Sunday, February 19, 2017

China Cuts Rice Prices

China's minimum prices for rice for the 2017/18 crop will be reduced, according to a February 17 announcement by the National Development and Reform Commission. The small reductions, however, will do little to close the 27-percent gap between China and international prices reported by the Ministry of Agriculture for January 2017.

The 2017/18 minimum prices will be 130 yuan/50kg for early long grain rice, 136 yuan/50kg for single-season and late-season long-grain, and 150 yuan/50kg for medium grain rice. The government's grain reserve corporation will purchase rice at these minimum prices if the market price falls below the minimum price level. The minimum prices are announced before spring planting, so these will apply to the early long grain crop harvested in July and the fall crops harvested September-October this year.


The early rice price was reduced 3 yuan/50kg from last year, the middle/late long grain price was reduced 2 yuan/50kg, and the medium grain price was cut 5 yuan/50kg. This is the first time all three prices were cut since the program began in 2005 (last year the early rice price was cut slightly). Prices were raised by roughly two-fold from 2008 to 2013 and held steady until 2016.

According to the Ministry of Agriculture's latest situation and outlook report, January average long grain paddy rice prices in China were slightly higher than the minimum prices for next year. Early long grain averaged 131 yuan/50kg and late long grain rice averaged 138yuan/50kg. The medium grain price averaged 148 yuan/50kg, slightly less than next year's minimum of 150 yuan/50kg.

China rice prices
2017/18
January 2017 averages
Type of rice
 minimum
announced
Paddy rice
Milled
Yuan/50kg
Yuan/50kg
Yuan/50kg
Early long grain
130
131
196
Late long grain
138
138
211
Medium grain 
149
149
234
Imported rice
154
Average January 2017 prices from Ministry of Agriculture S&O report. 
Imported rice is Thai 25% broken, C&F, with 1% in-quota tariff.

The price of milled rice is about a third higher than these farm gate paddy rice prices. In January, the average price for milled early long grain rice was 196 yuan/50kg, the average for late long grain was 211 yuan/50kg, and the average price for medium grain milled rice was 234 yuan/50kg. The early long grain price was 27 percent higher than the imported rice price and the late long grain price was 37 percent higher than the price of imported rice. (China's rice imports are predominantly long grain.)

The Ministry reported that China's rice imports for calendar year 2016 totaled 3.56 million metric tons, up 5.5 percent from the previous year. Vietnam supplied 45 percent of the imports, Thailand 27%, and Pakistan 20%. In addition to these legal imports, large volumes of rice are smuggled into the country. China's inspection and quarantine authority reported seizing a record 366,000 metric tons of smuggled rice and other grains last year--five times more than the previous year--due to their "national sword" smuggling crackdown.

Chinese authorities tried to engineer a steady rise in rice prices independent of fluctuations in the international market. The steady increase in minimum prices adjusted to a milled-rice equivalent contrasts with gyrations in Thai and Vietnam prices. When Vietnam and Thai prices dipped in 2012 and 2013, respectively, China kept its minimum prices relatively steady. China's imports of rice exploded when the gap in prices grew to 20-30%. The slightly lower minimum prices just announced for this year's crop will still far exceed Vietnam and Thai export prices unless there is a rebound in global prices. China's support price for medium grain rice also exceeds the California medium grain rice export price by a smaller margin.
China support prices converted to milled equivalent by dividing by .66 and converted to US$.
Thai and Vietnam export prices obtained from FAO-GIEWS database.
China support price for medium grain rice converted to milled equivalent by dividing by .66.
Retail price is monthly average reported by China National Bureau of Statistics, converted to US$.
California medium grain export price obtained from FAO-GIEWS database.

China's exports of rice--mainly medium grain--rose 37.6 percent in 2016. However, the export volume of 395,000 metric tons fell far short of imports. Top markets for China's rice exports were South Korea (44 percent), North Korea (11 percent), and Japan (10 percent).

The Ministry of Agriculture's instructions to officials on crop production for 2017 give top priority to keeping the area planted in rice and wheat stable at 800 million mu (53.3 million hectares), with "national food security as the bottom line." The document calls specifically for stabilizing rice area in the northeastern provinces and keeping double-cropped rice area steady in the south. Officials are instructed to implement the minimum price program for rice and wheat, "guide" farmers to make rational decisions on what to plant, and to enforce the new evaluation system for the "governor's grain responsibility system." Another directive to promote "quality rice" describes an initiative to develop early-season rice for processing use (early rice does not taste good and the government has struggled to prevent farmers from abandoning the early rice-planting).

This year officials will begin setting up "functional regions" for rice and other grains. Officials will assemble databases on fields, weather, maps, and set up technical services to concentrate support in the key production regions. Rice blast disease and "two moving rice insects" will be among the problems targeted by disease and pest control technicians. Officials will identify places with suitable conditions for the "high standard field" campaign to upgrade large contiguous areas of rice fields.

There are some environmental concerns related to rice. The MOA guidance calls for "strict control" of well-based irrigation of rice in the northeastern region. It urges officials to "fight" to completely eliminate rice production from the Beijing-Tianjin-Hebei region within three years. The remediation program for rice fields contaminated with heavy metals will continue. A program has identified different soil types used for rice production and identified strategies and pilots for improving soil quality.

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