Vietnam scraps rice export tax to boost sales

Aug 8, 2008, 5:40 GMT

Hanoi - Vietnam waived an export tax on rice and ordered the state rice cartel to boost purchases in an effort to raise sales abroad and reduce a surplus that has hurt farmers' incomes, officials said Friday.

A decree issued Thursday by Prime Minister Nguyen Tan Dung orders Vietnam's state-owned food companies, which control the country's rice exports, to buy between 400 and 500 thousand tons of rice in August, and 'to make sure that farmers make profits of 40 per cent or more.'

The decree by Vietnam, the world's number two rice exporter, waives a planned export tax on rice until the international price of rice reaches 800 dollars per ton. It orders state-owned food companies, VinaFood South and VinaFood North, to find international buyers for Vietnam's rice in order to raise total export contracts this year to 4.5 million tons, from their current 3.6 million tons.

The move came five months after Dung decreed a halt to the signing of new export contracts, when low international rice supplies in March raised fears of food security. Since May, world rice supplies have risen and prices have dropped from over 1,000 dollars to roughly 600 dollars per tonne.

Nguyen Tri Ngoc, director of the Ministry of Agriculture's Plantation Department, said unexpectedly large harvests were partly to blame.

'The output is higher than forecast, because the rice growing area is higher,' Ngoc said. 'Farmers are finding it hard to sell their rice.'

Over the summer, farmers expanded their planting areas to take advantage of expected high prices.

Vietnam has so far exported just 2.8 million of the 3.6 million tons called for in export contracts signed this year. Meanwhile, the summer-autumn rice crop will come in soon, adding 9 million more tons to the country's stockpiles.

Agricultural economist Tran Tien Khai of the Fulbright Economic Training Program said Vietnam's high interest rates, driven by double-digit inflation, were discouraging export companies from taking out the loans they would ordinarily use to buy up crop surpluses.

'With Vietnam's high rate of inflation, banks' interest rates are at 20 per cent,' Khai said. 'So exporters will only buy rice if they have contracts and can export it within one to two months. So three months ago we had a shortage, and now we have a surplus.'

Dung's decree orders state banks to provide rice exporters with loans on favorable terms.

Khai estimated that by failing to sign more export contracts when prices were over 1,000 dollars per ton in May, Vietnam had lost hundreds of millions of dollars in revenue.