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Rules could harm U.S. rough rice sales

Described by trade negotiation observers as “NAFTA on steroids,” the Central America Free Trade Agreement has brought out divergent views on how best to muscle up U.S. rice policy. While no bodybuilders were spotted lumbering through the latest round of CAFTA talks in Houston, plenty of agricultural interests took their chance to pose, flex and kick a little sand at each other.

While yet to see the ending marks, U.S. Rice Producers Association's Jim Willis is dismayed at the proposed trade law changes regarding rough rice. Willis, the rice organization's president of national programs, insists if the changes are pushed through, the potential benefits that would come to U.S. mills would be dwarfed by the losses to American farmers.

With rice groups already at odds over several policy issues, the latest fissure between them threatens to widen into a chasm. Willis knows this better than most and says he is reluctant to contribute to the gap. But, as final CAFTA talks are scheduled for December, time is running out, and he wants producers to know the possible outcome.

“Years ago, I worked with the Rice Council (later the Rice Federation) and we set about trying to find new markets for U.S. rice. We'd lost markets to geopolitical events like embargoes to Iraq and Iran, so it was important to find alternatives.”

One of the subcommittees set up focused on the Western Hemisphere, he says. Close to that time, Mexico was becoming privatized and U.S. producers began shipping milled rice there.

Lost milled market

“Almost immediately, we lost the milled market to Asian rice because of their price advantages,” says Willis. “At the same time, it appeared there would be opportunities in Central America.”

Subsequently, Mexico became the United States' largest rice market because “we moved rough rice — which is what the customer wanted — instead of milled rice that we weren't competitive in. (Rice Producers) has no preference of rice form we just want the customer to be able to buy what they want.”

Through the aforementioned efforts, Central American markets opened and the five countries there began to buy U.S. rice. The market opened further, says Willis, when it became clear the nations wanted rough rice.

“We sold them plenty of rough rice. After a while, they began having success with rough rice and the mills there — which had originally been struggling while milling domestic rice — had a hard time keeping up with domestic rice consumption.”

At that point, Central American nations began investing heavily in mills by putting in new equipment. These steps were taken and millions of dollars spent, says Willis, “just to be able to deal with U.S. rough rice.”

U.S. millers may argue that these events simply transferred U.S. milling work to Central America. But here's the question, says Willis: since U.S. mills weren't shipping any milled rice to Central America to begin with, how can they claim any loss now?

Went through metamorphosis

“Basically, we went through a metamorphosis that had already occurred with other commodities. Wheat and the Marshall Plan is a good example of this. After WWII, we were shipping wheat flour overseas until those countries began building flour mills. Once those were built, we simply shipped raw wheat over. It's the same concept here.”

Over the last few years, U.S. producers have been benefiting from great growth in the Central American markets. But farmers aren't the only concerned party.

“The growth has helped U.S. producers. It's also true that Central American mills benefited and began setting up trade associations and promoting rice with us. They put in more money than we did. Guatemala put in three times more money than we did. Everything was working well. It was a classic example of using all the promotional tools you can, finding a buyer, getting the buyer to promote alongside you and sell to the benefit of all. Even their producers — since we were promoting not only our rice, but theirs too — were amenable to the process. That's amazing and it's all happened within the last few years.”

The market grew at a rapid pace eventually becoming the second largest for U.S. long grain rice.

This trade situation “admittedly” didn't help U.S. millers, says Willis. “But the situation earlier didn't help them either. At the same time, all our major traditional markets — Asia, Africa, Europe, and the Middle East — had turned down and the mills were troubled. They were licking their wounds over losing traditional milled markets. Rough rice prices were going up too so mills had to pay more to farmers for their product. It was a double shock for mills.”

And into the CAFTA fray walked the Bush administration, hungry for a trade negotiation win.

“We haven't had much success with our WTO trade agreements,” says Willis. “As everyone knows, all parties walked away from Cancun, and we didn't accomplish much in other talks either. Since GATT, we haven't had much to brag about. We can't get Europe turned around and haven't had a lot of success in Japan.

“Anyway, the thinking of the Bush administration may be to pick on the ‘banana republics’ and get free trade agreements going in our hemisphere. With an election year coming, that would be a feather they could point to in their cap.”

