Vietnam’s rice exports now mostly rely on Chinese buyers who accounted for 60 percent of exports in April, according to the Vietnam Food Association (VFA).
China has remained the largest importer of Vietnamese rice since last year, raising concerns among local traders about price squeezing and sudden contract cancellations, experts say.
Meanwhile, Vietnam has lost a significant amount of the global market share to Thailand, leaving it heavily reliant on China which took 60 percent of exports in April, according to the Vietnam Food Association (VFA).
China is forecast to remain Vietnam's biggest customer in the coming months due to its increasing demand for the grain. Local traders are boosting their exports northwards, mostly through unofficial cross-border channels as global contracts continue to get gobbled up by Thailand, the association said.
“Rice shipments both through official and unofficial channels could help Vietnam boost exports and avoid further price decreases during this tough time,”
Tran Thanh Hai, deputy head of the Ministry of Industry and Trade's Export-Import Department, said.
Local traders find it easy to boost shipments to China as their cross-border buyers purchase huge volumes without the strict quality controls imposed on official exports.
However, Hai warned traders to be cautious about shipping their products to China.
Trading with Chinese companies always comes with a high risk of non-payment as their importers are willing to cancel contracts with Vietnamese exporters as soon as someone offers them a lower price.
Pham Tat Thang from the Trade Research Institute said China is a market that every rice exporter wants to infiltrate.
As a result it has a lot of options. Meanwhile, Vietnam finds it hard to increase its exports due to falling demand and rising local supply.
Between January and April, Vietnam saw a year-on-year drop of nearly 19 percent in its rice exports, as Thailand scooped up many of its traditional markets, according to the VFA.
The association blamed the drop on its loss of many traditional markets in Africa – the country’s second largest rice export market – to Thailand.
Malaysia has also stocked up on rice from Thailand to meet demand this year, while Indonesia, another important market for Vietnam, has yet to see demand for imported rice.
Capitalizing on the situation, Chinese traders require contracts that stipulate payments be made only after delivery. Under this model, they can force Vietnamese sellers to accept a lower price after the product leaves their hands, Thang said.
The traders often cancel contracts if the price of rice fluctuates, he added. Most of the cancelled export contracts (which accounted for 54 percent of all contracts last year) were bound for China, according to the VFA.
Trinh Van Tien of the Institute of Policy and Strategy for Agriculture and Rural Development said that given the lower transport costs, Vietnamese exporters have a lot to gain from selling rice to China.
But he warned that such cross-border sales may prove dangerous for Vietnam.
“The Ministry of Industry and Trade cannot monitor the exact volume of exports under this model,” he said.
If small traders start seeing large profits and increase rice purchases from farmers for cross-border exports that could cause difficulties for other traders in buying rice to fulfill their official export contracts.
In this way, a rise in cross-border trading could destroy Vietnam’s official export system, he explained.
According to the VFA, some Chinese traders could ask Vietnamese partners to mix low-quality white rice with jasmine and then resell the lot as jasmine rice to earn bigger profits. This could reduce the prestige of Vietnamese rice on the world market, it added.
Tien said Vietnamese traders should more carefully consider contracts with Chinese partners to minimize risks to their businesses and the domestic industry as a whole.
Last year, Vietnam sold nearly 2 million tons of rice to China, or 33.2 percent of its total export volume of the grain.
VFA estimated that Vietnam will export some 6.2 million tons of rice this year, compared to 6.5-7 million forecast at the beginning of the year.
Tien of the Institute of Policy and Strategy for Agriculture and Rural Development said the world rice market is seeing an oversupply in the short term.
Some countries which used to depend on rice imports are increasing their production of the grain to ensure food security. Indonesia and Malaysia used to import large quantities of rice, but have reduced imports since they've increased production.
Meanwhile, the global supply has increased. Thailand began hoarding rice in 2011 to keep export prices high, but the program failed.
Today, Thailand’s inventory is estimated at some 15 million tons.
The huge increase in supply has also been attributed to rising production and exports from India whose exports exceeded Vietnam’s in 2013. India's highly competitive low-quality rice pulled the average global price down to US$400 per ton late last year, from over $550 a year earlier.
“If there nothing like a severe natural disaster affects global rice production, the market will see prices fall due to an oversupply, and importers will have more choices,” he said.