Vietnam wins successive bids for big rice export deals

The Southern Food Corporation (Vinafood 2), a big rice exporter, has "gained a great victory" in the bidding opened by the Philippines to choose a rice supplier.

With the first round of bids on November 4, 2009, Vinafood 2 obtained the contract to export 150,000 tons of 25 percent broken rice out of the 250,000 tons the Philippines offered to purchase at $480 per ton. The delivery will be made in January 2010.

During the next two bids, Vietnam won the right to provide 300,000 tons at the higher price of $620 per ton on average. As such, Vietnam's rice price increased by $140 per ton after one month.

Vinafood 2 also won the latest bid to provide 600,000 tons of rice to the Philippines. Though the price was lower than the December 8 bid, the price level was still regarded as "satisfactory" at above $600 per ton.

Vietnam has thus won all the biggest contracts for rice export, while Thailand, Pakistan and Singapore only made smaller deals.

Before opening bids, the Philippines announced its budget for rice purchases and the price at which they planned to purchase rice. This caused difficulties for rice buyers, because rice exporters offered to sell at higher prices. The Philippines had to adjust its budget and the volume of rice it purchased due to escalating rice prices.

The Philippine government purchased an amount of rice necessary until May 2010, when the presidential election will take place. The Government wants to be sure that there will be no sudden rice price fluctuations.

Some question why Thailand was not really interested in the bids. In 2009, Thailand's rice export volume was modest at 8.5-8.6 million tons. Meanwhile, rice stocks in Thailand are known to be quite large, at nearly six million tons.

Having kept a close watch over rice exports for many years, Nguyen Dinh Bich from the Trade Research Institute commented that it is very difficult to forecast rice prices for 2010 at this moment.

If rice stays at the current level into 2010, this means that Vietnam has won big deals. If the price goes up, Vietnam will lose big because it has sold rice cheaply.

The price at which Vietnamese companies sold rice to the Philippines is high enough to make a profit. The exporters sold rice at 10,500-11,000 dong per kilo, while they purchased rice from processing companies at below 8,000 dong per kilo. In fact, the rice volume to be delivered to the Philippines was purchased before, when the domestic rice price at only 6,000 dong per kilo.

The inventory stands now at some 1.4 million tons that will be used for deliveries in the first quarter of 2010. As such, Vietnamese rice exporters profit well from the signed export contracts.

Nevertheless, price levels may be too low if the rice price on the world market increases in 2010. A rise in rice prices depends on whether India will import rice. It is clear that India has a huge demand for rice, and, if the country imports rice, this will lead to big changes.

To date, available information has led to contradictory forecasts about whether India will import rice in 2010. Economic analysts suspect that the possibility of India importing rice in 2010 is very high. If so, the world's price may skyrocket and this may be the scenario that Thai rice exporters expect. This also explains why Thai exporters did not join the bids to export rice to the Philippines

Chairman of Thai Rice Exporters Chookiat Ophaswongse believes that the rice price would rise and added that he was very surprised when Vietnam demanded less than $700 per ton.