MARKETING STRATEGY ALTERNATIVES FOR TEXAS RICE

A Report to

THE AMERICAN RICE GROWERS

COOPERATIVE ASSOCIATION

Lake Charles, Louisiana

December, 1971

Texas Agricultural Market Research and Development Center

in cooperation with The Department of Agricultural Economics and Rural Sociology

Texas A&M University Co 11 ege S ta t ion, T exa s

~.

~.

71

On the average, the ARGA firms have twice as much drying capacity as the

corporations, and also twice as much operational storage capacity. Many members

of ARGA have their own drying and storage facilities, but sell their rice

through the association sales offices. The average volume of rice sold

through the ARGA firms, during the past five years, was almost twf.ce as much

as the volume dried and/or stored i.n their facilities.

From the standpoint of average volume of rice sold by the firms, the

ARGA members and local independent cooperatives had about the same volume

last year, averaging 1.5 and 1.6 million cwt. each respectively. However,

with average sales of 384,000 cwt., the typical corporation and partnership

firm sold only one-fourth as much. Sales of the ARGA firms were growing.

Their average sales volume in 1969-70 was more than 50 percent above that of

their 1965-66 season.

The ARGA firms reported an average of 104 members. The three in

dependents providing information reported an average of 202 members.

Membership of the independents was classified by management as mostly of

the tenancy classification, whereas ARGA members were more equally comprised

of owner-producers and tenants.

Managers of all firms reported that virtually all the rice they han

dle was first offered for sale, by the owners through the public bid procedure.

Between 75 and 85 percent is sold in this manner. The remainder is sold

through privately negotiated trade. The sales fee reported charged by the

firms averaged 5 cents per cwt., for both the ARGA members and corporations,

and 3.1 cents by the Independent cooperatives.

Comments from interviews with dryer-warehouse firms can be found in

Appendix 11. (Plus responses to selected questions.}

THE TEXAS AGRICULTURAL MARKET RESEARCH AND DEVELOPMENT CENTER

An Education and Research Service of the

Texas Agricultural Experiment Station and the

Texas Agricultural Extension Service

The purpose of the Center is to be of service to agricultural producers, groups and organizations, as well as processing and marketing firms in the solution of present and emerging market problems. Emphasis is given to research and educational activities designed to improve and expend the markets for food and fiber products related to Texas agriculture.

The Center is staffed by a basic group of professional agricultural and marketing economists from both the Experiment Station and Extension Service. In addition, support is. provided by food technologists, statisticians and specialized consultants as determined by the requirements of individual projects.

Robert E. Branson, Ph.D. Coordinator

William E. Black, Ph.D. John P. Nichols, Ph.D. Associate Coordinator John J. Seibert, M.S.

Charles Baker, M.S. Carl E. Shafer, Ph.D. Chan C. Connolly, Ph.D. Thomas L. Sporleder, Ph.D. Robert L. Degner, M.S. . Randall Stelly, Ph.D. Johnny Feagan, M.S. Edward Uvacek, Ph.D.

William J. Vastine, Ph.D.

69

Services of American Rice, Inc.

The grading services of American Rice, Inc., although only a couple

of years In existence, Is already widely used by both producers and dryer

storage managers with a high degree of satisfaction. Although rough rice

buyers still insist on rubbing each sample and making their own quality

determination, this service has already resulted in improvement of the

grading system.

The more ambitious program of American Rice, Inc. of establishing and

maintaining a current accounting of all rough rice deliveries by variety,

grades, milling y*eld and other quality factors, and sales with buyer Iden

tity, prices, lot Identity, etc., could, if successful, completely revolu

tionize the rough rice marketing system. By making available current and

composite data on mills' position, acquisitions, prices paid by variety

and grade, etc. as well as the current stock situatio~ marketing firms and

individual rough rice owners would be in a position to make decisions based

on facts never available before. In fact, one of the areas most frequently

mentioned by dryer-storage operators as being a major problem is the lack

of a daily-compiled market information on sales volume, prices paid, quality

being purchased, stocks on hand, etc.

If the information that Is contemplated to be furnished through this

program can be made available to rough rice producers and storage operators

within 24 hours ......... or before the deadl ine for acceptance or rejection of the

p revi ous day I s bids _..... th I s wou 1 d be of tremendous va Iue to the se 11 e rs .

Sellers would then, In fact, be In position to make a decision based on facts

rather than on guesswork.

TABLE OF CONTENTS

Page ACKNOWL EDGMENTS ...................... " .............................. " ........ .... " ........................... ..

PREF ACE .................... " " ............ " .... " ....................................... " .................. " ........ ..

BAS I C I NDUSTRY TRENDS AND PROJ ECT IONS. . . . . . . . . . 7

Consumption Profi le and Projections......................... 7

Total Uti llzation ........................... " ................................ " ........ ".. 8

Uti 1i za t i on by Ma r ke t .... " ........ " .................................... " " ........ " .. 8

Expo rt Ma r ke t .... " .... " ...... " ...... " .. " ........................................ " .. " .. " .. 11

Domes tic Market Tota 1. . . . . . . . . . . . . . . . . . . . . . 15

Domestic Market - By Regions ............ 17

Consumption - By Product Type ................... 21

Rice Supply ............................. " ................ " ............ " .. " ........ ".................... 25

By Area ............ " ............ " ........................................ " ...................... ".. 25

Allocation of Texas Supply to Major Markets ....... 28

Allocation of Supply by Major Processed Types ... 28

Supply by Grain Type ............... 30

MARKETING PROGRAMS - ARKANSAS AND CALIFORNIA..... 33

The Arkansas Ri ce Growers.................................. 33

The Producers Cooperative.................................. 41

The California Rice Cooperatives........................... 43

The Rice Growers Assoc i at j on of Ca 1i forn i a. . . . . . . 47

MARKET ING PROGRAM - TEXAS....................................... 54

Rough Ri ce Transport and Storage,.......................... 56

Attitudes Concerning Co-mingling of Rough Rice............. 57

Milling Operations.......................................... 59

Marketing Milled Rice Products............................. 59

Future Direction in Milled Rice Product Marketing.......... 61

TEXAS RI CE DRYER - WAREHOUSE SURVEy............................. 63

Increased Volume Through Co-mingling....................... 64

Source and Adequacy of Market Information.................. 64

OPERATIONAL PROCEDURES FOR RICE SALES........................... 68

Services of American Rice, Inc............................. 69

Financing........................................................ 70

Other Characteristics...................................... 70

67

established with buyers, and doing a good job on grading; and (6) encouraging

orderly marketing.

Managers feeling a lack of any influence on producers prices stated

that there are two main requirements for increasing Influence on prices

that are the establishment of a central sales office, to handle most of

the rice produced in the state, and a tighter organization of Texas producers.

All the managers interviewed, both cooperative and corporate firms,

feel that they have some influence on individual producers in marketing

their rice. In dealing with producers, Influence is generated by the follow

ing: (I) making available to producers all the current sales and market

information at hand; (2) furnishing advice concerning prices, quantity,

~~. quality and grade, market and loan value; (3) explaining alternatives

available; (4) advising owners of rice to accept or reject bids offered

(farmers will usually ask the organization for advice and in most cases

follow the opinion of the sales manager).

Whi Ie the managers' views of regional headquarters information system

indicated some problem~ It was almost unanimous that legislative represen

tation and assistance was one of the more beneficial services provided by

the regional office.

Page

MILLER COST AND MILLER OPINIONS - FROM PREVIOUS STUDIES 72

MILLER TO RETAIL OUTLET MARKETING OF RiCE 76

MARKETING ALTERNATIVES FOR TEXAS AND LOUISIANA RiCE 81

The Rice Market in Perspective 81

The Eight Step Ladder of Marketing Alternatives 89

Evaluation of Alternatives 91

Rough Rice Sell ing Under Mi 11 Grades........................ 91

Rough Rice Sales Using A.R.1. Grades ........................ 92

Rough Rice Sales Using A.R. I. Grades and Market Information. 93

Rough Rice Cent r a 1 Sa 1 es Agency............................. 95

Rough Rice Central Sales With Bargaining 96

Milling With Sales to Non-brand Markets ..................... 97

Milling With Sales to Brand and Non-brand Markets 102

Milling With New Product Development. ....................... 103

Conclusions and Recommendations 103

APP EN 0 I X I.......................................................................................... 101

AP PEN 0 I X I I .........................................................................................-. 11 3

APPENDIX III ................. 123

APPENDIX TABLES .......... 131

-~

65

Sales tabulation sheets are also received from other cooperatives and sales

agencies in Texas and Louisiana.

Irregardless, most operators and managers feel that the .market informa

tion received is very unsatisfactory. It reaches them too late, is not

current enough, and lacks sufficient detai 1. Wanted are more statistics

and information on volume sold, and movement in both the rough and clean

rice markets. More current information on both the mills' needs and purchases-

the position of the mills (long or short) regarding quantity, quality,

etc., would be helpful. Daily price information~prices offered and those

accepted- is another need frequently expressed. The ARGA weekly newsletter

is not timely enough, nor is the information usually in sufficient detail.

