Short on cheer

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VnEconomy English - 33 month(s) ago 4 readings

Vietnam’s rice exports have increased both in quantity and value this year but the country’s rice exporters aren’t jumping for joy just yet.



At a meeting in Ho Chi Minh City in early November with the Ministry of Industry and Trade (MoIT), Mr Huynh Minh Hue, General Secretary of the Vietnam Food Association (VFA), remarked that “rice markets have experienced a special time with many new factors that have created good opportunities for Vietnam’s rice exports to gain a competitive edge over its rivals in terms of price.”

Healthy exports

Such new factors include Thailand’s decision to raise its paddy rice price to local farmers from October 7, the massive imports of Vietnamese rice from Indonesia and the Philippines, and the arrival of Thai companies and their clients to Vietnam to boost rice exports.

The reason is simply because the quality of Vietnamese rice is said to be more or less the same as Thai rice but is cheaper, and even the Thais have considered establishing companies and building rice mills in Vietnam.

Mr Pham Van Bay, VFA’s Deputy Chairman, also told the meeting that Indonesia has emerged as a major market for Vietnamese rice, as in early November it signed contracts to import 1.75 million tons, 1.23 million tons of which have already been delivered, and at the same time the Philippines decided to buy more Vietnamese rice due to declines in their rice stockpiles and serious flooding in the country. Both looked to Vietnam as their first choice.

As at the end of October, according to the Statistics and Information Centre under the Ministry of Agriculture and Rural Development (MARD), Vietnam had exported around 6.5 million tons of rice, earning $3.3 billion, or an increase of 11.6 per cent and 20.3 per cent in terms of quantity and value, respectively, over the same period last year. Vietnam expects to export 7 million tons of rice this year at an average price of around $500 per ton, up 7 per cent over a year earlier.

Other good news for Vietnam’s rice exports this year is that in spite of the floods in the Mekong Delta, the country managed to sign contracts for the export of 400,000 tons of perfume (jasmine) rice at a price of just over $700 per ton, 369,000 tons of which have been delivered. Farmers benefited from the contracts, earning a profit of VND6,200 ($0.31) per kg.

Vietnam began to become involved in rice exports in 1989 and is now the second largest exporter, after Thailand. It rice exports continually increased both in terms of quantity and value during the 2006-2010 period. Vietnamese rice is mainly shipped to developing countries, with 60 per cent to Asia, 23 per cent to Africa and only 3 per cent to Europe.

Apart from maintaining traditional markets such as Indonesia and the Philippines Vietnam has found new markets, including the Ivory Coast, Senegal, Bangladesh and China. Many are of the opinion that Vietnam’s rice exports will eventually reach top place.

Ranking not the focus

Meanwhile, Mr Pham Quang Dieu, a rice specialist, believes the global rice market isn’t going as smoothly as expected and that rice trading is predicted to slow down, but he is still cautiously optimistic. At a meeting in Ho Chi Minh City on November 4, VFA reported that given Thailand’s rice policy and its heavy flooding, the rice price didn’t increase as much as initially predicted, averaging between $517 and $530 per ton in November.

One reason, according to a report from the Food and Agriculture Organisation (FAO) released on November 3, is abundant global supply and an imminent harvest in several Asian countries. Mr Bay also said that it will be hard to assess the rice market in the time to come, because India is experiencing a good harvest and has an inventory of around 22 million tons.

The country is expected to export 2 million tons by March 2012 and its rice price is $100 per ton cheaper than Vietnamese rice. Pakistan has also returned to the market, and the two are more than capable of filling the void left by Thailand, especially in 5 per cent broken rice. This creates problems for Vietnamese exporters.

Mr Le Minh Truong, Director of the Song Hau Food Company in the Mekong Delta’s Can Tho province, said he is having trouble signing contracts for rice exports for the remainder of the year. The director of another food company in nearby Tien Giang province said he was in a similar situation, following the loss of his African markets to India and Pakistan after not being able to compete on price. And despite its serious flooding, Thailand still has an inventory of over 5 million tons. Given the circumstances, it seems certain that India and Pakistan will replace Thailand as Vietnam’s main export rival.

Mr Kittiratt Na-Ranong, Thailand’s Deputy Prime Minister and Minister of Commerce, was quoted as saying that the country is willing to relinquish its role as the world’s largest rice exporter as the government prepares to buy grain directly from farmers to boost prices and rural incomes. “If we cannot help our farmers, what is the point of being the government?,” he said. “I am not proud of being the largest exporter, but I am proud that Thai farmers can grow and sell their products at reasonable prices.”

His remarks were reminiscent of Vietnam’s management of rice exports in the middle of 2008, when the global price reached $975 per ton and the government ordered the cessation of exports to guarantee food security.

But farmers weren’t convinced about the reason, as they believed the order was designed to stop the domestic rice price from following the global price. Such thinking received a boost when MoIT said that the objective of curbing inflation was important and that good profits for farmers could not be ensured. Shortly after the VFA sold paddy rice for VND6,432 per kg, after buying from farmers at only VND4,000 per kg.

Over the last couple of years many rice industry officials and farmers have complained about the monopoly of VFA in rice trading and the profits it was earning. From 2001 to 2005 the price of Vietnamese export rice was only 80 per cent of the average global price, at a cost to farmers. In 2009 and 2010 it was $100 to $150 per ton cheaper than Thai rice of the same type.

Another problem for Vietnam’s rice exports is the “fight” among rice exporters themselves, as there are now 140 authorised exporters under Decree No 109, including four foreign-invested companies. In the opinion of many rice industry officials, Vietnam should pay more attention to maintaining sustainable rice production and not only focus on its ranking among of rice exporting countries.

Speaking at a rice seminar on November 9, Mr Vo Hung Dung, Director of the Vietnam Chamber of Commerce and Industry (VCCI), Can Tho city branch, also said that Vietnam’s ranking is not the issue.

More important was to ensure long-term food security and the interests of farmers, he said. “We should pay more attention to the interests of farmers than worry about our ranking in the world rice export market,” he said. “This involves mapping out a long-term policy for sustainable rice production.”

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