China Exports Rice Glut to Africa

China's dissonant rice policy has prioritized maintaining domestic production at its current level while pondering how to dispose of massive reserves of old rice, much of it not even be fit for human consumption. One outcome appears to be China's sudden re-emergence as a rice exporter as it jettisons rice stocks in Africa. The Chinese government's top grain market analysis group has projected that China will flip from top importer to net exporter of rice in 2019/20.

China's rice and wheat were designated as "crops that must be protected" (必保品种) in the communist party's  "Document Number one" issued early in 2019, and "absolute security in food grains" has been a recurring buzz word in official speeches this year. Shortly after the document was released, officials announced that the minimum purchase price for rice would be held steady this year after two years of reductions and much rhetoric last year about "marketizing" grain policy. In addition, rice growers are promised generous subsidies. Yet authorities are also prioritizing disposal of "huge" stockpiles of rice and targeting marginal areas for cut-backs in rice-growing.

An article this month posted on many web sites (implying backing by propaganda officials) advised rice farmers that China has many subsidies to support them and advised farmers to seek out subsidies available in their area. Subsidies include:

1. The minimum purchase price for rice set at early indica rice 2400 yuan/mt, middle-late indica rice 2560 yuan/mt, japonica rice 2600 yuan/mt. 
2. Rice growers can also receive a direct payment based on the amount of rice they plant. The amount and mechanism is set by local authorities using funds issued to provinces by the central government. The subsidy was reported to be 250 yuan per mu (about $560 per hectare) in 2018. 
3. A subsidy for large-scale farmers ("large" threshold generally is 50 mu or 3.3 hectares) is set by local governments. This subsidy varies from 40 to 100 yuan per mu. 
4. Subsidized insurance against disasters--farmers pay no more than 20% of the premiums.
5. Subsidized insurance for rice seed producers.
6. A subsidy for leaving rice land fallow (on land contaminated with heavy metal or with shrinking aquifers) or rotating rice with corn, soybeans, rapeseed. Heilongjiang Province's subsidy is 500 yuan per mu. Pilot regions cover 2 million hectares.
7. A transfer payment of 5 to 80 million yuan is made to local governments of major grain-producing counties to bolster their finances. In addition, five "super grain producing counties" are chosen in each of 13 major grain-producing provinces--based on production and marketing statistics-- to get additional payments earmarked for supporting the grain industry.
8. Heilongjiang has a new pilot program for "intelligent rice-soaking" equipment to promote germination of seeds. The subsidy is 1 yuan/kg or 4 yuan/mu.

This list doesn't mention a program to subsidize construction of "high standard" fields, machinery purchase subsidies, soil fertility testing, a support and protection payment, loan guarantees for farmers, subsidies and tax waivers for farmer cooperatives, or subsidized rehabilitation of polluted farmland.

Officialdom's concern about maintaining rice production seems to clash with dour reports on China's rice market. One such report that appeared in November after last fall's harvest bemoaned weak prices, difficulty selling rice, and financial losses by large-scale rice growers.

A March 2019 article in Chinese official news media estimated that China has a "huge" inventory of "policy-type" rice of 140 mmt after several years of production exceeding 210 mmt. Since 2013, the State has purchased 30 mmt or more of rice each year but sold off only a cumulative total of 40 mmt, and the article estimated that the stocks-to-use ratio is now 70%. Rice can generally be held only 2-to-3 years before it becomes discolored, loses its taste and becomes vulnerable to mold and sprouting, the article said, and warned that illegal sales of aging grain is a threat to food safety. According to Chinese Academy of Social Sciences Professor Li Guoxiang, “Most aging rice is auctioned to trading and feed enterprises, and use of the grain is difficult to supervise, posing a food safety hazard.” A proposal to use rice stocks to make fuel ethanol offered during China's National Peoples Congress session in March said much of the stockpile is unfit for human or animal consumption due to mycotoxins and heavy metals.

A massive audit of grain stocks currently underway will quantify “problem rice.” A January 17-18, 2019 meeting of grain and commodity reserve workers said this year’s priority will be disposal of “irrational” reserves. Several new methods for auctioning rice reserves have been introduced, but sales during 2018 were down 1.7 mmt from the previous year.

Inside a rice warehouse in China

An April commentary in China Grain and Oils News, worried that upcoming auctions of rice from reserves could put downward pressure on an already-weak rice market in China. Heilongjiang Province holds the largest volume of stockpiled rice in government reserves, mostly rice produced during 2015-17 (it claims most of the older rice has already been sold). Rice mills in the province, meanwhile, have very little rice on hand and are waiting for auctions of reserves to begin so they can gain access to raw material. Auctions have been delayed by the national audit of grain reserves. It is rumored that low opening prices will be set for the Heilongjiang rice auctions of 2-to-2.2 yuan/kg for rice produced in 2014-15; 2.30 yuan/kg for 2016 rice; and 2.40 yuan/kg for 2017 rice. These prices are 30% below the minimum purchase price of 3.10 yuan/kg in 2014-16 and 20% below the 2017 purchase price of 3 yuan/kg. The article advises rice millers to be cautious in buying rice from government reserves because there is risk that the auctions could depress prices due to low demand for rice and a decline in the price of flour--a substitute for rice.

