SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549

                                 FORM 10 - K

                Annual Report Pursuant to Section 13 or 15(d) of 
                      the Securities Exchange Act of 1934

   For the fiscal year ended                             Commission file
       March 31, 1997                                     Number 0-17039


                              American Rice, Inc.
           (Exact name of registrant as specified in its charter)

              Texas                                     76-0231626 
     (State of Incorporation)                        (I.R.S. Employer 
                                                    Identification No.) 

   411 North Sam Houston Parkway East
           Houston, Texas                                    77060 
(Address of principal executive offices)                   (Zip Code)

 Registrant's Telephone Number, Including Area Code    (281) 272-8800

    Securities registered pursuant to Section 12(b) of the Act: None
                                                                            
        Securities registered pursuant to Section 12(g) of the Act:

                Common stock, par value $1.00 per share

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months, and (2) has been subject to such filing 
requirements for the past 90 days.   Yes [X]  No  [ ]         
     
As of June 25, 1997, 2,443,669 shares of the Registrant's Common Stock, par 
value $1 per share, were outstanding, and the aggregate market value of the 
outstanding Common Stock, $1 par value, of the Registrant held by non-
affiliates of the Registrant as of June 25, 1997, based on the average bid and 
asked prices for these shares on the NASDAQ System, was $4,685,321. 

                   Documents Incorporated by Reference

Portions of the 1996 Proxy Statement to Shareholders are incorporated by 
reference in Part III.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 
of Regulation S-K is not contained herein, and will not be contained, to the 
best of registrant's knowledge, in definitive proxy or information statements 
incorporated by reference in Part III of this Form 10-K or any amendment to 
this Form 10-K. [] 
<PAGE>

                             AMERICAN RICE, INC.
                           FORM 10-K ANNUAL REPORT 
                              TABLE OF CONTENTS
Part I 
------
Item 1:     Business                                See page      1

Item 2:     Properties                              See page     10   

Item 3:     Legal Proceedings                       See page     11     

Item 4:     Submission of Matters to a              See page     11    
            Vote of Security Holders

Part II
-------
Item 5:     Market for the Company's                See page     12   
            Common Stock and Related                                         
            Stockholder Matters               
           
Item 6:     Selected Financial Data                 See page     13   

Item 7:     Management's Discussion                 See page     15  
            and Analysis of Financial
            Condition and Results of
            Operations

Item 8:     Consolidated Financial                  See page  F - 1
            Statements

Item 9:     Changes in and Disagreements            See page     19
            with Accountants on Accounting
            and Financial Disclosure

Part III
--------
Item 10:    Directors and Executive                 See page     20   
            Officers of the Company

Item 11:    Executive Compensation              See Proxy Statement

Item 12:    Security Ownership of Certain       See Proxy Statement
            Beneficial Owners and
            Management

Item 13:    Certain Relationships               See Proxy Statement
            and Related Transactions
Part IV
-------
Item 14:    Exhibits, Financial Statement      
            Schedules and Reports on 
            Form 8-K
<PAGE>

                                 PART I

Item 1.   Business
------    --------

The Company

American Rice, Inc. ("ARI or the "Company") is a processor and marketer of 
food products, the principal of which are rice and olives. The Company is the 
largest U.S. based and one of the world's leading processors and marketers of 
branded rice products, with leading brand positions in many U.S. markets as 
well as Saudi Arabia, Haiti, Puerto Rico and certain other rice consuming 
markets. The Company annually markets approximately 20% of the total U.S. rice 
crop and is the only marketer of rice in the world with significant sources of 
rough rice and milling facilities in the two major rice producing regions of 
the United States as well as certain strategic locations overseas. This allows 
ARI to moderate the impact of regional trade imbalances caused by climate and 
geopolitical factors on operating performance. The Company is able to maximize 
its margins by purchasing rice grown domestically and abroad to take advantage 
of regional cost and supply availability. ARI is among the largest of four 
U.S. olive processors with the largest U.S. market share of branded sales of 
both black and green olives. Significant synergy's have been attained through 
successful integration of the olive product lines with ARI's existing 
marketing, logistical, and support functions allowing effective marketing and 
efficient, lower cost operations for both rice and olives.

Background

The business of ARI dates back to 1901 when the predecessor company to Comet 
Rice, Inc. ("Comet") was formed in Beaumont, Texas. In 1952, the predecessor 
company to Comet merged with Wonder Rice Mills, Inc. of Stuttgart, Arkansas 
and Adolphus Rice Mills, Inc. of Houston, Texas. This rice milling business 
was purchased in 1970 by Early California Industries Inc. ("Early"), a 
California company. In 1972, Early formed Comet as a new subsidiary into which 
Early transferred all of its rice business assets. In 1979, Comet acquired 
United Rice Growers and Millers. Early subsequently changed its name to ERLY 
Industries Inc. ("ERLY") in 1985.

In 1986, Comet and American Rice, Inc., a Texas agricultural cooperative 
marketing association formed in 1969 and comprised primarily of rice growers 
(the "ARI Cooperative"), formed a joint venture known as Comet American 
Marketing ("CAM") for the purpose of conducting joint domestic marketing 
operations. In connection with the formation of CAM, both companies 
contributed virtually all of their domestic brands to CAM and Comet 
transferred certain processing and packaging equipment, packaging supplies and 
production responsibilities to the ARI Cooperative. ARI was incorporated in 
1987 by the ARI Cooperative and in 1988, the ARI Cooperative contributed all 
of its assets to the Company in exchange for 52% of ARI's voting capital 
stock, which the ARI Cooperative distributed to its members. Comet obtained 
the remaining 48% of ARI's voting capital stock in exchange for contributing 
to the Company cash and Comet's 50% interest in CAM. On May 26, 1993, ERLY 
consolidated its ownership interests in the Company and Comet, pursuant to 
which ERLY transferred all of the operating assets and liabilities of Comet to 
ARI in exchange for shares of voting preferred stock that gave ERLY an 
additional 33% of the voting power of ARI (the "Comet Acquisition"). As a 
result of the Comet Acquisition, ERLY holds 81% of the voting power of the 
Company.

In July 1996, the Company added olives to its product lines by acquiring the 
domestic and foreign olive business of Campbell Soup Company (the "Olive 
Page 1<PAGE>
Acquisition"). Assets acquired include olive inventories and processing 
facilities in Visalia, California and Seville, Spain.

Rice Products

Industry Overview

Rice is the primary staple food consumed in most countries and is the cereal 
grain with the highest level of human consumption in the world, comprising 
approximately 40% of world cereal grain consumption. Primarily as a result of 
population increases, world rice consumption has increased approximately 125% 
during the last 30 years to approximately 350 million metric tons. U.S. 
consumption of rice has approximately doubled since 1984 and currently exceeds 
three million metric tons per year. The increase in U.S. rice consumption is 
primarily due to the substantial population growth of certain ethnic groups 
and increased awareness by the general population of the impact of diet on 
health. Measured on a per capita basis, average consumption of rice is 
estimated at 150 pounds per person on a worldwide basis, with Asia having the 
highest per capita annual consumption at approximately 225 pounds and the 
United States with one of the lowest at 28 pounds.

International Trade. While over 95% of the rice grown worldwide is consumed in 
the country in which it is grown, international trade in rice has expanded 
steadily over the last decade from approximately 11 million metric tons to 
approximately 18 million metric tons. The demand for rice over time has 
increased proportionately with population increases, coupled with expansion in 
per capita consumption, and has exceeded agricultural productive capacity in 
some countries. In addition, due to the economic collapse of the former Soviet 
bloc nations, certain foreign government agricultural support programs have 
been reduced. This has reduced supply and increased international trade 
demand.

The world's major rice producing countries include China, India, Indonesia, 
Bangladesh, Thailand, Vietnam and the United States, with China and India 
accounting for over 50% of world rice production. Thailand is the largest 
exporter of rice in the world, exporting approximately 30% of total world rice 
exports, followed by the United States, India, and Vietnam, whose exports 
account for 16%, 14%, and 11%, respectively, of the world rice trade.  Rice 
produced in the United States is generally of a high quality and sells at 
premium prices relative to Asian rice. Based on statistics compiled by the 
United States Department of Agriculture ("U.S.D.A."), exports of rice produced 
in the United States have sustained consistent growth over the last 20 years, 
growing from an average of 1.8 million metric tons per year in the years from 
1972 to 1974 to an average of approximately three million metric tons per year 
in 1995 to 1996.

Historically, the largest rice importing nations have included Brazil, Iran,  
and Saudi Arabia with each nation importing in excess of 750,000 metric tons 
annually. In recent years, imports from Bangladesh, China, and Indonesia have 
increased to this level. In 1995, international trade was impacted favorably 
by the effects of the General Agreement on Tariff and Trade ("GATT"). 
Signatory countries, including the United States, the European Union, Japan, 
and South Korea began implementation of their GATT commitments on January 1, 
1995, which required with some exceptions, the elimination of all import bans, 
and the reduction of all import tariffs. In the case of Japan, which was not 
required to eliminate rice import bans, highly beneficial quotas were 
established through bilateral negotiations. Japan imported approximately 
450,000 metric tons of rice in the 1996 crop year, and its imports are 
scheduled to increase each year to 758,000 metric tons by the year 2000. In 
general, reductions on tariffs will make imports more attractive to foreign 
buyers and consumers and more competitive with domestic products. Under GATT, 
Page 2<PAGE>
developed countries are committed to reduce tariffs by an average of 36% over 
six years, while developing nations will reduce tariffs 24% over ten years. 
Management believes increases in U.S. medium grain rice production in recent 
years is primarily attributable to GATT and that over the longer term the 
agreement will stimulate additional production increases and world rice trade.

Domestic Trade. U.S. consumption of rice has approximately doubled since 1984 
and currently exceeds three million metric tons per year. U.S. per capita 
consumption of rice has increased primarily due to increases in the population 
of high rice-consuming Hispanic and Asian ethnic groups, which have grown from 
6% of the U.S. population in 1970 to 26% in 1990 and are projected by the U.S. 
Census Bureau to increase to 38% of the U.S. population by 2020. For example, 
the Hispanic communities in the Southwest, and the Asian communities in 
California, each of which have grown significantly since 1985, consume over 
three times the average per capita amount of rice consumed in the United 
States. To a lesser extent, the growth in average per capita consumption of 
rice has also been caused by increased awareness of the impact of diet on 
health.

Rice Production. Approximately two-thirds of total U.S. rice production is the 
long grain variety, which is produced almost entirely within Arkansas, 
Louisiana, Mississippi, Texas and Missouri and is marketed worldwide. Medium 
grain rice, which is grown in several rice producing states but is the 
dominant variety grown in California, accounts for effectively all of the 
remaining one-third of all rice grown in the United States. California medium 
grain, generically known as Calrose, is preferred within certain segments of 
the global market, including Japan, Korea, Turkey, Jordan and Lebanon. The 
difference between these rice varieties is reflected in the size and shape of 
the kernel as well as amylose or starch content.

The rice growing cycle takes approximately 100 to 125 days from planting until 
harvesting, depending on the variety of rice grown. Rice is typically planted 
in flooded fields in the early spring and after it matures, water is drained 
from the fields and the crop is harvested. The harvested grain is referred to 
as "paddy" or "rough rice." The rough rice is transported to storage and 
drying facilities after it is harvested, where the moisture content is slowly 
lowered to prepare the rice for milling. After the rice is dried, it is 
conveyed to rice mills where it is processed into finished rice products.

The process of milling begins with the cleaning of the rough rice. Once 
cleaned, the hull of the rice kernel is removed. The resulting product is 
known as brown rice because of the brown color of the bran layer still 
attached to the kernel. The hulls are often burned for energy generation and 
silicone production or ground and mixed with bran for use as livestock feed. 
Although brown rice is sometimes sold directly as a food product, it is 
usually further processed. The bran layer is removed in the milling process 
and broken and imperfect grains are eliminated, typically using electro-
optical scanners. The resulting product is the white or fancy rice most often 
seen on grocery store shelves.

Parboiled rice is rough rice that has been soaked, steamed under pressure, 
dried and then hulled and milled. The process of parboiling involves soaking 
the cleaned rough rice in water and then heating the kernels to specific 
temperatures using steam. This process breaks down the starch in the rice and 
allows splintered kernels to fuse together to form whole kernels. Once rice 
has been parboiled, it changes color and maintains a golden brown hue as 
contrasted to regular milled white rice. Parboiled rice retains more nutrients 
than regular milled white rice and tends to be more fluffy after cooking.

The finished rice products are then ready for packaging and shipping. 
Packaging can occur at the rice processing plant or at the destination site 
Page 3<PAGE>
after bulk shipment. Transportation costs associated with bulk shipments are 
typically less costly than those of packaged rice.

Rice Brands and Markets

The Company is one of the largest competitors in the global market for rice. 
ARI competes in all major rice importing regions in the world. The Company 
plans to continue to expand into new markets and increase its share in certain 
of its existing markets. The following table summarizes the regional 
concentrations of ARI's rice sales during the past three years:

                                           Year ended March 31,
                                  -------------------------------------
                                     1997          1996         1995 
                                  ---------     ---------     ---------
                                              (in thousands)
   United States                   $146,880      $131,776      $123,530

   Export Sales:   
     Middle East                   $165,666      $117,359       $91,449
     Caribbean, Mexico, and
       South America                 64,991        64,654        84,806
     Asia                            31,583        49,453        49,963
     Other                           35,076        26,845        23,302
                                  ---------     ---------     ---------
   Total Export Sales               297,316       258,311       249,520   
                                  ---------     ---------     ---------
   Total Sales                     $444,196      $390,087      $373,050
                                  =========     =========     =========

United States. ARI's domestic rice sales consist of branded rice products sold 
to retail outlets, primarily grocery stores, branded bulk sales to ethnic 
wholesale and retail outlets and sales to other industrial users and major 
food processors. ARI has targeted its domestic marketing programs to achieve 
regional brand prominence with such efforts primarily being focused on the top 
15 rice consumption markets. These markets, located principally in New York, 
California, Texas and Florida account for over 50% of the rice consumed in the 
United States. The Company is the second largest seller by tonnage of retail 
branded long grain white rice products in the United States with a market 
share of approximately 15%. ARI's long grain rice brands have attained the 
number one or number two market share in many of the regions in which they 
compete including Comet(R) in North Carolina, Blue Ribbon(R) in South 
Carolina, Adolphus(R) in Texas, Comet(R) in California, Texas and the 
Southeast and AA(R) in California.

