Though they grumble about the middleman, farmers haven’t warmed to ‘trading floors’

On November 28, the first rice ‘trading floor’ in Vietnam made its debut in in the deep Delta rice granary province of Hau Giang. Can it succeed where many such ventures have failed? Already skeptics are writing its obituary.

The rice exchange is an effort backed by the Vietnam Food Association to increase farmers’ income by cutting out the middlemen and making prices transparent.  “We’re going to help farmers connect directly to export companies” says association vice president Pham Van Bay.

Clearly there’s lots of complaining that rice buyers make big profits at the farmers’ expense; there has been such grumbling since time immemorial.  Even so, many observers are doubtful of the Hau Giang venture’s success, recalling the noisy appearance and quiet disappearance of a lot of other commodity trading floors.

Apathetic buyers, indifferent sellers

In May 2002, the Can Gio Seafood Trading Floor made a noisy debut, with the express purpose of connecting processors and fishermen (or aquaculturists). The organizer hoped that this trading floor would be the first of many in seaports throughout the nation.  It was organized as a business with funds provided by the seafood processing company, Cholimex.

As weeks passed, there were fewer and fewer transactions.  After several months, the Can Gio exchange ‘died young,’ because neither buyers nor sellers found it worthwhile to change their established ways of doing business.  Fishermen kept selling their catch to wholesalers who paid ready cash, and then resold the seafood to processing plants, explains Chairman Nguyen Van Rang of the HCMC Farmers Association.  The processors preferred to buy larger volumes from wholesalers rather than buy small quantities directly from farmers.

A Can Gio shrimp farmer,Tran Phi Ha, elaborated:  “When I sell to small merchants, I can get cash immediately. When I need to feed for my shrimp, the merchants will let me pay later and pay in shrimp. But I cannot do that if I make transactions on trading floor. I can sell shrimp to small merchants at any time I want, but I can only sell shrimp via the trading floor during the floor’s working hours.”

Two more failures raise doubts higher

In March 2002, the Vietnam Cashew Association opened a cashew nut trading floor at the HCM City Stock Exchange. However, after just a short time, transactions virtually ceased.  Within a year, the trading floor was closed.

In December 2008, the Buon Me Thuot Coffee Exchange was inaugurated in an impressive ceremony. However, only one billion dong worth of beans changed hands in the first four months of operation. The story is the same: farmers find it more convenient to deal with middlemen than deal directly with processing enterprises or exporters.

Such bitter lessons have made enterprises and associations to hesitate to open trading floors. Early this year, the Vietnam Pepper Association expressed its intention to open a pepper exchange, but no such a floor has yet been set up.

Produce, rice, fish and fruit wholesale markets recently established in HCM City and the Mekong Delta are also trying to find the key to success.  The debt-ridden  ‘National Fruit Market’ that Satra Group built in Tien Giang province is a typical example.

Is better planning the answer?

When Nguyen Minh Chau, Head of the Southern Fruit Research Institute, was asked about the quietness of the National Fruit Market, he said he’d feared from the start that the market is too far from its intended customers.  If such a market is not convenient to buyers for supermarkets or exporters, they’ll look instead to nearby wholesale markets.  HCM City has several markets dominated by fruit wholesalers that spare buyers the long trip to Tien Giang province.

It seems that the agricultural and seafood trading floors and wholesale centres set up so far have not developed solid business plans.  Local authorities and investors have just been trying to line up capital and get land allocations, while ignoring advice from businessmen.

In fact, Hau Giang province is not the first locality which has thought of setting up a rice trading floor. In 2000, the Ministry of Agriculture and Rural Development assigned the Southern Food Corporation to build three wholesale rice markets in Mekong Delta.  These projects, too, were slow to get off the ground and have not prospered.

A steel trading floor is about to open at Sacombank in HCM City, and already some are writing its obituary.  However, according to Nguyen The Vinh, its chairman, some 100 businesses have registered to make transactions on a trial basis before the official opening of the exchange.

Vietnam Steel Association Chairman Pham Chi Cuong said that there’s a growing tendency to trade commodities through exchanges.  The key is to find a model that fits the characteristics of the business circle.

In Vietnam, after ten years of trying to find appropriate models, only the gold and stock exchanges can be called a big success.

Nguyen Tho Tri, Deputy Chairman of the Vietnam Food Association, has also expressed concern about the operation of the Hau Giang rice trading floor. “It will be difficult to make the rice trading floor as busy as the organizer wants,” Tri said.  “Farmers need to operate computers to make transactions on trading floor – not many have such skills.  We haven’t yet even succeeded in establishing a rice wholesale market, so I really doubt that  a commodity exchange is feasible.”

VietNamNet/TP