Individual producers usually obtain their market information from the

same sources as the management of drying-storage establishments. In addi

tion to the weekly ARGA newsletters, and sales tabulation sheets some

organizations post price and sales information on local facility bulletin

boards, as well as by personal contact and telephone.

The schedule of storage charges for rough rice ranged from a flat

charge of 21 cents per cwt. up to April 30, to a varying monthly charge

amounting to 35 cents per cwt. by April 30. The average storage charged

by cooperatives amounts to 26 cents per cwt. up to April 30, compared to

an average of 33 cents for storage in facilities under corporation type

of ownership.

Most organizations, both cooperatives and those under corporation

type of ownership, furnish additional services for rice growers besides

drying and storing rough rice, and furnishing market information when

LIST OF TABLES

Table

Rice Acreage t Yie1d t and Production in Texas t Louisiana t and Arkansas t 1959-69................................

Page

2

2 Average Price Per Cwt. Received by Farmers - Rough Rice.. 3

3 Index of Prices Paid by U.S. Farmers...................... 5

4 Rice Milled: Supply and D~stributiont United States t 1956-68. .. .. .. .. .. .. ... .... .. .. ... .. .. .. .. .. .. .. .. .. .. .. ...... ... .... .... .. .. .. .. .. .. .. .. .... .. 9

5 Rice Utilization by Major Markets t 1959-68....... 12

6 u.. S.. Rice Expo r t s .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 13

7 Rice: Per Capita Civilian Consumption and Retail Price United States t 1955-69........... 16

8 Percentage and Per Capita Distribution of Milled Rice in the United States t by Region, Selected Years t 1956-66.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .... .. .. .. .. .. .. .. 19

9 U.S. Domestic Utilization of Rice for Selected years .. 22

10 Manufacturing Uses of Rice, United States Selected Years, 1956-66. .... .. ...... .. ........ ... .. ...... .... .. .. .. .. .. .. .... .... .... .... .... .. .. .. .... ...... .. .. 23

'I Estimated Market Snare by Type of Rice United States, 1970................................................................................... .............. 23

12 Mill Shipments of Brown and Milled Rice by Type..... 24

13 Rice Distribution for Domestic Market t by Package Size, 1967-68.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 26

14 Rice Production in Texas, Louisiana, Arkansas, and California, 1959-69..... 27

15 Market Allocation of Texas and Total Southern States Ri ce 1968-69 ....................................................................... .-........ 29

16 Shipments of Rice, by Type, from Southern Mills ... 31

17 Rice Production by Long, Medium, and Short Grain Type by State, 1969 with Comparisons ... 32

63

TEXAS RICE DRYER - WAREHOUSE SURVEY

Information on rice drying and storage operation was obtained through

personal interviews with management personnel of 25 firms. In listing the

major problems facing them, the responses of managers of all three categories

(ARGA, independent cooperatives, and corporation and partnership) centered

around the following difficulties:

1. Inadequacy of the market information available to them: a strong

need was expressed for more complete, accurate and timely information

on such factors as prices, sales and movement, stocks on hand,

relative market strength, and related indicators.

2. The complicated and inadequate grading system--along wi,th an im

proper sampling system.

3. The labor sltuation--difficulty in obtaining skilled labor.

4. Having more rice arrive than can be handled at the dryer, during the

height of the harvesting period.

The problems that producers reportedly mention to dryer-storage mana

gers inClude the matter of not being able to make the best decisions in

selling their rice -- due to lack of price information, market condition,

accurate determination of rice quality, etc. Some feel that the mills

(buyers) are too discriminating in their quality evaluation when purchasing

rough rice, wh! Ie others complain about the time span between date of sale

and date of payment for the ri ce by the buyers. Of course" the ever present

complaint about low prices and high production costs came in for its share.

Most managers i ntervi ewed, in all three class i fi cati ons, C;),f ownershi p,

~ realize the need for co-mingling rough rice and feel that this, and a central

- ~

Table Page

18 Shipments of Milled Rice by Market and State Average

for Four Seasons (1956-66 through 1968-69) ... 38

19 Market Distribution of U.S. Rice Sales .................... 82

20 Markets for Rice (For a 500 Cwt. Per Hour Mill Using

National Sales Profile) .............................. 83

21 Market Distribution of a Five Million Cwt. Mill ... 84

22 Examples of Sales Potential in Selected Advertising

Ma r ke t s " " " " " " " " " " " " " " " " " " " " " " " " " .. " " " " " .. " " " " " " " " " " " " " 86

23 Further Examples of Advertising Market's Potential . 87

24 Cost of Selected Advertising Markets ... 88

25 Wholesale Prices of Rice by Type Marketed at Retail

level Dallas, Ft. Worth, Houston, Texas June 1970 . 90

26 Rice Exports, Dollars, and P. l. 480 Quarterly,

~

1963-4 to 1968-9."""",,""""""""""""""""""""""""""""""" 98

27 Average Prices, By Quarters, Received for Rice 1963-69

Average. " " " """ " " "" "" " " " "" " "" " """ " " " """ " " " " """ "" """ " "" 100

28 Average Prices Received for Export Rice, By Quarters, 1963-4 to 1968-9."""",,""""""""""""""""""""""""""""""" 101

61

The industrial use market is very price conscious. Purchases are made

on a specification basis. Contracts may be made for from three months up to

a full year. Prices are normally set at the time the contract is set up.

Often no formal contract Is written but rather a normal order form Is used

for these sales.

Exports under the P. l. 480 program are made on a bid basis. Here again,

price is of the utmost importance. Exports to dollar markets allow a bit more

flexibility. Some branded product may be exported to dollar markets. Brown

rice also makes up a significant portion of the exported rice to dollar markets.

Mills in the Houston area operate in the export market in much the same way as

do mills in Arkansas and louisiana. They do, however, have an advantage over

the Arkansas mills in terms of transportation charges to the point of export.

Future Direction in Milled Rice Product Marketing

Several of the mill managers interviewed were asked their opinion con

cerning the future for milled rice products. It was generally agreed that

convenience oriented products are here to stay. In addition, it was agreed

that there would be an expanding market for rice mixes and specialty rice

products. Further expansion was not expected in the USe of parboiled rice,

except in the Institutional trade.

It appears that Texas mills themselves will not be moving dramatically,

within the near future, into further processed rice products. With only one

exception, the mills felt they were not large enough, nor do they have the

marketing expertise, to introduce new products successfully into the consumer

market. The major national food manufacturers will continue to be the major

LIST OF FIGURES

Figure Page

U.S. Rice Production-Utilization 1959-1968 and Projections ..................................... 10

2 U.S. Ri ce Exports......................................... 14

3 Per Capita Distribution of Rice in 1966-67 ..... 20

59

Mi 11ing Operations

In general, the millers or the mill representatives would not discuss

in any detail their mill operations or milling cost. All except one mill

produce regular white mi lied rice. In addition they all also produce par

boiled rice. Only one of the five mills produces pre-cooked instant rice

in any quantity.

The regular milling operations generally run on a two or three shift

basis five days a week for the major part of the year. The parboil operations,

however, run on a seven day a week basis. Those mills which have a signifi

cant share of the domestic consumer market have a continuous demand for

milled rice products throughout the year. The workload for the other mills

-~ necessarily varies up and down as they ,receive contracts for milled rice

products. They do, however, try to maintain a continuous milling operation.

In many cases there may be some times during the year when they have to be

satisfied with performing the milling operation merely to cover their variable

costs and contribute something towards spreading fixed costs.

Marketing Milled Rice Products

Because of the competitiveness of most Texas mills in the domestic market,

mill representatives are somewhat reluctant to discuss milled rice product

marketing. A reasonably clear picture, however, is available.

It is well known that some Texas mills have a substantial amount of con

sumer acceptance in the domestic market. Other Texas mills depend mainly on

exports, including P. L. 480 rice sales.

ACKNOWLEDGMENTS

This study was done under a research grant from The American Rice

Growers Cooperative Association and conducted by a task force of the

Texas Agricultural Market Research and Development Center. The

personnel involved included the following:

Robert E. Branson Texas Agricultural Experiment Station

W. E. Black Texas Agricultural Extension Service

John P. Nichols Texas Agricultural Experiment Station

Randa 11 Stell y Texas Agricultural Experiment Station

All personnel of the task force are also staff members of the

Department of Agricultural Economics and Rural Sociology at Texas A&M

University.

57

the Houston area may also be used. Some mills actually store rice for other

mills in Houston.

The dryer-e 1evators usua 11 y a 11 ON 15 days for the mills to remove the

rough rice after it has been purchased. It is apparent that some dryer

elevators are more strict on this requirement than others. It is generally

true, hONever, that all the dryer-elevators require that all rough rice be

removed by the end of April or early Hay. At this time they close dONn

their operations for maintenance and installation of equipment for the

next season. This policy poses a hardship on those mills with limited

storage capacity of their ONn. They must then move rice to other storage,

and handle it a second time to get it to the mill.

