Dominican Republic 05 Prod Down

Heavy rains in Dominican rice production areas during the May-June 2004 harvest period caused considerable damage to the mature rice crop and reduced total rice production to 280,000 metric tons. Again, heavy rains and flooding during December 2004-January 2005, in the important rice producing regions in the North West or “La Linea” and the North East or “Bajo Juma”,delayed and hindered planting and have reduced prospects for the 2005 crop.

As a result, Post estimates for 2005 production at 275,000 metric tons, reflecting the smaller planted area and projected late harvest.Consumption in 2004 showed modest growth over the second half of the year, in spite of domestic price increases. Population growth, cross-border trade with Haiti, general elections, and higher demand from the tourist sector combined to push up consumption to 340,000 metric tons. Price increases were mainly due to the devaluation of the Dominican peso against the U.S. dollar, which fell sharply to RD$54 to US$1, before strengthening to RD$30 to US$1 late in the year. Post currently expects 2005 consumption to remain flat at 340,000 tons.

Rice imports for 2004 have been adjusted upward to reflect a Taiwanese donation of 10,000 metric tons, received by the Dominican Government and used in their domestic food program. With a smaller rice crop in 2005, Post estimates imports of 45,000 metric tons will be needed to meet normal market requirements. Official Dominican estimates predict a smaller production shortfall, requiring imports of only around 27,000 metric tons. However, industry sources believe larger imports will be needed to satisfy demand. The Secretary of Agriculture announced today that import permits would be issued for 27,300 metric tons of rice for delivery during the February-March 2005 period.

Current Dominican prices at the wholesale level for the two higher-quality rice varieties called “selecto” and “super selecto” are in the range of US$ 0.60-0.75 per pound. Retailers in turn sell it at about US$ 1.00-1.20 per pound. The landed cost of higher-quality imported milled rice from the United States is US$ 0.18-0.23 per pound (the current exchange rate is RD$30 to US$1). Rice imports are managed under a tariff quota system, and import permits are required. In-quota imports of about 10,000 tons are expected to be authorized applying normal import duties of 20 percent. Out-of-quota imports would normally pay duties of 99 percent, but these duties were waived in 2004 and may be waived again this year.

Dominican 2004 Rice Crop Seen At 280,000 MT

Dominican Republic's 2004 rice production has been reduced by 25,000 metric tons to 280,000 to reflect the smaller harvested crop, according to information from the U.S. Department of Agriculture's Foreign Agricultural Service web site, dated July 23 and released Friday.

Executive Summary

Heavy rains in the main Dominican rice production areas in late May had a moderate affect on the principal Dominican rice crop, which is harvested in
the May-June period.

Although flooding was severe in some nonagricultural
areas, with considerable loss of life, the main rice-producing region did not experience severe damage.

Post estimates for 2004 production are being reduced
by 25,000 metric tons to 280,000 to reflect the smaller harvested crop.

Estimates for the 2005 crop are for no change in planted area and a return to a production level of 300,000 metric tons, the report said.

Political considerations may have an impact on future rice production, since the rice industry will likely not receive as much support as it did under the President Hipolito Mejia, who lost his reelection bid in May 2004.

Consumption in 2004 has shown modest growth over the first half of the year, in spite of domestic price increases.

Population growth, cross-border trade with Haiti, and higher demand from the tourist sector appear to be main reasons for the increase.

Domestic consumer rice price increases, mainly due to the devaluation of the peso, will limit any larger increase of rice consumption.

As a result, Post's estimate for 2005 consumption remains at 335,000 tons.

The moderately lower rice crop in 2004, implied imports of 25,000 to 35,000 metric tons to meet normal market requirements.

However, the presidential election held in the Dominican Republic on May 16, 2004, seems to have had an impact on rice imports.

The typical period in which the Dominican Republic must import rice is during January-April, prior to the beginning of the main harvest in May.

In order to ensure ample rice supplies leading up to
the election, it appears that permits were granted for unusually large rice imports.

These decisions were made well before the weather-related problems occurred in late May.

Also, since domestic rice prices are roughly double international prices and imports were authorized without applying normal import duties of 20%, profits in excess of 100% on the sale of the rice into the domestic market may well have influenced the levels imported.

Imports for 2005 are expected to return to more market-driven levels of 35,000 metric tons.

Current Dominican prices at the wholesale level for the two higher-quality rice varieties called "selecto" and "super selecto" are in the range of US$ 0.30-0.33 per pound. Retailers in turn sell it at about US$ 0.40-0.60 per pound.

Dominican Republic Rice Production Down – More Imports Required:

The U.S. Agricultural Attaché in Santo Domingo reports that Dominican rice production for the 2003/2004 crop
is estimated to fall below previous estimates prompting the Dominican government to allow imports in the
25,000 MT (milled basis) range.

Dominican production is currently estimated at 305,000 MT below levels of recent years as the government had been faced with high stock levels and instituted a program to reduce acreage.

