Rice exports: Is Vietnam subsidizing foreign consumers?
Rice exports: Is Vietnam subsidizing foreign consumers?
Reviewing the effectiveness of rice exports and solutions to improve the position and role of farmers is the subject in the recent research "Structure of the rice industry and the interests of small producers" by the Agricultural Alliance.
Export more rice?
Dr. Nguyen Duc Thanh - Director of the Center for Economic and Policy Research and a member of the research team – said that Vietnam’s policy to export more rice may not be a wise strategy.According to Thanh, state food companies still dominate the export market as Vinafood corporations 1 and 2 accounted for more than 40% of total rice exports of Vietnam in 2013. Rice exports are subsidised in the input stage so the more Vietnam exports rice, the more it subsidizes foreign users, Thanh said.
He explained that when townspeople pay taxes, the taxes are used to directly support farmers through the construction of road and irrigation works. This expense is not included in the sale price of rice so when rice is sold to townsmen, it is no problem because it should be seen as the townsmen subsidizing the rice price. However, when rice is exported, that expense cannot be regained when Vietnam is competing with low prices.
The findings also indicate that rice production in Vietnam remains at medium quality and low price. For the same rice variety, Thailand usually sells it at the highest price and Vietnam at the lowest price. For example, in July 2012, Thailand exported rice at $592 per ton compared to $415 per ton for Vietnam.
Therefore, Thanh recommended that Vietnam’s agriculture in general and rice industry in particular should focus on the domestic market instead of foreign ones. Then Vietnam will move the labor force from agriculture to industry because if farmers are stuck with land and agriculture, they will hardly be able to improve their living standards.
Lessons from Thailand
The market structure characteristics of Vietnam rice is described as a chain with various stages of production, starting from farmers who sell paddy in the fields to traders. Traders purchase the paddy and then sell it to the millers and then rice exporters. Farmers who have no storage and lack of capital have to sell rice to traders at low prices and often take the highest risk.
To deal with this situation, Dao The Anh, deputy director of the Institute for Food Plants, said that the role of cooperatives and farmers' organizations is very important.
Dr. Nguyen Van Giap of the Institute for Rural Strategy and Policy, said in Thailand the milling systems were invested in the 1940s and they still work very well today, so the competitiveness of Thai rice is better than Vietnam. Thailand's rice production chain has only three stages: production, millers and exporters.
Dr. Vo Tri Thanh, Deputy Director of the Institute for Economic Management, said: "To implement an agricultural revolution, Vietnam must have a scale advantage, a value chain and capital-technology absorbing organizations, and finally, these organizations must serve the rights of farmers. The idea on institutional reform of agriculture was mentioned in a speech delivered by Prime Minister Nguyen Tan Dung in early 2014."
Rice exports hit over 6 million tonnes in 11 months
Vietnam earned nearly 3 billion USD from exporting more than 6 million tonnes of rice in the first 11 months of 2014, according to the Vietnam Food Association (VFA).
The association reported that at present, the prices of dried unhusked rice in the Mekong Delta region range from VND5,450 to VND5,750 per kg.
Rice with five-percent broken grains is sold at VND7,100-VND7,200 per kg while that with 25-percent broken grains, VND6,850 to VND6,950 per kg.
This year, the country expects to export 6.5 to 7 million tonnes of rice, worth about $3 billion, revealed the VFA.
Traditional export markets for Vietnamese rice include Singapore, mainland China, Hong Kong and Cote d'Ivoire, as well as Algeria and Indonesia.
The association also predicted that 2015 will be a tough year for Vietnam's rice exporters in the face of fierce competition from their Thai rivals because Thailand has concentrated on recovering traditional rice markets in Africa and expanding its markets in Asia, especially the Philippines, Indonesia and China.
