RICE YEARBOOK December 02, 1999 November 1999, ERS-RCS-1999 Approved by the World Agricultural Outlook Board --------------------------------------------------------------------------- RICE YEARBOOK is published annually by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. This release contains only the text of the report --tables and graphics are not included. Printed copies of the yearbook will be available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock # ERS-RCS-1999, $21. ERS-NASS accepts MasterCard and Visa. --------------------------------------------------------------------------- Contents Summary U.S. Outlook for 1999/2000 Recap of 1998/99 International Outlook for 1999/2000 Special Articles Rice Plantings in Arkansas: A Comparison of Net Returns for Rice and Soybeans, 1996-1999 Herbicide-Resistant Varieties in Commercial Rice Production: Implications for the Future Upcoming World Trade Organization Negotiations: Issues for the U.S. Rice Sector List of Appendix Tables Report Coordinator Nathan Childs (202) 694-5292 Data Coordinator Jenny Gonzales (202) 694-5296 Economic Contributors Nathan Childs (202) 694-5292 Bill Chambers (202) 694-5312 Paul Westcott (202) 694-5335 Linwood Hoffman (202) 694-5298 Editor Diane Decker (202) 694-5116 Approved by the World Agricultural Outlook Board. Summary released November 18, 1999. The Rice Outlook and the text of the Rice Yearbook may be accessed electronically. For details, call ERS Customer Service (202) 694-5050. Summary Large Area Expansion, Higher Yields Drive Record U.S. Crop The 1999 U.S. rice crop is forecast at 211.7 million cwt, up almost 13 percent from last year and the largest on record. The bumper crop stems from an 8-percent increase in plantings to 3.6 million acres--the second highest on record--and a 5-percent increase in average yield. The area expansion was primarily due to relatively attractive prices for rice at planting compared with alternative crops, especially soybeans in the South. While rice prices had slowly been declining for almost 2 years, they had not dropped as fast as prices for soybeans, the primary rotation crop in the South. Plantings expanded in every State except Texas, with record seedings reported for Arkansas and Missouri. Plantings were a near-record in Mississippi. Based on farmer surveys conducted in early November, the national average yield is forecast at 5,929 pounds per acre, up from 5,669 pounds a year earlier, but still below the record 6,120 pounds in 1996. Yields are up in all States except Mississippi and Missouri, where they are down only slightly. Record yields are projected for Louisiana and Texas. Although California's yield is projected up 2 percent from last year's extremely low level, it is still one of the lowest since 1982. Production is up in every State, with record crops projected for Arkansas, Louisiana, and Missouri. Mississippi's crop is projected to be a near-record. Production is up for all grain types as well. Long grain production is projected at a record 152 million cwt, up 7 percent from 1998. Medium grain production is projected 55.9 million cwt, up 26 percent but still below the 1997 crop. The short grain crop--mostly grown in California--is projected at 3.8 million cwt, nearly double a year earlier. Ending Stocks Largest Since 1986/87 U.S. supplies in 1999/2000 (August-July) are projected at a record 244.4 million cwt, up 8 percent from a year earlier. The larger supplies result from the record crop and larger imports that are expected to more than offset a smaller carryin. Beginning stocks, estimated at 22 million cwt, are down 21 percent from a year earlier. Imports are projected at a record 10.8 million cwt, up 2 percent from a year earlier and continuing a long-term expansion. In contrast to larger supplies, total use is projected to decline 5 percent to 195 million cwt, with both total domestic use and exports falling. Total domestic use, which includes residual (unreported processing and marketing losses), is projected to drop more than 6 percent to 113 million cwt. Excluding residual, domestic consumption is actually projected to increase 2 percent to a record 106.5 million cwt due to rising food use. Exports are projected to drop 2 percent to 82 million cwt as larger milled rice exports do not fully compensate for a big drop in rough rice exports. With total supplies exceeding total use, ending stocks in 1999/2000 are projected to more than double to 49.4 million cwt. This yields a stocks-to-use ratio of 25.3 percent, up from 10.7 percent a year earlier. Ending stocks and the stocks-to-use ratio are the largest since 1986/87. Long grain ending stocks are projected at 36.5 million cwt, up 22.6 million from a year earlier, producing a stocks-to-use ratio of 26.2 percent. Both are the highest since 1985/86. Although combined medium/short grain stocks are projected to nearly double to 11.8 million cwt, they will remain below the decade average. The medium/short grain stocks-to-use ratio is projected at 21 percent, up 8 percentage points from 1998/99 but still close to the decade average. U.S. Prices Drop on Record Supplies, Weaker International Prices U.S. farm prices, which had been largely supported since 1996/97 by record rough rice exports to Latin America, began slipping this spring on expectations of near-record U.S. plantings, the conclusion of huge rough rice shipments to Brazil, and declining international prices. The U.S. season-average farm price is projected to be $5.50 to $6.00 per cwt in 1999/2000, down from $8.83 in 1998/99 and $9.70 in 1997/98. The projected 1999/2000 season-average price is the lowest since at least 1992/93. Prices for long grain rice have declined the most. Medium grain prices were supported throughout 1998/99 by a very weak 1998 harvest in California--where the bulk of the U.S. medium crop is produced--and smaller plantings in the South. With the start of California's 1999 harvest in late September, medium grain farm prices began to slip as well. Prices for U.S. long grain milled rice have declined since the summer of 1997. U.S. No. 2, 4 percent brokens (fob Houston) are currently quoted at about $300 per ton, down from $369 in 1998/99 and $415 in 1997/98. Little export business beyond PL-480 sales, a large price premium over comparable grades of Thai rice, and record U.S. supplies are behind the weaker U.S. milled prices. Prices for California medium grain milled rice, which were at near-record levels during most of 1998/99, have declined since September on expectations of a large California crop in 1999. Prices for California No. 1, 4 percent brokens are currently quoted at $441 per ton, down from $470 in 1998/99. Bumper Crops Worldwide Push Global Stocks to Record Highs World rice production is projected at a record 396.8 million tons (milled basis) in 1999/2000, up more than 1 percent from a year earlier. Record or near-record crops in major Asian producing countries--China, India, Indonesia, Bangladesh, Vietnam, and Thailand--more than compensate for expected smaller crops in Latin America and the Middle East. World consumption is projected at 394.4 million tons, a record and up more than 1 percent. With production exceeding consumption, ending stocks are projected to climb 4 percent to 59.8 million tons in 1999/2000, the largest on record. The projected stocks-to-use ratio is 15.2 percent, up slightly from last year and the largest since 1992/93. World trade is projected at 23.2 million tons in 2000, down more than 4 percent from 1999 and 15 percent below the 1998 record. Much smaller Asian imports are expected to more than offset larger imports by Latin America and the Middle East. In 1999, both Asia and Latin America imported much smaller amounts of rice than in 1998 as their crops recovered from El Nino damage in 1997/98. Since late 1998 when Indonesia and the Philippines completed their record purchases, international rice prices have generally declined. Prices for Thai 100 percent grade B were quoted at $229 per ton in early November, down from $284 in 1998/99 and $302 in 1997/98. The weaker prices are primarily due to much smaller global import demand and abundant export supplies worldwide. This issue of the Rice Situation and Outlook Yearbook contains three special articles. The first article compares net returns to rice and soybeans on rice land in Arkansas. The second examines the potential impacts of herbicide-resistant rice varieties in the U.S. The final article discusses issues important to U.S. rice trade in the upcoming WTO Round. Rice Conversions 1 cwt = 100 pounds = 2.22 bushels = .0453 metric ton 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 1999/2000 Farm Prices Weaken on Record Supplies U.S. farm prices are expected to decline during the 1999/2000 (August-July) market year, due to record domestic supplies and weaker global trade. U.S. farm prices have declined substantially since spring on expectations of a record U.S. crop and weaker international prices. The price drop has been much more severe for long grain, as tight supplies supported medium grain prices at near-record heights during 1998/99. By October, medium grain prices began to decline as well, as the bulk of the California harvest was underway. In November, the 1999/2000 season-average farm price was forecast at $5.50 to $6.00 per cwt, down from $8.83 in 1998/99 and $9.70 in 1997/98. The midpoint of this forecast range is the smallest season-average farm price since 1986/87. From 1996/97 through the first half of 1998/99, U.S. prices were supported by record high rough rice exports to Latin America, with Brazil the largest single market. Most of the rough rice exports were southern long grain. The bulk of the increase was due to El Nino-related crop damage in the region. With exports accounting for more than 40 percent of U.S. rice disappearance, events in international markets can significantly affect U.S. prices. Internationally traded rice prices have generally declined since late 1998 when record purchases by Indonesia and the Philippines were completed. Prices have generally dropped throughout 1999 on a combination of weaker global import demand and record or near-record crops in nearly all major exporting countries. For 2000, little if any price strength is expected as Asian import demand is again expected to contract and global export supplies remain abundant. Both parboiled and jasmine prices have declined at a slower pace, a result of limited supplies and growing import demand. World rice trade is projected at 23.2 million tons in 2000, down 5 percent from this year and 15 percent below the 1998 record of 27.3 million. The weaker trade this year is due to strong crop recoveries in Southeast Asia and Latin America, two regions hit hardest by the 1997/98 El Nino, and abundant export supplies worldwide. In 2000, greater imports by Latin America and the Middle East are not expected to not fully offset continued contraction in Asian imports. The U.S. price difference over export competitors' prices has substantially declined since late 1997 as U.S. prices for long grain milled rice have dropped more than competitors' prices have fallen. However, the difference remains wide enough to limit U.S. competitiveness in some price-sensitive international markets and prevent U.S. milled prices from rising. The United States faces competition from Asian rice in higher-income markets in South Africa and the Middle East. In Latin America-where Asia exports very little rice-the United States has recently faced competition from Argentina and Uruguay. The bulk of U.S. shipments to Latin America are rough rice. None of the Asian exporters allow rough rice exports, although South American exporters ship small amounts of rough rice. Quotes for U.S. No. 2, 4-percent broken (high-quality, long- grain) fob Houston have declined since the summer of 1997 and were less than $300 per ton in early November. Prices averaged $369 in 1998/99 and $415 in 1997/98. Abundant U.S. supplies and weaker international prices are behind the steady drop in U.S. prices. Prices for California medium grain (f.o.b. Sacramento) milled rice were near record highs during most of 1998/99, due to a very weak 1998 California harvest. Prices averaged $470 in 1998/99, exceeding $500 in many months. Prices are currently quoted at $441 per ton as this year's California harvest-up 17 percent from the weather-reduced crop a year earlier-is over. There is little expectation for any price strength for California medium grain after Japan completes its 1999/2000 minimum access purchases. By November 4, total exports and outstanding sales were 1.15 million tons, almost 22 percent below a year earlier even though U.S. exports are projected to be just 2 percent below 1998/99. Last year Brazil imported more than 550,000 tons (product-weight) of U.S. rice, mostly unmilled, in the first 5 months of the market year. This year Brazil has purchased just 3,000 tons. Larger Area Pushes U.S. 1999 Crop to Record USDA forecasts the 1999 U.S. rice crop at a record 211.7 million cwt, up 13 percent from 1998. The larger crop stems from an 8- percent increase in plantings to 3.6 million acres-the second largest on record-and a 5-percent increase in average yield. This was the third consecutive year of expanding rice acreage for the Nation and the South. The area expansion was primarily due to relatively attractive prices for rice at planting compared with alternative crops, especially soybeans in the South. While rice prices had slowly been declining for about 2 years, they had not dropped as fast as prices for soybeans, the primary rotation crop in the South. Plantings expanded in every State except Texas, with record plantings reported for Arkansas and Missouri. The national average yield is forecast at 5,929 pounds per acre, up from 5,669 pounds a year earlier but still below the record 6,120 pounds in 1996. Yields are up in all States except Mississippi and Missouri, where they are down slightly. Record yields are projected for Louisiana and Texas. While California's yield is projected to be 2 percent higher than last year's weather-reduced yield, it is still the second lowest since 1982. Production is up for all grain types. Long grain production is projected at a record 152 million cwt, up 7 percent from 1998. Medium grain production is projected at 55.9 million cwt, up 26 percent but still below the 1997 crop. The short grain crop-mostly grown in California-is projected at 3.8 million cwt, nearly double a year earlier. Production is up in every State as well, with record crops projected for Arkansas, Louisiana, and Missouri. Mississippi's crop is projected to be a near-record. Long Grain Plantings Reach Record 2.73 Million Acres Plantings in 1999 are up from a year earlier for all three grain types, with medium grain accounting for more than half the total 255,000-acre increase. Based on the June 1999 Acreage report, medium grain plantings totaled at 823,000 acres, up 21 percent from 1998, with California accounting for more than half the expansion. Long grain plantings are estimated at a record 2.73 million acres, up 4 percent from 1998 with almost all of the expansion in the South. Generally higher prices for medium grain than long grain at planting account for much of the shift in southern acreage this year to medium grain rice. California recovered from severe weather-related damage in 1998 that cut acreage. Short grain plantings are projected to rise 37 percent to 52,000 acres, the largest since 1989. California accounts for virtually all of the increase. Growing sales of short grain rice to Japan account for much of the area expansion. Arkansas accounts for 43 percent of the increased total U.S. rice acreage, with plantings rising 110,000 acres to a record 1.65 million. Long grain plantings were reported at 1.4 