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STRATEGY ALTERNATIVES
FOR MARKETING TEXAS RICE
Confidential Report to the
American Rice Growers Association June, 1970
from the Texas Agricultural Market Research
and Development Center Texas A&M University
THE TEXAS AGRICULTURAL :HARKET RESEARCH AND DEVELOPl<1ENT CENTER
The purpose of the Center is to be of service to agricultural
producers, groups and organizations, as well as processing and mar
keting firms in the solution of present and emerging marketing prob
lems. Emphasis is given to research and educational activities
designed to improve an~ expand the markets for Texas food and fiber
products.
The Center operates as a combined education and research ser
vice of the
TEXAS AGRICULTURAL EXTENSION SERVICE
and
TEXAS AGRICULTURAL EXPERIMENT STATION
Members of the Texas Agricultural Market Research and Development Center
ASSOCIATE STAFFSTAFF Edwa~d Uvacek, Ph.DRobert E. Branson, Ph.D
LivestockCoordinator John SeibertWilliam E. Black, Ph.D
GrainsAssociate Coordinator Johnny Feagan Chan C. Connolly, Ph.D
OrganizationJohn P. Nichols, Ph.D Charles BakerThomas L. Sporleder, Ph.D
Cotton and Foreign TradeRandall Stelly, Ph.D R. R. Roberts
Research Associate
TABLE OF CONTENTS
How Texas is Performing Now ....................................................... 1
The Rice Markets 8.............................. ;I ......................... .
The Eight Step Ladder. of Alternatives ............................................ 16
Evaluation of Alternatives ...... ,. ......................................................................... .. 18
Rough Rice Selling Under Mill Grades ............................................................. 18
Rough Rice Sales Using A. R. I. Grades 19
Rough Rice Sales Using A. R. I. Grades and Market Information 20
Rough Rice Central Sales Agency ...................................................................... 22
Rough Rice Central Sales With Bargaining 23
Milling With Sales to Non-Brand Markets ....................................................... 26
Milling With Sales to Brand and Non-Brand Markets ..................................... 29
-Milling wi th Ne~, Produc t Development .•••••••• ....................... 30
Conclusions and Recommendations ......................................................................... 30
Appendix •.•.... ~~ .•. .. .................................................................... .. 32
TABLES
Table 1: Long and Medium Grain Rice Production, Texas and Arkansas, and Price Received by Growers ••••••.•••••.•••••.• 2
Table 2: Average Price of Rough Rice, per 100 pounds, Received by Farmers .................................................. 4
Table 3: Retail Price of Rice, U. S., 1960-1969 ..................... 5
Table 4: Shipments of }fi1led Rice by Market and State, Average of Four Seasons (1965-66 through 1968-69) •••••••••••••••.••••• 7
Table 5: Market Distribution of U. S. Rice Sales .................... 9
Table 6: a) Markets for Rice ......................................... 10 b) Market Distribution of a Five Million Cwt. Mill .... ,. .... 11
Table 7: Examples of Advertising Market's Potential ................. 13
Table 8: Further Examples of Advertising Market's Potential •••••.••• 14
Table 9: Cost of Projected Advertising Markets ••••••••••••••••••.••• 15
Table 10: Wholesale Prices of Rice by Type Marketed at Retail Level Dallas, Ft. Worth, Houston, June 1970 •••••••.••••••• 17
Table 11: Rice Exports, Dollars, and P. L. 480 Quarterly, 1963-64 -- 1968-69 •••.••••••••.•••.••••..•••.•••••.••••••• 25
Table 12: Average Prices on Exports of Rice (By Quarters) 1963-69 average •••••••••••••••••••••••••.••••••••••••.•••• 27
Table 13: Average Prices Received on Exports of Rice, By Quarters, 1963-64 -- 1968-69 ••••••••••••••••••• ~ ••••••••••••••••••••• 28
STRATEGY AIJTERNATIVES FOR MARKETING TEXAS RICE
The central purpose of the research effort reflected in this report
is to ascertain what course of action will best serve the Texas rice in
dustry. A number of alternative strategies can be employed, but the
choice depends upon performance of the present strategy versus what
should be available under other strategies. First, therefore, some
evaluation is needed of the present marketing operations performance.
HOW TEXAS IS PERFORl.'1ING NOH
If Texas rice marketing is functioning effectively, it should pro
vide to rice growers any competitive advantage which their production
permits over competing states. Furthermore, the rice mills serving Texas
growers should secure any competitive advantage state production affords.
A look at the production .mix for Texas rice reveals that in the
period 1962-68, Texas produced long grain rice at the ratio of about
5-1 over meqium grain. During the same period the ratio in Arkansas
was only about 2-1, and that in Louisiana only 0.5 - 1.0, Table 1.
It is generally conceded in the industry that long grain rice is the
premium product among rices and is especially'demanded in the U. S. do
mestic consumer market and by buyers in the dollar export market in
Europe. If that be the case, the price received by Texas producers
should reflect a definite premium over that obtained in either Arkansas
or Louisiana. Such does not seem to be the case. The aver?ge of 5 cents
more per hundredweight hardly seems to reflect a reasonable premium.
