RICE YEARBOOK December 6, 1996 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- RICE YEARBOOK is published annually by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. RCS-1996. Please note that this release contains only the text of the RICE YEARBOOK--tables and graphics are not included. Summary released November 25, 1996. The summary of the next RICE YEARBOOK is scheduled for release on December 17, 1997. Printed copies and diskettes of this yearbook are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #RCS-1996, $15. ERS-NASS accepts MasterCard and Visa. ----------------------------------------------------------------------------- Contents Outlook for 1996/97 Recap of 1995/96 International Outlook for 1996/97 Special Articles: Policy Critical to Future of China's Grain Market China's Rice Economy Segmented into Distinct Markets Limits to Vietnam's Rice Exports Using Futures To Predict Farm Prices List of Tables Report Coordinator Nathan Childs Data Coordinator Jenny Gonzales (202) 219-0704 Economic Contributors Nathan Childs (202) 501-8513 Editor Diane Decker (202) 219-0509 The United States Department of Agriculture (USDA) prohibits discrimination in its programs on the basis of race, color, national origin, sex, religion, age, disability, political beliefs and marital or familial status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact the USDA Office of Communications at (202) 720-2791. To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture, Washington, D.C., 20250, or call 1-800-245-6340 (voice) or (202) 720-1127 (TDD). USDA is an equal opportunity employer. Summary Rice Prices To Remain Firm in 1997 Average world and U.S. rice prices, supported last fall and winter by large Asian demand and in the summer by tight international supplies, are projected to remain firm for the rest of the 1996/97 marketing year (August/July), due principally to strong demand and continued tight supplies of high quality long grain rice. Through the first 3 months of the marketing year, U.S. farm prices averaged an estimated $9.89 per cwt. Continued strong demand is expected to maintain the season average U.S. farm price between $8.75 and 9.75 per cwt, compared with last season's $9.09. The highest U.S. season average price was $12.80 reported in 1980/81. Exports account for about 40 percent of total U.S. rice disappearance, making the domestic situation highly dependent on the international market. Although world trade in 1996 is projected to be nearly 2 million tons below 1995's record 21 million, it would still be the second largest ever. And trade in 1997, projected to drop more than 3 percent to 18.4 million tons, would trail only 1995 and 1996. Global production and consumption are projected at record highs again in 1996/97, with production slightly exceeding consumption, causing ending stocks to rise for the first time since 1990/91. However, the stocks-to-use ratio is projected unchanged from 1995/96's 13.1 percent, the lowest since 1974/75. Therefore, any significant supply disruption in a major consuming or exporting country would cause a substantial price increase. Internationally traded rice prices--although below levels reached in late 1995 and early 1996--are projected to remain relatively strong in 1997. U.S. export prices are also likely to remain high and well above international prices due to reduced U.S. supplies and strong growth in world demand for high-quality rice. Thus, the U.S. price premium over competing exporters' prices --already over $110 per ton--is expected to remain wide in 1997, limiting U.S. competitiveness in some international markets. U.S. 1996/97 Crop Forecast Nearly the Same as Last Year Based on conditions in early November, the 1996 U.S. rice crop is forecast at 174 million cwt, unchanged from last year. A drop in planted area is virtually offset by record yields. U.S. rice plantings are estimated at 2.94 million acres, down nearly 6 percent from 1995 when a 5-percent acreage reduction program was in effect. Even though rices prices were relatively at high at planting time, changes in the farm programs--which removed support payments and provided tremendous planting flexibility --accounted for much of the acreage drop, as did higher prices for other grains and soybeans. The national average yield is forecast at 5,981 pounds per acre, up over 6 percent from 1995 and 17 pounds above the previous record set in 1994. This year's high yields are largely due to generally excellent weather across the South during planting, growing, and harvesting; few disease problems in that region; and a shift in national acreage to higher-yielding California medium grain rice. In contrast, California's yields are projected more than 2 percent below last year's subpar yield due to blanking, blast, and weeds. U.S. rice yields were hindered in 1995 by prolonged high temperatures over most of the Gulf coast and Delta growing regions, as well as a cool wet spring in California. Smaller Supplies Keep Ending Stocks Low A projected thirteenth straight year of record domestic food use and lower total supplies are expected to leave 1996/97 ending stocks of 25.6 million cwt (rough), barely above 1995/96's 25 million and a minimal level. An 10-percent projected drop in exports from 1995/96 more than compensates for greater domestic use, allowing the stocks-to-use ratio to rise less than 1 percentage point to 14.1 percent in 1996/97, still one of the lowest ratios ever. U.S. rice exports are forecast at 2.3 million tons in calendar year 1997, down from 1996's 2.7 million and 1994's record of almost 3.1 million. With world trade expected to remain high, the market share for U.S. rice is projected at just 12.5 percent, below the 14.2 projected for 1996, and well below the near 18-percent average for 1990-94. On a marketing year basis, 1996/97 U.S. rice exports are projected down 10 percent from last year to 74 million cwt (rough), the lowest since 1991/92. The outlook for reduced 1996/97 U.S. rice supplies, already tight domestic long grain stocks, reduced use of some government export programs, and a high premium relative to Thai prices are behind the decline in U.S. exports. Latin America, the Middle East, and Europe are expected to remain important markets for U.S. rice well into the next century. U.S. rough rice exports--shipped mostly to Latin America--are expected to reach 12 million cwt in 1996/97, up a little from 10.7 million a year earlier, but well below 1994/95's 18.5 million. U.S. exports in 1996/97 and market share in 1997 will depend primarily on how much rice is available for export after domestic demand is met. To a lesser extent, exports will depend on the U.S. price premium over foreign competitors' prices--particularly those of Thailand, the top U.S. competitor--and the subsequent reaction of price-sensitive buyers. Rice Conversions 1 cwt = 100 pounds = 2.22 bushels = .0453 metric tons 1 metric ton = 2,204.6 pounds = 22.046 cwt = 48.992 bu. 1 cwt rough rice = .032 metric ton milled 1 metric ton milled = 31 cwt rough U.S. Outlook for 1996/97 Prices Forecast To Remain Strong 1996/97 U.S. farm prices, which have remained above $9.60 a cwt since May, have been supported through the summer and fall by tight domestic long grain supplies, stock holdings by farmers, and continued strong international demand for high-quality rice. U.S. prices are expected to remain strong through the end of the 1996/1997 crop year, due principally to continued strong world import demand for high-quality rice and steady expansion in the domestic market. In November, the 1996/97 (August-July) season average farm price was forecast at $8.75 to 9.75 per cwt, with the midpoint above the $9.09 estimated for 1995/96. Through the first 3 months of the 1996/97 marketing year, U.S. farm prices averaged $9.89 per cwt. Continued price strength in 1997 will result in a season average price above 1995/96. Exports account for about 40 percent of total U.S. rice disappearance, making the domestic situation highly dependent on events in the international market. As a result, even in years of reduced domestic production, producer prices are constrained by the need to keep U.S. rice competitive with foreign rice. Internationally traded rice prices--which have dropped from extremely high levels in early 1996--are likely to remain stable at relatively high levels through 1997, as strong consumption growth in top Asian rice consuming countries maintains import demand. On the supply side, record or near-record crops in key Asian exporting countries--Thailand, India, Vietnam, and Burma --will provide large exportable supplies. Although U.S. export prices are currently below the high levels reached in July and August, the U.S. price premium over export competitor prices is expected to remain wide in 1997, hurting U.S. competitiveness in some international markets. U.S. f.o.b. Houston offer quotes for No. 2, 4-percent broken (high-quality long grain) averaged $414 per ton in 1995/96, up $100 from a year earlier. Similar type and quality offer quotes for Thai rice (100 percent, grade B) f.o.b. Bangkok averaged $362 per ton in 1995/96, up from only $290 in 1994/95. Thus, the price premium of U.S. high-quality rice over Thai rice was significantly higher in 1995/96, averaging $52 per ton compared with just $25 in 1994/95. Record U.S. supplies and tight Asian supplies were behind the low 1994/95 U.S. price premium. Through the first 4 months of 1996/97, offer prices for U.S. No. 2, 4-percent broken long grain rice, f.o.b. Houston, averaged $447 per ton, compared with $334 for similar type and quality Thai rice f.o.b. Bangkok, raising the annual price premium to $112 per ton. Thailand is the United States' principal competitor in high-quality long grain rice markets. U.S. rice competes very well in international markets when the price premium over Thai rice is $30-50 per ton or lower due to strong quality assurances and reliable shipping and delivery. Domestic factors fueling the somewhat higher U.S. price premium in 1995/96 and substantially higher premium since the beginning of the 1996/97 marketing year include sharply lower U.S. supplies since 1994, continued growth in domestic use, near record world trade since 1995, lower stocks worldwide, and a drop in nominal Thai export prices from the historically high levels of 1995/96. Steady U.S. Production Forecast for 1996/97 Based on conditions in early November, USDA forecasts the 1996 U.S. rice crop at 174 million cwt, nearly identical to 1995's 173.9 million. A 6-percent area reduction is virtually offset by projected record yields. Except for Missouri, the smallest of the top six rice producing States, all southern States are projected to meet or exceed previous yield records. In California, blanking and blast, probably due to extremely hot humid days followed by hot humid nights, plus some weed problems, are projected to reduce yields 2.6 percent from last year's relatively low yields and almost 11 percent below 1994's record 8,500 pounds per acre. U.S. rice production by type changed significantly this year from 1995. Long grain production is projected to post a 6-percent decrease from 1995 to 114.5 million cwt while the combined medium/short grain crop, projected to reach 59.5 million cwt, would be 14.2 percent higher than last year. And while long grain exports are projected to drop 17 percent, medium grain exports are projected to reach 20 million cwt, up almost 16 percent from 1995/96. Southern Plantings Down; California Posts Increase Rice plantings are currently forecast at 2.94 million acres, down 186,000 acres from 1995. The near 6-percent area decline is primarily due to changes in farm program provisions that separated program payments from the requirement to plant rice and allowed virtually unlimited planting flexibility. Near-historic high prices for alternative crops at planting also contributed to the decline. Rice acreage might have declined further had not rice prices also been relatively high. All of the drop is in long grain acreage, projected down 12 percent from 1995. Medium grain planted area is projected to rise almost 12 percent. When 1996 planting decisions were being made, the national average farm price for rice was up significantly from a year earlier. Monthly farm prices exceeded $9 per cwt between November 1995 and March 1996, after ranging between $6.53 and $6.78 a year earlier. Producers' initial intentions as reported in the Prospective Plantings report, released in March, were for plantings of 2.985 million acres. Plantings were revised slightly downward in the June 30 Acreage report to 2.91 million acres, then raised in October to 2.94 million acres. Rice program provision changes contained in the 1996 farm act accounted for much of the drop in rice acreage. Target prices and deficiency payments were eliminated. As a replacement, the act created annual contract payments for program participants over the 7-year life of the legislation. The annual payment rate and the total payment a producer receives are totally independent of planting decisions. As such, many high-cost producers found it profitable to collect the contract payments and produce a lower-cost crop--such as corn and soybeans in the Mississippi Delta--or put the land in pasture or a conservation crop. Rice is a high-cost crop for many Gulf Coast producers. And even though futures prices were near the 1995/96 target price level at planting this year, many of these high-cost producers had per cwt variable costs above this level. Also in past years, these producers depended on 50/85-92 programs--which paid them 85 or 92 percent of deficiency payments for planting only 50 percent of eligible acreage--to remain economically viable. For similar reasons, some more competitive rice producers in the Delta and across eastern Arkansas rotated some of their land out of rice this year, given that their contract payments would not be reduced nor would they lose any base acreage--hence future payments--for not planting rice this year. The rotations would contribute to higher yields in the future. The rice program enjoys extremely high participation. Results of the 1996 program signup, released by USDA on August 19, indicated that an estimated 98.7 percent of rice farms with 4.157 million contract acres signed, compared with 1995/96's 94.7-percent participation rate and 3.962 million acres of enrolled base. Based on the June Acreage report, area planted to long grain rice, representing nearly 71 percent of total area, is forecast down 12 percent in 1996. Medium and short grain acreage is forecast up 9 percent. Generally higher prices for high-quality medium grain rice at planting account for the expansion in medium grain acreage. The price premium over southern long grain rice at that time was due to GATT-mandated purchases by Japan and expectations of purchases by South Korea. Harvested area is also forecast down 6 percent, to 2.91 million acres. Very little abandonment of rice-planted acres occurs in the United States because all of the area planted is irrigated. National Yield Exceeds 1994 Record The national average yield is forecast at 5,981 pounds per acre in 1996, up 6.4 percent from last year and 17 pounds above 1994's record. Yields were especially high in the South, with all southern producing States except Missouri reporting yields that equaled or exceeded previous records. Only California's yield --7,600 pounds per acre--is projected below last year. Blanking and blast--likely due to extremely hot and humid days followed by hot and humid nights--plus some weed problems are behind California's below-trend yield. All five southern rice producing States are projected to harvest decreased area in 1996. Nearly 54 percent of the 184,000-acre decline in national harvested area is forecast to occur in Arkansas. Arkansas' 1996 harvested area is forecast at 1.24 million acres, down almost 7.5 percent from last year. However, Mississippi is expected to show the largest percentage declines in 1996, down more than 24 percent. Production is down in Mississippi and Missouri solely due to the area drop. The largest drop is forecast for Mississippi, where production is projected down more than 17 percent to 12.9 million cwt. Missouri, the smallest of the six major rice producing States, is projected to show an almost 12-percent drop, to 5.25 million cwt. The largest production increase is projected for California--the only State to report higher acreage--up 8.4 percent from 1995, to 38.3 million cwt. Production gains in Arkansas--the largest producer--and Texas are extremely small, with the two States' crops forecast at 73.2 and 17.9 million cwt. The Texas yield, forecast highest among the southern States, is projected to reach 6,000 pounds per acre, up 400 pounds from last year and tied with its 1994 record. Arkansas and Mississippi are expected to tie for second with 5,900 pounds each, up from 5,450 and 5,400 last year. Louisiana--which reports the lowest yields of all rice producing States due to excessive rain and humidity, as well as problems with red rice--is projected to achieve a record average yield for the State of 5,000 pounds per acre. Only Missouri, with a projected average yield of 5,000 pounds per acre, will come in below last year's record 5,300 pounds per acre.