Branding versus Hedging. Adding value to a commodity like rice
The Australian rice industry has been very successful at growing, storing, milling, marketing and delivering Australian rice to customers domestically and internationally. This has been made possible and achievable due to the grower co-operative and now company, SunRice. It has been grower owned, controlled and driven. This success can also be attributed to the legislative framework that the New South Wales rice industry operates under, the Rice Marketing Board Act of 1983. The company, its shareholders and growers, have experienced huge swings in production in the last two decades due to drought, water reform policy changes and the introduction of cotton into the two main rice growing valleys. This has proven to be challenging for all participants in the Australian rice production chain.
SunRice has secured rice, both domestically and internationally, without the presence and use of a futures market to offset price risk. For domestic procurement, SunRice uses a pool system where the grower holds the price risk, whereas with international procurement SunRice bears price risk. A futures market or a single price reference point may erode the competitive advantage SunRice currently holds. SunRice’s market experience, reputation and relationships has enabled the business to maintain existing markets, develop new markets and extract a premium.
Value-added, consumer focused and innovative rice products need to be the future focus of the industry. Where possible, the industry needs to provide incentives for loyalty to the pool to even out supply peaks and troughs and offer contracts for specialty varieties that have contracted sales in the market place. The industry also needs to focus on the whole rice farming system by investigating innovative and branded products from complementary crops in the rice system. This would enhance the profitability of the Australian rice farmer. Finding the most efficient and profitable level of production will also be key.
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