Certain ethnic groups represent some of the fastest growing segments of the 
rice business in the United States. Management believes that ARI's AA(R) is 
the leading brand of long grain rice among Asian-Americans and dominates sales 
in the western region of the United States and certain other regions having 
large Asian-American populations. Other ARI brands have strong consumer 
acceptance with Hispanic-Americans in the Southwest.

In addition to its own branded retail products, ARI supplies long grain white 
and parboiled rice, instant rice, rice mixes, brown rice and other rice 
products to a full range of private label resellers in the United States and
Canada as well as other food resellers.

Middle East. Saudi Arabia has been the largest market for U.S. grown rice, 
annually importing an average of approximately 750,000 metric tons from all 
sources, and is currently the largest branded parboiled rice market in the 
Page 4<PAGE>
world. ARI's Abu Bint(R) brand is considered to be one of the best recognized 
food products in Saudi Arabia, leading all U.S. grown rice imports with 
approximately 60% of the market for this rice. Overall, Abu Bint(R) is the 
number one brand with a market share of approximately 13% of the total Saudi 
Arabian market. Rice products exported to Saudi Arabia by ARI are marketed to 
various wholesalers and retailers through a number of major distributors. 

Historically, the rice ARI sold in Saudi Arabia was shipped from the United 
States in packaged form. In 1994, ARI began shipping rice in bulk form to the 
Middle East region and packing it under strict quality supervision in order to 
reduce vessel loading and freight costs while providing enhanced market 
competitiveness, improved customer service, and product freshness. Until 
January 1997, products were packed at a facility in Jeddah, Saudi Arabia (see 
Item 3 - Legal Proceedings). Since January 1997 other Middle East facilities 
with similar advantages have been utilized.

ARI also sells significant quantities of both branded and unbranded rice to a 
number of other Middle East countries including Turkey, Iran, Jordan, and 
Syria.

Caribbean, Mexico and South America. The Caribbean is one of the highest per 
capita rice consumption markets in the world. ARI sells branded products such 
as Comet(R), Blue Ribbon(R), D'Aqui(TM), and Cinta Azul(R) in this region, 
with substantial Company-controlled or owned assets in Haiti and Jamaica and 
the Netherlands Antilles.

ARI is the largest processor and marketer of rice to Haiti. In Jamaica, ARI's 
subsidiary, Comet Rice of Jamaica, Ltd., is the second largest processor and 
one of the largest branded retail and food service marketers in the country. 
Within Aruba, Bonaire and Curacao, ARI has a long-term exclusive supply, 
processing and marketing agreement with the Antillean Rice Mill, a local 
marketing company.

Asia. As a participant in GATT, Japan imported approximately 450,000 metric 
tons of rice in the 1996 crop year, and its imports are scheduled to increase 
each year to 758,000 metric tons by 2000. In the first two years of the GATT 
agreement, the United States exported approximately half of Japan's GATT 
commitment, and ARI milled in excess of 40% of the U.S. exports. Management 
believes the Company will continue to have material involvement in this 
business.

In 1994, ARI formed ARI-Vinafood, a Vietnamese limited liability company on a 
joint venture basis with a company owned by the government of the Socialist 
Republic of Vietnam for the purpose of producing rice and related products at 
rice processing facilities in Vietnam. ARI owns 55% of ARI-Vinafood. The 
Company's participation in the joint venture is subject to a buy-out by the 
Vietnam Partner after the fifth year of operation. ARI's participation in ARI-
Vinafood has allowed the Company to participate in the world market for Asian 
origin rice.

Rice Sourcing and Pricing

The Company's market and source diversity enhances its ability to moderate the 
impact of regional trade imbalances caused by climate and geopolitical 
factors. ARI is the only marketer of rice in the world with sources and 
milling capacity in each of the major rice producing regions of the United 
States as well as overseas. As a result, the Company utilizes a variety of 
rice products grown in the United States and is able to take advantage of 
regional cost and supply availability. Each of ARI's milling facilities are 
strategically located to minimize shipping costs and maximize the convenience 
to the customer enabling ARI to capitalize on marketing opportunities as they 
Page 5<PAGE>
develop around the world.

ARI buys rough rice from a variety of farm sources. A portion of these rough 
rice purchases are made under pre-harvest agreements. Pre-harvest agreements 
generally provide for delivery of rough rice from specified acreage at a price 
per hundredweight determined by the terms of the agreements. Generally, the 
price per hundredweight is determined based on local market conditions 
occurring between the time of harvest and on or after delivery to the buyers. 
ARI also obtains domestic rough rice through competitive bidding in all rice 
producing states. In addition to purchasing domestic rough rice, ARI obtains 
milled rice from other U.S. and foreign rice suppliers as needed.

The Chicago Board of Trade maintains a futures and options market in rough 
rice. ARI buys and sells futures and options contracts as a mechanism to 
manage a portion of its rough rice requirements.

The Company procures rice from a variety of locations, including five of the 
six significant U.S. rice growing states;  Texas, Louisiana, Mississippi, 
Arkansas, and California.

Southern Facilities. ARI's principal Southern rice processing facility is 
located in Freeport, Texas. The Freeport facility is a 20 acre integrated 
processing complex with an annual milling capacity of over 600,000 metric tons 
located directly on a deep water port in the Gulf of Mexico. The facility is 
the only rice facility in the United States capable of handling large ocean-
going vessels directly. The facility has a parboiled processing plant and 
separate milling facilities for both white and parboiled rice. The Freeport 
facility adds water polishing and electro-optical sorting to ensure that ARI's 
exacting quality standards are consistently met. The facility also has a rice 
flour mill that markets and meets the stringent quality standards of baby food 
processors and Japanese food ingredient purchasers. ARI also processes instant 
rice for retail and industrial markets.

California Facilities. ARI operates two rice processing facilities in Maxwell 
and Biggs, California and has one of the state's largest single rice drying 
operations. The Maxwell facility is the largest capacity single rice mill 
operating in California. The Biggs facility which was first leased by Comet in 
1991 and recently extended, is an older milling facility that provides 
additional milling capacity to supplement ARI's domestic milling requirements. 
The combined capacity of the Maxwell facility and the Biggs facility exceeds 
the multi-mill capacities of ARI's largest California competitors.

Other Facilities. ARI also operates packaging facilities in Port-au-Prince, 
Haiti, and Kingston, Jamaica that receive bulk rice from ARI's Southern 
facilities and process and package the bulk rice into local retail branded 
rice products. ARI's Haitian facility is located on a self-contained deep 
water port 25 kilometers outside the capital city and principal market, Port-
au-Prince. ARI operates an ocean-going vessel to service the Caribbean area 
facilities. These facilities provide ARI with competitive advantages in 
loading, transportation and labor costs as well as in customer service and 
product freshness.

Olive Products

Industry Overview

While rice is a primary staple food in the world, olives are typically used as 
a food ingredient, supplement or garnish. Therefore, while rice has estimated 
average per capita consumption of 150 pounds per year, olives is much lower 
with estimated average world per capita consumption of .4 pounds per year. Per
Page 6<PAGE>
capita consumption of olives in the U.S. is estimated to be 1.5 pounds per 
year.

International Trade. The principal production regions for table olives are the 
Mediterranean and the valleys of California. Consumption is concentrated in 
the Mediterranean region and the U.S. In the five years ending with crop year 
1996-1997, estimated world production and consumption of table olives has 
averaged approximately one million tons, while world trade between countries 
averaged approximately 230 thousand tons. Due to favorable weather conditions, 
the 1996-1997 world crop is expected to exceed the average of the last four 
years by over 200 thousand tons, with a consumption increase and replenishment 
of unusually low beginning inventories absorbing the production increase. 
Among the leaders in world trade in recent years, Morocco is the largest 
exporter, while the United States is the largest importer. The following table 
summarizes estimated average production, consumption, and world trade of table 
olives for the 1996-1997 crop year:
                       
                           Production  Consumption  Exports  Imports
                           ----------  -----------  -------  ------- 
                                     (thousands of tons)
          European 
            Community *        347         330         82       66
          Turkey               216         160         30        -
          United States        149         170         10       76    
          Morocco              120          35         85        -
          Syria                 90          80          8        -
          Others               219         279         42       95
                           ----------  -----------  -------  -------
                             1,141       1,054        257      237

              *  Spain and Italy produced 210 and 80 MT, respectively. 
                 Exports and imports do not include trade among European
                 Community countries.
              Source: Olivae magazine, December 1996

Domestic Trade. California processors dominate the production and marketing of 
black olives sold domestically, accounting for about 80-85% of the market. The 
remaining 15-20% are imported from Spain, Morocco, and Mexico. The California 
ripe olive processing industry is consolidating. The industry entered the 
1990s with six processors, down from 27 during the early 1960s. Today only 
four domestic processors remain. The industry's increased mechanization, 
higher fixed environmental costs, and higher capital requirements in both 
production and marketing have raised breakeven volumes leaving smaller olive 
companies uncompetitive. In addition, growth in food service demand for sliced 
olives and price pressure from Spain and Morocco have shrunk industry margins. 
Among domestic processors, ARI is the second largest in production capacity 
handling approximately 30% of California's annual production.

The green olive business, in contrast to the domestic black olive business, is 
fragmented with dozens of Spanish processors and marketers and U.S. importers. 
Natural industry consolidation has been delayed by Spanish laws making plant 
closures and mergers prohibitively expensive. These laws, however, are 
currently under review with the objective of increasing the global 
competitiveness of Spanish businesses. Changes which will favor industry 
consolidation are expected which will improve the economics of efficient 
operations such as that of ARI.

ARI is one of a few international olive processors and marketers. The company 
operates modern, low cost production facilities in Visalia, California for 
ripe olives and in Seville, Spain for green olives. The Company has also 
allied itself with other processors of various olive styles in key producing 
Page 7<PAGE>
regions to assure its customers a complete product line and reliable supply.

Olive Production. Olives have been produced and consumed in the Mediterranean 
region since history has been recorded. It is believed olive cultivation was 
spread throughout the Mediterranean by the Greeks and Romans and was brought 
to the Western Hemisphere by Spanish explorers. Olives are said to have been 
among the crops grown in the Jesuit mission settlements in California. 
Although there are numerous varieties of olives cultivated in the world, the 
principal varieties are the Manzanillo and Sevillano.

Olives are harvested in the fall of the year and are either processed 
immediately or stored in a brine solution for processing later in the year. 
Regardless of variety, olives can be processed into two principal types, green 
olives (also known as Spanish olives) and black olives (also know as ripe 
olives), the determining factor being differences in the production process. 

Green olives are produced by fermentation under controlled temperatures in a 
brine solution for a period ranging from two to seven months. Black olives are 
produced by a caustic aeration process lasting about seven days. After bulk 
processing, olives are made into a variety of familiar products including 
pitted, unpitted, stuffed, sliced, or chopped olives or olive oil.

The olive tree is an erratic, alternate bearing fruit because the stress to 
the olive tree caused by a large crop tends to depress new growth and 
production in the following year. The 1996-1997 crop was the second largest 
olive crop in history both in the U.S. and the world. Early indications 
suggest the 1997-1998 U.S. crop will be only 50% as large as the prior year, 
and thus carryover inventory will be important to service olive customers.  
ARI's relatively large inventory position is expected to be ideal to meet 
anticipated demand in the next year.

Olives Brands and Markets

ARI annual sales of olive products in fiscal 1998 are expected to exceed $100 
million. In the nine months from the Olive Acquisition to March 31, 1997 sales 
of $71.3 million included $64.2 million in the U.S. and $7.1 million in other 
world markets, primarily Europe. 

United States. ARI enjoys the largest market share of branded sales of both 
black and green olives in U.S. markets. In dollar sales of black olives, the 
company has 35.8% of the market compared to 23.4% for the nearest competitor. 
The dominance of ARI's share of branded green olive sales is more pronounced, 
with 25.2% compared to the nearest competitor with a 13.8% share. ARI's 
principal U.S. olive brand is Early California(R), although the Company also 
markets U.S. olives under the Franciscan(R) and Senor(R) brands. Through a fee 
arrangement with Campbell Soup Company, ARI uses Campbell's Vlasic(R) brand in 
the Eastern United States. Sales under the Vlasic(R) brand are being phased 
out in favor of the Early California(R) brand. The Company is also a major 
private label supplier.

Other World Markets. ARI markets green olives produced in its Spanish 
facilities primarily to European and Caribbean countries in proprietary brands 
such as Tapas(R) and Loreto(R). Several of ARI's rice markets, particularly 
the middle eastern countries, are also major olive consuming countries. Others 
are key olive producing countries. ARI is uniquely positioned to leverage its 
skills and relationships in international procurement, logistics, and 
marketing over this new line of products.
Page 8<PAGE>

Competition

Competition is based upon brand name recognition, quality, product 
availability, product innovation and price. On a global basis, ARI competes 
with approximately 15 entities that together trade or market over 50% of world 
trade in rice. These competitors are from the United States and other 
exporting countries such as Thailand, Pakistan and Vietnam. The Company's U.S. 
competitors in the domestic and export milled rice markets include Riviana 
Foods Inc., Riceland Foods, Inc., Producers Rice Mills, Inc., Continental 
Grain Company, Cargill Inc. and Farmers Rice Cooperative. There are other 
competitors in certain specialized marketing areas, such as Mars, Inc. (Uncle 
Ben's), Philip Morris Companies, Inc. (Minute) and the Quaker Oats Company 
(Rice-a-Roni).

Within the United States, competition exists both for procuring and processing 
rough rice, and for marketing milled rice products. Competitors in the rice 
milling business include both private commercial mills, such as ARI, and mills 
operated by agricultural cooperatives. ARI's principal competitors in milling 
are Riceland Foods, Inc., Farmers Rice Cooperative and Cargill Inc. with 
estimated shares of operating domestic milling capacity of 19%, 8% and 7%, 
respectively. ARI's share of estimated operating domestic milling capacity is 
20%.

Domestic competitors of ARI in the marketing of retail branded milled rice on 
a national basis principally consist of Riviana Foods Inc. and Riceland Foods, 
Inc., and, in the food service markets, Farmers Rice Cooperative. According to 
syndicated market data, no company currently controls more than 25% of the 
domestic branded markets. There are a number of small regional competitors in 
the branded segment of the rice industry and approximately 15 to 20 rice 
millers who compete in the commodity rice markets.