(See Appendix table 9). Two factors explain the record or near-record yields achieved across most of the South this year. First, generally favorable weather from planting through harvest in most producing areas and no severe or large scale problems with disease set the stage for strong yields. And second, the increase of medium grain plantings in Arkansas contributed to higher average yields because medium grain generally achieves higher yields than long grain rice. In a similar manner, the 11-percent increase in planted area in California--which produces mostly medium grain --accounts for some of the increase in U.S. average yields because California medium and short grain rice achieve yields about 40 percent higher than southern long or medium grain rice. U.S. Rice Supplies Forecast Lower for 1996/97 U.S. rice supplies are projected to be 206.7 million cwt, down 3 percent from 1995/96, as steady production and record imports are more than offset by lower beginning stocks. Beginning stocks on August 1 were reported at 25 million cwt, 20 percent below a year earlier. However, there were important differences in supplies by grain type. Long grain rice stocks entering the 1996/97 marketing year were extremely tight at 10.1 million cwt. In contrast, medium and short grain beginning stocks were a relatively more abundant 14.3 million cwt. The 1995/96 ending stocks-to-use ratios further illustrate the difference in the supply and demand situation by grain type. For long grain, the ratio was an extremely low 7.6 percent. Yet for medium/short grain the ratio was 25.8 percent, barely below the average for the last two decades. Thus, stocks of long grain rice will remain tight through the 1996/97 marketing year. Imports for 1996/97 are projected to be 7.75 million cwt, up 4 percent from 1995/96. Although a small portion of total U.S. rice supplies (less than 4 percent in 1996/97), imports have been increasing steadily for the past 15 years. Jasmine rice from Thailand comprises almost 90 percent of U.S. rice imports. Most of the remainder is basmati rice from Pakistan and India. In the last 3 years Vietnam has exported some long grain milled white rice to the United States while Italy has been a long time supplier of small quantities of high-quality medium grain rice. Expected Drop in Exports To Pull Total Use Lower for 1996/97 U.S. rice use, including exports and domestic use, is forecast at 181.1 million cwt in 1996/97, down from 187.7 last year and from 1994/95's record 199.2 million. A projected 10-percent decline in exports to 74 million cwt accounts for all of the decline in use, and more than offsets continued growth in the domestic market. Total domestic disappearance (including residual) is projected to account for 59 percent of use with exports comprising the remainder. Long grain rice's share of total use in 1996/97 is projected at 67 percent, down from 70.5 percent a year earlier. Medium grain's share is projected larger in 1996/97 due to rising medium grain exports and growing domestic use of medium grain rice, primarily in processed foods like cereal. Long grain's recent price premium over medium grain rice in the United States and strong growth in processed food uses of rice account for the domestic shift to medium grain rice. Extremely tight long grain supplies pushed long grain prices to a premium of $11 a ton over medium grain (as measured by offer price quotes for number 2, 4-percent broken long grain, f.o.b. Houston and number 1, 4-percent broken medium grain, f.o.b. California) in mid-August. The premium rose to $22 in mid-October as U.S. medium grain export prices dropped in response to delayed GATT-mandated purchases by Japan. By late October, the long grain price premium was once again $11 due to a drop in U.S. long grain prices--a result of weak international buying at that time and the U.S. harvest reaching peak. U.S. exports of long grain rice are projected down 17 percent in 1996/97 to 54 million cwt, the lowest since 1993/94 when the U.S. crop was small. In contrast, medium grain exports are projected to rise to 20 million cwt, an increase of 16 percent. Medium grain exports are likely to rise for the rest of this century and into the next as Japan gradually raises imports and traditional buyers of U.S. medium grain rice steadily increase purchases. The United States may eventually gain some of the South Korean market. Record Domestic Use Forecast for Thirteenth Consecutive Year Since 1990/91, the domestic market, which has nearly doubled in the past 15 years, has been growing at over 3 percent annually. U.S. domestic use (food, seed, and brewers' use) and residual (unreported use, processing losses, and estimating errors) are projected at a record 107.1 million cwt for 1996/97. Since 1990/91, food use has comprised 72 percent of total domestic use, while brewers' use, seed, and residual have averaged 14, 4, and 9 percent, respectively. Food use accounts for all of the growth in domestic disappearance, while the brewers' use, seed, and residual categories either have shown no sustained growth or have declined. A record 80 million cwt of rice are expected to be consumed as food in the United States in 1996/97. U.S. food use has grown at an annual rate of 4 percent this decade, and its share of domestic use has risen from less than 70 percent in 1990/91 to a projected 75 percent in 1996/97. While changing culinary preferences of the U.S. population toward grain-based foods have spurred some of the growth, much of the expanded food use is due to large increases in the Asian and Hispanic segments of the U.S. population that have occurred over the last 2 decades. Per capita consumption of rice by Asian- and Hispanic-Americans far exceeds the U.S. average. A large and growing share of this consumption, however, has been supplied by imports of the preferred aromatic rices such as Thai jasmine and basmati from India and Pakistan. Projected total rice imports of 7.75 million cwt, up from 7.44 million in 1995/96, are expected to account for almost 10 percent of food use. Brewers' use of rice, projected at 15.1 million cwt, is unchanged from 1995/96 and remains below the 1991/92 peak of 15.5 million. Brewers' use has been 15.1 million cwt since 1992/93, except for 1994/94 when it reached 15.2 million. Principal reasons for this decline include an aging U.S. population, lower per capita beer consumption, and greater health consciousness that has increased demand for "lite" beers, which use less rice. The recent announcement by a major U.S. western brewer to shift back to using 100 percent rice in manufacturing beer has the potential to push this number up. Rice seed use in 1996/97 (for planting the 1997 crop) is estimated at 4 million cwt, down slightly from 4.1 million in 1995/96. U.S. Export Market Share Projected Down in 1996 Due to the diversity of cropping seasons, marketing years, and milling rates, international rice trade is measured on a calendar year, milled rice basis. The U.S. calendar year export forecast for 1996 is 2.7 million tons, down from 1995's record 3.1 million. The U.S. share of world trade is forecast at almost 14.2 percent in 1996, down from 14.7 in 1995 due to a 2-million- ton decline in projected world calendar year trade to 19.1 million tons. Despite near-record U.S. exports, the U.S. market share also fell in calendar 1995 from 17 percent in 1994, due to a projected 27-percent increase in world trade to a record 20.97 million tons. U.S. exports posted a 10-percent increase in 1995. Although U.S. exports are forecast down 12 percent from 1995, the U.S. share of world trade is forecast down only slightly--from 14.7 percent to 14.2 percent because world trade is down 2 million tons. On a marketing year basis, 1996/97 U.S. rice exports are projected down 10 percent from last year's 82.3 million cwt and well below the record 100.9 million cwt (rough basis) in 1994. The outlook for reduced 1996/97 U.S. rice supplies, greater domestic food use, tight long grain stocks, smaller use of some government export programs, and a rising premium relative to Thai prices are behind the decline in U.S. exports. Latin America, the Middle East, and Europe are expected to remain important markets for U.S. rice. Canada and the Republic of South Africa are also steady to slightly growing U.S. markets. Rough rice exports are expected to rise to 12 million cwt, compared with 10.7 million last year, but will be below the 18.5 million exported in 1994/95. Unlike most other rice exporting countries, the United States services a large, high-valued domestic market that generally bids the U.S. price well above the international price. This price premium is most often measured by the difference between offer price quotes for U.S. number 2, 4-percent broken, milled long grain rice, f.o.b. Gulf ports, and Thailand 100 percent grade B, milled long grain rice, f.o.b. Bangkok. For November 1996, the U.S. export price premium for high-quality long grain rice was $113 per ton, well above the $5-$87 range lasting from August 1994 to July 1996 that helped sustain record exports in 1994/95 and strong U.S. trade in 1995/96. Traditionally, U.S. rice exports compete very well with a premium of $30 to $50 per ton. As the premium rises, price-sensitive markets, particularly in Latin America and the Caribbean, switch to lower cost sources. The projected decline in international import demand for long grain rice in 1997--combined with the tight supplies of U.S. long grain rice--are expected to increase the price discount enjoyed by foreign rice exporters, particularly Thailand and Vietnam. Thus, the U.S. rice industry is likely to withdraw from some markets in the 1996/97 marketing year. Because most of the supply and demand changes occur in the lower-quality rice markets, the high-quality price premium is expected to remain wide into 1997. The large demand for low-quality long grain rice in 1995, spurred by Bangladesh and Indonesia, fell sharply in 1996, while supplies of lower-quality rice from Burma, Pakistan, Thailand, and Vietnam have been higher since 1995. Little growth in demand for low-quality rice is expected in the near term. Three principal factors support the outlook for steady U.S. exports in the face of a nearly 4-percent contraction in the world market. First, low 1995/96 world ending stocks, a projected slight decrease in the 1996/97 main harvest in Thailand, and reduced U.S. long grain supplies will keep high-quality long grain stocks fairly tight worldwide at least until Thailand's second crop is harvested next May. This is expected to allow the United States to continue to compete successfully in European and Western Hemisphere markets. Second, the outlook for continued low European Union rice exports in 1997 should allow the United States to remain a principal supplier of Turkey's large medium grain import market. Third, the United States is expected to gain a substantial share of Japan's minimum access market opening for rice as negotiated under the recently completed Uruguay Round of the General Agreement on Tariffs and Trade (UR-GATT). GATT-mandated purchases by Japan should provide over additional U.S. exports in 1997. A fourth factor of potential importance to U.S. exports is the projected continued decline of India's rice exports in 1996 and 1997. Although India does not compete directly with the United States, lower export supplies in the intermediate- to low-quality market imply less likelihood of the bottom falling out of the market and the U.S. price premium escalating to prohibitive levels. As international low-quality prices fall below $230 per ton, India's rice (exported at essentially a fixed price) becomes less competitive. In early November, international prices for low-quality rice had fallen to around $207 a ton. Also, quality problems associated with Indian rice make sourcing from alternate supplies preferable for many importers. Marketing Loan Gains in 1996 The marketing loan program was introduced in 1986 to improve the competitiveness of U.S. agricultural products in international markets. During the early and mid-1980's, loan rates exceeded international prices and isolated U.S. rice from the market. Under the marketing loan program, loan repayment rates are linked to the prevailing world price of rice rather than the loan rate. This prevents the loan rate from acting as a floor price for U.S. rice in international markets. This year's outlook for international prices to fall more than U.S. export prices would produce income gains to producers only if foreign prices (represented by the Average World Price) fall below the announced loan rate of $6.50 per cwt. However, in early November the weighted Average World Price was $7 per cwt. While down from $7.71 in 1995/96, international prices would have to drop below $6.50--the current loan rate--before any marketing loan gains would develop. The rise in international prices in early 1995/96 raised the USDA-calculated world price (rough basis) above the loan rate, and have left no opportunities for marketing loan gains since August 1, 1995. While international prices did decline in 1996, USDA long-term projections indicate the Average World Price will continue to exceed the loan rate well into the future. U.S. Government-Assisted Exports U.S. rice relies on three principal government programs for assisting exports: the Export Enhancement Program (EEP), the Commodity Credit Corporation's General Sales Manager (GSM) short- and intermediate-term credit guarantees, and concessional sales (PL-480 and food aid).1/ 1/ Government program outlays are made and reported on a fiscal year basis, which has a 2-month lag from the rice marketing year. The outlook for fiscal 1997 is unclear as budgetary constraints and requirements from the UR-GATT are expected to weigh heavily in determining eventual program outlays, thus diminishing their traditionally important role. Although no projections are available for fiscal 1997, program exports are not likely to exceed fiscal 1996's estimated total of 397,000 tons (215,000 tons in credit guarantees + 182,000 tons for PL 480), or 14 percent of total U.S. rice exports. Concessional sales and GSM credit guarantees with fixed budget amounts are adversely affected by the current relatively high international prices. In fiscal 1995, 667,000 tons of rice were exported under government programs. This was almost 18 percent of total U.S. rice exports that year, down from 23 percent in fiscal 1994 and well below 41 percent in 1993 and 43 percent in 1992. The EEP program was originally intended to counterbalance subsidized exports by the European Union (EU). Today, its purpose is to counterbalance subsidized exports from specified exporters, i.e., not just the EU. In the world rice market, EEP bonuses have traditionally been used to assist medium grain exports into countries bordering the Mediterranean Sea. But with declining EU rice exports in recent years, the importance of EEP subsidies has diminished. There have been no rice EEP shipments since August 1995. Also, EU rice exports have averaged less than 200,000 tons since 1993, after averaging nearly 400,000 tons in earlier years. Total EEP allocations are required to decline in accordance with the UR-GATT agreement. However, this is not expected to become a constraint for rice until 1997 or 1998 because most EEP monies are used to support wheat exports. In the past, U.S. medium grain exports--mostly to the countries of the Mediterranean--have received EEP allocations, whereas long grain exports have not. However, the UR-GATT minimum access market openings for rice are likely to be of greater longer-term benefit to U.S. rice because EEP funding is expected to decline. U.S. Stocks Expected To Tighten U.S. ending stocks are projected at 25.6 million cwt in 1996/97, up just .6 million