After two Vietnamese rice exporting enterprises won the bid to supply rice to Indonesia at low prices, the Vietnam Food Association (VFA) proposed applying a floor price in rice exports. Reporters of the Industry and Trade Newspaper had an interview with Mr. Truong Sy Ba, Chairman of Tan Long Group Joint Stock Company - one of the enterprises with many years of experience in the field of rice trading and exporting, about this proposal.
Future factors will determine price trends
What is your opinion on VFA's proposal to apply a floor price for exported rice?
I completely disagree with VFA's view on the proposal to apply a floor price for rice exports just because the two winning contracts for exporting rice to Indonesia had an average price lower than the market price of about 15 USD/ton on a total value of 580 USD/ton. With this lower price, it cannot be said that the enterprise is dumping.
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| According to the Ministry of Agriculture and Rural Development, in the first 5 months of 2024, rice exports reached 2.65 billion USD (up 38.2%) |
In the operation of the agricultural market, not only in Vietnam but also in the world, it is a future market, the supply is greatly affected by the impact of weather, seasons, and epidemics, so the future factor determines the price trend. Any business that believes that the future price trend will decrease will sign a contract with a reduced price and they will still make a profit.
Specifically, in the case of the winning bid in Indonesia, the contract was signed by the company for export delivery in July, so they may have predicted that the price of rice in July would drop by about 15 USD/ton compared to the price at the time of bidding. The story of the company proactively predicting the price trend to sign the sale contract is the freedom of the company, it cannot be said that this is dumping.
On the contrary, if the price increases, the business still has to deliver the goods and accept the loss. This is the business of the business. We cannot say that this has a big impact on food security or a big impact on the people.
If we only base on this to apply the floor price for rice exports as proposed by VFA, I think this is against market principles.
I would like to emphasize that the floor price will have no value when the international market price is higher than the floor price. In the case that the international market price is lower than the floor price, the market demand will buy rice from countries with better prices such as Thailand, Pakistan, Myanmar, India... and Vietnamese rice will not be able to be exported. At that time, the floor price will act as a barrier to export. Thus, farmers will not be able to sell their products, and domestic rice prices will fall sharply. In fact, this story happened many years ago, after which we were forced to remove the floor price.
Although the VFA President has made such a proposal, in reality, VFA has not yet discussed with any businesses in the rice industry, or with association members.
As a business with many years of experience in the rice market, can you analyze more carefully the non-market nature of this proposal?
The agricultural market is more specific than other markets due to its seasonal nature and is greatly affected by disease and weather factors. Different seasons have different supply sources. For example, Vietnam is in the summer-autumn crop, but Thailand does not have this crop, so the price of Thai rice will certainly be higher than the price of Vietnamese rice due to limited supply, while the price of Vietnamese rice is decreasing because the supply in the summer-autumn crop is very large.
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| Mr. Truong Sy Ba, Chairman of Tan Long Group Joint Stock Company (photo by Nguyen Hanh) |
In India, too, they have a national food security policy, so they limit exports. However, this policy cannot last forever. At some point, when domestic supply is gradually surplus, domestic inventories increase, India will have to lift the export restriction policy. As soon as India lifts this policy, world rice prices will immediately decrease.
In fact, Vietnamese businesses also have to be cautious, not daring to buy a lot of goods for fear of having a lot of inventory and when India lifts the export ban, the price will decrease. In this story, recently, some businesses exporting rice to Indonesia also determined that if India loosens the ban, the export price of rice will decrease again. Therefore, I would like to reiterate that the story of proposing to set a floor price is not market-based.
Grain exporting countries in the world, including wheat, are an annual commodity traded in the hundreds of millions of tons, but no country has any barriers on export floor prices and operates completely according to the free market.
Rice exporting countries around us such as Myanmar, India, Thailand, Pakistan do not apply floor prices for exports, nor do we see any country with a centralized market. As a business, everyone is equal, everyone has the right to export transactions, except for government aid, which is then assigned to businesses in the centralized market to fulfill the government's support commitments to other countries. Other markets are completely market-based.
The Philippines used to have a centralized market, the government imported rice and distributed it domestically. However, after that, interest groups and many other problems appeared, so the country abandoned the centralized market. I think Vietnam needs to look at the lessons of the countries around it and the world about market economy.
Rice farmers will be the ones to suffer heavy losses.
If we apply a floor price for rice exports, how will rice growers be affected, sir?
