Factors Affecting Vietnam Rice Export

The rice export always receives attention from Vietnamese Government. The Government usually issues many decrees, circulars and directions to instruct Ministries, People’s Committees, and Vietnam Food Association (VFA) to monitor export activities every year.

Noticeably, in 2010, with an aim to encouraging the development of agriculture, Vietnamese National Assembly issued a Resolution 55/2010/QH12 on agricultural land use tax exemption and reduction. Farmers are exempt for agricultural land areas within agricultural land quotas and exempt 50% outside agricultural land quotas (thuvienphapluat, 2010).

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Food security is always one of the top priorities of Vietnamese Government. To ensure adequate supplies of rice grains to meet domestic needs and to export, support policies are directed toward expansion of paddy production areas and the development of irrigation infrastructure. Ministry of Agriculture and Rural Development bases on annual reports of rice export results and forecasts volumes of rice produced as well as domestic demands in the following year. Besides, the Ministry will make adjustments and announce the volume of rice for export, which helps rice businesses fully understand the market demands and initiate plans for exporting rice.

In addition, the Governor of the State Bank of Vietnam keeps track of activities of the State Commercial Banks so as to timely instruct them to ensure a reserved capital since the beginning of each year and to meet loan demands of farmers and rice businesses. What is more, the Governor of the State Bank always takes an active part in dealing with requests of the State Commercial Banks on extending loans which exceeds 15% of their equity to Vinafood 1 and Vinafood 2 (intellasia 2010). Of course, Vinafood 2 plays an important role in providing provinces in MRD including Long An with large rice export contracts. Also, enterprises are supported 100% interest rate when procuring rice for temporary storage for a maximum of three months (thu vien phap luat 2010), which helped them release pressure for rice procurement to achieve the target set by VFA. In addition, they can ensure available supply of rice for next crops or even wait for peak periods when selling prices go up.

Ministry of Finance cooperates with People’s Committees in provinces and VFA to create an information system so that production costs and selling prices of farmers are updated periodically, supporting the operation of production and consumption.

Besides, Ministry of Industry and Trade promotes making trade relationships with other countries as well as instructs Vinafood 1 and Vinafood 2 to be responsible for signing and implementing large – scale rice export contracts.

1.1.1.1. Policies of Long An province

Long An has executed many investment and credit policies for the past few years as follows:

– Large investment in infrastructure: transport and irrigation systems

– Financial support for rural households and businesses in purchasing hi tech machinery for production and after harvest processes, and paddy seeds of high – quality, especially in growing fragrant specialty rice

– Encourage rural households to keep rice in reserve and offer them interest-free loans to meet their storage costs.

– Expand large scale paddy field models, allowing farmers to directly sell raw rice to businesses. Recently, under this model, there are 6 businesses in Long An providing farmers with free materials for production on the land of 6,172 hectares, supporting 30-day storage costs and procuring at prices higher than the market prices by 100 – 200 dong/kg. In case the market prices go down, businesses will have to ensure procurement prices can help farmers gain profits by 30 – 40%. (Rice production report of Long An Department of Industry and Trade, 2013).

– Instruct businesses to implement the temporary storage strategy. Businesses in Long An have procured 2 million tons for storage till the end of 2013 (Rice production report of Long An Department of Industry and Trade, 2013).

1.1.2. Import demand of the Philippines and regulations on rice import of the Philippines

Concerns about food security have existed by countries all over the world for many centuries. To the Philippines in which natural disasters take place frequently and unexpectedly, so implementing the food security program is really a big challenge. The Philippines is mostly surrounded by islands and islets and the land area is not large, so it is difficult to develop agriculture production. Also, prices of rice export have been lower than those of domestic production in some years. Up till now, the Philippines have been one of the largest rice importers in the world. Although the Philippines’ Government is attempting to obtain self-sufficiency, the Philippines often faces a lack of rice for domestic consumption due to reasons mentioned above so that the import demand always exists.

Nowadays, with the development of the Philippines, the living standards of Filipinos are increasing. However, Long An businesses have not taken advantage of this situation. They have not targeted at potential customers of high incomes, so promoting high – quality rice is inhibited. They prefer white, long grained and aromatic rice. Glutinous rice, of either white or brownish varieties is used for rice cakes and other native sweets. Until now, Long An has only focused on medium rice export with low profits.