cwt from last year's extremely low level. Furthermore, stocks as a share of total use are expected to rise to 14.1 percent, up from last year's record low of 13.3. By class, ending stocks are projected up slightly for both long and medium/short grain rice. Long grain stocks are projected to rise .2 million cwt to 10.3 million while medium grain rice stocks are projected to rise .4 million cwt to 14.7 million. However, the stocks-to-use ratio by grain type indicates a much tighter market for long grain rice, with the ratio projected to be 8.5 percent, up slightly from 7.6 percent a year earlier, but a very low historical level. For medium grain, the stocks-to-use ratio is projected to decline slightly to 24.5 percent from 25.8 last year. Tight stocks of high-quality long grain rice relative to medium grain are expected to maintain the long grain price premium relative to medium grain in both the United States and international markets, reversing the significant premium enjoyed by medium grain rice export prices during most of 1994/95 and 1995/96. The U.S. medium grain f.o.b. price lost its premium to the long grain f.o.b. price in mid-August. Recap of 1995/96 Prices Strengthened The season average farm price for U.S. rice in 1995/96 is estimated to have been $9.09 per cwt, up substantially from $6.98 in 1994/95 and the highest since $12.80 reported in 1980/81. A 12-percent drop in U.S. production from a year earlier and the outlook for smaller ending stocks maintained steady upward pressure on U.S. rice prices. Total supplies were 212.7 million cwt in 1995/96, down almost 8 percent from 1994/95's record due to the smaller crop. Imports increased 6 percent to a record 7.4 million cwt. Total use dropped 6 percent from 1994/95's record 199.5 million cwt due to an 18-percent drop in exports from 1994/95's record 100.9 million cwt. In contrast to exports, total domestic use rose over 3 percent to a record 96.2 million cwt. Domestic food use, which rose 4 percent, reached a record 77 million cwt. Brewers' use dropped slightly from 1994/95 to 15.1 million cwt while seed use was unchanged at 4.1 million. The residual actually showed a significant increase to 9.25 million. Ending stocks dropped 20 percent to 25 million cwt in 1995/96. Long grain stocks dropped the most, to 10.1 million cwt from 14.5 million a year earlier. The lower total stocks reduced the ending-stocks-to-use ratio to 13.3 percent from 15.8 a year earlier. However, the tightness of the supply situation varied by grain type. For long grain, the stocks-to-use ratio was a record low of 7.6 percent, while for medium grain the ratio dropped slightly to 25.8. International Outlook for 1996/97 International Export Prices Weakened in Late 1996 Internationally traded prices for long grain rice weakened substantially in second-half 1996 as import demand contracted from the brisk pace set in the early part of the year when the Philippines and Indonesia were importing heavily. World trade is projected to drop 9 percent this year to 19.1 million metric tons from 1995's record of almost 21 million. However, even with the drop, the trade volume would still be the second highest ever. The slowdown in imports has stemmed from large harvests this year in most Asian rice producing countries--most importantly China, India, Bangladesh, Burma, Indonesia, Thailand, and Vietnam. The large harvests have reduced import demand and simultaneously increased export supplies and price competition among exporters. Substantially reduced imports by Bangladesh, China, Indonesia, and Iran this year account for most of the contraction in world trade. While these four countries imported a total of 8.27 million metric tons of rice in 1995, their total is projected to be only 4.3 million this year. International trading prices for long grain rice (Thai 100 percent, grade B, f.o.b. Bangkok) fell from around $375 a metric ton in the first quarter of 1996 to around $345 in the early spring as the Thai dry-season crop--about 15 percent of Thailand's total annual crop--was harvested and entered the market, and world import demand slowed. International prices briefly rebounded in the first half of the summer--partly on expectations of an end to trade sanctions with Iraq. But in August prices began a steady decline as no new major purchases occurred, dropping to $324 by late November. And with the Thai main harvest in the north and northeast--about 60 percent of Thailand's annual production--in full swing, the increase in exportable supplies in December will likely delay any price strength until well into 1997. However, November's $325 a ton is above all annual average August-July market year prices after 1980/81 except for 1995/96's $362. In contrast to Thai prices, prices for similar type and quality U.S. long grain rice--No. 2, 4-percent brokens, f.o.b. Houston --actually strengthened in the spring and late summer of 1996. The strength of U.S. export prices in the face of declining international prices was the result very tight U.S. and world stocks of high-quality long grain rice. International trading prices for high-quality japonica rice have also declined from levels reached in late 1995 and early 1996 --when Japan completed its GATT-mandated imports for the 1995/96 Japanese fiscal year (April-March). Except for sales to traditional importers of U.S. japonica such as Turkey, little activity occurred until October and November, when Japan first made its fiscal 1996/97 UR-GATT purchases from the United States. Also, South Korea turned to China for japonica rice in June to meet its GATT-mandated purchases. Many had believed the United States would be the primary supplier. Prices for U.S. number 1, 4-percent brokens medium grain dropped from $507 a ton in January 1996 to $441 in May and then to $430 by mid-October, reversing the prior price premium over U.S. long grain. Prices have remained at the mid-October level through November. Japan must complete the remainder of its 1996/97 GATT-mandated purchases by March 31, 1997, and the United States is expected to supply much of this rice. In October, Japan tendered an offer to purchase 115,800 tons of rice, of which the United States would supply 50,000. In November, Japan made two tenders, one for 10,000 tons--of which the United States would sell 7,159 tons --and a much larger tender for 130,000 tons, of which the United States was awarded 70,000 tons. In June, Japan bought 39,000 tons of rice, mostly from Thailand. Japan's total GATT-mandated purchases for the 1996/97 fiscal year are set at 510,000 tons (brown rice basis). Several factors will continue to put downward pressure on international indica prices. First, large fall 1996 harvests in most major rice producing countries have created large export supplies of intermediate- and low-quality long grain rice. The large supplies have weakened import demand and increased price competition among exporters that is expected to last through the first half of 1997. An area of particular importance is South Asia, where a successful monsoon for the ninth straight year has produced bumper grain harvests throughout the region, creating large export supplies in India and Pakistan, while dramatically reducing Bangladesh's 1996 and projected 1997 imports. Vietnam is projected to produce a record crop in 1996/97, allowing the country to export more rice in 1996 and 1997 than in previous years. This will keep prices for low- and intermediate-quality rice down, forcing Thailand to cut prices to remain competitive in many Asian markets. This will also maintain the wide spread--currently over $110 a ton--between U.S. and Thai prices, pricing the United States out of some markets and limiting U.S. indica sales to high-quality import markets. Second, China's imports have declined substantially since 1995, diminishing the likelihood that China will again monopolize Vietnamese rice exports as it did in 1995. China has also produced a bumper rice crop in 1996, cutting 1996 imports from last year and possibly reducing earlier projections for 1997 imports as well. As a result, Vietnamese rice will be available to other international markets, adding to growing pressure on international prices. Third, while global consumption is projected to reach a record 377.9 million tons in 1996/97, it will be short of projected production, allowing ending stocks to rise nearly 2 million tons from a year earlier to 49.5 million, the first increase since 1990/91. However, the stocks-to-use ratio would be unchanged from last year's 13.1 percent, the lowest since 1974/75, meaning any disruption in supply or use by a major importing or exporting country would likely have a large impact on trading prices. However, some factors will tend to support prices in late 1996 and early 1997. First, reduced supplies in the United State will keep U.S. long grain prices strong through early 1997. Second, internal production and marketing changes--see special article --make it unlikely that China will resume exporting large quantities of low-quality long grain rice. China's import demand for high-quality long grain rice is more uncertain. Traditionally, China has been very sensitive to perceived domestic rice shortfalls, particularly in urban areas, turning quickly to the international market to meet its needs. China's 1997 imports are projected up 150,000 tons from 850,000 this year. But with a bumper harvest in 1996, it will be worth while to see just how much rice China actually imports in 1997. Also, while India has exported huge amounts of rice since 1995, the country continues to hold substantial stocks and hence large exportable supplies. But India's ability to continue exporting at its current rate hinges on government pricing policies in the domestic market. In addition, while conditions in Bangladesh and Indonesia appear favorable for recently planted crops, low government stocks and large and rapidly growing populations with annual per capita rice consumptions of 146 and 161 kilograms, respectively, ensure that any production shortfall or increase in demand will quickly be translated into greater imports. World Trade Projected To Dip Again in 1997 World trade in 1997 is projected to be 18.4 million tons, down more than 3 percent from this year and 12 percent below 1995's record. Yet, if realized, it would still be the third highest ever, behind only 1995 and 1996. The decrease is primarily the result of large 1996/97 harvests in most Asian countries that are expected to reduce demand for imported rice. Bangladesh, the Philippines, Iran, and North Korea account for much of the decrease in projected trade. Their combined imports are projected to decline from 3.45 million tons in 1996 to only 2 million in 1997. And while world stocks are projected to rise slightly to 49.5 million tons in 1996/97, the stocks-to-use ratio would be unchanged from 1995/96 which was the smallest since 1974/75. This tight supply situation implies that international prices will continue to be very sensitive to any production shortfall in a major exporting or consuming nation. Major Exporters Thailand is expected to remain the world's largest rice exporter with 5.5 million tons projected for 1997, up slightly from 1996's 5.25 million but below the 1990 record of 6 million tons. Thailand's 1996/97 crop is projected down 1.4 percent from last year's record 21.8 million tons (rough basis). Thailand competes with the United States in the high quality long grain rice market and with Burma, India, Pakistan, and Vietnam in the intermediate- and low-quality rice markets. Burma, Pakistan, and Vietnam all sell intermediate- and low-quality rice at significant price discounts to Thailand. This price pressure from the low-quality market prevents Thailand's price structure from inflating, thus contributing to Thailand's traditional price discount to U.S. rice in the high-quality market. Vietnam's 1996/97 rice crop is projected to be record high for the fourth straight year at nearly 27 million tons. However, Vietnam's exports are projected to drop 200,000 tons to 2.8 million, due to strong domestic demand and a commitment to keep domestic prices from rising. Vietnam produces three major rice crops a year. The summer-autumn crop accounts for about 23 percent of annual production and is harvested during September and October. The tenth-month crop accounts for 37 percent of average production and is harvested during December and January. The largest rice crop, the winter-spring crop, accounts for 40 percent of average production and is harvested in April and May. 2/ 2/ The harvest dates are for production occurring in southern Vietnam. Harvest dates differ in the north, but most rice production occurs in the south. When China dominated Vietnam's exportable surplus in 1995, the rest of the world was left short of lower-priced rice in a year of record demand. Many Asian countries, Indonesia and the Philippines included, were forced to turn to other sources, principally Thailand, on very short notice to meet needs. This drove up the price of 25- and 35-percent broken rice to within $30-40 per ton of high-quality prices. A traditional high- to low-quality premium is $60 per ton. However, since the beginning of 1996, the premium has averaged well over $100 a ton as prices for low-quality rice have fallen faster than prices for high-quality. Ample supply and little demand account for the declining prices for low-quality rice. Pakistan is projected to export 1.4 million tons in 1997, unchanged from 1996 and 12 percent below the 1995 record as increased competition in intermediate- and low-quality markets limits any increase in sales for non-basmati rice. Pakistan's crop is projected to be unchanged from 1995/96's 5.7 million tons. Burma's 1996/97 rice crop is projected at a record 18 million tons, up over 4 percent from 1995/96 and the fourth consecutive year of record production. While Burma's production has steadily risen, the country's exports are forecast to fall to 350,000 tons in 1996 from 645,000 in 1995. For 1997, exports are forecast to increase to 500,000 tons. In the early 1960's Burma was one of the world's leading rice suppliers with exports averaging nearly 1.5 million tons a year from 1961 to 1966. However, from 1967 to 1989 Burma's exports declined to an average of only 542,000 tons. Exports declined to a historic low between 1990 and 1993, averaging only 193,000 tons. Burma's marketing and milling infrastructure remains antiquated, however, and is unlikely to change in the near future. As a result, Burma continues to export low-quality, but competitively priced long grain rice. Historically, most of Burma's rice exports are 25-percent brokens with the remainder being parboiled and high-quality long grain rice. India is projected to export 3 million tons of rice in 1997, down slightly from 3.25 million in 1996 and nearly 29 percent below 1995's record 4.2 million. However, a tenth consecutive year of successful monsoon weather and burgeoning grain stocks could push India to expand exports beyond current projections in 1997. India is projected to produce a 1996/97 crop of 123 million tons (rough basis), up from 119.2 million in 1995/96. Low stocks and continued good trade prospects are expected to keep area and production high in Australia in 1996/97. Rice area is projected at a record 160,000 hectares, up 10,000 from 1995/96, while production is projected up 16 percent to a record 1.33 million tons (rough). Australia's rice farmers plant in October and harvest in March-May. The rice crop is grown in New South Wales (NSW) and Queensland, although NSW grows over 96 percent of the rice crop. Australia is expected to export a record 625,000 tons in 1997, up 1.6 percent from a year earlier, and to capture a significant share of Japan's imports in 1996. Two South American rice exporters, Argentina and Uruguay, are expected to continue to focus their efforts on the Brazilian rice market under the special trade arrangements afforded them by their membership in the MERCOSUR trade agreement. Argentina is projected to export a record 425,000 tons in 1997, up from 395,000 in 1996. Area is projected to post a small rise. Uruguay's rice exports are projected at 450,000 tons, down slightly from 1996's record 550,000 tons. Production is projected at 743,000 tons (rough), down 22 percent from 1995/96 largely due to a drought-induced yield decline and a small drop in area. Major Importers Indonesia is projected to import 1.5 million tons of rice in 1997, the largest amount projected for any country that year. This is up 250,000 tons from