VFA unexpectedly lowers floor price for exporting rice

The Vietnam Food Association VFA has decided to slash the floor price for rice exports by 10-20 dollar per ton, starting from March 12. The move has been described as an effort to support Vietnam’s exports. However, it remains unclear if such a maneuver can help.

On March 9, VFA officially announced the reductions in the floor prices of a few kinds of rice for export. The floor price for five percent broken rice has reduced by 20 dollars to 500 dollars per ton and the floor price of 25 percent broken rice has decreased by 10 dollars per ton to 480 dollars per ton. The new FOB floors prices have been applied since March 12.

Since the beginning of 2011, VFA adjusted the floor rice export prices five times. The price reductions were announced for four times which were applied mainly to 25 percent broken rice exports. The only price increase was announced on February 21, when the floor price of five percent broken rice was raised from 500 dollars per ton to 520 dollars per ton, and the floor price of 25 percent broken rice was raised from 480 to 490 dollars per ton.

According to the Ministry of Agriculture and Rural Development, in the first two months of the year Vietnam exported 1.1 million tons of rice which brought 595 million dollars in turnover. The figure represents an increase of 55.6 percent in volume, however, the value increased only by 44.5 percent in comparison with the same period of the last year. 2011 is also the year that witnessed the highest volume of exports ever recorded in the first few months. The export volume from Vietnam to Indonesia increased nine fold, and the export value to the market increased by seven fold in comparison with the same period of 2010.

According to Trinh Van Tien, a rice expert from the institute of policy and strategy for agriculture IPSARD, the lowering of the floor price for rice exports is not a surprise at all. Vietnamese farmers are harvesting the winter-spring crop, which has made the rice output increase considerably. Lowering the floor price for exports is a move that is aimed to boost exports and help farmers sell rice.

Pham Quang Dieu, Chair and Chief Economist of Agromonitor, an analysis and market forecasting company, said that Vietnam’s export prices in the first months of the year were high because Vietnamese enterprises exported products under contracts signed in 2010. Meanwhile, at present the export market is quite gloomy.

The Philippines, the biggest rice importer in the world, has yet to join the market. Meanwhile, in previous years, the country began seeking supply sources in January. Most recently, the nation sent word out that it would only import 800,000 tons of rice only in 2011, a sharp reduction if compared with the import volume of two million tons in 2010. The information has stirred up rice exporters. Some sources said at this moment, some exporters are offering to sell 25 percent broken rice at less than 400 dollars per ton.

“The move by VFA to lower the floor price of rice exports will not be able to support the export market and it will not help encourage the collection of rice in the domestic market at this moment,” Dieu commented.

According to Dieu, the winter-spring crop will still provide three million tons of rice for export, meaning that the volume of rice would not be lower as previously warned by analysts.

On the domestic market, the price of rice in the Mekong River Delta’s provinces is decreasing significantly from 6000 dong per kilo last week to 5200-5300 dong per kilo. Meanwhile, enterprises have begun collecting one million tons of rice from farmers to stock.

However, observers say it is now difficult to implement the VFA’s rice collection program, because enterprises now have to borrow capital at overly high interest rates. Meanwhile, exporters are facing high risks.

Dieu said that the government needs to apply reasonable policies to support enterprises in collecting rice from farmers in order to help prevent the price of rice from decreasing further. Besides, Dieu has urged the government to negotiate and sign contracts at the government level in order to expand export markets for Vietnamese enterprises. – Vietnamnet

Tags: Vietnam rice, Vietnam rice exports, Vietnam rice exports 2011