China Dumps Surplus Rice in Developing Countries

China is dumping its surplus rice in developing countries at below-market prices. In doing so, China has now fully replicated the policy missteps made by North American and European countries during the last century. 

China is simultaneously one of the world's largest importers of rice and one of the largest exporters. China imported 2.6 million metric tons of milled rice in the first 11 months of 2022, but it also exported nearly 2 million tons. (This excludes 3.4 million tons of broken rice imports used for animal feed discussed here last September.) 

Note: excludes broken and rough rice. *2022 for January-November.

Until 2016, China's rice exports were a dribble of medium grain rice sold to merchants in Japan and South Korea. Then exports suddenly boomed to about 2 million tons annually beginning in 2018. What happened?

The exports are mainly medium grain rice, a variety grown in northeastern provinces and the Yangtze River delta. Northeastern rice has a reputation for quality, yet massive surpluses were accumulated in Government warehouses. About 5 years ago officials began grumbling about massive surpluses of northeastern rice. 

A rice market report in December 2017 explained that rice exports had more than doubled due to a 45-percent reduction in prices to "increase market competitiveness" and the exports were linked with plans to reduce rice inventories. In January 2018 the head of the National Commodity Reserves Administration proclaimed that disposing of excessive rice reserves would be a priority. That year rice exports boomed. He indicated that much of the rice was too poor in quality to be eaten safely and some might be used to manufacture alcohol.

The exported rice is sold at an average unit value about 30-to-40 percent less than market prices for medium grain milled rice in China. This is called "dumping" when goods are exported at prices that are below the domestic market price. The exported rice is probably old rice held in public granaries for years that officials are eager to get rid of. Another clue is that customs data indicate that nearly all the rice is exported by companies based in Beijing. This is always an indicator that COFCO, China's state-owned grain trader is the exporter since there are few commercial agribusiness entities based in Beijing.

Domestic raw material purchase prices reported by National Bureau of Statistics
and average value of exported rice. *2022 export data through November.

The rice surplus is one of many massive commodity stockpiles built up by Chinese price support programs. In each case--for soybeans, rapeseed oil, cotton, corn, and wheat--China set a price support that exceeded world market prices and the government then had to purchase most of the harvest while China's commercial agribusinesses purchased cheaper imported commodities. Authorities built up reserves until warehouses were full and they were forced to dispose of the surpluses. For cotton and corn this was accomplished by clamping down on imports and holding auctions to sell the reserves over 4-to-5 years. 

China has had minimum support prices for rice since 2004. The minimum price is a floor under the market meant to assure farmers that the price will never go below the minimum; authorities begin buying up grain when market prices fall below the minimum. Authorities raised minimum prices aggressively from 2008 to 2012 as they sought to keep prices rising faster than production costs. Surpluses of medium grain rice began to balloon during 2012-15, and authorities cut the minimum price sharply in 2017 and 2018 to deal with the surplus. The minimum price has been less than the market price in the last few years, but Chinese farmers now get a cash subsidy payment that encourages them to keep planting rice. 

Prices announced annually by China National Development and Reform Commission.

Most of the cheap rice is exported to Egypt, Turkey, Papua New Guinea, Puerto Rico, and numerous African countries like Sierra Leone and Cote d'Ivoire. China's exports of rice to Japan, South Korea and the United States mainland have continued--but at much higher prices, presumably representing commercial transactions.

China's dumping of surplus rice in developing countries completes China's replication of widely criticized practice of the United States and other developed countries during the 20th-century when massive stockpiles of surplus commodities were accumulated and then dumped in developing country markets as food aid, depressing prices for poor farmers. As far back as the 1940s, University of Chicago economist T.W. Schultz warned that the United States was about to embark on "concealed dumping" of surplus farm commodities purchased to maintain high support prices. The Uruguay Round of GATT and the WTO adopted limits on farm subsidies and export subsidies to curb these notorious market distortions. China had to limit its subsidies to 8.5 percent of the value of output and agreed not to subsidize farm exports when it joined the WTO in 2021 2001, precisely because negotiators worried that China would dump commodities on the international market. 

NGOs still complain that the United States and Europe "dump" farm commodities in developing countries, but it is now China that is accumulating huge commodity stockpiles and dumping them overseas at the same time the country is importing rice.