this year and just one-half the 3 million tons imported in 1995, the largest amount of rice ever imported by a single country in one year. Indonesia was the world's leading rice importer during the 1970's, averaging over 1.3 million tons annually. During the mid-1980's, the Indonesian government was able to drastically reduce rice imports through a program of national rice self-sufficiency. However, continuous area losses from Java's prime irrigated paddy fields and rising national consumption (projected to exceed production for a fifth consecutive year) appear to have ended Indonesia's period of self-sufficiency. China's 1996 rice crop is projected at a near record 188.6 million tons (rough) based on a 4-percent increase in the country's early crop and favorable weather for the late crop. In 1995 China produced 185.2 million tons on 30.7 million hectares, reversing a 2-year trend of declining area and production. However, it is not yet clear whether this signals an increased internal production response to high domestic prices and lower expected future imports. China's 1997 imports are forecast at 1 million tons, half the level of its 1995 imports, but up from 850,000 tons this year. In 1995 China became a net importer of rice for the first time since 1989. Imports reached 2 million tons, while exports were a minuscule 32,000 tons (the smallest level in the USDA database that began in 1960). This is a dramatic change from 1990-93, when China's annual rice exports averaged 830,000 tons.when China's annual rice exports averaged 830,000 tons and imports averaged less than 100,000 tons. China has remained a net importer since 1995, with exports forecast at 300,000 tons and 250,000 tons for 1996 and 1997. Traditionally China has been an important net exporter of rice, exporting low-quality rice to African and Middle Eastern markets, and importing high-quality long grain rice, mostly from Thailand, for use in urban centers. However, in 1994, China's rice trading pattern changed dramatically when exports jumped. Exports of over 1.5 million tons included 900,000 tons of japonica to Japan, signaling China's tremendous potential as a supplier of japonica rice to the newly opened markets of Japan and South Korea. Official imports of 0.7 million tons included a significant share of intermediate- and low-quality rice, implying that significant regional supply shortfalls were occurring, particularly in China's large urban centers. Even further change came in 1995 when China imported 2 million tons while exports were negligible. China is projected to be a net importer of 550,000 tons in 1996 and 750,000 tons in 1997. These trade levels are modest compared with the level of China's production and consumption. Any change in China's ability to export rice has important implications for world rice trade. Japan and South Korea have agreed to open their substantial rice markets to limited imports in accordance with minimum access criteria of the UR-GATT. Both countries have strong preferences for japonica varieties for table consumption. The United States is expected to compete with Australia for the medium grain exports into these newly opened East Asian markets. China may also supply some medium grain. However, Japan and South Korea have large rice industrial processing capacities that would permit the importation of long grain rice. Japan is projected to produce a crop of 12.9 million tons in 1996, following 13.4 million last year and 1994's bumper harvest of 15 million tons. In addition, Japan must import 530,000 tons (milled basis) before the end of its 1997/98 fiscal year (April-March), and 607,000 tons the following fiscal year in accordance with UR-GATT minimum access import criteria. South Korea's rice area is projected at 1.06 million hectares in 1996, nearly identical to a year earlier and halting an 8-year decline. Normal growing conditions are expected to produce a crop just short of 6.9 million tons (rough), up 7.5 percent from 1995/96's weak crop. South Korea's rice consumption has been trending downward since 1985, but at 5.1 million tons, is still projected to barely exceed milled production--forecast at 5.08 million tons--for the sixth consecutive year. However, due to imports, South Korea's rice stocks are projected to rise 57,000 tons to 672,000. South Korea purchased its entire 1996/97 GATT-mandated imports of 71,260 tons of brown rice from China. In 1995/96, South Korea purchased all of its 57,000 UR-GATT minimum access imports from India--all long grain likely used for industrial purposes. Japan's minimum access criteria will rise from 380,000 tons in 1995/96 to 758,000 tons (milled basis) by 2000. South Korea's minimum access amount is much smaller, rising from only 57,000 tons (milled basis) in 1995/96 to 205,000 tons by 2004. North Korea is projected to import 200,000 tons, down from 350,000 this year and the record 675,000 in 1995. Severe flooding hurt production in 1994 and 1995, setting the stage for large-scale imports. Production had already been trending down since the mid-1980's. In addition, substantially smaller quantities of food are entering North Korea from China. Traditionally, significant amounts of unofficial rice imports are thought to enter North Korea from China. However, dramatic agricultural changes underway in China appear to have abruptly cut off this former unofficial trade link, leaving North Korea severely short of food. North Korea experienced a severe contraction in rice production from the mid-1980's to the present. Existing data suggest that during the 1980's North Korea's rice production averaged nearly 2.1 million tons on 642,000 hectares with yields of over 3.24 milled tons per hectare. Since 1991 production has averaged about 1.35 million tons on 593,000 hectares with yields of less than 2.3 milled tons per hectare. North Korea's rice production is projected at 1.9 million tons in 1996, unchanged from last year. Most of North Korea's rice imports will be concessional in nature. If production problems continue, food imports (including rice) could again grow. Bangladesh is projected to produce 27 million tons (rough) of rice in 1996/97, up nearly 2 percent from last year's harvest and 7 percent above 1994/95's poor harvest. The increased production is expected to reduce Bangladesh's import needs to 500,000 tons in 1997, down from 1 million tons this year and nearly 1.6 million in 1995. Although the outlook is for a normal 1996 harvest and reduced imports, Bangladesh's constant population pressure drives an upward trend in consumption and leaves little room for error. Bangladesh has a preference for parboiled rice, although price is a limiting factor and may force imports of low-quality milled long grain if cheap parboiled is not available. The Philippines is projected to produce a record crop of 11.2 million tons (rough) in 1996 based on record area of 3.95 million hectares and normal yields. Despite the good production outlook, the Philippines' food situation remains tight. Consumption, projected at 7.7 million tons (milled), is expected to exceed milled rice production for a sixth consecutive year. The Philippines is projected to import only 300,000 tons in 1997, down from 900,000 tons this year. However, the tight food situation and rising consumer prices could push the 1997 imports higher. The EU is projected to import 500,000 tons in 1997, down from 600,000 tons in 1996. The EU 1996 harvest is projected to rise nearly 24 percent from last year's weak crop to a record 2.5 million tons. Most of the increase is due to a more than doubling of the Spanish crop to 714,000 tons (rough) from last year's drought-reduced crop. The Middle East is traditionally the world's strongest market for high-quality rice, led by Iran, Iraq, and Saudi Arabia. Rice imports are projected about the same as this year for the region at 3.1 million tons. In 1995, the Middle East imported over 3.5 million tons, on the strength of 1.7 million tons imported by Iran. Iran's lower projected imports of 1.2 million for 1996 and 1 million for next year account for the region's decline in imports since 1995. Imports by Sub-Saharan Africa (including the Republic of South Africa) are projected higher for 1997 at 3.5 million tons, up from almost 3.3 million this year. The larger import demand is based on the decline in international prices for intermediate- and low-quality varieties. In addition to larger commercial imports, lower international prices imply higher program exports to Sub-Saharan Africa for exporting countries with fixed-budget program amounts, such as the United States. With the exception of the Republic of South Africa, Sub-Saharan Africa has traditionally been a low-quality rice market due to weak economies and limited foreign exchange. Lower international prices are also partially responsible for Latin America's (Central America, the Caribbean, and South America) 3-percent increase in projected rice imports in 1996 to almost 2.7 million tons. Most Latin American rice importers are price-conscious buyers who prefer high-quality rice, but will substitute for cheaper intermediate- and low-quality rice when international prices rise. Brazil is Latin America's largest rice import market. Brazil's rice imports are projected up significantly in 1997 to 1.25 million tons, compared with 1 million in 1996. The increase stems from lower stocks and rising consumption. Brazil is projected to produce a total crop of 10.3 million tons in 1996, up 5.3 percent from 1995. Because of special trade arrangements under the MERCOSUR trade agreement, Argentina and Uruguay dominate the Brazilian market. Combined exports for Argentina and Uruguay are projected at 875,000 tons for 1997, down from a record 945,000 tons in 1996. In 1995 the two countries exported 820,000 tons, up from just 611,000 in 1994. Thus, the MERCOSUR agreement appears to be promoting significant expansion in each country's respective rice sector. World Trade Hit Record in 1995 World import demand was a record 21 million tons in 1995. Demand was led by Indonesia with record imports of 3 million tons, followed closely by China with 2 million tons, Iran with 1.7 million, and Bangladesh with 1.6 million. Saudi Arabia and Brazil were strong markets with imports of 615,000 and 850,000 tons, respectively, and North Korea took 675,000 tons (500,000 tons from Japan). The 27-percent increase in trade from a year earlier was due to weak a 1994/95 harvest in several key importing countries--most importantly Bangladesh and China--as well as bumper crops in several exporting countries, primarily Burma, India, Thailand, and Vietnam. India exported 4.2 million tons of rice in 1995, seven times its 1994 volume, and easily surpassing its previous record of 919,000 tons exported in 1980. India's 1995 export volume was the largest ever by any country other than Thailand. The dramatic rise pushed India into second place as an exporter, ahead of the United States which exported 3.1 million tons. Thailand was the largest exporter in 1995 with 5.9 million tons, the most since its record 6.0 million in 1989. Most of India's rice exports are low-quality that do not compete directly with U.S. exports. However, the tremendous jump in export volume has had important implications for the international market structure. Without enormous quantities of Indian rice pouring into the international market in 1995, partly to fill the void left by China's virtual withdrawal from the export market that year, international prices would have climbed significantly higher. This would have made the United States competitive in more markets. Vietnam exported 2.3 million tons in 1995, just ahead of 1994 and a record at the time. However, China's monopoly of Vietnam's exportable surplus in 1995 limited availability to non-Chinese destinations. Pakistan exported a record 1.6 million tons in 1995. Finally, Burma shipped 645,000 tons (the largest in over a decade), on the strength of rising production. The top six exporting countries accounted for over 17.7 million tons or 85 percent of world rice exports in 1995. Special Article Policy Critical to Future of China's Rice Market by Frederick W. Crook 1/ Abstract: While markets and market forces have become increasingly important to China's rural economy since 1980, government intervention remains significant in agriculture. Since 1994, in sharp contrast to the first years of the decade, China's central government has reasserted control over grain markets (especially rice and wheat) veered away from the principle of production based on comparative advantage, and restricted grain market operations. Its policies have instead emphasized self-sufficiency, intervention and control of the grain economy, and urban food security. This indicates less participation in world grain markets for China and a return to the old policy of greater intervention in agriculture. Key words: Grain policies, grain trade, rice production, self-sufficiency China is the world's largest rice producing and consuming country, accounting for about 35 percent of milled rice production and consumption in 1995. In addition, China holds over 40 percent of world rice stocks. Because of China's importance to the world rice economy, any major change in China's rice supply and demand situation can significantly affect the global rice market. 1/ Agricultural economist, Commercial Agriculture Division, Economic Research Service. Over the next decade China's demand for grain will outpace its production, requiring China to become an importer of a projected 32 million tons of grain annually by 2005. This year, China's rice exports are forecast at 300,000 tons, while imports are projected to reach 850,000 tons. Today, China's leaders are transforming their largely centrally planned economy into a "socialist market economy" with Chinese characteristics, such as using markets to guide producer and consumer decisions while the central government retains political control and uses macro-economic mechanisms to manage the economy. While markets and market forces have become increasingly important to China's rural economy, government intervention remains significant in agriculture. For rice, government policies affect production, marketing, stock holding, consumption, and international trade. And because China's policies--and the manner in which they are implemented--are often changed, China's policy environment must be reviewed and watched closely. Government Granted Markets Greater Role in Early 1990's... While China has liberalized much of its economy--including agriculture--since the late-1980's, its food policy objectives have changed little over the past 40 years. They are to: o insure adequate urban food supplies (food security), o accumulate sufficient grain reserves, o stabilize food prices, o promote food self-sufficiency, o participate in world trade, and o improve farm income. As with the food policy objectives of many countries, some of China's objectives are mutually exclusive or at least difficult to accomplish simultaneously. At various times over the past 40 years, the central government has emphasized the achievement of certain objectives while neglecting others. And changes in policies have sometimes had dramatic effects on China's rice economy. From the mid-1950's to the early 1980's, China's rural economy was organized into people's communes that controlled all aspects of rural life. Government-owned institutions managed the circulation of agricultural products from farm gate to consumers and the century-old open marketing system was closed. Then, in the early 1980's, the government disbanded the commune system, allowed the old open marketing system to revive, and set up the household land contract system in which farm households were permitted to sign long term land contracts to cultivate specific plots. As long as farm households delivered specified quotas to local government-owned grain stations--thus paying their taxes and meeting government grain procurement requirements--the households were free to produce whatever they wanted and were permitted to sell their goods through local open markets. These reforms allowed farmers to be responsive to market signals. However, the government's Grain Bureau continued purchasing, transporting, storing, milling, and retailing grain, primarily to feed urban consumers. By the late 1980's, some of China's leaders found that this system had some severe drawbacks, namely that its operation required large transfers of money from the Ministry of Finance. Most importantly, while the central