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Philippines calls halt to rice purchases through end-2010   2010-08-06 - Thoi bao Kinh te Saigon

The Philippines, Vietnam’s biggest rice customer by far, has announced it will emphasize achieving food self-sufficiency – a problematic development for Vietnam’s exporters.

 

 
Vinafood 2 will suffer

 

Since 1995, the Philippines has been Vietnam’s top rice customer.  Until 2005, the rice export contracts were government-to-government deals.  From 2005 on, though export contracts were ostensibly privatized, it has always been the state-owned Southern Food Corporation (Vinafood 2) that wins the bid and allocates ‘quotas’ to subsidiaries.  Vinafood 2 annually has exported nearly two million tons rice to the Philippines, meeting 2/3 of that country’s import requirement.

 

The new Benigno Aquino administration in Manila says it will encourage increased local food production and change rice import policies, aiming for self-sufficiency in rice by 2013.

 

Tran Duc Tung, formerly an expert at the Ministry of Agriculture’s Planning Department, comments that the sale of rice in big quantities and at high prices to the Philippines has brought big benefits to Vietnam over the last many years. However, Tung says, there has been a downside.  Because enterprises have relied on one big market, they have become complacent.  They have lost dynamism, the most important thing in doing business.

 

“When you have stable export quotas, you will become lazy in looking for new markets,” Tung says.

 

The expert adds that if the Philippines stops importing rice, Vietnamese enterprises will lose a big market.  The silver lining is that this will help energize Vietnamese exporters to look for new markets.  And more importantly, this will help create a healthy competitive market in Vietnam.  Weak state-owned enterprises will be weeded out.

 

Competition will be healthier

 

Other economists say that when rice is sold under annual negotiated contracts, there’s always a risk of a loss. In general, bids are opened at years’ end or when a crop is just planted, before there’s a world reference price established for the harvest in question. Therefore, the price may not truly reflect the real situation.

 

Tung, the former Agriculture Department staffer, recalls only one case since 2005 when Vietnamese rice exporters obtained good prices close to the world price.  In 2009, some enterprises won a bid to export 1.6 million tons at $570 per ton. In 2007 and 2008, because rice prices at the time of signing contracts were lower the world price at the time of delivery, Vietnamese enterprises ‘lost’ hundreds of millions of dollars.

 

The most important thing, Tung says, is that when enterprises export rice at low prices, they also force the price down in Vietnam, which means that farmers will have lower profit and may curtail production.

 

The Aquino administration just installed in Manila has said that it aims to import as much as 50 percent less rice in 2011 "as long as we have the capability to support this technically and financially," and hopes for self-sufficiency by 2013.

 

Also, Manila has said it will reduce the number of import deals carried out through some national food corporations.  Instead, businessmen will be allowed to import rice and they will enjoy a tax exemption.  In fact, the policy has been applied since the beginning of 2010 and some Filipino businessmen have purchased an estimated 700,000 tons of rice directly from Mekong Delta millers.

 

Trade expert Nguyen Dinh Bich believes the Philippine Government’s new policy will break the de facto Vinafood 2 monopoly, creating opportunities for more exporters.  “The market will be more lively and the competition fiercer,” he says. Nonetheless, Bich adds, the market will still depend on good management by the Ministry of Industry and Trade and the Vietnam Food Association.



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