Vietnam, under its commitments to the World Trade Organization, is expected to allow foreign firms to buy and export rice from this year.
If permitted, the move is likely to benefit farmers and encourage competition among local producers, Nguyen Dinh Long, deputy head of the Institute of Policy and Strategy for Agriculture and Rural Development, told Thanh Nien Weekly.
Thanh Nien Weekly: Vietnam, this year, is expected to allow foreign firms to participate in the rice export market, according to WTO commitments. How will this affect rice export?
Nguyen Dinh Long: In theory, there will be no impact, as competition is a motivation for development. However, inexperienced firms unable to cope quickly with the international integration may be taken advantage of by foreign firms.
When foreign firms invest in the field, we could learn from the experience of big groups which have been trading internationally for years. As we improve sales, marketing, and deliver goods faster to consumers, we will begin to cut costs in the intermediate stages, making selling prices more competitive. In addition, it will create a new professional playing field for local and foreign firms. Local firms will have to improve their quality to exist in a competitive market.
Foreign firms will invest in infrastructure and production development, and advanced technology, which will improve our rice, and help us meet international quality standards. Thus, farmers may get better contracts and more stable production, and may enjoy more benefits in the value chain.
Are we being too optimistic, considering farmers have been always at a disadvantage compared to others who contribute to create the product's value chain?
At the moment, farmers only produce rice and sell their raw products. They are not involved in the product reaching consumers. In fact, the biggest value additions come at the stage of processing and packaging.
If permission is granted, farmers will participate more in the development of the product's value chain. They will have more access to information about the true value of their produce, and will be able to negotiate selling prices. Meanwhile, foreign investors will want to invest in the producers, so they can have a stable supply of rice.
Vietnam now houses over 200 rice exporters, mainly small firms, which don't have enough warehouses or processing capacity to fully meet export requirements, according to the Institute of Policy and Strategy for Agriculture and Rural Development.
The country exported nearly 1.7 million tons of rice worth US$849 million in the first quarter of this year, an increase of 17 percent and 7.3 percent respectively over the same period in 2010, according to the General Statistics Office.
Do we have to worry that foreign firms will take advantage of smaller businesses in Vietnam and misuse transfer pricing? What can the government do to prevent this?
Due to lack of competition, the rice enterprises in Vietnam are inexperienced in export, and have poor management and finance know-how. Thus, it is difficult for them to actively compete with accomplished foreign firms.
In improving themselves, local firms should not rely solely on the state's assistance. They should be aware of the competition soon coming into the market, cooperate with each other, and share their experience to create an open economic space.
To prevent foreign firms from taking advantage of smaller businesses in joint ventures, the state should build a sound legal barrier to protect the small fish in the common playing field. When local firms become more mature, the barrier will gradually disintegrate, and finally be eliminated. However, firms should improve themselves and strengthen cooperation swiftly.
How do you assess Vietnam's rice market and its export capacity this year?
The rice market now is very big. The world is facing a food crisis, and our worry is that we don't have (enough) rice to sell. The power dynamics are shifting constantly in the world, with wars and loss of harvest. For example, China is suffering due to droughts, while countries like the US are reducing their cultivation land to grow maize. There is a global food security crisis. There is immense potential for the export of Vietnamese rice.
Our macro issue now is to choose the right markets, the right time, and the right quantity to export. This year, Vietnam is expected to produce 39-40 million tons of paddy rice. After setting aside enough for local consumption, we could export 5-6 million tons of the grain this year alone. I am optimistic about the rice export market, as we have bargaining power now.