million acres, up 60,000 and a record. More than 51 percent of U.S. 1999 long grain acreage is in Arkansas. Medium grain rose 50,000 acres in Arkansas to 255,000. Rice plantings in Louisiana expanded 25,000 acres to 650,000. Area was larger for both long grain and medium grain. Mississippi's rice acreage expanded 30,000 acres to 300,000, a near record. All of Mississippi's rice production is long grain. Missouri expanded rice acreage 15,000 acres to a record 160,000. All of the expansion was for long grain. In contrast, rice plantings in Texas dropped 15,000 acres-all long grain-to 270,000, continuing a long-term trend of declining rice acreage in the State. Overall, total plantings in the South rose 6 percent to just over 3 million acres, a record, with both long and medium grain plantings higher than a year ago. California reported the largest percentage increase in plantings, with rice acreage up 19 percent to 570,000 acres, the largest since 1981. Medium and short grain accounted for all of the expansion; long grain plantings actually declined. USDA will release final acreage numbers by State and grain type for 1999 in January 2000. While Florida also grows rice-- planting 16,000 to 20,000 acres of rice annually from 1995 to 1998--this area is not reported by USDA's National Agricultural Statistics Service. Thus Florida is not included in total planted area and production estimates. Florida's rice plantings exceeded 20,000 acres from 1991 to 1994, up from less than 15,000 from 1988 to 1990. All of Florida's rice production is long grain. Data on Florida rice plantings are compiled by the Rice Technical Working Group and are reported annually in the Rice Journal. Record Yields Projected for Texas and Louisiana The forecast yield of 5,929 pounds per acre is up almost 5 percent from last year and the third highest on record. The higher projected yield is primarily due to some recovery in California from 1998's extremely low yield and very favorable growing conditions in the South, especially the Gulf Coast. In 1998, yields in the South were well below trend due to very hot and dry weather in much of the region. The increase in average yield is also partly due to a shift in share of total planted acreage to the higher yielding California medium grain rice from the lower yielding southern long grain. Louisiana and Texas are projected to achieve record yields. Yields in Texas are estimated at 6,300 pounds per acre, nearly 13 percent above a year earlier. Louisiana, which reports the lowest yields among the six rice producing States, is estimated to have an average yield of 5,000 pounds per acre, up 10 percent from 1998. In Arkansas, the average yield is estimated at 6,000 pounds, up more than 3 percent from a year earlier and second only to the 1996 record of 6,150 pounds. Yields are down 100 pounds per acre in Mississippi and Missouri-to 5,800 and 5,700 pounds. Average yields in California are projected at 7,000 pounds per acre, up 2 percent from 1998's extremely weak yield but still the second lowest since 1982. California experienced abnormally cool weather during pollination in July, contributing to some blanking this year. Record Crops Projected for Arkansas, Louisiana, and Missouri Arkansas is projected to harvest a record 98.4-million-cwt rice crop, up more than 11 percent from 1998. The record crop stems from record plantings and a higher yield. Arkansas is projected to account for more than 46 percent of total U.S. rice production in 1999. Louisiana is projected to produce a record 31.3-million cwt crop, up 11 percent from 1998, due to a record yield and a small increase in plantings. Missouri, the smallest rice producing State (excluding Florida, whose production is not reported by USDA and is not included in total crop projections or estimates), is projected to produce nearly 9 million cwt of rice, a record and up nearly 21 percent from last year. The bumper crop is the result of record plantings. Rice production has expanded significantly in Missouri during the past 15 years. Mississippi's rice production is projected at 18.4 million cwt, up more than 18 percent from 1998 and virtually tied with the 1994 record. The larger crop is the result of increased plantings; yields are slightly down. Rice production in Texas is projected at 16.6 million cwt in 1999, up 3 percent from a year earlier, as a record yield offsets a decline in plantings. Outside the South, California's crop is projected to rise 17 percent to 38.4 million cwt, a result of greater plantings and a slightly higher yield. While up substantially from 1998's weather-damaged crop, production is still 10 percent below the 1997 record. Record U.S. Rice Supplies Forecast for 1999/2000 U.S. rice supplies are projected to be a record 244.4 million cwt, up 8 percent from 1998/99 and nearly 6 above the previous record of 231.1 million cwt in 1994/95. A record crop and slightly greater imports are projected to more than offset a smaller carryin. Beginning stocks on August 1 were reported at 22 million cwt, down 21 percent from a year earlier. California, whose August 1 stocks were 5.2 million cwt (rough-equivalent), reported a 50-percent decrease from a year earlier and accounted for the bulk of the year-to-year contraction. Beginning stocks in Mississippi and Texas were reported below a year earlier as well. There were significant differences in beginning stocks by grain type. Long grain rice stocks entering the 1999/2000 marketing year were 13.9 million cwt, 4 percent below a year earlier despite a 7-percent increase in the 1998 long grain crop from a year earlier. Combined medium/short grain stocks were just 6.9 million cwt on August 1, 1999, down 44 percent from a year earlier and the lowest since supply and use were first reported by type in 1982/83. The huge reduction was primarily due to an almost 21-percent reduction in combined medium/short grain production in 1998. Adding to the extremely tight stocks situation for medium/short grain rice is the fact that the harvest in California-where the bulk of medium grain is produced-does not begin until late September. U.S. rice imports in 1999/2000 are projected at a record 10.75 million cwt, up 250,000 cwt from a year earlier. About 90 percent of U.S. imports are long grain rice. Although still a small portion of total U.S. rice supplies (less than 5 percent in 1998/99), imports have been steadily increasing for the past 18 years. Almost 75 percent of U.S. rice imports are from Thailand- -mostly jasmine rice. Most of the remainder is basmati rice from Pakistan and India. These aromatic varieties currently can not be grown in the United States. Italy has been a long-time supplier of very small shipments of arborio rice, a high-quality japonica rice unique to Italy. For the last 6 years Vietnam has exported small quantities of long grain milled white rice to the United States. Food Use Drives Growth in Domestic Consumption Total U.S. rice use, including exports, domestic consumption, and residual (unreported loses in processing and marketing), is forecast at 195 million cwt in 1999/2000, down almost 5 percent from the year-earlier record. The decline is the result of weaker exports and smaller total domestic disappearance. Total domestic disappearance (domestic use plus residual) is projected at 113 million cwt, down more than 6 percent from the year earlier record. In contrast, total domestic use (food, beer, and seed) is projected to rise more than 3 percent to a record 106.5 million cwt. Food use, projected to climb more than 3 percent to a record 87 million cwt, accounts for all of the expansion in domestic consumption. Expansion in food use has slowed from more than 5 percent a year from 1985/86 to 1995/96, to around 3 percent currently. Brewers' use remains flat at 15.4 million cwt. Brewers' use has shown no sustained growth for a decade and has declined as a share of domestic use. Declining per capita beer sales, greater popularity of "lite" beers, and competition from imported beers account for the stagnation of rice use in beer. Seed use is projected at 4.1 million tons, down 7 percent from a year earlier. Seed use is totally dependent on the number of acres expected to be planted next year. Total food use of rice has almost doubled over the past 15 years. Two factors account for this rapid expansion. The most important has been strong growth in per capita consumption since the late 1970's. Second has been continued growth in total U.S. population. 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 has been due to large increases in the Asian and Hispanic segments of the U.S. population that have occurred during the last two and a half 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 rice such as Thai jasmine and basmati from India and Pakistan. Projected total rice imports of 10.75 million cwt are expected to account for more than 12 percent of food use. U.S. Exports Projected To Drop in 1999/2000 U.S. rice exports in 1999/2000 are projected at 82 million cwt, down 2 percent from a year earlier and the smallest since 1996/97. Greater milled rice exports are projected to be more than offset by a big drop in rough rice exports. Milled rice exports are projected at 66 million cwt (rough basis), up 14 percent from a year earlier and the first increase since 1995/96. The year-to-year expansion is based on lower prices making U.S. rice more competitive in price-sensitive markets and greater food aid shipments-partly due to lower prices as well. In contrast, U.S. rough rice exports are projected to drop 39 percent to 16 million cwt in 1999/2000, the smallest since 1996/97. Virtually all of the reduction is for long grain rice. U.S. rough rice exports reached record levels in 1996/97 and 1997/98, with much of the expansion due to huge shipments of southern long grain to South America in response to severe crop damage from El Nino. In 1999 South American rice production recovered, as the region produced a record crop. U.S. rough rice exports to Mexico and Central America continue a long-term expansion. Turkey is the only significant market for U.S. medium grain rough rice. All of the year-to-year reduction in exports is for long grain rice, projected to decline nearly 5 percent to 66 million, the smallest since 1996/97. Medium/short grain exports are projected to climb 17 percent to 16 million cwt, the highest since 1996/97. A much larger crop and expanding sales to Japan are behind the robust export projection. Due to the diversity of cropping seasons, marketing years, and milling rates, international rice trade is measured on a calendar year, milled-equivalent basis. The U.S. calendar year export forecast for 2000 is 3 million tons, up 250,000 from 1999 even though world trade is projected to drop slightly. Record U.S. supplies, lower prices, and smaller 1999/2000 production in Latin America are behind the expected expansion. The U.S. share of world trade is forecast at almost 13 percent in 2000, up from almost 12 percent this year, as U.S. exports are projected to increase while world trade contracts. The U.S. share of world trade has generally declined over the past 15 years. Latin America, the Middle East, Europe, Japan, and Canada are expected to remain the top markets for U.S. rice. The bulk of U.S. shipments to Latin America are rough rice, although the Caribbean imports brown and rough rice. The Middle East is primarily a milled rice market, except for Turkey, which imports both rough and milled. Europe imports mostly brown rice from the United States with a significant share parboiled. Southern Europe also imports a small amount of rough rice. Japan imports both milled and brown rice. Canada remains a steady U.S. market, taking mostly milled rice and some brown. Unlike other major 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. The 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. Historically, 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 the Middle East, switch to lower cost sources. Currently, U.S. rice is sold in international markets at nearly $70 per ton higher than comparable grades of Thai rice. However, in recent years the price difference at which U.S. rice can remain competitive has likely risen. The U.S. export market share has shifted to Latin America (where Thailand ships very little rice) and a larger portion is exported as rough rice (of which Thailand exports none). U.S. Stocks To Exceed 49 Million Cwt in 1999/2000 U.S. ending stocks are projected at 49.4 million cwt in 1999/2000, up nearly 125 percent from a year earlier and the largest since 1986/87. The huge stocks stem from record supplies and weaker total use. Stocks as a share of total use are forecast at 25.3 percent, up substantially from 10.7 percent a year earlier, and the highest since 1986/87. Stocks of this size will likely prevent any price increase in the near future. However, there are some differences in stocks by grain type. For long grain rice, 1999/2000 ending stocks are projected to rise 160 percent from a year earlier to 36.5 million cwt, due to a record crop. With total use expected to decline 8 percent, the long grain stocks-to-use ratio is projected to nearly triple to 26.2 percent. The long grain ending stocks and stocks-to-use ratio are the largest since 1985/86. For combined medium/short grain, ending stocks are projected to rise 71 percent to 11.8 million cwt, primarily because a recovery in production will likely outweigh expanded exports. Larger stocks and greater total use are expected to yield a stocks-to- use ratio of 21 percent, up from 12.8 percent a year earlier. While up substantially from last year, both ending stocks and the stocks-to-use ratio are similar to averages for the past decade. Marketing Loan Gains in 1999/2000 The marketing loan program was introduced in 1986 to improve the competitiveness of U.S. rice in international markets. During much of the early and mid-1980s, 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 price floor for U.S. rice in international markets. Income gains to producers would occur only if foreign prices (represented by the weekly announced world price) fall below the announced loan rate of $6.50 per cwt for rough rice. Since the start of the 1995/96 market until this spring, world prices exceeded the loan rate. In fact, the announced world price has exceeded the loan rate for long grain rice since May 1995, and for medium and short grain since August 1995. Hence no marketing loan benefits were accrued. In spring 1999, world prices had declined enough to trigger marketing loan gains, although the payment rate was quite small until August. Payment rates did not exceed $1 per cwt until mid- August. Payments steadily rose and were $2 by early November. U.S. Government-Assisted Exports Three types of government programs facilitate exports of U.S. rice. Under PL 480 and other food aid programs, the United States sells rice on concessional credit terms and donates rice to needy countries either bilaterally or through the World Food Program. Commercial sales under the Export Credit Guarantee Program (GSM-102) and the Intermediate Export Credit Guarantee Program (GSM-103) help private and government importers who have foreign currency constraints to purchase U.S. agricultural products. GSM-102 guarantees loans of 3 years or less, while GSM- 103 guarantees loans of 3 to 7 years. Finally, the Export Enhancement Program (EEP) facilitates U.S. rice sales to markets where the United States competes with subsidized exports from other countries. Total rice shipments under export credit guarantee programs peaked in fiscal 1989 at 826,000 tons, with Iraq importing 530,000 tons and Mexico 108,000 under GSM-102. An additional 355,000 tons were exported as food aid in 1989. For total food aid shipments, the record high was almost 1.2 million