government raised the purchase price of grain to encourage farmers to produce more, the Grain Bureau retail shops in the urban areas continued to sell rice at low prices that had largely remained constant since the early 1960's. By the late 1980's, China's government found that over 20 percent of total national government revenues was used to finance the gap between the purchase and retail price of grain. Starting in 1992, the central government introduced market reforms to reduce the burden of the grain subsidies and to improve the economic efficiency of grain markets. By the end of 1993, these market reforms accelerated, as 28 out of 31 provinces began to phase out the grain ration system that allowed urban consumers to purchase grain at low fixed prices. Thus, to many observers it looked like China would steadily pursue an economic course based on free markets and comparative advantage. In 1993, the government even announced an increase in the fixed quota price for grain to close the gap with the open market price. ...But Reasserted Control Over Grain Markets in 1994 & 1995 From 1994 through 1996, in sharp contrast to the first years of the decade, the central government reasserted control over grain markets, veered away from the principle of production based on comparative advantage, and restricted grain market operations. Its policies emphasized market stabilization and urban food security. At present, it is not entirely clear why authorities changed course, but three reasons appear plausible. First, inflationary pressures in late 1993-early 1994 and a sharp rise in rice prices in 1994 undermined the government's resolve to carry out market reforms. While there may have been local rice imbalances, on a national basis there does not appear to have been a huge gap between demand and supply. A major factor underlying the general rise in prices was the large increase in the money supply, as the Ministry of Finance was required to issue more money to bail out inefficient state owned enterprises and to increase wages and bonuses to largely urban workers. In 1994 and 1995, anti-inflationary measures were instituted, including price controls. Price stability has always been important to China's central leaders, many of whom witnessed the devastation of hyperinflation at the end of World War II. When the objective of price stability came into conflict with raising farm incomes, China's leaders chose their traditional urban bias of pursuing price stability. Second, while rural reforms brought relatively rapid increases in grain production in the 1980's, the rate of increase slowed in the 1990's and leaders became concerned about the decrease in the area sown to grains, especially to rice. Third, in 1994 and 1995, analysts in and outside of China questioned the country's capacity to produce enough grain to meet growing consumption requirements. It is possible that these reports had a sobering effect on the central leaders, pushing them to limit market reforms and initiate the "governors' rice bag responsibility system," a policy designed to promote adequate supplies of domestic grain at provincial levels whenever possible. Current Policies Aim To Halt Drop in Grain Production In early 1995, the central government initiated a new grain policy in which provincial governors were given responsibility of maintaining the "rice bag." The "rice bag" policies apply to all grain crops--especially to wheat, corn, and rice. Under this policy, governors are responsible for: o stabilizing area sown to grains; o guaranteeing investment in inputs like chemical fertilizer to stimulate grain production; o guaranteeing that certain quantities of grain are put into stocks; o insuring that transfers of grain in and out of a province are completed; o stabilizing urban residents' concerns by supplying grains and edible oils; o stabilizing grain and edible oil prices; o controlling 70 to 80 percent of commercial grain sales; o developing means to control grain markets; o raising commercial sales as a share of grain sales; o controlling grain imports and exports; and o raising the level of grain self sufficiency. Provincial governors implement their rice bag responsibilities by having each county Grain Bureau draw up a total grain output and demand balance sheet. The county balance sheets are sent to the provincial Grain Bureau office, which estimates and plans grain transfers between deficit and surplus counties within the province. The governor then estimates the province's total grain output and demand and determines its surplus or deficit. These balance sheets are sent to the Ministry of Internal Trade, which organizes a national grain balance sheet to estimated potential grain transfers between provinces and to calculate potential grain exports and imports. If the province is grain-deficit, the governor must first attempt to increase supplies by stabilizing or increasing the area sown to grain (keeping in mind the overall agricultural development goals, i.e., livestock, cash crops, forestry, etc.), increasing inputs to raise yields, and/or providing subsidies to grain producers. Second, the province provides a list of the amounts and kinds of grains to be purchased domestically or imported. Third, the governor purchases domestic grain through wholesale markets or receives imported grain from the central government. If the province produces a grain surplus, the governor maintains surplus grain production to support grain sales to deficient provinces. With regard to natural disasters, local resources should be used first to offset any grain losses. If the local government cannot handle the situation, the State Administration for Grain Reserves provides assistance. The central government chose this course of action to reduce its financial exposure. Thus, the financial responsibility for managing grain and edible oil supply and demand balances has been transferred from the central government to provincial levels. To achieve these objectives, governors use their provincial Grain Bureaus, which perform both policy and commercial operations. Policy operations consist of purchasing grains (and oilseeds) at fixed quota prices (below market prices) and transporting, storing, milling, transferring, and retailing the grain. Losses incurred by the Grain Bureau while performing these operations are subsidized by the central government. For 1995, the central government planned to purchase 50 million tons of grain via this operation. Under the old grain and edible oil rationing system--operated from 1953 to 1993--urban families were issued coupon books that entitled them to purchase fixed quantities of grain and edible oils at low fixed prices from government-operated grain stores. In 1995, various provinces used different systems, such as grain books, grain coupons, or controlled markets, to help low-income families obtain low-priced grains in the government-owned grain stores. In making these purchases, low income families do not have a lot of consumer choices--they buy whatever is on the shelf--and the grain there tends to be older and of lower quality than grain sold elsewhere. Higher-income urban residents shop in open markets where the grain is fresher and of higher quality. "Rice Bag" Policy Aims At Self-Sufficiency The "governors' rice bag responsibility system" has operated for less than 2 years, hence little information has been published with which to evaluate its success. However, general observations can be made on the policy's effect on China's grain economy. First, the implementation of this policy indicates the government's emphasis on self-sufficiency, intervention and control of the grain economy, and reassertion of its old objectives to support its urban constituents. And in a like manner, it indicates a turning away from emphasis on comparative advantage in production decisions, economic efficiency, participation in world grain markets, open domestic markets, and a return to the old policy of relative neglect of the agricultural economy. Second, by using government administrative measures, local authorities were able to halt the downward trend of area sown to grains. Plantings for all grains in 1995 increased 516,000 hectares from 1994. Third, this policy encouraged local leaders to pay increased attention to grain production in 1995 and 1996, led to greater government investment in the grain economy, and saw total grain production rise from 445 million metric tons in 1994 to 467 million in 1995 and to a projected record 480 million this year. Fourth, again by using administrative measures, government authorities were able to halt increases in grain prices and stabilize grain markets. Fifth, in 1995 and 1996 China's participation in international grain trade decreased. In marketing year 1994/95, China imported 18 million tons of grain and exported 1.6 million. But in 1995/96, China imported 16.2 million tons and exported 720,000 tons. In 1996/97 China is projected to import 14.8 million tons and export 780,000 tons. Special Article China's Rice Economy Segmented into Distinct Markets by Frederick W. Crook 1/ Abstract: For decades China's rice economy has been treated as one market. Yet China produces many different kinds of rice, with little substitution between them among growers and consumers. To account for this market segmentation, China's rice economy is divided into four distinct crops based on data from China's Ministry of Agriculture. First, there are two japonica crops, one produced in the north and the other in the south. Second there are two indica crops--both grown in the south--with one produced early in the season and one produced late. Indica accounts for 73 percent of China's total rice production, with japonica making up most of the remainder. Japonica prices are typically higher than for indica, with the northern japonica crop--the smallest of four--highly prized among consumers. Keywords: Indica, japonica, hybrid varieties, imports, exports, An important characteristic of China's rice economy--and because of China's size the world rice market--is its great diversity. Specifically, China produces many different kinds of rice such as: glutinous, non-glutinous, short- medium- and long-grain, and purple, red, white, and black rice varieties. Little substitution between these distinct rices occurs among growers or consumers. As such, analyzing China's rice economy as a single market yields little viable information. So today, many analysts view China's rice economy not as one market, but as a set of specific markets. 1/ Agricultural economist, Commercial Agriculture Division, Economic Research Service. This article focuses on China's top four rice crops, which, in addition to accounting for the vast majority of the country's production, have--and will continue to have--a significant bearing on world trade. First, there are two japonica crops, one produced in the north and one produced in the Yangzi River Valley. The japonica variety is the preferred rice in northern China as well as in North and South Korea, Japan, and Taiwan. There are two indica crops, one produced early in the season and one produced late. Both indica crops are grown in the south. The indica variety is the preferred rice there as well as across most of southeast Asia and India. In all of China, indica accounts for almost 73 percent of production and japonica accounts for most of the remainder. An examination of 20 months of market prices for China's rice crops-- o early indica, o single and late crop indica, and o japonica (no distinction was made between northern and Yangzi valley japonica prices) --provides insights into the relative supply and demand situation of these markets. Market prices for the early crop indica generally have been the lowest among the rice crops. Prices for the early crop fell from US$210 per ton in January 1995 to US$195 per ton in August 1996. Market prices for single and late crop indica are generally below prices for japonica and above prices for the early Indica. Prices for japonica rice are generally above the other two rice crops and rose steadily from US$213 per ton in January 1995 to US$241 in August 1996. Indica Accounts for Three-Fourths of China's Rice Crop Early indica crop In 1986, the early rice crop accounted for almost 30 percent of China's total rice area, but in the past decade farmers have steadily planted less early crop, with area dropping to 26.7 percent of total rice area by 1995. The crop is planted in March and April, harvested from June through August, and is grown primarily in southern provinces such as Guangdong, Guangxi, Hunan, Jiangsi, and Zhejiang. While hybrid varieties account for a large portion of the planted area due to their high yields, the low quality of the rice produced by these varieties is increasingly not preferred by consumers. Much of the crop is sold to the state under fixed quota prices. Many believe that this is the variety that the Grain Bureaus in south China deliver to their shops in urban areas for sale to the poor. In addition, it is believed that a large portion of China's stocks are composed of this type of rice and that farmers feed a good share of it to livestock. China imports very little early hybrid rice, but does export some to Cuba, Africa, and Eastern Europe. For 1996, the early rice crop is estimated to have been 44 million tons, up about 2 million tons from the year before. With the bigger 1996 crop and relatively large stocks and little change in market prices, farmers are not expected to expand early rice crop plantings in 1997. However, provincial governors may use their administrative powers under the "rice bag responsibility system" --see first Special Article--to pressure farmers to grow more early crop rice. Single and late indica crop This crop is composed of single season varieties planted from April through June and harvested from August through October, plus a late double crop which is planted in June and July and harvested in October and November. In 1995 this crop was China's largest rice crop, accounting for nearly 47 percent of area sown to rice. Both urban and rural residents prefer this crop over the early rice crop. A higher percentage of this crop is consumed as table rice and a much lower share is used as feed or for other purposes. A large portion of China's rice exports to Hong Kong, Africa, the Middle East, Cuba, and Europe likely come from this crop. Recent data indicate China's internal market prices for single and late crop indica rice are substantially below the Thai trading price. The government raised its fixed quota price for this crop in 1996 to narrow the gap between fixed quota and market prices. Japonica Rice Carries Price Premium in China Northern japonica crop The northern japonica rice crop is planted from April through June and harvested from August through October. This crop is planted in provinces on the north China plain, including Henan, Shandong, Hebei; in the northwest, including Shanxi, Shaanxi, Gansu, Inner Mongolia Autonomous Region, Ningxia, Gansu and Xinjiang; in Manchuria; and Heilongjiang (as far north as the city of Tongjiang). This rice crop is the smallest in China, accounting for just over 9 percent of total area sown to rice. Northern japonica is highly prized among consumers partly because it offers culinary diversity among a largely staple grain diet of wheat, corn, millet, sorghum, barley, oats, buckwheat, and both Irish and sweet potatoes. Area sown to northern japonica expanded 20 percent from 1986 to 2.88 million hectares in 1995. Demand for this rice crop is high and growing, but expansion of production is limited by scarce water resources, early frosts, and a short growing season. Farmers in the north typically plant rice wherever they have a stable water supply. It is estimated that a very large portion of the crop is consumed as table rice and very little goes to feed and other uses. And because demand for this rice crop is quite high, stocks are estimated to be relatively small. No japonica is imported except very small quantities from North Korea, where corn is bartered for japonica rice. Likewise, not much of the crop is exported. The japonica consuming countries of Japan, South Korea and Taiwan have trade regimes that severely limit rice imports. These trade regimes and high internal demand for northern japonica rice in China account for the constrained exports. Japanese companies are currently working in China to produce northern japonica rice for the Japanese market. In 1994, Japan imported about 1 million tons of rice from China, of