Why is our country not panicking?, Global rice competition

Why can China stand alone when international rice prices hit a 15 year high? In fact, in the past five years, China's rice production has remained above 200 million tons, with an average annual import volume of only 3-4 million tons; From the perspective of supply and demand, China's rice supply has consistently shown a trend of production exceeding demand, with a self-sufficiency rate exceeding 100%. The continuous high and stable production and supply of rice not only bring confidence, but also the expectation of leveraging the discourse power in the future.

Recently, international rice prices have skyrocketed, and a global rice war has even begun.

According to data released by the Food and Agriculture Organization of the United Nations, the global rice price index rose to 129.7 in July, the highest point in nearly 12 years. The report released on September 8th pointed out that global rice prices rose 9.8% month on month in August, reaching the highest level in 15 years.

Industry insiders analyze that the complex international situation, frequent extreme weather, and export restrictions from multiple countries are the "behind the scenes" drivers of the soaring rice prices. Many people are worried that rice will become a "luxury item"? Will the skyrocketing international rice prices be transmitted to China? How should China respond to the "rice price crisis"?

Why does international rice prices continue to rise?

"This year, the price of broken rice abroad is high, which is a huge difference from before. In 2021, when the price was good, 320000 tons were produced, and last year it was only over 100000 tons." Guo Jiapeng, a grain broker at Lingde in Hong Kong, has been dealing with rice imports for 10 years, witnessing the prosperity and depression of imported rice. "It can be said that it is now very depressed."

According to the Food and Agriculture Organization of the United Nations Food Price Index, international rice prices have been continuously rising since the beginning of 2022. Among them, the global rice price index in May 2022 was 109.2 points, an increase of 11.1% from the end of 2021. Since the beginning of this year, it has reached a new high.

The import trade of rice is deeply influenced by international rice prices and policies, and Guo Jiapeng laments that good goods are not as good as good market conditions. "The price difference is large, and the brokerage business is also booming, but once the prices abroad start to rise, the price difference between inside and outside will disappear. Now, when it comes to importing broken rice, including tariffs and transportation costs, it is actually losing money." Guo Jiapeng remembers that the most prosperous golden period of broken rice trade was from 2015 to 2019, when imported rice within the quota could be more than 1000 yuan/ton cheaper than domestic rice prices.

Guo Jiapeng introduced that there are three directions for imported broken rice. The first is to process Rice noodles, rice vermicelli and Luosifen. The second is rice protein factories, which are mainly concentrated in Jiangxi and Jiangsu, and the third is to replace feed. "However, due to the high international rice prices, other raw materials such as corn, sorghum, and barley have all declined, and now there is no substitutability, which is also an important reason for the decrease in import volume."

"The 'rice export ban' in India has created anxiety in the market about future supply shortages, leading to higher grain prices. According to Wang Xiaohui, Chief Analyst of the National Grain and Oil Information Center, since 2008, India's rice export volume has remained the world's top for 15 consecutive years.". In 2022, India's rice exports accounted for 40.2% of global rice trade and are a source of rice imports for over 140 countries worldwide.

Recently, India has issued multiple "rice export bans". After announcing a ban on rice exports other than steamed rice and Indian fragrant rice on July 20th, India announced a 20% tariff on steamed rice exports on August 25th. Only two days later, on August 27th, restrictions on rice exports were introduced again, setting the lowest price for Indian fragrant rice exports at $1200 per ton.

A layer of stone stirs up a thousand waves. In fact, except for India, many countries have implemented measures to restrict rice exports. The UAE Ministry of Economy announced on July 28th a suspension of UAE rice exports and re exports for four months, including rice imported from India to the UAE after July 20th, and applicable to all rice varieties. On July 29th local time, the Russian government announced that in order to ensure the stability of the domestic market, it has decided to continue to ban the export of domestic rice and broken rice, with a deadline of December 31st this year.