The California ripe olive processing industry is consolidating. The industry 
entered the 1990s with six processors, down from 27 during the early 1960s. 
Today only four domestic processors remain. ARI's competitors include Bell 
Carter Foods, Inc., Oberti Olive Company, and Musco Olive Company. Bell Carter 
and Musco are privately held businesses. Oberti Olive is a subsidiary of Tri-
Valley Growers, an agricultural cooperative. The industry's increased 
mechanization, higher environmental costs, and higher capital requirements in 
both production and marketing have raised breakeven volumes leaving smaller 
olive companies uncompetitive. In addition, growth in food service demand for 
sliced olives and price pressure from Morocco and Spain have shrunk industry 
margins. Among domestic processors, ARI is the second largest in production 
capacity handling approximately 30% of California's annual production.

Brand Names and Trademarks

The Company's trademarks, copyrights and brand names are protected by numerous 
registrations in the U.S. and foreign jurisdictions. The Company believes that 
these trademarks, copyrights and brand names have significant value and are 
adequately protected.

Regulation

Although ARI is not involved in rice farming, certain government regulations 
affecting U.S. rice farmers have a significant impact on the cost and 
availability of ARI's principal raw material, rough rice. Substantially all 
U.S. rice is grown under the influence of U.S. government programs.

In April 1996, the Federal Agriculture Improvement and Reform Act ("1996 Farm 
Bill") was enacted to replace its 1990 predecessor, the Food, Agriculture, 
Conservation and Trade Act of 1990 ("1990 Farm Bill"). The 1996 Farm Bill 
Page 9<PAGE>
provides marketing loans and agricultural market transition payments (as 
defined) to qualifying farmers for seven years beginning with the 1996 crop. 
The agricultural market transition payments range on a declining scale from 
$2.75 per cwt for the 1996 crop to $2.03 per cwt in 2002 and replace similar 
payments of the 1990 Farm Bill. Unlike the predecessor bill payments, the 
agricultural market transition payments are fixed without reference to price 
levels. Other key provisions of the new law include the elimination of acreage 
reduction incentives and increased flexibility of farmers to change among 
different commodities as market conditions warrant.

Management believes the 1996 Farm bill was primarily responsible for a 
reduction of approximately eight percent of rice tonnage harvested in the U.S. 
in 1996 and a general increase in price levels of rice. While price levels 
have remained somewhat higher, preliminary acreage surveys indicate production 
will increase in 1997.

ARI is subject to various federal, state and local environmental laws and 
regulations governing, among other things, air and water quality, the 
generation, use and disposal of materials related to plant operations and the 
processing, storage and shipment of it's products. The Company believes it is 
in substantial compliance with all existing laws and regulations and has 
obtained or applied for the necessary permits to conduct its business. To 
date, and in management's belief for the foreseeable future, compliance with 
applicable environmental laws has not had and will not have a material adverse 
effect on ARI's financial or competitive positions.

Employees

At March 31, 1997, the Company had approximately 800 employees in domestic 
operations and 700 employees in foreign operations. The Company has collective 
bargaining agreements with its employees in Spain, Jamaica, and Vietnam. There 
have been no significant labor disputes in the past several years and the 
Company considers its employee relations to be excellent.

Item 2.   Properties.
-------   -----------

The following table summarizes the principal properties owned and/or occupied 
by the Company and its subsidiaries:

<TABLE>
<CAPTION>
                                                                          Owned or Leased
                                             Type of     Floor Space        Expiration
              Location                      Facility    Square Footage     Date of Lease
------------------------------------    --------------- --------------  ------------------
<S>                                     <C>             <C>             <C>
Administrative Offices:
 Houston, Texas                          Office               49,900      Leased 2003
 Los Angeles, California                 Office                4,000      Leased 2001
Warehousing, Processing and Shipping:
 Freeport, Texas                         Plant/Warehouse     272,400      Leased 2022
 Stuttgart, Arkansas                     Plant/Warehouse     142,900      Owned
 Maxwell, California (1)                 Plant/Warehouse     261,000      Owned and leased
                                                                            2034
 Biggs, California                       Plant/Warehouse      95,000      Leased 2001
 Laffiteau, Haiti                        Plant/Warehouse      30,024      Leased 2001
 Spanish Town, Jamaica                   Plant/Warehouse      29,000      Leased 1998
 Can Tho, Vietnam (2)                    Plant/Warehouse     250,000      Leased 2014
 Visalia, California                     Plant/Warehouse     333,000      Owned
 Seville, Spain                          Plant/Warehouse	 166,000      Owned     
________________________

</TABLE>
Page 10<PAGE>

(1)Most of the storage facilities and approximately half of the land is 
leased.

(2)Subject to an option to purchase by the Vietnam Partner commencing 1999.

All properties owned or leased by the Company are maintained in good repair, 
and management believes them to be adequate for their respective purposes. All 
machinery and equipment are considered to be in sound and efficient operating 
condition.

Item 3.    Legal Proceedings.
-------    ------------------

The Company is involved in legal proceedings that arise in the ordinary course 
of its business, all of which are routine in nature except for the matters 
noted below. While the results of such litigation cannot be predicted with 
certainty, the Company believes that the resolution of such legal proceedings, 
including the matters noted below, will not have a material adverse effect on 
the consolidated financial position or consolidated results of operations of 
ARI; however, as with any litigation, the ultimate outcome is unknown. 
Accordingly, no provision for any liability that might result has been made in 
the Consolidated Financial Statements.

In April 1995, a lawsuit was filed in the district court of Harris County, 
Texas by Kingwood Lakes South, L.P. and Tenzer Company, Inc. as plaintiffs 
against G.D. Murphy and D.A. Murphy, Chairman and President, respectively, of 
ARI and ERLY. ARI and ERLY were named as codefendants in the lawsuit by an 
amendment to the original petition in September 1995. This is a dispute 
between the general partner of a proposed real estate development and G.D. 
Murphy and D.A. Murphy. Damages sought are in the range of $10 million, plus 
attorneys' fees and punitive damages. ARI and ERLY were named as defendants in 
the lawsuit because of their actions to obtain restraining orders to prevent 
threatened foreclosures on ERLY common stock pledged as collateral by G.D. 
Murphy and to stop interference by the plaintiff in the lawsuit with ARI's 
mortgage note financing, as well as certain other alleged activities, 
including knowing participation in breaches of fiduciary duties, civil 
conspiracy with the Murphys, and conversion. In order to minimize legal 
expenses, ARI, ERLY, and the Murphys are using common legal counsel in this 
matter and have agreed to share legal expenses.

The Company has also been named as a codefendant with Messrs. John M. Howland 
and George E. Prchal in a lawsuit filed in February 1997 in U.S. district 
court in Houston, Texas by Rice Milling & Trading Investments, LTD., an Isle 
of Man Company ("RMTI"). In 1994, ARI entered into an agreement with RMTI for 
processing the Company's rice through RMTI's facility in Jeddah, Saudi Arabia. 
Messrs. Howland and Prchal were officers of RMTI through January 1997 and have 
also been directors of ARI since October 1993 and prior to October 1993 were 
officers of ARI (See Item 10 herein). In January 1997, RMTI ceased shipping 
ARI's rice through its Jeddah facility and terminated the employment of 
Messrs. Howland and Prchal. The lawsuit alleges among other things ARI failed 
to perform under the terms of the agreement and Messrs. Howland and Prchal 
breached their fiduciary duties to RMTI. On April 21, 1997, ARI obtained a 
restraining order from the U.S. District Court for the Southern District of 
Texas ordering RMTI to desist and refrain from purchasing rice of U.S. or 
Vietnam origin from any supplier other than ARI and from introducing and/or 
marketing rice of U.S. and Vietnam origin in Saudi Arabia targeted against 
ARI's U.S. origin and Vietnam origin rice.

Item 4.    Submission of Matters to a Vote of Security Holders.
-------    ----------------------------------------------------
           None
Page 11<PAGE>
                                   PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholders 
-------   --------------------------------------------------------------
          Matters.
          --------

The shares of ARI Common Stock, $1.00 par value ("ARI Common Stock"), are 
traded on the automated quotation system of the National Association of 
Securities Dealers ("NASDAQ") "Small Capitalization Market" under the symbol 
"RICE".  The high and low trade prices per share of the ARI Common Stock for 
each quarter during the period commencing April 1, 1995 through March 31, 
1997, are set forth below.  Such quotations reflect inter-dealer prices, 
without retail mark-up, mark-down or commission, and may not necessarily 
represent actual transactions.

                                                   High Trade       Low Trade
                                                     Prices           Prices
                                                   ----------       ---------
Fiscal Year 1996
----------------
Quarter Ended June 30, 1995                        $ 3.25             $ 2.75
Quarter Ended September 30, 1995                     3.25               2.00
Quarter Ended December 31, 1995                      2.25               1.25
Quarter Ended March 31, 1996                         2.38               1.38

Fiscal Year 1997
----------------
Quarter Ended June 30, 1996                        $ 3.25             $ 1.50
Quarter Ended September 30, 1996                     2.13               1.25
Quarter Ended December 31, 1996                      2.25               1.00
Quarter Ended March 31, 1997                         2.75               1.38

ARI has not paid any dividends with respect to the ARI Common Stock.  No 
dividends can be paid without the consent of ARI's lenders and current loan 
agreements prohibit payment of dividends.  There were 4,179 holders of record 
of the ARI Common Stock on June 25, 1997.
Page 12<PAGE>

Item 6   Selected Financial Data.
------   -----------------------

The following table sets forth selected historical consolidated financial data 
of the Company for the years ended March 31, 1993 through 1997, and for 
American Rice, Inc. prior to the Comet Acquisition ("Pre-Acquisition ARI") for 
the year ended March 31, 1993 and the period from April 1, 1993 to May 26, 
1993. The selected historical consolidated financial data are derived from the 
audited financial statements of the Company and of Pre-Acquisition ARI, except 
for the period from April 1, 1993 to May 26, 1993, which are unaudited. The 
unaudited financial statements include all adjustments which are, in the 
opinion of management, necessary for a fair presentation of the results of 
operations for the period, all of which are of a normal, recurring nature. The 
Comet Acquisition on May 26, 1993 was accounted for as a purchase by Comet of 
stock in Pre-Acquisition ARI in exchange for all of the operating assets and 
liabilities of Comet, following which purchase Comet distributed its equity 
interest in ARI to ERLY. As a result, the Company's historical consolidated 
financial data prior to the Comet Acquisition reflects the historical 
operations of Comet rather than Pre-Acquisition ARI. The Company's audited 
financial statements for the year ended March 31, 1993 and the period from 
April 1, 1993 to May 26, 1993, included in the audited financial statements 
for the year ended March 31, 1994, represent the results of the Company, 
including the Company's share of Pre-Acquisition ARI results, using the equity 
method due to the Company's 48% interest in Pre-Acquisition ARI prior to the 
Comet Acquisition. For all periods after May 26, 1993, the Company's 
Consolidated Financial Statements include the results of Pre-Acquisition ARI 
and Comet. The information in the table should be read in conjunction with 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations" and the Company's Consolidated Financial Statements and the notes 
thereto, included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
Page 13<PAGE>

                                                   Year Ended March 31,
                                 ---------------------------------------------------------
                                  1997(5)      1996        1995        1994        1993
                                 ---------   ---------   ---------   ---------   ---------
                                    (in thousands, except per share and per unit data)
<S>                              <C>         <C>         <C>         <C>         <C>
Operating Data:
 Net sales:                        
    Rice                          $444,196    $390,087    $373,050    $284,464    $169,617
    Olives                          71,322       3,688         -           -           -    
                                  --------    --------    --------    --------    --------
    Total                         $515,518    $393,775    $373,050    $284,464    $169,617

 Gross profit                       61,275      38,050      40,814      36,418       8,363
 Selling, general and 
   administrative expenses          35,857      24,775      23,235      21,497      10,779
 Earnings (loss) before 
   extraordinary items               3,775      (5,894)      3,913       3,465     (11,265)
 Primary earnings (loss) per 
    share before extraordinary 
    items (2)                         (.88)      (4.84)       (.83)       (.45)          -

Other Financial Data:
 Gross profit margin                  11.9%        9.7%       10.9%       12.8%        4.9%
 Depreciation and 
   amortization (3)                 $5,856      $4,488      $4,252      $3,822      $1,813
 Capital expenditures (4)            5,116       3,690       3,562       2,844       2,651

 Hundredweight of rice sold         21,683      20,460      22,304      17,114      12,918
 Net sales per hundredweight        $20.49      $19.07      $16.73      $16.62      $13.13

 Cases of olives sold                3,727         234         -           -           -
 Net Sales per case                 $19.14      $15.76         -           -           -                           

Balance Sheet Data:
 Cash                               $3,235      $2,803      $1,864      $1,721      $2,740
 Current assets                    194,787     124,717      89,736      86,448      32,681
 Total assets                      298,128     212,161     177,500     175,070      74,325
 Total debt                        174,198     115,541      89,237      95,084      47,953
 Total stockholders' equity         41,447      38,352      44,212      40,299      12,699
</TABLE>
<TABLE>
<CAPTION>
                                                                 Pre-Acquisition ARI (1)         
                                                             -----------------------------
                                                                                Year Ended
                                                                Period from       March 31,
                                                               April 1, 1993 to  ---------
                                                                May 26, 1993        1993
                                                             ------------------  ---------
                                                                 (in thousands, except per       
                                                                     hundredweight data)
<S>                                                                   <C>        <C>
Operating Data:
 Net sales of rice                                                     $27,025    $176,619
 Gross profit                                                            4,243      24,580
 Selling, general and 
   administrative expenses                                               2,380      14,163
 Earnings (loss) before 
   extraordinary items                                                     888       3,250

Other Financial Data:
 Gross profit margin                                                      15.7%       13.9%
 Depreciation and amortization (3)                                        $493      $3,070
 Capital expenditures                                                       31         762
 Hundredweight of rice sold                                              1,361      12,645
 Net sales per hundredweight                                            $19.86      $13.97

Balance Sheet Data:
 Cash                                                                               $1,926
 Current assets                                                                     46,050
 Total assets                                                                      102,178
 Total debt                                                                         64,116
 Total stockholders' equity                                                         16,451
</TABLE>
Page 14<PAGE>
(1) On May 26, 1993, the Company consummated the Comet Acquisition, which was 
accounted for as a purchase of ARI by Comet. See "Business Background".

(2) Represents earnings (loss) per share before extraordinary items applicable 
to common stock after preferred stock dividend requirements. Earnings per 
share are not presented for the year ended March 31, 1993 because the data 
presented is that of Comet, which was a wholly-owned subsidiary of ERLY.