According to VFA, there are currently a few businesses exporting at market prices, seriously affecting the interests of farmers. I think this is not true. Because Vietnamese businesses won bids at low prices from Indonesia compared to the market because they assumed that the price of rice in the market would decrease in the future. And in fact, the price has been decreasing for the past few days. The output they signed was only 90 thousand tons compared to the total annual rice export output of Vietnam of up to 7-8 million tons, so it does not affect anything.
If the floor price is applied, I can immediately confirm that domestic prices will drop sharply. Thus, rice farmers will suffer the most. Many years ago, Vietnam also applied a floor price for rice exports and farmers suffered many impacts from this policy.
As you said, we should not implement such non-market policies. In your opinion, what specific consequences will the imposition of floor prices lead to?
When applying a floor price, there will be two cases. Firstly, the market operates according to the law of supply and demand, if the international market price is higher than the floor price set by Vietnam, it will not affect anything, businesses will still export at the normal floor price. In the opposite case, we set a floor price. So which unit will set the floor price? Based on what factors to set the price? Because the price must be set by the buyer and seller, not by any unit setting the market price.
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| When applying floor prices, rice export contracts are not flexible according to the world market. |
If they set prices higher than the international market price, Vietnam will not be able to export. This is no different than us banning exports, domestic rice prices will decrease, and rice farmers will suffer heavy losses.
Obviously, this is a very absurd story. If this barrier is imposed, businesses will face a situation where inventory is stored domestically and cannot be exported.
Second , when applying the floor price, each time the floor price is changed, it must be decided by the Government, this process will take a lot of time, and businesses will be the ones to suffer the most damage. Applying the floor price also makes the export and market policies inflexible according to the world market. Moreover, if the floor price is applied, there will be a unit that will determine the floor price and submit it to the Prime Minister. All export orders from Vietnam will have to go through this unit to register, only then can they be exported. This means creating more administrative procedures, costs and creating inconvenience for businesses, possibly giving and receiving mechanisms, lacking transparency. The price that a business exports to which unit, how much, should be a business secret but must be made public, which is very unreasonable.
Floor prices are the knife that destroys Vietnam's agricultural sector. I think Vietnam should forget about returning to floor prices and centralized markets and never return to them again.
There have been obvious lessons
As you just shared, Vietnam also applied a floor price and then abolished it. What is the specific story of this, sir?
Previously, Vietnam applied a floor price for rice exports, after which domestic rice could not be exported. For many months, farmers could not sell their products because businesses had inventories that could not be exported. When they could not sell their products, domestic rice prices continuously dropped sharply. Farmers were the ones who suffered the most. After that, the Government had to abolish the floor price. This is an obvious lesson.
VFA cites Article 31 of the 2005 Commercial Law on the application of emergency measures to international trade in goods. In case of necessity, to protect national security and other national interests in accordance with Vietnamese law and international treaties to which Vietnam is a member, the Prime Minister shall decide to apply emergency measures to international trade in goods.
Article 31 only applies in emergency cases, businesses participating in international trade, if there are signs of manipulation or harm to national interests, the Government will take urgent action. But in this case, it is not an emergency condition, citing Article 31 to propose a floor price for rice exports is excessive, because there are only 90 thousand tons, the export price only decreased by 15 USD/ton compared to the current price. Using this law is making the problem worse, but I think it does not affect anything. I affirm that Vietnam does not need to worry about food security because we have three rice crops each year, always have inventory, so there is no shortage of rice.
But clearly, businesses bidding low prices also have some negative effects?
These effects are only short-term, after that the market will still operate according to the rules, prices are determined on the basis of buyers and sellers deciding, not someone standing in the middle deciding this price.
As a rice trading unit for many years, not only rice, we also trade in cereals, animal feed ingredients. We are also the largest importer of corn, wheat, soybean meal... in Vietnam, so we fully understand the operation of the market.
Thank you!
| The floor price for rice exports is the minimum export price set by the Government. Enterprises are not allowed to export rice at a price lower than this minimum floor price. For example, Vietnam sets a floor price of 500 USD/ton to be allowed to export, and any enterprise that wants to export at 490 USD/ton is not allowed to export. |
Source: https://congthuong.vn/doanh-nghiep-lo-loi-ich-nhom-quay-lai-co-che-xin-cho-neu-ap-dung-gia-san-xuat-khau-gao-323514.html
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