VietNamNet Bridge – The Vietnam Food Association (VFA) said it would introduce a new form of contract to prevent cancellation of rice export contracts, which has been rampant in recent months.

Buyers cancel more contracts than sellers

VFA Vice Chairman Pham Van Bay remarked both sellers (local companies) and buyers (foreign partners) had cancelled a large number of rice export contracts, but buyers so far had outnumbered sellers in contract cancellation. Therefore, VFA will soon introduce a sample contract for rice export.

“Applying the contract offered by VFA will give sellers the upper hand and the legal basis for going to economic courts if the other party unilaterally broke the contract,” said Bay.

In addition to the sudden increase in rice prices, another reason for contract cancellation is that the two parties do not open a letter of credit. Most of the contracts that have been cancelled are commercial contracts, which are signed between two companies, different from government-to-government contracts, said Bay.

“Of the total annual rice exports of Vietnam, the volume exported under government-to-government deals makes up just a small portion, while the majority is rice exported under commercial contracts. Therefore, it is necessary to introduce a sample contract so that businesses can avoid rampant contract cancellations just as what has happened recently,” he said.

Nguyen Tho Tri, deputy general director of Vietnam Southern Food Corporation (Vinafood2), said rice export contract cancellation often took place at private companies, which were not assigned to purchase rice for temporary storage or were assigned to do so but unable to access bank loans due to poor business performance and losses.

However, most of the cases of contract cancellation are a result of contract signing when prices stayed low, with a heavy delivery schedule, creating a great demand in just a short time, pushing up domestic prices. Now, if companies continue to buy rice to fulfill their contracts, they will suffer losses.

In the first seven months, multiple rice export contracts were cancelled, according to VFA. The volume of rice that would have been exported under such contracts is nearly one million tons, a source told the Daily, whereas as of end-July, over four million tons of rice had been exported, bringing in US$1.8 billion.

In July alone, local firms cancelled contracts for export of 180,000 tons of rice.

Businesses lukewarm to rice stockpiling program

The Prime Minister has asked food companies to buy one million tons of summer-autumn rice for temporary storage. In a recent decision, the Prime Minister extended the time for rice purchase for stockpiling to Thursday, or half a month longer than the original schedule.

The inspection team and VFA have reported that purchase of summer-autumn rice for temporary storage would not finish by the original deadline of July 31. The rice stockpiling program has yet to produce any effect as businesses do not have enough rice in stock for delivery to their partners.

Tri ascribed the slow pace of rice purchase to the lukewarm attitude of businesses. In addition, the program is affected by the fierce competition with Thai rice, which is subsidized by the government.

Experts said temporary rice storage would only be effective when a large quantity was kept in stock for a long enough period to prevent oversupply and sharp price falls. The fact that businesses quickly sell the rice they have bought for temporary storage impairs the effectiveness of this program.

However, Mai Thi Anh Tuyet, director of the An Giang Department of Industry and Trade, deemed it impossible to require businesses to keep rice in stock for a certain number of days as they had the discretion over when rice should be sold.

Source: SGT