(3) Excludes amortization of deferred financing costs and discount accretion 
included in interest expense.

(4) Excludes property acquired through capital leases of $1,054 thousand in 
fiscal 1996.

(5) Includes olives product line acquired on July 5, 1996. See Note 2 of Notes 
to Consolidated Financial Statements.

Item 7.  Management's Discussion and Analysis of Financial Condition and
------   ---------------------------------------------------------------
         Results of Operations.
         ---------------------

The following discussion should be read in conjunction with "Selected 
Financial Data" and the Company's Consolidated Financial Statements and the 
notes thereto, included elsewhere in this Form 10-K.

Overview

The Company purchases and processes rough rice into branded and commodity rice 
for sale in both international and domestic markets. Demand for branded rice 
products is relatively constant and margins are typically higher than those 
for commodity rice products. Demand for commodity rice products is relatively 
constant globally, but demand for U.S. grown commodity rice is dependent upon 
supply and cost relative to other sources of supply. Supply and costs for both 
branded and commodity products depend on many factors including governmental 
actions, crop yields and weather, and such factors can persist through one or 
more fiscal years. 

In general, management believes that it is insulated from many of the effects 
of rough rice price fluctuations for the following reasons: (i) the Company's 
net sales are proportionately weighted toward the relatively higher margin 
branded products, (ii) approximately one-half of the Company's rough rice 
purchases, excluding rough rice milled under contract for others, are made as 
spot market purchases and matched against commodity orders at prices providing 
a favorable margin to costs, (iii) the Company's high rice inventory turnover 
rate of approximately five times per year reduces the Company's exposure to 
seasonal price fluctuations, and (iv) the Company's diversity of rice sources 
and rice customers increases the ability of the Company to take advantage of 
supply and demand imbalances.

On July 5, 1996, the Company acquired the domestic and foreign olive business 
of Campbell Soup Company for approximately $38 million. Assets acquired 
include domestic inventories and fixed assets, all of the outstanding common 
stock of Compania Envasadora Loreto, S.A., a Spanish company which comprises 
the foreign olive business, and fifty-one percent of the stock of Sadrym 
California, a marketer of olive processing machinery. The purchase was funded 
primarily from ARI's credit facilities. The Olive Acquisition is accounted for 
as a purchase, and the results of operations of the acquired business are
Page 15<PAGE>

included in the Company's consolidated financial statements after July 5, 
1996. 

Historically, sales of olives have pronounced seasonal elements, with higher 
sales occurring in conjunction with holiday consumption. Accordingly, because 
the quarterly period ending December 31 contains both the Thanksgiving and 
Christmas holidays, the two holidays of highest consumption, it will have 
significantly higher sales than the other three quarters of the fiscal year. 
Margins normally follow the seasonal pattern of sales.

Results of Operations

Year Ended March 31, 1997 Compared with the Year Ended March 31, 1996

Net Sales. Net sales increased $121.7 million, or 30.9%, from $393.8 million 
in fiscal 1996 to $515.5 million in fiscal 1997. The sales increase of $121.7 
million was composed of $67.6 million in olives sales, $39.0 million in 
increases in sales of exported rice, and $15.1 million in increases in sales 
of rice in the U.S.

Export rice sales increased due primarily to higher volume, while average 
export rice prices remained at approximately the same levels as the prior 
year. Export rice sales volume increased approximately 3.1 million equivalent 
rough rice hundredweight as a result of higher sales in the Middle East and 
Africa partially offset by lower sales to Asia and the Western Hemisphere. 
Domestic rice sales were higher as a result of higher average prices partially 
offset by lower volume.

Gross Profit. Gross profit was 11.9% of sales for the fiscal 1997 period and 
9.7 % for the same period in 1996. Gross profit increased $23.2 million, or 
61.0%, from $38.1 million in fiscal 1996 to $61.3 million in fiscal 1997, due 
primarily to the Olive Acquisition.

Selling, General, and Administrative Expenses. Selling, general and 
administrative expense increased $11.1 million to $35.9 million in fiscal 1997 
due primarily to higher advertising and promotional expenses associated with 
the Olive Acquisition.

Interest. Interest expense increased $3.9 million from $17.4 million in fiscal 
1996 to $21.3 million in fiscal 1997 due to higher average balances 
outstanding, primarily as a result of the Olive Acquisition, and higher 
average interest rates. Partially offsetting the increase in interest expense, 
interest income increased $725 thousand to $2.5 million. Interest expense in 
both periods includes amortization of capitalized debt issuance costs and 
accretion of the $6 million original issue discount on the Notes.

Year Ended March 31, 1996 Compared with the Year Ended March 31, 1995

Net Sales. Net sales increased $20.7 million, or 5.5%, from $373.1 million in 
fiscal 1995 to $393.8 million in fiscal 1996. The increase in sales was 
composed of $8.8 million in increased export sales and $11.9 million from 
increased sales in the U.S.

Export sales increased due to higher average prices partially offset by lower 
volume. Average export prices increased approximately 23.0%, accounting for 
$48.4 million in sales increases. Total export sales volume declined 
approximately 4.1 million equivalent rough rice hundredweights or 16%, 
accounting for a $39.6 million sales decline. Export volume was lower 
primarily due to lower sales to the Caribbean partially offset by higher sales 
to the Middle East. Sales to Asia were approximately the same as the prior 
Page 16<PAGE>
year. Domestic sales were higher primarily due to higher volume.

Gross Profit. Gross profit was 9.7% of sales in fiscal 1996 compared to 10.9% 
in fiscal 1995. Gross profit declined $2.7 million, or 6.8%, from 
$40.8 million in fiscal 1995 to $38.1 million in fiscal 1996, due primarily to 
lower sales to Japan partially offset by increases in gross profit on U.S. 
sales.

Selling, General, and Administrative Expenses. Selling, general and 
administrative expenses increased $1.5 million, or 6.6% from $23.2 million in 
fiscal 1995 to $24.8 million in fiscal 1996. As a percentage of net sales, 
selling, general and administrative expenses were approximately the same as 
the prior year. 

Provision for Loss on Disposal of Properties. In the fiscal year ended March 
31, 1996, ARI entered into an agreement to sell its principal Houston property 
for net proceeds of $11.2 million after expenses associated with the sale. In 
anticipation of this transaction the carrying value of the property was 
reduced to its approximate net realizable value by a non-recurring charge of 
$7.2 million in the fiscal year ended March 31, 1996.

Interest. Interest Expense increased $5.1 million from $12.3 million in fiscal 
1995 to $17.4 million in fiscal 1996 due to higher average balances 
outstanding and higher average interest rates. Interest expense in both 
periods includes amortization of capitalized debt issuance costs. Interest 
expense in the fiscal 1996 period includes accretion of the $6 million 
original issue discount on the Notes. Partially offsetting the increase in 
interest expense, interest income increased $1.0 million to $1.8 million.

Liquidity and Capital Resources

ARI requires liquidity and capital primarily for the purchase of rough rice 
and olives and to invest in property, plant and equipment necessary to support 
operations. Historically, ARI has financed both working capital and capital 
expenditures through internally generated funds and by funds provided by 
credit lines.

Inventories increased due to a variety of factors which included the increased 
inventory associated with the Olive Acquisition and higher rice inventories in 
the Caribbean region and for the Saudi Arabia business. Historically, the rice 
ARI sold in Saudi Arabia was shipped from the United States in packaged form. 
In 1994, ARI began shipping rice in bulk form to the Middle East region and 
packing it under strict quality supervision in order to reduce vessel loading 
and freight costs while providing enhanced market competitiveness, improved 
customer service, and product freshness. Until January 1997, products were 
packed at a facility in Jeddah, Saudi Arabia (see Item 3 - Legal Proceedings). 
Since January 1997 other Middle East facilities with similar advantages have 
been utilized.

Notes payable, accounts payable and accrued expenses, and property, plant and 
equipment have all increased over the levels at March 31, 1996 primarily due 
to the Olive Acquisition.  Accounts receivable have increased from March 31, 
1996 as a result of a combination of the additional olive receivables and 
March sales of approximately $19 million to customers in Saudi Arabia.    

On September 18, 1996, ARI closed the sale of its principal Houston property 
held for sale and received gross proceeds of approximately $13.1 million of 
which approximately $1 million was used to retire mortgage notes as described 
below.  

In a public offering completed in August 1995, ARI issued $100 million in 
Page 17<PAGE>
principal amount of 13.0% mortgage notes due 2002 (the "Notes").  Portions of 
the net proceeds of $94 million were used to repay $53.8 million of existing 
term debt, to make a $10.5 million 15% loan to ERLY due 2001, and to reduce 
borrowings outstanding under the $47.5 million revolving credit loan. The 
Notes provide for interest payments semiannually, accruing fixed interest at 
an annual rate of 13.0%, an effective yield rate of 14.4%. 

In addition to fixed interest, the Notes bear contingent interest of 4.0% of 
consolidated cash flow (as defined) up to a limit of $40.0 million of 
consolidated cash flow during the fiscal year in which such interest accrues. 
Contingent interest accrues in each semiannual period (as defined) in which 
consolidated cash flow in such period and the immediately preceding semiannual 
period is equal to or greater than $20.0 million.  Contingent interest is 
payable semiannually, but ARI may elect to defer all or a portion of any such 
payment to the extent that (a) the payment of such portion of contingent 
interest will cause ARI's adjusted fixed charge coverage ratio (as defined) 
for the two consecutive applicable semiannual periods to be less than 2.0:1 
and (b) the principal of the Notes corresponding to such contingent interest 
has not then matured and become due and payable. Consolidated cash flow (as 
defined) for the year ended March 31, 1997 was as follows:
      
                                                  Consolidated 
                                                    Cash Flow   
                                                   ----------  
                                                 (in thousands)
     Three Months Ended:
        June 30, 1996                                $ 2,309                
    
        September 30, 1996                             8,336 
  
        December 31, 1996                             13,185 

        March 31, 1997                                 9,126    
                                                   ----------
     Year Ended March 31, 1997                       $32,956   
                                                   ==========  

Contingent interest of zero and $143 thousand for the semiannual periods (as 
defined) ended June 30, 1996 and December 31, 1996, respectively were accrued 
during fiscal 1997. Contingent interest of $447 thousand and zero for the 
semiannual periods ended June 30, 1995 and December 31, 1995, respectively 
were accrued during fiscal 1996. As the applicable fixed charge coverage ratio 
was less than 2.0:1, ARI elected to defer payments of the contingent interest.

In January 1997, in accordance with the terms of the Indenture, ARI offered to 
repurchase a portion of the Notes with the proceeds from the sale of the 
Houston Property.  Holders of the Notes redeemed $1 million face value for 
approximately $948 thousand plus accrued and unpaid interest of approximately 
$48 thousand. 

On June 7, 1996 ARI replaced its existing $47.5 million revolving credit loan 
with a $47.5 million revolving credit loan from a new lender, Harris Trust and 
Savings Bank ("Harris"). Funds available for borrowing (including letters of 
credit of up to $20.0 million) under this revolving credit loan at any time 
may not exceed 85% of eligible accounts receivable (or 90% of accounts 
receivable backed by acceptable letters of credit from customers), 75% of 
eligible rough rice inventory, and 70% of eligible finished goods inventory. 
The line is collateralized by substantially all of ARI's accounts receivable 
and inventory. In addition, this facility contains restrictive covenants 
which, among other things, require the attainment of certain financial ratios, 
the maintenance of a minimum level of tangible net worth (as defined), and 
Page 18<PAGE>
provide limitations on capital expenditures, lease obligations, and prohibit 
dividend payments. The line also contains certain cross default provisions 
with the indenture for Mortgage Notes. The Harris revolving credit line bears 
interest at ARI's option at either the prime rate or the London Interbank 
Offered Rate plus an applicable margin based upon ARI's adjusted funded debt 
ratio as defined, with outstanding principal and interest due upon termination 
of the agreement, which continues in full force and effect until May 31, 1999 
or until terminated with five days written notice from ARI subsequent to May 
31, 1997. This revolving credit loan was amended on June 28, 1996 to increase 
the borrowing limit to $85.0 million. Substantially all covenants and 
conditions remain unchanged. At March 31, 1997, the outstanding balance on 
this loan was $71.5 million bearing interest at the prime rate of 8.5% and on 
March 30, 1997 the borrowing base under the loan was $82.5 million.  During 
the period from June 7, 1996 through March 31, 1997, the maximum borrowing 
under the loan was $77 million.

The Company intends to satisfy its obligations under the Notes as well as 
future capital expenditures and working capital requirements primarily with 
cash flow from operations and from funds available under existing and new 
revolving lines of credit. Management believes that cash flow from operations 
and the line of credit will provide sufficient liquidity to enable it to meet 
its currently foreseeable working capital and capital expenditure 
requirements.

Capital expenditures, limited by the Note indenture to $5.5 million per fiscal 
year (with carryover provisions as defined therein) if the consolidated cash 
flow (as defined therein) does not exceed $30 million per year, were $5.1 
million and $3.7 million for the years ended March 31, 1997 and 1996, 
respectively. Management anticipates the $5.5 million limitation will allow 
for maintenance of existing facilities and will also support limited growth.

ARI's Preferred B and C stock carries annual cumulative, non-participating 
dividends of $5.2 million and $750 thousand respectively.  No dividends have 
been declared or paid as of March 31, 1997.  As of March 31, 1997, the 
Preferred B dividends accumulated but not declared were $19.857 million and 
the Preferred C dividends accumulated but not declared were $2.875 million

Item 8.   Financial Statements and Supplementary Data.
------    -------------------------------------------

The Financial Statements and Supplementary Data are included herein beginning 
on Page F - 1.