The storage capacity available to the mi lls can affect thel r purchasing

pattern. By purchasing rough rice in a highly organized manner during the

season, a mill can achieve substantial annual savings in storage costs.

Consideration must be given jointly minimizing storage charges, on the other

hand, and consider price variations of rice during the season to minimize the

purchase cost.

Attitudes Concerning Co-mingling of Rough Rice

In Texas, the subject of co-mingling rough rice is presently controversial.

It was the general opinion of all the millers interviewed that some quality

factors would have to be sacrificed if rough rice were co-mingled. Some felt

that the problem is not insurmountable while other millers felt that their

standard quality could not be compromised by allONing this co-mingl ing at the

-~ dryer.

MARKETING STRATEGY ALTERNAT IVES FOR TEXAS RICE

(A Task Force Report)*

PREFACE

From 1959 to 1969, rice acreage in Texas increased an average of

13.1 thousand acres per year. Production expansion meanwhile averaged

850 thousand cwt. per year, Table 1. Compared with the 1967-69 levels,

the annual rate of gains are near 2.4 and 3.4 percent per year respectively.

United States population meanwhile, measured in a comparable manner,

recorded an average annua.l growth of only about 1.3 percent. Thus, Texas

production has increased at a rate about 2.6 times that of population

.~. growth during the last decade. Comparable production gains have occurred

in both Louisiana and Arkansas, which are also major rice-producing states,

Table 1. Meanwhile, rice consumption in the United States during the

1959-69 decade moved from 5.0 pounds per capita to an estimated 8.3 pounds.

This is equivalent to a gain of 4.1 percent per year In relation to recent

consumption levels. This gain is important, causing less pressure on

foreign dollar exchange markets for rice, as well as P. L. 480 subsidized

exports.

Irrespective of the foregoing favorable gain in domestic market demand

for rice, prices received by Texas rice growers have not evidenced any

improvement. The average per cwt. was $4.94 In 1959 and $4.90 in 1968, Table 2.

*Robert E. Branson, Professor; W. E. Black, Economist - Marketing and Policy; John P. Nichols, Assistant Professor; and Randall Stelly, Associate Professor; Department of Agricultural Economics and Rural Sociology, Texas AsM University.

55

opinion among the Texas millers concerning the grading program for rough rice,

which has been developed by American Rice,lnc. It is designed to measure in

greater detail than present U.S.D.A. grades, the milling qualities of rice as

a basis for purchase contracts. Some millers doubted that it would be able to

reach a level of operation sufficient to gain their confidence. Other millers

felt that, given time, this program could provide the confidence mills need

when buying rice. Mills found field buying, admittedly, were not infallible

judges either in evaluating rice. The need for a better system is generally

conceded.

Purchase of rough rice on a certificate basis where the grade and certain

quality characteristics would be specified and guaranteed is viewed skeptically

by most mills. Nonetheless, representatives of two of the mills, however, could ~

see this potential as the direction in which the industry should move. That view

was qualified, however, by saying that an Improved level of confidence in the

grading system would be required. One suggestion was that the grading service

should be truly independent and, therefore, operated by an organization other

than American Rice, Inc. The millers in general also felt that they should

have more input into the deSign of the rough rice grading system and the uniform

rough rice sales policy. In their opinion, this would improve the milling

industry's confidence in the system, and thereby the chances for Its success.

Of the five mills operating tn Texas, only Blue Ribbon Rice Mi lIs is

organized as a cooperative. It has had experience in the past of operating

a pooling arrangement for rough rice. Management at Blue Ribbon, however,

generally felt that the pooling arrangements for rough rice did not work because

they were unable to maintain producer interest and enthusiasm for the program. ~

It is their opinion that producers prefer to sell their own rice and act as

their own decision-makers in the selling process. In addition, they feel that

3

Table 2

Average Price Per Cwt. Received by Farmers -- Rough Rice

Year louisiana Arkansas Texas Mississippi Ca Ii forn I a

1958 $4.96 $4.94 $5.00 $4.90 $3.81

1959 4.63 4.60 4.94 4.71 4.19

1960 4.50 4.41 4.85 4.88 4.43

1961 5.28 5.20 5.31 5.38 4.78

1962 4.88 5.10 5.03 5.25 5.11

1963 4.95 4.92 5.09 5.24 5.07

1964 4.84 4.87 4.94 5.20 4.92

~, 1965 4.79 4.98 5.04 5.06 4.88

1966 4.80 4.80 5.10 4.90 4.30

1967 4.91 5.12 4.94 5.34 4.84

1968 4.85 4.90 4.90 5.25 4.85

1969 4.94

1970 Jan. - April 4.80

Source: Statistical Reporting Service, U.S.D.A.

53

become the dominant factor price-wise (no need to control all the

crop in the state).

8. Dedicated field men capable Of furnishing advice and information

to membership on both production, marketing, prices, cooperative

organization and operation, quality factors, etc.

9. Good, honest management, and qual ified personnel for both internal

and external operations.

10. A sound public relations program that will obtain and maintain a

feeling of trust and confidence from member producers, other rice

industry groups, and the general public.

5

Table 3

Index of Prices Paid by U. S. Farmers*

Year Index

1959 298

1960 300

1961 302

1962 307

1963 312

1964 313

1965 321

1966 334

1967 342

1968 354

1969

1970 Jan. - April 388

*Al1 commodities, production and living

Source: U. S. Department of Agriculture, Statistical Reporting Service

51

Rice shipped to Puerto Rice is usually fully milled. However, the

polishing plant in Puerto Rico polishes the rice and packs it in consumer

size packages. This avoids taxes in Puerto Rico.

Most of their sales are F.O.B. San Francisco, through brokers. In

Puerto Rican shipments they use their own ship. This ship takes 39 days

for a round trip through the Panama Canal, so therefore it takes in a 39

or 40 day supply each time.

The Rice Growers Association does some parboiling at the Sacramento

plant--a rather small operation and crude by comparison to the Texas plants.

This parboiled rice is sold primarily to cereal processors. About 150,000

one-hundred pound bags of parboiled rice is processed per year.

The Association operates a seed rice program for its own members--seed

rice propagation and distribution. According to management, the objective

is simply to get better qual ity rice from their producers.

As of now, the association has added diversification into other operations.

Management feels that the best opportunity would be to go into other grains,

or into safflower, rather than in fertilizer, especially since the latter is

already strongly organized by other California cooperatives.

If the option were available again, the association would have only one

large, centrally located rice mill instead of the present four. Movement

into the drying and storage operation would have been accelerated, and on

a larger scale.

Consensus appears to be that the association has helped non-member

producers, as well as their own members, by maintaining a high price level

.~ and thus requiring the independent mills to pay the same. According to

7

BASIC INDUSTRY TRENDS AND PROJECTIONS

No potential program of marketing can be realistically evaluated

except in terms of present and emerging industry trends and marketing

opportunities. Consequently, it is absolutely essential that full and

careful consideration be given to these factors before any question of

marketing action is seriously addressed. Interest here is not in a

simple recitation of industry figures. Rather, the goal is toward a

careful examination of these, for identification of possible marketing

opportunities, and an analysis of Texas' strategic marketing position,

as a basis for new marketing program development.

Consideration first will be given to (1) rice consumption levels and

trends, by product type and mix, (2) rice supplies by states as to total,

type, and expectations, and (3) to an analysis of current marketing programs

for rice, by producing area, producers, processors and on an industry or

governmental basis.

Consumption Profile and Projections

Rice, as is well known in the industry, has several major consumption

utilizations or end markets. Principal among these are (1) the domestic

market, (2) dollar exports, and (3) government subsidized exports, commonly

referred to as P. L. 480 shipments. A view will be taken of the general

trends, importance, and expectations of the three market segments. Then

each will be considered in more detail.

49

delivery, another sample is taken and graded. The quality at the delivery

time may be better or less than the initial sample. If the sample grades

better than the original, then the farmer gets an increase in price. But

if the sample grades lower in quality, the farmer is paid less, and usually

the grower will take the matter up with the storage operator.

Storage operators are very careful, therefore, to not deteriorate the

quality of the rice they have in storage, since they are very interested in

keeping their customers.

The paddy rice becomes legally the property of the association at

harvest time. It will advance to producers at harvest, an amount averaging

about $1.75 per cwt., as soon as a warehouse receipt is obtained. This

advance is increased to an average of $3.00 by January 1. The January 1

payment is referred to as an equalization payment which reflects the value

of the rice according to the grade of the paddy. Following the January

equalization payment, monthly advances to producers are made until the

final settlement, which is usually in September. Storage charges average

four dollars per ton, or twenty cents per cwt. from the day of purchase,

or drying, to the day of delivery. Of course, farmers pay the drying charge.

Farmers prices are F.O.B. plant.

Ten cents per cwt. of paddy rice is retained for payment of common

stock. This common stock capital is issued in units of 1,000 cwt. Cur

rently 8 percent interest, or dividend, is paid on this common stock. The

association has over ten million dollars in common stock and appears to be

adequately financed through the members' equity.

