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Enterprises call for Government intervention to stabilize rice market   2011-03-24 - TBKTSG

It is now the high rice harvesting season in Mekong Delta. However, farmers cannot sell rice, while the price has been decreasing due to low exports. Enterprises have called for government’s intervention to stabilize the market.


Rice price drops sharply


Pham Quang Dieu, Chief Economist of Agromonitor, an analysis and forecasting firm, said that it is quite difficult for rice exporters to find buyers at this moment. In fact, Vietnamese enterprises can export rice at good prices under the contracts negotiated at the government level, but the contracts are near termination. Meanwhile, Filipino trade companies and farm produce trade institutions are still keeping a close watch over the “health” of enterprises and farmers in rice export countries to make decisions. They are still awaiting the rice price in the countries to drop further.


In principle, Vietnamese exporters can collect rice now from farmers to store up and export later when the export prices go higher. If so, both farmers and exporters will get benefit. However, enterprises do not want to collect rice at this moment. According to Vo Hung Dung, Director of the Can Tho Branch of the Vietnam Chamber of Commerce and Industry VCCI, the overly high lending interest rates of 18-20 percent, plus the high loss level in storing have made enterprises hesitant to store rice.


The stagnation in exports led to a decrease in domestic rice prices. In the Mekong Delta, the rice price decreased by another VND100-200 per kilogramme on March 19. According to small merchants, IR50404 price has dropped from VND5100-5300 to VND5000-5100 per kilo, while the price of long grain rice OM4900 from VND5400-5600 to VND5300 dong per kilo. Meanwhile, the material rice used to process five percent broken rice is now trading at VND7100-7250 per kilo, and the material rice used to process 25 percent broken rice at VND6700-7000 per kilo, decreasing by VND200 per kilo on average.


Though the rice price is still above VND5000 per kilo, which means that farmers still can make a profit with the sale prices, Dung from VCCI said it is the right time for the government to intervene by collecting all the winter-spring crop rice from farmers, estimated at 10 million tons. The move, if taken, will help prevent the rice price from falling further.


Pham Quang Dieu agreed that it is necessary for the government to take action to rescue the rice price. He said that, if the government decides to launch the interest rate subsidy programme, it needs to organize the implementation in a way to ensure that the loans can be used for the right purpose and that borrowers cannot use the loans for other projects.


Enterprises told to try to stop relying on government’s negotiations


Several months ago, the Philippines’ National Food Authority (NFA), continuously released the information that the nation would reduce the import volume from the record high level of 2.5 million tons in 2010 to 860,000 tons. NFA allows trade companies to seek commercial contracts to import 600,000 tons. The agency also announced that besides the imports from Vietnam, the country will offer to purchase from other sources, such as Thailand and Cambodia.


Due to the difficulties in rice export, the Vietnam Food Association VFA has to continuously lower the floor export price (Vietnamese exporters must not export rice at prices lower than the floor price). Dieu from Agromonitor said it is the government, not VFA that needs to collect merchandise rice from the public in order to keep the domestic price and export price stable.


Experts have also advised enterprises to reduce the reliance on the contracts signed after negotiations at the government level. They have pointed out that the heavy reliance on the contracts on exporting rice to the Philippines, Indonesia and Malaysia signed after government’s negotiations has made enterprises become less dynamic. Many food companies in localities have just been relying on such contracts, while they do not try to seek markets for themselves. 


As a result, right after the Philippines, a big rice importer, changes its rice import strategy, Vietnamese enterprises have met difficulties in exporting rice. In general, the countries, which import rice under the government’s contracts, only require low quality rice products. Therefore, the satisfaction of the low requirements, in long term, will weaken the competitiveness of Vietnamese rice.


As Vietnam only needs to provide low quality products, it does not try to improve the production process. This explains why Vietnam’s rice is always cheaper than Thailand’s.

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