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Rice growers vie for export opportunities

Update: November, 26/2012 - 11:19

The Viet Nam Food Association predicts rice exports could reach a record high of 7.5-7.7 million tonnes this year. Viet Nam News reporters Quynh Anh and To Nhu went beyond the numbers to ask experts for a real perspective about the nation's rice production.

What are our competitive advantages on the rice market?

Samarendu Mohanty, chief economist, Manila-based International Rice Research Institute:

 

Samarendu Mohanty
This year, our data clearly points out that India will surpass Thailand to become the world's top rice exporter, estimated to export more than 9 million tonnes. We do not know who will get the top spot for the next year, 2012-13, but there will be keen competition among all three countries. Viet Nam will have a huge opportunity to become the next top exporter because its neighbour China will continue to import more. However, watch out for Myanmar. It will be very competitive in the future as another low-cost producer. They have a lot of potential to become bigger than even Thailand or India.

Your stable production from year-to-year is your biggest comparative advantage, you don't have year-to-year fluctuations like Thailand or India. Viet Nam has been a very reliable supplier, which is very significant.

Nguyen Dinh Bich, senior rice trade expert:

 

Nguyen Dinh Bich
It is not yet final which country will be in the top spot this year, but what we know for sure is that, as of October 30, Viet Nam has exported 6.8 million tonnes while the figure for India was only 6.2 million. Meanwhile, it's now quite challenging for India to get to the 9 million figure in one forecast because India has never managed to export more than 1 million tonnes in a month. Viet Nam still has a chance, so we'll see about that. Our advantage is that many customers for low-cost rice are geographically close to us. Even if we offer the same price, or even slightly higher, they will still buy from us. In addition, our rice is often freshly-harvested, which can be a plus.

What are the biggest obstacles to increasing rice production and exports?

Bich: Our biggest problem is that we are not doing really well at understanding and forecasting market trends. That's why, more often than not, our pricing strategies are not in compliance with, or even contradictory to, market development, putting us in a less competitive position. For example, export prices in the first ten months of the year fell remarkably by 8.3 per cent compared to the same period last year while the average global price was down by only by 2.4 per cent. Such a difference suggests that our pricing strategy was not working as it was supposed to.

While market forecasts and pricing strategies are vitally important, what I have observed is that, in the current system, it is still not clear who are responsible for these tasks. The Government's latest decree on rice exports states that the Ministry of Finance will provide guidelines to determine the export floor price and the Viet Nam Food Association will announce the floor price. This provision is equivocal because it does not say exactly who is responsible for determining the floor price. That might be a reason that the price quoted on the VFA website is not officially labelled "the floor price" but merely stated as a guideline for rice exporters. Rarely has anyone been held accountable for selling at lower prices, a practice that is not uncommon. Consequently, floor price – a powerful tool in pricing strategy – has not been utilised at all.

The other thing is that policies should target the right group. I do not think that is what is happening now. For example, the Ministry of Agriculture and Rural Development is a strong advocate for a policy to encourage farmers to store rice at their households so they don't have to sell immediately after harvest. As economically promising as it might sound, it is not a smart approach at all. Remember, most of our farmers are small-scale, so how can they afford expensive storage facilities? In addition, farmers lack any market knowledge to know when the best time to sell is, but enterprises have both the resources and the capacity for such operations. Incentives would have more pronounced effects if they were given to enterprises.

Mohanty: What I am quite pleased to see is that Viet Nam has made very little intervention into the domestic market as has been seen in other rice-producing countries. Of course, it could still do more to develop infrastructure and improve quality. I am in favour of supporting farmers – every country has a right to support their farmers – but you have to support them in a way that doesn't destroy the domestic market. What has been most talked about recently is Thailand's intervention – the Government has been holding a huge amount of rice in reserve since last year. If Thailand continues this programme, it may eventually affect quality.