If one compares the average of prices over the 1961-68 marketing years,
2
Table 1
Long and Medium Grain Rice Production, Texas and Arkansas, and Price Received by Grmvers
Item Texas Arkansas Louisiana
- - - - - - (million c,vt.) - - - - - - 1962
Long Grain 11.2 8.7 6.3
Medium Grain 5.0 7.3 8.6
1968
Long Grain 22.0 17 .8 6.1
Medium Grain 3.3 7.4 20.7
Ratio of Long to Medium Grain 5-1 2-1 0.5-1 (average 62-68)
Average Price Received by Growers $5.06 $5.01 $4.87
Source: Statistical Reporting Service and Crop Reporting Board, U. S. Department of Agriculture.
3
the Texas premium was 6 cents according to the U.S.D.A. Statistical Re
porting Service. However, if one compares simply the price on a month
by month basis, disregarding the quantity of rice sold each month. Texas
averages 5 cents belmY' that of Arkansas, or a discount instead of a
premium, Table 2. This is particularly significant from an individual
grower's point of view because he would not necessarily sell his rice
at the same time everyone else does. His distribution of sales may be
different from past aggregate distributions.
Compared with the price difference prevailing at the retail food
store the situation seems more questionable. A cello-pack retail bag
of the 16 oz. or 32 oz. size, for example, long grain has about a 1.5
cent per pound higher wholesale cost to the retailer than medium grain.
That is equivalent to a premium of $1.50 per cwt. It is always diffi
cult to compare wholesale versus farm prices. Nonetheless, the difference
between 5 cents and $1.50 per cwt. is substantial.
A check at three retail food chains in Texas produced an average
price per pound of 16 cents for medium grain and 18 cents for long grain,
which is equavalent to a $2.00 per cwt. differential. The higher differ
ential at retail is to be expected. Its use here is simply to confirm the
differential in the market for shorter and longer grain rice. Data from
the Bureau of Labor Statistics on retail rice prices as used in the U. S.
Consumer Price Index indicates a trend of increasing differentials from
1960-1969. Most recently the differential has been 3.8 cents per pound,
Table 3.
A further question raised by the research is the direction marketing
has assumed by Texas mills among the domestic, dollar export and P. L. 480
4
Table 2
Average Price of Rough Rice, per 100 pounds, Received by Farmers
Difference Year Texas Arkansas Texas vs. Arkansas --~------------~~--------- ~~----~----~~~--~~--~~
(dollars) (dollars) (cents)
1961 5.31 ' 5.20 +11
1962 5.03 5.10 - 7
1963 5.09 4.92 +17
1964 4.94 4.87 + 7
1965 5.04 4.98 + 6
1966 5.10 4.80 +30
1967 4.94 5.12 -18
1968 4.90 4.90 o
1961-68 Average (weighted price by months)
5.04 4.98 + 6
1961-68 Average (simple average by month)
5.10 5.15 - 5
Source: The Rice Situation, U.S.D.A., Economic Research Service, March 1970.
5
Table 3
Retail Price of Rice, U.S., 1960-1969
Long Year Grain Grain Difference
1960
1961
1962
1963
1964
1965
1966
1967
196&!i
196~/
1970 March
February
January
(cents/pound)
20.5
20.7
21.4
21.6
21.7
21.8
21.8
21.9
22.3
22.6
22.3
23.0
22.9
18.6
18.6
19.1
19.4
18.8
19.0
19.0_
18.6
18.8
18.8
18.8
19.1'
19.1
1.9
2.1
2.3
2.2
2.9
2.8
2.8
3.3
3.5
3.8
3.5
3.9
3.8
Source: The Rice Situation, U.S.D.A., Economic Research Service, March 1970.
6
alternatives. Arkansas cooperatives have taken advantage of the
strength of the domestic market and dollar export market more than have
Texas firms. Whereas, the usual sales allocation is about one-third
to each of the three," the Arkansas cooperatives have strong sales in
the domestic and, about equal to those of Texas in the dollar export
market. As a result, dependence on P. L. 480 is much less important to
Arkansas cooperatives, Table 4.
There is substantial agreement in the industry, that the new fla
vored rices will become more important over time in their share of the
total rice market. Yet, we have only two Texas mills that are reason
ably active in development or marketing of these rice products.
The alternative to product development is to sell products to those
further processors who are placing the needed thrust in new rice product
formulation and marketing. Here, though, Texas appears to be outmaneu
vered by Arkansas' dominant mills.
Estimates are that the present U. S. domestic market is approximately
60 percent regular rice, 25 percent instant or parboiled rices and 15
percent flavored rices and mixes. In all likelihood the latter category
of products will increase to at least a third'of the market by 1975,
or soon thereafter. The impact of this on the Texas rice industry must
be carefully evaluated.
ConSidering the suggested problems confronting the Texas rice market
outlook, it behooves the American Rice Growers Association to consider
how its gro;;.;rer membership might be a constructive force in expanding and
improving markets for Texas rice.
7
Table 4
Shipments of Milled Rice by Market and State Average of Four Seasons
. <".,' (1965-66 through 1968-69)
Market States Texas Louisiana Arkansas
- - - - - - - - (percent)
Domestic 33 26 24 48
Dollar Export 35 42 26 36
P. L. 480 32 32 50 16
Source: The Rice Miller's Association, July Statistical Statements.