This strategy sounds great, says Willis. The only problem is that with rice, unlike other commodities, the U.S. holds 100 percent (or nearly) of the market in Central America.

“How do you improve on that? Answer: you don't. A free trade agreement is fine with rough rice. We don't mind that although they're already giving us a zero tariff on rough rice. What some in the United States now want is to force the Central Americans to reduce tariffs on milled rice.”

Currently, Willis says Central America has a quota for rough rice and zero duty to cover their deficit. Once the region covers its total consumption needs — national production plus imports — anything else that comes in is hit with a higher tariff. Imported U.S. milled rice falls into that category.

Equipment investment

“Central American countries have invested in new milling equipment and promotion, have convinced their producers to allow U.S. rough rice in, and a perfect scenario exists for everyone except U.S. mills. U.S. rice producers have a 500,000-ton market. Why would we tell Central America to change things? Their cost of production is higher than ours. We could force them to accept a zero duty on milled rice or a larger quota on milled and rough rice. But doing that would undercut their own producers.”

If the U.S. begins to ship milled rice to Central America what will happen? Willis says their mills and producers will go out of business.

“And these are the same people who forced their government to open the doors for U.S. rough rice.”

Here's what Willis is most concerned about: if the current changes are pushed through, it will shortly mean a “huge loss” for all in the U.S. rice industry — producers, mills and everyone in between.

“If we lose our customers and champions of U.S. rough rice in Central America, the next step is their citizens will want cheaper rice. That just follows and means Asian rice will be brought in. So, by our own efforts in regards to CAFTA, we will lose the second largest market we have. I mean, if Nicaragua brings in Asian rice it will be shipped to the other four and will undermine us that much more. Believe me, it will happen.”

How are other rice organizations approaching CAFTA?

“Officially, they're saying ‘let's not have any restrictions on U.S. products moving into these countries.’ However, I can tell you that if you reduce exports of rough rice that throws more unsold rice into the market forcing rice prices down. That means cheaper products for mills.”

Some U.S. mills — especially smaller ones — are having a tough time, says Willis. Smaller mills have often relied on PL-480 payments since they don't have a brand name and can't sell against the big players. But if the CAFTA proposals go through, “the mills know that even if it hurts the U.S. producer, at least the cost of rough rice will be down and thus will be beneficial for them. This will kill rough rice prices.”

Willis is dogged in his conviction on this point.

“There are two possibilities,” he says. “One, the people pushing this haven't thought it through. Or, two, they have thought it through and they want to kill the market and thus mills won't have to pay as much for rough rice.”

Poorly informed

Farmers are woefully uninformed on CAFTA, says Willis. He regularly talks to farmers who say, “‘I didn't know this. We always hear that CAFTA will open markets.’ I visited with a huge rice farmer in Arkansas recently and his broker said, ‘I can't believe this. No one had told us anything about the possibilities.’”

Farmers should be told the entire scope of what could happen, he says. Thus far, the message hasn't gotten out.

“I grew up on a farm and know that many producers are so busy it's hard for them to keep up with trade issues and ramifications. The truth is there are learned, astute people — even in our organization — that do futures trading and the like that, until recently, had no idea what was going on. Once the facts on CAFTA are laid out, they say, ‘Oh my goodness, we need to leave well enough alone.’”

Willis has a further caution: if the United States loses the Central American market, there's a good possibility it will lose Mexico as well. His rationale is that if Asian rice comes into Central America it can easily be shipped to Mexico from there.

“Right now, the rice flow is from north to south. But the reverse could easily be true.”

Producers should get educated and let their voices be heard, says Willis.

“The end is near for these negotiations and it's very important to get this news to the rank-and-file farmer. Most farmers who haven't heard our side probably see this currently as, ‘Ya'll don't see the big picture. Don't you understand if we get milled rice into CAFTA, we'll have a bigger market? This sounds good.’

“But the end result certainly won't be,” he says. “We're trying to force Central American producers and mills out of business so we can get them to take 50,000 tons of U.S. milled rice. If we get those 50,000 tons it will be at the expense of 500,000 tons of rough rice! That's not a good deal for U.S. producers, it isn't smart and producers should know what's waiting for them if these proposed changes are adopted.”

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