Global glut, falling demand: double whammy for Vietnam rice exports

By Bao Van, Thanh Nien News (The story can be found in the March 7 issue of our print edition, Vietweek)

Email Print

Workers load rice into containers slated for export

Vietnam is likely find rice exports difficult this year due to the increasing global supply as Thailand seeks ways to liquidate its huge inventory and lower demand as some importing countries increase their own production, Trinh Van Tien of the Institute of Policy and Strategy for Agriculture and Rural Development tells Vietweek.

Vietnam has seen rice exports fall in recent months due to volatility in the global market. What is your forecast for 2014?

Trinh Van Tien: In the short term, the world rice market is seeing an oversupply. Some countries which used to depend on rice imports are increasing their production of the grain to ensure food security. The Philippines, Indonesia, and Malaysia used to import large quantities of rice, but have now reduced imports since they have increased production.  

Meanwhile, the global supply has increased. Thailand had a large rice inventory as a program to buy rice from farmers to keep export prices high by the Thai government since 2011 has failed. Thailand’s inventory now is estimated at some 15 million tons. To raise money to pay farmers who sold rice to the government, Thailand will have to cut its export prices to increase sales, dragging down prices in the world market and affecting [all] rice exporters including Vietnam.

The increase in the supply is also attributed to rising production and exports by India. Its rice exports were even higher than Vietnam’s in 2013. India offers very competitive prices for low-quality rice, bringing down the average price on the world market. The average price fell to around US$400 per ton late last year, from over $550 a year earlier.

If there are no factors like severe natural disasters affecting rice production, the rice market will see prices fall due to the oversupply, and importers will have more choices.
''Africa is a promising market with large demand, but its finance is limited, so Vietnam may face difficulties in getting payments"

Despite the situation, the Vietnam Food Association (VFA) has set a rice export target of 7 million tons, higher than the 6.7 million tons exported last year. Do you think Vietnam can achieve the target?

The export volume is not the most important issue for Vietnam now – to whom we can ship our rice and at what price is. China recently refused to import rice from Thailand due to the political instability in the latter. Some people think that it is an opportunity for Vietnam. With lower transport costs, Vietnamese rice has greater advantages compared to other countries. China may increase purchase of Vietnamese rice via unofficial channels across the border.

However, it is very dangerous for Vietnam. It is difficult to monitor this export model. The Ministry of Industry and Trade cannot find out the exact volume of exports under this model. Small traders, when they see large profits, could increase rice purchases from farmers for export under the model. This could cause difficulties for other traders in buying rice to fulfill export contracts they have signed. So it could destroy Vietnam’s official export system.

Vietnam does not expect much from importers who buy rice on credit under government contracts. Africa is a promising market with large demand, but its finance is limited, so Vietnam may face difficulties in getting payments. In addition, Africa mainly imports low-quality rice and Vietnam cannot compete with India, Pakistan, and Myanmar due to their lower prices.

Asian countries like the Philippines and Indonesia, which used to import Vietnamese rice, have reduced demand due to their increasing production of the grain.

Vietnam’s rice exports in the coming time will depend on the operation of the VFA since there will not be many more importers. Our traditional customers like the Philippines and Indonesia are studying the market to decide the best time and source for importing rice. The association’s operations should be improved to help importers.

The government often asks traders to buy rice from farmers and keep in stock and wait for higher prices before exporting. Should we do the same thing in the upcoming crop?

We could do it years ago when exporters did not have big inventories. Traders did not face difficulties in selling the rice they stocked. But the inventory
is too large now. Besides Thailand, India also has large rice stocks. If our traders also buy rice for stockpiling, the global rice inventory, which is already big, will increase further, causing a risk of losses for traders.

Some traders made losses when export prices fell last year, and so they have been unable to buy rice and stockpile this year. The government can buy rice from farmers to stockpile, but it is very difficult because of the limited funds.

For farmers, selling their rice is expected to be difficult in the coming time. What should they do to avoid risks?

Our traders operate in an unscientific manner. The prices they offer for some varieties of good rice, which farmers are encouraged to grow for exports, are not much higher than those which have high output but low quality and require smaller investment. So farmers do not grow the kind of varieties that authorities encourage them to. Traders buy all kinds of rice from farmers, even low-quality ones, when they have large export orders.

So it is difficult to answer the question about what farmers should do now.

According to the VFA, farmers should stop growing the spring-summer rice crop since it often rains during harvest time, affecting the quality. The rice from the crop cannot be exported. What do you think about it? 

In theory, farmers should do it since we have an ample rice supply for domestic consumption. However, authorities have not yet found out what farmers can do to replace the rice crop to earn an income. So the idea is impractical.

Like us on Facebook and scroll down to share your comment

More Business News