Huynh Van Thon, chair of Loc Troi Group, told VietNamNet on the sidelines of an event discussing rice exports that although his company had signed contracts with farmers and had paid deposits, he still has had to adjust purchase prices because the "situation has changed too rapidly".

Soon after India announced the rice export ban, the rice prices in the global market soared.

According to the Vietnam Food Association (VFA), Vietnam’s 5 percent broken rice price climbed to $618 per ton on August 9, while 25 percent broken rice rose to $598. As such, the 5 percent and 25 percent broken rice prices have increased by $85 per ton compared with July 19, the day before the ban was released.

Thon said that the export ban imposed by India has brought great opportunity to Vietnam’s rice: farmers and exports can earn more money, while Vietnam’s rice position will improve in the world market.

However, this also poses challenges.

The chair of Loc Troi Group pointed out that when food prices escalate, the market will change from a buyer’s (export companies) market to a seller’s (farmers) market. Farmers, who can make big profits, will not cut costs to have reasonable production costs and higher product quality.

Previously, farmers needed to sell rice, so they tried to seek out and contact enterprises. But nowadays, enterprises have to seek them to collect rice. As demand has become high, the link between farmers and enterprises has loosened. And that is a big risk, according to Thon.

As export prices have increased, export companies need to ensure their profits and have to be flexible increasing rice purchase prices and offset the losses caused to contracts signed before when prices were lower.

Nguyen Thai Binh, general director of Trung An Hi-tech Agriculture JSC, commented that the Indian rice export ban is the final straw while the food shortage is a problem that has existed for the last 10 years with the shortage one year more serious than the previous year. And this is a great opportunity for Vietnam’s rice production.

However, despite the opportunity, many companies still incur losses. The problem is that production is not tied to the market, while the link between farmers and businesses is loose.

“Many companies sign contracts with foreign importers, but they still don’t have rice in stocks, so it is understandable why they face high risks,” Binh said.

The Ministry of Agriculture and Rural Development (MARD), aware of the problem, launched the associated fields model 10 years ago. However, there are only a few of these models in the Mekong Delta, the rice granary of the country, while the remaining is small-scale production and business.

Time to change production model

Vo Tong Xuan, known as the most famous rice expert in Vietnam, said that at this moment, farmers have to sell rice at high prices, not at the initially fixed low prices.

He stressed that it is time for Vietnam to follow a new rice production and business model. For a long time, the rice production sector has been ruled by "‘every man for himself". Farmers organized rice production themselves, merchants came to collect rice after the harvest while export companies bought rice from merchants after they signed contracts with foreign importers. 

The model, according to Xuan, can no longer exist. It’s time to switch to the affiliated business and production to order model.

To stabilize market prices and production, companies should sign long-term export contracts with foreign partners. For example, they can sign future contracts with provisions on price adjustments, i.e. when the markets fluctuate too heavily, the two parties can re-negotiate the prices to avoid heavy losses.

According to the Ministry of Industry and Trade (MOIT), in 2022, Vietnam exported 7.1 million tons of rice in 2022, the highest figure in the last 10 years, worth $3.45 billion. 

As of the end of July 2023, Vietnam had exported 4.83 million tons of rice, worth $2.58 billion, up 18.7 percent in quantity and 29.6 percent in value compared with the same period last year.

Tam An