))) Table 4

Rice Milled: Supply and Distribution, United States, 1956-68

Year Beginning AUQust

Beginning Stocks

SUPPLY Mill Product ion Imports Total

1956 11 ,338 35,173 268 46, 779

1957 3,967 30,523 164 3/f ,654

1958 5,343 30,438 114 35,895

DISTRIBUTION Civilian Consumption)Ending Used by ~hlpments MilitaryExports Total Per Capita Brewer- to Terri- Takings

ies

Stocks

tori es - - - I , )00 cwt. - - Pounds

3,967 3,549 25,637 3,871 80 9,675 5.8

5,343 3,348 12,754 3,960 135 9, 114 5.4

5,990 3,278 13,528 4,231 183 8,685 5.0

Beginning 50-State Basis

1959 5,990 34,843 550 41 ,383 3,052 3,488 20,327 3,630 90 10,796 6. 1

1960 3,052 36,928 203 40,183 1 ,943 3,482 20,643 2,835 127 11 , 153 6.2

1961 1,943 39,688 274 41 ,905 1 ,572 3,361 20,835 2,551 160 13,426 7.4

1962 1,572 43,275 27 44,874 1 ,478 2,911 25,190 2,970 117 12,208 6.6

1963 1,478 49,146 13 50,637 1,692 2,767 30,020 2,798 112 13,248 7.0

1964 1,692 51 ,041 338 53,071 1 ,995 3,095 30,489 2,820 154 14,518 7.6

1965 1,995 50,942 482 53,419 1,991 3,391 31 ,135 2,752 82 14,068 7.3

1966 1,991 58,382 6 60,379 1 ,684 3,828 37,432 2,764 100 14,571 7.5

1967 1,684 64,080 5 65,769 2,418 3,952 41,215 2,605 148 15,431 7.8

1968 2,418 65,240 8 64,943 2,723 4,214 41 ,000 3,090 150 16,489 8.3

1959-68 +88% +102% \J)

Source: The Rice Situation, U.S.D.A., Economic Research Service, March 1970.

47

The Rice Growers Association of California

The Rice Growers Association of California was organized in 1921,

basically as a paddy rice sales organization. It operated merely as a

sales organization for ten years, but in 1931 purchased their present mill

from the Louisiana State Rice Milling Company.

Rice Growers Association is now the dominant factor in the California

rice industry. As such, it inherits responsibility for market stability

for the whole industry. Rice grading is handled in their central grading

office. Management feels that good grading is the cornerstone of any

operation. As with the Producers Cooperative, Rice Growers samples the

rice first, and then pools it in the green state.

Management is not particularly striving to expand in size. The cooper

ative is already large enough to have sufficient force in the economy of

the California rice industry. The philosophy is that you don't have to

get rid of competition to do a good job for your producers.

Advantages of the organization to rice producers are, first, it affords

market stability to the whole California industry including producers;

second, it allows producers to maintain control of their product in the

marketing process; and third, producers have obtained a feeling of trust and

confidence in their association.

Seven field men are used. One in each district whose main job is to

help producers deliver a better quality rice and to help in maintaining

membership goodwill and relation.

There is no solicitation of new members, although new members will be .~

accepted should any producer wish to join. Independent mills will fight

11

a healthy 15.3 million cwt. or 84 percent, Table 5. However, because of

higher yields and increased U. S. production, an additional increase of

8.1 mill ion cwt. had to be market~d through P. L. 480, or soft money

channels. The latter market, though politically important to the United

States foreign policy, as well as domestic agricultural policy, should

not be taken as a sound, or primary basis for building a marketing program.

Reasons for this will become evident later.

The three major markets, as will be shown, cannot be viewed solely in

the aggregate. Each must be analyzed in terms of internal composition and

trends.

Export Market

Although total exports have increased substantially, examination of

recent changes do not portray a very optimistic situation for further

rapid expansion, Table 6. The only consistent growth is in the Oceania

market, one whose smallness contributes little impact upon the total export

outlook.

Analysis of the sales reveals that the major export gain has come in

Asia, predominantly a P. L. 480 subsidized market, Figure 2.

Africa and the Western Hemisphere markets have leveled out to a small

rate of increase. Furthermore, sales in these two markets have been quite

erratic. African sales averaged 4.2 million cwt. during 1959-68, but the

range was 5.1 million cwt., or 121 percent of the average. Western Hemisphere

sales had a range of 3.5 million cwt. compared to an average of 2.8 million

cwt. Thus its sales range was 125 percent of the average level.

45

Farmers Rice Cooperative has two classes of stock. One is a preferred

stock, at ten dollars per share, paying a six percent accumulative dividend.

The other is a token common stock of one dollar par value. Patron equity has

been carried under a ten-year rotation of five million dollars, on the average,

during this period, most of which is in preferred stock. Management was very

specific in its emphasis on the need for adequate capitalization.

Management's view is that the producer's advantage in being a member

of the association,stems from his assurance of a home for his rice, and the

additional returns he can receive from any economics in the handling and

milling of his product plus returns from mill by-products.

The question was raised as to what would be done differently, if there

were an opportunity to start it over again. The view was that the orgnaization

was kept too small, and too restricted, for too long. By going slow, any

advantage was lost that they could have had by being the leaders in the

industry.

Farmers Rice Cooperative presently has six field men scattered in the

rice growing areas of California. These field men try to be of as much

help and service to member growers as possible by furnishing information

about production techniques, prices, cooperative operations, and related

matters.

Management personnel emphasized the importance of obtaining qualified

personnel to operate such an organization. Required are personnel who

can meet c ri s is and deal wi th them sat i sfactori ly as they ari se.

Farmers Rice Cooperative has not diversified their operations into

fertilizer and other farm supplies on a horizontal basis, simply because it

))

Table 6

U. S. Rice Exports

Year Quantity $ Value Western Europe Asia Oceania Africa (cwt. ) ($1 ,000) Hemisphere

- - -cwt.

1958-59 13,527,544 97,621 4,629,933 2,478,884 4, 127 , 111 49,995 1 ,590,702

1959-60 20,326,859 103,506 4,783,081 2,263,470 10,049,747 63,971 1,532,640

1960-61 20,640,488 139,559 1,174,691 2,910,967 12,152,381 69,102 2,797,477

1961-62 20,834,836 135,140 1,374,268 4,409,709 10,458,920 95,627 4,496,312

1962-63 25,190,272 133, 157 2,608,613 3,372,448 14,563,781 139,411 4,506,019

1963-64 30,020,415 163,538 3,787,390 5 , 121 ,766 15,891,673 195,355 4,979,907

1964-65 30,488,646 215,116 3,579,741 3,382,485 18,630,993 232,569 4,662,856

1965-66 31,134,905 203,616 3,053,645 3,969,888 17,248,045 263,058 6,600,269

1966-67 37,739,534 221 ,506 3,529,687 5,432,548 24,079,714 287,292 4,410,293

1967-68 41,219,009 306,772 2,197,468 4,605,379 30,371,644 238,363 3,806,155

1968-69 39,977,455 338,997 2,255,342 5,244,077 28,068,559 325,986 4,083,491

TOTAL 311 ,099,963 $2,058,528 32,973,859 lf3 z191,621 185,6lf2,568 1 , 9bO, 729 lf3,lf66,121

1959-68 28,344 40,712 41,875 Total Avg. 2,834 4.071 4,187 Ranqe/average 125% 78% 121%

Source: U.S.D.A., C. & M.S., Annual Rice Market Summary for appropriate years. \.oJ

43

The California Rice Cooperatives

Two cooperatives in California market, between them, about 80 percent

of that state's production. The Farmers Rice Cooperative, in 1970, had about

850 producer members and the Rice Growers Association of California reported

approximately 1,770. The Far'mers Cooperative processes about 5 million

cwt. of rice per year compared with the Rice Growers Association of California

output of around 13 million cwt.

The Farmers Cooperative is now in its twenty-sixth year of operation.

Two primary reasons were given for organizing this cooperative. One was

the belief among some producers that a single cooperative in California

was not enough. Secondly, it was felt that the then dominant independent

r-. rice handler in California was not treating producers fairly, and Instead

was giving rice producers whatever minimum price It felt producers would

take.

Farmers Rice Cooperative Association started in 1944 with only 33

farmers and milled 300,000 barrels of rice. Leadership in forming the

association was provided by four or five of the largest California rice

farmers. It now operates two rice mills in California, as well as the

Farmers Rice Company of Puerto Rico. The Puerto Rican plant is operated

at cost, therefore, no profits are left in Puerto Rico.

Producer members sign a fifteen year contract with the association.

However, a member can resign anytime before February 15 of each year. All

members pledge to the association 100 percent of their crop for delivery

at harvest. Tenant operators as well as landowners are both members of the

association. Most of the rough rice is brought into the mills by truck.

15

Sales of U. S. rice to European markets have made favorable gains as a

result of concerted marketing efforts by mills, their brokers, U. S. government

market development effort, and that of the American Rice Council. Hard dollar

sales in this market averaged nearly 5.1 million cwt. per year for three

marketing years 1966-67 through 1968-69, or 59 percent more than the 3.2

million cwt. average for 1959-60 through 1961-62 seasons. Without increased

effort in the European market, gains may come more slowly for the 1975

planning horizon. It is a market where obviously every effort at sales

building should be continued.