tons in 1972, accounting for 71 percent of total U.S. rice exports. Total government-assisted rice exports, food aid plus credit guarantees, reached a near record 1.2 million tons in 1989, accounting for over 50 percent of U.S. exports. However, the termination of the GSM-102 program for Iraq, tighter budgets, and--until this year--higher prices, have largely been responsible for declining food aid shipments and a smaller share of total U.S. exports accounted for by export programs in recent years. From an average of almost 50 percent in the second half of the 1980s, the share of total U.S. rice exports accounted for by government programs (including credit guarantees) dropped to a low of just 8 percent in fiscal 1997. Total shipments under export programs had declined from 1.2 million tons in fiscal 1989 to just 206,000 in 1997. Total program exports in fiscal 1999 are estimated at 727,000 tons, with credit guarantees accounting for nearly 198,000 tons (based on registrations, not actual shipments) and food aid shipments almost 530,000 tons. Combined, these export programs accounted for 24 percent of total U.S. rice exports in 1999, up from 21 percent a year earlier. In fiscal 1998, total program exports were 704.000 tons (520,000 tons in credit guarantees (based on registrations) plus almost 184,000 tons for PL 480). Exports under credit guarantees in 1998 were the largest since 1990. Brazil was the largest recipient, accounting for more than 200,000 tons. For 1999, Title I, or concessional sales, accounted for more than 330,000 tons and Title II almost 199,000 tons (including about 60,000 tons shipped under the World Food Program). These were substantial increases for both Title I and II. Indonesia was the largest Title I recipient, taking more than 118,000 tons. Russia was received about 100,000 tons and the Philippines nearly 60,000 tons. Other Title I recipients were Jamaica and the Ivory Coast. Major recipients in 1999 under Title II included Indonesia, the Ivory Coast, Togo, North Korea, Russia, Nicaragua, Ghana, Honduras, and the Dominican Republic. In fiscal 1998, the United States exported about 44,000 tons of rice under Title I. Indonesia received about 26,000 tons, Jamaica around 13,000, and Angola about 5,000 tons. Shipments under Title II totaled about 140,000 tons. The EEP program was originally intended to counterbalance subsidized exports by the European Union (EU). Thus EEP bonuses have traditionally been used to assist medium grain exports to countries bordering the Mediterranean Sea. Today, the EEP's purpose is to counterbalance subsidized exports from specified exporters, i.e., not just the EU. But with declining EU rice exports in recent years, the importance of EEP subsidies has diminished. There have been no rice EEP sales since August 1995 and no shipments since late 1995. Total EEP allocations are capped at 39,000 tons in 2001 in accordance with the Uruguay Round of the General Agreement on Tariffs and Trade (UR-GATT). However, this is not expected to become a major constraint for rice because most EEP monies are used to support wheat exports. In addition, access to rice markets gained through the UR-GATT is likely to be of greater long-term benefit to U.S. rice. Recap of 1998/99 U.S. Farm Prices Dropped in 1998/99 A bumper U.S. crop, weaker international prices, and smaller trade in 1999 were responsible for generally weaker U.S. farm prices in 1998/99, especially during the second half of the market year. The season-average farm price for 1998/99 (August- July) was $8.83, down from $9.70 a year earlier and $9.96 in 1996/96. Long grain prices began the 1998/99 season around $9.50 per cwt, but began to soften by late fall when the record Brazilian imports had been completed. By spring, long grain prices were under further pressure by expectations of near-record 1999 plantings and an almost steady decline in international prices. By season's end, prices were about $7.00 per cwt. In contrast, prices for both California and southern medium grain were nearly $11 per cwt during most of the season, due to severe weather problems in California and smaller plantings in the South. The near-record prices for medium grain rice limited the decline in average monthly cash prices and in the season-average price in 1998/99. For long grain milled rice, U.S. prices dropped throughout the 1998/99 market year, largely due to declining Asian prices. Prices in international markets began to drop at the end of the third quarter when Indonesia and the Philippines completed their record imports. Prices for No. 2, 4-percent brokens Texas long grain (f.o.b. Houston) were $408 at the start of the 1998/99 market year, down from $430 a year earlier. Prices dropped to $375 by February and $331 by the end of the market year. In contrast, prices for California medium grain began the 1998/99 season at $408 per ton but rose throughout the market year, reaching $518 by late July, a near record. In fact, by spring there were very limited supplies to satisfy regular domestic users. Total Supplies and Use Up from 1997/98 Total U.S. supplies in 1998/99 were 226.5 million cwt, up more than 3 percent from a year earlier. A 3-percent larger crop, an almost 2-percent increase in beginning stocks, and a nearly 14- percent increase imports were behind the larger supplies. All of the increase was for long grain, which was up 12 percent from 1997/98 to 164.6 million cwt, a record at the time. In contrast, supplies of combined medium/short grain rice, estimated at 60.7 million cwt, were down 15 percent from a year earlier. A 21- percent drop in 1998/99 production was responsible. Total use (including residual) in 1998/99 was a record 204.5 million cwt, up almost 7 percent from a year earlier. A 15- percent increase in total domestic use and residual more than offset a 3-percent drop in exports to 83.6 million cwt. Rough rice exports dropped slightly to 25.8 million cwt, fractionally below the year-earlier record of 26.1 million cwt. Milled rice exports dropped 4 percent to 57.9 million cwt. Both long grain and combined medium/short grain exports were smaller in 1998/99. U.S. ending stocks are estimated at 22 million cwt for 1998/99, down 21 percent from a year earlier as a 3-percent increase in total supplies was more than offset by 7-percent expansion in total use. The resulting stocks-to-use ratio was 10.7 percent. Both stocks and the stocks-to-use ratio were the lowest since 1986/87. Combined medium/short grain accounted for the bulk of the reduction in ending stocks, dropping 44 percent to 6.9 million cwt. For long grain rice, ending stocks dropped 4 percent to 13.9 million cwt, yielding a stocks-to-use ratio of 9.2 percent. South America Was Top U.S. Export Market U.S. rice exports in 1998/99 totaled 2.76 million tons (milled basis), down less than 1 percent from 1997/98. On a regional basis, South America was the largest export outlet for U.S. rice, taking a record of almost 530,000 tons (milled equivalent basis), up 14 percent from a year earlier. Record exports to Brazil of 398,000 tons-mostly southern rough rice-accounted for nearly all of the increase. In contrast, U.S. shipments to Colombia and Ecuador were down sharply as crops in both countries recovered from El Nino damage. Asia took nearly 410,000 tons of U.S. rice in 1998/99, up 44 percent from 1997/98. The increase was due to steadily growing sales to Japan and more than 85,000 tons of food aid shipped to Indonesia. U.S. exports to Sub-Saharan Africa expanded fractionally to 188,574 tons, primarily on larger sales to the Republic of South Africa. In contrast to these growing regional markets, U.S. exports to North America declined almost 15 percent from 1997/98 to 421,485 tons, due primarily to weaker shipments to Mexico. Shipments to Canada were slightly down. The Caribbean took 360,769 tons, down 5 percent from 1997/98. Smaller exports to the Dominican Republic account for most of the contraction. In contrast, Haiti imported nearly 220,000 tons, up 24 percent from 1997/98. U.S. exports to the EU dropped 8 percent to 308,080 tons. U.S. shipments to the Middle East--once the top international market for U.S. rice--dropped nearly 56,000 tons to 247,458. Smaller shipments to Saudi Arabia, Turkey, and Jordan-the major U.S. markets in the region--account for weaker sales to the region. The total value of U.S. rice exports in 1998/99 was slightly more than $1 billion, down 4 percent from a year earlier. The reduction was primarily caused by lower prices. The highest total value U.S. rice market in 1998/99 was Asia. The total value of U.S. rice exports to Asia rose 12 percent in 1998/99 to nearly $292 million. South America was another top market for U.S. rice based on value, with a total of more than $183 million, up 11 percent from 1997/98. Brazil accounted for almost all of the increase. The value of U.S. shipments to other regions declined in 1998/99. U.S. rice exports to the EU totaled $126 million, down 8 percent from 1997/98, a result of both lower prices and smaller shipments. Imports by the Caribbean totaled $122 million, down 12 percent. Exports to the Middle East totaled $106 million, a drop of more than 10 percent. Imports of U.S. rice by Sub- Saharan Africa totaled nearly $71 million, a 2-percent drop from 1998/99. Finally, rice exports to Central America totaled $67 million, a drop of more than 31 percent. On a single country basis, Japan was the highest valued single country market, with U.S. exports totaling almost $141 million, a 10-percent increase. Shipments to Brazil were valued at $133 million--second only to Japan. The value of U.S. rice exports to Mexico dropped 23 percent to $77 million. To Canada, the value dropped 8 percent to $72 million. Expanding shipments raised U.S. exports to South Africa to $32 million, up 17 percent from 1997/98. International Outlook for 1999/2000 Abundant Supplies Expected To Keep International Export Prices Weak For the 1999/2000 global crop year, weaker import demand and abundant export supplies worldwide will likely prevent a significant increase in international trading prices. World rice production is projected at a record 396.8 million tons (milled basis) in 1999/2000, up more than 1 percent from a year earlier. Record or near-record crops in major Asian producing countries--China, India, Indonesia, Bangladesh, Vietnam, and Thailand-are more than compensating for smaller crops in Latin America and the Middle East. World consumption is projected at 394.4 million tons, a record as well, and up more than 1 percent. With production exceeding production, ending stocks are projected to climb 4 percent to 59.8 million tons in 1999/2000, the largest on record. The stocks-to-use ratio is projected at 15 .2 percent, up slightly from last year and the largest since 1992/93. Stocks of this level indicate sufficient supplies to buffer any potential production difficulty in a major consuming country. World trade is projected at 23.2 million tons in 2000, down more than 4 percent from 1999 and 15 percent below the 1998 record of 27.3 million. Much smaller Asian imports are expected to more than offset larger imports by Latin America and the Middle East. In 1999, both Asia and Latin America imported smaller amounts of rice as crops in key importing countries-most importantly Indonesia, the Philippines, and Brazil--recovered from El Nino damage in 1997/98. Since late 1998 when Indonesia and the Philippines completed their record purchases, international rice prices have declined. Prices for Thai 100 percent grade B were quoted at $229 per ton in early November, down from $284 in 1998/99 and $302 in 1997/98. These were the lowest price quotes since the summer of 1994. The weaker prices are primarily due to much smaller global import demand and abundant export supplies worldwide. Prices for Vietnamese 5-percent broken rice were quoted at $215 per ton in early November, down from $230 at the beginning of August and $250 in early January. Prices were $315 in mid-September 1998 just prior to the conclusion of the record imports by Indonesia and the Philippines. Prices for similar type and quality U.S. long grain rice--No. 2, 4-percent brokens, f.o.b. Houston-also declined during the 1998/99 market year and have weakened thus far in 1999/2000. Prices for U.S. long grain rice have generally declined since the summer of 1997 when the Asian financial crisis erupted. The decline has been especially strong since this spring as global demand has contracted, a record U.S. crop was expected, and competitors' prices dropped. In early November 1999, the U.S. price was quoted at under $300 per ton, well below $375 in February and more than $400 at the start of the 1998/98 market year. Major Exporters Thailand: Thailand is expected to remain the world's largest rice exporter with 5.8 million tons projected for 2000, down from 6.1 million in 1999. The drop is primarily due to weaker demand and stock building. Thailand's 1999/2000 crop is projected at 15.4 million tons (milled basis), up more than 2 percent from a year earlier and the second largest on record. The larger crop is due to slightly larger plantings and a higher yield. Thailand traditionally competes with the United States in certain high-quality long grain rice markets--primarily in the EU, the Middle East, and South Africa--and with Vietnam, India, Pakistan, and Burma in various intermediate- and low-quality long grain markets. Thailand exports mostly indica rice and smaller quantities of premium jasmine rice, an aromatic. Burma, Pakistan, and Vietnam typically sell intermediate- and low- quality indica rice at significant price discounts to Thailand. India is currently priced out of most indica markets due to internal pricing policies. India also has quality problems with some of its rice and logistical problems that limit its reliability. Burma is currently exporting very little rice. Vietnam: Vietnam is the world's second largest rice exporter and is projected to produce 19.8 million tons in 1999/2000, down slightly from the 1998/99 record. A slight drop in area accounts for the projected decrease. Vietnam's exports are projected to drop 100,000 tons from this year's record to 4.1 million due to weaker global demand and a smaller crop. All of Vietnam's rice exports are indica rice, mostly intermediate and low quality. Vietnam produces three major rice crops a year. The summer- autumn crop accounts for 26 percent of annual production and is harvested July through October. The tenth-month crop typically accounts for 27 percent of production and is harvested between November and February in the south. This crop is declining in area and is the lowest yielding of Vietnam's three crops. The largest crop, the winter-spring crop, accounts for almost half of total production and is harvested in February.1/ The winter- spring crop has expanded more than 75 percent since 1988/89 and has the highest yield of the three crops. 