With harvesting due to commence later in the first quarter of 2022, Australia is poised to make a comeback as a major Japonica rice exporter this year.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Australian output has been on a rollercoaster ride in recent years. Due to drought, Australian paddy production reached its lowest level in over a decade in 2020 – 50,000 mt – according to the US Department of Agriculture. This was also only a minor reduction from the year before. However, since then, production has picked up substantially, with the USDA estimating 2021 paddy output at 458,000 mt. The Australian Bureau of Agricultural and Resource Economics and Sciences also estimated 2021 output at this figure, an eightfold on-year increase.
The resurgence came from a substantial uptick in rainfall starting in early 2020 and corresponding increase in reservoir levels. This in turn led to a collapse in irrigation water prices, which had been at historic highs following two years of severe drought in the rice basket of New South Wales.
For farmers of the water-intensive crop, the collapse in water prices was a game-changer. Since then, the 2021 La Nina weather event has ensured that Australia has continued to receive unusually large volumes of rain, especially in New South Wales. Last year marked the sixth wettest on record for the state, with the Bureau of Meteorology reporting that November 2021 was the wettest ever November. Water allocations for farmers were at their maximum levels in both the Murray and Murrumbidgee valleys for the first time since 2016.
As a result, a bumper crop is expected to be harvested in the next couple of months. The USDA is projecting that paddy output will increase by 75% on the year to 800,000 mt, which would be the largest crop since 2017. ABARES projected that in New South Wales alone, production will increase to 857,000 mt, with other states typically only contributing less than 10,000 mt.
Australia's only major marketer – SunRice – was somewhat more conservative in its forecast. The company stated that it expects paddy output "in excess of 600,000 [mt]." If the five-year average field yield is met, SunRice expects the crop to be the largest in five years, marking an improvement on 2018's crop, which totaled 623,000 mt.
With the imminent supply influx on top of a vastly improved 2021 crop, Australia finds itself in the unusual situation of having vastly more rice available than it needs to serve its domestic and core export markets. This, in turn, raises questions about what SunRice will do with its surplus and how it will impact the global premium Japonica market.
During the closing months of 2021, a picture had already begun to emerge. In Taiwan, Australia managed to fulfil its 2021 short and medium grain brown rice quota for 12,634 mt Nov. 17 following two unsuccessful tenders – the first successful Taiwanese "normal" tender for Australia since 2017.
Offers for the volume were submitted between $990.15-$1,027.69/mt delivered government warehouse in the initial Oct. 13 tender, according to a source close to the tender. These offers shrank to $915.65-$968.38/mt delivered government warehouse in the Nov. 4 re-tender. The volume was ultimately awarded at $897.84/mt delivered government warehouse in the Nov. 17 re-tender – the final tender before the volume would have been opened up to other origins.
If nothing else, the example of Taiwan illustrates how the near monopoly which exists in the Australian rice market allows for the country to be flexible in its pricing. In turn, this enables Australia to price itself below competition when needed to ensure that its surplus crop is exported.
This was most clearly demonstrated in Japan's Minimum Access tenders in Q4 2021. Australia was awarded two 12,000-mt global origin milled medium grain lots, also for the first time since the drought. The first lot was awarded Oct. 15 and the second was awarded Dec. 17, presumably seeing off competition from both China and the US, which are typically awarded in these lots.
The year ahead
Going into 2022, it is highly likely that Australia will successfully continue offering in Taiwanese tenders and snap up global medium grain lots in Japan's Minimum Access tenders. It is also likely that Australia will take advantage of its 6,220 mt Japanese export quota (via Simultaneous-Buy-Sell tenders) courtesy of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The volume, which is due to gradually increase to 8,400 mt during the next decade, has been barely utilized in the past two years due to Australia's supply deficit.
Other quotas which could and likely will be utilized are a 15,595 mt South Korean import quota, which has not been utilized in years, in addition to a new UK deal which was agreed in mid-2021. A SunRice press release from December described it as "the most significant market access outcome for rice exports in any of the recent Free Trade Agreements the Australian government has negotiated."
Under this free trade agreement, all UK tariffs on Australian short and medium grain rice will be removed, while an annual duty-free quota of 1,000 mt for Australian long grain has also been agreed. A SunRice spokesperson told S&P Global Platts that the deal will be implemented "sometime around the middle of this year."
A more pressing concern among Australia's major competitors, notably California, is that it could capture market share in more fluid private markets, notably the Middle East. In contrast to Australia, California had a particularly poor crop in 2021 due to drought, with sources in the state consistently reporting that they have "lost" Middle Eastern markets due to historically high prices and as they prioritize sales to their primary domestic and export markets.
Anecdotal evidence suggests that the US South has gone a long way in picking up much of California's slack in the Middle East in recent months. However, as stocks tighten in the US South and as Australian stocks improve later in 2022, it cannot be ruled out that Australia will take market share. California may then find it difficult to win the share back once the state's 2022 harvest peaks in September-October, even if production improves significantly.
The new year will be an unusual one for Australia, but not an unwelcome one for its farmers and SunRice. So long as the final stages of crop development go smoothly, the country will have a bumper crop and be more than able to serve its core markets. It is highly likely that Australia will dust off and make use of existing quotas and FTAs that have been neglected for years due to drought-affected production. The big question mark will be how much it inserts itself into other markets, such as global origin Japanese tenders and the all-important Middle Eastern Japonica market.