Wang Xiaohui stated that the overall impact of rice export bans in many countries, including India, on the international market is reflected in three aspects: firstly, there is an increased risk of global food inflation. As rice is the main staple food for many countries, a sudden decrease in supply has triggered panic buying in multiple markets, leading to an imbalance in the supply and demand relationship of rice in the short term and a surge in prices. Secondly, the global food crisis is expected to intensify, with particularly prominent food shortages in Africa. In addition, rice importing countries are seeking other sources of supply, and some countries may adjust their planting layout. Rice exporting countries may open up new production and transportation capabilities, thereby changing the global rice trade pattern.

India is the world's top exporter of rice, and rice is its advantageous agricultural product for foreign exchange earnings. Why did it suddenly announce the discontinuation of trade channels? Behind unusual behavior, there are actually profound geopolitical conflicts, extreme weather, and political considerations.

Li Jianping, director of the Industrial Economy Research Office of the National Rice Industry Technology System, said, first of all, the current global geopolitical conflict is intensifying, and the escalation of the Russia-Ukraine conflict has led to the obstruction of global food trade channels, the double rise of demand and price, especially the interruption of the Black Sea grain export agreement, which has further exacerbated the panic of countries around the world about the food crisis. Secondly, extreme weather has triggered expectations of reduced rice production in major rice producing countries. Since the beginning of this year, many countries in Southeast Asia and South Asia have been hit by high temperatures and droughts due to the impact of the El Ni ñ o phenomenon, which has had a negative impact on rice production. In addition, the delayed rainy season in India this year, uneven distribution of precipitation, and further intensified expectations of reduced rice production have led to the spread of panic about food shortages in India.

Regarding the future trend of international rice prices, Li Jianping analyzed that "the tight global rice supply situation is difficult to alleviate in the short term, while in terms of demand, countries such as the Philippines, Indonesia, and sub Saharan Africa have strong demand for rice imports, and governments and traders have strong willingness to purchase rice. Coupled with the transmission of international prices of bulk agricultural products such as wheat, international rice prices will remain high in the near future."

How will the high international rice prices affect China?

So, in the current era of high international rice prices, will the skyrocketing rice prices be transmitted to the domestic market, and what will be the trend of rice prices in China? As the world's largest importer of rice, will this storm affect China's rice import pattern?

Let's take a look at the market situation of imported rice first. At the Xinfadi Agricultural Products Wholesale Market in Beijing, Dong Fei, who has been engaged in rice trading and distribution for 10 years, has not recently felt much impact from price fluctuations. "The vast majority of imported Thai fragrant rice is sold to restaurants or hotels, with very few sold to families and individuals. The main reason is that the price is relatively expensive and the market acceptance is average. Currently, the quality of domestic rice is also good, and the market acceptance is higher." Dong Fei told reporters that due to poor distribution of imported rice, the quantity of imported rice he distributes has significantly decreased, and the main variety of rice he sells has shifted to domestic rice.

He Lun, who is also engaged in wholesale rice business in Beijing, told reporters that he does not have a deep feeling about the rice price "controversy" this time. "In the first half of this year, the rise in international rice prices had little impact on the wholesale prices of domestic rice. During this period, due to the fact that late rice has not yet been listed, the wholesale prices of rice have slightly increased. Among them, the price of rice fragrance has increased significantly, with wholesale prices at 210 yuan/50 jin, an increase of 15 yuan/50 jin from the end of August. Long grain rice has increased by 5-8 yuan/50 jin, and the sales volume has remained at a normal level, around four to five hundred bags per day," He Lun said.

Let's take a look at another set of data: in August, under a 1% tariff within the quota, the landed price of Thai rice was 2.46 yuan per kilogram after tax, which was 0.44 yuan higher than the wholesale price of late indica rice in China per kilogram, and the price difference expanded by 0.29 yuan compared to the previous month; However, unlike the significant increase in international rice prices, the price of early indica rice in China from January to August this year was between 1.93-1.98 yuan/jin, late indica rice was between 2.02-2.04 yuan/jin, and japonica rice was between 2.08-2.1 yuan/jin, maintaining a basically stable price.