"
8
THE RICE MARKETS
Many classifications exist for markets and none is probably all
inclusive. Even so, it is pertinent to be acquainted with the more
significant ones mentioned by those interviewed during the course of
research on rice marketing. The order in which these are presented is
of no significance. Figures are given that in some cases are rough es
timates of the size of the particular markets. Obviously, from amoni
the fifteen shown, there are a number of combinations from which a mill
may choose, Table 5.
Repackers package rice under their own brands or private label them
for food chains. Consequently, part of the market assigned to private
labels goes through repackers.
Consumer brands are not all direct, either. General Food's brand,
Instant Rice, is a further processed product included within the consumer
brands total. The same applies to the flavored rices of Rice-A-Roni and
Village Inn, for example.
The sales distribution that would face a 500 cwt. per hour rough rice
basis capacity mill is provided in Table 6a. Assumed is a sales distri
bution that corresponds to the national industry average. This is con
sidered, more or lesR, the minimum size mill for reasonable operating
efficiency in today's market.
Approximately 16,000,000 cwt. of rice is sold through the domestic
consumer market, Table 5. Our presumed mill needs to sell only about
129,000 cwt. in the consumer market on a brand basis. That is equivalent
to less than 1.0 percent of the national market for brands. It is
9
Table 5
Market Distribution of U. S. Rice sa1esl/
Market Volume (Thous. Cwt.)
Consumer brands (mill brands or processors) 13,200
Repackers 792
Private Label 2,122
Wholesalers 660
2/H. R. 1.- 3,300
Government, state and federal 660
Schools
Institutions
Federal H.E.W. Programs
Commissaries and PX's 66
Manufacturing 3,960
Cereal 1,650
Soup 73
Canned rice and baby food 148
Beer 2,088
Dollar Exports 21,120
P. L. 480 21,120
TOTAL 67,00~
figures are rough estimates but most are based upon sources.
1/Hote1, restaurant and institutional trade.
3/- Assumes 66 percent yield from 101.5 million cwt. U. S.
produc.tion.
relevant data
10
Table 6a
Markets for Rice1! (For a 500 cwt. Per Hour Mill Using National Sales Profile)
Market Volume,'~'" '
Rough Rice . Milled Rice
(cwt. )
Consumer Brands 198,200 128,830
Repackers 12,000 7,800
Private Label 30,000 19,500
Wholesalers 10,000 6,500
H. R. 1. 49,000 31,850
Government, state and federal 10,000 6,500
Schools
Institutions
Federal H.E.W. Programs
Commiss aries and PX's 800 520
Manufacturing
Cereal Rou~
25,000 Milled 16,250
60,000 39,000
Soup 1,000 650
Canned Rice anfood
d baby 2,200 1,430
Beer 31,800 20,670
Dollar Exports 315,000 204,750
P. L. 480 315,000 204,750
TOTAL 1,000,000 650,000
figures are rough estimates but most are based upon relevant data sources.
11
Table 6b
1Market Distribution ofa Five Million O;.zt. 1:-1i1l /
Market Volume
Consumer Brands (mill brands or processors)
Repackers
Private Label
Wholes alers
H. R. 2/1.
Government, state and federal
Schools
Ins ti tutions
Federal H.E.H. Programs
Commissaries and PX's
Manufacturing
Cereal 80,050
Soup 3,544
Canned rice and baby food 7.181
Beer 1.01,314
Dollar Exports
P. L. 480
TOTAL
640,298
38,418
102,933
32,015
160,075
32,015
3,201
192,089
1,024,478
1,024,478
3,250,000
figures are rough estimates but most are based upon relevant data sources. J-Iil1 capacity on a rough rice basis.
~/Hote1, restaurant, and institutional
12
impractical to distribute rice for a one percent market share. Rather,
sales would need to be concentrated in a few target markets. Consequently
the possibilities of this marketing strategy must be explored.
Four markets are taken as an example in Table 7. They are Atlanta,
Dallas-Ft. Worth, Houston and Kansas City. Shown is the population of
each, rice consumption l?er capita based on regional averages, and the re
sultant total market sales. These four markets represent an estimated
consumer market for 72 million pounds or 721 thousand cwt. If a 15 per
cent market share can be obtained this would equal 108,230 cwt. or 84
percent of the brand sales the plant would require to match the national
pattern. Attainment of a 15 percent share is rather optimistic whereas
6 percent would be conservative. The latter share would take 43,000 cwt.
Or only 33 percent of the needed sales. In this event more markets could
be added, such as New Orleans, St. Louis, Knoxville, Memphis, and Nash
ville, Table 8. These markets equal an estimated 493,000 cvt. A 15 per
cent market share nets nearly 74,000 cwt. and a 6 percent share about
30,000 cwt. Combining the nine markets, a 15 percent share totals about
182,000 cwt. and on a 6 percent share 73,000 cwt. A 10 percent share would
equal 111,000 ewt., or close to the 129,000 target set to match the na
tional rice marketing pattern for such a 500 cwt. per hour mill.
The advertising cost over the nine markets would total $475,000,
Table 9. Total sales of the assumed 500 cwt. per mill would equal 650,000
ewt. per year, Table 6a. At an average of 15 cents per pound, sales would
amount to 9.7 million a year. Advertising expense would be 4.9 percent of
sales. This compares with a reported 10 to 12 percent by Uncle Ben's,
6 percent by Riviana and 8 to 10 percent for Minute Rice.