Imports above the 25,000 MT range may be required later in the year depending on the final outcome of the current crop as heavy rains may negatively impact yields. 2004 is an election year in the Dominican Republic , and given that rice is a basic staple in that country the government is committed to keep rice prices in check and will tend to keep supplies up through imports, if necessary.

Dominican Republic 2003 Rice Production Lowered

The Dominican Republic's 2003 rice production has been lowered to a preliminary 320,000 tons, after a larger 2002 carryover, according to information from the U.S. Department of Agriculture's Foreign Agricultural Service web site, dated Dec. 18 and released Tuesday.

Production

Dominican rice production averaged almost 250,000 metric tons during the period 1997-2000. As a result of policy changes, which raised producer prices, production increased in the next two years to reach an all-time high of 347,000 metric tons in 2002.

This 40% jump in production for 2002 was 60,000-80,000 tons higher than the previous five-year average and created an oversupply situation that carried over into 2003, the press release said.

These high stock levels required a downward adjustment in production to a preliminary 320,000 tons in 2003.

Estimates for 2004 are anticipated to increase only slightly over 2003,which will meet domestic demand until the overall economy of the country show signs of improvement, which would cause a slight increase in overall demand.

Consumption

Apparent consumption is somewhat stagnant at about 322,000 metric tons for 2002 with a marginally higher estimate of 325,000 tons for 2003. Population growth and higher demand from the tourist sector are the main reason for the increase. With domestic consumer rice prices on the raise, mainly due to exchange rate pressure, import restrictions limiting access to higher quality rice from the United States at a lower price have forced Dominican consumers to look for alternative carbohydrate sources. This, in addition to a deteriorating local economy, will check any increase of rice consumption. As a result, consumption is not anticipated to grow in the near term and will fluctuate between 325,000 and 330,000 tons.

Trade

Prior to 2000, yearly rice imports were exclusively from the United States and ranged from 30,000 to 70,000 metric tons. Producer prices, which are negotiated between the main rice producer organization and the Secretariat of Agriculture, are well above world price levels, which, not surprisingly, has resulted in the sharp increases in planted acreage and yield already
mentioned.

The oversupply situation, which began in 2002 and carried over into 2003, generated stocks, which were estimated as high as 65,000 tons, the press release said. The very high cost of carrying these large stocks, lead to efforts to export some of the excess, which required export subsidies. An effort was made by the Secretariat of Agriculture to reach an agreement with
Venezuela to purchase 20,000 tons at a prices that were about half of the Dominican domestic wholesale price. In the end, however, only about 20 tons reached that market by air.

Nonetheless, additional attempts resulted in the sale of almost 30,000 metric tons to Haiti and the European Union (mainly Spain) at international prices, which, again, were about half the domestic price.

According to Secretariat of Agriculture and major rice producers, the recent flooding (November 2003) in the North West and North East of the country affected the rice crop significantly.

Producers indicate major damage to the second crop harvested in the fall, plus damage to early planted areas of the main crop harvested in April-May.

However, our analysis indicates that the effect on rice production should be minimal. The main Dominican rice crop will only begin to be planted in January 2004 for harvest in April-May.

The second, smaller rice crop, which is normally harvested in September-October, is only about 35% of total annual production and should have been completely harvested by the time of the flooding. In any case, the Dominican Secretariat of Agriculture has authorized rice imports of 23,000 metric tons that will likely be imported before the end of the calendar year.

In addition, although there is frequent reference made to zero rice imports in 2003, in fact, over 7,000 metric tons of rice were imported from the United States in the first half of calendar 2003. This indicates total imports for the calendar year of around 30,000 metric tons.

Subsidies

The Government, through the Agricultural Bank, millers associations and individual millers, subsidizes production surpluses through a staging procedure referred to as "pignoracion" in Spanish. This procedure allows the millers to purchase rice from the producers, store it and place it in the market when needed, up to a maximum of four months. At the end of the period, the Government covers the financial costs of storage.

According to recent information, the latest main harvest of 204,500 metric tons (4.5 million quintals) was "pignorized". After all expenses were calculated, the Dominican Government paid about RD$ 400 million or about US$ 10 million to domestic millers.

In addition to the storage subsidy, about 30,000 tons of Dominican rice was sold to Spain (21,000 metric tons), Belgium (420 metric tons) and Haiti (9,462 metric tons) in the first half of 2003. The sales to Spain and Belgium were reported at US$ 160 and US$ 168 per metric tons, respectively, less than half of the mid-year domestic price (equivalent to about US$ 340 per ton). The government paid producers the difference of over US$ 4 million.

Prices

Current Dominican prices at the wholesale level for the two higher-quality rice varieties called "selecto" and "super selecto" are in the range of US$ 0.25-27 per pound. Retailers in turn sell it at about US$ 0.30-0.32 per pound. The landed cost of higher quality imported milled rice from the United States is US$ 0.18 per pound.

