STRATEGY ALTERNATIVES FOR MARKETING TEXAS …afcerc.tamu.edu/publications/Publication-PDFs/060170...

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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

Transcript of STRATEGY ALTERNATIVES FOR MARKETING TEXAS …afcerc.tamu.edu/publications/Publication-PDFs/060170...

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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

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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

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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

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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

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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,

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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.

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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

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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.

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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.

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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.

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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.

"

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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

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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

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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.

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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

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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.

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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 •

. ,

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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

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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

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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

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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.

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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.

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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

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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.

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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.

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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.

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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%

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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.

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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

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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

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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

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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.

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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

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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.

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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.

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,(H:< •

A P PEN D I X

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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.

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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

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~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

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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\