13
Table 7
Examples of .AdvertisingMarketts Potential
City Population ~Thous.)
Retail 1/ Food Sales(Mil. $)
Per Capita Rice . Market Market Consumption Y Total Share 15% (Pounds) (1000 ·lbs.) . (1000 lbs.)
Atlanta 2,247 772 6.9 15,504 2,326
Da11asFt. Worth 2,669 1,093 10.7 28,558 4,284
Houston 2,254 794 10.7 24,118 3,618
Kansas City 1,725 751 2.3 3,968 595
72 ,148 10,823
15% market share = 108,230 cwt.
6% market share = 43, 290 -C~,t.
first two categories were obtained from Sales Management, September 1, 1969.
YThese correspond to regional rates taken from "Distribution of Rice in the United States, 1966-67", U.S.D.A., ERS - 408 •
. ,
14
Table 8
Further Examples of Advertising Market's Potential
Retail Per Capita Market City Population Food Sales Rice Consumption Total
(Thous.) (Mil. $) (Pounds)__~_. (Thous.
New Orleans
Knoxville
Memphis
Nashville
St. Louis
1,505 484 6.8 10,234
1,017 318 6.8 6,916
2,050 557 6.8 13,940
1,721 541 6.8 11,703
2,838 1,006 2.3 6,527
49,320
15% market share = 73,960 cwt.
6% market share 29,580 cwt.
Market Share 15%
lbs.) (Thous. lbs.)
1,534
1,037
2,091
1,755
979
7,396
15
Table 9
Cost of Projected Advertising Markets
15% Advertising Advertising City ~rket Total Market Share Expense Expense in
(thous. lbs. (thous. lbs. ) (dollars) cents per lb.. Atlanta 15,504 2,326 52,740 2.3
Dallas-Ft. Worth 28,558 4,284 72 ,060 1.7
Houston 24,118 3,618 54,870 1.5
Kansas City 5,692 595 55,410 9.3
Sub-total 10,823 235,080
New Orleans 10,234 1,534 42,000 2.7
Knoxville 6,916 1,037 27,000 2.6
Memphis 13,940 2,091 46,000 2.2
Nashville 11,703 1,755 45,000 2.6
St. Louis 6,527 979 80,000 8.2
Sub-total 7,396 240,000 3.2
Total a. 15% Market Share: 18,219 475,080 2.6
b. 10% Market Share: 12,000 475,080 4.0
c. 6% Market Share: 7,300 475,080 6.5
16
A 5 million cwt. mill annual volume would simply increase our mini
mum size mill market data by five. However, some economies of scale
could be achieved in advertising. Actually the figures shown are first
year introduction campaigns. The second year advertising outlays may
fall to two-thirds of the price set, or be about 3.2 percent of sales.
Viewed another way, it would equal about a half a cent per pound over
total plant production.
Based on the brand label rice sales, the advertising cost would
equal 4 to 5 cents per pound. According to wholesale prices in Dallas,
Ft. Worth, and Houston, brand label rice sells on an average for about
7 cents a pound premium, and if parboiled it is nearly 15 cents a pound
prerrdum, Table 10.
THE EIGHT STEP LADDER OF ALTEfu'TATIVES
With the foregoing information as a general guide, the key question
must be decided of what marketing strategy to pursue. Alternatives can
be considered on the basis of eight possible steps of marketing involve
ment. They are as follows:
1. Rough rice producer selling and use of mill grades.
2. Rough rice producer selling and use of A.R.I. grades.
3. Rough rice producer selling and use of A.R.I. grading plus
A.R.I. market information.
4. Rough rice central sales agency
a) without milling
b) with milling
5. Rough rice central sales with bargaining
17
Table 10
Wholesale Prices of Rice by Type }~rketed at Retail Level Dallas, Ft. Worth, Houston
June 1970
Price (cents/lbs. )
Private Label long grain
Brand Label long grain
Parboiled
Instant
Flavored or mixes
12.0
19.3
26.9
47.9
68.0
Source: Survey of selected food chain buyers by Texas Agricultural Market Research and Development Center.
18
a) without milling
b) wi th milling
6. Milling with sales to
Private label
Manufacturing
Repackers
P. L. 480
7. Milling with above outlets plus own brand.
8. Milling with all of 6 and 7 plus new product development.
The cost of each step is more than the preceding one; so are the
rewards in profits, if properly done.
The question is how many step should you take?
EVALUATION OF ALTERNATIVES
The only means of decision making for marketing strategy is to evalu
ate the alternative courses of action in terms of relative costs and pro
spective returns. Consequently, attention will now be turned to consider
ing each of the eight marketing ladder steps from such a viewpoint • . ..
ROUGH RICE SELLING UNDER MILL GRADES
This is the system currently used for Texas rice. It has resulted
in little, if any, premium being paid for Texas rice. With the D.S.D.A.
price support program serving as a base, mills bid a modest amount over
that level, knowing it will secure the rice needed. The result was well
illustrated by the differential of no more than about 5 cents over the
average price in Arkansas, though Texas now produces a 7-1 ratio of long
to medium grain rice and Arkansas at only a 2-1 ratio.