Item 9.   Changes in and Disagreements with Accountants on Accounting and
-------   ---------------------------------------------------------------
          Financial Disclosure.
          ---------------------
          None
Page 19<PAGE>

                              PART III

Item 10.      Directors and Executive Officers of the Registrant.
--------      ---------------------------------------------------

Executive Officers and Directors

The following table sets forth information with respect to each of the 
executive officers and directors of ARI:

<TABLE>
<CAPTION>
                                 Years of
            Name          Age    Service(1)               Functions Performed
-----------------------  ----   ----------   ---------------------------------------------
<S>                      <C>    <C>          <C>
Executive Officers:
  Gerald D. Murphy        69        33        Chairman of the Board of Directors
  Douglas A. Murphy       41        15        President, Chief Executive Officer and Director
  Richard N. McCombs      51        13        Executive Vice President of Finance and
                                                Administration; Treasurer, Secretary and
                                                Director
  Lee Adams               56        30        Senior Vice President of International Marketing
  Bill J. McFarland       60        25        Senior Vice President and President of Comet
                                                American Marketing Division
  Kenneth C. McCorkle     48         9        Senior Vice President and President of Early
                                                California Foods
  John S. Poole           50        27        Senior Vice President and President of Comet
                                                Rice Division
  C. Bronson Schultz      55        23        Vice President of Finance and Data Processing
  Joseph E. Westover      52        20        Vice President and Controller

Directors:
  Gerald D. Murphy        69        33        Chairman of the Board of Directors
  Douglas A. Murphy       41        15        President, Chief Executive Officer and Director
  Richard N. McCombs      51        13        Executive Vice President of Finance and
                                                Administration; Treasurer, Secretary and
                                                Director
  S.C. Bain, Jr.          48         9        Director
  William H. Burgess      80        21        Director
  John M. Howland         49        14        Director
  George E. Prchal        54        15        Director
</TABLE>

(1)Years with ARI, including past or currently affiliated companies.

Gerald D. Murphy has served as Chairman of the Board of the Company since 
October 1993 and as a director since 1988. He served as Chairman and Chief 
Executive Officer of Comet from 1986 until the Comet Acquisition in 1993 and 
has served as President, Chief Executive Officer and Chairman of the Board of 
ERLY since 1964. He also serves as a director of Pinkerton's, Inc., a security 
and investigation services firm, and High Resolution Sciences, Inc., a 
technological corporation. He previously served as a director of Wynn's 
International, Inc. and Sizzler Restaurants International, Inc.

Douglas A. Murphy has served as President of the Company since June 1993 and 
as a director since 1990. He was President of Comet American Marketing, now a 
division of ARI, from 1986 to 1990 and has served in various other capacities 
with Comet since 1982. He has served as President and as a director of ERLY 
since 1990. He is also an advisory director of Compass Bank Houston.

Richard N. McCombs has served as Executive Vice President of Finance and 
Administration; Treasurer, Secretary and a director of the Company since 1993. 
In addition, he has served as Managing Director of the ARI-Vinafood joint 
venture since September 1994 and as Vice President and Chief Financial Officer 
of ERLY since 1990.
Page 20<PAGE>
Lee Adams has served as Senior Vice President of International Marketing of 
ARI since June 1993. In addition, he served as Group Vice President of 
International Marketing of Pre-Acquisition ARI from October 1987 to June 1993. 
He served in various capacities with the ARI Cooperative from 1975 until its 
dissolution in 1991 and in various capacities with Comet from 1963 until 1972.

Bill J. McFarland has served as Senior Vice President of ARI and President of 
the Comet American Marketing division of ARI since 1993. Mr. McFarland has 
served as a director of ERLY since 1986 and Vice President of ERLY since 1976. 
He served as President of ERLY Food Group from 1990 to 1993 and as President 
of Early California Foods Inc., a division of ERLY, and in various other 
capacities with ERLY from 1972 to 1990.

Kenneth C. McCorkle has served as Senior Vice President of ARI and President 
of Early California Foods since February 1996. He served in various capacities 
with ERLY from 1977 to 1985.

John S. Poole has served as Senior Vice President of ARI since June 1993 and 
served as President of Comet from August 1990 until its liquidation after the 
Comet Acquisition. He served in various capacities with Comet from 1970 to 
1990.

C. Bronson Schultz has served as Vice President of Finance and Data Processing 
of ARI since January 1994. He served as Vice President and Chief Financial 
Officer of ERLY Juice Inc. from 1988 through 1993, as Vice President of 
Finance of Comet from 1974 to 1986 and as Vice-President of Finance of CAM 
from 1986 to 1988.

Joseph E. Westover has served as Vice President and Controller of ARI since 
January 1994. From 1983 until 1993, he served as Assistant Vice President of 
Finance with ARI and the ARI Cooperative and in various positions with the ARI 
Cooperative from 1977 to 1983.

S.C. Bain, Jr. has served as a director of ARI since 1987. He has served as 
President of Bain, Inc., a farming corporation, since 1985 and has been a 
partner in Bain Farms since April 1988.

William H. Burgess has been a director of ARI since 1988 and a director of 
ERLY since 1976. In addition, he has been a private business consultant and 
the Chairman of CMS Digital, Inc., a privately held company since 1986. From 
1978 to 1986 Mr. Burgess was Chairman of International Controls Corp., an 
internationally diversified manufacturing company.

John M. Howland has served as a director of ARI since June 1993 and a 
consultant to ARI since October 1993. He served as Chairman of the Board of 
Directors of ARI from June 1993 until October 1993 when he resigned after 
becoming President and Chief Executive Officer of Rice Milling and Trading 
Ltd., Inc., a position which he held until January 1997. He served as Chairman 
of the Board and the Chief Executive Officer and President of Pre-Acquisition 
ARI from its inception in 1988 until June 1993 and served in various 
capacities with the ARI Cooperative from 1983 until its dissolution in 1991.

George E. Prchal has served as a director of ARI since June 1993 and a 
consultant to ARI since October 1993. He served as Executive Vice President of 
ARI from August 1988 to October 1993 when he resigned after becoming Executive 
Vice President of Rice Milling and Trading Ltd., Inc., a position which he 
held until January 1997. Mr. Prchal served in various capacities with the ARI 
Cooperative from February 1986 until its dissolution in 1991. From July 1982 
to February 1986 he served as Vice President of Marketing and Sales and then 
as President of Comet.
Page 21<PAGE>
Item 11.      Executive Compensation.
--------      -----------------------

Pursuant to General Instruction G(3), information concerning executive 
compensation is incorporated by reference from ARI's Proxy Statement to be 
filed pursuant to Regulation 14A.


Item 12.      Security Ownership of Certain Beneficial Owners and Management.
--------      ---------------------------------------------------------------

Pursuant to General Instruction G(3), information concerning security 
ownership of certain beneficial owners and management is incorporated by 
reference from ARI's Proxy Statement to be filed pursuant to Regulation 14A.

Item 13.      Certain Relationships and Related Transactions.
--------      -----------------------------------------------

Pursuant to General Instruction G(3), information concerning certain 
relationships and related transactions is incorporated by reference from ARI's 
Proxy Statement to be filed pursuant to Regulation 14A.
Pae 22<PAGE>

                                   PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
-------   -----------------------------------------------------------------

(a)  1. Consolidated Financial Statements                             Page
        ---------------------------------                            ------
           Independent Auditors' Report.............................  F - 1

           Consolidated Balance Sheets - March 31, 1997 and 1996 ...  F - 2 

           Consolidated Statements of Operations - Years Ended 
           March 31, 1997, 1996 and 1995 ...........................  F - 4

           Consolidated Statements of Cash Flows - Years 
           Ended March 31, 1997, 1996 and 1995 .....................  F - 5

           Consolidated Statements of Stockholders' Equity - 
           Years Ended March 31, 1997, 1996 and 1995 ...............  F - 6

           Notes to Consolidated Financial Statements ..............  F - 7

     2. Financial Statement Schedules
        -----------------------------
           Schedule II - Valuation and Qualifying Accounts.........   S - 1

           All other schedules are omitted because they are not applicable.

     3. Exhibits
        --------

          3.1  -  Articles of Incorporation of ARI, as amended (1)

          3.2  -  Bylaws of ARI, as amended (1)

          4.1  -  Forms of Stock Certificate of ARI representing the Common
                  Stock and the Preferred Stock (1)

          4.2  -  Articles of Incorporation of ARI, as amended (1)

          4.3  -  Bylaws of ARI, as amended (1)

          4.6  -  Loan Agreement dated December 1, 1985, between Brazos Harbor
                  Industrial Development Corporation and Predecessor ARI (1) 
                 
          4.7  -  Trust Indenture dated December 1,1985, between Brazos Harbor 
                  Industrial Development Corporation and Texas Commerce Bank 
                  N.A. ("TCB") governing the issuance of Variable Rate Demand   
                  Marine Terminal Revenue Bonds (1)

          4.8  -  Form of Indenture by and among the Registrant and U.S. Trust
                  Company of Texas with respect to the $100,000,000 American
                  Rice, Inc. 13% Mortgage Notes due 2002 with Contingent 
                  Interest (incorporated by Reference to Exhibit 4.1 of 
                  Registrant's Form S-1 File #33-60539

         10.1  -  Ground lease dated June 6, 1985, between Brazos River Harbor 
                  Navigation District and Predecessor ARI (1)

         10.3  -  Agreement for Construction of Facilities at Freeport, Texas, 
Page 23<PAGE>
                  dated August 1, 1985, between Borton, Incorporated and 
                  Predecessor ARI (1)

         10.4  -  Forms of Employment Agreement between Predecessor ARI and 
                  certain senior officers (1)

         10.15 -  Asset Purchase Agreement dated March 23, 1993, as amended 
                  between ARI, ERLY and Comet (1)

         10.16 -  Management Agreement dated May 25, 1993, between ERLY and 
                  ARI (1)

         10.17 -  Tax Agreement dated May 25, 1993, among ARI, ERLY and 
                  Comet (1)

         10.22 -  Lease dated October 1, 1974, as amended April 9, 1979, by 
                  and between Colusa-Glenn Drier Company and 
                  Comet (1)

         10.23 -  Secured Credit Agreement between American Rice, Inc. as
                  Borrower and Harris Trust and Savings Bank (1)

	   10.24-	Amended and Restated Secured Credit Agreement between 	
			American Rice, Inc. as Borrower and Harris Trust and Savings 
			Bank (1)

         11.1  -  Computation of Earnings per Share (2)

         21    -  Subsidiaries of ARI (2)

         27    -  Financial Data Schedule (2)
 ----------------
   (1) - Previously filed.
   (2) - Filed herewith.
Page 24<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange 
Act of 1934, the registrant has duly caused this report to be signed on its 
behalf by the undersigned, thereunto duly authorized.

                             AMERICAN RICE, INC. 
                       ------------------------------    
                                (Registrant)   
                                               
                       By:    Douglas A. Murphy
                       ------------------------------
                        Douglas A. Murphy, President,
                     Chief Executive Officer and Director
                                                
                               June 25, 1997
                       ------------------------------
                                  (Date)

Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
Registrant and in the capacities and on the dates indicated.

   Signature                        Title                          Date
---------------------       -----------------------         ------------------

  Douglas A. Murphy            President, Chief                June 25, 1997
---------------------        Executive Officer and   
  Douglas A. Murphy                Director    
                         (principal executive officer)   
                    
  Gerald D. Murphy          Chairman of the Board              June 25, 1997
----------------------             
  Gerald D. Murphy              

  John M. Howland                Director                      June 25, 1997
---------------------
  John M. Howland

   S. C. Bain, Jr.               Director                      June 25, 1997
---------------------                
   S. C. Bain, Jr.

 William H. Burgess              Director                      June 25, 1997
--------------------
 William H. Burgess
 
   George E. Prchal              Director                      June 25, 1997
----------------------               
   George E. Prchal

  Richard N. McCombs         Executive Vice-President          June 25, 1997
----------------------       Finance & Administration,             
  Richard N. McCombs     Secretary & Treasurer and Director
                           (principal financial officer)

 Joseph E. Westover        Vice-President and Controller       June 25, 1997
----------------------     (principal accounting officer)
 Joseph E. Westover
Page 25<PAGE>

                         INDEPENDENT AUDITORS' REPORT

Stockholders and Board of Directors
American Rice, Inc.

We have audited the accompanying consolidated balance sheets of American Rice, 
Inc. and subsidiaries ("ARI") at March 31, 1997 and 1996 and the related 
consolidated statements of operations, cash flows and stockholders' equity for 
each of the three years in the period ended March 31, 1997. Our audits also 
included the consolidated financial statement schedule listed at Item 
14(a)(2). These financial statements and financial statement schedule are the 
responsibility of ARI's management. Our responsibility is to express an 
opinion on these financial statements and the financial statement schedule 
based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free of 
material misstatement. An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements. An audit 
also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial 
statement presentation. We believe our audits provide a reasonable basis for 
our opinion.

In our opinion, such consolidated financial statements present fairly, in all 
material respects, the financial position of ARI at March 31, 1997 and 1996, 
and the results of its operations and its cash flows for each of the three 
years in the period ended March 31, 1997 in conformity with generally accepted 
accounting principles. Also, in our opinion, such financial statement 
schedule, when considered in relation to the basic consolidated financial 
statements taken as a whole, presents fairly in all material respects the 
information set forth therein.

