The rice production chain in Brazil has made great strides over the past five years. However, after reaching self-sufficiency and then expanding into the international market as an exporter of parboiled and broken rice, Brazil shall again import huge volumes of rice this year.
There is a good chance for U.S. rice to fill the gap. But it will not be easy…
As members of Brazil’s economic group (Mercosur), Uruguay, Argentina and Paraguay boast great advantages, compared to any other country, when it comes to having access to the Brazilian market, as they are entitled to a 10 to 12 percent import tariff exemption (depending on the degree of processing of the product). Furthermore, Uruguay, Argentina and Paraguay produce rice almost exclusively for foreign markets, as their domestic demand lags much behind production, not to mention their natural logistical advantages as all of these countries share borders with Brazil.
For the current commercial year, the expectation is for the Mercosur countries to continue supplying most of the rice imported by Brazil. However, the crop in Argentina, and particularly in Uruguay, was also affected by the same climatic adversities that hit Rio Grande do Sul (the state responsible for 62 percent of the entire Brazilian rice crop); that is to say, lower pressure to sell might result in less competitive prices, compared to previous years. In view of this, there is a chance for Brazil to resume rice imports from origins outside of Mercosur, such as the United States, Thailand and Vietnam, for example.
Factors affecting Brazil’s rice imports
The volume of imports will depend on the real impact caused by the El Niño phenomenon on the crop in Rio Grande do Sul, on the behavior of the Brazilian real against the U.S. dollar and on the federal government policy regarding stock management.
In its latest crop survey report, Conab (a federal bureau, linked to the Ministry of Agriculture) is projecting a reduction of 8.7 percent as a consequence of the 3.9-percent smaller planted area and a five percent reduction in the national average productivity rates.
As to the behavior of the real against the dollar, a lot will depend on the manner that the domestic and global economy unfold. The expectation is for the exchange rate to fluctuate very little over the year, ranging from R$ 1.80 to R$ 1.84 to the U.S. dollar. It is considered low in Brazil and will facilitate the entrance of rice into the country.
The third factor likely to exert an influence over the rhythm of the Brazilian rice imports is the behavior of the federal government with regard to public stock management. Currently, the government controls 990,000 tons of rice, which represent 83 percent of the total carryover stock. The volume is equivalent to one month of domestic demand and big enough to curb a strong nominal price increase, should the growers refuse to deliver the crop at low prices.
Without any doubt, the government will resort to this alternative to prevent the price increases of paddy rice from reaching the final consumer, particularly because of presidential elections this year. We should also note that the present government, now seeking its third term in office, relies heavily on the inflation control argument in order to attract voters, and rice is a basic staple in the so-called Brazilian food basket.
In case public rice offers prove insufficient to curb price increases of the cereal, the government counts on the chance to reduce the CET (Common External Tariff), levied on the imports from countries outside the Mercosur bloc. Should this happen, there would be a chance for rice from the United States and southeast Asian countries to have significant competitive gains in the Brazilian market.
Potential timetable for imports
By coincidence or otherwise, the last time the El Niño phenomenon hit Brazil severely in 2004, prices made an average recovery of 33 percent, imported volumes were in excess of 1.6 million tons, and it was the last time significant volumes of U.S. rice entered Brazil, some 84 thousand tons. Last year, only 306 tons came from the United States – almost nothing! In my opinion, Brazil would only consider importing rice from the United States during the second half of the Brazilian commercial year (from September), when the pressure from domestic selling starts fading away and the shortfall in production becomes clear to all.
Mr. Barata, from Rio Grande do Sul, is considered to be one of Brazil’s leading rice market analysts. He is a regular speaker at world rice events and is a member of the market advisory team of the USRPA. For more about USRPA, visit www.usriceproducers.com.