which about 40 percent came from northern China and the remainder came from the much larger single and late japonica crops produced in the Yangzi River valley. Single and late crop japonica This rice crop is planted from April through June and harvested from August through November. It is grown primarily in the Yangzi river valley, including the provinces of Sichuan, Hubei, Hunan, Anhui, Jiangsu, and Zhejiang. Smaller areas are also planted in Yunnan, Guizhou, Jiangxi, and Fujian. In 1995, this japonica crop accounted for about 17 percent of total area sown to rice in China. The northern crop accounts for an estimated 37 percent of China's total japonica crop, while 63 percent of the output comes from the single and late japonica crop. The demand for this rice is also great because the large populations living in north and central China prefer japonica rice. Generally, demand exceeds supply for this crop, so only a very small quantity is used as feed and for other purposes, and little is in state-owned stocks. An examination of China's import data indicates little, if any, japonica rice is imported. And except for shipments to Japan in 1993 and 1994, hardly any of China's japonica rice is exported. In 1993 an estimated 678,000 tons of single and late japonica rice were exported to Japan. This is based on the fact that while the Japanese firms prefer northern japonica rice, the crop is so small that to come up with exports of nearly 1.1 million tons of japonica, much of the exported japonica must have come from the larger single and late crop. Little Change in China's Rice Crop Expected for 1996... China's 1996 rice area is forecast to remain near last year's 31 million hectares. The stability is due to the tendency to decrease rice area in favor of more profitable uses such as raising vegetables, fruits, and cash crops. Stability also stems from the government's "rice bag" policy that requires provincial governors to maintain area sown to grain. Paddy rice output for 1996 is forecast at 188.6 million tons, up nearly 2 percent from last year. Government increases in the fixed quota prices for the various rice crops should boost growers' enthusiasm for planting rice in 1997. The government raised the fixed quota price from around US$130 per ton in December 1995 to US$160 per ton in June 1996. This increase narrowed the gap between the fixed quota price and the open market price. The government raised the fixed quota price for japonica from US$132 in December 1995 to US$160 by June 1996. Government measures are expected insure an increase in inputs. Fertilizer imports in 1995 and 1996 were up from 1994 and the governors' "rice bag" policy pushed local authorities to ensure that input supplies reached farmers. However, heavy rains in south China this June and July, and typhoons in September may have reduced 1996 rice yields. Rice imports are forecast to increase from 850,000 tons in 1996 to 1 million tons in 1997. High-quality indica varieties, destined for high-income urban consumers, are forecast to be imported from Thailand. Lower-quality indica varieties for the urban poor likely will be imported from Vietnam. China's rice exports dropped sharply from 1.5 million in 1994 to 32,000 tons in 1995, rose to 300,000 tons in 1996, and are expected to decrease to 250,000 tons for 1997. For 1995, some single and late crop indica rice is estimated to have been exported, as well as minor quantities of northern japonica shipped to Japan. China's Rice Imports To Show Steady Increase China's rice output is projected to decrease 0.1 percent a year through 2005. Area sown to paddy likely will decrease because returns from rice cultivation are projected to be lower than for other uses. However, yields are expected to increase slightly each year. These two effects are projected to lead to slightly smaller crops. China's rice exports are projected to decrease very slightly during the same period due to rising domestic demand for both indica and japonica varieties. China is expected to export around 400,000 tons annually through 2005. Most of these exports will be japonica rice to East Asian neighbors, but it is also possible that China could ship some lower quality rice to Asian, African, and European markets. For China, it will be imports that show the greatest change over the next 9 years. Imports are projected to increase at an annual average rate of 2.2 percent, rising from 900,000 tons in 1996/97 to 1.1 million tons in 2005/06. Higher rice imports will largely be driven by rising urban incomes that lead consumers to demand more diverse diets that include high quality rice. China's rice imports will also include some poorer quality rice for lower-income consumers in big cities. Consumers in urban areas are eating less rice and more meat, fruits, vegetables, and wheat products than previously. High-income urban residents tend to shop for their rice in open markets at free market prices where they can purchase both fresh domestic and imported varieties. Poorer urban residents had difficulties purchasing any rice in 1994 because of the rapid increases in price. In mid-1994, the government responded to surging rice prices by reinstituting rationing for the urban poor. The government supplied fixed quantities of lower quality rice at below-market prices. China has been importing both low and high quality rices to supply two very different markets in urban areas. Data from China's 1993 State Statistical Bureau survey of urban income and expenditures show that households whose incomes ranked in the top 10 percent of all China's families had 3.6 times more income than those ranking in the lowest 10 percent. But the difference in rice consumption between the two income groups was much smaller. Consumers in the top 10 percent ate just over 56 kilograms of milled rice per year, compared with 52 kilograms for those in the lowest 10 percent. Rice consumption trends in China parallel those in South Korea and Japan, where overall levels are stagnant or falling and per capita consumption is declining. China's consumers appear to be following in the footsteps of their East Asian neighbors: As per capita incomes rise and more foodstuffs are available domestically and from foreign suppliers, families tend eat less rice and more wheat products, meats, fruits, and vegetables. Special Article Limits to Vietnam's Rice Exports by Tina Valdeca¤as 1/ Abstract: Policy changes since the late 1980's aimed at creating freer internal markets and opening Vietnam to world markets have allowed the country to once again be a major world rice exporter. Today, Vietnam ranks behind only Thailand and India in annual export volume, with trade projected at a record 3 million tons this year. However, several factors will limit future export growth including: increased domestic demand, lack of available land for rice cultivation, aging farm and milling infrastructure, and the government's continued commitment to food security. Keywords: Reform, exports, policy, land use, infrastructure, credit In the 7 years since Vietnam's economic reform program came into full swing, the country has experienced dramatic improvements in various sectors, one of which is rice. Prior to World War II, Vietnam was one of the top three rice exporting countries--along with Burma and Thailand. But a bitter struggle for independence and unification, and rigid state planning severely reduced Vietnam's ability to export any rice at all. 1/ Agricultural economist, Commercial Agriculture Division, Economic Research Service. A rice importer until 1989, Vietnam is projected to be the world's third largest rice exporter in 1996, behind Thailand and India, and ahead of the United States. Vietnam's rice exports have exceeded 2 million tons since 1994, and are projected to be 3 million in 1996 and almost 3 million next year. Vietnam currently accounts for over 15 percent of world rice trade. However, government policies--and increasing constraints on available resources--will limit Vietnam's role in the international rice market. Concerns over adequate rice supplies for domestic use and lack of capital to make needed on-farm and infrastructure improvements will be the main obstacles to any further significant increase in the country's rice exports. Although Vietnam will remain a major player in the international rice market, it has limited ability to compete with Thailand or the United States in the higher quality rice markets. Like many Asian countries, Vietnam places a high priority on being able to produce enough rice to feed its population. Production of rice, the country's most important food staple, has been a central factor in determining Vietnam's food policies. Since the reunification of the country in 1975, the government has encouraged rice production through assigned production targets, lower taxes, and public investment in irrigation and other targeted infrastructure projects. Historically, rice has accounted for 80-90 percent of total area under cultivation, and more than 88 percent of Vietnam's food production. 1980's Reforms Key to Export Growth Vietnam's doi moi (renovation) program has been the major cause of Vietnam's return as a major rice exporter. Initiated in the early 1980's, the renovation policy accelerated toward the end of the decade as Vietnam lost the financial support of the former Soviet Union. Besides opening the country's economy to the rest of the world, the doi moi program included drastic reforms in the rural sector, most importantly allowing farmers to lease their land and giving them significant autonomy in production decisions. Benefiting from the price and market liberalization throughout the economy, agricultural output grew from 1.5 to 12.4 percent a year over the past 15 years. Although production increases were quite dramatic for some other commodities, rice remained the dominant factor in the overall growth of agricultural output. Prior to the doi moi program, farmers were required to remit the majority of their rice production back to the state. Of the portion that remained, whatever was not consumed was usually stored as personal stocks since there was no domestic market for rice sales. For its part, the government allocated the procured rice to individuals based on their age and occupation. In contrast, since 1989 farmers have been allowed to make production decisions and sell privately held stocks. Between the mid-1980's and the early 1990's, Vietnam went from importing approximately 500,000 tons of rice a year to exporting 1.5 million tons. This jump was in part due to increased production but also due to the releasing of the previously privately held stocks. Land under rice cultivation has remained stable for the last few years. In 1994, 22 percent of Vietnam's total land area was under cultivation. Rice accounted for 86 percent, 6.7 million hectares, of the cultivated area, with yields estimated at 3.6 metric tons per hectare. Two million hectares of the riceland are irrigated, with two-thirds of all irrigated land in the country concentrated in the Mekong and Red River deltas. The Mekong delta, located in the southern part of Vietnam, is the country's largest rice producing area, accounting for more than 45 percent of total land used for rice production and 50 percent of output. The Red River delta- located in the north- accounts for 16 percent of total rice producing area and 15 percent of output. The Central Coastal province constitutes 19 percent of total rice land and 17 percent of total output. Vietnam has three main paddy seasons per year: rainy-season, winter-spring, and summer-autumn. The winter-spring and summer-autumn crops are mainly grown under irrigation, while the rainy-season (or 10-month) crops must rely on the seasonal monsoons. Not every region can take advantage of all three seasons the Red River and Mekong deltas produce only winter-spring and summer-autumn crops. Rice is harvested throughout the year in Vietnam. Multiple Cropping Accounts for Early Production Growth The initial expansion in Vietnam's rice output after reforms began was achieved primarily through more intensive cropping and greater use of fertilizers. By planting higher-yielding varieties with shorter growing seasons and expanding irrigation, farmers were able to increase yields from an average of 2.6 metric tons per hectare in 1987, to 3.6 metric tons in 1995. Many farmers shifted out of the low-yielding 10-month crop and into winter-spring and summer-autumn varieties. While production of the 10-month crop has remained relatively steady, the winter-spring and summer-autumn crops now account for a larger share of the country's total rice output. Despite some shifting of land away from rice farming into industrial uses or into cash crops--mainly in the northwest where farmland is poorly suited to rice production--rice output has increased steadily. In 1995/96, the rice harvest was 24.8 million tons (paddy)--a record at the time--and in 1996/97 output is forecast to be just short of 26 million tons. To encourage further production gains, the government has proposed lowering the land tax imposed on rice farmers. In addition, Hanoi has initiated projects to modernize the country's irrigation system and milling facilities to increase output and improve quality. Since becoming a net exporter of rice again in 1989, Vietnam's share of the world rice market has increased from just 9 percent to over 15 percent in 1996. Because the quality of Vietnam's rice remains low compared to that of the United States, Vietnam does not compete on a large scale with the United States in world markets and has exported only small quantities to the United States. For now, Vietnam's niche in the international rice market is firmly in the lower quality varieties. Vietnam tends to be an aggressive price setter on the world market, often offering significant discounts to competing low-quality Thai exports. However, Vietnam's rice exports are limited by the government-imposed rice export quota. The quota is set semiannually based on projected harvest, international market conditions, and expected domestic demand. Because the government-sponsored trading companies have been selective in acquiring rice stocks for export--leaving the lower quality for domestic consumption--the quality of Vietnamese rice exports has been increasing. In its first years back as a rice exporter, Vietnam's principal markets were Latin America and the Middle East. As the quality of its exportable rice improved, Vietnam was able to ship to more quality-conscious markets, such as China and Iran. By 1993, 65 percent of Vietnam's rice exports contained less than 20 percent brokens--a measure of quality. Vietnam has also improved its reputation on the world market by reneging on fewer contracts and making timely deliveries--although poor milling capacity and transportation links continue to hamper efforts. Policy, Population Growth Limit Export Expansion Vietnam's ability to further increase its rice trade depends upon government policies, increased irrigation acreage, implementation of new technologies, improved milling facilities, and better domestic transportation. At the same time, demographic and income changes will likely increase domestic rice consumption, reducing the overall availability of Vietnam's export supplies. Government policy Regardless of technical advances, the most important factor limiting Vietnam's rice export potential will be the government's adherence to its rice self-sufficiency policy. To ensure the country has adequate supplies of rice at stable prices, the government maintains close control over rice exports. Although Vietnam currently has more than adequate supplies to meet domestic demand, poor infrastructure and weak transportation links often hinder distribution. In addition, about 7 percent of its rough rice destined for domestic consumption is lost to waste each year. Inadequate storage and milling facilities also create problems. Many of the more remote areas often face rice shortages or cannot afford to buy rice due to high prices. To avoid food shortages, the government has employed various programs to control rice supplies. In the past, it has set minimum export prices and established quotas on the amount of rice that can be exported. The government has often revised the initial quota contingent upon perceived fulfillment of domestic needs and after actual crop harvests. In 1995, the government further restricted rice trade by giving two state enterprises --Vinafood I and Vinafood II--sole responsibility for 80 percent of the