The Philippines is a country of mixed cultures. Therefore, demands for rice products are various so as to make Asian cuisines. Besides raw rice, Filipinos use substitute rice products, especially rice stick noodles. Rice flour is also popular. It can also be used as a thickener in sauces, as a breading for fried dishes, for example, Mochiko – a popular Filipino dessert. Hence, Long An should study and diversify rice products for export to the Philippines besides raw rice to gain more profits and maximize its potential.

As mentioned in Chapter 1, the NFA allowed its private sector the importation of 163,000 metric tons of rice under the country-specific-quota (CSQ) allocation of MAV. Importation of rice shall only be from the four specified source countries, comprising 98,000 MT from Thailand, 25,000 MT from China, 25,000 MT from India, and 15,000 MT from Australia. Any importation outside the CSQ shall be prohibited. Therefore, big competitors from Thailand and India are received more favorable conditions for exporting rice to the Philippines than Vietnam. Noticeably, due to efforts in self-sufficiency, the Philippines is trying to limit the volume of imported rice. As a result, rice contracts are also signed with one or two countries every time. Hence, Long An businesses have to take more concern of controlling quality to enhance Vietnam’s rice competitiveness in tender.

1.1.3. Competition

Although the Philippines is a traditional market of Long An, Long An companies are always in competition for winning big rice export contracts. There is intense competition for export prices and quality of rice for export between Long An enterprises and those exporters from famous markets such as Thailand, China, India, etc. Those countries are applied CSQs by the Philippines and are well-known for their quality of rice, so they can export higher volumes of rice at higher prices than those of Long An companies to the Philippines. In fact, Long An businesses are put under price pressure because of inferior rice quality compared to Thai rice.

Since India lifted bans on non-basmati rice export, it has been becoming a big competitor besides Thailand. In 2013, India exported about 30,000 tons of non-Basmati rice to the Philippines under the Southeast Asian country’s Tariff Rate Quota. It was the first time that the Philippines has allowed the import of non-basmati rice from India. The Philippines agreed to buy rice from India because of competitive pricing (of around $350 per ton) compared to Thailand and Vietnam (oryza, 2014), which lowered the rice output of Long An exported to the Philippines. According to Table 2.1, the turnover of Long An rice exported to the Philippines also reduced from 44,209,846 USD to 41,998,021 USD in 2013. Therefore, besides exporting Basmati rice at very high prices to the Philippines, India is now exporting medium – quality rice, which may cause the instability in rice export of Long An. It is said that Thailand, Vietnam and India are in competition of prices and quality for rice export to the Philippines. For instance, the NFA was looking for up to 800,000 tons of 15% broken, long grain well-milled rice to fill stockpiles for the second half of 2014 when little rice was harvested domestically. There were four exporters joining the tender: Louis Dreyfus Commodities Asia, Thai Hua Co Ltd of Thailand, Singsong and Olam International. At that time, Olam International was disqualified from the tender for not meeting bidding requirements, the NFA said. Vietnam won the tender because of its lowest bids. It is essential that Long An enterprises should be very alert to pricing and controlling rice quality.

1.2. Achievements and drawbacks in exporting rice of Long An province to the Philippines

1.2.1. Achievements between 2008 and 2013

From 2008 until 2013, Long An made outstanding achievements in promoting the rice export to the Philippines, contributing to strengthening the role of Long An in the development of Vietnamese economic situation.

– There was a significant increase in both rice export volumes and rice export turnovers, which made rice play an important role in the economic development of Long An. Among markets for export, the Philippines accounted for nearly 32% in the total rice export turnover of Long An every year (Rice export turnovers reports of Long An Industry and Trade, 2008 – 2013). Besides obtaining a considerable source of foreign exchange earnings, exporting rice contributed to the rise in rice products values, the stability of rice prices and the increase in farmers’ incomes. Because Long An enjoys advantages of natural conditions such as: soils, climate, rivers, etc. and there was not any disaster resulting in serious harvest failure, Long An was always in the top volumes of rice produced and exported of MRD area.

– Although rice prices for export of Long An were lower than those of other competitors in Thailand, and India, there was generally a rise in export prices which is shortening the gap in export prices of Long An and other competitors in Thailand and India. Advanced techniques and machinery were applied in production, processing as well as preservation of rice through different programs such as: “3 Reductions, 3 Increases”, eco-friendly insecticide to protect paddy fields against sucking pests such as brown plant hoppers and green leafhoppers. These improvements reduced the proportion of rice lost during harvest and post-harvest periods and helped increase the produce and quality of rice

