Asia-Pacific, Development & Aid, Economy & Trade, Financial Crisis, Food and Agriculture, Headlines, Labour

VIETNAM: Good Harvests Don’t Bring Good Sales

Tran Dinh Thanh Lam - Newsmekong*

HO CHI MINH CITY, Nov 5 2008 (IPS) - Farmers in the Mekong Delta, who produce most of the rice responsible for making this country a top exporter of the staple, are unable to negotiate good prices for their produce.

They are finding it hard to pick their way through a mix of fluctuations in government policy, lack of credit, falling global prices and a glut of stocks sitting in warehouses.

“We harvested almost 50 tonnes of summer-autumn rice two months ago, but still we are not able to sell it,” lamented Nguyen Van Thanh, a farmer from Hau Giang province, one of the biggest rice-producing areas in the southern Mekong Delta.

The summer-autumn crop is the second harvest of the year. It usually begins in May and ends in November. The other crops are winter-spring (February to May) and autumn-winter (November-February).

Like many other farmers in the Mekong Delta, Thanh is “sitting on fire”, as he puts it, because he cannot sell his crop even though rice prices have already tumbled. “If we sell our rice at the current price, 4,300 to 4,500 dong a kilo (26 to 27 US cents a kilo), we will have no profit at all,” he said.

Encouraged by rising rice export prices, which nearly trebled this year due to tight global supply, farmers in the Mekong Delta expanded the number of hectares they have planted for the third and last crop of the year, in hopes of a higher output.

The summer-autumn harvest has also been a good one. Farmers in the Mekong Delta are estimated to have harvested 5 to 8 million tonnes of rice from 1.6 million hectares of land under paddy cultivation.

But in March, the government of Vietnam imposed a ban on the signing of new export contracts to save rice for domestic consumption, part of a package of measures adopted to ensure food security.

Now that the Vietnamese government has allowed the export of rice to resume, demand for rice on the global market has fallen and export prices have declined.

Local rice exporters are therefore hesitant to buy and store rice using high-interest loans from the banks.

“There will be an additional million tonnes of commercial rice in the next two or three months,” said Le Van Banh, president of the Mekong Rice Institute. “Finding warehouses for that enormous volume would be another problem, especially when the season of floods and storms is around the corner.”

As they need capital for the next harvest and have nowhere to process and store their newly harvested crops, farmers sometimes must sell their crops rapidly even if it is at a loss.

To help farmers sell out their harvested summer-autumn rice, in mid- August Vietnamese Premier Nguyen Tan Dung asked the State Bank of Vietnam (SBV) to offer preferential loans to rice exporters so they can buy all the rice available for export.

The rice export target for 2008 has also been raised by around two percent (to 4.6 million tonnes), to reflect the country’s higher output and the government’s effort to arrest falling domestic prices.

In a move that local media hailed ‘an expression of socialist morality’, Dung ordered several state-owned food companies to purchase all four million tonnes of summer-autumn rice still being held by farmers at a price that Dung said “could assure Mekong farmers benefit”. That price was estimated to be around 5,000 dong (31 cents) a kilogramme.

Dung also ordered the Vietnam Food Association (VFA), the state body overseeing Vietnam’s rice production and exports, to raise export prices.

Still, peasants like Thanh can hardly find traders willing to buy rice at the price recommended by the Prime Minister. “If I can sell my crops at 4,500 dong a kilo (27 cents) to pay my debts and fertiliser for the coming autumn-winter harvest, I would consider myself a lucky man,” Thanh said.

For their part, rice exporters said they faced problems both in local and foreign markets.

“Finding markets is the main difficulty,’ remarked Banh of the Mekong Rice Institute. “Traders prefer to find buyers before purchasing (rice from farmers) so as to avoid the problems of long storage and high bank interest.”

At the end of September, the governor of the SBV renewed his request to commercial banks to make preferential loans available to rice exporters to assist them in buying 400,000 tonnes of rice that remain in the hands of Mekong Delta farmers.

But export prices given by VFA are still too high compared to world market prices, a rice trader here points out.

VFA raised export prices for Vietnamese top export-grade rice from 600 to 650 dollars a tonne, bringing it close to Thailand’s bestselling 5-percent broken grain.

“Trade is still not as easy as the Premier desires,” Nghi added.

Even so, VFA reports that Vietnam has exported three million tonnes of rice between January and August this year. Although this was a drop of 5.7 percent from the same period last year, it still resulted in an almost doubling of revenue to 1.79 billion dollars.

In late August, the influential Vietnamese-language ‘Saigon Economic Times’ said it is but fair that businesses that have so far made huge profit from rice share part of farmers’ loss. “It’s a matter of socialist morality,” it argued.

But many businesses argue that they need to operate on the basis of market prices, which depend on the fluctuations in global supply and demand. They say any subjective attempts to interfere in the market, either to increase or decrease prices, would not succeed.

“If we have decided to follow the market economy, we should use mainly market tools and not administrative ones,” said Nguyen Quang A, president of the Hanoi-based non-government Development Research Institute.

While economists discuss how to better manage the country’s rice production and exports, poor farmers like Nguyen Van Thanh ponder what to do with their hefty stockpiles of rice.

(*This story was written for the Imaging Our Mekong Programme coordinated by IPS Asia-Pacific)