DELOITTE & TOUCHE LLP

Houston, Texas
June 20, 1997
Page F-1

AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)

March 31                                             1997       1996
 ---------------------------------------------------------------------

ASSETS

Current assets:
  Cash and cash equivalents                           $3,235     $2,803
  Accounts receivable, net                            64,062     33,541
  Inventories:
    Finished goods                                    75,969     26,535
    Raw materials                                     46,289     44,489
  Prepaid expenses                                     2,441        832
  Deferred income taxes                                2,791      2,982
  Net assets of Houston properties
    held for sale                                        -       13,535
                                                   ---------  ---------
    Total current assets                             194,787    124,717

Other assets                                          21,216     20,587
Receivable from ERLY                                  24,166     24,795
Property, plant and equipment, net                    57,959     42,062
                                                   ---------  ---------
  Total assets                                      $298,128   $212,161
                                                   =========  =========

Continued on next page

See notes to consolidated financial statements
Page F-2<PAGE>

AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Thousands of Dollars)

March 31                                             1997       1996
 ---------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Notes payable                                      $77,616    $19,826
  Accounts payable                                    57,845     39,627
  Accrued expenses                                    18,733     13,606
  Current portion of long-term debt                      438        106
                                                   ---------  ---------
    Total current liabilities                        154,632     73,165

Long-term debt                                        96,144     95,609
Deferred income taxes                                  5,905      5,035
Commitments and contingencies (Note 6)                   -          -

Stockholders' equity:
  Preferred stock, $1.00 par value; 4,000,000
    shares authorized;
    Series A-777,777 convertible shares issued
      and outstanding, liquidation preference
      of $19,989                                         778        778
    Series B- 2,800,000 convertible shares issued
      and outstanding, liquidation preference
      of $14,000                                       2,800      2,800
    Series C- 300,000 shares issued
      and outstanding, liquidation preference
      of $1,500                                          300        300
  Common stock, $1.00 par value; 10,000,000
    shares authorized; 2,443,892 shares
    issued and outstanding                             2,444      2,444
  Additional paid-in capital                          25,286     25,286
  Retained earnings                                   11,233      7,458
  Cumulative foreign currency translation
    adjustments                                       (1,394)      (714)
                                                   ---------  ---------
  Total stockholders' equity                          41,447     38,352
                                                   ---------  ---------
    Total liabilities and stockholders' equity      $298,128   $212,161
                                                   =========  =========

See notes to consolidated financial statement
Page F-3<PAGE>

AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars)

Years Ended March 31                      1997       1996       1995
 ---------------------------------------------------------------------

Net sales                                $515,518   $393,775   $373,050

Cost of sales                             454,243    355,725    332,236
                                        ---------  ---------  ---------
    Gross profit                           61,275     38,050     40,814

Selling, general and
  administrative expenses                  35,857     24,775     23,235

Provision for loss on
  disposal of properties                      -        7,200        -
                                        ---------  ---------  ---------

Earnings from operations                   25,418      6,075     17,579

Interest expense                           21,283     17,438     12,344
Interest income                            (2,498)    (1,773)      (727)
Other expense (income)                        444       (381)      (153)
                                        ---------  ---------  ---------

Earnings (loss) before income taxes         6,189     (9,209)     6,115

Income tax provision (benefit)              2,414     (3,315)     2,202
                                        ---------  ---------  ---------

Net earnings (loss)                         3,775     (5,894)     3,913

Preferred stock dividend requirements      (5,930)    (5,930)    (5,930)
                                        ---------  ---------  ---------
Net loss applicable
  to common stock                         ($2,155)  ($11,824)   ($2,017)
                                        =========  =========  =========
Loss per common and
  common equivalent share

  Primary                                   ($.88)    ($4.84)     ($.83)
                                        =========  =========  =========
  Fully diluted                             ($.88)    ($4.84)     ($.83)
                                        =========  =========  =========

See notes to consolidated financial statements
Page F-4<PAGE>

<TABLE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<CAPTION>
Years Ended March 31                                 1997       1996       1995
 -------------------------------------------------------------------------------
<S>                                               <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss)                                 $3,775    ($5,894)   $3,913
  Adjustments to reconcile net earnings (loss) to net
  cash provided by (used in) operating activities:
    Depreciation                                       5,392      4,021     3,894
    Amortization of debt issue costs
      and trademarks                                   1,588      1,743     2,511
    Mortgage note discount accretion                     594        322       -
    Provision for loss on disposal of property           -        7,200       -
    Loss on sales of property                            355         12        48
    Deferred tax provision                             1,061     (3,112)    1,986
    Provision for loss on accounts receivable            519        163       -
    Changes in assets and liabilities that
      provided (used) cash (net of acquired
      assets and liabilities):
      Accounts receivable                            (29,162)      (281)  (11,201)
      Inventories                                    (29,879)   (20,819)    8,003
      Prepaid expenses                                (1,556)       (39)     (187)
      Income taxes payable to ERLY                       -       (1,037)     (419)
      Other assets                                    (1,463)        11      (679)
      Accounts payable                                14,103     14,124      (199)
      Accrued expenses                                 3,270      2,769     3,279
      Receivable from ERLY                               629     (2,394)   (1,402)
                                                   ---------  ---------  ---------
  Net cash provided by (used in)
    operating activities                             (30,774)    (3,211)    9,547
 CASH FLOWS FROM INVESTING ACTIVITIES:
  Property, plant and equipment additions             (5,116)    (3,690)   (3,562)
  Campbell olive business acquisition                (33,952)
  Proceeds from sales of assets                       13,137         49        48
  Loan to ERLY                                           -      (10,500)      -
                                                   ---------  ---------  ---------
  Net cash used in investing activities              (25,931)   (14,141)   (3,514)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase (decrease) in notes payable                57,790    (14,111)    1,061
  Proceeds from issuance of mortgage notes               -       94,000       -
  Proceeds from issuance of long-term debt               472        339       -
  Repayment of long-term debt                         (1,284)   (55,314)   (6,908)
  Mortgage notes issuance costs                          -       (6,631)      -
  Other, net                                             159          8       (43)
                                                   ---------  ---------  ---------
  Net cash provided by (used in)
    financing activities                              57,137     18,291    (5,890)
                                                   ---------  ---------  ---------
NET INCREASE IN CASH AND
  CASH EQUIVALENTS                                       432        939       143

CASH AND CASH EQUIVALENTS:
  Beginning of the period                              2,803      1,864     1,721
                                                   ---------  ---------  ---------
  End of the period                                   $3,235     $2,803    $1,864
                                                   =========  =========  =========
<FN>
See notes to consolidated financial statements
</TABLE>
Page F-5<PAGE>

<TABLE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Thousands of Dollars)
<CAPTION>
                                                                        Cumulative
                                                                         Foreign     Total
                                                  Additional  Retained   Currency  Stock -
                             Preferred   Common     Paid-in   Earnings  Translation Holders'
                               Stock      Stock     Capital   (Deficit) Adjustment  Equity
                             ---------  ---------  ---------  ---------  --------- ---------
<S>                         <C>        <C>        <C>        <C>        <C>       <C>
Balance March 31, 1994         $19,389    $12,219        -       $9,439     ($748)   $40,299

Reverse stock split            (15,511)    (9,775)    25,286        -         -          -

Net earnings                       -          -          -        3,913       -        3,913
                             ---------  ---------  ---------  ---------  --------- ---------
Balance March 31, 1995           3,878      2,444     25,286     13,352      (748)    44,212

Net loss                           -          -          -       (5,894)      -       (5,894)

Foreign currency
  translation adjustments          -          -          -          -          34         34
                             ---------  ---------  ---------  ---------  --------- ---------
Balance March 31, 1996           3,878      2,444     25,286      7,458      (714)    38,352

Net earnings                       -          -          -        3,775       -        3,775

Foreign currency
  translation adjustments          -          -          -          -        (680)      (680)
                             ---------  ---------  ---------  ---------  --------- ---------
Balance March 31, 1997          $3,878     $2,444    $25,286    $11,233   ($1,394)   $41,447
                             =========  =========  =========  =========  ========= =========
<FN>
See notes to consolidated financial statements
</TABLE>
Page F-6<PAGE>

AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations - ARI is a processor and marketer of food products, the principal 
of which are rice and olives. These products are sold in the international and 
domestic markets directly by ARI through many distribution channels under a 
variety of brands. Distribution channels in the international market vary from 
country to country and include sales to government agencies and commercial 
importers, as well as through wholesalers and international brokers. ARI is 
significantly affected by market factors including domestic and foreign supply 
and demand. These market factors are influenced by a variety of external 
forces including governmental actions, crop yields and weather. Although ARI 
is not involved in rice farming, certain legislation affecting rice growers 
can have a significant impact on the cost and availability of rough rice. As 
discussed in Note 2, in July 1996 ARI purchased an olive business from 
Campbell Soup Company.

Principles of Consolidation - The accompanying consolidated financial 
statements include the accounts of ARI and its majority-owned subsidiaries and 
joint ventures. All significant intercompany accounts, intercompany profits 
and intercompany transactions are eliminated.

Use of Estimates - The preparation of financial statements in conformity with 
generally accepted accounting principles requires management to make estimates 
and assumptions that affect the reported amounts of assets and liabilities and 
disclosure of contingent assets and liabilities at the date of the financial 
statements and the reported amounts of revenues and expenses during the 
reporting period. Actual results could differ from these estimates.

Statement of Cash Flows - For purposes of reporting cash flows, cash and cash 
equivalents include cash on hand and highly liquid debt instruments purchased 
with an original maturity of three months or less. Borrowings and repayments 
on revolving notes, payments for income taxes, and payments for interest and 
financing fees are as follows:

                                             Year ended March 31,
                                    -------------------------------------
                                      1997          1996          1995 
                                    ---------     ---------     ---------
   Revolving notes (in millions):
      Borrowings                       $313.4        $406.8        $355.3
      Repayments                        255.6         420.9         354.2

   Payments for interest          
      and financing fees (in millions) $ 20.1        $ 14.0        $  9.2
         
   Payments for federal and state          
      income taxes (in thousands)      $  253        $1,269        $  635

In the year ended March 31, 1996, ARI acquired property valued at $1,054 
thousand through capital leases.

Inventories - Inventories are accounted for by the first-in, first-out cost 
method (FIFO), or market, if lower.

ARI, from time to time, buys and sells futures and options contracts on rice 
as an operational tool to manage its inventory position. Gains and losses on 
contracts that meet defined criteria are recognized upon completion of the 
transaction, while gains and losses from all other contracts are recognized in 
Page F-7<PAGE>
the period in which the market value of the contracts change.

Property, Plant and Equipment - Property, plant and equipment are stated at 
cost. Depreciation is provided by the straight-line method based on the 
estimated useful lives of the various classes of property, which range from 10 
to 45 years for buildings and improvements and 3 to 25 years for machinery and 
equipment.

Expenditures for maintenance and repairs are charged to expense as incurred.

Trademarks - Trademarks are being amortized on a straight-line basis over 40 
years. ARI utilizes estimated future undiscounted cash flows of related 
product sales to evaluate any possible impairments.

Debt Issuance Costs - Debt issuance costs are stated at cost and amortized 
over the life of the related debt using the effective interest method. 
Amortization of debt issuance costs is included in interest expense in the 
consolidated statements of operations.

Income Taxes - ARI's current taxable income and loss is included in the 
consolidated federal income tax return filed by ERLY Industries ("ERLY"), 
which holds 81 percent of the combined voting power of ARI stock outstanding. 
Under the terms of a tax sharing agreement, as amended, between ARI and ERLY, 
ARI will pay to or receive from ERLY the amount of income taxes currently 
payable or refundable computed as if ARI filed its annual tax return on a 
separate company basis. All payments owed by ARI will be offset against ERLY's 
principal and interest payment obligations under the 15% loan to ERLY (see 
Note 5).  

ARI's provision for income taxes is computed as if the company files its 
annual tax return on a separate company basis. Deferred taxes are established 
for the temporary differences between the financial reporting basis and the 
tax basis of ARI's assets and liabilities at enacted rates.

Earnings Per Share - The computation of earnings per common share is based on 
the earnings available to holders of common shares and the weighted average 
number of common and common equivalent shares outstanding during the periods 
presented. Common stock equivalents and contingent common stock issues are not 
included in the computation of earnings per share when their inclusion would 
increase earnings per share or decrease the loss per share (antidilution).

Earnings applicable to common stock reflect dividends in the amount of $5.9 
million for the years ended March 31, 1997, 1996 and 1995, respectively, on 
the Series B Preferred Stock and the Series C Preferred Stock. These dividends 
are cumulative and have not been declared by ARI. The annual cumulative 
dividend on the Series B Preferred Stock is $1.85 per share, or $5.18 million 
and the annual cumulative dividend on the Series C Preferred Stock is $2.50 
per share or $750,000. The mortgage note and the revolving credit agreement 
currently prohibit the payment of any dividends (see Note 3). The weighted 
average number of shares included in the earnings per share calculation are 
2,444 thousand for each of the years ended March 31, 1997, 1996, and 1995.

Impairment of Long-Lived Assets - On April 1, 1996, ARI adopted Financial 
Accounting Standards Board Statement No. 121, "Accounting for the Impairment 
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which 
requires that long-lived assets be reviewed for impairment whenever events or 
circumstances indicate that the carrying amount of an asset may not be 
recoverable. The adoption of this statement did not have a material effect on 
the consolidated financial statements.

Fair Value of Financial Instruments - ARI's financial instruments consist 
Page F-8<PAGE>
primarily of cash, trade accounts and notes receivable, accounts and notes 
payable, and debt instruments. The book values of cash, trade receivables and 
accounts payable are representative of their respective fair values due to the 
short-term maturity of these instruments. It is not practicable to estimate 
the fair value of the notes receivable from ERLY because of their related 
party nature.  The fair value of the $99 million principal amount of 13% 
mortgage notes was approximately $98 million as of March 31, 1997, based on a 
dealer quote.

Stock-Based Compensation - ARI adopted Financial Accounting Standards Board 
Statement No. 123, "Accounting for Stock-Based Compensation," in fiscal 1997.  
As permitted by the new standard, ARI will continue applying accounting 
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," 
and will provide pro forma disclosures as necessary. The pro forma effect of 
measuring compensation cost pursuant to this standard has no effect in 1997.

Foreign Currency Translation - All assets and liabilities of operations 
outside the United States are translated from the functional currency to the 
reporting currency at the foreign exchange rates in effect at year end.  
Revenues and expenses for the year are translated at average exchange rates 
during the year.  Such translation gains and losses are not included in 
determining net income but are accumulated and reported as a separate 
component of stockholders' equity.  Net realized and unrealized gains or 
losses resulting from foreign currency transactions, including translations of 
local currencies to the functional currency are credited or charged to income. 
The U.S. dollar is currently the functional currency for all operations except 
Vietnam, where the Vietnamese dong is the functional currency, and the Spanish 
olive operations, where the Spanish paseta is the functional currency.

Reverse Stock Split - On September 1, 1994, ARI's shareholders approved a one-
for-five reverse stock split for all issues of preferred and common stock. All 
per share information in the financial statements has been adjusted for this 
reverse stock split.

New Accounting Pronouncement - In February 1997, the Financial Accounting 
Standards Board issued statement No. 128, "Earnings Per Share" ("SFAS 128"), 
which is effective for periods ending after December 15, 1997 and specifies 
the computation, presentation and disclosure requirements of earnings per 
share ("EPS"). SFAS 128 requires a dual presentation of basic and diluted EPS. 
Basic EPS, which excludes the impact of common stock equivalents, replaces 
primary EPS. Diluted EPS, which utilizes the average market price per share as 
opposed to the greater of the average market price per share or ending market 
price per share when applying the treasury stock method in determining common 
stock equivalents, replaces fully diluted EPS. Pro forma basic and diluted EPS 
for all historical periods presented, assuming SFAS No. 128 was effective at 
the beginning of each such historical period, would not be materially 
different from the primary and fully diluted EPS presented.

Reclassifications - Certain reclassifications have been made to the prior 
period consolidated financial statements to conform to the consolidated 
financial statement presentation at March 31, 1997 and for the year then 
ended.