"China is the world's largest producer of rice and plays a role as a 'ballast stone' in the global rice market. The dependence on rice imports is relatively low, and India's ban on rice exports and soaring international rice prices have little impact on China's rice market." Li Jianping said that based on comprehensive judgment, this international rice crisis will lead to an increase in the cost and quantity of rice imports in China, which may have short-term disruptions to the southern feed and grain market. However, it will not have an impact on the normal operation of the domestic rice market, nor will it affect the overall situation of absolute food security.

"From the perspective of the domestic rice price trend, with the cooling weather, the start of various universities, the approaching of the 'Double Festival' of Mid Autumn Festival and National Day, the demand for rice consumption has increased. Coupled with the transmission effect of the international rice market, the expectation of an increase in late indica rice prices has increased. However, with the launch of mid to late rice, the supply of rice in China's market will be relatively loose, and it is expected that domestic rice prices will not follow the international market to rise significantly." Li Jianping said.

So, with the skyrocketing international rice prices, why can China stand alone?

"Although China is the world's largest importer of rice, its level of dependence on foreign countries is low." According to Hu Bingjie, a researcher at the Institute of Agricultural Development of the Chinese Academy of Social Sciences, from the perspective of import purposes, China's imported rice is mainly used to replace broken rice used for feed processing with corn, as well as glutinous and fragrant rice used to regulate the surplus and shortage of domestic varieties; In terms of import volume, China's rice production has remained above 200 million tons in the past five years, with an average annual import volume of only 3-4 million tons, accounting for a relatively small proportion. The impact of rising import prices on China's rice market is very small.

Although the price of rice in the international rice market is less affected by fluctuations in prices, as the connection between domestic and international rice markets deepens, price differences between domestic and international markets have become one of the main factors affecting China's import pattern.

"International rice prices have always been significantly lower than domestic rice prices, with a clear advantage in imported rice prices. In addition, the high prices of corn, soybeans, and wheat both domestically and internationally have led to an increase in demand for broken rice in the feed processing industry, resulting in a significant increase in the overall quantity of Chinese rice imports." Hu Bingjie introduced that since 2011, the import volume of broken rice in China's rice imports has increased significantly, rapidly increasing in the proportion of rice imports; In 2022, the total import volume of rice in China was 6.188 million tons, including 3.528 million tons of broken rice, breaking the import quota of 5.32 million tons for the first time.

Since March this year, due to the significant increase in international rice prices, the price advantage of imported rice in China has shown a significant contraction. "In June, under a 1% tariff within the quota, the landed tax price of Thai rice was 2.05 yuan per kilogram, which was the first time since July 2020 that the international landed tax paid price of rice had exceeded that of domestic rice." Hu Bingbing explained that against the backdrop of international rice prices being higher than domestic rice prices, the price advantage of imported rice no longer exists, leading to a decrease in China's import enthusiasm. According to customs statistics, a total of 1.9054 million tons of rice were imported from January to July, a year-on-year decrease of 53.2%.

To ensure the stability of rice imports, China has made adjustments to its grain sources. Hu Glacier introduced that China's rice imports come from major producing countries such as Vietnam, Myanmar, Thailand, India, Pakistan, and Cambodia. Since the restrictions on exports of Indian rice began, domestic market entities have quickly adjusted their import sources. Especially from January to July this year, India retreated from being the largest rice supplier to fourth place. In terms of sources, countries such as Vietnam and Thailand quickly regained their top position, with Vietnam becoming the largest import source country.

At the same time, to ensure food security, China is actively promoting the diversification of imported varieties. Peng Chao, Chief Expert of the Trade Warning and Relief Expert Committee of the Ministry of Agriculture and Rural Affairs, introduced that while reducing rice imports, the import volume of feed wheat has increased. In the first half of this year, China's wheat import volume reached 7.923 million tons, an increase of 62.1% compared to the same period last year, which can effectively hedge the impact of the decline in rice imports on the domestic feed market.

