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  • STRATEGY ALTERNATIVES

    FOR MARKETING TEXAS RICE

    Confidential Report to the

    American Rice Growers Association June, 1970

    from the Texas Agricultural Market Research

    and Development Center

    Texas A&M University

  • THE TEXAS AGRICULTURAL :HARKET RESEARCH AND DEVELOPl

  • TABLE OF CONTENTS

    How Texas is Performing Now ....................................................... 1

    The Rice Markets 8.............................. ;I ......................... .

    The Eight Step Ladder. of Alternatives ............................................ 16

    Evaluation of Alternatives ...... ,. ......................................................................... .. 18

    Rough Rice Selling Under Mill Grades ............................................................. 18

    Rough Rice Sales Using A. R. I. Grades 19

    Rough Rice Sales Using A. R. I. Grades and Market Information 20

    Rough Rice Central Sales Agency ...................................................................... 22

    Rough Rice Central Sales With Bargaining 23

    Milling With Sales to Non-Brand Markets ....................................................... 26

    Milling With Sales to Brand and Non-Brand Markets ..................................... 29

    -Milling wi th Ne~, Produc t Development . ....................... 30

    Conclusions and Recommendations ......................................................................... 30

    Appendix ..... ~~ .. .. .................................................................... .. 32

  • TABLES

    Table 1: Long and Medium Grain Rice Production, Texas and

    Arkansas, and Price Received by Growers ... 2

    Table 2: Average Price of Rough Rice, per 100 pounds, Received

    by Farmers .................................................. 4

    Table 3: Retail Price of Rice, U. S., 1960-1969 ..................... 5

    Table 4: Shipments of }fi1led Rice by Market and State, Average of

    Four Seasons (1965-66 through 1968-69) . 7

    Table 5: Market Distribution of U. S. Rice Sales .................... 9

    Table 6: a) Markets for Rice ......................................... 10

    b) Market Distribution of a Five Million Cwt. Mill .... ,. .... 11

    Table 7: Examples of Advertising Market's Potential ................. 13

    Table 8: Further Examples of Advertising Market's Potential . 14

    Table 9: Cost of Projected Advertising Markets . 15

    Table 10: Wholesale Prices of Rice by Type Marketed at Retail

    Level Dallas, Ft. Worth, Houston, June 1970 . 17

    Table 11: Rice Exports, Dollars, and P. L. 480 Quarterly,

    1963-64 -- 1968-69 ....... 25

    Table 12: Average Prices on Exports of Rice (By Quarters)

    1963-69 average .. 27

    Table 13: Average Prices Received on Exports of Rice, By Quarters,

    1963-64 -- 1968-69 ~ 28

  • STRATEGY AIJTERNATIVES FOR MARKETING TEXAS RICE

    The central purpose of the research effort reflected in this report

    is to ascertain what course of action will best serve the Texas rice in

    dustry. A number of alternative strategies can be employed, but the

    choice depends upon performance of the present strategy versus what

    should be available under other strategies. First, therefore, some

    evaluation is needed of the present marketing operations performance.

    HOW TEXAS IS PERFORl.'1ING NOH

    If Texas rice marketing is functioning effectively, it should pro

    vide to rice growers any competitive advantage which their production

    permits over competing states. Furthermore, the rice mills serving Texas

    growers should secure any competitive advantage state production affords.

    A look at the production .mix for Texas rice reveals that in the

    period 1962-68, Texas produced long grain rice at the ratio of about

    5-1 over meqium grain. During the same period the ratio in Arkansas

    was only about 2-1, and that in Louisiana only 0.5 - 1.0, Table 1.

    It is generally conceded in the industry that long grain rice is the

    premium product among rices and is especially'demanded in the U. S. do

    mestic consumer market and by buyers in the dollar export market in

    Europe. If that be the case, the price received by Texas producers

    should reflect a definite premium over that obtained in either Arkansas

    or Louisiana. Such does not seem to be the case. The aver?ge of 5 cents

    more per hundredweight hardly seems to reflect a reasonable premium.

