A tough year for rice exports

The Vietnam Food Association (VFA) reports that the global market’s abundant rice will put pressure on domestic rice businesses. Several rice producers, especially Thailand, also need to sell large quantities to settle their inventories.

VFA President Truong Thanh Phong says rice businesses have 780,000 tonnes outstanding from contracts signed in 2012, and the export of about 40 percent of that volume is facing likely suspension.

“Foreign dealers are trying to gauge the price of Vietnamese rice as we have yet to sign any large contracts to sustain domestic rice prices,” says Phong. “We should therefore be tactful in negotiations and rice export management.”

VFA plans to export 1.4 million tonnes in the first quarter of this year. Businesses are currently keeping 800,000 tonnes in stock, and an estimated 3.8 million tonnes is expected to be harvested from the winter-spring crop.

Although it is attempting to reduce inventories, the association has also asked the government to start stockpiling 1.5 million tonnes from February.

The association has set a target of exporting 7.5 million tonnes in 2013, slightly less than 2012′s figure.

Last year rice exports hit a record high of 7.72 million tonnes, earning $3.45 billion (FOB value), representing an increase of 8.3 percent in volume, but a fall of 2 per cent in value.

The average FOB price was $446.86/tonne, $46.85 less than the previous year’s.

The market structure changed dramatically after traditional markets cut imports while emerging market imports increased sharply.

The quality of Vietnamese rice improved considerably, with high-grade rice making up 46.29 percent of total export volume, increasing 79 per cent against 2011.

VFA concludes that 2012 was a comparatively difficult year for Vietnamese rice businesses due to cheaper than average global prices and undercutting by traditional rice producer competitors like India, Pakistan and Myanmar.

Against the odds, Vietnam finished the year with record high exported rice volumes, in addition to stabilising the domestic rice market, ensuring national food security and supporting rice farmers.

Thanks to accurate forecasts and close coordination between ministries and agencies, timely decisions were made to reserve farmer rice, thereby preventing a sharp fall in domestic rice prices and enticing foreign dealers to return and sign contracts.

However, VFA is aware that rice exports were overly reliant on commercial contracts for small amounts, low prices and high risk.

High bank rates and conditional regulations forced businesses to sell rice at low prices in the interest of capital turnover and in order to pay their bank debts.

Poor financial management contributed to a number of businesses’ bankruptcy declarations after pouring investment into infrastructure upgrades to meet rice export conditions.