ARTICLES

2005-01-19 / Rice Outlook - December 2005 (FAO)

As 2005 comes to a close, countries in the northern hemisphere are harvesting their main paddy crops. In the southern hemisphere, the 2005 crops were mostly gathered in the first half of the year and farmers are now preparing land for direct seeding or transplanting of the first 2006 paddy crops. The forecast for global paddy production in 2005 has been raised by 7 million tonnes since September to 622 million tonnes, which would be 2.6 percent, or close to 16 million tonnes above the 2004 output. The latest revision reflects improved prospects in some of the major producing countries in Asia.

Production

Table: Rice production (million tonnes)

Record 2005 paddy output following improved crops in major producing countries

The outlook for the 2005 paddy crop in Asia has improved since the last review and the aggregate production of the region is now forecast to reach some 562 million tonnes, surpassing last year’s record of 547 million tonnes. The latest semi-official forecast for production in (Mainland) points to a 2 percent increase from 2004 to 182.8 million tonnes, the highest level since 2000. This increase was mostly in response to government incentives to plant more rice, as relatively weak domestic prices have prevailed in the course of the year. The outlook in has improved since the previous report, with production set to reach 130.5 million tonnes this season, 2.5 million tonne more than in 2004. In , according to the third forecast by the Ministry of Agriculture, almost 54 million tonnes of paddy rice have been gathered during 2005, virtually matching last year’s bumper crop. Production is forecast to increase in , reflecting favourable monsoon rains and relatively high domestic rice prices during the year, which have been an incentive to farmers. In , abundant rainfall in September put an end to a prolonged drought and favoured an increase in plantings, which could give rise to partial recovery in production. Prospects for rice production in are also positive. The is foreseen to gather a record output over the 2005 season (July 2005 – June 2006), reflecting expectations of abundant harvests between November and February. Japan’s official rice output forecast was also raised following an August field survey which rated the crop condition as “above-normal", and the country is now anticipated to gather 11.4 million tonnes of paddy rice, 4.6 percent more than last season. In the Democratic Republic of Korea, excellent growing conditions and improved deliveries of inputs have raised expectations of a bumper crop. In , official production estimate for 2005 has been raised and now points to a 19 percent growth from the poor 2004 season outcome. In production is anticipated to recover, reflecting a return to normal growing conditions this season. On 1 November, the Government launched the new round of intervention purchases to buy up to 9 million tonnes of rice at minimum prices of about Baht 7000 (US$171) per tonne. The procurement programme has been instrumental to sustain domestic producer prices of rice. Official production estimates in have been raised to 525 000 tonnes, an exceptionally high level for the country. Producers have been benefiting since 2004 from a crop absorption scheme, which constrains traders to buy rice locally in order to obtain rice import licenses.

Production, however, is anticipated to fall in a few countries in the region, notably in where the outlook has deteriorated following the passage of typhoon Damrey and typhoon Kai-Tak in September and November respectively, which hit northern and central provinces . As a result, the official production estimate now points to a 300 000 tonne decline from the 2004 record to 35.8 million tonnes. The Republic of Korea is foreseen to harvest a smaller crop, as the Government will cease, this season, to procure rice at minimum producer prices. Paddy production in and may also fall, as crop activities were hampered first by drought and then by torrential rains and flooding.

In Africa, the 2005 rice season is about to be concluded with the harvest of crops in the Western and Northern subregions almost complete. Growing conditions have been generally favourable, allowing for increased plantings and resulting in better yields. Based on the latest indications, production in the region is forecast to increase 3.8 percent to 20 million tonnes.

