India has stopped corn and soymeal exports to Vietnam after Hanoi rejected cargoes totaling 50,000 tons over fumigation issues, threatening to stoke food and feedstock prices in Asia.
Traders from both countries have said Vietnam could be forced to turn to more expensive south American supplies, pushing up prices in Asia when leading economies there are battling inflation.
Vietnam is one of the biggest buyers of corn and soymeal from India, a leading supplier to Southeast Asia.
On Tuesday, China joined India, South Korea and Thailand in raising interest rates to keep a lid on rising prices, a major worry for a number of governments trying to boost rapid growth.
Hanoi had rejected 50,000 tons of corn and soymeal after insects were found in the cargoes from India, a Vietnamese government source said.
The cargoes had been infected with the Khapra beetle, a native of India and identified by the Hanoi-based Plant Protection Department as "˜Trogoderma granarium everts', in a letter sent to the Indian counterpart and seen by Reuters.
Traders in India said Vietnam had adopted a new fumigation procedure, leading to the cancellations. Exporters are hoping to be allowed to re-fumigate, something that Vietnam has allowed in the past.
A diplomatic source in Hanoi said the Indian embassy had been in close contact with the Vietnamese side.
"The shipments are very much in Vietnam and they have not been re-exported," the diplomatic source in Hanoi said. The embassy "hoped to have it resolved in a couple of days".
He declined to speculate on the likely outcome.
"The volume of corn and soymeal found with insects were on two vessels and we have ordered them to be re-exported," said a source at the government-run Plant Protection Department in Hanoi.
"I have a few containers of soymeal booked for Vietnam but I am not going to send it. No point in getting shipments rejected at Vietnamese ports," a Mumbai-based trader, who did not wish to be identified, said.
Corn prices in Vietnam were around VND6.5-6.8 million (US$333-$349) per ton, nearly 27 percent up from a year earlier, and the problems with imports could fuel prices further.
Most Asian governments are struggling to contain soaring food inflation as bad weather hits crops from as far afield as Australia and Brazil.
Hanoi plans to keep annual inflation below 7 percent after consumer prices jumped to a 22-month high last December. Traders in India said it was a little early to gauge the impact of Vietnam's move on Indian export prices.
Traders and analysts said Vietnam may turn to South America for both corn and soymeal but the Southeast Asian nation will have to pay about $40 per ton more for the grain and feedstock.
But cargoes from Brazil or Argentina may take 30 days to reach Vietnam against an average 13 days from India.
"Apart from the fact that they will have to pay more and wait longer, Vietnam will not be able to source American corn and soymeal in small containers. Vietnam will have to depend on large Panamax vessels from America," a New-Delhi-based trader said.
Vietnam spent an estimated $200 million to import feed and raw material such as corn and soymeal for feed production in January, up 24.2 percent from the same month last year, government data show.