Agricultural Product Purchasers Lose Home Ground

According to the Food and Agriculture Organisation of the United Nations (FAO), prices of agricultural products, foods and staples have risen most since 1990. The Ministry of Agriculture and Rural Development also predicted that agricultural products will this year come in larger volume, more varieties and higher prices. Vietnam’s primary and advantageous traditional farm produce like rice, coffee, pepper and cashew nuts are estimated to have higher prices. In the first six months of 2011, the exportation of many agricultural products increased strongly from the same period in 2010 but local companies are moaning for hardship because they have to pay exorbitant interest rates and confront tough competition in buying raw materials with foreign traders.

 

When export prices are high, local agricultural product processing facilities will face severe shortage of input materials. Seafood is a primary, reputable exported agricultural product of Vietnam but domestic companies fell short of materials because disease outbreaks shrank fish farming area in the central and southern regions. High borrowing costs also forced farmers to reduce scales. Commercial fishing declined because of unfavourable conditions. As a result, domestic enterprises had to compete with foreign rivals to purchase agricultural products.

 

Coffee prices have jumped high this year but Vietnamese traders are paradoxically suffering losses. The more they sell; the more loss they incur. They signed futures contracts at low prices but now they have to pay much higher for coffee to cover their contracts. Coffee companies complain most about the invasion of foreign rivals and their disadvantage in this rivalry. Data released by the Ministry of Agriculture and Rural Development showed that Vietnam exported 115,000 tonnes of coffee worth US$250 m in June 2011, bringing the total six-month volume to 913,000 tonnes and the value to US$1.93 billion, up 38.6 percent in volume but over 2 folds in value from a year earlier. But companies are still complaining about difficulties they are facing because they signed contract at lower prices although they had been warned of high risks in the context that world economic were volatile. Normally, they sign contracts before buying materials; thus, they do not have the commodity in stock. This year, foreign companies are competing with high prices, sending Vietnamese businesses to dilemma. The Vietnam Coffee and Cacao Association (VICOFA) said foreign traders are stocking some 200,000 tonnes in bonded warehouses and their private warehouses. In particular, the two largest firms are possessing more than 50 percent, or approximately 100,000 tonnes. Meanwhile, farmers are estimated to keep only less than 100,000 tonnes, or 7 - 10 percent of the total output. Now, foreign trading firms turn back to force domestic exporters [to purchase at high prices] because they now keep most of Vietnam's coffee.

 

Vietnamese coffee companies are small and weak. Currently, 150 companies are exporting coffee to over 80 countries and territories in the world, with the United States, Germany, Spain, Italy and Japan being on the Top 10 importer list. They do not have financial capacity or habit to invest in material zones or stockpile materials. This year, interest rates for dong-denominated loans have jumped to 20 percent per annum while the rates for US dollar loans are 6.5 - 7.5 percent, forcing many companies to shrug off bank loans to purchase materials. Meanwhile, foreign competitors borrow loans on international markets at annual interest rates of 4.5 - 5 percent, much lower than those of Vietnamese firms.

 

A similar scenario also happens to the cashew and pepper industries.

 

As they cannot compete with foreign rivals owing to weak capacity, they shift to work as outsourcers for foreigners.

 

Mr Do Ha Nam, Vice President of VICOFA, said: At the start of harvesting season, prices of raw coffee were about VND40,000 per kilo but domestic firms did not have enough money to purchasing, giving up the playing field to foreign companies. Foreigners scoured 600,000 tonnes out of 1.2 million tonnes in this season. If domestic firms had been provided enough capital to purchase 300,000 tonnes, they would have now enjoyed a surplus of VND3,000 billion.

 

But this is just an aspect of computing. If domestic firms had been supported, they would have been able to stockpile commodities, played the leading role in the home market, and pushed back the invasion of foreign firms. They have a lot of advantages like home market, good knowledge of domestic market and propinquity to farmers but they could not turn those advantages into profits. The reality of rubber industry is a vivid example. Most domestic rubber produces must import raw materials while Vietnam is the world’s fourth largest exporter of rubber materials.

 

Domestic businesses always keep on complaining about difficulties, asking for supports and opposing the competition of foreign businesses in the domestic market. However, looking from another angle, as domestic firms do not live on material zones, refuse to invest into them, and lack bonded cooperation with farmers in growing and purchasing, they will be always at an advantage no matter how much support they will receive from the State because foreign rivals have advantages in management, capital and export markets. Some independent experts said when local companies are not interested in developing material zones and only interested in purchasing raw materials on the free market, let the free market decide. They should not complain and demand supports.

 

Domestic companies necessarily focus on improving export value by processing more and reducing crude export. Vietnam is exporting cassava to China and prices of cassava are being pushed up by strong purchases by Chinese merchants. Aggressive purchases of foreign rivals completely push back companies of the host country. Meanwhile, Vietnamese firms export sliced cassava to China at very low prices and import Chinese animal feeds at very high prices which inflate on high prices of manioc.

 

On the other hand, foreigners help hardworking farmers to sell their products at higher prices instead of cheap rates on the free market as earlier. For example, Chinese traders go to Bac Giang and Hai Duong provinces to purchase litchee and they pay many times higher than domestic ones. While domestic companies pay from VND3,000 to VND5,000 per kilo, foreigners offer from VND10,000 to VND16,000. If Vietnamese companies want to take advantage of business opportunities, seek out profits and bring benefits to farmers, they must change themselves instead of asking for protection and facilitation from management agencies.

 

Thanh Nga