country's rice exports, although the efforts of these enterprises have been thwarted by large-scale unofficial shipments to China. Hanoi has used a rice export quota as the main tool for controlling rice exports for the past few years. The Ministry of Trade sets the quota twice each year, and both branches of Vinafood are responsible for distributing the quota among local mills. The quota was initially set at roughly 2.5 million tons in 1996, but was raised to 3 million tons by the second half of the year. The rice export quota for 1997 is expected to be set at similarly high levels. In controlling rice exports, the government also addresses another economic goal--controlling inflation. Annual inflation reached an estimated 14 percent in 1995, with food costs rising an estimated 20 percent. Because rice remains the main food staple in the country, increasing domestic rice supplies should dampen inflationary pressures, especially in urban and rice-deficit areas. Because a large release of Vietnamese rice exports would probably cause world rice prices to drop, the government is likely to prefer holding large quantities of rice for domestic consumption to keep domestic prices low while simultaneously improving the price received for its exports. Increased domestic demand In addition to government controls on rice exports, demographic changes and economic constraints will temper any large increases in Vietnam's exportable rice supplies. Vietnam has a young population--in 1993 more than half the population was under 25 years old--and population growth is forecast at nearly 2 percent a year. Given this growth, the government projects that domestic food consumption will increase 2.5 percent annually. Although per capita income for the entire country is increasing, the World Bank reports it averaged just $220 in 1995 for the entire country and $100 in rural areas. Given that the vast majority of Vietnam's population lives in rural areas and has yet to obtain the income levels of urban dwellers, rice should continue to make up a large portion of the increased food demand, as dietary preferences shift out of tubers and into rice, at least for this portion of the Vietnamese population. Moreover, as demand for meat products increases, demand for rice will also likely increase since broken rice is often used as livestock feed. Land use In addition to increased domestic demand, future production will also likely be constrained by the lack of available land for rice cultivation. Most of Vietnam's arable land suitable for rice production is already under cultivation, so any major expansion of riceland will have to include land currently producing other crops or land not conducive to growing rice. Some additional land in the Mekong and Red River deltas and the coastal plains could be reclaimed and used for rice production. However, the costs of irrigating this land could be prohibitively high. Government programs to encourage crop diversification usually aim at increasing the output of other crops as well as rice. However, cultivation of other crops may be to the detriment of existing rice crops since a farmer would no longer be able to devote full attention or resources to rice production. Aging farm capital Another problem facing Vietnam's rice sector centers around credit availability and the quality of the country's infrastructure. Although overall rice output has increased, greater use of fertilizers and higher yielding varieties were mainly responsible. So if land under cultivation remains constant or even decreases, the remaining land will have to be farmed more efficiently if current levels of production are to be maintained. Historically, the rice sector has benefited from high levels of government investment. With economic liberalization of the agricultural sector, however, farmers are now responsible for most on-farm investments, yet few have the resources to finance these improvements. Similarly, off-farm concerns, such as improving and expanding irrigation facilities and increasing storing and milling capacity, have been neglected due to lack of funds. Unless existing irrigation and drainage systems are improved, the World Bank estimates that yields are unlikely to rise much above current levels, severely constraining the country's ability to increase exports after meeting growing domestic demand. For its part, the government has taken steps to increase the amount of irrigated land and improve irrigation facilities. Several of the state-sponsored projects under the current 5-year plan (1996-2000) focus on water conservation strategies. However, as production of other crops and industrialization continue to expand, Vietnam's rice farmers will have to compete with other interests for the country's water resources. Lack of credit for on-farm improvements adds to the difficulty in modernizing current equipment. Many farmers cannot afford to upgrade their farm operations, and Vietnam's banking system is not yet mature enough to finance most individual farm needs. Although the Vietnam Bank of Agriculture and the Bank of the Poor exist primarily to serve rural credit needs, a government survey in 1993 revealed that 90 percent of all farmers believe they do not have adequate access to credit. In 1994, only 30 percent of farmers' credit needs were met by the government-sponsored banks. The average interest rate was reported to be between 18 and 20.4 percent per year. Other barriers Finally, Vietnamese farmers' push to increase output has likewise had environmental consequences that will affect future export possibilities. For example, studies by the United Nations' Food and Agriculture Organization indicate that as farmers have concentrated on maximizing production, little attention has been given to improving the country's seed base. In addition, because they have been so intent on boosting production, few farmers in Vietnam employ methods such as crop rotation to replenish soils. Recent legislation to encourage the formation of agricultural cooperatives many contribute to improved conservation measures since with pooled resources farmers may be more willing to fallow some fields. Despite government controls and increased domestic demand, Vietnam will likely remain a major actor in international rice markets. The country's ability to modernize its rice sector will be the key determinant of the extent to which the quality and reliability of the exports increase. However, population growth and the government's commitment to food security will limit export growth. BEGIN SPECIAL ARTICLE BOX The Reform Program Faced with decreased aid from the former Soviet Union, high inflation, and stagnating food production, the government of Vietnam accelerated its doi moi (renovation) program in the late 1980's. The doi moi program opened the country's economy to international trade and investment, and instituted market mechanisms to replace various forms of central planning. Although the reform program technically began in 1982, true changes in the structure of the economy did not begin until 1989. Unlike earlier attempts at reform, the doi moi program of the late 1980's took steps to address fundamental flaws of the economy. In addition to rationalizing prices in an attempt to control inflation, the government gave households more say-so in their production decisions, decentralized the state monopoly in most industries, and replaced the centrally planned economy with what has been labeled a "multi-sector, socialist-oriented commodity economy" which tries to wed market mechanisms with strong government controls. Results Thus Far In the 7 years since Vietnam's economic reform program came into full swing, the country's overall economic growth has averaged more than 8 percent per year. Last year, the country exported over $5.3 billion in goods and imported $7.5 billion. By the end of 1995, $820 million of investment capital was committed to Vietnam. The government of Vietnam has been able to control the country's debt level and lower inflation to 12-15 percent per year from nearly 70 percent in 1990. More improvement is needed in liberalizing the country's financial sector. However, the level of credit available to individual households has increased some. Despite efforts to increase the tax base and improve collection efforts, the government debt increased in 1995 to 5.5 percent of gross domestic product (GDP), up from 2.4 percent in 1994. Most government expenditures went towards improving infrastructure and for social spending, although outlays to state-owned enterprises were also substantial. The Asian Development Bank estimates that unemployment in 1995 remained approximately 6 percent for the entire country. Rapid industrialization and urbanization aside, Vietnam remains a predominantly rural economy. According to the General Statistics Office of Vietnam, 80 percent of the population resides in rural areas. Although agricultural output as a share of total GDP has steadily decreased over the last several years, it still accounts for approximately 40 percent of all output. Total grain production was estimated at 27.5 million tons in 1995. During the same period, total output for all crops increased 5.5 percent, while livestock production rose 6 percent. Aquaculture production has also risen in recent years, growing 3.2 percent between 1993 and 1994. END BOX Special Article Using Futures To Predict Farm Prices by Linwood Hoffman 1/ Abstract: Futures prices are used to forecast season-average farm prices for U.S. rough rice. A historical monthly average basis is first computed, and then subtracted from the nearby futures price to yield a monthly farm price forecast for each month of the crop year. The 12 monthly price forecasts are then multiplied by their historic market weights and summed to produce a season-average farm price forecast. Instead of using a 5-year average for the basis and marketing weights, a specific year's basis and marketing weights can be used to more accurately reflect actual market conditions for a selected year. Despite increased price variability during crop years 1993/94 and 1994/95, the "futures method" provides timely and reasonable forecasts of season-average farm prices for rough rice. Keywords: Basis, rice, futures prices, futures forecast, season-average prices Interest among producers, processors, and policymakers in forecasting farm prices for rough rice during the 1995/96 crop year (August-July) rose dramatically as USDA's price projection for 1995/96 climbed from $7 per cwt in May 1995, to $9.10 by July 1996. Forecasting prices has become even more important due to changes in U.S. agricultural policy--ushered in by the 1996 farm act--that have significantly altered the rice program, shifting much of the price risk to producers. And it is producers' price expectations that largely influence planting decisions, which, in turn, affect supply and prices. Price forecasts also are important to policymakers who often have to assess the impacts of domestic or international events upon rice farm prices. 1/ Agricultural economist, Commercial Agriculture Division, Economic Research Service. Price changes stem from various factors--such as weather, international trade policy, and government decisions---that affect the supply and demand for a particular commodity. As such, price forecasts should be based on expected supply and demand conditions. Futures prices are considered by most to be a composite indicator of expected supply and demand, and thus can be used to forecast price movements. While current futures contracts provide information about expected cash prices in the future, participants in the futures market need to be able to forecast a price at a specific location and time when they plan to buy or sell a particular commodity. To do this they estimate the "basis," or the difference between the local cash price and the futures price at a particular location and time. Similarly, in making decisions about farm programs, policymakers want accurate forecasts of a national season-average farm price. One of the difficulties in using futures prices to forecast season-average rough rice prices at the farm is that the futures price is for a #2 or better rough basis long grain rice, but the farm price consists of long, medium and short grain rice. However, despite this situation, rice futures prices--adjusted for time and location using a 5-year average basis and monthly marketing weights--provided a reasonable forecast of producers' season-average rough rice price during the 1990/91 crop year. The mean absolute percentage error for the futures forecast was 3.3 percent, compared with 2.2 percent in USDA's World Agricultural Supply and Demand Estimates (WASDE). Since this forecast, analyses have shown that rice farm prices can be forecast more accurately when a basis and/or marketing weights for a particular crop year are used rather than a 5-year average. Such a procedure tries to match the basis from a given crop year that is representative of a given set of supply and demand conditions to a particular forecast year. For example, if the analyst anticipates a drought in the forecast year, the basis for a past year in which there was a drought should be considered in computing the basis. This article describers the methodology used in forecasting season-average rice prices with futures. Then, monthly updates of season-average price forecasts are presented for the 1996/97 crop year. Finally, forecast accuracy is examined for crop years 1991/92 through 1995/96. To assess accuracy, forecasts are compared with the actual season-average price and with USDA's monthly season-average price forecast reported in the WASDE. Forecasting Method Forecasts are made for monthly average cash prices received by farmers for each month of the crop year starting with August. Each month's price forecast is based on the current futures price for the nearest contract maturing after the month being forecast (referred to as the "nearby futures contract"). Each month's price forecast is obtained by adding a historical average-price difference--a "basis" (cash price minus futures price)--to the nearby futures price. Each monthly price forecast is then weighted by its historic share of annual sales. These weighted monthly price forecasts are then summed to yield a weighted season-average price forecast. The difference between a cash price at a specific location and the price of a particular futures contract is known as the basis. The basis tends to be more stable or predictable than either the cash price or futures price. Several factors explain the basis, including: local supply and demand conditions for the commodity and its substitutes, handling costs, transportation costs and bottlenecks, availability and cost of storage space, and market expectations. The basis used in this analysis is a composite of these factors and represents an average of U.S. conditions. This basis is defined as the difference between the monthly U.S. average cash price received by farmers and the nearby futures settlement price. For example, the August basis is the difference between the August average cash price received by farmers and August's average settlement price of the September futures contract. Monthly marketings are used to construct a weighted season-average farm price. The monthly prices, actual or forecast, are multiplied by each month's weight to estimate the season-average price. Historical daily settlement prices for crop years 1986 to 1996 are obtained from the Commodity Futures Trading Commission for each rice contract traded on the Chicago Rice and Cotton Exchange. Cash prices and weights for monthly marketings are from USDA's Agricultural Prices. Procedure This method can forecast season-average farm prices based on futures quotes for any given time period. A monthly estimate is computed to forecast the season-average rough rice price for crop year 1995/96. A monthly futures settlement price, observed on the day after the release of each month's WASDE, is used for each of the contracts that contribute to the forecast. Five steps are involved in the forecast process (table 1). 1. The latest available futures settlement prices are collected for the contracts that are trading. Settlement prices for Wednesday, November 13, 1996, are used for illustration. Futures quotes are used for January, March, May, July, and September 1997 contract settlement prices. Actual monthly prices received are available and used for August 1996 through October 1996. 