2. OLIVE ACQUISITION

On July 5, 1996, the Company acquired the domestic and foreign olive business 
of Campbell Soup Company ("CSC Olives") for approximately $38 million (the 
"Olive Acquisition"). Assets acquired include domestic inventories and fixed 
assets, all of the outstanding common stock of Compania Envasadora Loreto, 
S.A., a Spanish company which comprises the foreign olive business, and fifty-
one percent of the stock of Sadrym California, a marketer of olive processing 
Page F-9<PAGE>
machinery. The purchase was funded primarily from ARI's credit facilities. The 
Olive Acquisition is accounted for as a purchase, and the results of 
operations of the acquired business are included in the Company's consolidated 
financial statements after July 5, 1996.

Operating results reflected in the accompanying financial statements do not 
include CSC Olives operating activities before July 5, 1996. The following 
summarized unaudited pro forma information assumes the Olive Acquisition 
occurred on the first day of the operating period presented (thousands of 
dollars, except per share):

                                                 Year Ended
                                                  March 31,
                                                    1997
                                                  --------
      Net Sales                                   $534,441
      Net Earnings (loss)                            1,646
      Earnings (loss) per share:
        Primary                                    $ (1.75)
        Fully diluted                                (1.75)

3.  NOTES PAYABLE AND LONG-TERM DEBT

In a public offering completed in August 1995, ARI issued $100 million in 
principal amount of 13.0% mortgage notes due 2002 (the "Notes"). Portions of 
the net proceeds of $94 million were used to repay $53.8 million of existing 
term debt, to make a $10.5 million 15% loan to ERLY  due 2001, and to reduce 
borrowings outstanding on a $47.5 million revolving credit loan.  The Notes 
were issued pursuant to an indenture between ARI and U.S. Trust Company of 
Texas, N.A. (the "Indenture").

The Notes provide for interest payments semiannually, mature on July 31, 2002, 
and are non callable by ARI prior to July 31, 1999, after which date the Notes 
are callable at the option of ARI, in whole or in part, at any time upon not 
less than 30 nor more than 60 days notice, at 107.0% of the principal amount, 
declining ratably to par on or after July 31, 2001.  Except under certain 
changes of control, upon remarketing of the industrial revenue bonds, or asset 
sales, as defined in the Indenture, ARI is not required to make mandatory 
redemption payments on the Notes.  The Notes accrue fixed interest at an 
annual rate of 13.0%, an effective yield rate of 14.4%. 

In addition to fixed interest, the Notes bear contingent interest of 4.0% of 
consolidated cash flow (as defined) up to a limit of $40.0 million of 
consolidated cash flow during the fiscal year in which such interest accrues. 
Contingent interest accrues in each semiannual period (as defined) in which 
consolidated cash flow in such period and the immediately preceding semiannual 
period is equal to or greater than $20.0 million.  Contingent interest is 
payable semiannually, but ARI may elect to defer all or a portion of any such 
payment to the extent that (a) the payment of such portion of contingent 
interest will cause ARI's adjusted fixed charge coverage ratio (as defined) 
for the two consecutive applicable semiannual periods to be less than 2.0:1 
and (b) the principal of the Notes corresponding to such contingent interest 
has not then matured and become due and payable. Contingent interest of zero 
and $143 thousand for the semiannual periods (as defined) ended June 30, 1996 
and December 31, 1996, respectively were accrued during fiscal 1997. 
Contingent interest of $447 thousand and zero for the semiannual periods ended 
June 30, 1995 and December 31, 1995, respectively were accrued during fiscal 
1996. As the applicable fixed charge coverage ratio was less than 2.0:1, ARI 
elected to defer payments of the contingent interest.
Page F-10<PAGE>
The Notes are secured by (a) a first or second priority security interest in 
substantially all of ARI's property, plant and equipment (including related 
leasehold interests), (b) a pledge agreement creating first priority security 
interests in the capital stock of ARI held by ERLY (other than 200,000 shares 
of ARI's Series B preferred stock pledged to the holders of ARI's Series C 
preferred stock), (c) the ERLY notes receivable and (d) a security agreement 
creating a first priority security interest in all registered U.S. trademarks 
and a security interest in all other registered trademarks owned or licensed 
by ARI.

The Notes rank senior in right of payment to all subordinated indebtedness and 
pari passu in right of payment with all existing and future senior 
indebtedness of ARI, including borrowings under the revolving credit loans.  
The Indenture includes covenants that in certain instances restrict, among 
other things, (a) the payment of dividends, (b) the redemption of equity 
interests of ARI, (c) the payment on or redemption of indebtedness subordinate 
to the Notes, (d) certain investments (as defined), (e) the incurrence of 
certain indebtedness and issuance of preferred stock, (f) certain transactions 
with affiliates and (g) certain mergers, consolidations or sales of assets.  
In addition, the Indenture contains certain limitations on capital 
expenditures, operating lease obligations and rice contract polices and 
procedures. The Indenture and the revolving credit loans described below 
contain cross default provisions.

On June 7, 1996 ARI replaced its existing $47.5 million revolving credit loan 
with a $47.5 million revolving credit loan from a new lender, Harris Trust and 
Savings Bank ("Harris"). Funds available for borrowing (including letters of 
credit of up to $20.0 million) under this revolving credit loan at any time 
may not exceed 85% of eligible accounts receivable (or 90% of accounts 
receivable backed by acceptable letters of credit from customers), 75% of 
eligible raw materials inventory, and 70% of eligible finished goods 
inventory. The line is collateralized by substantially all of ARI's accounts 
receivable and inventory. In addition, this facility contains restrictive 
covenants which, among other things, require the attainment of certain 
financial ratios, the maintenance of a minimum level of tangible net worth (as 
defined), and provide limitations on capital expenditures, lease obligations, 
and prohibit dividend payments. The line also contains certain cross default 
provisions with the indenture for Mortgage Notes. The Harris revolving credit 
line bears interest at ARI's option at either the prime rate or the London 
Interbank Offered Rate plus an applicable margin based upon ARI's adjusted 
funded debt ratio as defined, with outstanding principal and interest due upon 
termination of the agreement, which continues in full force and effect until 
May 31, 1999 or until terminated with five days written notice from ARI 
subsequent to May 31, 1997. This revolving credit loan was amended on June 28, 
1996 to increase the borrowing limit to $85.0 million. Substantially all 
covenants and conditions remain unchanged. At March 31, 1997, the outstanding 
balance on this loan was $71.5 million bearing interest at the prime rate of 
8.5%.
Page F-11<PAGE>

Long-term debt consisted of the following:

                                           March 31,     March 31,
                                             1997          1996
                                           ---------     ---------
                                                (in thousands)
   13% Mortgage Notes                      $  99,000    $  100,000
     Less unamortized discount                (5,032)       (5,678)
   Other notes-capital leases                  2,614         1,393
                                           ---------     ---------
   Total Debt                                 96,582        95,715
   Less current maturities                       438           106
                                           ---------     ---------
   Total Long-term debt                    $  96,144     $  95,609
                                           =========     =========

ARI's long-term debt maturities are as follows (in thousands):

             Year ended March 31,     Long-Term Debt   Capital Leases 
             -------------------      --------------   --------------
                    1998                 $    324       $    114
                    1999                    1,247            121
                    2000                      128            135
                    2001                       83            123
                    2002			     -		  -
                    Thereafter             99,339             -

4.  STOCKHOLDERS' EQUITY

At a special meeting on September 1, 1994, ARI's shareholders approved a one-
for-five reverse stock split for all issues of preferred and common stock. 
Trading on the new basis was effective on September 8, 1994.

Holders of the common stock are entitled to one vote per share on all matters 
to be voted on by shareholders and are entitled, subject to any preferential 
rights of holders of preferred stock, to receive dividends, if any, as may be 
declared from time to time by the Board of Directors of ARI. Upon any 
liquidation or dissolution of ARI, the holders of the common stock are 
entitled, subject to any preferential rights of holders of preferred stock, to 
receive a pro rata share of all the assets remaining available for 
distribution to shareholders after payment of all liabilities.

The Board of Directors of ARI, without further action by the shareholders, is 
authorized to issue shares of preferred stock in one or more series, and with 
respect to each series, to determine the rate of dividends, terms of 
redemption, amount payable upon liquidation, sinking fund provisions, terms of 
conversion and voting rights. Rights with respect to dividends and liquidation 
may be more favorable than those of the holders of the common stock.

At March 31, 1997, ARI had three series of preferred stock: Series A, Series B 
and Series C. Series A Preferred Stock and Series B Preferred Stock are owned 
by ERLY and Series C Preferred Stock is owned by a group of former ARI 
lenders.

The Series A Preferred Stock has no rights of redemption or sinking fund 
provisions, but upon any liquidation of ARI, ARI must pay the holders of this 
series of preferred stock $25.70 per share (aggregate of $20.0 million) before 
any amounts may be paid to the holders of the common stock. The holders of 
this series of preferred stock are entitled to one vote per share on all 
matters upon which the holders of common stock have the right to vote and are 
generally entitled to vote as a class on any matters adversely affecting their 
Page F-12<PAGE>
rights as holders of this series of preferred stock. Each share of this series 
of preferred stock is convertible into one share of common stock upon the 
election of the holder of this preferred stock.

The Series B Preferred Stock has no rights of redemption or sinking fund 
provisions, but upon any liquidation of ARI, ARI must pay the holders of this 
series of preferred stock $5.00 per share (aggregate of $14.0 million) before 
any amounts may be paid to the holders of the common stock. Each share of this 
series of preferred stock provides for annual cumulative, non-participating 
dividends of $1.85. Cumulative dividends in arrears on Series B Preferred 
Stock were $20.0 million at March 31, 1997. The holders of this series of 
preferred stock are entitled to two votes per share on all matters upon which 
the holders of common stock have the right to vote and are generally entitled 
to vote as a class on any matters adversely affecting their rights as holders 
of this series of preferred stock. Each share of this series of preferred 
stock is convertible into two shares of common stock upon the election of the 
holder of this preferred stock. ERLY has pledged 200,000 shares of the 
preferred stock to former term lenders in connection with a debt refinancing 
that occurred in May 1993.

The Series C Preferred Stock was issued to certain former lenders of ARI in 
partial satisfaction of ARI's indebtedness to them. The Series C Preferred 
Stock has no rights of redemption or sinking fund provisions, but upon any 
liquidation of ARI, ARI must pay the holders of the Series C Preferred Stock 
$5.00 per share (aggregate of $1.5 million) before any amounts may be paid to 
the holders of the common stock. The Series C Preferred Stock is callable by 
ARI at any time at a price of $26.35 per share less aggregate dividend 
payments per share. The Series C Preferred Stock provides for annual 
cumulative, non-participating dividends of $2.50 per share, is non-convertible 
and non-voting. Cumulative dividends in arrears on Series C Preferred Stock 
were $2.9 million at March 31, 1997.

The Series B Preferred Stock and Series C Preferred Stock rank pari passu with 
respect to liquidation preference rights and dividend declarations (up to $.27 
per share of Series B Preferred Stock). ARI's articles of incorporation also 
provide that, so long as any shares of Series B Preferred Stock or Series C 
Preferred Stock are outstanding, ARI will not authorize or create any class or 
series of stock, or increase the authorized amount of preferred stock, ranking 
(either as to payment of dividends or distribution of assets) prior to such 
preferred stock.

ARI's debt agreements currently prohibit the payment of any dividends (see 
Note 3).

ARI issued warrants to former term lenders to purchase up to 155,000 shares of 
ARI Common Stock at $5.00 per share. The warrants expire May 26, 2001.
Page F-13<PAGE>

5.  TAXES ON INCOME

The provision (benefit) for taxes on income consists of:

                                             Year ended March 31,
                                    -------------------------------------
                                       1997          1996          1995
                                    ---------     ---------     --------- 
                                                 (in thousands) 
    U. S. taxes currently payable      $1,100        $    -        $   94
    Deferred U. S. taxes                1,061        (3,112)        1,986
    State income taxes                    253          (203)          122
                                    ---------     ---------     ---------
                                       $2,414       ($3,315)       $2,202
                                    =========     =========     =========

Temporary differences which give rise to deferred tax assets and liabilities 
are as follows:

                                                    March 31,
                                     ---------------------------------------
                                      1997 Deferred Tax    1996 Deferred Tax
                                     ------------------   ------------------
                                       Asset  Liability    Asset  Liability
                                     --------  --------   --------  --------
                                                   (in thousands)
   Property, plant and equipment      $          $6,257     $         $7,650
   Allowance for doubtful accounts
      and other reserves                  620         -       679          -
   Change in tax accounting principles    702         -       971          -
   Alternative minimum tax credit       1,528         -     1,471          -
   Net operating loss carryovers            -         -     2,296          - 
   Other                                  293         -       180          - 
                                     --------  --------   --------  --------
                                       $3,143    $6,257    $5,597     $7,650
                                     ========  ========   ========  ========

A comparison of income tax expense at the federal statutory rate to ARI's 
provision (benefit) in lieu of taxes is as follows:

                                                 Year Ended March 31,
                                            -------------------------------
                                              1997        1996      1995
                                            ---------  ---------  ---------
                                                     (in thousands)
     Earnings from continuing
      operations before income 
      taxes and extraordinary items           $6,189     ($9,209)    $6,115
                                            =========  =========  =========

     Statutory taxes                          $2,105     ($3,131)    $2,079
     Amortization of trademarks                  137         126        135
     State income taxes                          253        (203)       122
     Other                                       (81)       (107)      (134) 
                                            ---------  ---------  ---------
     Provision for taxes on income            $2,414     ($3,315)    $2,202
                                            =========  =========  =========
     Effective tax rate                         39.0%       36.0%      36.0%
                                            =========  =========  =========  
Page F-14<PAGE>

6.  COMMITMENTS AND CONTINGENCIES

The Company is involved in legal proceedings that arise in the ordinary course 
of its business, all of which are routine in nature except for the matters 
noted below. While the results of such litigation cannot be predicted with 
certainty, the Company believes that the resolution of such legal proceedings, 
including the matters noted below, will not have a material adverse effect on 
the consolidated financial position or consolidated results of operations of 
ARI; however, as with any litigation, the ultimate outcome is unknown. 
Accordingly, no provision for any liability that might result has been made in 
the Consolidated Financial Statements.