China's National Grain and Oils Information Center's (CNGOIC) first estimates of rice supply and demand for the 2019/20 market year indicate that China's rice supply will again exceed consumption by 16 million metric tons, which implies another increase in the stockpile (the Center does not publish estimates of grain stocks). CNGOIC expects a decline in 2019 output of 5.46 mmt due to a modest reduction in area planted. Small increases in consumption of rice for feed and industrial use will be partially offset by a 200,000-mt decline in food use. The most notable change is a forecast of 4 mmt in rice exports and a decline in rice imports to 3.5 mmt which would make China a net exporter of rice following a number of years as the world's top importer. (Most of CNGOIC's balance sheet is in rough rice values, but imports and exports reported in customs data are almost entirely milled, and CNGOIC appears to make no adjustment to make these values consistent with the rest of the balance sheet.)

USDA's PS&D also anticipates an increase in China's rice exports to 3 mmt during 2019/20, but USDA expects China to remain a net importer with imports of 4 mmt. USDA expects China to remain the largest importer of rice during 2019/20 while China also will be the 6th-leading exporter. USDA estimates suggest China's 3-mmt of rice exports will have increased more than ten-fold from 271,000 mt during 2015/16.

Top 10 rice importing and exporting countries, 2019/20
(Thousand metric tons)
Rice importers:	Imports		Rice exporters:	Exports
China	4,000		India	12,500
Philippines	2,700		Thailand	10,000
Nigeria	2,400		Vietnam	6,500
European Union	2,000		Pakistan	4,000
Cote d'Ivoire	1,600		United States	3,207
Saudi Arabia	1,350		China	3,000
Iraq	1,300		Burma	2,800
Senegal	1,250		Cambodia	1,300
Iran	1,200		Uruguay	775
South Africa	1,050		Paraguay	600
Source: USDA Production, Distribution, and Supply data.

During January-March 2019, China was still a net importer of rice, but exports were up 42% from a year earlier and imports were down 25%. Thailand is China's largest rice supplier after imports from Vietnam fell 90% y-o-y. The precipitous decline in rice from its leading supplier of imports until last year is apparently due to strict Chinese inspection requirements as China's phytosanitary concerns about imports once again arise at the same time its domestic market is facing a glut. Meanwhile, China's rice imports from Pakistan doubled.

While China's rice exports were up 42% by volume from a year earlier, their value was up only 4%. Sales of cheap medium grain rice to Egypt ($280/mt) led the growth while exports of pricey medium grain ($780/mt) to South Korea dropped 50%. Turkey and Papua New Guinea were the other top destinations for China's medium grain rice.

Source: China Customs website, based on dollar value.

China's top destinations for long grain rice exports were Cote d'Ivoire, Cameroon, and Guinea, also at bargain prices of about $280-$300/mt.

Source: China Customs website, based on dollar value.

China's rice exports have a "Belt and Road" flavor. China exported medium grain rice to 41 destinations and long grain to 29 destinations during Q1 2019. These include predominantly countries in Africa, Pacific islands and eastern Europe and could be a reflection of China's efforts to build trade relations with such countries and/or to feed Chinese staff and workers posted in those places to carry out "Belt and Road" construction and aid projects. China exported $15 million worth of rice seed to Pakistan, probably for a foreign aid project, and smaller amounts of seed to several other Asian countries plus Sierra Leone and Uganda. China exported some very expensive brown rice to the United States.

However, China's large rice shipments to Egypt and Cote d'Ivoire at bargain prices surely reflect sales of excess reserves as part of China's rice de-stocking process. The $280/mt unit value of the exports to these countries works out to be RMB 1900/mt--less than the opening prices of RMB 2100/mt at China's auctions of rice reserves and far below market prices in China. Medium grain rice reserves would have been purchased at farm-gate prices of RMB 3100/mt during 2014-16 and  RMB 2600/mt during 2017-18. These prices for un-milled rice also exceed the apparent prices received for exports this year.

The quantum leap in China's rice exports to 4 mmt for 2019/20 projected by CNGOIC also surely reflects aspirations to dump part of China's stockpile overseas in a way that prevents further downward pressure on prices in China. This comes at the same time India is also subsidizing rice exports purchased by its own price support program. Developing countries appear to be replaying agricultural policy history of the mid-20th century when North America and Europe did precisely the same thing.