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China, India: Superpowers of rice industry

China, India: Superpowers of rice industry
Rice and India: an uncomfortable duo. How will India impact world rice price?

Rice superpowers China and India will write the fate of the rice industry in every other country including the United States.

In addition, in India the size of a farm operation is getter smaller. How does one make already tiny operations, smaller? This is accomplished through anti-merchandizing policies and farm program subsidies that turn Indian agriculture into a food museum. India is a master at this art.

India with very tight water resources and huge pollution problems gives its water to its farmers, virtually for free. When it comes to food provisions, India has no faith whatsoever in the free market. India needs a free trade agreement with itself.

China is trying to work its way out of its water problems by a massive water transfer program moving water from its south to its north. The people and the agriculture are more in the north but the water is more in the south. China is trying to solve its labor cost problems by making farms larger and by moving millions from the rural areas to the urban areas. It plans on moving 250 million persons from the rural to the urban areas in the next 15 years.

My book “When Rice Shakes the World” explains this complex situation. By 2030, China may have about one billion living in its cities. Chinese rice farms had better get a lot bigger or many people will get a lot thinner. The same applies to India but at a slower pace because India eats less meat than China, although the lowly chicken is changing the diet of India.

With about 20-30 percent less available water resources than China, India appears to be doing nothing major to solve its water problems, except giving its water away for free to farmers to get their votes. Oh yes, it also now feeds 67 percent of its population with virtually free food grains. That is double its commitment a year ago.

It defends an 800-million person food stamp program, compared to a 46-plus million person food stamp program in the USA. Within five years, I forecast India will be a net importer of foodstuffs. India loses 20-30 percent of its grain stocks yearly versus about 1-2 percent in the United States. That is largely because it has next to no merchandizing grain function. You pay dearly for what you prohibit from happening.

Why do I mention China and India in an article on U.S. rice?  The reason is simple: the acreage has and will most likely increase for rice in the Southern United States in the next year and thereby push the U.S. price right down to the price in Thailand and Vietnam. It is about there now. Meanwhile, the Asian rice price is caught between the two rice giants: India, a massive rice exporter, and China, a massive rice importer.

In the next two years, will the rough rice price settle down to the Indian price and bankrupt farmers in the Western Hemisphere? Or will the price claw its way upward to the Chinese price now at $19.79 per cwt.? 

The answer to this question will forge the price you receive for your rice. It will determine whether you will be in the rice business or you and your banker will be growing something else. Obviously the current price is no big encouragement to growing rice in the United States. It is a red ink price as I write this. In a word, your problem is not China. Your rice is unprofitable because India is driving world rice farmers into the poor house.

I will give you a hint at the outcome of all this. China may increase its imports faster than India’s rice stocks decline and exports wither. If world trade is more impacted by a high domestic price importer than a low price domestic price exporter, then the trend now down could reverse itself up.

What is the likelihood that India will remain a big exporter of food grains (rice and wheat)? If you define a competitive grain exporter over the long term in terms of their temperate zone resources of navigable waterways, India is a non-starter as a grain export power.

The United States has next to no grain exporting competition. The United States is a grain exporting superpower, by the accidental surpluses of its natural resources of water and energy. India fails on both counts.

Consider the following numbers. By country, here are miles of temperate and navigable waterways to the sea:

  • USA -- 14,650 miles.
  • China -- 2,000 miles.
  • Germany -- 2,000 miles.
  • France -- 1,000 miles.
  • Arab World -- 120 miles.
  • India -- 0 miles.

(Navigability is defined as a 9-foot channel for 9 months per year. Source: “The Accidental Superpower” by P. Zeihan.)

I point out also that water is more or less given away in Asia for a fraction of the price charged in the Western Hemisphere or the EU. What if water costs in “Chindia” nudge higher? Can you think of any grain that will be most impacted by rising water costs? I will give you a hint: it is spelled r-i-c-e.

Note: Hamilton will speak on these and other rice issues at the Mid-South Farm & Gin Show in Memphis on February 28 at 1:30 p.m.

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