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Rice sales to China hold promise for California

Aug 07 2017

August 03, 2017 ( by Daily Democrat )


Bill Husa-Enterprise-Record file photograph The bankout wagon collects rice while a harvester works a field of short grain rice. Rice sales to China are expected to boost statewide sales.

After struggling with depressed market prices for the last two years, California rice farmers and marketers say the historic deal reached last month between the U.S. Department of Agriculture and Chinese officials couldn’t have come at a better time.

The two countries have agreed on a long-stalled phytosanitary protocol that will permit the import of U.S. milled rice into China, an action expected to benefit American rice farmers generally but that could be particularly positive for California growers and millers.

China opened its rice market when it joined the World Trade Organization in 2001, but U.S. rice was barred from the market because of a lack of a phytosanitary agreement between the two governments.

With a population of 1.38 billion, China is the world’s largest consumer of rice, with imports reaching nearly 5 million metric tons last year, according to USDA. The country consumes the equivalent of the entire U.S. rice crop every 13 days, the USA Rice Federation said.

“We think that’s a market where we can get a premium for our rice, so we’re certainly encouraged,” said Tim Johnson, president and CEO of the California Rice Commission.

In the first year, China is expected to import up to 50,000 metric tons of U.S. rice, with some 30,000 to 40,000 metric tons coming from California, said Steve Vargas, senior vice president of sales for Sun Valley Rice Co. in Arbuckle. The hope, he added, is to grow those shipments to 200,000 metric tons within five years.

“For California, it’s very promising, because the bulk of that business will come to California for medium-grain and short-grain varieties,” said Vargas, who serves as vice chair of the USA Rice international promotion committee.

China already imports a great deal of long-grain rice from Vietnam, Pakistan and India, which will make it more difficult for U.S. Southern rice growers to compete in that market, he noted. With food safety being a major concern for Chinese consumers, he said California rice, which is largely Calrose medium grain, has a “very distinctive marketing advantage” because of its reputation for being a quality, safe product.

Not only does the Golden State produce the quality of rice that Chinese consumers desire, but it also has a shipping advantage over other, major rice-growing states such as Arkansas, Louisiana, Mississippi, Missouri and Texas, said Mark Chesini, director of operations for the Yuba City-based Rice Growers Association, which markets California rice.
Himself a fourth-generation farmer, Chesini said many California rice growers have been feeling down about market prices that have been below their cost of production during the last two years, although prices have been trending higher in recent months due to stocks that are now “well below average.” The wet spring this year also kept many growers from getting in their fields, reducing California rice plantings about 20 percent. Fields that were planted late may have lower yields, he added. With all these pressures already boosting prices, Chesini said he expects access to China’s market will lead to even-better prices for the 2017 crop and beyond.

“I think this is going to help us get back to those price levels that will keep farmers — and everybody else who works in the industry — in business,” he said. “I think they’re feeling a lot more confident about this crop that they’re growing.”

Announcement of the U.S.-China agreement represents just the first step in a process before any U.S. rice can begin shipping to China, said Chris Crutchfield, president and CEO of American Commodity Co. in Williams. He also chairs USA Rice’s Asia promotion committee.

Ten years in the making, the phytosanitary protocol is “the most in-depth and extensive” in which the U.S. has ever entered and requires interested exporters to go through inspections and other activities to become qualified, he added. Chinese inspectors are expected to visit U.S. mills this fall to begin that process.

If everything goes without a hitch, Vargas said, U.S. rice shipments could start making their way to China by the end of the year.

Even though the bar is higher, Johnson said he does not think California mills will have trouble achieving the standards. Crutchfield and Vargas noted many facilities, including those of ACC and Sun Valley, have already implemented the required processes in anticipation of the agreement.

They further noted that USA Rice has been leading promotion activities for more than 10 years to introduce Chinese customers to U.S. rice and to educate them about its types and quality. The U.S. began actively pursuing that market, Crutchfield said, when China evolved from being a major exporter of rice—and one of the state’s biggest competitors—to being a net importer during the last decade. It is still the world’s largest producer of rice.

Whereas other export sales for U.S. rice are typically handled by import or tariff-based quotas rooted in trade agreements, Johnson said China will be a commercial market, in that there are no pre-set tariff restrictions or volumes. This would be no different from how U.S. rice currently enters Canada, Mexico or Turkey, he noted.

“This simply says the market can determine the amounts of rice that will be imported,” he said. “It’d be based on consumer preferences. We’re excited about that, because we know we compete quite well when people get a chance to try our rice.”

The target market, at least initially, is expected to be in China’s coastal areas, among higher-income people and in the hotel and restaurant trade, USA Rice said.

Crutchfield said even though China’s expanding middle class is a “super-small percentage” of its overall population, it is still a huge number that’s comparable to the entire U.S. market. Higher-income Chinese consumers, he said, “don’t want to feed their families much food that is produced in (China) because of the food-safety issues.”

“When you look at it from that perspective, it’s a great market potential,” he said. “Of course, that’s not going to happen overnight. But over time, I think it can be developed into a great market for not just the main Calrose medium-grain rice that we (in California) grow but for all types and varieties of U.S. rice.”