19
So long as the present system prevails, there is no real incentive
for a mill to pay more for rice. To do so would only jeopardize their
campetitive pasitian versus other mills. If .one mill tries ta lead and
pay higher prices"t:;here is no assurance the others will follow. Prob
lems of leadership in raising prices were discussed with the Arkansas
rice industry and the same facets of the situation posed were mentioned
by them.
ROUGH RICE SALES USING A.R.I. GRADES
American Rice, Inc. is well on its way to having established a
satisfactory rice grading system for producers. At least two major mills
agree that it has cansiderab1e potential. It appears, nonetheless, that
imp1ementatian .of the system, to be useful to praducers, must require
three sets .of action.
1. Same coardination and agreement with mills as ta the final system
Dr factors to be used in grade establishment. This is essential
in order that the grade carre1ate with the processes the respec
tive mills use in rice milling. Not all have the same milling
and parboiling operation.
2. A system of premiums and discounts by rice grades must be es
tablished by the American Rice Growers, Inc. If this is not done,
the mills will continue to pay almost no, or a very modest, pre
mium for rice of the better milling and other qualities.
3. No adequate premium and discount system can be farmulated without
knowing the real value difference as derived from wholesale mar
ket prices of milled rice by kind of product, and the cost of
20
putting it in that form. This American Rice appears to lack
at the present time, but can get through some added research
effort on someone's part.
The need to establish a sampling and grading system supervised and
controlled by the association -- thus assuring control over quality in
sales or in milling -- is demonstrated by the operations of the Califor
nia Rice Growers. A sound grading system is the cornerstone of any suc
cessful operation.
Finally there is the question of who should pay for the grading
service? Mills now have this expense and would gladly let producers
assume this cost. It is recommended that a shared cost system be con
sidered so that American Rice will be adequately reimbursed for pro
viding the service.
Benefits of the grading system are that it permits the rice growers
to be on a more equal knowledge basis with mill rice buyers. Presumably
more reasonable premiums and discounts would arise because of better
information for bargaining by rice growers.
ROUGH RICE SALES USING A.R.I. GRADES AND MARKET INFOfuVL~TION
Incorporated in this marketing style is the development of a sophis
tlcated information system that will provide growers with equal or better
market supply information than that held by mill rice buyers. As supplies
of various grades of rice were determined by the A.R.I. grading system
knowledge of initial supplies by grade at the beginning of a marketing
season would be known. Sales would be recorded during the season so that
up-to-date market supply facts would be at the rice growers disposal as
the marketing year progressed.
21
In answer to the question what they need to do a better job and in
listing their major problems most dryer-warehouse ~~nagers mentioned
the grading system and insufficient market information.
Presumably this information system would enable growers or managers . ~ ..~ '
to bargain more effectively in accepting or rejecting bids by mill buyers.
Again~ however, there is the question of how much more is parboil grade
rice worth if the supply is 10 percent under a year ago. Needed would not
only be a supply information system but also retail or wholesale market
movement data to determine demand in relation to available supplies. The
latter information can be somewhat expensive.
The cost of the information system might be borne by the grading fees,
or else financed separately. It is estimated that the cost of the retail
or wholesale movement data would range between$250~000 and $500,000 per
year. That would be equivalent to I to 2 cents per cwt. of rough rice.
Use of the foregoing grading and information system should permit,
over time, the establishment of a realistic premiums and discount system
for rough rice sales to mills. If the system is adopted by all sellers,
then a question arises as to how you demonstrate its effectiveness to
growers. An analytical approach may be requ~red, or if enough rice moves
outside the system, a comparison may be useful but will not necessarily
be dependable by itself.
The conclusion and recommendation is that this system be adopted but
it may not provide the necessary means for arriving at a true value for
rice -- demand and supply considered by end uses. However, since whole
sale market prices of milled rice are kno~~, it should be reasonable to
establish some guidelines as to the equivalent value in rough rice.
22
Although this would be an improvement over the existing situation
individual producers acting independently would still be lacking in
market power and would have no influence on price.
ROUGH RICE CENTRAL SALES AGENCY
Use of a central ~ales agency for rough rice would provide an im
proved basis for utilizing the supply and market information available
under the marketing method noted above. Individual sales that could
undercut the premium and discount system would be reduced if a substan
tial part of the rice were sold by a central sales agency.
It would be necessary to market at least 50 percent of the rice
through the central sales program in order to have much influence on the
pricing levels. This conclusion is based on the fact that with about
a third of Texas rice going P. L. 480, one must market more than that
share to be able to influence the market. Otherwise the central sales
agency may end up simply handling P. L. 480 destined rice.
The experience of the California cooperative again demonstrates the
need to obtain a sufficient volume of rough rice, or percentage of the
total crop, so as to be able to establish a position of leadership and
become the dominant factor price-wise.
Central sales would require the use of a pooled pricing system and
pooled supplies. One of the advantages of a central sales agency is its
ability to furnish rice in pooled lots to mills and thereby reduce pro
curement costs of the mills. Mill buying costs for rice now appear to
range from about 3 to 6 cents per cwt.
Some indications have been received, however, that mill buying costs
are going to decline an}~ay. Usefulness of the American Rice, Inc.
23
grading system is recognized and that properly used it eliminates field
buyers errors in judging rice quality_ Thus, a considerable reduction
in the number of field buyers is in prospect with movement to a buying
staff largely at the mill headquarters. Ability to show savings over the
cash buying approach will thereby be lessened.