In April 1995, a lawsuit was filed in the district court of Harris County, 
Texas by Kingwood Lakes South, L.P. and Tenzer Company, Inc. as plaintiffs 
against G.D. Murphy and D.A. Murphy, Chairman and President, respectively, of 
ARI and ERLY. ARI and ERLY were named as codefendants in the lawsuit by an 
amendment to the original petition in September 1995. This is a dispute 
between the general partner of a proposed real estate development and G.D. 
Murphy and D.A. Murphy. Damages sought are in the range of $10 million, plus 
attorneys' fees and punitive damages. ARI and ERLY were named as defendants in 
the lawsuit because of their actions to obtain restraining orders to prevent 
threatened foreclosures on ERLY common stock pledged as collateral by G.D. 
Murphy and to stop interference by the plaintiff in the lawsuit with ARI's 
mortgage note financing, as well as certain other alleged activities, 
including knowing participation in breaches of fiduciary duties, civil 
conspiracy with the Murphys, and conversion.

The Company has also been named as a codefendant with Messrs. John M. Howland 
and George E. Prchal in a lawsuit filed in February 1997 in U.S. district 
court in Houston, Texas by Rice Milling & Trading Investments, LTD., an Isle 
of Man Company ("RMTI"). In 1994, ARI entered into an agreement with RMTI for 
processing the Company's rice through RMTI's facility in Jeddah, Saudi Arabia. 
Messrs. Howland and Prchal were officers of RMTI through January 1997 and have 
also been directors of ARI since October 1993 and prior to October 1993 were 
officers of ARI (See Item 10 herein). In January 1997, RMTI ceased shipping 
ARI's rice through its Jeddah facility and terminated the employment of 
Messrs. Howland and Prchal. The lawsuit alleges among other things ARI failed 
to perform under the terms of the agreement and Messrs. Howland and Prchal 
breached their fiduciary duties to RMTI. On April 21, 1997, ARI obtained a 
restraining order from the U.S. District Court for the Southern District of 
Texas ordering RMTI to desist and refrain from purchasing rice of U.S. or 
Vietnam origin from any supplier other than ARI and from introducing and/or 
marketing rice of U.S. and Vietnam origin in Saudi Arabia targeted against 
ARI's U.S. origin and Vietnam origin rice.

ARI has a commitment for an operating lease relating to the land for its 
milling facility in Freeport, Texas. The initial term of the lease expires in 
2022 and may be renewed at ARI's option in five year increments through 2057. 
In addition, ARI and its subsidiaries are obligated under operating leases for 
other plant facilities, office space in Houston, Texas, and various machinery, 
equipment and automobiles. Aggregate minimum rental commitments under
Page F-15<PAGE>

operating leases with noncancellable terms of more than one year are as 
follows:

               Year Ending March 31,              Amount
               ---------------------          -------------
                                              (in thousands)
               1998                             $ 3,423
               1999                               3,055 
               2000                               2,660   
               2001                               2,287
               2002				        1,997
               Thereafter                        23,368

ARI incurred total rental expense of approximately $6.0 million, $5.4 million 
and $4.0 million for the years ended March 31, 1997, 1996 and 1995, 
respectively.

7.  BENEFIT PLANS

ARI had a defined contribution plan which covered substantially all employees. 
On January 1, 1994, the ARI plan was merged into the ERLY defined contribution 
plan, which is essentially similar in its operations. The ERLY plan provides 
for a mandatory 1% matching contribution, as defined, to the plan on a monthly 
basis and an annual contribution solely at the discretion of the Board of 
Directors. ARI contributions to the plan for the years ended March 31, 1997, 
1996 and 1995 were $554,000, $191,000 and $1.0 million, respectively.

8.  EXPORT SALES

Net sales include export sales as follows:
                                              Year ended March 31,
                                     -------------------------------------
                                        1997         1996          1995
                                     ---------     ---------     ---------
                                                 (in thousands)
        Middle East                   $165,666      $117,359       $91,449
        Caribbean, Mexico, and
          South America                 64,991        64,654        84,806
        Asia                            31,583        49,453        49,963
        Other                           42,197        26,845        23,302
                                     ---------     ---------     ---------
        Total                         $304,437      $258,311      $249,520
                                     =========     =========     =========
        Percent of total revenues          59%            66%           67%
                                     =========     =========     =========
Page F-16<PAGE>

9.  OTHER ASSETS

Other assets consist of the following:

                                                  March 31,
                                           -----------------------
                                              1997          1996
                                           ---------     ---------
                                                (in thousands)
   Trademarks                                $12,247       $12,211
   Investments                                   499           284
   Debt issuance costs                         7,442         6,897
   Notes receivable                              684           755
   Other                                         344           440
                                           ---------     ---------
   Total                                     $21,216       $20,587
                                           =========     =========

Accumulated amortization of trademarks was $2.5 million and $2.2 million at 
March 31, 1997 and 1996, respectively.

10.  PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment follows:

                                                  March 31,
                                           -----------------------
                                              1997          1996
                                           ---------     ---------
                                                (in thousands)
   Land                                      $ 2,784       $   277
   Buildings and improvements                 28,778        23,497
   Machinery and equipment                    52,397        39,920
                                           ---------     ---------
   Total                                      83,959        63,694
   Less: accumulated depreciation            (26,000)      (21,632)
                                           ---------     ---------
  Property, plant and equipment, net         $57,959       $42,062
                                           =========     =========

11.  ACCOUNTS RECEIVABLE

Accounts receivable and allowance for doubtful accounts consisted of the 
following:

                                                  March 31,
                                           ----------------------
                                             1997          1996
                                           ---------     ---------
                                                (in thousands)
   Accounts receivable - trade               $65,187       $34,982
   Less allowance for doubtful accounts       (1,125)       (1,441)
                                           ---------     ---------
   Net                                       $64,062       $33,541
                                           =========     =========
Page F-17<PAGE>

12.  TRANSACTIONS WITH RELATED PARTIES

ARI has entered into a number of transactions in the ordinary course of 
business with ERLY and its affiliates.

At March 31, 1997 and 1996, amounts due from ERLY are summarized as follows:

                                                  March 31,
                                           ----------------------
                                             1997          1996
                                           ---------     ---------
                                                (in thousands)

   15% loan balance                         $ 9,500       $10,500
   Accrued interest - 15% loan                1,705           949
   6% loan balance                           12,961        13,346
                                           ---------     ---------
                                            $24,166       $24,795
                                           =========     =========   

Net proceeds of $10.5 million of the $100 million notes issued in August, 
1995, (Note 3) were used to make a 15% loan to ERLY which is due in 2001.
Under the terms of the 15% loan, ERLY is obligated to pay principal and 
interest annually by offsetting payments due ERLY from ARI under the tax 
sharing agreement.  Such offsets shall be applied first to reduce principal 
(up to $.5 million), then to pay interest accrued and payable, and then to 
further reduce outstanding principal.  ERLY will be responsible for paying 
cash to pay principal to the extent such offsets are less than $.5 million and 
may defer payment of interest to the extent such offsets are not available for 
such payment.  The terms of this 15% loan may not be modified without the 
consent of a majority of the holders of the Mortgage Notes.  As security for 
payments due on the 15% loan, ERLY has issued a warrant equivalent to 7.5% of 
the then issued and outstanding voting common stock of ERLY, exerciseable at 
$0.01 per share after any payment default, which warrant will be reduced 
proportionately by the amount of all principal payments made on the 15% loan 
and canceled automatically upon payment in full of the principal of the 15% 
loan.

In fiscal year 1994, intercompany payables and receivables were netted, 
resulting in an obligation owed to ARI by ERLY that is reflected in a note 
receivable from ERLY bearing an interest rate of 6% and maturing in 2002. In 
addition, all intercompany transactions not settled quarterly accrue interest 
at 6%. The note is payable out of one half of dividends received by ERLY on 
the Series B Preferred Stock until the 15% loan to ERLY is paid in full, at 
which time the 6% note will be payable by offsets against tax sharing 
agreement payments due ERLY from ARI and one-half of any dividends received on 
the Series B Preferred Stock.

In fiscal year 1994, ARI entered into a management agreement between ERLY and 
ARI whereby ERLY acts as ARI's agent for the purpose of providing certain 
marketing, operating and management services to ARI. In exchange for such 
services, ARI is to pay ERLY a monthly management fee of $80 thousand. For the 
years ended March 31, 1997 and 1996, no management fees were incurred by 
agreement between the Company and ERLY. The accrual for such fees was resumed 
on April 1, 1997. During the year ended March 31, 1995 ARI incurred and paid 
$923 thousand. 

In October 1996, ARI entered into a new seven year lease agreement for the 
office space for the corporate headquarters of the Company with 411 North Sam 
Houston Parkway, LTD., a limited partnership. Douglas A. Murphy, ARI's 
President, and Gerald D. Murphy, the Chairman of ARI's board of directors, 
Page F-18<PAGE>
have combined ownership interests in the partnership of 32%. In connection 
with the lease ARI performs building management services in exchange for 
certain reductions in the lease cost. Management believes ARI's lease cost 
under this agreement is comparable to or better than rates for similar office 
space in the proximity. At March 31, 1997, ARI had an account receivable of 
approximately $190 thousand related to amounts paid on behalf of the limited 
partnership. This receivable was collected on April 1, 1997.

13. QUARTERLY INFORMATION (Unaudited)

The following table summarizes the unaudited quarterly information for the 
years ended  March 31, 1997 and 1996.  In the opinion of management, all 
adjustments necessary for a fair presentation of the unaudited results for the 
periods are included. (In thousands of dollars, except per share amounts)

Quarter Ended        June 30    Sep. 30    Dec. 31   Mar. 31    Year
                      ------     ------    -------   -------   -------
1997 
----
Net Sales           $ 97,407   $121,513   $153,699  $142,899  $515,518
Earnings from   
  Operations             118      6,725     10,001     8,574    25,418
Earnings(loss) before
  income taxes        (4,056)     1,525      4,828     3,892     6,189
Net earnings (loss)   (2,596)       976      3,090     2,305     3,775
Net earnings (loss)
  per share         $  (1.67)     ($.21)      $.33      $.24     ($.88)

1996
----
Net Sales           $ 86,392    $90,369   $101,440  $115,574  $393,775
Earnings (loss) from   
  Operations           3,766      3,643     (5,049)(1) 3,715     6,075
Earnings(loss) before
  income taxes           587       (157)    (9,204)(1)  (435)   (9,209)
Net earnings (loss)      376       (101)    (5,891)     (278)   (5,894)
Net loss per share     ($.45)     ($.65)    ($3.02)    ($.72)   ($4.84)

(1) Includes $7.2 million pre-tax provision for loss on disposal of property 
held for sale.
Page F-19<PAGE>

<TABLE>
<CAPTION>
FINANCIAL STATEMENT SCHEDULE II

AMERICAN RICE, INC.
VALUATION AND QUALIFYING ACCOUNTS
As of March 31
(In thousands)
                                                   Additions
                                            ------------------------
                                Balance at   Charged to     Charged                      Balance
                                Beginning    Costs and      to other       Other         at End
       Description               of Year      Expenses      Accounts       Changes       of Year
-------------------------      ----------   ----------    ----------    ----------     ----------
<S>                             <C>         <C>           <C>         <C>             <C>
Allowance for doubtful 
  accounts:
1997                             $1,441       $  519        $  112(b)    $ (947)(a)       $1,125
1996                              1,711          163             -         (433)(a)        1,441                  
1995                              1,798            -             -          (87)(a)        1,711  

Allowance for doubtful 
   noncurrent receivables:
1997                               $  -       $    -        $    -       $     -           $  -
1996				      471	      -             -          (471)(a)          -
1995                              4,387            -             -        (3,916)(a)         471

<FN>
----------
(a)  Reductions related to accounts receivable written off.
(b)  Acquired in olive business acquisition less adjustment for foreign currency translation.
</TABLE> 
<PAGE>

Exhibit 11.1

AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Data)

Year Ended March 31                       1997       1996       1995
 ---------------------------------------------------------------------

PRIMARY EARNINGS (LOSS) PER SHARE

  Net earnings (loss)                      $3,775    ($5,894)    $3,913
  Less dividends on preferred stock:
    Series B                               (5,180)    (5,180)    (5,180)
    Series C                                 (750)      (750)      (750)
                                        ---------  ---------  ---------
  Loss applicable to
    common stock                          ($2,155)  ($11,824)   ($2,017)
                                        =========  =========  =========
  Average common and common equivalent
    shares outstanding:
    Common                                  2,444      2,444      2,444
                                        ---------  ---------  ---------
                                            2,444      2,444      2,444
                                        =========  =========  =========
  Loss per share applicable to
    common stock                            ($.88)    ($4.84)     ($.83)
                                        =========  =========  =========


FULLY DILUTED EARNINGS PER SHARE *

  Net earnings (loss)                      $3,775    ($5,894)    $3,913
  Less dividends on preferred stock:
    Series C                                 (750)      (750)      (750)
                                        ---------  ---------  ---------
  Earnings (loss) applicable to
    common stock                           $3,025    ($6,644)    $3,163
                                        =========  =========  =========
  Average common and common equivalent
    shares outstanding:
    Common                                  2,444      2,444      2,444
    Preferred Series A                        778        778        778
    Preferred Series B                      5,600      5,600      5,600
                                        ---------  ---------  ---------
                                            8,822      8,822      8,822
                                        =========  =========  =========
  Fully diluted earnings per share:
    Earnings (loss) per share
      applicable to common stock             $.34      ($.75)      $.36
                                        =========  =========  =========

      * This calculation is presented in accordance with Regulation
      S-K item 601(b)(11) although it is contrary to paragraphs 14, 30,
      and 40 of APB Opinion No. 15 because it produces an antidilutive
      result. The Opinion provides that a computation on a fully
      diluted basis which results in an improvement in earnings
      per share when compared to primary earnings per share
      (antidilution) not be taken into account. Therefore fully diluted
      earnings per share reported on the income statement are the same
      as primary earnings per share.
<PAGE>

Exhibit 21

AMERICAN RICE, INC. AND SUBSIDIARIES
SUBSIDIARIES OF ARI


                                        Jurisdiction of     Percentage 
       Name                             Incorporation or     Ownership
                                          Organization

Comet Ventures, Inc.                       California           90%

Comet Rice of Puerto 
  Rico, Inc.                                Delaware           100%

Comet Rice of Jamaica
  Limited                                    Jamaica           100%

Rice Corporation of
  Haiti, S. A.                                Haiti            100%

ARI-Vinafood                                 Vietnam            55%

Compania Envasadora Loreto, S.A.              Spain            100%

Sadrym California, Inc.                     California          51%