Domestic Market Total

The domestic market for rice is the most stable sales outlet. As

may be noted from Table 5, the quantity sold in the domestic market rose

rather steadily from 10.8 million cwt. in 1959 to 16.5 million cwt. in 1968.

In the last several years, the domestic market has taken about 30 percent

of total U. S. production. The American Rice Council has been very active

in rice promotion in the United States market.

The per capita consumption of rice in the U. S. increased to a level

of about 8.3 pounds per year, compared to about 6.0 pounds ten years ago-

a 33 percent gain, Table 7. This upward per capita trend contributed most

of the growth in total domestic rice consumption rather than gains in total

U. S. population. In fact, in recent years increased per capita consumption

has accounted for about two-thirds of the total national increase in rice

usage. The other third came from an increase in population.

What the future holds for rice consumption is a matter of conjecture.

Quite possibly the current trend of an average annual gain of two-tenths of

41

matter to all eighteen local association boards, to obtain a general reaction

to the proposals.

The above is not to say that management has no bounds. Obviously, if

the net results of the programs espoused is not a final benefit to members,

membership will decrease. Producers, in other words, expect good results

in the annual and long-run perspective. It is up to management to produc

them, or else management would likely be replaced.

The Producers Cooperative

Another segment of the Arkansas marketing activity is under the direction

of the Producers Cooperative Association. Also headquartered at Stuttgart,

Arkansas, it operates almost solely within the Stuttgart vicinity. Such

geographic restriction reflects the fact that it only operates one dryer,

that being in Stuttgart. This is in sharp contrast to the eighteen dryers

ov~r the rice growing areas of the state which are a part of the Arkansas

Rice Growers Association.

Management of the Producers Association has many similarities, in

principle, to that of Arkansas Rice Growers. Most policy decision alterna

tives are worked out by management, presented to, and approved by, the board

of directors. Evidence of this is especially obvious now. The former general

manager of the association has recently retired. Prior management policy was

keystoned to keeping operations small geographically, but being large within

that particular territory. That policy was successfully achieved.

The new management has changed policy to one of expansion, development

of new dryers, and more direct state wide competition with the larger Arkansas

17

a pound per capita may be maintained. Future expansion depends heavily on

the specialty rices which are assuming an increasing share of the market.

It will also depend on a continuing flow of new rice products and their

acceptance by the consumer.

Based upon per capita consumption trends in the domestic market

during the past 15 years, projections were made to 1975 and 1980. Results

of the analysis produced the equation Y = 5.0 + .206 X (base 1955), where

Y = estimated consumption, and X = number years beyond 1955. It indicates

that consumption will reach 9.1 pounds per person in 1975 and almost 10.2

pounds by 1980. Domestic market civilian consumption of rice is now

approximately 17 million cwt. per year, compared to 11 million cwt. ten

years ago. Indications are that we can expect the 20 million cwt. level

to be reached by 1975, if not sooner, and possibly 25 million by 1980.

Included in these estimates are projected gains in population as well as

per capita use rates.

Domestic Market - By Regions

Although milled rice for direct domestic consumption is shipped into

all 50 states, distribution, both total and per capita, varies considerably

among states and by region. Shipments converted to a per person basis vary

from an annual average of 100 pounds per capita in Hawaii to less than one

pound in Wyoming. Besides Hawaii, other states with above-average rice

receipts per capita are Lousiana, South Carolina, Alaska, Arkansas, Texas,

Mississippi, Alabama, and New Jersey. On a regional basis, the Pacific,

Middle and South A,tlantic, and West South Central regions are the major

39

The domestic market sales by Arkansas Rice Growers assumes the following

division.

Domestic Market Share

Own brand label sales Private label Bulk to further processors

Major Minor Moderate

The trends appear to be, first, toward more sales of their own brand,

and secondly, those to national food concerns engaged in further processing

of national brand breakfast cereals, and finally, least increase is in the

private label area. It is felt that no organization can really gain anything,

in the long run, through P. L. 480 sales. Dollar exports, however, can

command some premium in return for reputation of quality and service. In a

domestic market some buyers are price buyers; others are looking for qual ity

and service. The market to brewers, which consists mainly of broken rice

delivered In bulk, is a low return one made up mainly of price buyers.

The further processor market, which is the bulk industrial market is

not totally made up of price buyers. Some of these buyers are looking for

service, quality, and guaranteed value. Some forward sales can be made to

this market. Mills like to get into this market because it sets a guar

anteed volume base for mill operations.

The package business, in the domestic market, is one area where premiums

can be obtained, but only in those markets which have been built around a

particular brand. Experience of present mills indicates, however, that it

takes a long time, a lot of investment, and much effort to establish this kind

of market. Examples are Arkansas Rice's labels in Memphis and Chicago.

19 Table 8

Percentage and Per Capita DistributIon of Milled Rice In the United States, by Region, Selected Years 1956-66

Region 1961-62 1966-671956-57 1956-67 pound per l:t, of U. S. pound per :t of U.S.l:t of U. S. pound per to 1966

total tota Icapita capita total capt ta 67 Change Pct. Lbs.

Middle Atlantic 21.1 22.5 6.8 +19 +1.119.6 6.35.7

Pacific 8.0 11.817.5 8.8 +10 +0.823.5 19.6

West South Central 20.4 11.0 18.6 18. 111.9 10.7 - 3 -0.3

South Atlantic 20.2 18.2 18.07.2 7.6 - 4 -0.36.9

East North Central 8.4 2.69.4 8.6 2.42.3 + 4 +0.1

East South Central 5. 1 4.43.8 5.4 0 03.85.9

West North Central 2.6 2.4 +53 +0.81.5 3.21.7 2.3

Mountain 1.4 2.0 4.4 +120 +2.22.31.5 3.0

New England 2.0 2.0 2.6 2.6 +30 +0.62.3 1.9

Region 1956-57 to 1966-67 change Popu Iat ion

1957 I 1967 Source of Change

Per Cap. RatelPop. Chg.ITotal Lbs. Pct. - - mi 11 ion pounds - - -

New England +0.6 + 30 10.0 11.4 12 8 20

Middle Atlantic +1.1 + 19 33.4 37.0 29 29 58

East North Centra 1 +0. 1 + 4 35. I 39.4 -11 47 36

West North Central +0.8 + 53 15.2 16. 1 - 4 7 3

South At 1ant i c -0.3 - 4 24.8 29.6 3 11 8 East Sou th Cent ra 1 0 0 11.8 12.9 0 4 4

West South Cent ra I +0.8 + 53 16.4 19.2 15 4 19

Mountain +2.2 +120 6.4 8. 1 20 3 23

Pacific +0.8 + 10 18.8 25.6 16 1.3 29

Source: U.S.D.A., ERS-408, Distribution of Rice in the U.S., April 1969.

37

at this point. The seasonal price pool concept, discussed earlier, was

started in 1944. Its advantage from a marketing point of view is that it

discourages producers from holding rice back. Since the producer must pay

the same storage cost for rice, whether he delivers it at harvest time or

later, he does not gain any advantage by delivering it at a later date.

Arkansas Rice Growers pay all the freight from the local dryers to the mill

at Stuttgart. In this way, no advantage is gained by the grower who is

closer to the mIll. This aids the Arkansas Rice Growers Cooperative In

currently handling about 55 percent of the rice production in Arkansas.

Although there have always been a number of independent, privately

owned mills in the Arkansas rice industry, these are decreasing in number

as the smaller, older mills cease operating. It appears that in the

future Arkansas Rice Growers and one other cooperative, Producers Rice

Cooperative Association, along with one independent mill may be the only ones

remaining. Part of the rice is sold out of Arkansas to Texas rice mills

during some years. Pricing and marketing of rough rice are not problems for

members of the Arkansas Rice Growers Association, since it is a highly inte

grated cooperative organization. The main output of the Stuttgart plant is

milled rice and by-products. The Association's problem is, therefore, that

of marketing milled rice. It is of key interest to note their accomplish

ments in this respect, because, if Texas producers are to keep in a competi

tive position, actions of Arkansas and other areas must be kept in mind.

About two-thirds of all Southern States' rice production is exported

and one-third goes to the domestic market. Of the amount exported, roughly

50 percent goes to dollar markets, and 50 percent through the P. L. 480

21

Consumption - by Product Type

In addition to significant regional differences in the domestic rice

market are those concerning the type of rice product moving to market.

The three major markets for mill sales are (1) direct food use, (2) for

further processed foods and (3) for brewers. The leading volume goes

into direct food use, but of increasing importance is the processed food

market, Table 9. The processed food market showed a 30 percent gain from

1961 to 1967, consuming 0.7 mill ion cwt. more rice than five years previously.

Other markets had very minor gains; in fact, direct food use declined

slightly.

Processed food uses include those in breakfast cereals, prepared dinners

and the new pre-cooked and flavored rices. Comparative figures are available

regarding the composition of the processed food market, Table 10. Use in

breakfast cereals nearly doubled from 1956 to 1966-67.