    If one compares the average of prices over the 1961-68 marketing years,

  • 2

    Table 1

    Long and Medium Grain Rice Production, Texas and Arkansas, and Price Received by Grmvers

    Item Texas Arkansas Louisiana

    - - - - - - (million c,vt.) - - - - - - 1962

    Long Grain 11.2 8.7 6.3

    Medium Grain 5.0 7.3 8.6

    1968

    Long Grain 22.0 17 .8 6.1

    Medium Grain 3.3 7.4 20.7

    Ratio of Long to Medium Grain 5-1 2-1 0.5-1 (average 62-68)

    Average Price Received by Growers $5.06 $5.01 $4.87

    Source: Statistical Reporting Service and Crop Reporting

    Board, U. S. Department of Agriculture.

  • 3

    the Texas premium was 6 cents according to the U.S.D.A. Statistical Re

    porting Service. However, if one compares simply the price on a month

    by month basis, disregarding the quantity of rice sold each month. Texas

    averages 5 cents belmY' that of Arkansas, or a discount instead of a

    premium, Table 2. This is particularly significant from an individual

    grower's point of view because he would not necessarily sell his rice

    at the same time everyone else does. His distribution of sales may be

    different from past aggregate distributions.

    Compared with the price difference prevailing at the retail food

    store the situation seems more questionable. A cello-pack retail bag

    of the 16 oz. or 32 oz. size, for example, long grain has about a 1.5

    cent per pound higher wholesale cost to the retailer than medium grain.

    That is equivalent to a premium of $1.50 per cwt. It is always diffi

    cult to compare wholesale versus farm prices. Nonetheless, the difference

    between 5 cents and $1.50 per cwt. is substantial.

    A check at three retail food chains in Texas produced an average

    price per pound of 16 cents for medium grain and 18 cents for long grain,

    which is equavalent to a $2.00 per cwt. differential. The higher differ

    ential at retail is to be expected. Its use here is simply to confirm the

    differential in the market for shorter and longer grain rice. Data from

    the Bureau of Labor Statistics on retail rice prices as used in the U. S.

    Consumer Price Index indicates a trend of increasing differentials from

    1960-1969. Most recently the differential has been 3.8 cents per pound,

    Table 3.

    A further question raised by the research is the direction marketing

    has assumed by Texas mills among the domestic, dollar export and P. L. 480

  • 4

    Table 2

    Average Price of Rough Rice, per 100 pounds, Received by Farmers

    Difference Year Texas Arkansas Texas vs. Arkansas --~------------~~--------- ~~----~----~~~--~~--~~

    (dollars) (dollars) (cents)

    1961 5.31 ' 5.20 +11

    1962 5.03 5.10 - 7

    1963 5.09 4.92 +17

    1964 4.94 4.87 + 7

    1965 5.04 4.98 + 6

    1966 5.10 4.80 +30

    1967 4.94 5.12 -18

    1968 4.90 4.90 o

    1961-68 Average (weighted price by months)

    5.04 4.98 + 6

    1961-68 Average (simple average by month)

    5.10 5.15 - 5

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

  • 5

    Table 3

    Retail Price of Rice, U.S., 1960-1969

    Long Year Grain Grain Difference

    1960

    1961

    1962

    1963

    1964

    1965

    1966

    1967

    196&!i

    196~/

    1970 March

    February

    January

    (cents/pound)

    20.5

    20.7

    21.4

    21.6

    21.7

    21.8

    21.8

    21.9

    22.3

    22.6

    22.3

    23.0

    22.9

    18.6

    18.6

    19.1

    19.4

    18.8

    19.0

    19.0_

    18.6

    18.8

    18.8

    18.8

    19.1'

    19.1

    1.9

    2.1

    2.3

    2.2

    2.9

    2.8

    2.8

    3.3

    3.5

    3.8

    3.5

    3.9

    3.8

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

  • 6

    alternatives. Arkansas cooperatives have taken advantage of the

    strength of the domestic market and dollar export market more than have

    Texas firms. Whereas, the usual sales allocation is about one-third

    to each of the three," the Arkansas cooperatives have strong sales in

    the domestic and, about equal to those of Texas in the dollar export

    market. As a result, dependence on P. L. 480 is much less important to

    Arkansas cooperatives, Table 4.

    There is substantial agreement in the industry, that the new fla

    vored rices will become more important over time in their share of the

    total rice market. Yet, we have only two Texas mills that are reason

    ably active in development or marketing of these rice products.

    The alternative to product development is to sell products to those

    further processors who are placing the needed thrust in new rice product

    formulation and marketing. Here, though, Texas appears to be outmaneu

    vered by Arkansas' dominant mills.

    Estimates are that the present U. S. d

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