Vietnam's rice bonanza goes bust (Feature)

By Matt Steinglass Aug 26, 2008, 8:19 GMT

Tien Giang, Vietnam - Looking out over the rice paddies from the porch of her wooden house in the Mekong Delta, 56-year-old Huynh Thi Be said she was lucky.

She sold her spring rice crop in June, as soon as she harvested it. The two-ton crop brought her 5.1 million Vietnamese dong, or somewhat over 300 dollars.

'There are people in this area who still haven't sold all their rice,' Be said. 'They kept waiting for the price to rise, but instead it went down.'

In a year when Vietnam's farmers expected to reap a bonanza from skyrocketing world rice prices, they are instead suffering. The reasons are complex, but the government, rice-exporting companies, and farmers themselves have all played a role.

The problems began early in 2008, when rising food consumption in increasingly wealthy countries like China led international agencies to predict global shortages of rice. Vietnam, the world's number two rice exporter, decreed a halt to new export contracts in March to ensure its own food security.

That caused a scramble among rice-importing countries like the Philippines to buy up available rice stocks, driving prices up 80 per cent to 1,100 dollars a ton. Rumors of domestic shortages in Vietnam led to panic buying at the end of April, with local prices leaping 100 to 200 per cent in a single weekend.

Meanwhile, Vietnam produced a bumper spring crop, and in May Prime Minister Nguyen Tan Dung ordered food-exporting companies to resume signing new contracts. International rice prices have since fallen to about 600 dollars per ton, while Vietnamese farmers increased their planting for the autumn crop to take advantage of expected high prices.

But over the summer, many farmers found themselves unable to sell their rice.

Farmers blamed rice distributors and exporters, who they said were delaying purchases in order to force farmers to sell cheaply. Some distributors blamed farmers, who they said were holding back in the hope of higher prices later.

Others blamed Vietnam's broader economic troubles this summer: inflation running at 27 per cent, driving up interest on the loans distributors would normally take out to buy up the rice crop.

'With Vietnam's high rate of inflation, banks' interest rates are at 20 per cent,' agricultural economist Tran Tien Khai of the Fulbright Economic Training Program explained in early August. 'So exporters will only buy rice if they have contracts and can export it within one to two months.'

On August 7, in response to farmers' complaints, Prime Minister Dung ordered the country's rice wholesalers to buy up the rest of the crop and find customers to export it to, while ordering state-owned banks to provide loans at favorable terms. Dung mandated that rice distributors pay farmers enough to guarantee them profits of 40 per cent.

Yet farmers say prices have fallen still further since the prime minister's order. Huynh Thi Be sold her crop in June at 106,000 Vietnamese dong per 20 kilograms, about 6.40 dollars, but the price today stands near 93,000 dong, or roughly 5.60 dollars.

'At these prices, I don't think I'll make any profit at all on the autumn crop,' said Huynh.

'The government order is very vague, so it doesn't have any effect,' said My Nhung, an independent mid-level rice merchant whose warehouse lies a few kilometers from Huynh's farm. 'They don't set a price, they just say 40-per-cent profit, but who decides what 40 per cent is?'

Nhung's warehouse is one of half a dozen occupying a strip of land between Route 1A and a canal leading to the Song Tien River. Trucks back up against the front of her shop, while out back brightly painted barges crowd towards her dock, unloading bag after bag of rice.

Her warehouse is stacked to the roof with more than 100 tons of rice. But the farmers she buys from are facing tight margins.

Huynh Huu Nguyen, one of the barge owners who sells to Nhung, said the government's attempts to help farmers had only a brief effect, raising rice prices a few hundred dong per kilo in mid-August.

'The price rose for only three or four days, and then it began to fall again, probably because the supply exceeds the demand,' Nguyen said.

Le Truong Son, director of Vinh Long Food, a large distributor in a province neighbouring Tien Giang, said farmers were deliberately withholding rice to take advantage of the government's order to increase rice purchases.

'Many farmers slowed their rice sales after they found out about the government's efforts to encourage rice-trading firms to buy more rice,' Son said. 'The farmers want higher prices.'