Policy

Over the past several years, rice producers have been able to convince the Dominican Government to recognize higher and higher production cost levels, which are
the basis for setting producer rice prices through negotiations between producer groups and the Secretariat of Agriculture.

In addition, during 2000 and 2001, President Mejia (a former Secretary of Agriculture) instructed the Government-owned Agricultural Bank (Banco Agricola) to provide additional support to the rice sector in the form of subsidized loans, in an effort to increase rice production and eliminate the need for imports.

In effect, the Agricultural Bank provides loans to producers at an interest rate lower than the prevailing bank rate, providing an indirect subsidy to rice production.

In addition to the above, the Government through the Agricultural Bank, millers associations and individual millers subsidize the excess crop through a staging procedure called "pignoracion."

This procedure allows the millers to purchase rice from the producers at a set market price for storage (Winter 2002 crop: RD$ 725/fanega, equivalent at current exchange rate to US$ 310-320 per metric ton polished rice).

The miller stores the rice and places it in the market when needed but with a four-month maximum storage period. At the end of the storage period, the Government covers the financial costs of the purchase operation and the storage costs to the miller.

According to recent information, the main harvest of 204,500 metric tons (4.5 million quintals) was "pignorized".

After all expenses were calculated, the Dominican Government paid about RD$ 400 million or about US$ 10 million.

Dominican Rep 2003 Rice Prod Seen At 330,000 MT

Dominican Republic's 2003 rice production is estimated at 330,000 metric tons, according to information from the U.S. Department of Agriculture's Foreign Agricultural Service web site, dated Sept. 10 and released Monday.

After averaging 245,000 metric tons per year from 1997 to 2000, Dominican rice production levels increased sharply to 324,000 metric tons in 2001, 347,000 metric tons in 2002, and an estimated 330,000 metric tons for 2003.

These increases were the result of a concerted Dominican policy to become self- sufficient in rice and eliminate rice imports, the press release said.

The earlier production levels resulted in yearly imports in the range of 30,000 to 70,000 tons to meet domestic demand of 315,000 to 325,000 tons per year. As recently as MY 2000, the Dominican Republic imported 35,000 metric tons of rice from the Untied States along, with some informal cross the border movement of rice from Haiti. By the end of MY 2002, production increases had generated surplus stock levels of rice exceeding 60,000 metric tons. This in turn led to pressure to export rice at subsidized prices.

Over the past several years, rice producers have been able to convince the Dominican Government to recognize higher and higher production cost levels, which are the basis for setting producer rice prices through negotiations between producer groups and the Ministry of Agriculture. In addition, during MY 2000 and 2001, President Mejia (a former Secretary of Agriculture) instructed the Government-owned Agricultural Bank (Banco Agricola) to provide additional support to the rice sector in the form of subsidized loans, in an
effort to increase rice production and eliminate the need for imports. In effect, the Agricultural Bank provides loans to producers at an interest rate
lower than the prevailing bank rate, providing an indirect subsidy to rice production.

In addition to the above, the Government through the Agricultural Bank, millers associations and individual millers subsidize the excess crop through
a staging procedure called "pignoracion". This procedure allows the millers to purchase rice from the producers at a set market price for storage (Winter 2002 crop: RD$ 725/fanega, equivalent at current exchange rate to US$ 305.80 per metric ton polished rice). The miller stores the rice and places it in the market when needed but with a four-month maximum storage period.

At the end of the storage period, the Government covers the financial costs of the purchase operation and the storage costs to the miller. According to recent information, the main harvest of 204,500 metric tons (4.5 million quintals) was "pignorized". After all expenses were calculated, the Dominican Government paid about RD$400 million or about US$56 per metric ton in this way.

Apparent consumption has remained stagnant for several years. In the early 1990's, when rice production costs were relatively low, annual consumption levels were close to 350,000 metric tons. As prices increased, due to increased producer prices and import restrictions, consumption patterns of some consumers have changed to include less expensive alternative sources of carbohydrates, such as, bread, pasta and other staple foods like, plantains, cassava and dasheen. The current inflation levels including currency devaluations will only allow consumption to remain around 325,000 metric tons
with marginal increases during MY 2003 and into the out year.

Although the frequent reference is made to zero rice imports, in fact over 7,000 metric tons of rice were apparently imported from the United States in the first half of 2003. A tariff rate quota agreement from the Uruguay round sets a minimum access amount for rice of 13,700 tons, at a tariff rate of 20%.

Even with the tariff applied and other import costs, the local wholesale price of over US$500 at the current exchange rate, would make rice importations very profitable for the companies granted import permits.

There was a lot of press coverage and discussion in the local government and trade groups in December 2002 and the first quarter of 2003 about exporting some of the rice surplus to Venezuela. Although a 20,000 tons sale was announced, apparently only 20 metric tons moved by air in December 2002.