Since the trend is that rice will be in oversupply, the policies that seek to expand the demand for rice (for example, by using rice as the raw material for making processed food products) are deemed to be necessary to stabilize rice price. Even if the direct payment subsidizing rice income decouples from production, the decreasing trend of rice price is expected to be maintained.
The rice consumption for making processed food products in Korea is on an increasing trend. However, the yearly price volatility is very high. Since the government releases the rice for making processed foodstuffs according to market supply and demand, the rice consumption fluctuates sharply depending on the amount of rice released.
It is analyzed that when the price of the rice for making processed food products increases, the consumption of the rice decreases. If the price of the rice increases 1%, the rice consumption falls by 0.75%. Especially if the price of the rice the government supplies for making processed food products increases 1%, the consumption amount would decrease by 0.89%. What this means is that the role of the government is important in expanding the rice consumption for use in processing.
As the raw material for use in making some processed food products, rice is analyzed to be a substitute to wheat flour. If the rice price becomes higher than wheat flour price, the rice consumption decreases, whereas wheat flour consumption increases. This means that the stability of rice price in relation to wheat flour price is very important for stable growth of rice-processed food manufacturers.
The demand for rice for producing wet-milled rice flour is expected to increase to 50,000~140,000 tons depending on estimation method. Considering the increasing trend of rice consumption for wet-milling and the will of the government, the rice consumption for wet-milling may increase to about 50,000 tons in 2020. The amount of wet-milled rice flour that member companies of KRFA (Korea Rice Foodstuffs Association) intend to buy is estimated to be about 100,000 tons. However, the possibility of a gap between intention and actual undertaking should be taken into account. The R10 campaign, which was launched to promote rice consumption, is now underway and about 140,000 tons of rice flour are expected to be consumed. However, since food consumption patterns don't change overnight, it seems likely that this would take a lot of time.
In Japan, too, policies that seek to expand the consumption of rice flour are underway to replace wheat flour consumption. However, the consumption remains stagnant at 100,000 tons, and of this amount, wet-milled rice flour is estimated to account for less than 20,000 tons.
If the current environment for investment continues, the investment appeal is analyzed to be low since the IRR (internal rate of return) is about 2%. If the price of MMA rice continues to stay at 335 won/kg in the future too, the rate of return is estimated to exceed 10%. If the price of the raw material is maintained at 500 won/kg, the internal rate of return will be about 7%. The price level that would not incur loss is analyzed to be around 800 won/kg.
Researchers: Dong-Kyu Park, Chang-Gon Jeon, Woong-Yeon Lee
Research period: 2009. 12. - 2010. 5.
E-mail address: dgpark@krei.re.kr