New decree may wipe out small rice exporters

A new decree next year would force many small and medium-sized rice exporters to shut down, while competition has already been dominated by a small cabal of big companies for years, industry insiders said.

Farmers harvest rice at Co Do farm in Can Tho.

Under the draft decree aiming to tighten control over rice trading in Vietnam, local businesses would have to meet many new conditions before being allowed to ship rice abroad.

But some of the requirements are not practical and would force more than 30 percent of smaller companies in the sector out of business, industry participants told a conference in Ho Chi Minh City in mid November.

Vo Thanh Do, director of Phu Tho Food Company, said rice exporters are required by the decree to have a storehouse of at least 5,000 tons of rice, but in fact they don’t need such huge storage capabilities.

Most granaries in the Mekong Delta, Vietnam’s largest rice growing region, are small, and yet their capacities have not been fully used, Do said, noting that it would be a waste to build more storehouses.

Nguyen Thanh Long, director of Can Tho-based Gao Viet Company, said a well-equipped 5,000 ton storehouse would cost around VND30 billion. “The question is what exporters can gain after investing in the facilities,” he said.

Even if rice companies could afford to build new storehouses, construction would take them at least two years, Long said. But exporters are given only nine months from January 1, the date the decree takes effect, to meet all the requirements on facilities, he added.

Besides the storage condition, the draft decree also stipulates that exporters must have rice milling plants able to process a minimum of 10 tons per hour. Also, those failing to make any shipments for 12 consecutive months would have their licenses revoked.

Insult to injury

Speaking on the sidelines of the conference, Huynh Tien Dung, director of Minh Cat Tan Agricultural Produce, said he found existing requirements already discouraging enough.

Smaller companies cannot compete against state-run giants in terms of facilities, Dung said.

An export company director, who wished to be unnamed, said even though he didn’t have the required facilities, he could still ensure enough supplies for his export contracts by placing advance orders.

“The draft decree, by mistake, will help large exporters with big facilities rid of their rivals.”

According to the Vietnam Food Association, there are 205 rice export companies in the country, with the 11 largest firms accounting for 69 percent of total exports. More than half of the exporters only ship 200 tons of rice or less every year.

Why and wherefore

The new decree wants to keep companies that don’t have adequate facilities from entering the sector and creating unfair competition, Nguyen Dinh Bich, a senior economist at the government-run Trade Research Institute in Hanoi, wrote in an article published by the weekly Saigon Economic Times last week.

Huge profits from rice trading have created an “enterprise boom” in the sector, Bich said. “But by eliminating one third of the businesses, the decree would only worsen the competition.”

It is necessary to allow all exporters to continue their business as long as they have performed well and can fetch good prices for Vietnamese rice, he suggested.

Moreover, the government should restructure the two largest food companies, state-owned Vinafood 1 and 2, because right now they don’t face any competition even in the crowded sector, Bich said, hinting that maybe the firms could be split into smaller ones.

“Though there might be too many rice exporters already, the country still needs more strong businesses to facilitate healthy competition.”

The value of Vietnamese rice exports declined 8 percent in the 10 months through October to $2.38 billion, even as shipments increased 33 percent in volume to 5.34 million tons, according to the General Statistics Office in Hanoi.

The decline in the total export value was because many inexperienced exporters tried to undercut each other, Minister of Industry and Trade Vu Huy Hoang told the National Assembly in Hanoi on November 18.

“The new decree will help solve the problems in rice trading, increase the value of Vietnamese rice and ensure profitability for farmers,” Hoang said, promising at least 30 percent profits.

Rice exports from Vietnam, the world’s second-biggest shipper, are expected to reach a record of between 6 million and 6.2 million tons this year.

VietNamNet/TN

Tags: Vietnam rice export