Rice: The Secret Ingredient in Everything from Baby Food to Beer

America loves rice. Whether with gravy, red beans, or Kung Pao chicken, per capita consumption has grown threefold since 1970. But the starchy grain can be found in plenty of other places besides the dinner plate. Rice is a key ingredient in everything from breakfast cereal to vitamins and from baby food to beer (Anheuser-Busch is the largest buyer in the country). Last year the U.S. rice industry generated more than $3 billion in retail sales. So why are farmers planting less of it?

Because they see it as a losing crop. As such commodities as corn, soybeans, and wheat become more profitable, growers in all rice-planting states except California plan to reduce the land used for rice by 17 percent this year, to 3.02 million acres, according to the U.S. Agriculture Dept.'s prospective plantings report released today.

Rice prices—which fell 4 percent in 2010—are expected to increase 3 percent this year, trailing projected gains for corn at 60 percent, soybeans at 46 percent, and wheat at 36 percent, reports Bloomberg News. The combination of increased global demand and reduced production caused rice futures on the Chicago Board of Trade to reach a 27-month high in February.

Huge Buildup in the Silos

Consumers shouldn't worry, though; whether they're buying Budweiser or Uncle Ben's, retail prices are expected to hold steady or only increase moderately. That's in part because the U.S. had record rice acreage and production last year, which should offset this year's decline, according to Jim Guinn, vice-president for international promotion at the USA Rice Federation, a trade group in Arlington, Va.

Brewers also expect stable supply. Pete Kraemer, vice-president for supply at Anheuser-Busch (BUD), says that while rice is an expensive ingredient, it is essential for the Budweiser recipe. "The anticipated reduction in rice acres may have some impact on price," he says, "but we anticipate an ample supply of rice in the U.S."

Americans consumed 91 million pounds of Mahatma rice, the country's top-selling rice brand, in the 12 months ended Jan. 29, according to data from the USA Rice Federation. Mahatma is manufactured by Riviana Foods, a subsidiary of Spain's Ebro Foods (EBRO:SM), a food company in Madrid with $2.4 billion in revenue in 2010.

Other leading brands: Uncle Ben's, owned by Mars, which sold 71.2 million pounds in the same period. Canilla, owned by Goya, sold 53.9 million pounds, and PepsiCo's (PEP) Rice-A-Roni sold 40.5 million pounds.

Population Effects

Rice's popularity is due to two major factors, according to the California Rice Commission. First, many Americans are consciously trying to eat healthier foods, and rice, especially brown rice, can be rich in nutrients. Second, the nation's growing Asian and Hispanic populations both favor cuisines that rely heavily on rice. As these populations are expected to increase, rice consumption should also keep rising.

The Hispanic population increased by 15 million people from 2000 to 2010—more than half of total U.S. population growth—and now makes up 16 percent of the country's population, compared with 13 percent in 2000, according to 2010 Census data. In the same decade the Asian population has grown by more than 4.4 million people and now represents 4.8 percent of the U.S. population.

Says Alfredo Gomez, senior business manager for domestic rice at Riviana: "Our sales have sustained growth as popularity has grown. Also because of population complexity, rice consumption has gone up."

"Rice is expected to be a standout performer over 2010-15" as demand for healthier and gluten-free foods increases, according to a report on dried processed food in the U.S. by Euromonitor International. In particular, consumption of brown rice is expected to rise, as more consumers prefer whole grain foods.

Other Surprising Uses

Consumers may think of rice as a mealtime staple, but about 42 percent of U.S. domestic rice shipments go to industrial food processors, with beer and pet food manufacturers accounting for nearly half of industrial sales, according to the USA Rice Federation.

The beer industry bought 11 percent of domestic shipments of rice and pet food manufacturers 10 percent, according to the federation's 2008-09 figures, the most recent data available.

After industrial food processors, retail grocers are the second-largest market, buying about 19 percent of domestic shipments of U.S. rice. "Ethnic distributors," such as JFC, Nishimoto, or Rhee Bros.—which purchase rice for repackaging or resale to ethnic grocery stores and restaurants—account for 14 percent of domestic shipments, according to the USA Rice Federation.

Byproducts from processing rice, including stalks, hulls, and bran, are sold for other uses. Defatted rice bran and hulls can be sued in livestock feed, according to Riceland Foods. Bran is sold to the pet food industry, and hulls can be used as a pressing aid in fruit juice extraction and as bedding in poultry houses.

Pharmaceutical companies also buy rice bran for products that claim to treat diabetes, high blood pressure, high cholesterol, and eczema, according to webmd.com.

Click here to see all the steps involved in getting rice from field to fork.

Before it's here, it's on the Bloomberg Terminal.