1/ The harvest dates are for production occurring in southern Vietnam. Harvest dates differ in the north, but most rice production occurs in the south. United States: The United States is projected to export 3 million tons of rice in 2000, up 250,000 from this year bit still 5 percent below 1998. Expectations of expanding exports are the result of record U.S. supplies, lower prices, and smaller expected crops in Latin America. The U.S. share of world trade is projected at nearly 13 percent, up from 11 percent in 1999. Southern indica accounts for the bulk of U.S. rice exports, with Latin America, the EU, Saudi Arabia, Canada, and South Africa the largest markets. The U.S. also exports smaller quantities of japonica rice, mostly to Japan, Turkey, and Jordan. California supplies most of U.S. japonica exports. The U.S. share of world rice trade has generally declined over the past 15 years. Pakistan: Pakistan is projected to export 2 million tons of rice in 2000, unchanged from this year's record. Pakistan's crop is projected at a record 4.8 million tons, up nearly 3 percent from 1998/99, due to expanding area and a higher projected yield. Pakistan exports both high-quality basmati rice--which sells at a substantial premium in high-income markets--and intermediate- and low-quality non-aromatic long grain rice to developing countries where it competes with Thailand and Vietnam. Around a third of Pakistan's production is basmati. West Africa, Bangladesh, Iran, Indonesia, the United Arab Emirates, and Saudi Arabia were leading export markets for Pakistan in 1997/98. The government of Pakistan is actively trying to increase rice production through price incentives, timely availability of inputs, and technical assistance. India: For 2000, India is projected to export 1.5 million tons, down 1.25 million from 1999 and well below the country's 1998 record of 4.5 million. Much weaker imports by Bangladesh, continued expansion in domestic consumption, stock rebuilding, and uncompetitive prices are behind the much smaller export forecast. India is projected to produce a record 1999/2000 crop of 85.5 million tons, up slightly from 1998/99. Like Pakistan, India exports both a premium-priced basmati to higher income countries and low-quality non-aromatic long grain milled rice to developing countries. Principal markets for basmati rice are the Middle East, the EU, and the United States. Russia, South Africa, other Sub-Saharan Africa, and the Middle East are major exports markets for India's non-basmati rice. Much of India's non-basmati exports to South Africa and the Middle East are parboiled. China: China's 2000 exports are projected at 2.75 million tons, up 250,000 from this year's 2.5 million and second only to the 1998 record of 3.734 million. Several straight years of bumper crops plus a projected record 1999/2000 rice crop of 141 million tons are behind the robust export forecast. China announced a new grain policy this spring that reduces incentives to plant low- quality early rice, which is grown mostly in the south. It is too early to know what the long term impact of this policy will be on China's rice production and available exports. Much of the early rice crop is of poor quality and is either stored for years or used as feed. China is both an exporter and importer of rice. From the mid- 1960s to 1988 China was a major net exporter, usually ranking fourth and typically exporting 1 to 2 million tons of rice a year. In 1973 China exported 2.6 million tons, a record until 1998. China was a net importer in 1989, but was again a net exporter from 1990 to 1994. However, rice production in China declined in 1993/94 and 1994/95. As a result China was a major net importer in 1995 and 1996, as exports sharply declined and imports averaged 1.4 million tons annually. China has been a net exporter since 1997. USDA's long term baseline forecast projects China to remain a viable net exporter over the next decade. Burma: While once the world's largest rice exporter, Burma currently exports less than 100,000 tons a year. Burma's 1999/2000 rice crop is projected at 9.55 million tons, up nearly 3 percent from a year earlier, a result of greater area. However, production remains below the 1995/96 record of 9.86 million tons. Burma's exports are projected to increase 25,000 tons to 100,000 in 2000, about the same as in 1998. Burma's exports averaged almost 1.5 million tons a year in the early and mid-1960s, but declined to an average of only 542,000 tons from 1967 to 1989. Exports declined to a then-historic low between 1990 and 1993, averaging only 193,000 tons. Burma's exports rebounded in 1994 and 1995, averaging more than 600,000 tons annually, but plummeted to 265,000 tons in 1996. Inability to increase output from its dry season crop, difficulty in acquiring government rice quotas from farmers, and higher domestic consumption are behind the recent poor export performance. Trade is strictly controlled by the government in Burma. Burma's marketing and milling infrastructure remains antiquated and is unlikely to improve 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 small quantities of high-quality long grain rice. Australia: Australia's 1999/2000 crop is projected at 950,000 tons, down 4 percent from the year-earlier record. Area is projected to drop fractionally and yields to decline to trend levels. With a bumper harvest, exports are projected to remain a record 700,000 tons. Australia's rice farmers plant in October and harvest in April-May. The rice crop is grown primarily in New South Wales. Australia produces and exports primarily high- quality japonica rice and has captured a substantial share of the Japanese market since WTO-required imports were first purchased in 1995/96. Papua New Guinea and certain countries in the Middle East are other major export markets for Australian rice producers. Limited supplies of water for irrigation constrain any significant expansion in Australia's rice production. South America: Rice crops in South America's two largest rice exporting countries, Argentina and Uruguay, are expected to decline from 1999, a result of smaller crops and weaker regional demand. Both produced record crops in 1999 as area expanded on strong prices and yields were extremely high. Argentina and Uruguay export primarily indica rice. Argentina is projected to produce 850,000 tons in 1999/2000, down 21 percent from a year earlier, a result of smaller plantings and a return to more typical yields. Exports are projected to drop 25,000 tons to 500,000. Similarly, Uruguay's crop is projected to drop 5 percent to 850,000 tons as area drops on lower prices and yields return to more typical levels. Uruguay is projected to export 700,000 tons in 2000, down 25,000 from this year's record. Both area and rice production have been increasing in Argentina and Uruguay for well over a decade, a result of expanding export opportunities--mostly in Latin America. Both countries are expected to continue to focus their efforts on the substantial Brazilian rice market under the special trade arrangements afforded them by their membership in the MERCOSUR trade block (which includes Argentina, Brazil, Paraguay, and Uruguay). USDA's long term forecast (February 1999) puts Argentina's exports above 1 million tons by 2006. Slower long term expansion is projected for Uruguay's rice exports. Major Importers Indonesia is projected to remain the world's largest rice importer, taking 3 million tons in 2000, down from 3.9 million this year and its record 6.1 million in 1998. Indonesia's 1999/2000 crop is projected at 32.1 million tons, unchanged from 1998/99 but up 3 percent from 1997/98's drought-reduced crop. However, production remains below the 1995/96 record of 33.2 tons. Use has exceeded production since 1992/93, causing Indonesia to regularly import large amounts of rice. Indonesia was the world's leading rice importer during the 1970s, averaging over 1.3 million tons annually. During the mid-1980s, the Indonesian government was able to temporarily end nearly all rice imports through a program of national self-sufficiency. However, continuous area losses from Java's prime irrigated paddy fields, rising national consumption, and already high yields by Asian standards appear to have ended Indonesia's period of self- sufficiency. Indonesia is projected to remain a major importer of rice for the foreseeable future. The Philippines is projected to import 900,000 tons in 2000, a drop of 300,000 tons from this year's level and less than half the 1998 record of almost 2.2 million. The decline stems from a strong crop recovery from the 1997/98 El Nino. Primarily because of larger area, the Philippines is projected to produce a record 7.4 million tons in 1999/2000, up 11 percent from 1998/99 and 14 percent larger than 1997/98's drought-reduced crop. Despite the improved production outlook, the Philippines' food situation remains tight. Consumption, projected at a record 8.4 million tons (milled), is expected to exceed milled rice production by 1 million tons. This marks the ninth consecutive year that consumption has exceeded production. Lack of resources to expand rice growing areas and develop or even maintain infrastructure, little success in increasing yields--which are low by developing Asian standards--and steadily increasing population indicate the Philippines will be a regular importer of substantial quantities of rice in the foreseeable future. Bangladesh is projected to produce a record crop of 19.5 million tons in 1999/2000, up 2 percent from a year earlier, largely due to greater area. At 10.5 million hectares, rice plantings are the largest since 1986. Two consecutive year of record production have lowered Bangladesh's projected imports to 1 million tons in 2000, down from 1.8 million this year and well below the 1998 record of 2.5 million. 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. India supplies the bulk of the country's rice import needs. Bangladesh is projected to remain a major importer of rice over the next decade. China's 2000 imports are forecast at 400,000 tons, up 200,000 from this year. Most of China's imports are fragrant rice from Thailand that are bought by high-income urban consumers. China is self-sufficient in rice, given the current policy environment. For 2000, China's 2.75 million tons of exports will exceed imports by 2.35 million. China's government does not appear willing at this time to allow the country to depend on the world market for any substantial portion of its rice needs. Greater rice imports would allow some farmers to shift to higher priced horticultural crops. When China was a net importer in 1995 and 1996, some thought the country might become a regular major importer and change its policy of rice self-sufficiency to one of partial food grain self- sufficiency. Alternative crops, poultry, and hogs generally offer higher returns than rice farming. However, China has harvested bumper crops since 1997/98. Japan and South Korea have opened their rice markets to limited imports in accordance with minimum access criteria of the UR- GATT. Both countries have extremely strong preferences for japonica varieties for table consumption. The United States competes with Australia and China, and to a lesser extent Italy and Egypt--for the medium grain exports into these East Asian markets. However, Japan and South Korea have large rice processing capacities that use long grain rice, opening the import competition to other potential suppliers, mostly Thailand. Under the UR-GATT, Japan's minimum access criteria were scheduled to rise from nearly 380,000 tons (milled basis) in 1995/96 to 758,000 tons by 2000/01. 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 2004/05. In late 1998 Japan opted for rice tariffication as part of the GATT-WTO. This allowed the rate of growth in its annual rice imports--.8 percent of base period (1986-88) consumption-to halve in return for allowing over- quota imports. Japan must import 644,000 tons of rice before the end of its 1999/2000 fiscal year (April-March), and 682,000 tons the following fiscal year in accordance with UR-GATT minimum access import criteria. The tariff on over-quota imports was set at 352 yen per kilogram for 1999/2000, nearly five times the average price of U.S. rice imported in 1998/99. To date there have been no over-quota rice imports. Japan is projected to produce 8.35 million tons of rice in 1999, up 2 percent from a year earlier as higher yields offset continued contraction in area-a result of the government's rice area diversion program South Korea's 1999/2000 crop is estimated at 5.22 million tons, up more than 2 percent from a year earlier when a cool, wet summer severely cut yields. Area is estimated at almost 1.07 million hectares, slightly above a year earlier. Rice area in South Korea had been declining for a decade prior to 1997. South Korea's rice consumption has been trending downward since 1979/80. At 5.0 million tons in 1999/2000, consumption will be more than 20,000 tons below milled production. South Korea is scheduled to import about 114,00 tons (brown rice basis) of rice under the WTO in 1999/2000. Through October, South Korea had purchased 66,000 tons of medium grain from China and 10,000 tons of indica from Vietnam. In 1998/99, South Korea purchased 99,764 tons, almost 93,000 tons from China and 7,000 from Thailand. North Korea is projected to import 250,000 tons in 2000, down 50,000 from this year but about the same as in 1998. North Korea's rice production is projected at 1.5 million tons, up 100,000 tons from a year earlier, a result of higher yields. Most of North Korea's rice imports will be concessional in nature. North Korea's rice production has contracted severely since the late 1980s. Existing data suggest that during the 1980s North Korea's rice production averaged 2.06 million tons on 642,000 hectares, with an average paddy yield of nearly 4.7 tons per hectare. From 1990 to 1998, rice production averaged 1.42 million tons on 596,000 hectares with paddy yields of less than 3.5 milled tons per hectare. The EU is projected to import 750,000 tons in 2000, up 50,000 from this year but well below imports in the mid-1990s, a result of steadily increasing production. The 1999/2000 EU harvest is projected at 1.75 million tons, up almost 4 percent from a year earlier due to a higher yield and second only to the 1997 record of 1.8 million tons. An almost 8-percent increase in Italy's crop to 870,000 tons accounts for the bulk of the production increase. Spain and Greece are projected to harvest record crops. Italy accounts for the bulk of EU exports outside the region. The EU imports indica rice--with the United States and Thailand the largest supplier--and basmati from India and Pakistan. The EU exports japonica rice, mostly to countries in the eastern Mediterranean. The EU exports smaller amounts of rice-mostly food aid--to the former Soviet Union, North Korea, and Sub-Saharan Africa. The Middle East is traditionally the world's strongest market for high-quality rice--mostly parboiled, premium long grain varieties, and basmati--led by Iran, Iraq, and Saudi Arabia. Rice imports by the region are projected to rise 13 percent in 2000 to a near-record 3.63 million tons. A 250,000-ton increase in Iran's imports to 900,000 tons accounts for most of the increase. Iran's 1999/2000 crop is projected to drop nearly 9 percent to 1.6 million tons on smaller plantings and a weaker yield. Iran is suffering a severe drought this year. Saudi Arabia is projected to import 800,000 tons, up 50,000 from this year. Saudi Arabia does not grow any rice. Turkey's imports are projected at 350,000 tons, up 100,000 from this year. Production is projected to drop slightly on smaller plantings. Turkey is the second largest market for japonica rice-after Japan- -and the United States, Egypt, Australia, and the EU are its major suppliers. Iraq's imports are projected to remain at 700,000 tons. Sub-Saharan Africa: Imports by Sub-Saharan Africa (including the Republic of South Africa) are projected at more than 4 .2 million tons in 2000, down fractionally from the 1999 record. Declining rice prices in international markets have allowed Sub-Saharan Africa to purchase larger amounts of rice. In addition, fixed food aid expenditures are able to buy greater rice at the recent lower prices. With the exception of the Republic of South Africa, Sub-Saharan Africa has traditionally been a low-quality rice market. Nigeria is the largest market in Sub-Saharan Africa, with imports projected at 850,000 tons, up 50,000 from a year earlier. Thailand supplies most of Nigeria's rice imports. The Republic of South Africa is projected to import 575,000 