What Viet Nam needs to do better is to get a more accurate assessment of the situation. You should establish good market intelligence in other countries on a real-time basis. The better your intelligence, the safer you are from market shocks. But, of course, India is intervening in its own market and nobody knows how much Thailand is going to export, so there will be a lot of uncertainties. I don't think Viet Nam can avoid this.

Viet Nam has mainly catered to the low-end of the market. Why don't we target the higher-end?

Mohanty: Rice is essentially a demand-driven commodity. Viet Nam has been selling a lot of low-quality rice because there is demand for it. If there were demand for high-quality rice, the rice sector would pick it up and quality would eventually improve. I do not think the Government has to do a lot about that, the market will take care of it. Right now, the demand for low-quality rice still dominates, but if I am looking at the next ten years, I expect the demand for high-quality rice to increase markedly because consumers will have become more quality-conscious.

Bich: The reason for that must be viewed from an historical perspective. In early days, when we still suffered from famine, we opted for high-yield, short-duration varieties, and since then that preference has been established quite well. It is logical that high-yield, short-duration varieties can only give low-quality rice. But if you grow high-quality rice varieties, like Thailand, of course they will yield less and the growing duration is longer. You can't have it all. That's why it is an oversimplification to say that we have to export high-quality rice to get higher profits. It is the same with measuring the economic gains of selling a lot of cheap things with selling just a few luxury items. One isn't necessarily less profitable than the other.

Another reason is that the most expensive rice on the market is special fragrant rice, such as Thai Homali or Indian Basmati. Growing these kinds of rice requires specific natural conditions that are not widely available in Viet Nam. The number of provinces that could grow fragrant rice is quite limited. Those are environmental constraints.

Having said that, there is still room for improvement. Two decades after becoming a large-volume rice exporter, our export-driven rice sector is still fragmented and largely unorganised. For example, in the Cuu Long (Mekong) Delta, known as the country's rice granary, which variety to grow and how to grow are still very much left to the decision of each farmer without any guidance. So rice ends up a hodge-podge of grains, which in turn lowers quality.

This can only be addressed if we can restructure the sector in a way that every actor follows standard procedures from production to logistics stage. Rice traders play an important role in instructing farmers to familarise themselves with advanced farming practices and an organised way of doing things. However, I only see active co-operation with a number of private enterprises while State-owned enterprises show very little interest.

Earnings from high exports have not translated into better economic conditions for farmers who remain very vulnerable to market fluctuations. What can we do about this?

Mohanty: The situation you describe actually takes place in many countries. Small-scale farmers lack the power to enter the market directly. More often they go through middlemen and their profit is reduced. Intermediaries will continue to play a role in the supply chain unless farmers form co-operatives. A role model for that is a programme in the Mekong Delta called Small Farmers, Big Fields, under which 500-1,000 farmers come together and exert market power and good management practices to improve rice quality. Such programmes should be scaled up.

Pham Dong Quang, deputy director of the Ministry of Agriculture and Rural Development's cultivation department:

 

Pham Dong Quang
Farmers' incomes have gradually increased, but the increase has not been commensurate with their efforts. One reason is that the land area per capita is very low. Another reason is that farmers often have to sell at a very low price, since the export market fluctuates widely. They can only be in a better position if they know more about market demand. Good market intelligence is key for farmers to plan what they should grow and at what price.

My department has been assigned to draft policies to scale-up the success of the model Small Farmers, Big Fields with suitable support for farmers and traders. The policies are expected to be made available next year.

We also observe that traders are not really interested in working directly with farmers but prefer to buy from middlemen. Along the way, it's necessary to make it mandatory for traders to co-operate with farmers for a more sustainable supply chain.

Bich: The farmers can only improve their incomes significantly and prosper from growing rice if there are fewer of them. If the total land area under cultivation is unchanged, one farmer must tend a larger patch of land. This is only possible once if the industry and services sectors thrive and can absorb a large amount of labour from the agricultural sector. This can't happen overnight. For the time being, the trader-farmer partnership model could increase farm incomes. The thing here is how to promote such a partnership. If smart policies are in place, it can happen. — VNS

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