The Vietnam Food Association (VFA) has announced its decision to lower floor prices of a number of export rice products. This is the fifth time VFA has made adjustment to the floor price of export rice since early this year, which signals a “standstill” in this year’s rice export market.
Accordingly, five percent broken rice stands at US$500 per tonne (down US$20 per tonne) and 25 percent broken rice, US$480 per tonne (down US$10 per tonne).
Lower prices to increase export
These adjustments seem to be unreasonable since according to statistics of the Ministry of Agriculture and Rural Development, the first two months of 2011 witnesses the highest increase in farming export. In details, rice export reaches 1.1 million tones, bringing back an amount of US$595 million in terms of revenue and an increase of 55.6 percent in terms of quantity. However, according to economics experts, VFA’s lowering floor prices given current context is normal. This act mainly aims at stimulating export and rice consumption for farmers.
Meanwhile, many believe that the fact that rice export in the first two months has been higher than ever before is not due to fluctuations in the consumption market but this is the volume contracted by enterprises earlier. The rice volume contracted for 2011, in fact, is “standing still” due to market demand.
For instance, the Philippines, the world’s largest rice importer, has not participated in the market as it usually does right from January. If this country imports two tonnes of rice in 2010, it will import only about 800,000 tonnes for this year. The Philippines is amongst the largest customers of Vietnamese enterprises. According to specialists, the Philippines’ import reduction will somehow cast an impact on Vietnam’s rice export this year. Even Thailand, the world’s largest rice exporter also cut its selling prices with a view to attracting buyers. Countries which import large amount of rice are still waiting for further cut in prices before making decisions to buy.
Meanwhile, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecasts that prices of farming products in the global market, including wheat, soya beans and sugar, will start to go down from next year since farmers accelerate production after prices hit record. In the quarterly market report, in quarter I 2011, the ABARES states the record high prices of agricultural products will encourage farmers worldwide to increase cultivation areas and this will certainly push supply up and thereby lower prices of farming products including rice.
Small enterprises find it hard to “survive”
Another difficulty that domestic rice enterprises currently encounter is fierce competition against foreign food enterprises. As committed in WTO roadmap, the domestic food market will be open to foreign ones. Foreign food enterprises will receive equal treatment as local ones are entitled to. Foreign enterprises used to create a joint venture with a local one if they wish to do business here. The VFA, therefore, believes that small and retail rice enterprises run a high risk of being overwhelmed by foreign enterprises. Vietnam is currently home to hundreds of enterprises participating in rice export. However, just over 30 ones are well capable of exporting rice. The vast majority of such enterprises are small and retail enterprises, getting some containers of rice exported annually only. Even worse, enterprises are challenged with high interest rates.
Many believe that the VFA’s continuous adjustment to floor prices of export rice since early this year is a move to stimulate the export market. However, in order for rice products of Vietnam to have better quality, higher prices and be competitive on global market, there needs to be long-term policies. Moreover, it is necessary that during implementation of floor price cut, there be a transparent mechanism so that enterprises can avoid unnecessary shocks.
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