In North Africa , in , the official area under rice declined by 7 percent this season, but yields were reported to be excellent. On balance, paddy production may fall by 6 percent from the 6.4 million tonnes record of last year. Most countries in Western Africa enjoyed favourable growing conditions over the season, with abundant rainfall and a relatively low pest incidence, which together with the high rice prices that have prevailed in most countries resulted in an expansion in plantings and yields. In particular, and are all set to harvest larger crops this season. Production is expected to increase also in , although growth was constrained by a shortage of rice seeds, following the poor harvest of 2004. Prospects are positive in . In a return of refugees and improved distribution of inputs are estimated to have resulted in an increase in plantings and yields. In eastern Africa , , which is now harvesting the second paddy crop, is estimated to gather 1 million tonnes of paddy, about 10 percent above 2004, almost matching the 2003 record performance. In southern Africa , a record crop was harvested earlier this year in , the largest producer of the sub-region, where farmers are now engaged in land preparation to plant their 2006 main paddy crop. Paddy production has also increased in .

In Central America and the Caribbean, several countries were harvesting their 2005 main crop as of mid-November. The production outlook in the subregion has deteriorated since the previous report, reflecting, in particular, the passage of Hurricane Stan. The 2005 aggregate output is now expected to remain virtually unchanged from last year. , , , and may face a contraction in production this year, while little change is expected in and , reversing earlier expectations of an increase. However, the and are still foreseen to gather larger crops this season.

In South America , the 2005 aggregate paddy crop is estimated slightly higher than the above average level of last year. Several countries have already started seeding their first 2006 crops, under a generally depressed economic climate, characterized by relatively low rice market prices and rising production costs. In , the 2005 crop has been confirmed at a record level. However, according to reports on farmers’ planting intentions in 2006, expectations of lower returns may result in a 12-15 percent cut in plantings, especially in the Mato Grosso, the second largest producing region, which could lead to a 9 percent decline in national production. In , latest official estimates put the 2005 production down by 3 percent, but the area under rice is anticipated to expand by 2 percent in 2006. In , production also declined from the record achieved in 2004. Despite lingering drought problems, gathered a bumper crop in 2005, as irrigation water resources were adequate. However, falling producer prices are causing concern, a situation exacerbated by the restrictions on imports imposed by . ’s 2005 production forecast has been raised somewhat, to 9 percent up from last year’s level, following official information of a sizeable increase in main crop plantings. In production is estimated to have fallen by 4 percent in 2005. A further decline is likely in 2006, as the area is set to shrink by 10 percent, a reflection of rising costs and falling prices.

Elsewhere, in the , the 2005 rice crop is estimated at 10 million tonnes, only 5 percent down from the record of 2004. By contrast, has harvested a dismal crop, for the third consecutive year, of just 345 000 tonnes in 2005. However, plantings for the next 2006 paddy season are anticipated to rebound. The forecast for production in the EU has been lowered somewhat since the last report and now stands at 2.6 million tonnes, 6 percent less than in 2004. The contraction reflects reduced plantings compounded with lower yields because of drought in the Iberian Peninsula . By contrast, the estimate for production in the was revised upward to 620 000 tonnes, a 32 percent increase from 2004. The substantial improvement over the previous year reflects larger plantings and better yields, mostly attributed to the introduction of higher protection against imports. The 2005 production outcome in was also positive.

TRADE

Trade in rice to expand by 3 percent in 2005

Widespread increases in imports in all regions except South America

By the end of the year, Asian countries are forecast to import 12.8 million tonnes of rice, about 800 000 tonnes more than in 2004, mainly reflecting larger expected deliveries to Bangladesh and the Philippines, which both gathered reduced crops in 2004, but also to Syria and Turkey. By contrast, Indonesia’s import forecast has been lowered to 800 000 tonnes, 20 percent below the 2004 level, as much of an announced 250 000 tonne purchase now appears to have been postponed to next year. Imports by (Mainland) are foreseen to decline. Similarly, they are also expected to fall in the Islamic Republic of Iran, partly because of the imposition of higher rice custom duties since March 2005, and in , after the bumper crop it reaped this season. Imports by African countries are now forecast at 8.9 million tonnes, a 4 percent increase from last year. Sizeable imports are estimated to have been made by , but also , and . Larger shipments to have been reported by exporters, but much of the increase is believed to have been destined to , which is now estimated to have brought about 1.5 million tonnes, 100 000 tonnes less than in 2004. The Government is promoting the import of husked rice as a means to support the milling industry, with tariffs set at 50 percent, half the rate applied on milled rice. Overall rice deliveries to countries in Central America and the Caribbean may rise to 2.3 million tonnes this year, up from 2 million tonnes in 2004, sustained by increases in and , where crops were impaired by natural disasters, but also in and . By contrast, purchases by South American countries are estimated to have fallen by 37 percent, to 724 000 tonnes, reflecting reduced shipments to , and . In , the drop was associated with the imposition of a ban of imports from the Andean Community in July. Among other importers, the ’ official import estimates point to a 14 percent contraction in 2005. By contrast, deliveries to and the EU are seen larger this year. In the EU, the increase was facilitated by a cut of tariff rates on husked rice.

