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Golden opportunity for Vietnamese rice exporters?
24 | 08 | 2007
If the predictions made by FAO and OECD about the bright future for rice exporters become true, it would be a golden age for Vietnamese rice producers and exporters. But...

History will not repeat?

If looking back on the performance of the world’s rice market in the last 14 years, it is noticeable that the second resplendent age has come.

According to the WTO, rice prices in the world kept increasing for four years 1995-1998 (94-105 points), and then decreased continuously in the next six years 1999-2004 (plunged to the deepest low at 54 points in 2001). In 2000-2002, prices stayed at 54-64 points, while the market has been heating up for the last two years with 90 and 94 points, respectively.

As such, if the periodic history repeats itself, the years 2007 and 2008 will be the golden years for Vietnamese rice producers and exporters to earn money before the market will cool down again in 2009.

However, joint research conducted recently by FAO and OECD pointed out that the world’s rice market would see splendid changes in the next 10 years.

The research showed that in 2000-2005, the rice price was at $215/tonne and rose sharply in the 2005-2006 crops by 35% and in the 2006-2007 by another 6.8% to hit the $318/tonne level. The highest peak of rice prices is expected to be in the 2007-2008 period, when prices will hit the $320/tonne level. FAO and OECD have forecast a good thing for rice exporters that rice will decrease after increasing continuously, but the decreases will be very slight.

In other words, the world’s rice market will not freeze in the next time, but remain hot with the high price levels between 95-101 points, according to the WTO way of calculation.

Problem: producing too much when prices down

Vietnam has been one of the world’s biggest rice exporters in the last decade. However, it has seemed to not earn big money from rice exports as it has always sold rice when the prices went down. Experts said that it was because Vietnamese exporters were not keen on price predictions. However, it is just the tip of the iceberg, and the deep reason is that Vietnam has made every effort to produce as much as possible despite the price tendency in the world.

The statistics showed that in the last six years, when the world’s rice price did not reflect any increases, Vietnam’s paddy output increased by 10mil tonnes, reaching the record of 36mil in 2004, representing an increase of 4.2% per annum.

When the world’s prices went down, Vietnamese rice stocks were full, and it was clear that Vietnam had to offer lower prices to sell its rice. As a result, Vietnam only could export rice at the price just equal to 77% of the world’s price.

Land has been squeezed?

If the world’s rice prices stay firm at high levels as predicted by FAO and OECD, this will be the golden age for rice export countries, including Vietnam.

However, what happened in the last three years showed that Vietnam would not get much benefit from the golden opportunity. After a lot of exertion to increase the rice yield, which has helped reach the record yield at 36mil tonnes in 2004, the output seemed to reach its highest possible level. It would be impossible to raise the output, while the output may even decrease by 300,000 tonnes, though the Cuu Long River Delta granary has squeezed its land with three crops a year (and 7 crops in two years in some areas).

In addition, as Vietnam will have one million more mouths to feed every year in the next many years, there will not be much rice for export.

The price fever in the world’s market in the next ten years, to some extent, may be bad news. The price hike will prompt farmers to cultivate more on their land, which may lead to the over-exploitation of land and the insect epidemic as seen last year. Due to the epidemic, Vietnam had to carry rice to Cuu Long River Delta, which is considered the country’s granary.

It is the right time now to think of solutions which can help take full advantage of the golden age to be brought on by the high demand in the world’s market. And the implementation of the programme on 1.3mil tonnes of high quality paddy, which has been discussed for the last several years, should be sped up

Source: Vneconomy
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