**Revised Estimates of China Rice Consumption and Ending Stocks**

Supply and demand estimates for rice published in the July 12, 2006,
*World Agricultural Supply and Demand Estimates* (*WASDE*) report
incorporate significant revisions to USDA's estimates of China's
consumption and stocks. The revisions are largely based on recently
received data from China National Grain & Oils Information Center
(NGOIC) indicating lower total annual domestic use of rice than
estimated in the June 2006 *WASDE* by USDA. While NGOIC does not provide
estimates of China's ending stocks, lower domestic use estimates since
2003/04 imply higher ending rice stocks than reported by USDA in the
June 2006 *WASDE*.

Although the revised rice stock levels are higher than previously
estimated, they are consistent with China's policy of holding large
stocks of rice as insurance against catastrophic grain failures,
regional imbalances, or other disruptions that could constrict food
supplies or force heightened reliance on imports. China's target stock
levels, relative to yearly needs, are much higher than those of other
countries or levels recommended for optimum food security by the Food
and Agriculture Organization of the United Nations (FAO).

Domestic consumption and ending stocks of rice for China were revised
beginning with the 1997/98 marketing year. Revised supply and demand
estimates for rice are available in spreadsheet format. The table
summarizes rice consumption and stocks revisions for both China and the
world since 1997/98.

● From 1997/98 to 2002/03, the NGOIC data indicated slightly higher
total domestic use and lower ending stocks of rice than estimated by
USDA.

● From 2003/04 to 2006/07, the NGOIC data indicated lower domestic use
than estimated by USDA. Changes in feed use of rice account for most of
the annual variation in total domestic use since 1997/98 reported by
NGOIC.

From 2004/05 to 2006/07, the smaller annual domestic use reported by
NGOIC is responsible for substantially larger ending stocks of rice than
estimated by USDA.

China's ending stocks of rice (milled basis) in 2006/07 are now
estimated at 37.4 million metric tons, or 29 percent of annual domestic
consumption. Prior to this month's revisions, the June *WASDE* placed
ending stocks of rice in China at 18.8 million tons, or 14 percent of
domestic consumption. The table shows the impact of the revisions for
China on global rice use and ending stocks. The revisions of China's
rice ending stocks raised world rice stocks to 79.1 million tons for
2006/07, an increase of 19.1 million tons from last month. The global
2006/07 rice stocks-to-use ratio is 19 percent, up from 14 percent last
month.

USDA's stock estimates for China include only that portion of total rice
supplies likely to enter commercial channels. Components include rice
stocks acquired and held by government agencies, inventories in the
commercial sector, and a portion of the grain that China's farmers grow
and store locally for their own use. USDA assumes that 20 percent of the
estimated on-farm rice supplies are likely to enter the market in
response to price fluctuations. The assumption is supported by findings
of a 1995/96 survey of on-farm grain storage and farmer attitudes.

USDA's decision to revise stock estimates was based on a variety of
indicators. First, domestic use estimates by category from NGOIC for
1991/92-2005/06 indicated smaller annual domestic use of rice since
2003/04 than estimated by USDA. The NGOIC data indicated declining total
rice consumption since 2003/04, with feed use accounting for almost all
of the decline.

Second, data from a 2005 United Nation's report---*Integrated Assessment
of the Impact of Trade Liberalization: A Country Study on China's Rice
Sector*---indicated declining annual total domestic rice consumption in
China since the late 1990s. In addition, the UN study reported smaller
annual total domestic rice use in China since the late 1990s than
reported by USDA. Before the July revisions, USDA's annual consumption
estimates for China had been nearly flat since 2002/03.

Third, while USDA has reported declining rice stock levels for China
since 2000/01---with 2006/07 ending stocks projected to be the lowest
since 1974/75---the government of China has given no indications that
current stock levels are dangerously low and it has not revealed any
plans to make large rice purchases in 2006 or 2007, and even reduced
rice imports in 2005. China did boost its rice imports in 2004 in the
face of tighter supplies (due to a weather-reduced crop in 2003) and
rising prices. However, with increasing production each year since
2004/05, China is again nearly self-sufficient in rice. China is
currently importing primarily high-quality fragrant rices---varieties
not grown domestically---for urban consumers, indicating adequate rice
supplies in China.

Finally, while the upward revisions in China's ending stocks since
2004/05 are substantial, little impact on global trading prices is
expected as these revisions primarily represent statistical adjustments
and not changes in market fundamentals. Global trading prices likely
already reflect larger ending stocks in China than reported in the June
2006 *WASDE*. Excluding China, global ending stocks have been rather
stable since 2002/03, indicating neither a surplus nor deficit market
condition for rice in the global market. While the June *WASDE* reported
global ending stocks in 2006/07 to be the lowest since 1982/83 and the
sixth consecutive year of decline, international trading prices have
increased only modestly in the past 2 years, with currency fluctuations
and Thailand's intervention purchases accounting for much of the
increase.

For additional information, please contact the following ERS analysts:

-   Francis Tuan (China specialist), 202-694-5238,
    [ftuan@ers.usda.gov]{.underline}

-   Nathan Childs (rice specialist), 202-694-5292,
    <nchilds@ers.usda.gov>