According to reports received, in the course of field research, it is

estimated that 60 percent of the domestic market is now regular rices, 25

percent are pre-cooked or instant rices, and 15 percent are flavored rices,

Table 11.

Reflected in the growth of instant and flavored rices is the expanding

demand by housewives for convenience foods, and built-in menu variety, for

meals.

Concomitant with the rise in markets for instant and flavored rices

has been the importance of parboiled rice sales. This form of rice represents

about 15 percent of total mill shipments, Table 12. It too, like the flavored

and instant rices, is one of the more profitable forms from the mill

.~

35

membership are also in Arkansas Grain. Problems exist in maintaining

membership records for a cooperative association of this size. All of

the records concerning stock and equity for each member must be kept

separately, which apparently poses a large administrative problem.

Arkansas Rice Growers owns its own IBM equipment to facilitate record

keeping, and has done so since the early years of computers.

Arkansas Rice Growers Association is presently made up of twenty

separate cooperative entities. Eighteen of these are local dryer and

storage operations. Membership relations direction is the responsibil ity

of one person in the central office. Management of Arkansas Rice Growers

Cooperative is aware that membership relations are very important and a

continuing management problem. They are also aware of the fact that the

problem is never completely solved. local dryer cooperative managers

and two central office field men serve as the main contact with the member

ship. Stressed is the importance of keeping these managers and field men

completely informed of operations and policies at the management level.

In addition, Joint meetings are held with all the boards of directors of

local cooperatives and the two parent cooperatives each year. In addition,

each of the locals hold annual membership meetings during August. Good

attendance occurs at these sessions, which are usually held in conjunction

with dinners or barbecues, with wives also invited.

A small newsletter is published for the use of the organization leaders.

It is sent to members of the parent, and local association, boards of directors,

local banks, and production credit associations. It does not go directly

to members themselves. The expense of these annual meetings is felt to be

23

Table 10

Manufacturing Uses of Rice, United States

Selected Years 1956-66

Year Cerea 1 Soup Canned Rice Other and Baby Food

Percent of otal

Beer Total

'.000 cwt. %

1956-57 28.9 1.6 4.4 l.1 64.0 4,337 100

1961-62 37.9 2.2 1.6 1.5 56.8 5,253 100

1966-67 41.0 1.8 3.7 2.0 51.5 6, l09 100

Source: Distribution Patterns of Rice in the United States, Economic Research Service, U.S.D.A., ERS-408.

Table 11

Estimated Market Share by Type of Rice United States, 1970

Type

Regular

Market Share (percent)

60

Instant 25

Fl avored rices 15

Source: Survey data.

33

MARKETING PROGRAMS - ARKANSAS AND CALIFORNIA

The preceding information regarding production, distribution, and

consumption of rice are important factors to be considered in formulating

a rice marketing strategy for Texas rice producers and associated Louisiana

members. The distrIbution and consumption patterns, however, reflect the

nature and intensity of marketing programs for rice by individual mills,

brokers, the American Rice Council and governmental trade programs. Therefore,

it is important to consider the approach, or philosophy, being pursued in

Texas, Arkansas, and California. To determine these, visits were made with

industry representatives in each state.

The Arkansas Rice Growers

The Arkansas Rice Growers original organization began in 1920 with

rough rice grower contracts and the use of a system of toll milling. The

milling was conducted by a local mill on a toll charge basis. This lasted

for about two years during which time there was reportedly much loss of

rice through poor administrated marketing, which naturally generated bad

feelings among members. After two years of operation in this manner, the

association began to lease facil ities and operate the mill themselves;

however, lack of confidence in management continued. Financing was estab

lished through drawing on local growers and through the Bank for Cooperatives

in St. Louis. It does not appear that a bargaining committee, as such, was

ever part of this organization.

In 1929, Arkansas Rice Growers milled only about 178,000 barrels of

rice apparently the low point in the status of the organization. At this

25

marketing standpoint. As will be noted later, parboiling is a more

important product for Texas rice than in other rice producing areas.

About 50 percent of the rice distributed by mills and repackers during

the 1966-67 crop year was in packages less than 5-pounds in size, Table 13.

However, the proportion in large containers or bulk has been increasing.

The gain was from a level of 39 percent of shipments in 1956-57 to 46 per

cent in 1966-67. This probably reflects the growing market for further

processed rice and flavored rices. These products are primarily prepared

by food manufacturing or marketing firms and not by the rice mills. A

detailed breakdown of markets by the individual states and regions may

be found in Appendix II of this report.

Rice Supply

By Area

The supply of rice to serve U. S. domestic and export markets has

increased from an average of 50 million cwt. in 1959 and 1960 to about

95 million cwt. in 1968 and 1969. Texas has continued to provide about

one-fourth of the production throughout the decade, Table 14. Other

major producing states (Arkansas, Louisiana, and California) have also

supplied approximately one-fourth each. Reflected, therein, is an

acreage control program that has held market shares about equal over

the past ten years. Acreage and production by Texas counties is

presented in Appendix II.

31

Table 16

Shipments of Rice, by Type, from Southern Mills

Type of Rice 1967 1968 196~

Mill. Mill. Mi 11.

Cwt. % Cwt. % Cwt. %

t

Brown Rice

Domestic 85 85 22

Export 4Z030:2/ 6z682 3z059

4,11l.: 8.3 6,767 14.0 3,081 11. 1

Parboi led Brown Rice

Domestic 7 32 24

Export 12505 12608 781

1 ,512 3.0 1, 640 3.4 '805 2.9 ~

Parboiled Mi lIed Rice

Domestic 1,870 1,549 982

Export 32446 3z777 1 ,964

5,316 10.7 5,326 11. 1 2,946 10.7

Regular Milled Rice

Domestic 14,419 16,706 11,109

Export 24 z457 17,761 9 2695

38,876 78.0 34,46] 71.5 20, 80 5 75.3

All Shipments

Domestic 16,381 18,372 12,138

Export 33 z437 29 2828 15,499

49,818 100 48,200 100 27,637 100

lIAugust-March only.

2/- Totals may not agree due to rounding of figures.

Source: Rice Millers Association, reported data.

) )

Table 14

Rice Production in Texas, louisiana, Arkansas, and California, 1959-69

Texas Louisiana Arkansas Ca 1i forn i aYear U. S.Share of Share of Share of Share ofProduction Product ion Production Product ion TotalU. S. Total U. S. Total U. S. Total U. S. Total 000 ewt. % 000 cwt. % 000 ewt. % 000 ewt. % 000 cwt.

1959 13,136 27.9 12,910 27.4 13 ,022 27.7 11,730 24.9 47,015

1960 12,823 24. 1 13,053 24.6 13,536 25.5 13,752 25.9 53, 122

1961 11,861 21.9 13,396 24.7 13,440 24.8 13,920 25.7 54, 198

1962 15,801 23.9 15,494 23.4 15,930 24.1 l5,988 24.2 66,045

1963 16,946 24. 1 16,510 23.5 17,302 24.6 14,013 19.9 70,269

1964 19,713 269 16,929 23. I 18,490 25.3 16,514 22.6 73,142

1965 21,252 27.8 18,282 23.9 18,662 24.5 16,023 21.0 76,281

1966 21,210 24.9 20,905 24.6 20,511 24. 1 19,800 23.3 85,020

1967 25,908 28.9 22,035 24.6 21 ,465 24.0 17,640 19.7 89,379

1968 27, 164 25.8 26,142 24.8 24,596 23.3 23,328 22. I 105,322

1969 21,646 23.7 20,774 22.7 24,720 27. 1 21,395 23.4 91 ,303

Source: Annual Rice Market Summary, for appropriate years, USDA - C & MS. N ........

29

Tab Ie 15

Market Allocation of Texas and Total

Market Outlet

Domestic Market P ri vate trade Government

Puerto Rico

Exports ~ Do lIar Ma rkets

P. L. 480

TOTAL

Texas

Thous. cwt. :(

5, 147 32 101 1

2140

6,289 40 4,263 27

15,840 100

I968-69!!

Southern States Except Texas Thous. cwt. :(

11,667 36 859 3

557

8,287 26 10,989 34

32,359 100

Southern States Rice

A II Southe rn States

Thous. cwt. :(

16,814 35 960 2

597

14,576 30 15,252 32

48,199 100

II-August-July marketing year

2/Less than one percent.

Source: The Rice Millers Association, Statistical Reports.

29

Table 15

Market Allocation of Texas and Total

1968-6911

Southern StatesTexasMarket Out let Except Texas Thous. cwt. % Thous. cwt. ~

Domestic Market II ,667 365,147 32

101 I

Private trade

859 3

2/

Government

40 557

Exports

Puerto Rico

~. 6,289 40 8,287 26Dollar Markets 4,263 27 10,989 34

TOTAL

P. L. 480

15,840 lOa 32,359 100

Southern States Rice

All Southern States

Thous. cwt. %

16,814 35

960 2

597

14.576 30

15,252 32

48,199 lOa

lIAugust-July marketing year

2/Less than one percent.

