China trader says rice exports to continue

By Niu Shuping

BEIJING (Reuters) - China, which produces nearly a third of the world's rice, will continue exports this year despite Beijing's effort to discourage grains shipments abroad, an official with the country's top trader said on Tuesday.

News of more rice from China, which ranked sixth in the world with over 4 percent of global exports last year, may help temper the fears that have pushed up prices more than twofold this year due in part to export curbs by big suppliers fighting domestic inflation.

The rally has added to food-related inflation, caused food riots in parts of Africa and heightened fears about food security for importers, but China -- which holds about half of the world's rice stocks -- appears well set to ride out the turmoil.

"We will continue to export a proper amount this year, but it is hard to say how much now," Yang Hong, head of the rice department at state grains trader COFCO Co. Ltd, told Reuters.

She said COFCO was in talks over new contracts, even though Beijing hasn't issued new quotas for overseas shipments.

"We don't see any problem in domestic supplies," said Yang, but declined to give more details.

China's rice exports rose 7 percent to 1.32 million metric tons last year, equal to only about 1 percent of its production. Shipments have accelerated this year, climbing 39 percent in the first quarter to over 600,000 metric tons, according to official government data released on Tuesday.

That includes 255,400 metric tons in March, despite the fact that Beijing has yet to renew its annual rice export permits, the last batch of which expired before March 1.

China's State Council, or the cabinet, said last month Beijing would restrict grain exports to ensure food safety at home, particularly after food prices had helped drive the country's inflation to a 12-year high in March.

It has abolished a 13 percent export tax rebate and imposed a 5 percent export tax, but that may do little to deter traders from trying to take advantage of export prices that are as much as double depressed domestic rates.

One Japanese grain trader said Chinese short-grain rice was traded at around $970 a metric ton, FOB, in March.

BUYING FRENZY

Benchmark Thai Rice prices have leapt by 150 percent this year in what traders call a short-term buying frenzy by importers who had allowed stockpiles to dwindle to near their lowest in 20 years and feared that export restrictions might leave them short.

Analysts say the sense of panic should subside as stocks rebuild, but the market also faces the longer-term pressure of sharply rising agricultural costs, eroding cropland in the face of rapid development and growing demand, partly from poor consumers already hit by a doubling in the price of wheat.

While growing populations in developing countries in African and the Middle East drive up consumption, China faces the opposite trend as its increasingly well-off urbanites eat more meat and fish, and less of the staple rice.

The China National Grain and Oils Information Centre estimates rice consumption is decreasing by between 500,000 metric tons to 1 million metric tons a year, said one analyst. Last year paddy rice production rose 2 percent to 186.5 million metric tons.

Easing demand and several years of bumper harvests have put rice prices in China among the world's lowest, if not the lowest, allowing the government to bolster stocks.

Beijing has agreed to buy 1.75 million metric tons of rice for reserves in the northeast aiming to support prices and encourage farmers to grow more, an official said last week. Premier Wen Jiabao said last month that China's rice stocks were 40 to 50 million metric tons, which would be more than half the world's total.

Grains officials said rice farmers in the northeast, including Heilongjiang, had difficulties in selling their crop.

"The critical thing is the weather in the next 60 days. If weather is fine in the next 60 days, I don't think the government would hold back old (rice) stocks," said a senior grain trader in Shanghai, who declined to be identified.

"In general, China had enough rice and wheat. And rice has a political leverage. If one country does not have enough rice, China can sell some, it is good for the relationship."

(Additional reporting by Nao Nakanishi in Hong Kong, Editing by Jonathan Leff)