tons, up 25,000 from 1999. India, Thailand, and the United States supply most of South Africa's rice. South Africa does not produce rice. Both Nigeria and South Africa are large markets for parboiled rice. Latin America: Imports by Latin America (Central America, the Caribbean, South America, and Mexico) are projected at nearly 3 million tons in 2000, up from 2.7 million in 1999, due to smaller production. Imports, however, remain below the 1998 record of almost 3.5 million tons, which were largely driven by El Nino crop damage to the region. In 1997/98, crops in several importing and exporting countries were severely reduced by El Nino-related weather problems. Most Latin American rice importers are price-conscious buyers who prefer high-quality rice, but will substitute lower-priced intermediate- and low-quality rice when international prices rise. Latin America is primarily an indica importing market. For South America, the bulk of milled rice imports are from other South American countries--mainly Argentina and Uruguay. Regional trading preferences and locational advantage account for much of the intra-regional buying. For rough rice imports, the United States is the main supplier. In addition to a locational advantage over Asian exporters, the United States is one of very few rice exporting countries that allows rough rice exports. In fact, none of the Asian exporting countries ships rough rice. Argentina exports some rough rice, but almost exclusively to Brazil. Also, most South American importing countries provide lower tariffs on imported rough rice than on milled rice. Brazil is Latin America's largest rice importer. Brazil is projected to import 1.1 million tons in 2000, up 250,000 from this year, a result of smaller production. Imports would still be well below the 1998 record of 1.46 million tons. Brazil's 1999/2000 crop is projected at 6.8 million tons, down 13 percent from the 1998/99 crop of nearly 7.8 million tons, the largest since the 1987/88 record. Rice consumption has exceeded production every year since 1988/89, making Brazil a major rice importer. Because of special trade arrangements under the MERCOSUR trade agreement, Argentina and Uruguay dominate the Brazilian market. Special Article Rice Plantings in Arkansas: A Comparison of Net Returns for Rice and Soybeans, 1996-1999 William Chambers, Nathan Childs, and Paul Westcott 1/ Abstract: Since 1997, U.S. rice plantings have increased each year, climbing to 3.6 million acres in 1999, the second highest on record. This has occurred even as rice prices have declined. The bulk of the area expansion took place in the South, especially in Arkansas, the largest producing State. Expected net returns-excluding fixed costs-for rice and soybeans are estimated from 1996 to 1999 for a representative Arkansas rice situation. Results indicate that despite the significant drop in rice prices over the past 3 years, expected net returns remained positive and exceeded returns for soybeans, the primary rotation crop in the South, every year. Keywords: Rice, soybeans, plantings, yields, costs of production, net returns, policy, revenue insurance. Since 1997, U.S. rice acreage has increased each year, reaching 3.6 million acres in 1999, the second largest on record and more than 27 percent higher than in 1996. The bulk of the area expansion occurred in the South, especially in Arkansas, the largest producing State. All of the area expansion in the South has been for long grain rice, the dominant type of rice produced in the region. 1/ Agricultural Economists, Economic Research Service, USDA. The expansion occurred despite falling rice prices. The season average price has declined from almost $10 per cwt in 1996/97 (August-July) to a projected $5.75 in 1999/2000, fractionally below 1992/93 and the lowest since 1986/87. Why have rice plantings expanded in the face of steadily declining prices? An examination of expected net returns by commodity provides useful insights into annual cropping decisions. In Arkansas, the primary rotation crop for rice is soybeans. This rotation is mainly used to combat red rice, a weed that competes with rice for sunlight and nutrients. Rice is typically grown in 1- or 2-year rotations with soybeans. Thus, some of the annual shift in acreage between rice and soybeans is driven by agronomic concerns. However, some planting decisions are based on differences in expected net returns among crops. Net Return Estimates Based on Expected Price, Variable Costs, and Yields This study estimates expected net returns for rice and soybean production in Arkansas from 1996 to 1999. Net returns per crop- acre are calculated by multiplying the farm price of a commodity by its yield and then subtracting the variable costs incurred during production. [see box] Fixed costs are not included in the net returns calculations as annual planting choices are viewed as a short-run economic decision. In the long run, returns would have to cover both variable and fixed costs for an individual producer to remain in production. This analysis focuses on land use decisions, which means that farmers' expectations regarding prices, yields, and costs are of primary importance. Thus, the components of the expected net returns equations are "expected" levels rather than "realized" results. These expected values are estimated using information that was available to producers when planting decisions were made. Record Supplies, Falling International Prices Pull Down U.S. Rice Prices U.S. rice prices were largely supported in 1996/97 by relatively high international prices. In 1997/98 and 1998/99, record U.S. rough rice exports-mostly to Latin America-supported domestic prices in the face of rapidly falling international prices. The Asian financial crisis, which began in the summer of 1997, had a major impact on international rice prices, with Thai prices dropping throughout the second half of 1997. By that fall, other exporters' prices dropped as well. Not until Indonesia and the Philippines began making record purchases did international prices stabilize and begin to partially recover. However, international prices began falling again in late 1998 as import demand contracted on strong crop recoveries in Asia and Latin America. U.S. trading prices for milled rice initially dropped only slightly in response to the Asian crisis, widening the price difference between U.S. and Asian rice. Prices for U.S. milled rice slowly declined for the next 2 years, a response to large supplies and strong international competition. The record exports to Latin America supported U.S. rough rice prices in 1997/98 and 1998/99 even though total supply was at near-record levels both years. Not until early 1999, given expectations of near-record U.S. plantings and the end of the massive shipments to Brazil, did U.S. rough rice prices, especially for long grain, begin to drop substantially. In 1999/2000, record U.S. supplies, a large reduction in rough rice exports, and weaker world prices have continued to pull U.S. prices down. U.S. soybean prices began to slide more than a year before rice prices contracted, a result of record U.S. supplies and large crops in major exporting countries. The soybean season-average farm price has dropped from $7.35 per bushel in 1996/97, to $6.47 in 1997/98, and to $5.00 in 1998/99. For 1999/2000, prices are projected to average $4.60 to $5.10. Expected Net Returns for Rice Exceed Soybeans Each Year Expected net returns for rice and soybeans are estimated for Arkansas for 1996-1999 (tables A-2 and A-3). A 2000 forecast is also calculated. Expected net returns are based on assumptions regarding farm prices, yields, and production costs for various cropping alternatives. While yields, production costs, and farming practices vary within Arkansas, State-level analysis can still yield useful insights into cropping decisions. Expected returns for both rice and soybeans were positive throughout this period. For Arkansas rice producers, estimated expected net returns exceeded those for soybeans every year of the study. Except for 1996, rice plantings in Arkansas increased every year. In contrast, Arkansas soybean plantings expanded slightly in 1996 and 1997, and then contracted in 1998 and 1999. Thus, the relatively higher returns for rice compared with other cropping alternatives was likely a factor behind expanding rice plantings in Arkansas despite declining rice prices. In 1996 Arkansas rice plantings dropped 12.6 percent even though expected net returns for rice exceeded returns for soybeans by almost $40 per acre. In fact, rice plantings declined in every producing State that year. This was likely due to the passage of the 1996 Farm Act, which removed the minimum acreage requirement for rice. Prior to 1996, farmers were required to maintain a minimum level of rice plantings each year in order to be eligible for government payments. Most analysts had expected rice acreage to decline with passage of the 1996 Act, which eliminated target prices and deficiency payments. In 1996 many rice producers likely rotated land out of rice and into soybeans to combat red rice. This study used aggregate Arkansas soybean data that do not differentiate between irrigated or non-irrigated soybean production. This could create problems in the analysis because soybeans grown on rice land are irrigated, and irrigated soybeans tend to have higher returns. Given the magnitude of the difference in expected returns, this did not cause problems for most years. However, in 1999 the difference in expected returns was only about $40 per acre. The fact that soybean returns on irrigated rice land are underestimated in this analysis may be a more important factor in 1999, given the small difference. In 1997 and 1998, expected net returns for rice exceeded returns for soybeans by at least $100 per acre. Rice plantings in Arkansas rose nearly 19 percent in 1997 and 10 percent in 1998. In both years, U.S. rice prices were supported by record rough rice exports to Latin America, which sustained substantial crop damage from El Nino. In contrast, U.S. soybean prices have declined sharply since the spring of 1997. In both 1997 and 1998 the difference in net returns between rice and soybeans was large enough to more than compensate for any underestimation of soybean net returns. Rice Plantings in 1999 Affected by Insurance Supplemental In 1999, expected net returns for rice and soybeans dropped substantially, primarily due to much lower price expectations, especially for rice. The decline in net returns was much larger for rice, with expected returns more than halving to $111 per acre and exceeding returns to soybeans by just $38 per acre, about the same as the 1996 difference. Yet rice plantings in Arkansas expanded 7 percent in 1999. While an examination of net returns favored rice over soybeans, two additional factors likely affected rice farmers' planting decisions in 1999. First is the Crop Revenue Coverage (CRC) Plus insurance program offered by American Agrisurance. CRC Plus was a supplemental policy that allowed CRC policyholders to purchase an increase on their CRC base price if they believed that their CRC base coverage was inadequate. The plan offered a minimum revenue guarantee, for the proportion of total acres that are insured, based on the farmer's production history (or yield) and a base price determined by planting-time expectations of prices at harvest. Last spring the CRC base price was announced at $8.50 per cwt. A payment would be triggered if the combination of price and yield reduced revenue below the guaranteed level (a percentage of the base price times a base yield). Under the CRC Plus endorsement, policyholders could add to the CRC base price by up to $3 per cwt for rice. This could push the base price as high as $11.50 (for the acres covered under the plan), which was well above both cash and futures prices at the time. As a result, a large number of rice farmers signed up for the plan. The sign-up deadline was February 28, 1999. However, shortly after that deadline, American Agrisurance halved the maximum price supplement to $1.50 per cwt above the base price. On March 10 it stopped offering CRC Plus altogether. On March 25, the company reversed itself and reinstated CRC Plus with the maximum price supplemental set at the halved level of $1.50 above the base price. It is not known exactly how the company's change affected rice plantings. When the plan was first announced, it likely increased planting intentions. However, after the company stopped offering the extended price endorsement, intended rice plantings may have declined. On balance, the CRC Plus plan likely increased rice plantings. Although the changes to the CRC Plus plan were made before rice plantings were complete in Arkansas, some farmers had already begun preparations to grow rice, making it costly to switch to other crops. The second is marketing loan benefits. At the time producers were making planting decisions for the 1999/00 crop, USDA's long- term supply and demand projections for 1999/2000 did not indicate any marketing loan payments. That is, the world rice price was not expected to fall below the loan rate of $6.50 per cwt. In fact, the announced world price did not drop below the loan rate until early last spring, and then by only a few cents per cwt. Not until August 1999 did rice marketing loan benefits exceed $1 per cwt. No expectations of marketing loan benefits were included in the 1999 net returns calculations for rice. However, rice farmers may have had some expectations at planting that there would be payments in 1999/2000, and this may have influenced planting decisions. Analysis of Expected Net Returns Indicates Smaller 2000 Rice Plantings The above analysis can be extended to forecast net returns for Arkansas rice and soybeans in 2000/01. Because there is currently no trading for November 2000 futures contracts we cannot calculate the expected 2000 price using the futures market. Instead, the expected prices for crop year 2000 are based on current cash prices in Arkansas. In October 1999 soybeans in Arkansas were selling for about $4.50 per bushel with farmers receiving marketing loan benefits of about 90 cents. For rice, long grain rough rice was selling for about $5.50 per cwt in the Delta and marketing loan benefits for long grain rice in October averaged $1.64 per cwt. Using these reported cash prices and marketing loan benefits, expected net returns for rice are estimated to be $95 per acre, about 14 percent below a year earlier, while those for soybeans are projected nearly unchanged at $72. This tightens the difference between the crops to just $24 per acre, the smallest for any year examined. Thus, while expected net returns for rice still exceed those for soybeans, it is expected to be by a much smaller margin in 2000. This factor, combined with the absence of the CRC Plus supplemental insurance coverage, suggests smaller rice acreage in Arkansas in 2000. However, it is important to note that many factors, such as weather and international events, can alter the outlook for expected net returns between now and when the 2000 crop is planted. BEGIN BOX Calculating Expected Net Returns Expected Prices Estimates of expected price are derived in two steps. The first is to obtain a planting-time expectation of a national price at harvest. This price is the average for the November long grain futures contract in February and March. Since rice planting in the Delta begins in early April, futures trading in February and March would be watched closely by farmers deciding what crop to plant. In addition to being a risk management tool, futures prices provide forecasts of prices several months in advance and contain up-to-date market information. Because national and regional prices typically differ-due to supply and demand differences and transportation costs-it is necessary to calculate a "basis" to adjust national prices to a farm-level price in Arkansas. The basis was calculated by subtracting the October average cash price in Arkansas from the October average of the November futures contract. The November contract was used because it comes due at about the same time that farmers would likely be selling much of their crop, i.e., shortly after harvest. Both the annual basis for each year 1988- 1998, as well as the average for the period, were calculated.2/ The average basis for rice was 23 cents per cwt and for soybeans -14.3 cents per bushel. The basis is then subtracted from the prices calculated in step one, resulting in an estimate of farmers' price expectations at planting time for the years 1996- 1999. 