Source: The RIce Millers Association, Statistical Reports.

) )

Table 14

Rice Production in Texas, Louisiana, Arkansas, and California, 1959-69

Texas Louisiana Arkansas Cal i forniaYear U. S.Share of Share of Share of Share ofProduction Production Production Production TotalU. S. Total U. S. Total U. S. Total U. S. Total 000 cwt. % 000 ewt. % 000 ewt. % 000 cwt. % 000 ewt.

1959 13,136 27.9 12,910 27.4 13,022 27.7 11,730 24.9 47,015

1960 12,823 24.1 13,053 24.6 13,536 25.5 13,752 259 53, 122

1961 11,861 21.9 13,396 24.7 13,440 24.8 13,920 25.7 54, 198

1962 15,801 23.9 15,494 23.4 15,930 24. 1 15,988 24.2 66,045

1963 16,946 24. 1 16,510 23.5 17,302 24.6 14,013 19.9 70,269

1964 19,713 26.9 16,929 23.1 18,490 25.3 16,514 22.6 73,142

1965 21,252 27.8 18,282 23.9 18,662 24.5 16,023 21.0 76,281

1966 21,210 24.9 20,905 24.6 20,511 24. 1 19,800 23.3 85,020

1967 25,908 28.9 22,035 24.6 21 ,465 24.0 17,640 19.7 89,379

1968 27, 164 25.8 26,142 24.8 24,596 23.3 23,328 22.1 105,322

1969 21,646 23.7 20,774 22.7 24,720 27.1 21,395 23.4 91 ,303

Source: Annual Rice Market Summary, for appropriate years, USDA - C & MS. N ""'-I

31

Table 16

Shipments of Rice, by Type, from Southern Mills

Type of Rice 1967 1968 196~

Mi 11. Mill. Mi 11.

Cwt. % Cwt. % Cwt. %

t

Brown Rice

Domestic 85 85 22

Export 420302/ 6,682 3,059 4, l11f!:.: 8.3 6,767 14.0 3,081 11.1

Parboi led Brown Rice

Domestic 7 32 24

Export 11505 11608 781

1 ,512 3.0 1,640 3.4 ~ 2.9 ,--..

Parboiled Milled Rice

Domestic 1,870 1,549 982

Export 32446 3,777 1 ,964

5,316 10.7 5,326 11. 1 2,946 10.7

Regular Mi lied Rice

Domestic 14,419 16,706 11 , 109

Export 24 z457 17,761 92695

38,876 78.0 34,467 71.5 20,805 75.3

All Shipments

Domestic 16,381 18,372 12,138

Export 33 2437 29 2828 15,499

li9, 81 B 100 48,200 100 27,"637 100

!!August-March only.

2/- Totals may not agree due to rounding of figures.

Source: Rice Millers Association, reported data.

25

marketing standpoint. As will be noted later, parboiling is a more

important product for Texas rice than in other rice producing areas.

About 50 percent of the rice distributed by mills and repackers during

the 1966-67 crop year was in packages less than 5-pounds in size, Table 13.

However, the proportion in large containers or bulk has been increasing.

The gain was from a level of 39 percent of shipments in 1956-57 to 46 per

cent in 1966-67. This probably reflects the growing market for further

processed rice and flavored rices. These products are primarily prepared

by food manufacturing or marketing firms and not by the rice mills. A

detailed breakdown of markets by the individual states and regions may

be found in Appendix II of this report.

Rice Supply

By Area

The supply of rice to serve U. S. domestic and export markets has

increased from an average of 50 million cwt. in 1959 and 1960 to about

95 million cwt. in 1968 and 1969. Texas has continued to provide about

one-fourth of the production throughout the decade. Table 14. Other

major producing states (Arkansas, louisiana, and California) have also

supplied approximately one-fourth each. Reflected, therein, is an

acreage control program that has held market shares about equal over

the past ten years. Acreage and production by Texas counties is

presented in Appendix II.

33

MARKETING PROGRAMS - ARKANSAS AND CALIFORNIA

The preceding information regarding production, distribution, and

consumption of rice are important factors to be considered in formulating

a rice marketing strategy for Texas rice producers and associated Louisiana

members. The distribution and consumption patterns, however, reflect the

nature and intensity of marketing programs for rice by individual mills,

brokers, the American Rice Council and governmental trade programs. Therefore,

it is important to consider the approach, or philosophy, being pursued in

Texas, Arkansas, and Cal ifornia. To determine these, visits were made with

industry representatives in each state.

The Arkansas Rice Growers

The Arkansas Rice Growers original organization began in 1920 with

rough rice grower contracts and the use of a system of toll milling. The

mill ing was conducted by a local mill on a toll charge basis. This lasted

for about two years during which time there was reportedly much loss of

rice through poor administrated marketing, which naturally generated bad

feelings among members. After two years of operation in this manner, the

association began to lease facilities and operate the mill themselves;

however, lack of confidence in management continued. Financing was estab

lished through drawing on local growers and through the Bank for Cooperatives

in St. Louis. It does not appear that a bargaining committee, as such, was

ever part of this organization.

In 1929, Arkansas Rice Growers milled only about 178,000 barrels of

rice apparently the low point in the status of the organization. At this

23

Table 10

Manufacturing Uses of Rice, United States Selected Years 1956-66

Year Cereal Soup Canned Rice and Baby Food

Other Beer Total

Percent of otal 1 000 cwt. %

1956-57 28.9 1.6 4.4 1.1 64.0 4,337 100

1961-62 37.9 2.2 1.6 1.5 56.8 5,253 100

1966-67 41.0 1.8 3.7 2.0 51.5 6,109 100

Source: Distribution Patterns of Rice in the United States, Economic Research Service, U.S.D.A., ERS-408.

Table 11

Estimated Market Share by Type of Rice United States, 1970

Type

Regular

Market Share (percent)

60

Ins tant 25

Flavored rices 15

Source: Survey data.

35

membership are also in Arkansas Grain. Problems exist in maintaining

membership records for a cooperative association of this size. All of

the records concerning stock and equity for each member must be kept

separately, which apparently poses a large administrative problem.

Arkansas Rice Growers owns its own IBM equipment to facil itate record

keeping, and has done so since the early years of computers.

Arkansas Rice Growers Association is presently made up of twenty

separate cooperative entities. Eighteen of these are local dryer and

storage operations. Membership relations direction is the responsibil ity

of one person in the central office. Management of Arkansas Rice Growers

Cooperative is aware that membership relations are very important and a

continuing management problem. They are also aware of the fact that the

problem is never completely solved. Local dryer cooperative managers

and two central office field men serve as the main contact with the member

ship. Stressed is the importance of keeping these managers and field men

completely informed of operations and policies at the management level.

In addition, joint meetings are held with all the boards of directors of

local cooperatives and the two parent cooperatives each year. In addition,

each of the locals hold annual membership meetings during August. Good

attendance occurs at these sessions, which are usually held in conjunction

with dinners or barbecues, with wives also invited.

A small newsletter is published for the use of the organization leaders.

It is sent to members of the parent, and local association, boards of directors,

local banks, and production credit associations. It does not go directly

to members themselves. The expense of these annual meetings is felt to be

21

Consumption - by Product Type

In addition to significant regional differences in the domestic rice

market are those concerning the type of rice product moving to market.

The three major markets for mill sales are (1) direct food use, (2) for

further processed foods and (3) for brewers. The leading volume goes

into direct food use, but of increasing importance is the processed food

market, Table 9. The processed food market showed a 30 percent gain from

1961 to 1967, consuming 0.7 mill ion cwt. more rice than five years previously.

Other markets had very minor gains; in fact, direct food use declined

slightly.

Processed food uses include those in breakfast cereals, prepared dinners

and the new pre-cooked and flavored rices. Comparative figures are available

regarding the composition of the processed food market, Table 10. Use in

breakfast cereals nearly doubled from 1956 to 1966-67.

According to reports received, in the course of field research, it is

estimated that 60 percent of the domestic market is now regular rices, 25

percent are pre-cooked or instant rices, and 15 percent are flavored rices,

Table 11.

Reflected in the growth of instant and flavored rices is the expanding

demand by housewives for convenience foods, and built-in menu variety, for

meals.

Concomitant with the rise in markets for instant and flavored rices

has been the importance of parboiled rice sales. This form of rice represents

about 15 percent of total mill shipments, Table 12. It too, like the flavored

and instant rices, is one of the more profitable forms from the mill

.~

37

at this point. The seasonal price pool concept, discussed earlier, was

started in 1944. Its advantage from a marketing point of view is that it

discourages producers from holding rice back. Since the producer must pay

the same storage cost for rice, whether he delivers it at harvest time or

later, he does not gain any advantage by delivering it at a later date.

Arkansas Rice Growers pay all the freight from the local dryers to the mill

at Stuttgart. In this way, no advantage is gained by the grower who is

closer to the mill. This aids the Arkansas Rice Growers Cooperative in

currently handling about 55 percent of the rice production In Arkansas.

