Strengthening Cooperation between Farmers & Enterprises

Unreasonable explanations
On March 17, 2008, the Vietnam Food Association (VFA) asked its members to temporarily halt exporting rice for time-limited contracts in March (while rice export contracts in April must wait for guidelines from the association). It could be said that, the decision has shocked not only rice export enterprises but only millions of local farmers, especially those in the southern provinces where is known as the granary of the country. Results from the decision were inevitable. In terms of macro policy regulation, the decision has proved that there have been shortcomings in management of rice export activities.

When requested to explain, jointly liable people explained that: Firstly, to ensure national food security; secondly to fight inflation. Are the explanations reasonable?
Firstly, talking about "national food security", Vietnam is one of leading rice export countries in the world. Thus, the matter is not a big problem for Vietnam compared to other countries worldwide, especially those that can not supply rice for themselves. With a rice cultivation every three months in addition to other food-producing trees being grown alternately, Vietnam is not in high risk of a food crisis. Rice for export only accounts for around one tenth of the national food reserve. If the country  increases rice export volume to some hundreds of thousands of tonnes even millions of tonnes, the country is still not in high risk of a food crisis. With turnovers from rice export, the country can stockpile foodstuff for itself in emergency cases including crop failure.

Clearly, national food security is not a convincing reason.
What about the reason for inflation? Firstly, the reason seems to be unsensible. Vietnam is home to 70 per cent of population living in rural areas, so a high rice price will help rural people increase their income. Only 30 per cent of the population working in non-agricultural sectors would suffer a loss. However, for people living in urban areas, daily spending on rice makes up only a small part of their total expenses, so a high rice price does not affect them much.

This is simply how money is transferred from urban people to rural people. The national economy is not affected.

Therefore, it is not factual that a high rice price will negatively impact the national economic development - the view seems to be so short-sighted. On the contrary, the country could earn a substantial income from boosting rice export activities when the world's rice price increased, making a great contribution to limit imports.  This was a significantly rare chance for the country. 

If the rice price is higher next year, the country will earn more, because Vietnam is quintessentially a rice basket!

2009: No more shocking rice prices
In fact, according to experienced specialists, there is still a secret why the VFA decided to stop rice export in 2008 when the world's rice price was high. Some said that the postponement of new rice export contracts unintentionally helped rice export enterprises prevent big losses.

Annually, the country takes part in biddings to ship rice to traditional markets including the Philippines and Indonesia. The Vietnam Northern Food Corporation and Vietnam Southern Food Corporation are entrusted with the bidding, and then they will allocate quota to their members companies to carry out the signed contracts. These contracts often make up the large ratio of the country's yearly total export volume. The bidding starts by the end of a year and the export contracts won at the bidding will last until the end of the following year.

As usual, rice export enterprises often sign rice purchase contracts with local suppliers before or right when they win future contracts to prevent possible risks and enjoy price difference. If these enterprises write long-term contracts with farmers, farmers will feel safe about their rice cultivation. Long-term contracts with farmers will also help enterprises ensure timely delivery to their partners without fear of local higher rice price when the schedule of delivery comes. However, the problem is that there is no close cooperation between enterprises and farmers in the country. Enterprises ink rice export contracts with foreign partners though they do not sign any long-term rice purchase contract with local farmers to ensure that when the schedule of delivery comes, they will have enough rice to export.

There are many reasons for loose cooperation between farmers and enterprises. Sometimes, after enterprises ink rice purchase contracts with farmers, farmers still break the contracts when the price of farm production increases while enterprises do the same when farm production is down.

The loose cooperation between enterprises and farmers can be explained through understanding that the country has shifted from an agricultural-oriented economy to a market-oriented economy, hence important values of the market-oriented economy such as prestige, and other norms have not been adhered to. 

It is very difficult for both enterprises and farmers to change their mind and awareness immediately. They need time to change gradually.

Please note that to date, formerly the world's goods price is table so loose cooperation between enterprises and farmers did not cause losses for them. But now everything is not the same. The world's goods price often changes unexpectedly and rice price is not an exception. Enterprises always face high risk of losses as when they purchase rice for export, rice price is higher than that at the time they win rice export contracts and when the world's foodstuff price strongly increases, local enterprises also surely suffer losses. In the situation, if the government allows enterprises to ink as many as rice export contracts as they can, farmers and the country will benefit, but enterprises will suffer big losses. Therefore, there is no surprise if these enterprises have asked the VFA to stop rice export contracts to maintain local rice price and of course with the reasons: "ensure national food security and curb inflation".

However, the postponement of rice export contracts when the world's rice price was high did more harm than good.  In a recent meeting, the Vietnam Food Association (VFA) has forecasted that: in 2009, farmers worldwide have a bumper crop. Moreover, when the rice inventory is significant, rice reserve also increases; due to the global recession and financial crisis, the import market will decrease. There will be only positive signs for foodstuffs and agricultural produce export in the last six months of 2009. "In 2009, Vietnam will be able to export five million tonnes of rice. The VFA has asked enterprises to purchase rice from farmers with the price of VND3,000-4,000 per kilogram and the association will not limit new rice export contracts except for contracts of too low price", Mr Truong Thanh Phong, VFA President affirmed.

Thanh Tam