Behind the expansion in global trade in 2005 also lies a surge in exports by and , which benefited from the suspension, last October, of new sale contracts by and from the relatively high prices prevailing in . As the Government stopped issuing licenses for export in 2005, shipments are now likely to hover around 4.65 million tonnes, still 15 percent more than last year. Strong demand in central European and Near East countries boosted ’s exports. Despite smaller opportunities for sales to , both and are expected to increase their exports, with substantial amounts flowing outside of Latin America , in particular to markets in the Near East . Similarly, shipments from the are set to reach near record levels, driven by falling export prices. By contrast, deliveries are lower from mainland and, especially, , where smaller export availability and high domestic prices may end depressing sales by 25 percent.

Early prospects for trade in 2006 point to a contraction

Given the favourable outlook for production in 2005, which largely determines the import requirements and the availability of supplies for export in 2006, global rice trade next year is now forecast at 26.1 million tonnes, 5 percent lower than currently estimated for 2005.

Some of the major importing countries likely to cut imports in 2006

In Asia , and the , which are expected to have abundant supplies from 2005 bumper crops, as well as , may contract imports next year. Similarly, large production gains in 2005 should reduce the Democratic Republic of Korea’s need to import. Only a few countries in the region are currently foreseen to step up their imports in 2006. In (Mainland) where the bulk of imports consist of high quality rice, they may recover if the quality of the grain harvested in 2005 has been negatively affected by adverse weather and pest problems. has also signed agreements with a number of rice exporters to facilitate access to its market. A small rise in imports by the Republic of Korea is also anticipated. However, this would depend on whether the country ratifies an agreement with various countries to extend the WTO Special Treatment on rice. Shipments to and are also anticipated to increase. In , tariffs on husked and paddy rice will be cut between 1 November 2005 and 31 July 2006. Rice imports to African countries in 2006 are forecast to fall to 8.5 million tonnes, with lower shipments to , and . In South America , in , where the bulk of the crop is harvested early in the year, the anticipated fall in 2006 production may sustain an increase in purchases next year. In the other regions, imports by the EU are set to grow to 1 million tonnes, prompted by the lowering of the import tariffs on brokens and milled rice recently agreed with (but not yet ratified). Similarly, shipments to the are officially forecast to rise, while they may decline in and the .

Some exporting countries responsible for trade growth in 2005 may be less competitive next year

The expected contraction in rice trade in 2006 would arise mainly from reduced shipments by , , and . All of these countries are facing rising production and transportation costs, which could render export a less attractive option in 2006. Shipments from the Republic of Korea are also expected to decline, as the Government may reduce food aid deliveries to the Democratic Republic of Korea. By contrast, shipments by (Mainland), and especially might increase. , in particular, may look for special government-to-government deals involving rice, as a means to dispose of its large publicly-owned stocks while minimizing the negative impacts on export prices. The anticipated return of as a major importer may enable to maintain the level of sales at levels close the 2005 levels, but stronger competition outside of Latin America and the Caribbean may result in some market loss in the case of . Official prospects for exports by the point to a similar performance as in 2005.