– There is an abundant source of rice in Long An, which is an advantage to meet unexpected demands from the Philippines, especially after severe typhoons. During the period between 2008 and 2013, there were more and more milling factories established, particularly in Chau Thanh, Thu Thua, Tan Thanh, Thanh Hoa and Tan Tru. These communes are always key rice-growing areas in Long An. The upturn in factories helped processing steps to be operated faster and save time, cost and labor. Most millers currently get the capacity of 1.5 million tons/year (Rice production report of Long An Industry and Trade, 2013). Vietnamese Government consolidated its position through carrying out economic and social strategies and giving businesses favorable conditions to improve their production. Legal framework was gradually completed which encouraged enterprises to gain investment. Moreover, Long An companies received a lot of attention and support from Long An People’s Committee so as to promote production and export of rice such as financial supports, lower interest rates, providing update information of the rice market, offering business opportunities, etc.

– Long An enterprises have got traditional importers from the Philippines. This accomplishment is a result of efforts in building strong and mutual relationships with Filipino importers for many years.

1.2.2. Drawbacks between 2008 and 2013

– Types of rice for export to the Philippines are not diversified. Long An mainly exports rice of medium quality to the Philippines. The proportion of high – quality rice and fragrant rice is very small, so Long An rice cannot compete with superior quality rice such as Thai Mali rice, Basmati rice of India, etc. There are various demands of Filipinos, which means Long An is missing potential Filipinos who have high incomes and who use different rice products besides raw rice. Actually, Long An has not maximized its strength to export its traditional rice such as Nang Thom Cho Dao. Moreover, there are many types of paddy seeds recommended by scientists such as OM 3536, OM 4900, OM 7347, ST 3, ST 5, MTL 495, but Long An authorities have not been active in experimenting and applying in production for export. Long An companies is, thus, lacking varieties of disease-resistant and climate change-tolerant seeds. For hybrid rice seeds, due to inappropriate natural conditions, some types had to be imported from China, raising cost of high – quality rice production

– Although the rice quality is getting better, there is still no uniformity in different rice consignments. Rice is mixed with impurities and paddy grains so that 15% and 20% broken rice cannot meet the standard requirement of the Philippines. Long An authorities have not strictly controlled rice production. Some farmers abuse too much pesticide to increase rice productivity, which leads to a redundant content of pesticide in rice grains.

– Prices of rice for export of Long An are lower than those of Thailand and India whose rice quality is superior, which leads to low rice export turnovers. Long An rice prices are completely dependent on the world’s prices and Thailand prices for export to the Philippines.

– Processing industry is very young and at small scales. Also, processing technology is poor and out of date, which makes the percentage of post-harvest losses greater than that of Thailand and India and milled rice broken.

– Experienced marketing staff in Long An is insufficient, so little attention is paid to brand positioning. Packaging designs are unattractive and Long An rice products are unknown to Filipinos. Recently, exporting rice under private contracts is becoming popular. However, there is still no specific brand name but “Vietnamese white rice” for rice products of small enterprises in Long An.

– Although NFA is not a rice monopoly of the Philippines and the Filipino Government allows private enterprise to participate in importing rice, Long An businesses are still passive in advertising Long An rice brands and in seeking for potential Filipino importers. Weaknesses existed in the management operation of businesses, such as: slow and poor information dissemination among departments, small numbers of skillful and competent engineers or staff, low levels of English proficiency, weak negotiation skills, etc

– Activities of trade promotion are only through trade fairs in Vietnam and in the Philippines. Some exporting companies are dependent on some foreign intermediaries instead of direct exporting to the Philippines which inhibits Long An companies from positioning their brands.

– Monocultures in key rice-growing areas with 3 crops per year on average would lead to the shortage of nutrients, the quicker spread of diseases, and finally, the downturn in productivity and outputs.

In conclusion, through the analysis of the current situation of exporting rice of Long An to the Philippines between 2008 and 2013 and of factors affecting rice export activities to the Philippines during that period, it is seen that Long An did make great efforts and did obtain a lot of achievements in production, processing, preservation of rice as well as exporting rice. The volumes of rice for export and rice export turnovers increased in those consecutive years. Diverse types of rice for export, better quality of rice, better strategies for investment in rice production and export, more effective support policies for both farmers and businesses are outstanding accomplishments which contributed greatly to the development of Long An’s rice export and Long An’s prosperity as well. However, besides those positive results, exporting rice of Long An is now facing a great deal of difficulties and challenges because of characteristics of rice field and of severe competition with exporters from famous foreign rice markets in the world as well as from other key rice-growing provinces in Vietnam. Therefore, it is essential that Long An should find solutions to its current challenges as soon as possible with a view to promoting rice export activities between 2014 and 2020.