"However, from the perspective of the big grain perspective, attention still needs to be paid to the price transmission and feed grain safety from the grain market to the feed grain market. Peng Chao said that it is worth noting that while the import quantity of feed broken rice has decreased, the actual import of feed grain is also decreasing. For example, from January to July, the import volume of corn products decreased by 9.3% year-on-year, and the import volume of sorghum products decreased by 63.7% year-on-year. In response to the price fluctuations that may occur in the feed grain market, it is necessary to strengthen early warning from a technical perspective.".

Is China's "rice bag" still stable?

Rice is the largest grain crop in China, and a set of data is sufficient to illustrate the important significance of rice production for the "rice bowl" of residents:

From the production side, since 2000, China's average annual rice planting area accounts for 27% of the grain planting area, and the average annual rice production accounts for about 35% of the total grain production, making it the world's largest rice producing country; From the consumer side, over 85% of China's rice is consumed as a staple food, and 60% of the population relies on rice as their staple food, making it the world's largest rice consuming country. From this perspective, the stable supply of rice is related to food security.

In August of this year, many areas in Heilongjiang Province were hit by the once-in-a-century heavy rainfall, and multiple townships within Wuchang City were affected. Some farmland was flooded, and many people began to worry about whether they could still afford fresh rice this year? In addition, with the continuous rise in international rice prices, the stability of China's "rice bags" has become a common concern.

"This year, the flooded land is mainly concentrated in several major rivers, and the affected areas are part of it. Large areas of rice are still growing normally." According to the relevant person in charge of the Plant Protection Station of the Wuchang Agricultural Technology Promotion Center, according to preliminary statistics, the rice planting area in Wuchang City is about 2.5 million mu, of which the affected area exceeds 1 million mu, but not all are out of production.

What is the impact of the Wuchang rice disaster on the livelihoods of Chinese residents? "Overall, the rice production in Wuchang may decrease by about 40%, but Wuchang rice production only accounts for about 0.6% of China's total rice production, and there are certain fluctuations every year, which does not have a significant impact on China's rice market supply." Peng Chao introduced that the national average rice price on August 31 has increased by about 21 yuan per ton compared to July 31, with an average of one cent per kilogram. Overall, the disaster in Wuchang rice has not had a significant impact on the entire rice market.

This year, the main rice producing areas in southern China have abundant rainfall, and the growth of rice is better than in previous years, indicating a high possibility of high yield. From the perspective of early rice production, according to data from the National Bureau of Statistics, the total early rice production in China this year is 56.67 billion kilograms, an increase of 430 million kilograms from 2022. Early rice production has achieved another bumper harvest, laying a good foundation for stable annual grain production.

"From the perspective of the global rice supply situation, the El Ni ñ o phenomenon has caused damage to rice production in several major rice producing countries in South Asia and Southeast Asia, as well as some rice producing countries in Europe. In addition, geopolitical conflicts continue to hinder trade channels, and the global rice supply situation remains tense in the short term." Li Jianping said that in this context, China's advantages of continuous bumper harvests and self-sufficiency in rice production have become more prominent and valuable.

So, where is the confidence for high and stable rice production and supply in China?

Firstly, stable production is crucial. In terms of planting area, the rice planting area in China has remained stable at around 450 million mu for many years, second only to India. From the perspective of yield per unit area, rice is the variety with the highest yield among grain crops in China, far higher than major rice producing countries such as India, Thailand, and Vietnam, and about 50% higher than the world average yield per unit area.

