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Thailand’s rice subsidy program may affect Vietnam: rice operators

Thailand has passed a plan to allocate its budget of 21.5 billion baht to help stabilize rice prices for Thai farmers. This subsidy program may affect rice exporters including Vietnam, according to local rice operators.

 

 

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Local farmers harvest rice. Thailand’s price subsidy program for rice may affect rice exporters including Vietnam

 

The Thai Cabinet has agreed to extract 34.8 billion baht from the country’s budget for agricultural subsidy programs for rice and oil palm farmers, reported the Vietnam News Agency in Bangkok, Thailand.

In particular, over 890,000 households that had registered their rice farming activities with the Thai Ministry of Agricultural and Cooperatives will be the beneficiaries of the rice subsidy program.

The one-year program, which will take effect next month, will offer advantageous prices for rice farmers amid downward price volatility.

According to the director of a rice exporting firm in the Mekong Delta, rice exporters may suffer negative effects due to Thailand’s rice paddy pledging program, since the subsidy may result in high inventories of rice.

The director cited a rice subsidy program introduced by Thai Former Prime Minister Yingluck Shinawatra in 2011, noting that Thailand had stockpiled the rice to a record high, exceeding 11 million tons. Then, it decided to boost rice sales on the global market, affecting major rice exporters such as Vietnam.

Meanwhile, Pham Quang Dieu, director of market research firm Agromonitor, told the Saigon Times that the rice subsidy program will have a minor impact on Vietnam’s rice exports, as Thai rice export prices are higher than those of Vietnam, which means that Thailand does not compete with Vietnam in terms of rice prices.

In addition, Vietnamese OM 5451 high-quality rice and Dai Thom 8 rice have a pricing advantage over the same types of Thai rice. Further, these two types of Vietnamese rice are preferred in the global market. Thus, Dieu confirmed that the local rice sector would not be greatly affected by the Thai subsidy.

Relaxed requirements prompt more firms to enter rice industry

After the Government’s Decree 107/2018 on the rice export business replaced Decree 109/2010, with many requirements relaxed, 41 new rice traders entered the market, said the Import and Export Department at the Ministry of Industry and Trade.

Before the decree took effect on October 1 last year, rice exporters had to meet the requirements of Decree 109 on warehouses and milling facilities, Tran Thanh Hai, deputy head of the department, told a recent workshop titled “Develop a value chain for Vietnam’s rice” in Can Tho City.

As such, the number of rice traders operating in the rice export did not exceed 140 at the time, Hai said, adding that since the adoption of Decree 107, some barriers for rice exports had been removed, so the figure soared by 41, taking the total number of rice exporters to 177.

Meanwhile, more localities, including the central region, saw a rise in rice traders.

Hai pointed out that since Decree 107 came into force, five new localities became home to new rice traders; they were Nghe An, Quang Tri, Binh Duong, Ha Tinh and Nam Dinh provinces, joining the provinces and cities of the Mekong Delta region and some provinces in the northern region.

Of the 41 new rice exporters, 12 have rented warehouses and milling facilities from other traders to meet the requirements for rice exports, while 29 others have invested in new facilities.

“Despite the relaxed requirements of Decree 107 allowing traders to rent warehouses and milling facilities, many have purchased new facilities,” he added.

Under the decree, the regulation requiring firms to own at least one warehouse and a milling facility to obtain a license to ship rice abroad has been lifted. Traders can rent these facilities instead.

Also, the new regulation allows traders who do not need rice export licenses to ship organic rice and parboiled rice abroad. Small firms that fail to meet requirements to export popular types of rice can now reach out to global markets if they focus on shipping specific types of rice.

Rice importers’ changes of requirements pose challenges and opportunities

Changes to strict rice import and export requirements set by importers of Vietnam’s rice, in addition to posing challenges, have prompted the country’s rice sector to switch its export system, heard attendees at a workshop on September 19 in Can Tho City.

Speaking at the workshop titled “Develop a value chain for Vietnam’s rice,” Do Ha Nam, vice chairman of the Vietnam Food Association and general director of Intimex Group, stated that China’s changes to rice imports by tightening control over the quality of rice has put Vietnam’s rice shipments to China under pressure.

“Over the past few years, China was the largest rice buyer of Vietnam, but since early 2019, Vietnam’s rice shipments to China have fallen sharply to over 300,000 tons,” he said.

Due to the sharp plunge, local rice firms are striving to seek and boost rice exports to other markets, typically the Philippines and Africa.

However, local firms will also face multiple challenges in investing in equipment and machines, in addition to technical barriers set by rice importers.

The difficulty in accessing bank loans will also affect local firms’ rice export plans.

Nam remarked that given the payment risks when entering the African and American markets, Vietnamese firms should focus on exploring the Asian market instead.

Nguyen Viet Anh, general director of Orient Rice Company, told The Saigon Times on the sidelines of the workshop that local firms have suffered losses caused by risky payments in the African market. Many African customers asked for deferred payment of 90 days, while some firms even lost their goods when exporting to the market.

“A few firms lost their goods when shipping rice to the African market, leading to bankruptcy,” Anh stated.

However, Pham Quang Dieu, director of market research firm Agromonitor, noted that the country’s rice sector, despite the difficulties, has recorded outstanding achievements, including the switch of the rice export system, where the quality of rice is continually enhanced.

The volume of low-grade rice IR 50404 made up a large proportion of the country’s total rice exports over the last few years. However, this year, shipments of OM 5451 high-quality rice and Dai Thom 8 rice have increased.

Tran Thanh Hai, deputy director of the import-export department, under the Ministry of Industry and Trade, confirmed that the high quality rice accounted for 27.8% of Vietnam’s total rice exports in 2017 before soaring to 40% in 2019.

Dieu pointed out that this year will offer a good chance for Vietnam to change its methods for rice exports, especially to the Philippines, which had earlier issued Republic Act 11203, liberalizing the import, export and trade of rice and lifting quantitative restrictions on rice imports.

Price of Vietnamese rice falls to 12-year low

Vietnam’s 5% broken rice prices have fallen to US$325 per ton, the lowest level since November 2007, due to the low demand from major importing markets.

The lack of new sales contracts, especially due to the Philippines’ lower demand, has put pressure on rice prices in Vietnam. It is believed that the Philippines may reduce rice imports in a bid to support their local farmers.

Vietnam’s rice prices have fallen 13% since the beginning of 2019.

According to a report by the Ministry of Agriculture and Rural Development, the Philippines was Vietnam’s largest rice buyer in the January-July period this year, accounting for 34.5% of the country’s total rice export volume.

Vietnam shipped 1.46 million tons of rice, valued at US$589.4 million, to the Philippines in the seven-month period, a 3.2-fold increase in volume and a 2.7-fold rise in value over the same period last year.

However, demand was very low this week, said a rice trader based in HCMC.

Meanwhile, only 82,450 tons of rice is scheduled to be loaded at HCMC ports from September 1 to 15, with most shipments bound for West Africa and the Philippines, local traders said.

On June 24, a representative of the Ministry of Industry and Trade said Vietnam was facing difficulties in exporting rice, as large importers of Vietnamese rice, such as China, Indonesia and Bangladesh, reduced their rice imports as they sought to support local rice production, or their inventories remain high. SGT

Trung Chanh

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