Rice Farming

 - Rice Producers Forum -

Brazil: A rice-pricing paradox

By Thomas Wynn
Director
Market Development
USRPA

Brazil. The very name brings to mind sprawling fields of rice, cotton and soybeans, along with all of the other mental images surrounding the stigma of South America’s agricultural powerhouse.

The large South American country is also the United States’ leading competitor in the Western Hemisphere in agricultural exports. With an average per capita rice consumption of over 40 kilograms and a population of almost 170 million people, it is hard to comprehend the volume of rice that must be produced to satisfy this nation’s need for one of its most traditional foodstuffs.

Historically, Brazil has been able to produce enough rice to feed its domestic market with only occasional forays into the international scene. Still, even with over three million hectares (7.5 million acres) of production and constant research to improve yields, the ability of the country to continually sustain its needs may be in jeopardy.

There are many reasons for this phenomenon, not least of which are the rising costs of global commodities, inputs and transportation, but one of the main underlying (and overlooked) factors is the lack of price discovery for rice within the country itself.

Brazil lacks a trading system for rice
In the United States, as well as most other areas in the world, we have commodity exchanges that are used to establish the given price of a commodity on a daily basis. This process is a very simple – yet effective – method for all members of the industry to provide their input as to what they feel is the true value of a commodity.

By allowing producers as well as end processors to collaborate in this fashion, the price can change at a minute’s notice, allowing each sector of the market to gain the highest possible value. End users can help control their future costs, while producers can control their future returns.

The planning possibilities that arise from this system are almost lim-itless and, from a production standpoint, allow the growers to properly allocate their land for the highest and best use. This is the key statement from a Brazilian perspective.

As was mentioned before, this process does not occur in the Brazilian rice industry. There is a system by which soybeans may be traded, but rice has not yet achieved this status.

What is more, by not allowing the true price of rice to be “discovered” by the market, the price received by the farmers tends to stagnate at lower levels, while the Brazilian soybean prices are continuously rising with the global market.

Who will Brazil turn to for rice?
Regardless of location, producers across the globe generally have the same mindset, especially when it comes to marketing, in that the crop to plant is the one that will have the best impact on the bottom line.

While many acres in Brazil are committed to rice, many more are not. Even with higher yields, there is a high likelihood that Brazil will not be able to produce enough rice to feed its population at the current soybean prices!

In times of shortage, Brazil has traditionally gone to Uruguay, Paraguay and Argentina for its rice. However, these countries are also watching the global prices, and there is a very strong probability that there will not be any rice for Brazil from these sources when the time comes.

At that point, the United States would be the next logical choice – not because it is any cheaper or is significantly better, but because it will be the only source of rice available.

Even the great South American dreadnought has an Achilles heel, and in this case, it is the LACK of true pricing that exists instead of being more competitive.

For more about USRPA, visit www.usriceproducers.com.