2/ Arkansas cash prices for soybeans are reported monthly by USDA. Arkansas long grain cash price data for 1988-1996 are from unpublished industry sources. For 1997 and 1998, Arkansas cash rice prices are from various industry reports. Any expected marketing loan benefits are added to revenues in the expected net returns equation. For rice between 1996 and 1999, no marketing loan benefits were included because price expectations were consistently above the loan rate. For soybeans, no marketing loan benefits were used for the years 1996- 1998. In 1999 the expected soybean price of $5.21 was augmented by a 5-cent per bushel marketing loan benefit. For rice, participating producers were eligible for Production Flexibility Contract payments each year. However, because these payments are not dependent on current plantings, they are not included in net return calculations. There are no flexibility contract payments for soybeans. An alternative method that farmers base next year's planting decisions on are the cash prices they receive for the current year's crop. Cash prices have been declining for both rice and soybeans since 1996/97, but soybeans have been declining at a faster pace. Given the relative price situation for rice and soybeans in the Delta, rice was likely a more attractive cropping option to Arkansas farmers in 1999. Currently in the Delta, soybeans are trading at about $4.50 per bushel and rice is trading for about $5.50 per cwt. These levels, along with current marketing loan benefits, were used as expected prices for the 2000/01 crop. Expected Yields Expected yields are calculated using 5-year moving averages. For example, the expected yield for rice in Arkansas in 1996 was the simple average of the State's yield for 1991-1995. Available data for soybean yields do not differentiate between irrigated and non-irrigated land. Since soybeans planted on rice land are typically irrigated and yields are higher on irrigated land, our estimates understate actual soybean yields on Arkansas rice land. Somewhat offsetting the higher yields in the net returns calculations are higher production costs for irrigated soybeans than for non-irrigated. Discussions with several producers indicated that soybean yields on irrigated land could be as high as 40 to 60 bushels an acre, depending on the type of irrigation method used and the particular soil. Additional costs for irrigation were reported at $40 to $50 per acre. Variable Costs of Production Variable costs of production data for the Mississippi River Delta were used as a proxy for Arkansas production costs for both rice and soybeans. Cost data published by USDA's Economic Research Service were used for 1996 and 1997. For 1998 and 1999, national- level cost projections from USDA's 1999 Baseline were used to develop regional cost estimates. Calculating the average difference in production costs between the Delta and the United States from 1992 to 1997 did this. For rice, variable production costs in the Delta averaged about 15 percent below the national average while soybean variable production costs were about 7 percent higher. National cost projections from the baseline for 1998 and 1999 were then adjusted to reflect these historic regional differences for both rice and soybeans in Arkansas. END BOX Special Article Herbicide-Resistant Varieties in Commercial Rice Production: Implications for the Future by William Chambers and Nathan Childs 1/ Abstract: A number of herbicide-resistant rice varieties is expected to be commercially available within the next several years. The main benefit offered by herbicide-resistant crops is greater control over red rice, a major problem in South. The introduction of these varieties could significantly affect the domestic rice industry by altering production practices, improving yields, and reducing costs. Two of the new varieties are transgenic (genetically modified), which raises concerns over potential consumer acceptance and environmental problems from possible "outcrossing." A number of herbicide-resistant rice varieties is expected to be commercially available to U.S. rice growers in the next several years. The introduction of these varieties could significantly affect the domestic rice industry by altering production practices, improving yields, and reducing costs. 1/ Agricultural Economists, Economic Research Service, USDA. The main benefit offered by herbicide-resistant crops is greater control over red rice, a weed that competes with rice for sunlight and nutrition. Red rice is a major problem in the Delta and Gulf Coast producing regions. Although California is currently red rice free, production losses from other weeds, some of which are resistant to common herbicides, are a problem. Red rice poses serious production problems because it is closely related to regular rice. Thus, any herbicide that can effectively combat red rice will also kill regular rice. Although red rice is primarily a weed, California grows a very small amount of non-weedy red rice that is sold in commercial markets. There are currently three varieties of herbicide-resistant rice being developed: (1) Liberty Link, (developed by AgrEvo), (2) Roundup Ready (developed by Monsanto), and (3) Clearfield (developed by Louisiana State University and licensed to American Cyanamid). Both Liberty Link and Roundup Ready rice are transgenic-or genetically modified-varieties. In transgenic rice, a gene from another organism is placed in rice by gene transfer technology. Liberty Link is being developed using biotechnological techniques that allow researchers to isolate a gene from a soil bacterium that is resistant to the Liberty herbicide and insert it into commercial varieties of rice. This gene makes Liberty Link rice resistant to Liberty herbicide. Roundup Ready rice is also genetically modified and is resistant to Roundup herbicide. Clearfield rice, which is resistant to imidazolinone herbicides, is being developed using traditional breeding techniques instead of biotechnology. Combating Red Rice: A Major Concern of Farmers Red rice is a serious problem for many producers in the South as it cuts yields and reduces quality. Farmers currently use several management practices to combat red rice. First, they plant rice early to "get ahead" of the red rice, thus allowing the rice to mature earlier than the red rice. This practice typically requires earlier flooding, which raises production costs, especially for water. Another problem is that rice is often planted prior to optimal time, so that temperatures are cooler early in the growing cycle. Early flooded fields are more susceptible to rice water weevil problems, seedling diseases, and blackbird degradation. A second method producers use to combat red rice is to seed flooded fields by air. Rice seeds that have already sprouted and have soaked in water for 24-36 hours will sink to the bottom. Rice will then "peg down" and begin to emerge through the surface. Red rice cannot sprout in a flooded environment. While quite effective in combating red rice, aerial seeding is more expensive than drill seeding as it requires about 30 percent more seed, may require more water, and incurs the extra expense of an airplane. A third approach is "mudding-up," or trying to bury the red rice seeds in flooded fields prior to planting. This practice causes many problems. It can be damaging to tractors and other equipment, creates lots of muddy water that takes days to clear, and can increase soil erosion and reduce water quality. Finally, a rice-soybean rotation is used by farmers to fight red rice. In non-rice years farmers apply chemicals that kill the red rice but do not harm broad leaf plants like soybeans. However, net returns for soybeans are typically much lower than for rice in the Delta, where the bulk of the rice-soybean rotation occurs. This reduces the producer's overall returns to land and capital. Herbicide-Resistant Varieties May Raise Yields, Lower Costs It is too early to estimate with much certainty the impact of commercial adoption of herbicide-resistant varieties on the U.S. rice industry. However, several major points can be made. First, because herbicide-resistant rice varieties are expected to improve production practices, it is likely that their introduction will raise farm-level yields. Red rice reduces yields in two ways: It competes with the commercial rice crop for nutrients and sunlight, and it forces growers to use management practices that limit yield potential. In addition, mills discount the price of rough rice if it contains any red rice. Adoption of herbicide-resistant varieties has the potential to reduce these problems. Second, the overall impact of the adoption of herbicide-resistant varieties is likely to lower production costs. While seed costs are expected to be higher, outlays for water, fuel, and custom operations will likely be less. Lower production costs would allow U.S. producers to be more competitive in world markets. Third, herbicide-resistant varieties may reduce the need to rotate rice with soybeans. Soybeans achieve relatively low yields in the Delta, a result of climate and soil. If not for the need to rotate soybeans with rice, soybean plantings on rice land in the Delta would be substantially less. Thus, some producers with the highest yielding rice land may continuously grow rice, causing a shift in overall acreage to the most productive land. However, the rice-soybean rotation provides other benefits such as diminishing yield losses from other diseases. Climate and soil conditions on the Gulf Coast are even less conducive for growing soybeans. In fact, it is difficult for producers to grow any viable rotation crop on the Gulf Coast. As a result, many Texas producers idle their rice land in non-rice producing years, contributing little to fixed costs and reducing overall returns. Herbicide-resistant varieties may allow some of these producers to grow rice year after year. The lack of a viable rotation crop is a major problem for much of the Texas rice growing area. Other problems include high water costs, urban encroachment, and migratory birds. On balance, the combination of higher yields, lower costs, and less need to rotate imply a shifting of rice area to the most productive regions and to the most efficient farms and farm sizes. Rice plantings this decade have averaged more than 3 million acres per year. Yet total rice acreage-including land idled or in rotation-is nearly 6 million acres, with most of the difference used for soybean production, especially in the Delta. With the need for a soybean rotation reduced and given that-due to a lack of markets-acres planted cannot exceed current levels, we would expect that the advent of herbicide-resistant varieties would lead to a shift in production to higher quality rice land. The introduction of herbicide-resistant varieties has the potential to improve production practices, resulting in more efficient rice production, lower cost operations, and higher quality rice. Transgenic Rice Raises Potential Safety and "Outcrossing" Concerns Development of transgenic rice is currently aimed at improving agronomic characteristics, primarily herbicide resistance. Other products in development include rice varieties tolerant to cold, heat, and drought stress. In addition, rice breeders are using biotechnology to improve nutritional quality of rice as demonstrated by the recent development of a rice variety with increased levels of iron and vitamin A. This development was led by researchers at the Swiss Federal Institute of Technology and was financed primarily from the New York-based Rockefeller Foundation with additional funding from the European Commission's agricultural research program. This rice could overcome a variety of food deficiencies that are particularly common in developing countries. In April 1999 USDA removed both a California and a southern medium grain Liberty Link transformed line from its list of regulated crops, determining that they do not pose a plant risk to the environment. The ruling allows AgrEvo to carry out extensive variety evaluation in preparation for anticipated commercial availability after the spring of 2001. The first commercial sales of Liberty Link rice seed will be japonica varieties adaptable to both the South and California. Clearfield rice is anticipated to be commercially available in the spring of 2001. Commercial availability of Roundup Ready rice is expected to take a few more years. Although herbicide-resistant rice offers many benefits to producers, there are several potential problems. One important concern is that herbicide-resistant traits could be "outcrossed" to red rice. That is, there is the potential for the herbicide- resistant trait to move into a red rice plant. If this were to happen, most of the benefits of herbicide resistance would be erased. However, since there are three different types of herbicide-resistant rice being developed, this problem could be managed by growing these varieties in rotation. In addition, surveys indicate a growing number of consumers are worried about the safety of genetically enhanced foods. These concerns are strongest in the European Union, but exist in other countries as well. Currently, the EU, Japan, Australia, South Korea, Thailand, and New Zealand are developing policies for dealing with genetically enhanced foods. U.S. rice producers will need to be aware of these regulations in their export markets. Note: The authors wish to express their gratitude to Dr. Steve Linscombe (Louisiana Agricultural Experiment Station, Crowley, Louisiana), Mr. Brad Cahill (USA Rice Federation, Arlington, Virginia), and Dr. Terri Dunahay (USDA's Foreign Agricultural Service) for their reviews of this article. BEGIN BOX Further Reading For more information regarding herbicide-resistant rice, see the following articles: o "USDA Grants Liberty Link Rice Non-Regulated Status," The Rice World, May 1999. o "IMI Rice Available in 2001," The Rice World, March 1999. o "Rice Person of the Month: Tim Croughan Sees Bright Future for Biotech," The Rice World, March 1999. o "Biotechnology Education a Must," The Rice World, March 1999. o "Herbicide Resistance Closer: Technology Could Eradicate Red Rice," The Rice Journal, January 1999. o "Resistant Rice: Improved California Weed Control," Rice Farming, February 1997. o "Crossing the Genetic Frontier," Rice Farming, February 1997. o USDA's Economic Research Service web site, www.econ.ag.gov. END BOX Special Article Upcoming World Trade Organization Negotiations: Issues for the U.S. Rice Sector Nathan W. Childs and Linwood Hoffman 1/ Abstract: Forthcoming World Trade Organization (WTO) negotiations in Seattle are likely to include issues important to the U.S. rice industry. Issues include increased market access, continued reduction in domestic support programs and export subsidies, tighter discipline on state trading enterprises, and uniform world trading rules and regulations for genetically engineered commodities. The likely WTO