From the perspective of supply and demand, China's rice supply has always shown a trend of production exceeding demand, with the self-sufficiency rate of rice exceeding 100%. "The total consumption of rice in China is about 180 million tons, of which the consumption of rations is about 160 million tons, with relatively small overall fluctuations." Li Jianping introduced that in recent years, with the continuous improvement of people's living standards and urbanization level, and the diversification of residents' staple food consumption, China's rice consumption has gradually shifted from a single ration consumption to a diversified use mainly based on ration consumption, supplemented by feed and industrial grains, and per capita ration consumption has also shown a downward trend.

Grain reserves are an important foundation for ensuring national food security. China has implemented a policy based grain reserve system, and with the continuous improvement of China's grain storage system, the central and local reserve regulation capabilities have been continuously enhanced. The basic supply of domestic grain is not in short supply and constantly on file, further consolidating the foundation of China's food security. "China's rice market has been oversupplied for many years, with abundant inventory. Currently, a grain inventory system covering government reserves, commodity inventories, and urban and rural residents' grain reserves has been formed." Li Jianping introduced.

In addition, China has established a series of strong mechanisms and policy measures for ensuring supply and stabilizing prices of grain, such as the minimum purchase price policy for grain and policy based grain bidding transactions, providing a favorable environment for the stability of the rice market. In terms of grain import and export, in order to block the imported impact of international grain prices, China continuously improves its grain import and export control mechanism, promotes the diversification of grain import sources, and continuously strengthens the management of import quotas for wheat, rice, and corn to alleviate the impact of international grain price fluctuations on China's grain market.

The strong supply capacity of rice reflects the strong resilience of China's grain market. "Compared with the significant fluctuations in the international grain market, China's rice market has always maintained sufficient supply, laying a solid foundation for China's food security." Li Jianping said that China's total grain production has remained above 1.3 trillion kilograms for 8 consecutive years, and grain production has achieved "nineteen consecutive harvests". The per capita grain share has reached 483 kilograms, and the Chinese people's rice bowl is firmly in their hands.

How to leverage rice

Leveraging the discourse power of grain trade?

International market share is the proportion of a country's exports of a certain product to the total world exports of that product, and it is the most direct indicator reflecting the international competitiveness of a country's product. According to relevant data, the international market share of Chinese rice showed a downward trend from 2000 to 2020. Recently, with the intensification of international rice price increases, the international trade situation of rice in China has undergone interesting changes.

Looking at a set of data, in July this year, China's rice exports reached 200000 tons, while imports were only 100000 tons, which has sparked heated discussions among people. "There is a phenomenon of inversion. In August, the international rice price, including landed taxes, exceeded the domestic wholesale price by 20%. This price difference resulted in a lack of competitive advantage in international rice prices," Peng Chao said.

In the past, due to the relatively low prices of international rice, domestic rice exports did not have a competitive advantage. With the continuous fluctuation of rice prices in recent years, reaching a new high in 15 years, some people have made bold assumptions: Will China's rice have a good opportunity for export?

This sound is not unfounded, as international rice prices are significantly higher than domestic prices, making rice exports profitable. According to relevant data, in July this year, China's rice exports reached 205000 tons, an increase of 80000 tons compared to the previous month, with a growth rate of 63.6%. Rice exports have quietly increased.

So, will rice exports affect domestic food stability? According to the monthly report on the supply and demand situation of the edible grain market released by the National Grain and Oil Information Center, the supply of rice in China has exceeded demand for many consecutive years, and the rice inventory is abundant, which can meet the consumption needs of the people of the country for more than a year.

"In addition to the overall good production situation of mid to late season rice in the south this year, while ensuring absolute domestic food security, we can consider encouraging rice exporters to take advantage of this opportunity to expand their markets in countries such as Nepal, Senegal, Saudi Arabia, and appropriately increase rice exports." said Ji Long, Chief Analyst of the Agricultural Product Market Analysis and Warning Team of the Ministry of Agriculture and Rural Affairs.