ROUGH RICE8ENTRAL SALES WITH BARGAINING
The next logical move, if the above steps are not effective in fair
returns to growers, is to adopt a system of direct bargaining with mills
at the outset of each season. A set of prices and/or price differentials
would be agreed upon tied to wholesale milled rice prices or to
price levels. Bargaining could go beyond this to set a floor under rice
.prices that would have to be reflected in increases in both wholesale
and retail prices of both milled and further processed rices.
Evidence available at this time indicates that the demand for rice
is not overly sensitive to price. Price is important among mills and
brands but if the total level is raised it is doubtful that rice pur
chases by consumers would be materially affected. Studies reveal an in
crease of 10 percent in the price of rice and will probably drop sales
by no more than 3 percent. Applied to Texas ,rice in the domestic mar
ket this would mean that out of the approximately 8 million cwt. sold a
net gain of $2.6 million would possibly be realized by growers. Calcu
lations are as follows:
24 million cwt. total production in Texas
8 million c,vt. domes tic market
8 million cwt. x $5.00 $40 million
7.76 million cwt. x $5.50 $42.6 million
Net change -3% +10% +6.5%
24
Based on division of the rice market into about a third each in
domestic, dollar export, and P. L. 480 export, it is felt that some
thing in excess of 30 percent of the Texas crop must be in the hands of
the growers central sales bargaining program in order to gain leverage
on the domestic and dollar export quantities. If the central sales
agency can have control of the top quality rices only, a smaller percen
tage of the total crop would need to be held. It is generally recog
nized that, for the most part, P. L. 480 utilizes the lmver grade rice.
In view of the above situation, it is recommended that use of this
approach require commitment of about 50 percent of the total crop to the
central sales - bargaining agency. The agency can. of course, restrict
itself in bargaining only to long grain rice and measure control against
that supply only.
The rationale of the 50 percent control level is that if no more than
a third is held, the mills could buyout of free supplies all domestic
and dollar export needs, leaving the central sales agency with no alter
native but to sell in a competitive P. L. 480 market and then maybe late
in the marketing season.
Because seasonal movement of P. L. 480 r~ce can be a factor in the
bargaining stance, data were obtained to consider recent seasonal move
ment patters, Table 11. It is clear that some heavier shipments occur
in the January-March and April-June quarters. Yet during the 1963-68 mar
keting years only 63 percent of the total was moved during these quarters.
Included are P. L. 480 purchases from all states. Texas may be able to
hold back and bid only on the last two quarters but it may be risky to put
all movement at that time. Ihe action of the U.S.D.A. might adjust to such
a need but some assurance would be required.
25 Table 11
Rice Exports, Dollars, and P. L. 480 Quarterly, 1963-4 -- 1968-9
Year July-Sept. Oct. -Dec. Jan.-Mar. Apr .-June
,- Government Exports P. L. 480 (million cwt.)
1963-4 1.3 5.1 5.2 3.9 1964-5 1.6 2.6 4.8 3.5 1965-6 1.7 3.7 1.5 3.0 1966-7 2.8 4.0 5.3 6.2 1967-8 1.5 4.4 5.0 5.70 1968-9 3.3 3.7 4.1 10.6
Average 2.03 3.92 4.48 5.48
Dollar Exports (million cwt.)
1963-4 2.9 2.5 5.7 4.6 1964-5 2.0 3.7 3.9 6.4 1965-6 4.0 6.0 6.3 4.1 1966-7 4.1 3.9 7.9 5.1 1967-8 4.9 5.3 7.4 5.9 1968-9 4.2 5.3 2.3 4.7
Average 3.68 4.45 5.58 5.13
Total Exports (mi11ic,n cwt.)
1963-4 4.3 7.5 10.9 8.5 1964-5 3.6 6.3 8.7 9.9 1965-6 5.7 9.7 7.8 7.1 1966-7 6.9 7.9 13.2 11. 3 1967- 8 6.4 9.7 13.4 11.6 1968-9 7.5 9.0 6.4 15.3
Average 5.73 8.35 10.07 10.62
26
During the 1963-69 seasons prices strengthened somewhat in the April-
June quarter, Table 12. The pattern does not always hold, however,
Table 13.
MILLINGWITHSALEST0 NON~BRAND MARKETS
The next possible step in marketing is the development of a sales
program integrated forward into milling. Milling can be used to guaran
tee a market for the rice assigned to the central sales agency. In this
manner, it serves a vital part of a solid marketing program. It would
also serve the further advantage of having "milled knotvledgell of rice
operations to use in bargaining on any rough rice sales to other mills.
The experience of both the Arkansas and California cooperatives
indicates that the best possibility for rice producers to maximize
returns is through a broader operational base including cooperative pro
cessing and marketing. They can thus share in proceeds accruing beyond
the value of their rough rice.
To be fully effective a rice producer organization should move from
the area of simple bargaining to the physical operation of drying and
storage, milling, packaging, and domestic and export shipment. These
operations would actually compliment and enhance the organization's bar
gaining position.