accession by China is an important issue as well. Enhanced market opportunities for the U.S. rice sector depend, in part, upon progress in these areas. Keywords: Rice, trade, policy, WTO, market access, tariff-rate quotas, export subsidies, domestic support. The next round of multilateral trade negotiations under the World Trade Organization (WTO) begins in Seattle, Washington, on November 30, 1999. Officials from member countries of the WTO will initiate negotiations on agricultural trade and other trade- related topics. These discussions will continue the progress of reforming agricultural trade rules begun in the Uruguay Round, which concluded in 1994. / Agricultural Economists, Economic Research Service, USDA. The Uruguay Round continued the process of reducing trade barriers achieved in the seven previous rounds under the General Agreement on Tariffs and Trade (GATT), which the WTO replaced. Among its most significant accomplishments was the Uruguay Round Agreement on Agriculture (URAA), under which WTO members committed to cut average tariff levels on all agricultural products, lower the volume of and expenditures on subsidized exports, and reduce aggregate spending on trade-distorting domestic support programs for agriculture. In addition, the URAA established new disciplines on the use of sanitary and phytosanitary (SPS) measures that could be used to restrict trade based on health and safety concerns, and improved the process for settling trade disputes. The international rice market is characterized by a high level of government intervention, especially when compared with other grains and oilseeds. The bulk of this intervention is in the form of state control of trade, including state trading enterprises. With exports accounting for more than 40 percent of U.S. rice production, the outcome of the upcoming WTO Round will likely have important impacts on the U.S. rice sector. This article briefly examines trade in the international rice market, identifying key importers and exporters, and segmenting rice trade by type of rice and quality. Next, accomplishments of the Uruguay Round important to rice are discussed. Finally, issues affecting rice trade that are likely to be a part of the upcoming WTO Round are examined. World Rice Market Stratified by Type and Quality The international rice market exhibits greater price volatility than other grain and oilseed markets. The greater price volatility arises from several unique characteristics of the international rice market. First, the international rice market is a ?thin? market as only about 6 percent of global production is currently traded annually, well below the almost 20 percent for wheat, 12 percent for coarse grains, and nearly 25 percent for soybeans. Thus, variations in production can cause big movements in trading prices. Much of this "thinness" is due to government policies that bar or limit trade. Second, nearly half of global rice production--grown in a large swath running from Pakistan, south and east through the Philippines--is dependent on the timing of the Asian monsoon. In fact, 90 percent of rice is produced in Asia. Other grains and oilseeds are produced over a more diverse area and are thus less dependent on any single weather pattern. Third, the international rice market is stringently segregated by type and quality, with little substitution in consumption and production. Market segmentation makes the international rice market even thinner, further contributing to price volatility. More than 75 percent of world rice trade is indica, around 11 percent japonica, almost 9 percent aromatic rice, and the rest mostly glutinous rice. Fourth, rice is a critical part of the diet of billions of people in Asia with more than 40 percent depending on rice for over half their daily nutrition. The land and climate of much of Southeast and Northeast Asia are poorly suited for growing other grains and oilseeds, magnifying the critical importance of rice in the lives of billions of people, both as consumers and producers. With few viable substitutes, Asian consumers are not very responsive to changes in rice prices. And finally, the level of government intervention in the international rice market--i.e., trade barriers, producer supports, and state control of trade--is substantially higher than for the other grains and oilseeds. This is a major factor contributing to price variation in the international rice market. For most developing Asian countries, maintaining adequate supplies of rice and low consumer prices are major policy goals. For higher income Asian countries--principally Japan, South Korea, and Taiwan--the main policy goal is to protect producers from lower priced imports. The net impact of large government intervention is to shift price instability from domestic markets to the world market and thus magnify price and quantity adjustments. State trading further makes price discovery more costly as state trading enterprises are able to segregate markets by price. The bulk of world rice trade occurs among developing countries. Thailand, Vietnam, the United States, China, India, and Pakistan are the largest exporters, typically accounting for 75 percent of global exports. Thailand, the world?s largest exporter, ships mostly indica rice and smaller amounts of its premium fragrant or ?jasmine? rice. India and Pakistan export indica and their premium aromatic or ?basmati? rice. The United States and China export both indica and japonica rice. The United States is the only major exporter of ?rough? or unmilled rice. Australia, Argentina, Uruguay, Egypt, Guyana, and Italy export smaller amounts of rice. Australia, Egypt, and Italy export japonica; the other three ship indica. Based on quality, the United States, EU, Australia, and Egypt ship almost exclusively high quality rice. Thailand ships high, medium, and low quality. Vietnam ships medium quality to the Middle East and lower quality to most other markets. China exports high quality japonica to Japan and low quality indica to Asia and Africa. Except for aromatic and some high quality Indian parboiled, India and Pakistan ship low quality rice. The quality of Latin American rice varies, with Argentina and Uruguay exporting mostly high quality. Although the import market is less concentrated than the export, it is similarly stratified. For indica rice, Indonesia, the Philippines, and Bangladesh are the largest buyers, taking mostly low quality. Iraq and Malaysia are typically medium quality import markets. Iran, Saudi Arabia, and South Africa import mostly high quality indica rice. Brazil is the largest non- Asian rice market, importing mostly high quality indica rice. Mexico and the EU are large importers of high quality indica rice, with Mexico taking mostly rough rice and the EU importing ?brown? or husked rice. Africa imports mostly low quality rice and is a major recipient of U.S. food aid. By type, Japan is the largest importer of japonica rice followed by Turkey, South Korea, and Jordan. Japonica typically sells at a premium to indica in global markets. Aromatic rice, which trades at prices above japonica, is purchased mostly by higher income countries such as the United States, the EU, Hong Kong, and the Middle East. In addition, higher income urban consumers in China import Thai jasmine rice. The United States accounts for 12-13 percent of global rice exports. Its market share has steadily declined since the early 1980s when the United States was the largest exporter. Except for food aid, the United States does not export to the lower quality markets. The United States is losing market share in the Middle East and South Africa to Asian exporters, mostly Thailand and India. The largest market for U.S. rice is currently Latin America (mostly rough rice), the EU (mostly brown rice), Japan (both brown and milled), Saudi Arabia and South Africa (mostly parboiled), and Canada, mostly milled. Accomplishments of the Uruguay Round For rice, the major impact of the Uruguay Round of the GATT has been to increase global rice trade, especially for japonica rice. The URAA was signed in 1994 with the primary objective of reducing barriers to agricultural trade by increasing market access, reducing or eliminating export subsidies, and disciplining domestic support programs that distort production or trade. An examination of the URAA impacts on specific markets and on specific trade issues follows. Japan and South Korea--The single largest impact to date of the URAA for the international rice market has been the partial opening of the Japanese and South Korean markets to rice imports through a minimum access quota. In the Uruguay Round, countries agreed to convert all nontariff barriers to bound tariffs, and thus base agricultural protection on tariffs. There were exceptions to this requirement. Among several exceptions was rice in Japan and South Korea, where, under a special "rice clause," import quotas were established. As a developed country, Japan was required to open its domestic market to imports at 4 percent of base period (1986-88) consumption in 1995, rising to 8 percent by 2000. In the case of South Korea, a developing country, the corresponding quota is 1 to 2 percent of base period consumption in the first 5 years, rising to 2 to 4 percent in the next 5 years. The WTO minimum- access imports have been a major factor in expanding global japonica trade and rising japonica prices. Total imports by both of these countries are now more than 730,000 tons, double the 1995 level, with japonica accounting for the bulk of these imports. Because climatic conditions limit the area where japonica can be produced, Japan's and South Korea's expanding imports have raised prices and shifted japonica supplies from other import markets. The United States, China, and Australia have supplied the bulk of Japan's and South Korea?s rice imports. Of these three suppliers, only China has the potential to expand area significantly. To date, the United States has been the largest supplier to Japan, accounting for slightly less than 50 percent of Japan's total WTO imports, almost all from California. The U.S. has not supplied any WTO rice to South Korea. China has accounted for the bulk of South Korea's WTO rice imports. In 1999 Japan adopted a rice tariffication scheme that allowed it to halve its rate of growth in minimum access imports from a rate of .8 percent of base period use to .4 percent in return for allowing over-quota imports. Japan has set its 1999/2000 fiscal year (April-March) tariff for over-quota rice at 351 yen per kilogram, or nearly 5 times the average price of U.S. rice exported to Japan in 1998/99. The tariff is scheduled to drop slightly in 2000/01 to 341 yen. To date Japan has not imported any over-quota rice from any source. Japan's import quota will remain at the 2000 level of 7.2 percent of base period use until another agreement is reached. Even with Japan?s recent tariffication, total quota imports for both countries will be nearly 800,000 tons in 2000, or almost one-half of global japonica trade. The United States--First, under the URAA the United States agreed to lower its rice tariffs--already quite low--by 36 percent in six equal installments by 2000 starting in 1995. The United States also agreed to establish quantity and budgetary ceilings for export subsidies and reduce these 21 percent and 36 percent by 2000. The United States does not currently provide direct export subsidies for rice exports. The United States continues to include rice in international food aid shipments. The Export Enhancement Program (EEP) provided targeted export assistance in former U.S. markets, but there have been no EEP sales for rice in 4 years The Uruguay Round was the first time the GATT disciplined domestic support programs. Under the URAA, countries were required to reduce outlays, termed aggregate measures of support (AMS), on many domestic policies that provide producers with direct economic incentives to increase production. In discussions leading up to the URAA, domestic policies were segregated into categories to indicate the relative acceptability of the policies. In the final agreement, domestic policies deemed to have the largest effect on production and trade ("Amber Box" policies) are to be disciplined by requiring limitations or gradual reductions in aggregate support levels. Policies presumed to have the least effect on production and trade ("Green Box" policies) are exempt from disciplines. As a developed country, the United States is required to reduce its AMS for Amber box category of domestic support by 20 percent over 6 years starting in 1995. The 1996 Farm Act, enacted more than a year after the UR was concluded, contained important policy reforms that reduced trade- distorting domestic support policies. Under the 1996 Farm Act, producer support in the United States is provided in the form of direct payments that are not tied to current planting levels, thus fitting in the URAA "Green Box" category where policies are exempt from URAA reduction commitments. Since rice is a program crop, participating rice producers are eligible for production flexibility contract payments (PFCs). In 1997/98, the PFC payment rate was $2.71 per cwt, compared with a market price of $9.70. Participating producers received payments on 85 percent of their contract acreage based on their program yield. In addition to annual PFC payments, a marketing loan program is provided to U.S. rice producers. Producer support under the marketing loan program includes both loan deficiency payments and marketing loan gains. Payment rates are based on the difference between the announced world price and the established loan rate, with payments resulting when the announced world rice price is less than the loan rate. The marketing loan program fits the URAA "Amber Box" category. Under the URAA, developed countries agreed to reduce aggregate outlays for all commodities-not rice specifically--in this category of support 20 percent by 2000/01. Thus, no reductions for rice are necessarily required to meet the 20 percent AMS commitment. There were no marketing loan payments from 1996/97 through 1997/98, and payments were negligible in 1998/99. However, low world prices are responsible for sizable marketing loan payments in 1999/2000. Because of economic hardships stemming from falling farm incomes and weather-related disasters, the U.S. Congress provided supplemental emergency assistance payments to recipients of PFC payments in both 1998/99 and 1999/2000. These emergency payments increased payments to rice producers by 50 percent in 1998 and doubled the total level of direct payments in 1999. The European Union--The EU's URAA commitments were similar to the U.S. commitments. The EU converted its variable import levies to fixed tariffs and agreed to lower these tariffs 36 percent by 2000. The base period chosen for establishing these fixed tariffs was the average level during 1986-88. Tariffs were assigned by categories--paddy, husked, semi/wholly milled, and brokens. The EU also agreed to bind the difference between the import price and its internal support price so that the level of protection will not increase if the EU reduces its internal support price. Prior to the completion of the URAA, the EU-U.S. Blair House Accord in 1992 altered the way import duties for cereals and rice are applied. Alterations apply to milled and husked imports, not to paddy, which remains fixed at levels set originally in URAA. The other duties are variable based on the difference between the intervention price and the representative import price. The representative import price and derived import duty are set every 2 weeks for each category. After complaints from importers about the representative price, the EU adopted a cumulative recovery system for any