Vietnam's rice subsidies benefit foreign consumers, not local producers: experts

By Ngan Anh, TN News

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Vietnam's rice export-focused rice strategy has little to do with current economic realities and has done little to benefit local farmers. Vietnam's rice export-focused rice strategy has little to do with current economic realities and has done little to benefit local farmers.


Vietnam should abandon its efforts to expand rice exports as efforts to do have degraded precious arable land without benefitting farmers, experts say.
State investment in irrigation and other infrastructure designed to boost rice production, were never calculated into rice's production costs, driving down export prices said Nguyen Duc Thanh, head of the rice research team at Vietnam’s Agricultural Alliance, during a recent meeting in Hanoi.
“The subsidies were paid with taxpayer money, but these policies have mostly benefited foreign rice consumers,” he said.
Up to 20 percent of the country's rice is exported.
In addition, domestic rice sales are subject to a five percent value-added-tax (VAT), while exports are not, Thanh said.
The policy benefits exporters and foreign consumers, instead of helping increase the competitiveness of the domestic agriculture sector and supporting local farmers.
In the interests of fairness, he added, the state should eliminate the VAT for domestic rice sales.
The state subsidies have really only helped traders boost medium and low-quality rice exports, he said.
The policy has encouraged local rice farmers to increase production without paying attention to quality--a situation that threatens the agricultural sector's stable development.
Thanh urged the government to add subsidies into the cost of rice to ensure they benefit local farmers.
“Vietnam should focus on increasing rice export values, instead of export volume,” he said
An imaginary minimum
The Ministry of Agriculture and Rural Development, Ministry of Industry and Trade, and the Vietnam Food Association currently set a minimum price that farmers can sell their rice for.
The policy was created to ensure that local farmers make a minimum 30 percent profit, but it rarely achieves that aim.
The government has failed to keep pace with fluctuations in input costs (e.g. the price of fertilizer, pesticides and labor) leading to a system by which the government's notion of rice's production cost is much lower than what farmers spend on growing rice.
In addition, he said foreign importers often end up paying less than the government's minimum for Vietnamese rice.
The regulation has also prevented local farmers from growing high-quality rice varities because of its high production cost.
Economist Vo Tri Thanh said farmers should be immediately included in the government's process of calculating the minimum price for rice to ensure it reflects their economic reality.
Stop export expansion
Due to its low quality, Vietnamese rice rarely reaches high-end consumers.
In recent years, most of the exports have gone to the Philippines and China.
Growing exports to these countries has failed to boost farmer incomes, while placing a signgicant strain on Vietnam's precious arable land, according to the food alliance’s report issued at the meeting.
Thanh said the country's rice export strategy has little to do with the current global economy.
The global rice supply may outpace demand by 2030 due to fierce competition from India, Myanmar and Cambodia which have strengthened their rice exports in recent years.
Meanwhile, import demand is falling in the Philippines, Malaysia and Indonesia since the traditional importers have increased domestic production in the interests of food security.
Ample supply and thin demand will cut prices of the product in the near future, he said.
“We should really reconsider expanding rice exports at this point,” Thanh said.
The average rice export price hit $435 per ton early this year--down 5 percent from 2012.
Luu Bich Ho, former head of the Department of Development Strategy under the Ministry of Planning and Investment, said few countries pursue rice exports because they bring little value.
In the long run, Vietnam should shift from paddy rice cultivation to more profitable crops.
Vietnam exported 6.61 million tons of rice last year for roughly $2.95 billion.
The figure represents a 17 percent drop in terms of tonnage and nearly 20 percent in value from 2012.

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