Analysis and evaluate Class work

Rice – Brazil Seeks Imports from Non-Traditional Suppliers

Earlier this year, Brazil harvested a large crop which supplied a temporary domestic surge in purchases after COVID-19 response measures were put in place. Strong demand for Brazilian rice has also come from exports. Since the beginning of 2020, the Brazilian real has lost 30 percent of its value, allowing Brazil to export a significant amount, especially to the Western Hemisphere and West African markets.

In fact, it has exported 1.1 million metric tons in the first 8 months of 2020, up 80 percent compared to the same period last year. With increased internal and external demand, Brazilian supplies have tightened, resulting in sharply lower stocks and rising prices.

Consequently, Brazil’s 2020 imports are forecast at 850,000 tons, the highest since 2003. Over the past 5 years, Brazil has imported essentially all of its paddy and milled rice duty-free from MERCOSUR countries Argentina, Paraguay, and Uruguay. However, tight stocks and rising export prices in Paraguay and Uruguay have caused Brazil to now seek imports from non-traditional sources.

In September, Brazil implemented a duty-free tariff rate quota for up to 400,000 tons outside of MERCOSUR, eliminating the 10 percent tariff on paddy rice and 12 percent tariff on white rice through the end of December.

Some of these non-traditional suppliers may include the United States and South Asian countries. Last month, the United States sold 108,250 tons of paddy rice to Brazil, the highest since 2010, when Brazil last had large non-MERCOSUR imports due to tight supplies. When Brazil’s stocks were tight in the past, the United States shipped paddy rice allowing mills in Brazil to add value through processing.

While the United States does have an advantage in exporting paddy rice, it has a disadvantage in shipping milled rice due to challenges in labeling and packaging requirements for the short term. In contrast, milled rice exports from Asia would not only meet the requirements to be packaged in kilogram-based bags, but also are far more competitively priced, ranging from $100/ton to $200/ton less than Western Hemisphere suppliers.

With U.S. paddy rice poised to meet immediate needs for Brazilian millers and Asian milled rice able to meet consumer needs at competitive prices, these non-traditional sources are well positioned for export opportunities to Brazil.

Looking ahead to 2021, Brazil’s imports are forecast slightly lower, but still relatively high. This demand will most likely be met by traditional MERCOSUR countries, given the expiration of the duty-free tariff rate quota and the expected decline in South American prices following new-crop supplies.

Latin America and the Caribbean region

Total rice production in the LAC, including Mexico, during the last cropping season was 14.381 Mt (milled basis). However, total demand exceeded production by approximately 1 Mt Total rice supply was 15.3 Mt resulting in an apparent consumption of approximately 30 kg/caput for the region’s 511 million inhabitants.

Central America and the Caribbean are the main importers of rice and only about 50 percent of the total rice demand for the area is supplied by domestic production. In recent years, rice imports into Central America and the Caribbean have exceed 1.5 Mt annually. All countries in Central American and the Caribbean are rice importers, even though per caput consumption is low at approximately 18 kg/caput.

In contrast, South America is a net rice exporter with a surplus production of approximately 300 000 tonnes per year. However, there are several South American countries where demand exceeds national production and consumption is limited due to competition from other more inexpensive food sources. Average rice consumption in South America is in excess of 38 kg/caput (milled) or more than double the consumption level in Central America and the Caribbean.

South America

Rice is grown in all 13 countries in South America. During the 3-year period from 1999 to 2001, total annual production was approximately 21 Mt (paddy). Production increased at an annual rate of 2.9 percent during the last decade, although the area devoted to rice decreased at an annual rate of 1.1 percent. Over the same period, average yield grew at a rate of 4.1 percent per year, which more than compensated for the decrease in area. Yield advancement is a combination of the continued improvements in yields in the more favoured irrigated ecology and the decreased significance of the low-yielding upland sector, particularly in central Brazil.

Trends and advances in South America Collectively, South America experienced surplus rice production during the 2001 cropping season; however, there are large discrepancies between countries. Uruguay, Guyana and Argentina are large exporters, while Brazil, Colombia and Chile have major rice deficits. Peru is nearly self-sufficient in rice but periodically requires minor imports to balance national demand. Bolivia, Ecuador and Paraguay are minor importers of rice.

Rice production in South America during the last two decades saw a rapid decline in area planted to rice, accompanied by a steady increase in overall production. Following 1980, rice area decreased by 25 percent (a loss in absolute terms of almost 2 Mha) (Table 7). During the same period, total production increased from 14.4 to 22.8 Mt, representing a 59 percent increase in production. Yield advancement is the main factor permitting production to continue despite the removal of large areas from rice cultivation. In the 20-year period, the average yield in South America increased by 113 percent: from 1.9 to over 4 t/ha. The large decrease in the area of low-yielding upland rice in central Brazil, combined with yield improvement in irrigated rice in southern Brazil, contributed significantly to the rapid increase in average yield in South America.

Although Brazil experienced a rapid decline in area, numerous other countries continued to increase rice production, mostly in the highly productive irrigated sector. The rice area in Uruguay expanded by 302%, Ecuador 188%, Bolivia 164%, Argentina 126% and Peru 102%. In most cases, the increased area under cultivation was accompanied by yield improvement. In Uruguay, national average yield grew at an annual rate of 3.7 percent during the 1990s (Table 4), and during the same period, national average yield grew by 2.9 percent per year in Argentina and by 2.5 percent per year in Peru.

Although, increases in national yields are the norm for most South American countries, not all countries are advancing at the same rate. Yield improvement in Bolivia was insignificant in the last 20 years, as a result of the concentration of production in the unstable upland sector. Yield improvement in Ecuador was also slow and the poor progress may be attributed to the lack of investment in irrigation management. National yields in Colombia also grew slowly over the last two decades. In the 1980s, Colombia was the country benefiting most from the introduction of high-yielding, semi-dwarf plant types, recording one of the highest national average yields in South America. However, Colombia failed to keep pace with other countries in terms of yield improvement and its average national yield is currently inferior to that in Uruguay, Peru and Argentina, as well as in the states of Santa Catarina and Rio Grande do Sul, Brazil.

Colombia represents an example of the rapid adoption of improved genetic material without accompanying high-yield agronomic practices. In addition to the slow growth in yield, Colombia has emerged as the highest cost rice producer in South America. Production costs in most of the irrigated areas in South America vary between US$800 and US$950 per ha, which are similar to Arkansas (USA) costs. Production costs in the major irrigated rice-growing areas of Colombia often exceed US$1 200/ha, much of which can be attributed to poor crop management practices, in particular abuse of pesticides, high weed control costs and low fertilizer efficiency.

FDI in Latin America
Preliminary research indicates that rice consumption in South American countries are significant as rice is a leading source of protein for the region. As such, ecoBrown’s is wants to establish a mill with a wholesale premises in South America to process and sell brown rice in the region. Three nations that have been shortlisted are Argentina, Brazil and Colombia.

Questions:

Read and understand the above issues and answer the following questions.

1. Imagine you are exporting brown rice to three shortlisted countries Argentina, Brazil and Colombia and for the attractiveness of those three countries and determine which country is a good candidate for FDI for ecoBrown’s?
2. What factors your considered in making your evaluation. Identify about five (5) factors
   and provide an explanation why these factors are important
3. Compare the three countries on these factors and determine which country is preferable
   and why it is preferable?

Answer rating: 100% (QA)

1 Argentina Brazil and Colombia all have a significant demand for rice which makes them all good potential candidates for FDI for ecoBrowns However there are a few factors that need to be considered i... View the full answer