importers who believed they paid too much based on the reference price. This program was not judged successful and was terminated on December 31, 1998. A major reason EU rice imports have not been greatly affected by WTO commitments is that a large share of EU rice imports result from import concessions. Egypt can ship 32,000 tons at a reduced duty level of 25 percent. African, Caribbean, and Pacific (ACP) countries can export long grain rice to the EU at a reduced tariff and Overseas Countries and Territories (OCT), primarily the Dutch Antilles, can export to the EU duty free. Combined ACP and OCT quotas total 160,000 tons annually. Excluding inter-EU trade, the EU annually imports more than 500,000 tons of rice (milled basis), with the United States supplying more than 300,000 tons, mostly brown rice. Although the URAA included provisions for countries that previously protected their markets through quotas or other non- tariff barriers to ensure minimum market access, this provision had no significance to the EU because its rice imports have historically been well in excess of 5 percent of domestic consumption. As part of the compensation package to third countries for Austria, Finland, and Sweden joining the EU, additional duty-free and reduced duty concessions were granted for rice. These included 63,000 tons of milled rice at zero duty, 20,000 tons of brown rice at a reduced tariff of 88 ECUs per ton, and 80,000 tons of broken rice at a tariff equal to the normal brokens tariff less 28 ECUs per ton. The U.S. allocation was 38,721 tons for milled rice, 7,642 tons for brown rice, and 7,281 tons for brokens. The EU also agreed to reduce its expenditures on export subsidies by 36 percent and volume by 21 percent over the next 6 years. Rice has historically been a heavily protected commodity in the EU. EU prices are substantially above world trading levels. Most of the EU's rice exports are shipped as food aid, under preferential trading arrangements, or with export subsidies. Excluding trade within the EU, the EU typically exports more than 200,000 tons of rice annually, mostly to Mediterranean countries, Eastern Europe, and Russia. Intervention buying currently provides the primary means of producer price support in the EU. From April through July, the EU purchases all rice offered by member country producers assuming it meets quality specifications. The purchases provide an attractive marketing option when world prices are low. Intervention prices are adjusted during the year. This form of support falls under the "Amber Box" category. The URAA eliminated threshold prices that had kept producer prices high since the origin of the Common Agricultural Policy in 1967. From 1970 through the mid-1990s very little intervention buying occurred as the EU relied heavily on export subsidies to move surplus production into export markets. In 1997 intervention purchases became large as world prices dropped, substantially making intervention sales an attractive alternative for EU producers. The EU entered the 1999/2000 market year (September to August) with extremely large intervention stocks, mostly Italian japonica rice. Prior to the URAA, the EU undertook policy changes that relied less on market price support and more on direct payments. As part of the EU's CAP reform started in 1992 for cereals, reforms for rice began in 1997/98 and follow the pattern established for cereals. The reforms call for compensatory area payments in return for cuts in intervention support prices for paddy rice of 15 percent. They are being implemented as a 5-percent cut a year over a 3-year period starting in 1997/98. As total payments to producers are not expected to decline much, little impact on plantings is expected. There is a ceiling on the area for which the compensatory payments are paid. The ceiling is based on the annual average rice plantings in each country from 1993/94 to 1995/96 (1992/93 to 1994/95 for Spain and Portugal). If rice plantings exceed the EU maximum guaranteed area, penalties are applied. Compensatory payments fall under the "Blue box" WTO policy category. Payments in this category are temporarily exempt from reductions if the amount of payments is based on fixed area and yields. The Blue box was intended to be a temporary measure. Developing Countries--Several URAA commitments pertained to developing countries. Similar to Japan and South Korea, the Philippines invoked a "rice clause" that guaranteed a tariff-rate quota rising to 238,940 tons by the end of the implementation period. However, to date imports have far exceeded this level every year since 1995 and are projected to remain well above this quota for at least the next decade. Indonesia negotiated a separate agreement on rice imports, guaranteeing 70,000 tons of imports annually. Like the Philippines, Indonesia's rice imports have far exceeded this level every year this decade and are projected to exceed 2 million tons annually for the next decade. Under the URAA, all member countries were required to cap trade- distorting support at 1986-88 levels, and make reductions off this base. Developed countries were required to reduce their AMS by 20 percent over 6 years and developing countries to reduce their AMS by 13 percent over 10 years. This requirement has not had much impact on rice production in developing Asian countries-which account for the bulk of global rice production--for two reasons. First, the URAA allowed developing countries "special and differential" exemptions for certain input and investment subsidies, which cover most programs used to support rice production in these countries. Domestic support in these countries is typically provided by fertilizer subsidies, provisions for certified seeds and other inputs at below-market prices, and sometimes credit assistance. Second, trade-distorting support measures such as price supports are not subject to reduction if in total they do not exceed 10 percent of the value of production-the de minimis provision for developing countries. Few developing countries have domestic reduction commitments. In addition, developing countries committed themselves to not using export subsidies. However, there is very little use of export subsidies by Asian or Latin American rice exporting countries. In fact, except for small amounts exported by the EU, little rice is exported under subsidies by any country. The bulk of government involvement in the Asian rice market is through state control of trade, often in the form of state trading enterprises. This is especially true for several major Asian rice importers and exporters. Sanitary and Phytosanitary Measures--The Uruguay Round Sanitary and Phytosanitary (SPS) Agreement imposed new rules and procedures on measures countries may take to protect human, animal, or plant life or health. Such regulations can not be used as a pretext for protection. The UR requires SPS measures to be applied in a consistent manner across countries and commodities and does not allow them to be used as an arbitrary barrier to trade. This Agreement could increase the transparency of countries' SPS regulations and provides an improved means for settling SPS-related trade disputes. Currently, Mexico and Central America effectively ban Asian rice imports through SPS measures. This gives the United States a major trade advantage in this important region. However, the application of unsound phytosanitary requirements has at times been a problem for U.S. rice exports to Latin America, in particular to Mexico and Central America. Phytosanitary requirements, often motivated to protect domestic industry, have periodically stopped U.S. shipments, resulting in losses due to demurrage charges and canceled sales. Most recently, in November 1999 Costa Rica prevented the unloading of U.S. rough rice based on alleged phytosanitary requirements during the domestic harvest period. In the past, Honduras, El Salvador, Panama, the Dominican Republic, and Mexico have applied arbitrary phytosanitary restrictions during local harvest to protect domestic producers. Dispute Resolution--Compared to GATT procedures, the Uruguay Round improved the multilateral dispute resolution process by limiting the ability of a single country to block the formation of a dispute resolution panel or veto an adverse ruling. This procedural change occurred nearly 50 years after the founding of the GATT. The WTO's 2000 Round To Examine Unresolved Issues While the URAA increased international rice trade, several issues critical to rice remain unresolved. Important issues in the upcoming WTO Round pertaining to the U.S. rice industry are likely to be those remaining from the last round, such as increased market access, continued reduction in domestic support and export subsidies. Developments in new areas--such as creating tighter discipline on state trading enterprises (STEs), disciplining use of export credit guarantees, reducing technical barriers to trade, and establishing uniform world trading rules and regulations for biotechnology products could also be important to the U.S. rice sector. Market Access--Several major rice markets are still highly protected, most importantly Japan and South Korea. Without a new agreement, Japan's tariff-rate quota (TRQ) will remain at 7.2 percent of base period (1986-88) use, or 682,000 tons, after 2000. Recent tariffication by Japan has slowed the increase in minimum access imports and placed a prohibitively high tariff on above-quota imports. The URAA allowed Japan to replace an outright ban on over quota imports with an extremely high tariff. The tariff level is based on the difference between the domestic price--premium quality japonica rice--and the price of imported rice during the base (1986-88) period. At that time Japan's rice imports consisted of small amounts of low quality indica for processing. The level of both Japan's tariff and TRQ will be major issues in the upcoming round. South Korea's imports are scheduled to continue expanding until 2004 but will still be only 4 percent of base period (1986-88) use or a little more than 185,000 tons (milled basis). What will happen with South Korea's TRQ after 2004 is a major policy issue. Accession of China and Taiwan--Accession of China and Taiwan into the WTO would have a significant impact on world rice trade. On November 15 China and the United States signed a bilateral agreement that would permit the United States to endorse China's accession to the WTO. This agreement represents a crucial step in China's WTO accession process. Several important steps remain. China must still conclude bilateral agreements with a number of other WTO members, including the EU, Canada, Argentina, and Thailand. Multilateral negotiations on China's accession protocol must also be completed. China must then complete its own domestic legislation and procedures for accession. In the agreement, China agreed to cut tariffs on all agricultural commodities to an average of 17 percent. China will also establish large and increasing tariff-rate quotas for wheat, corn, rice, and cotton with a substantial share allotted to private traders. China also agreed to prohibit the use of export subsidies for agricultural exports, including rice. China produces and consumes both indica and japonica rice. Area is shifting from lower quality indica--mostly grown in the south- -to higher quality japonica. The bulk of the japonica is produced in the northeast. It is likely that China would opt to continue exporting high-quality japonica to Japan, a lucrative market. Policy changes this spring indicate China is willing to adopt more market-oriented policies that would result in declining rice production, especially for lower quality early rice grown in the south. If China joined the WTO, it would have to partially open its rice market to imports. This could have a major impact on the world rice market given China's massive consumption, nearly 40 percent of total global rice consumption. In April 1999, China committed to a 2.66-million-ton TRQ for rice in 2000, rising to 5.32 million in 2004. Half the quota is for japonica (medium/short grain), the remainder is for indica (typically long grain). The TRQ is not a purchase commitment, but an opportunity for market access conducted in a fair and transparent manner. China committed to reserve 50 percent of short and medium grain imports and 10 percent of the long grain imports for the private traders. Currently, all grain trade in China is controlled by the government. Imports of this magnitude would have a massive impact on world trade volumes and international prices. However, it is unlikely that China would import the full TRQ. Also, it is unlikely China would import very much japonica rice, as only about 2 million tons are traded worldwide. The United States is not likely to supply any substantial amounts of rice to China as U.S. prices are well above Asian levels. However, certain niche markets-- primarily for higher income urban consumers--could be supplied by U.S. producers. In addition, any overall increase in global trade would likely benefit the U.S. rice industry to some degree. If Taiwan joins the WTO, it would be required to open its market to an identical share of base use as required of Japan. For 2000, this amount equates to about 144,720 tons on a brown rice basis. Taiwan consumes mostly high quality japonica rice. The United States would be a likely supplier of much of Taiwan's rice imports. State Trading Enterprises--The upcoming WTO Round will look to further discipline the activities of STEs. Of major concern is the lack of transparency in pricing by STEs and the possibility that some countries are using STE to circumvent URAA rules. About one-half of global rice exports is by STEs and STEs account for one-third of rice imports. STEs account for all or the bulk of rice trade for several current WTO members--Indonesia, Malaysia, Australia, the Philippines, and South Korea. In addition, several countries seeking WTO membership--China, Taiwan, Vietnam, and Russia--use STEs to conduct rice trade. Biotechnology (transgenic rice)--The upcoming WTO will likely tackle issues associated with trade in biotechnology products. Differences among countries' regulations regarding biotechnology pose significant potential barriers to trade in these varieties. Trade in genetically improved varieties could be facilitated through mutual recognition of countries' regulations, harmonization of existing regulations between countries, and by the negotiation of an international standard. However, trade could be impeded by harmonizing to a stricter standard. Japan, the EU, and South Korea-all rice importing countries--are drafting or planning to establish regulations on genetically modified commodities. Both Japan and the EU are major markets for U.S. rice exports. Although transgenic rice has yet to be commercially produced in the United States, transgenic varieties are expected to be commercially available to U.S. producers early in the next century. Development of transgenic rice in the United States is currently aimed at improving agronomic characteristics, primarily herbicide resistance. Other products in development include rice varieties tolerant to cold, heat, and drought stress. In addition, rice breeders are using biotechnology to improve the nutritional quality of rice as demonstrated by the recent international development of a rice variety with increased levels of iron and vitamin A. This development was led by researchers at the Swiss Federal Institute of Technology and was financed primarily from the New York-based Rockefeller Foundation with additional funding from the European Commission's agricultural research program. This rice could overcome a variety of food deficiencies that are particularly common in developing countries. END_OF_FILE