Vietnam has met just 4% of the reserves it needs for this year
Rice price surge mean traders lose money selling to government
Top rice exporter Vietnam is struggling to replenish government reserves after consumers around the world rushed to secure supplies of the food staple because of the worsening coronavirus pandemic.
The Southeast Asian nation asked local traders in March to supply rice for state stockpiles, with those offering the lowest prices winning government contracts. In usual years, traders would be given about three months to buy the rice from farmers and deliver it to the reserves department.
This year, the coronavirus upended those plans, and that could push Vietnam to further tighten rice export restrictions.
Rice prices, in Vietnam and abroad, have surged since the government tendered for supplies, and traders can no longer deliver the rice without making a loss. Of the 28 traders that won contracts, 24 have either canceled or declined to sign the contracts, according to the reserves department.
Phat Tai is one such company. The exporter would suffer a loss of 1,500 dong (6 cents) per kilogram if it fulfills its contract to supply 17,900 tons of rice for state reserves, said an executive at the company, asking not to be identified discussing a sensitive matter. That would be a total loss of over $1 million.
Similarly, state-owned Vietnam Northern Food Corp., which agreed to supply 4,500 tons of rice, has delayed signing the contract, according to Au Anh Tuan, head of the customs department’s division of customs management and supervision, citing data from the reserves department. A spokesperson for the food company, commonly known as Vinafood 1, declined to comment.
Wholesale prices of low-quality rice in Vietnam have soared to about 10,000-10,200 dong per kilogram, a 10-year high. Thai white rice 5% broken, an Asian export benchmark, was up 30% this year to the highest since 2013 last week.
Commitments for more than 46,000 tons of rice have had to be scrapped in the last few days, according to the reserves department. There were just 7,700 tons added to state reserves as of Tuesday, only 4% of the 190,000 tons planned for this year, the department said. Most winning bidders were found to have registered for rice shipments this month due to a turnaround in Vietnam’s rice export strategy, Tuan said.
The country had halted overseas rice sales for nearly three weeks on concerns over food security because of the virus. On Friday last week, it lifted the suspension, but instead put a limit on how much can be exported. With prices and the opportunity for profits high, traders rushed to apply for the quota. Phat Tai has registered to ship more than 13,000 tons this month, the executive said. Meanwhile, Vinafood 1 submitted customs declarations to export 7,200 tons in April, according to Tuan.
Vietnam’s officials may try to force traders back to fulfilling the stockpiling target. The reserves department will hold another tender for rice soon, its representative said. Also the finance ministry, which oversees both the customs and state reserves departments, has proposed suspending low-quality rice exports until mid-June to ensure stockpiles targets can be met.
Reporting by Mai Ngoc Chau. This article originally posted on Bloomberg