OPEN RICE MARKET

OPEN RICE MARKET

One of the more celebrated achievements of the General Agreement on Tariffs and Trade's last global accord quietly becomes reality today when Japan issues a tender for a relatively tiny 2,800 tons of foreign rice.

It would be Japan's first non-emergency purchase of foreign rice in decades.The tender is part of an experimental buying program that accounts for a fraction of the estimated 465,000 tons Tokyo committed to buy abroad between now and next April.

About half will be purchased directly by the Japanese Food Agency from the United States, probably beginning in September, at a value of about $85 million. It will be stored with rice from other countries, mainly Australia and perhaps Thailand, and consumers will not know the origin of bulk imports when the rice reaches the marketplace.

But it is the pilot purchase program that holds the key to cracking the Japanese market over the long term, industry executives said.

The pilot program, called "simultaneous buy-sell" (SBS), is unlike the

bulk purchases because it allows U.S. producers to deal directly with Japanese importers and, through negotiations, retain some control over how the product is sold in Japan. Japanese trading companies and U.S. producers will negotiate contract provisions and jointly submit their bid to the food agency. The government will purchase the rice from U.S. cooperatives and other producers, and immediately resell it to the trading companies that have negotiated the deals.

The agency will set the price to protect the domestic industry - the price of rice in Japan is about $2,000 a ton higher than the price on the international market.

By allowing distribution and other terms to be structured through commercial relationships, the buy-sell program will bring U.S. producers closer to their ultimate goal in Japan: selling rice as a distinct product of the United States.

In the United States, the sticky, medium-grain japonica rice consumed in Japan is grown exclusively in California. U.S. producers believe that differentiating what California producers contend is the world's highest- quality japonica varieties from rice grown in other countries is the key to building a long-term presence in the Japanese market.

"We understand the government will have some oversight role, but we see (SBS) as clearly a superior system because it allows us to differentiate ourselves," said Ralph Newman, chief executive of Farmers Rice Cooperative in Sacramento. "It is the system we would prefer to be the dominant, if not the only, system."

Farmers Rice Cooperative is the largest of seven major rice producers in California. Its members grow about 40 percent of the japonica rice in the Sacramento Valley, the only region in the United States where that type of rice is grown on a large scale.

Although the SBS purchases will amount to less than 2 percent of the rice Japan plans to import this year, those purchases could play an important role in determining which countries Japan chooses to buy from to fulfill its buying commitments in future years.

"The government of Japan is planning to use upcoming SBS tenders to see which supplying countries' rice is popular with Japanese consumers. In this respect the SBS tenders may influence the Japanese government's future purchasing decisions," said August Schumacher Jr., administrator of the Department of Agriculture's Foreign Agricultural Service.

Japan's first purchases of U.S. beef and citrus were sourced under a system similar to the buy-sell program, he said.

Under agriculture provisions of the agreement reached last year in the Uruguay Round of GATT negotiations, Japan agreed to import 4 percent of its rice needs during the year beginning April 1, and increase that percentage to 8 percent by 2000. California rice farmers are expected to supply about half of Japan's imports this year.

GATT, which set rules for world merchandise trade, was succeeded by the World Trade Organization on Jan. 1 as agreed in the Uruguay Round. The round was named after the South American country in which it was launched nine years ago.

Japan will buy the rice in brown form, and mill it into white rice in Japan.

For rice producers in California, the opening of the Japanese market probably will mean higher prices in the world marketplace, but at least in the short term it will not increase the volumes they grow or sell.

Because of longstanding restrictions on water use, California growers can harvest only a limited amount of japonica rice each year - last year 468,000 acres were harvested - and about 60 percent of the harvest is reserved for domestic buyers like the Kellogg Co.

What remains for the export market goes to countries that are willing to pay the most for it. In recent years regular buyers have included Jordan, Lebanon, Syria and other countries in the Middle East. After its 1993 rice crop failed last year, Japan was the largest buyer of U.S. rice. But those emergency purchases, which were unrelated to Uruguay Round commitments, dwindled to practically nothing once Japanese stockpiles were restored.

With Japan expected to buy about 40 percent of the California rice available for exports in an average year, far less is expected to be shipped to the Middle East and much of that will end up in Japan, industry executives say.

"Our strategy will be to reposition rice into the highest-value market," Mr. Newman said.

While Japan this year is self sufficient in rice production, its rice acreage is expected to drop off in coming years as farms are replanted with higher-yielding fruits and vegetables, and as the aging farm population declines.

"Five to six years from now Japan will want to buy more rice from the U.S. than they have guaranteed to buy," Mr. Newman said.