VietNamNet Bridge – When the domestic rice price goes up, export companies immediately cancel the export contracts signed with foreign partners before to avoid loss. However, even when the export price goes down, they cannot get new orders.

As you make your bed, you must lie in it

In July and August 2013, the domestic IR 50404 rice price unexpected jumped from VND6,500 per kilo to VND7,200 per kilo, while the finished white rice also increased sharply from VND7,600 to VND8,200 per kilo.

The domestic rice price hike plus the low offered export price both have made rice exporters be sure of incurring loss. They decided to cancel the export contracts, accepting to pay compensation for the damage.

The export prices offered by Vietnamese enterprises were $50-70 per ton lower than that offered by Thailand and India.

No official report about the number of canceled contracts has been released. However, according to the Vietnam Food Association VFA, 938,000 tons of rice contracted had been canceled by the end of July, including 180,000 tons in July.

However, the contract cancelation has not helped domestic enterprises. The world’s prices, which were low at the time of cancelation, have been decreasing continuously.

Thai and Indian rice prices have been forced down sharply. Their 5 percent broken rice prices are now just $20-50 per ton higher than the Vietnamese rice. Especially, the domestic prices have also tumbled to the price levels seen at the end of June, about VND6,500 per kilo for IR 50404.

Some Vietnamese exporters have said they now offer the export prices at $380 and $350 per ton for 5 percent and 25 percent broken rice, respectively, lower than the $400 per ton level offered in July. However, despite the lower prices, it is very difficult to obtain new orders.

According to Lam Anh Tuan, Director of Thinh Phat Company in Ben Tre province, it’s very difficult to boost export at this moment because of the oversupply in the world. Thailand and India, which have big inventories, have slashed the export prices sharply. Meanwhile, the world’s demand is weak.

“It’s now the buyer’s market. Importers have been trying to force the prices down. Enterprises cannot export rice because of the overly low prices,” Tuan said.

Domestic prices decrease rapidly

The low exports have led to the domestic prices decreasing rapidly in August.

According to VFA, on August 1-22, Vietnam could export 288,000 tons of rice only, which was far below the export volume of 576,000 tons in July, which represented a sharp fall of 70 percent in comparison with the same period of the last year.

Regarding the domestic prices, Duong Van Men, a rice trader in Lap Vo district in Dong Thap province said IR 50404 fresh rice is now traded at VND4,300 per kilo, down by VND500 per kilo from the price in mid-July.

As such, the rice material price has decreased by VND700 per kilo. Export companies in Mekong Delta now purchase rice at VND6,700 per kilo of IR 50404 and VND6,800 per kilo of long grain rice.

In the latest news, VFA has asked the government to extend the time for export enterprises to enjoy the preferential bank loan interest rates within the program on storing 1 million tons of the summer – autumn crop by one month, to October 15, 2013 instead of September 15 as previously planned.

TBKTSG