likely be susceptible to interruption in the short term as exports remain concentrated among a few producers. In the rice industry the United States is the only major rice exporter in which the bulk of the population does not acknowledge the grain a dietary staple.

Rice is the staple crop in South Asia, Southeast Asia and Africa. The grain is a key component in the everyday diet and a keystone of regional economies. Rice being one of the world’s most popular commodities is among the most vulnerable. Its exports are currently concentrated among small producers. Protective trade measures are well spread in the sector. The grain’s variants cannot be easily substituted for one another.

Rice seems certain to remain a lingering point in upcoming trade negotiations that involve the United States or its Asian competitors. Rice is a hot commodity. The world has consumed rice for centuries have traded the grain for only a small part of that time. The establishment of the World Trade Organization (WTO) in 1994 brought new life into the international exchange of goods and services.

The liberal economic order has caused the global rice trade to quadruple since the 1980s. But these exchanges still involve less than 10 percent of the globe’s total rice output. A few producers which are located in South Asia and the Asia-Pacific, with the exception of the United States dominate rice exports worldwide. Rice pride itself more than 20 different variants, broadly classified as fragrant or non-fragrant, and buyers are not always willing to trade one for another.

India and Pakistan, for example, have a clear lead in the export of basmati rice which, along with the jasmine variety, is one of the two most prominent types of fragrant rice to the Middle East and Europe. A large part to Indian exports, basmati rice production has penetrated in recent years. Jasmine producers are rounded up in Southeast Asia, where Thailand has long held the penetration in output, though it has been joined by up-and-comers Vietnam and Cambodia in recent years.

Rice traded globally in a year was roughly $20 billion. Protective measures have led to several important shifts in the international rice market. India, which has always been a large rice producer, increased to the top of the world’s rice exporters with the help of subsidies and a weak rupee. The expansion of rice crop has only added the considerable strain on India’s water resources, will find it increasingly difficult to meet the industry’s irrigation needs if it does not quickly enact water use reforms. Like India, China has also taken steps to boost domestic rice production.

With rising consumption at home China has become one of the world’s biggest rice importers. Despite the restrictive import quotas China has implemented, rice grown outside China’s borders is simply much cheaper than rice grown within them. China’s demand for imported rice won’t disappear anytime soon. Nor will the subsidies provides for its farmers, though the government is expected to lower artificially high prices by 1.5 percent in the 2017-18 growing season.

The United States filed a suit against China in the WTO late last year, citing China import quotas for rice, wheat and corn. US may have some success in gaining access to other grain products; rice is likely to remain closely protected because of its significance to Chinese culture. Seeing China’s status as the world’s largest rice importer, it will mandate many barriers in the industry, including phytosanitary regulations. A type of measure that will likely be at the center of Beijing’s future trade talks with US.

Rice farmers in Thailand and Vietnam, for instance, depend mostly on the Mekong River to irrigate their crops, but China has sought greater control over the water source in hopes of creating its influence throughout the region.

No doubt Southeast Asian rice producers may pose a bigger menace to themselves than China does. The success of many regional governments is intimately linked to that of rice, and the administrations often use aid for the sector to reinforce their support among rural communities. Thailand, for example, spent $16 billion between 2012 and 2014 to encourage local farmers in the face of growing competition from its neighbors and firmly low commodity prices abroad.

The country’s uncertain political structure and dwindling funds, however, have led to numerous adjustments in the subsidy scheme, introducing more instability into the market.

In countries where rice is part of a society’s cultural fabric, such as Thailand, officials could try to keep the sector’s subsidies in place long after they have proved financially unsustainable. The heavy subsidies of the past few decades have already roused overproduction in the international market.

Despite struggle by the Thai and Vietnamese governments to persuade rice farmers to shift crops, global output has risen to just over 42 million tons. This is lower than levels seen in 2014, but higher than those in 2016. A lot of this year’s growth can be due to Vietnam, whose rice production has risen alongside Middle Eastern demand.

Because the populations of the Middle East and Africa are likely to increase in the years ahead, competition will increase among the world’s major rice producers as they seek to capture a share of both markets. It should be kept in mind that protectionism is not for the developing world, either.

Japan and South Korea play only insignificant roles in the global rice trade, each has tariffs of 200 percent or more in place in the sector and spends billions of dollars per year on rice subsidies. As compared with producers in the United States, which is the only developed country with a place among the world’s top five rice exporters, receive less political and social support than their Asian peers.

The United States grows far more rice than it consumes, American farmers rely on exports and by advantageous trade agreements make ends meet. That is why US rice producers were disappointed with the Trans-Pacific Partnership when it was initially signed. They gained little new access to the Japanese market, which was already absorbed in devaluing American rice by leaving it in storage or including it in food aid shipments. The United States’ trade pact with South Korea is one such deal up for renegotiation US at least hopes. South Korea has already promised to reject any changes to the two countries’ existing agreement that are not recommended by an objective joint commission. If the talks reopen, rice may prove to be an issue as it was in 2007, when negotiators took the topic off the table to ensure the deal’s initial implementation.

In the coming months, rice will remain at the heart of trade negotiations involving Asia’s biggest rice producers and consumers. As we have seen in recent bilateral deals between the European Union on one hand and Japan and Canada on the other, even small points of controversy can delay or derail trade agreements, particularly when it comes to agriculture. And rice is no small matter to most Asian nations. While some countries may be tempted to exclude the sector from trade talks in order to push them forward, the global rice market will continue to be plagued by the volatility and inefficiency that come with excessive subsidies if steps are not taken to moderate them.

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