2. Monthly futures prices are the settlement prices of the nearby contracts. For example, the November 13, 1996 settlement price of the January 1997 contract represents the November 1996 futures price. The nearby (March) contract price is now used for January because during any contract-close month the nearby contract has greater stability than the contract-close month (January), as contract liquidity decreases during the delivery month. Also, the contracts usually close about the third week of the month, which would reduce the number of observations that could be used to calculate the average monthly closing price. 3. Monthly average farm prices are forecast by adding the basis (cash price minus futures price) to the monthly futures price. 4. Actual monthly farm prices replace forecasts as they become available. When this 1996/97 forecast was made in June 1996, all 12 monthly prices were forecasts, since no actual prices existed for August to July 1997. 5. The actual and forecast farm prices--multiplied by appropriate marketing weight--are summed yielding a season-average farm price. Futures Method Forecast of Season Average Cash Price for 1996/97 Crop Year The initial forecast for the crop year was made on June 13, 1996, and was $9.61 per cwt, $1.11 above the June 1996 WASDE projection for 1996/97 and $0.52 above 1995/96's season-average price. Prices are expected to remain strong in 1996/97 because of strong world import demand for high quality rice and steady expansion in the domestic market. U.S. rice supplies are projected to be 206.7 million cwt in 1996/97, with long grain accounting for a 6-percent decline in production from 1995/96 and combined medium and short grain claiming a 7-percent production rise. U.S. rice use is expected to total 181.1 million cwt in 1996/97, down from last year's 187.7. Exports are expected to account for all of the decline in use, offsetting continued strong growth in the domestic market. Long grain exports are projected to drop 17 percent, while medium grain exports are projected to increase 16 percent from 1995/96. Season-average price forecasts are based on expectations reflected in the futures market and, when available, actual farm prices. As of November 13, 1996, the futures method--which used three actual monthly prices and nine monthly price forecasts --projected the 1996/97 season-average farm price of rough rice to be $10.12 per cwt, compared with the $8.75-$9.75 season average price projection in the November WASDE. Prices Forecast from Futures Compare with WASDE Projections Two methods were used to evaluate the accuracy of forecasts using the futures method for crop years 1991/92 through 1994/95. First, for both the futures method and WASDE forecast, a monthly percentage error was computed between the monthly forecast and actual season-average farm price and a mean absolute percentage error was computed for the crop year (table 2). Second, the futures method season-average forecast was compared with the WASDE price projection. Because the WASDE numbers are released monthly, the futures season-average price forecast was computed on a monthly basis. The midpoint of the WASDE projected price range is used to represent the WASDE forecast. The monthly price derived from the futures forecast uses the settlement price on the day after the WASDE is released. Crop year 1991/92. The U.S. season-average farm price for rough rice was estimated to be $7.53 per cwt for 1991/92, the highest since the marketing loan went into effect in 1985/86, and up from $6.70 in 1990/91. Higher world prices and a large U.S. price premium over Thai rice of similar quality contributed to higher U.S. prices. In addition, large purchases of U.S. rough rice by Brazil and Mexico added price strength. Reduced U.S. supplies in 1991/92 and expectations that strong domestic and export demand would strengthen prices later in the year convinced farmers to delay selling a large portion of their rice. When these expectations were not realized and exports faltered, prices fell. The mean absolute percentage error for the futures forecast was 2.3 percent for the 1991/92 crop year, compared with 3.7 percent for the WASDE. Based on this measure, the futures forecast performed slightly better than the WASDE projection. Based on the monthly percentage error during crop year 1991/92, the futures forecast performed better than the WASDE projection. For example, the futures forecast had the lowest percentage error in 10 out of 14 monthly forecasts, while the WASDE projection had the lowest percentage error in 4 out of 14 monthly projections. Crop Year 1992/93. In 1992/93, U.S. rice supplies were up 13.5 percent from a year earlier, reaching nearly 213 million cwt. This was the highest since 1986/87 when large beginning stocks elevated supplies. In 1992/93 near-record U.S. production boosted supplies. Large U.S. rice supplies in 1992/93 and a substantial drop in international prices put downward pressure on U.S. rough rice prices throughout the year. And production by Asian exporters was up sharply from a year earlier, further weakening U.S. competitiveness. Farm level prices dipped to $5.90 per cwt, well below 1991/92's $7.58. Except for 1986/87, the season-average price had not been this low since the early 1970's. The mean absolute percentage error for the futures forecast for 1992/93 was 9.8 percent, compared to 8.2 percent for the WASDE, indicating the futures forecast did not perform as well as the WASDE projection. The WASDE projection was superior based on the monthly percentage error as well. The futures forecast had the lowest percentage error in 5 out of 14 monthly forecasts, while the WASDE projection had the lowest percentage error in 9 out of 14 monthly projections. Crop Year 1993/94. The season-average farm price was $7.98 per cwt, up dramatically from $5.89 in 1992/93. Upward pressure on U.S. rice prices was accompanied by a tight stocks-to-use ratio of 14.7 percent, the smallest since 1974/75. Stronger world rice prices also supported higher U.S. prices. World prices escalated in response to increased world trade, largely due to substantial imports by Japan. However, strong domestic and export demand for U.S. rice relative to available supplies strengthened the U.S. premium and reduced exports to some price-sensitive markets in Latin American and the Caribbean. The mean absolute percentage error for the futures forecast was 14.8 percent, compared with 14.6 percent for the WASDE, indicating the futures method and WASDE projection performed equally. Based on the monthly percentage error, the futures forecast performed slightly better than the WASDE projection, with the futures forecast having the lowest percentage error in 8 out of 14 monthly forecasts. Crop Year 1994/95. The season-average farm price for U.S. rice in 1994/95 was $6.75 per cwt, down from $7.98 a year earlier. Record U.S. production and prospects for large ending stocks maintained pressure on U.S. rice prices. However, record world import demand raised world prices throughout the marketing year, closing the U.S. price premium and producing record U.S. rice exports. Substantial imports of Asian rice by Indonesia and China limited any Asian shipments to the Western Hemisphere, while a small U.S. price premium opened price-sensitive markets in Latin America and the Caribbean to U.S. rice. The mean absolute percentage error for the futures forecast was 6.2 percent for the 1994/95 crop year, roughly equal to the WASDE's 6.8 percent. Based on the monthly percentage error during crop year 1994/95, the futures forecast did not perform as well as the WASDE projection. The futures forecast had the lowest percentage error in just 6 out of 14 monthly forecasts. Crop Year 1995/96. The season-average farm price for U.S. rice in 1995/96 was $9.09 per cwt, down from $6.98 a year earlier. Prices were expected to rise in 1995/96 because of tighter U.S. supplies--primarily due to reduced production that resulted from a 5-percent Acreage Reduction Program as well as the impact of lower expected prices on producers' production decisions--and a strong domestic demand. U.S. rice use was 187.7 million cwt for 1995/96, down 9.3 million cwt from 1994/95's record. All of the decline was projected for exports, as domestic use continued to rise. U.S. exports of long grain were projected down 19 percent in 1995/96 and medium grain exports were projected unchanged at 20 million cwt. The price forecasts using the futures method generally rose through October because futures prices rose as yield prospects declined due to hot weather that stressed the Gulf Coast and Delta crops in July and August. Then, between October 1995 and February 1996, futures price forecasts gradually declined. But in early 1996, continued strong world import demand, tight world long grain supplies, and a small U.S. crop pushed up U.S. long grain exports and farm prices. Simultaneously, purchases by the Philippines and Iran supported Asian rice prices, despite good harvests throughout much of Asia. The mean absolute percentage error for the futures forecast was 3.1 percent for the 1995/96 crop year, somewhat lower than WASDE's 11.1 percent. Based on the monthly percentage error during crop year 1995/96, the futures forecast performed better than the WASDE projection. The futures forecast had the lowest percentage error in 10 out of 14 monthly forecasts. Summary The rice futures method continues to provide timely and reasonable price forecasts for farm level season-average rough rice prices. Although forecast errors do increase during periods of greater price variability, both the futures method and the WASDE projections provide similar price forecasts during most of these crop years, such as in 1993/94. In certain years, price forecasts using futures were improved by using a specific crop year's basis and marketing weights instead of using a 5-year average. The futures price forecast also provides a useful cross-check against other price forecasts. For most years, the futures forecast performed about the same as USDA's monthly rice price forecast released in the WASDE. BEGIN SPECIAL ARTICLE BOX Long Grain Dominates U.S. Rice Market Long-grain rice is produced primarily in the south central part of the United States along the Texas and Louisiana Gulf Coasts and along the Mississippi Delta, while medium and short grain are produced primarily in California. Long grain rice has accounted for an ever-increasing share of area and production over the past two decades. Since 1984/85, long grain has accounted for 74 percent of area harvested and 70 percent of production. (Medium grain rice has a yield advantage over long grain rice.) The different types of rice are considered imperfect substitutes by most consumers, except by some who purchase rice for further processing. Because of class distinctions, the overall supply-demand situation for the rice market is not necessarily a good indicator of market conditions for any specific class of rice. Long grain rice has traditionally commanded a price premium over medium grain and remains the dominant grain type sold in retail outlets. The shorter grains have typically been lower priced, and are predominantly used in processed foods and beer, markets that tend to be more price-sensitive than for direct food use of rice, i.e., table rice. However, medium and long grain price relations have changed dramatically in recent years. Vietnam's entrance into the world market in 1989 as a major exporter of long grain rice pressured U.S. long grain prices to drop, producing a medium grain price premium by 1992. And Japan's surge in medium grain imports in 1994--due to a 25-percent drop in production in 1993 from a year earlier--created a substantial medium grain price premium over long grain. The distinction between rice classes has become more important with the implementation of the Uruguay Round of GATT negotiations. Minimum access criteria agreed to under the GATT have partially opened to imports the previously closed markets of several high-income East Asian medium grain rice-consuming countries--principally Japan and South Korea. And recent developments with other international trade agreements may further increase trade opportunities and price volatility. Such changes in trade could lead to a change in traditional price relationships between U.S. long and medium grain rice. If such a situation develops, special care must be taken when using the futures method to forecast cash prices. END BOX List of Appendix Tables 1. Estimated supply, disappearance, and price, by type of rice, U.S. (rough equivalent of rough and milled rice), 1990/91-1996/97 2. Rough and milled rice (rough equivalent): Marketing year supply and disappearance, 1962/63-1996/97 3. Long grain rough and milled rice (rough equivalent): Marketing year supply and disappearance, 1982/83-1996/97 4. Medium/short grain rough and milled rice (rough equivalent): Marketing year supply and disappearance, 1982/83-1996/97 5. Rough rice milled, total milled produced, and milling yields, United States, 1978/79-1995/96 6. Rice milling yields, 1974/75-1995/96 7. Rice stocks: Rough and milled, 1981-96 8. State and U.S. rice production by class, 1985-96 9. State and U.S. rice acreage, yield, and production, by class, 1993-95 10. State and U.S. rice area planted, by class, 1988-96 11. U.S. rice acreage, yield, and production, 1958-96 12. U.S. and State average rice yields per harvested acre, 1953-96 13. Proportional distribution of rice production, by grain type, United States, 1953-96 14. Use and ending stocks for rice, United States, 1953-96 15. Prices and ending stocks for rice, 1953-96 16. Farm program prices and payment rates, 1976/77-1996/97 17. Farm program base acres, program acres idled, and participation, 1982/83-1996/97 18. Class loan rates and differentials, 1985-96 19. World market rice prices, loan rate basis, 1986-96 20. Rough rice: Average price received by farmers by month and marketing year, 1982/83-1996/97 21. Milled rice: Average price, f.o.b. mills, at selected milling centers, 1976/77-1996/97 22. Rice byproducts: Monthly average price, Southwest Louisiana 1975/76-1996/97 23. Brewers' prices: Monthly average price for Arkansas brewers' rice and New York brewers' corn grits, 1974/75-1996/97 24. Thailand milled rice prices, f.o.b. Bangkok, 1981/82-1996/97 25. Milled rice: Average cost and freight ARAG quotations, 1983/84-1996/97 26. World rice supply and utilization, 1961/62-1996/97 27. World rice production and stocks: Selected countries or regions, 1985/86-1996/97 28. World rice trade (milled basis): Exports and imports of selected countries or regions, 1987-97 29. U.S. rice exports by type, 1977/78-1995/96 30. U.S. rice exports by program, 1975-96 31. Top-10 U.S. rice export markets, 1990/91-1995/96 ERS Rice Information: How To Get It Fast and Often ERS issues 12 monthly Rice Outlook reports containing brief descriptions of domestic and international market conditions and outlook, as well as key tables to keep readers up to date on market developments. The reports are released--in electronic format only--at 4 p.m. on the first working day following release of USDA's World Agricultural Supply and Demand Estimates (WASDE) report. In 1997, the Rice Outlook will be released on January 13, February 13, March 12, April 14, May 13, June 13, July 14, August 13, September 15, October 14, November 12, and December 12. The monthly Rice Outlook is available at no charge on the following systems 1-3 hours after the official release: o CALL-ERS/NASS This bulletin board supports 1200/2400/9600 baud modems (N, 8,1) on 1-800-821-6229 of 1-202-219-0378. 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For information on how to subscribe, send an e-mail to usda-reports@usda.mannlib.cornell.edu with no subject and the word "lists" as the body (entered without the quotes). o ERS AutoFAX Use the telephone attached to your FAX machine to call 202-219-1107. Follow the voice prompts and ask for document number 12460 for the latest edition of the Rice Outlook. See the directory below for more rice data and documents available on the ERS AutoFAX. ERS also publishes an annual Rice Yearbook containing special articles, a market summary, and tables of historical statistical information. Summaries of the Rice Yearbook are available on the electronic systems noted above. Printed copies of the 1997 yearbook will be available in late December 1997, or order it on diskette. For ordering and price information, call ERS-NASS (1-800-999-6779) or visit the ERS Home Page on the World Wide Web (http://www.econ.ag.gov/). END_OF_FILE