Reforms in rice export mechanisms to ensure Vietnam farmers’ profits

Traders would be allowed to buy rice at market prices and the government will subsidize losses incurred by farmers when world prices fall under a new mechanism being devised for rice exports.

"The market mechanism will remove monopolies and obstacles for traders and farmers (in rice production and sale). Farmers' profits of at least 30 percent will be ensured," Deputy Minister of Agriculture and Rural Development Bui Ba Bong told Thanh Nien Weekly.

The government will no longer set any limits on shipments, but decide the export volume based on world demand. The removal of export quotas will not affect national food security, he said. "We will not put forth fixed export volumes for each year, but flexibly direct shipments according to weather conditions and the rice output."

Vietnam's export quota system has faced repeated criticism from provincial authorities and exporters, who have said they have been allowed to export much smaller volumes than their capacities.

The rice export quota for this year was originally capped at 5.2 million tons, but Deputy Minister of Industry and Trade Do Huu Hao recently said this may be increased to 7 million tons.

Bong said to prepare for a market-based rice sector, farmers should focus on improving quality so that their produce fetches good prices.

Nguyen Dang Chi, vice head of the Export-Import Department under the Ministry of Industry and Trade, said local authorities should increase monitoring of export contracts to ensure the volume signed is not higher than the output.

Under the new mechanism, surveillance of export prices should also be strengthened so that farmers do not suffer losses, Chi said.

Associated and indirect benefits

Chi said associations of rice producers, traders, processors and exporters should take steps to harmonize members' benefits so that the rice market is stabilized.

"Our associations have not done this yet," so the prices have sometimes gone out of control. Traders often rush to purchase paddies when the international market is favorable, and engage in distress sales when it turns unfavorable.

In Thailand, the associations work together to put forth acceptable prices to all parties in case the market experiences big fluctuations, he said.

Head of the Price Management Department under the Ministry of Finance, Nguyen Tien Thoa, said the state has offered indirect support to farmers via policies for firms. It has offered preferential taxes for agricultural equipment and provided credit support for firms so they have enough capital to purchase rice from farmers and prevent prices from falling.

Such assistance dose not violate Vietnam's international trade commitments, he said. "To support farmers in a more comprehensive manner, we, in 2010, will build a fund to stabilize rice prices when they fall."

Chi said more warehouses should be built to meet demand for maintaining rice reserves.

Export prospects

Rice exports are expected to rise late this year when big export contracts can be signed, according to the VFA. The country shipped 4.98 million tons of the grain in the first nine months this year, a 40-percent year-on-year increase. However, export revenues of $2 billion marked a 6.2 percent decline in value against the same period last year.

The VFA expects an additional 1.2 million tons of rice to be shipped in the final quarter of this year, taking total exports this year to a record setting 6-6.2 million tons. As of September 30, export contracts totaling 5.8 million tons had been signed.

The association also forecast an increase in rice prices next year, when the world's demand for the grain is expected to exceed supply by 7-9 million tons. Next year, India's rice output is expected to be down by 16-18 million tons due to drought, while reserves in Thailand and Vietnam are estimated at just 9 million tons.

Rice futures on Wednesday surged to a nine-month high in Chicago after the Philippines, the world's biggest importer, said it may boost overseas purchases because storms in the past two weeks have damaged the domestic crop, Bloomberg reported.

"If we start having problems, weather problems, production problems, the price of rice is going to skyrocket over the next decade," investor Jim Rogers, chairman of Singapore-based Rogers Holdings, told Bloomberg. "When it happens, I don't know," he said. "Rice is a basic foodstuff for much of the world."