BMI View: We believe that rice trade in the American continent, characterised by strong intra-region trade flows, will remain stable over the coming years. Interdependence will increase, pushed by regional trade agreements. Meanwhile, we are cautious on the ability of American countries, with the exception of the US and Brazil, to become significant players in the growing African market. Indeed, intra-regional trade rely mainly on trade agreements and advantages due to geographical closeness rather than on price competitiveness.
Consumption grew steadily in the region. As a result of those imbalanced dynamics and of the absence of production in some countries, various countries are net importers of rice. This is the case of Mexico, Colombia, Venezuela and Peru, whose production deficit will reach 836,000, 256,000, 360,000 and 140,000 tonnes respectively in 2012/13. Those countries largely import from neighbours, such as the US for Mexico; Ecuador, Peru and the US for Colombia; the US, Brazil and Argentina for Venezuela. The countries mentioned above are net rice exporters, and count Latin American countries as their main clients. Finally, net exporters also import limited volumes of rice, due to commercial agreements in the case of Brazil with the Mercosur or due to demand for Asian rice varieties (fragrant rice for example) in the case of the United States.
|Select Countries - Rice Production ('000 tonnes)|
Regional trade preferences and geographical advantages foster these intra-regional trade patterns. Indeed, rice trade in American countries is heavily regulated by trade agreements and restrictions (quotas, export bans, qualitative barriers etc.). Various trade agreements, among Latin American countries on the one hand and between the United States and Central and South America on the other have strongly increased intra-regional trade. The Mercado Do Sur (Mercosur) and the Andean Community of Nations fostered trade links between Brazil, Argentina, Uruguay and Venezuela as well as between Colombia, Ecuador and Peru. The North American Free Trade Agreement (NAFTA) has benefited the U.S. rice industry by expanding Mexico's imports. Mexico has become the largest market for U.S. rice and usually imports around 650,000 tonnes of rice annually, solely from the US.
|Select Countries - Rice Exports By Destination, Average 2010-2012 (As % of total)|
Stable Regional Pattern…
Given the fact that rice trade among the region is based on structural factors and that consumption growth will stay subdued, we believe it will remain stable in the medium term. The US is likely to maintain a stable export market share in American countries given its ability to export unmilled rice. Indeed, the US is the only major exporter that allows rough-rice exports, as Asian exporters restrict such rice sales in order to protect domestic milling industries. For example, semi-milled and milled rice only accounted for 15% of Mexico's total imports in 2012 according to COMTRADE data, and this trend is likely to endure over the coming years.
Meanwhile, the US will slowly gain weight in the Colombian market, given the implementation in May 2012 of the US-Colombia Trade Promotion Agreement (CTPA). Under the CTPA, Colombia eliminated its price band system for the set import quotas, which used to affect over 150 products, including rice, other grains, oilseeds and dairy and livestock products. Under the previous price band system, the tariffs on these products varied with world prices. Colombia maintains a rice import duty of 80% out-of-quota, which applies to all non Andean Community of Nations (CAN) countries.
|Select Countries - Rice Imports By Origin, 2012 (As % of total)|
…But Difficulties To Grab Africa's Potential
We are cautious on the ability of American countries to gain market share in the growing African market. Asian and American suppliers are already competing to secure contracts in the region, which we believe will record the highest consumption and import growth rates. Intra-Latin American trade rely mainly on trade agreements and advantages due to countries' geographical closeness rather than on competitiveness. Asian exporters are usually more competitive than their American counterparts, given the lower cost of production and stable supply.
|Asia More Competitive|
|Rice - Front-Month CBOT Rough Rice & Select Countries Export Prices (US$/tonne)|
In fact, as a result of strong competition from Asian suppliers, particularly Thailand, Vietnam and India, the US has been losing market share in its key African and Middle Eastern markets. The US is even losing its advantages in its core Mexican market: it has historically held 96% of the market share for milled rice but has steadily decreased since 2010 as imports from Uruguay, and more recently Pakistan, have soared after Mexico removed import duties on non-U.S. rice in response to rising global rice prices.
Only the US and Brazil, which boast large experience in international grain trade and produce in sufficient quantities to supply large markets could benefit from rising demand in Africa.
|Source: BMI, USDA, FAO|