U.S. Rice Fighting Off Competition in Mexico

Still #1

U.S. rice's dominant position in Mexico is under attack and still at significant risk. The share of U.S. rice in Mexico's total rice imports is now 89%, down from nearly 100% in 2010. The USA Rice Federation says that, according to Mexican import data, total U.S. rice exports to Mexico were reported at 183,952 MT during the 1st quarter of 2014. This is down 27% by volume from the same period one year earlier. The decreases were led by both paddy rice, (down 28.6%), and milled/parboiled rice, (down 12.2%). There were small increases recorded in "other" and "brown".

The slip in U.S. rice exports to Mexico can be attributed to three factors: (1) in 2008 Mexico suspended import duties on rice and other basic grains from all origins, eroding a NAFTA-based duty edge U.S. rice had enjoyed; (2) aggressive government support to producers in Vietnam and Thailand beyond what is allowed by the World Trade Organization, enabling rice from these origins to significantly undercut U.S. prices; and, (3) high quality rice from Uruguay and Asia is making inroads in the market.  

"Simply put, Vietnamese and Thai rice is seen by importers and traders as about the same quality as U.S. rice, but at a 17 percent discount when delivered to Mexico City wholesale markets," said Marvin Lehrer, USA Rice's Mexico representative.

The dramatic fall of U.S. milled rice market share in Mexico is troubling. From a high of more than 97 percent in 2010, down to 51 percent in 2013, and only reaching 40.5 percent for the first three months of 2014, this is a struggling segment.  

Lehrer said Uruguayan milled rice has gained significant market share in recent years, and is clearly seen as the quality leader in Mexico, replacing the U.S.'s long held position.  

The major independent rice packer in Mexico, who positions his brand as the quality leader, now uses Uruguayan milled rice almost exclusively. He tells USA Rice that he consistently receives high quality rice from Uruguay, but cannot say the same about U.S. rice.  

Customers of Mexican millers are also beginning to more aggressively import milled rice directly, which has put a squeeze on Mexican millers, which in turn, pushes U.S. paddy sales down. Another threat to U.S. paddy sales is alternate origins, and while Lehrer says there is no shift yet, millers are reportedly seeking offers from Brazil.

"Nobody can predict the future of rice exports to Mexico based only on the first three months of the year," said Jim Guinn, USA Rice's vice president of international promotion. "But the fact remains that the impact of Asian and South American rice is making a serious dent in both U.S. paddy and milled rice sales."

"Importers tell me they strongly prefer to buy from the United States," said Lehrer. "It's easier to deal with the U.S., there's less transport time, they really know the people, and they are extended credit, but the numbers just don't work for many against lower priced Asian rice."

Guinn says USA Rice is not taking these challenges lying down.

He points to the ongoing efforts to improve the quality of U.S. long grain rice with the formation of a voluntary elite line evaluation protocol prior to commercial release. Just last week, a private breeder asked to submit the first elite line to undergo this evaluation by rice millers/quality evaluators. These evaluators will look at five of the most important quality criteria including chalk, kernel uniformity, and overall appearance - all issues that have been expressly raised in the Mexico market. The evaluation worksheet and protocol is available online.

Guinn says USA Rice is also in regular direct contact with Mexican importers and relays concerns to major American exporters. To that end, he told USA Rice Daily that an important Mexican trader will be attending the USA Rice Millers' Association annual meeting this summer, where he is expected to deliver messages directly to U.S. traders and millers.  

On the promotion side, Guinn says USA Rice works closely with the USDA's Foreign Agriculture Service (FAS) and their partners in Mexico. Adjustments to USA Rice's strategy and efforts are made in consultation with these thought leaders.  

A sign of quality

In the coming year, USA Rice will focus very heavily on maintaining market share as opposed to just increasing demand. The focus will be on building brand loyalty to those brands that are 100% U.S. origin, whether milled in the U.S. or in Mexico. As part of this effort, USA Rice is registering a trademark that can be used on packages of 100% U.S. rice. This logo was developed in consultation with the two largest millers and importers of U.S. rice in Mexico who informed USA Rice that Mexican consumers have a high opinion of U.S.-grown rice, especially with regard to food safety.  

USA Rice has also identified production subsidies in Vietnam, Thailand, and India that appear to be well in excess of WTO commitments, as well as export subsidies that simply violate WTO rules. Guinn says USA Rice is vigorously pursuing remedies for these market distortion policies with U.S. policy makers.

"We recognize the problem is both price and quality, and we know that there is no reversing the market liberalization undertaken by the Mexican government, and halting unfair subsidies is a long-term endeavor," said Betsy Ward, USA Rice's president and CEO. "It's important for us to realize there is no silver bullet that will magically return the U.S. to its previous market dominance in the Mexican market, but addressing the quality issues head-on, building brand loyalty, and tackling unfair trade practices are three ways that the U.S. may be able to stem the tide."