In order to operate successfully in a broader base beyond rough rice
storage and sales at the local level an organization must (1) obtain a
guarantee of supply of rough rice, or control through contracts with mem
ber producers; (2) development a sound public relations program that will
establish a feeling of trust and confidence from member producers, other
27
Table 12
Average Prices on Exports of Rice (By Quarters) 1963-69 average
Market 'July-Sept. Oct.-Dec. Jan.-Mar. Apr.-June
Government P. L. 480 6.76 6.58 6.71 6.93
Dollar Exports 7.93 8.85 8.18 8.38
Total Exports 7.46 7.72 7.44 7.69
28
Table 13
Average Prices Received on Exports of Rice, By Quarters, 1963-4 -- 1968-9 li
Year Ju1y-:_Sept. Oct. - Dec. Jan. - Mar. Apr. - June
Government Exports P. L. (dollars per cwt.)
480
1963-4 1964-5 1965-6 1966-7 1967-8 1968-9
6.38 5.38 5.53 6.93 8.13 8.18
5.61 5.54 5.95 6.78 7.68 7.89
5.35 5.60 6.47 6.89 8.50 7.44
5.72 5.54 6.80 7.79 8.04 7.69
Average 6.76 6.58 6.71 6.93
Dollar Exports (dollars per cwt.)
1963-4 1964-5 1965-6 1966-7 1967-8 1968-9
7.07 8.25 7.78 7.88 8.08 8.52
9.08 8.41 8.15
10.39 8.47 8.57
8.25 8.79 7.41 7.99 7.39 9.22
8.07 8.03 7.78 7.l19 9.34 9.55
Average 7.93 8.85 8.18 8.38
Total Exports (dollars per cwt.)
1963-4 1964-5 1965-6 1966-7 1967-8 1968-9
6.70 6.97 7.11 7.49 8.09 8.37
6.84 7.22 7.31 8.56 8.11 8.29
6.86 17.03 7.23 7.55 7.89 8.08
6.99 7.15 7.37 7.65 8.70 8.26
Average 7.46 7.72 7.44 7.69
l/These prices do not include subsidies.
29
rice industry groups, and the general public; and (3) obtain qualified
personnel for both internal and external operations.
Two strategies may be assumed. One is to mill and return a premium
price to growers over that in the cash sale market to other mills. This
is the approach of Arkansas Rice Gro'tvers. The other is to bargain also
on rough rice sales to other mills,. In that event, price differentials
will be reduced to that of milling profits only for the part milled in
the agencies o~vn mill. Spread over the total rice marketed by the agency,
milled and rough sold elsewhere, it may amount to only a few cents per
cwt.
One important gain from a more positive position by grmvers in mill
ing is the opportunity to obtain a larger share of the more profitable
domestic market, such as has been cited elsewhere regarding Arkansas,
(see Table 4).
MILLING WITH SALES TO BRAND AND NON-BRfu~D MARKETS
The profitability of marketing rice under one t S o'tm label is not
appreciable at the outset but improves over time if properly managed.
Differences in the price level for brand vers~s private label rice have
already been discussed in a preceeding section of this report.
Market strategy would suggest that the Biue Ribbon Mill be more
directly managed toward a domestic market and dollar export sales effort
than presently. That mill now dominantly sells P. L. 480 rice. It is
conceded, at least by some, to be a highly efficient mill. A gradual
"roll-out" procedure of building brand markets could be adopted. It is
for this reason that groups of markets were considered in the advertiSing
30
cost analyses presented earlier. The Kansas City, Dallas, Houston, and
Atlanta markets could be attacked first and the second set next -- St.
Louis, Nashville, Memphis, Knoxville, and New Orleans. These are not
necessarily priority markets • Further amHyses would be required before
final selection was made.
Attainment of a 6 percent market share seems conservative with the
year-long promotion program outlined. A 15 percent market share would
likely be the upper limit and 10 percent a workable average situation.
Decision-making systems are now available to help guide marketing strategy
decisions. These will not be reviewed here, how'ever.
MILLING WITH NEW PRODUCT DEVELOPMENT
It has been pointed out that the rice mixes or flavored rices now
have an estimated 15 percent share of the domestic market. Consensus
is that their share will continue to grow because of the consumer demand
for a) convenience, and b) new food products.
Arkansas Rice Growers Association is moving into market development.
It would be short-sighted not to do the same through Blue Ribbon or other
acquired facilities. Reference to Table 10 and the price differentials
among the types of rice product marketed make the needed direction of
movement obvious. Product development, nonetheless, is costly and like
advertising must be programmed on a sensible scale of operation.
CONCLUSIONS AND RECO~lliNDATIONS
Based upon the information available concerning the method of opera
tion and performance of the rice industry, it appears advisable to develop
the following as a continuing program.
31
First, put into effect the grading and information system proposed
by American Rice, Inc.
Secondly, establish a central sales agency and develop appropriate
premiums and discounts for various classes of rice. These could be tied
to a system of transfer pricing~
Thirdly, develop a market movement information system at the whole
sale or retail levels for intelligence information on rice demand.
Fourth, establish a bargaining position with rice mills to improve
the general level of rough rice prices to growers.
Fifth, set in motion a more direct involvement of the Blue Ribbon
mill in the total marketing strategy and effort to improve the Texas
share of the domestic rice market.