Although there have always been a number of independent, privately

owned mills in the Arkansas rice Industry, these are decreasing in number

as the smaller, older mills cease operating. It appears that in the

future Arkansas Rice Growers and one other cooperative, Producers Rice

Cooperative Association, along with one independent mill may be the only ones

remaining. Part of the rice is sold out of Arkansas to Texas rice mills

during some years. Pricing and marketing of rough rice are not problems for

members of the Arkansas Rice Growers Association, since it is a highly inte

grated cooperative organization. The main output of the Stuttgart plant is

milled rice and by-products. The Associations problem is, therefore, that

of marketing milled rice. It is of key interest to note their accomplish

ments in this respect, because, if Texas producers are to keep in a competi

tive position, actions of Arkansas and other areas must be kept in mind.

About two-thirds of all Southern States rice production is exported

and one-third goes to the domestic market. Of the amount exported, roughly

50 percent goes to dollar markets, and 50 percent through the P. L. 480

19

Table 8

Percentage and Per Capita Distribution of Milled Rice In the United States, by Region, Selected Years 1956-66

Region 1956-57 1961-62 1966-67 1956-67 to 196667 Change

1% of U.S. total

pound per capita

I%.of U.S. tota 1

pound per capita

1% of U.S. total

pound per capita

Middle Atlantic

Pacific

West South Centra 1

South Atlantic

East North Centra 1

East South Central

West North Cen tra 1

Mountain

New England

21.1

17 .5

20.4

20.2

9.4

5.1

2.6

1.4

2.3

5.7

8.0

11.0

7.2

2.3

3.8

1.5

2.0

2.0

19.6

23.5

18.6

18.2

8.4

5.9

2.4

1.5

1.9

6.3

11 .8

11.9

7.6

2.6

5.4

1.7

2.3

2.0

22.5

19.6

18. 1

18.0

8.6

4.4

3.2

3.0

2.6

6.8

8.8

10.7

6.9

2.4

3.8

2.3

4.4

2.6

Pct. Lbs. +19 +1.1

+10 +0.8

- 3 -0.3

- 4 -0.3

+ 4 +0.1

0 0

+53 +0.8

+120 +2.2

+30 +0.6

Region 1956-57 to 1966-67 change PopUlation

1957 I 1967 Source oT Change

Per Cap. Rate IPop. Chg.1 Tota 1 Lbs. Pct. - - mill ion pounds - - - -

New England +0.6 + 30 10.0 11.4 12 8 20

Middle Atlantic +1.1 + 19 33.4 37.0 29 29 58

East North Central +0.1 + 4 35.1 39.4 -11 47 36

West North Central +0.8 + 53 15.2 16. 1 - 4 7 3

South Atlantic -0.3 - 4 24.8 29.6 3 11 8 East South Central 0 0 11.8 12.9 0 4 4

West South Central +0.8 + 53 16.4 19.2 15 4 19

Mountain +2.2 +120 6.4 8.1 20 3 23

Pacific +0.8 + 10 18.8 25.6 16 1.3 29

Source: U.S.D.A., ERS-408, Distribution of Rice in the U.S., April 1969.

39

The domestic market sales by Arkansas Rice Growers assumes the following

division.

Domes tic Market Share

Own brand label sales Private label Bulk to further processors

Major Minor Moderate

The trends appear to be, first, toward more sales of their own brand,

and secondly, those to national food concerns engaged in further processing

of national brand breakfast cereals, and finally, least increase is in the

private label area. It is felt that no organization can really gain anything,

in the long run, through P. L. 480 sales. Dollar exports, however, can

command some premium in return for reputation of quality and service. In a

domestic market some buyers are price buyers; others are looking for quality

and service. The market to brewers, which consists mainly of broken rice

delivered in bulk, is a low return one made up mainly of price buyers.

The further processor market, which is the bulk industrial market is

not totally made up of price buyers. Some of these buyers are looking for

service, quality, and guaranteed value. Some forward sales can be made to

this market. Mills like to get into this market because it sets a guar

anteed volume base for mill operations.

The package business, in the domestic market, is one area where premiums

can be obtained, but only in those markets which have been built around a

particular brand. Experience of present mills indicates, however, that it

takes a long time, a lot of investment, and much effort to establish this kind

of market. Examples are Arkansas Rice's labels in Memphis and Chicago.

17

a pound per capita may be maintained. Future expansion depends heavily on

the specialty rices which are assuming an increasing share of the market.

It will also depend on a continuing flow of new rice products and their

acceptance by the consumer.

Based upon per capita consumption trends in the domestic market

during the past 15 years, projections were made to 1975 and 1980. Results

of the analysis produced the equation Y = 5.0 + .206 X (base 1955), where

Y = estimated consumption, and X = number years beyond 1955. It indicates

that consumption will reach 9.1 pounds per person in 1975 and almost 10.2

pounds by 1980. Domestic market civilian consumption of rice is now

approximately 17 million cwt. per year, compared to 11 million cwt. ten

years ago. Indications are that we can expect the 20 million cwt. level

to be reached by 1975, if not sooner, and possibly 25 million by 1980.

Included in these estimates are projected gains in population as well as

per capita use rates.

Domestic Market - By Regions

Although milled rice for direct domestic consumption is shipped into

all 50 states, distribution, both total and per capita, varies considerably

among states and by region. Shipments converted to a per person basis vary

from an annual average of 100 pounds per capita in Hawaii to less than one

pound in Wyoming. Besides Hawaii, other states with above-average rice

receipts per capita are Lousiana, South Carolina, Alaska, Arkansas, Texas,

Mississippi, Alabama, and New Jersey. On a regional basis, the Pacific,

Middle and South A~lantic, and West South Central regions are the major

41

matter to all eighteen local association boards, to obtain a general reaction

to the proposals.

The above is not to say that management has no bounds. Obviously, if

the net results of the programs espoused is not a final benefit to members,

membership will decrease. Producers, in other words, expect good results

In the annual and long-run perspective. It is up to management to produc

them, or else management would likely be replaced.

The Producers Cooperative

Another segment of the Arkansas marketing activity is under the direction

of the Producers Cooperative Association. Also headquartered at Stuttgart,

Arkansas, It operates almost solely within the Stuttgart vicinity. Such

geographic restriction reflects the fact that it only operates one dryer,

that being in Stuttgart. This is in sharp contrast to the eighteen dryers

ov~r the rice growing areas of the state which are a part of the Arkansas

Rice Growers Association.

Management of the Producers Association has many similarities, in

principle, to that of Arkansas Rice Growers. Most policy decision alterna

tives are worked out by management, presented to, and approved by, the board

of directors. Evidence of this is especially obvious now. The former general

manager of the association has recently retired. Prior management pol icy was

keys toned to keeping operations small geographically, but being large within

that particular territory. That policy was successfully achieved.

The new management has changed policy to one of expansion, development

of new dryers, and more direct state wide competition with the larger Arkansas

15

Sales of U. S. rice to European markets have made favorable gains as a

result of concerted marketing efforts by mills, their brokers, U. S. government

market development effort, and that of the American Rice Council. Hard dollar

sales in this market averaged nearly 5.1 million cwt. per year for three

marketing years 1966-67 through 1968-69, or 59 percent more than the 3.2

mil lion cwt. average for 1959-60 through 1961-62 seasons. Without increased

effort in the European market, gains may come more slowly for the 1975

planning horizon. It is a market where obviously every effort at sales

building should be continued.

Domestic Market Total

The domestic market for rice is the most stable sales outlet. As

may be noted from Table 5, the quantity sold in the domestic market rose

rather steadily from 10.8 million cwt. in 1959 to 16.5 million cwt. in 1968.

In the last several years, the domestic market has taken about 30 percent

of total U. S. production. The American Rice Council has been very active

in rice promotion in the United States market.

The per capita consumption of rice in the U. S. increased to a level

of about 8.3 pounds per year, compared to about 6.0 pounds ten years ago-

a 33 percent gain, Table 7. This upward per capita trend contributed most

of the growth in total domestic rice consumption rather than gains in total

U. S. population. In fact, in recent years increased per capita consumption

has accounted for about two-thirds of the total national increase in rice

usage. The other third came from an increase in population.

What the future holds for rice consumption is a matter of conjecture.

Quite possibly the current trend of an average annual gain of two-tenths of

43

The California Rice Cooperatives

Two cooperatives in California market, between them, about 80 percent

of that state's production. The Farmers Rice Cooperative, in 1970, had about

850 producer members and the Rice Growers Association of California reported

approximately 1,770. The Farmers Cooperative processes about 5 million

cwt. of rice per year compared with the Rice Growers Association of California

output of around 13 million cwt.

The Farmers Cooperative is now in its twenty-sixth year of operation.

Two primary reasons were given for organizing this cooperative. One was

the belief among some producers that a single cooperative in California

was not enough. Secondly, it was felt that the then dominant independent

rice handler in California was not treating producers fairly, and Instead

was giving rice producers whatever minimum price it felt producers would

take.

Farmers Rice Cooperative Association started in 1944 with only 33

farmers and milled 300,000 barrels of rice. Leadership in forming the

associati