Up until recently Mexico counted on the United States for nearly 100% of its rice imports. Now, exporters such as Brazil find themselves at a price advantage to the once-dominant U.S., and the USA Rice Federation is concerned its members are losing their largest and most reliable market.

The first warning signs of South American competition to U.S. rice dominance appeared about eight years ago when the price of Brazilian and Uruguayan rice fell below the price of U.S. rice, said Tim Walker, chairman of the USA Rice Western Hemisphere Promotion Subcommittee and general manager of the seed company HorizonAg.

 But the U.S. still shared a border with Mexico and, more importantly, U.S. rice entered duty-free thanks to the North American Free Trade Agreement (and then its subsequent replacement, the U.S.-Mexico-Canada Agreement).

The U.S. was the only country able to ship rice to Mexico duty-free, which kept competitor countries at bay. Still, there were signs of other countries making inroads into Mexico. Brazilian and Uruguayan rice was showing up on supermarket shelves. Even though they were more expensive and milled outside of Mexico, the rice was evidence that Mexicans appreciated the quality of the South American grain, says Walker.

Mexico imports most of its rice un-milled – or in paddy form and that’s how the country prefers it, because it keeps Mexican millers in business. That’s also how the U.S. sends most of its rice to Mexico, so small Mexican imports of milled rice presented no major threat to U.S. farmers and exporters.

But now South American paddy rice is flowing into Mexico in the hundreds of thousands of tons thanks to Mexico’s efforts to combat inflation. With food prices rising, President Andrés Manuel López Obrador issued a presidential decree on May 17 that temporarily suspended import duties on 66 food items, including paddy rice.

The U.S. went from being the only country that was able to ship rice duty-free to Mexico to just one of many, and that’s when rice from Brazil, Uruguay, Argentina and elsewhere began replacing U.S. grain.

AP_Nov_22_Andres_Manuel_Lopez_Obrador_AMLO.jpgMexican President Andrés Manuel Lòpez Obrador (AP Photo/Fernando Llano) U.S. rice exports to Mexico dropped by 27% in the first 11 months of last year, according to USDA data. The U.S. shipped about $210 million worth of rice to Mexico from January through November in 2022, down from $290 million in the same time frame of 2021.

Brazil, meanwhile, is shipping more to Mexico than it ever has before.

“Brazil has seen its exports of paddy rice to Mexico grow exponentially, as this destination surpassed Venezuela as the leading export country,” USDA’s Foreign Agricultural Service said in a recent analysis

Brazil exported $154 million worth of rice to Mexico in 2022, compared to $8 million in 2021, according to government data.

Mexican buyers accounted for 60% of Brazilian rice exports last year, and Brazil wants to expand the market further, says FAS. The Brazilian Rice Industry Association, or ABIARROZ, told the World Trade Organization recently that it is doing everything it can to increase its ability to export, including purchasing rice from Argentina and Paraguay and re-exporting it. 

ABIARROZ, according to FAS, says Brazil is working on increasing its rice export capacity by as much 60%.

But Brazil’s exports to Mexico will likely only persist if the duty remains at zero. When Mexico implemented the tariff suspension as part of its Program to Combat Food Price Inflation and Scarcity, the country left open the potential for a one-year extension. American rice farmers are hoping that doesn’t happen, but they also say that Brazilian government and industry officials are lobbying now for that extension.

Price is the largest factor, says Walker, but quality also plays a major role in the rice trade, and the U.S. is also losing that battle against South American rice, which generally contains a lot more amylose – a starch molecule that makes the grains stiffer and looser.

Southern long grain rice, by USDA definition, has an “intermediate” level of amylose, but South American breeders have been upping the amylose content in their long grain rice for years to meet consumer demand.

Rice with lower amylose content tends to be stickier in texture. 

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When U.S. rice was significantly cheaper than grain from Brazil or Uruguay, Mexican buyers were content to purchase the stickier grain from north of the border. But South American producers will likely continue taking more of the Mexican market away from the U.S. if the tariff suspension is extended, said Walker.

“As we reviewed our exports in Western Hemisphere markets over the past year, it was alarming to see our market share in Mexico and some Central American countries primarily lost to South American suppliers due to current price and quality advantages,” Steve Vargas, chair of the USA Rice International Promotion Committee, said in a statement after the group met for a planning conference last week in the Dominican Republic. 

“It is critical that we stem this negative tide, and we spent time discussing ways to utilize our marketing funds to do that, while also acknowledging that this is neither a problem that appeared overnight, nor will it be as easily addressed.” 

But it’s not just marketing. To hook buyers in countries like Mexico, Costa Rica and Nicaragua on the quality of U.S. rice, more American farmers need to plant seeds to produce a higher level of amylose, and they need to be paid a premium, said Walker.

The availability of such seed is limited, but that could change quickly, say industry officials. 

 “Our industry is at a crossroads,” said Walker. “We have to ask ourselves if these markets are important enough for us to make changes to satisfy the demand of customers.”

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