From 2018 to 2022, the average annual export volume of rice in China was 2-3 million tons, less than 2% of domestic consumption. Therefore, while ensuring absolute domestic food security, increasing rice exports appropriately can also alleviate domestic rice inventory pressure and further enhance China's influence in the international rice market. However, Ji Long also emphasized that due to the unclear trend of international rice prices, the actual effect of rice exports still needs further analysis. "In short, increasing exports must be based on careful analysis and understanding of the 'family background' of grain. Blindly increasing exports must not affect domestic food security."

Although the international rice price hike has had little impact on China, with the normalization of extreme weather such as droughts and floods worldwide in recent years, and the continued intensification of geopolitical conflicts, the instability of global food production and markets has further intensified. "The initiator of this round of international rice price fluctuations is India, but the fundamental reason is still the reduction in rice production caused by the El Ni ñ o phenomenon." Li Jianping told reporters, which reminds China to further broaden its global perspective on agricultural meteorology and crop yield monitoring.

By using satellite remote sensing monitoring technology to monitor and analyze agricultural meteorology and crop yields in major rice producing countries or major food producing countries, the accuracy of global food security warning can be improved. "But this aspect is exactly where we have been relatively weak or overlooked for a long time." Li Jianping said that meteorological monitoring cannot only emphasize domestic factors, but also needs to further strengthen monitoring and early warning on a global scale. Continuous monitoring of key indicators such as temperature and precipitation on a global scale is necessary to better establish a warning and forecasting system for major global grain producing areas.

In addition, the monitoring and early warning of international trade markets cannot be separated from the construction of a global trade monitoring system, which requires obtaining first-hand data and information in a timely manner. "But often the information we receive is already 'second-hand information', which is very detrimental to our participation in international food trade." Li Jianping believes that we should actively guide enterprises to 'go global' and cultivate Chinese grain merchants with international competitiveness. "To establish a global perspective, enhance strategic vision, cultivate a group of large-scale, strong, and cost-effective international grain merchants, carry out cross-border operations such as grain production, processing, warehousing, logistics, and equipment manufacturing, in order to better ensure food security, including rice."

In fact, how to enhance China's voice and pricing power in the international grain market, so as to better participate in international grain trade, is still an important issue faced by domestic grain trading enterprises. For a long time, due to the lack of discourse and pricing power in international grain trade, China has been in a relatively passive state in the international grain market.

How to reverse the situation? Li Jianping suggested that we can consider "writing chapters" on some advantageous crops and seek breakthroughs. "Compared to other grain varieties, rice is the most confident and suitable grain variety for China to compete for discourse power in the international grain market." Li Jianping believes that the exploration of using rice to enhance discourse power in the international grain market through technological services has certain feasibility.

Specifically, on the implementation path, Li Jianping believes that it can enhance the output capacity of the countries jointly built for the "the Belt and Road" in terms of seed, trade, warehousing, processing, technical services, etc., achieve in-depth cooperation, and expand the "circle of friends". On the one hand, expand rice exports. In recent years, China's rice exports to countries jointly built along the "the Belt and Road" have shown a rapid growth trend, from 57000 tons in 2014 to 852000 tons in 2019, with an average annual growth rate of 71.9%; Correspondingly, its proportion increased from 13.6% in 2014 to 31% in 2019.

On the other hand, increase the technology output of rice production in the "the Belt and Road" countries. Rice is crucial for ensuring global food security, and increasing rice yield plays an important role in achieving the global goal of eradicating hunger. As of July 2022, China has signed cooperation documents with 149 countries to jointly build the "the Belt and Road". Including China, 148 "the Belt and Road" countries will account for 70% of the global rice output in 2020. "Some people believe that discourse power mainly comes from export volume and market share, but this view is not entirely accurate. Through the export of rice technology and trade services, it can also to some extent affect the international market competitiveness of rice, which is also a step worth exploring for China to move from a rice producing country to a rice producing country." Li Jianping said.

Author: Ding Lekun, Hou Yajie, Ouyang Jingwen, journalist from China Rural Daily and China Rural Network