Global Value Chain
Over the last ten years, research and development in the rice industry has become synonymous with genetic engineering. Countries such as the United States are pushing for the devolvement and sale of genetically engineered seeds to bolster profits. Seeds that are more resistant to pests (no need for additional pesticides), or require little maintenance after planting, cut down on costs whilst increasing yields. As with the fruit and vegetable industries before it, genetically engineered rice is facing international opposition for fear of its unforeseen negative health impacts, environmental hazards, and clashes with cultural beliefs concerning food purity/quality. If a biotech firm decides to develop a new strain of genetically engineered seed, during the testing phase it is imperative that the sample not be introduced into those seeds deemed for human consumption; the result, could be devastating to the parent company’s profit margin. This is where governmental regulation and adherence to such policy becomes paramount. For example, one such instance of contamination occurred just last year in the U.S. The variety known as LLRICE 601 (a variant endowed with bacterial DNA that makes rice plants resistant to weed killer), was found in U.S. commercial supplies of long-grain rice. Though protein-based herbicide tolerance "is well known to regulators and has been confirmed safe for food and feed use in a number of crops by regulators in many countries, including the EU, Japan, Mexico, U.S. and Canada (Weiss, pg. 1),” there are still trading partners that have strict policies forbidding importation of certain strains of genetically engineered foods, even if the exporting country approves of its use. In 2006, this incident contributed to the increase of rice imports to the U.S, and reduced numbers of rice exports from the U.S. (see below). As an ancillary point, advocates for the use of these genetically engineered seeds argue that by freeing framers from the need to use herbicides we can prevent long-term degradation of farmland, i.e. extending the viability of the farmland which will compete with development zoning (Zhang, et. al.).
Source: UNcomtrade
Total market growth for the rice industry from the mid-eighties to early nineties grew on a steady five to seven percent annually of total commodity trade; however in the mid to late nineties the market underwent a substantial expansion. The reason for this expansion, due in no small part to the WTO (circa 1994), was improved access and/or trade linearization policies in Asian and African markets (FAO). Raising demand for rice imports drives export/production/competition; thus, the rice industry is a buyer’s market. Developing countries have to contend with pressures from organizations like the WTO and rich governments like that of the U.S which promote free trade and try to protect their own farmers by providing them with more export opportunities. The result this has on a developing countries agribusiness can be devastating; cheaper imports undercut the pricing of local markets (Oxfarm). For continued growth in one’s country, the particular government has to provide its farmers with fair-trade opportunities, i.e, offering access to markets where farmers can sell rice at prices that cover the cost of living and further production (Novey).
Source: UNcomtrade
Rice is the world’s second largest produced cereal in the world (UNCTAD). Over 90% of the world’s rice supply is produced by Asian countries (IRRI). As far as countries involved in the international trade of rice, Thailand, the US, India, Pakistan, and Vietnam have consistently been the top exporters (1995-2006), while Indonesia, Saudi Arabia, Brazil, the UK, and the Philippines as the top importers (1995-2006) (UNcomtrade). The rice market is a diverse one, with sub-markets and based on classification, degree of processing, and quality. Under classification, the most prominent type of rice traded continues to be in the form of milled higher-quality indica rice, and growing sub markets of aromatic varieties, lover quality, and paddy rice (FAO).
Production in the dominant Asian regions typically begins with the local or migratory farmer who mills his/her own rice at the local village mill for their own consumption or for sale to their primary local collectors in their towns. If ever there is sufficient excess, one can sell said surplus on the market exchange or to the commercial mills. Local/village mills sell to commercial mills as primary collectors. From commercial mills, rice is sold to wholesale buyers and traders for local sale or for distribution via retailers. Many of the more prominent companies involved with the sale of rice for distribution internationally are well integrated from the farmer down to the transportation services (Agrifood Consulting).
The EU, US, Canadian, and Australian markets are all increasing their demand for more exotic aromatic rice variants of rice, e.g. Jasmine, Basmati rice. Due to the relative scarcity of aromatic rice grown around the world (as compared to the more dominant indica variant), the likelihood that it was cultivated from rain-fed patties and harvested by hand, is quite high. Additionally, these countries, more specifically the US, are developing genetically altered variants of aromatic rice seeds for growth on domestic soil. If U.S. companies, for example, are successful in saturating the growing niche market with their own jasmine rice, the small-scale jasmine farmer in Thailand, and the like, is going to find him/her-self selling off their lands to survive. To maintain their competitive advantage, fundamental changes need to be made with regards to genetically engineered seeds; more specifically, adequate testing and acceptance of genetically engineered seeds (on a national-level). Interestingly, in countries like China, there now exists a black market evolving around the sale of herbicide-resistant rice seeds (Barboza, pg.1). Though it might be illegal to sell genetically modified seeds, farmers will pay premium prices for seeds that hold the promise of greater yields, less need for chemicals, and lowered risk of compromising one’s health due to chemical use. Chinese farmers and agribusinesses aren’t necessarily in danger of losing market share as they (along with Viet Nam, and India) are already selling rice at prices lower than that of export leader, Thailand (Food Market Exchange). Lower sale prices means lower wages for said farmers, thus, if by using modified seeds one can increase yields, survival becomes that much easier.
In addition to shifting prices, farmers are vulnerable to middle-merchants’ (merchants/wholesalers trading between local farmers and commercial retailers) pricing, and industrial expansion. The latter has had an affect the labor supply. With industrial expansion, former farmers are migrating to developing towns/cities in pursuit of better opportunities (Food Market Exchange). Modernization and industrial development, however, are not equal for all regions, thereby creating centralized locations of economic prosperity (similar to that of India and their booming technological industrial cities). In Thailand, this issue was compounded with the expulsion of illegal migrant workers in the late 90’s. Between the years of 1997 and 1999, it is believed Thailand removed over 1 million migratory workers from its rice fields in the hopes of securing farming jobs for its native-born citizens (UCDavis).
Despite these obstacles to production, Thailand to expand its lead as main exporter in ’07, due in part to government intervention ensuring replacement workers and an expected increase in demand from Indonesian and Philippine markets where poor environmental conditions have had a negative impact on their local supplies (FAS). Indonesia in particular is expect to nearly triple import, thus other counties are also expect to increase exports, such as the rice producers from the EU (FAS). The U.S export markets, by contract, are not expected to benefit from this increased demand due to the effective ban on U.S varieties of rice.
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