,(H:< •
A P PEN D I X
33
Ave~age Monthly Prices Received By Farmers For Rough Rice, per 100 pounds, for 1961-1968
Difference Texas Month Texas Arkansas vs. Arkans as
(dollars) (dollars) (cents)
August 5.01 5.06 - 5
September 4.93 4.67 +26
October 5.00 5.02 - 2
November 5.13 5.17 - 4
December 5.01 5.23 -22
January 5.10 5.25 -15
February 5.12 5.26 -14
March 5.21 5.26 - 5
April 5.19 5.26 - 7
May 5.16 5.26 -10
June 5.20 5.26 - 6
July 5.11 5.22 -11
Source: Rice Situation, Economic Research Service, U.S.D.A., March 1970, Table 14, p. 20.
34
PIGGLY WIGGLY -- Ft. Worth Lackland Rd. & H,.;ry. 80
No. of Shelf Package Size Retail Price Facings Brand (ounces) (cen.ts)
3
2
2
3
3
6
2 2 3
1 2 2
4
4
5
3
2
3
3
1
56
Minute (General Foods) enriched pre-cooked - long grain 28 89¢
Wonder (Comet) long grain enriched 28 49¢
R M Quigg's Herb Rice Rice &dehydrated vegetables 7 39¢
Uncle Ben's Quick Rice pre-cooked enriched, long grain 20 79¢
Adolphus Rice (Comet) enriched long grain 42 89¢
R :tv! Quigg's Ranch Rice (dehy. veg.) 7 39¢. Yellow Rice (dehy. veg.) 7 39¢ Curry Rice (dehy. veg.) 7 39¢
Rice-a-Roni Beef Flavor 8 39¢ Spanish Flavor 8 39¢ Chicken Flavor 8 39¢
Betty Crocker Keriyaki 5.5 59¢ Milanese 5.0 49¢ Province 5.5 49¢
Minute (General Foods) enriched pre-cooked long grain 7 33¢
Comet long grain enriched 14 25¢
River Rice (Riviana) not long grain 12 19¢
Uncle Ben's Converted enriched long grain parboiled 28 65¢
Comet Extra Fluffy enriched long grain parboiled 28 53¢
Comet Long Grain enriched long grain 28 49¢
Uncle Ben's Quick Rice enriched pre-cooked long-grain 11 49¢
Arrow Extra fancy medium grain 32 33¢ Arrow Fancy long grain 16 19¢ Total number of facings
~UDDIES SUPER MARKETS -- Ft. Worth Hwy. 80
No. of Shelf Package Size
2 2 3 2
1 1 1 1 1 1 1
2 2 2 2 2 2' 2
4
5
3
2 3 3 3
3 4
3
Uncle Ben's .' . Curried Rice Spanish Rice Beef Flavored Long grain &wild rice
Rice-a-Roni Chicken Flavored Beef Flavored Fried with almonds Turkey Flavored Cheese Flavored Ham Flavored Spanish rice mix
Village Inn Herb Rice Spanish Yellow Curry Rice Beef Flavored Chicken Flavored Long grain &wild rice
River Rice Fluffy White
Arrow Rice Medium Grain Arrow Rice Medium Grain Tender Fluff long grain
Uncle Ben's Converted Rice long grain enriched
Uncle Ben's Converted Rice parboiled Uncle Ben's Converted Rice parboiled Uncle Ben's Quick Rice (5 min.) Uncle Ben's Quick Rice (5 min.)
Minute Rice (General Foods) Minute Rice (General Foods)
River Rice (Fluffy White) Wonder Rice long grain enriched
6 5.5
6 6
8 8
6.25 7 7 7
7.5
6 6 6 6 -.
6 6 6
12
16 32 4 lbs.
42' . 14 28 20 11
28 14
32 70
35
Retail Price
39¢ 39¢ 39¢ 79¢
39¢ 39¢ 49¢ 39¢ 39¢ 39¢ 39¢
39¢ 39¢ 39¢ 39¢ 39¢ 39¢ 89¢
19¢
19¢ 33¢ (special price) 6S¢
89.;: 33<;: 59<;: 79.;: 43¢
97¢ SOc;:
39¢ 8S¢
Total number of facings 63
Wholesale Prices of Milled Rice 1/ Texas and Arkansas, August 1969 - June 197~
Texas Arkansas
Long Medium Long Medium Grain Grain Grain Grain
--Dollars Per ONt.-August, 1969 9.50 8.50 9.75 - 10.00 8.40 - 8.50
September, 1969 9.75 8.50 9.75 - 10.00 8.40 - 8.60
October, 1969 9. 75 8.50 9.75 - 10.00 8.50 ... 8.70
November, 1969 10.00 8.50 9.75 - 10.00 8.50 - 8.75
December, 1969 10.00 8.75 9.75 - 10.00 8.50 - 8.75
January, 1970 10.00 8.75 10.00 8.50 - 8.75
Feb ruary, 19 70 10.00 8.75 10.00 - 10.25 8.50 - 8.75
March, 1970 10.00 8.60 - 8.75 10.00 - 10.25 8.50 - 8.60
April, 1970 10.00 8.60 - 8.75 10.00 10.25 8.50 8.60
May, 1970 10.00 8.60 - 8.75 10.00 - 10.25 8.50 - 8.60
June, 1970 10.00 8.60 - 8.75 10 .00 - 10. 25 8.50 - 8.60
1/- Prices are not averages for the month but are taken from a single week Market News report
in each month. W 0\