Loss due to selling rice in the "wrong segment"?
According to the financial report of Loc Troi Group Joint Stock Company, net revenue in the third quarter of 2023 reached VND 4,461 billion, an increase of 63% over the same period last year; the rice segment contributed more than VND 4,000 billion, accounting for 88% of total revenue in the period and 2.5 times higher than the same period in 2022. Accumulated in the first 9 months of 2023, Loc Troi had net revenue of more than VND 10,440 billion, an increase of 18% over the same period but profit decreased by 91% over the same period last year, only nearly VND 20 billion. Similarly, Trung An High-Tech Agriculture Joint Stock Company said that in the first 9 months, net revenue reached VND 3,479 billion, an increase of 57% over the same period but profit was only VND 12.8 billion, a decrease of 75% over the same period. Meanwhile, many businesses are reporting losses, some even reporting losses of up to 6-7 billion VND since the beginning of the year.
Explaining this issue, a rice industry expert said that the world rice market basically has two segments: high-quality specialty fragrant rice such as Basmati from India or Hom Mali from Thailand and long-grain white rice. Meanwhile, Vietnam's high-quality fragrant rice is in the middle of the two segments above. Because we cannot squeeze into the above group, for a long time we have had to sell into the long-grain white rice segment, at low prices, and suffer losses.
Many businesses lack market information, so their forecasts are wrong, leading to losses.
However, many opinions disagree with this assessment. In fact, the world market does have two rice segments as mentioned above, but in recent years, Vietnam has almost created an intermediate segment between the two segments with normal export prices of about 550 - 630 USD/ton. Therefore, saying that we are selling rice in the "wrong" low segment at this time is unreasonable. This may have happened many years ago when the quality of Vietnamese rice was not as clearly defined as it is now. In recent years, Vietnam's rice export prices have often been the highest in the world, so it can be affirmed that there is no mistake.
"In this segment, Vietnamese rice is truly the champion and it is truly suitable for many markets in terms of both quality and price, and is favored by consumers in many countries such as the Philippines, Malaysia, and African countries," commented world rice market expert Pham Mai Huong, co-founder of the rice market website Ssricenews .
Due to lack of information, wrong forecast
Looking forward to 2022, the price of 5% broken rice from Vietnam in June was 418 USD/ton and Thai rice was 413 USD/ton. By November 2022, Vietnamese rice was 440 USD/ton and Thai rice was 433 USD/ton.
In 2023, the rice price in June of Vietnam and Thailand both reached 508 USD/ton and up to now, Vietnam's rice has reached 663 USD/ton and Thailand's is 585 USD/ton. However, according to businesses, this is only a reference price because in reality, the transaction price of rice has reached 700 USD/ton. The price of rice among people has increased from 4,700 - 5,000 VND/kg in previous years to 9,100 - 9,200 VND/kg. Both raw rice and export rice prices are at "unimaginably" high levels, which is the reason why many rice businesses "collapsed". Because the characteristic of most rice exporting businesses is that they do not have raw material areas, they sign contracts in advance and then collect raw rice for processing and export. When demand suddenly increases, domestic prices increase faster than world prices, making businesses unable to react in time and forcing them to follow the market, leading to… losses.
This is also evident from the case of Indonesia's winning contract. On September 11, Indonesia announced the opening of bids for 300,000 tons of 5% broken white rice. At that time, the export price of 5% broken rice from Vietnam was at 628 USD/ton, 10 USD higher than Thailand and 20 USD higher than Pakistan. A few days later, a business in Dong Thap confirmed to the press that it had won the bid for 50,000 tons, with prices ranging from 640 - 650 USD/ton. Delivery time is from September to November 30, 2023. "We only dare to participate if we can make a profit, but now it is the end of the rice season, the supply is low, so we don't dare to take risks," the leader of this unit was quoted by the press.
But at present, the price of rice is at 660 - 700 USD/ton. If the above-mentioned enterprise had enough reserves before signing the contract with Indonesia, it would not have suffered a loss, but it would have lacked the money to purchase rice for new contracts. If it did not have enough reserves and had to purchase now, it would certainly have suffered a loss. That is the situation of many rice enterprises today. In October, Indonesia continued to invite bids for 500,000 tons of rice. According to Thanh Nien 's private sources, there were Vietnamese enterprises that won the bid, but no unit dared to disclose this information for fear of heating up the domestic market. However, the market price still increased following the general trend of the world.
According to Mr. Do Ha Nam, Vice President of the Vietnam Food Association (VFA): Some businesses lack market information and are subjective, leading to wrong forecasts and making wrong decisions. Specifically, India's rice export ban was issued in July, but in fact, since May, VFA has heard the information and shared it with its members. However, many business leaders do not think so, seeing that rice prices are good, they still sign contracts with partners. When India issued the ban, prices skyrocketed, so many businesses were surprised and unable to react. "Rice is an important food item for half of the population on this planet. The most populous countries in the world today are the ones that use the most rice. Therefore, rice is not only a normal commodity but also has its own political and sensitive elements," Mr. Nam noted.
Experts all agree that rice is a very narrow market with low profit margins, so businesses often take high risks. Rice prices are often affected by political factors, making the market even more difficult to predict. Specifically, at present, Thailand, India, Pakistan, and Myanmar have finished their largest rice harvest of the year; normally, world rice prices will decrease, but this year they have increased. Or as many people previously predicted that after October 15, 2023, India would likely relax its rice export restrictions, but in reality, this is not the case. These things lead to many businesses making wrong decisions and suffering losses.
There are still businesses with big profits
According to the financial report, the Southern Food Corporation (Vinafood 2) announced its business results in the third quarter of 2023, with net revenue reaching more than VND 7,300 billion, double that of the same period last year; profit of VND 21.66 billion while in the same period last year it was only VND 265 million. Accumulated in the first 9 months of 2023, Vinafood 2 had revenue of VND 18,665 billion, up 72% over the same period; profit of VND 31.58 billion, up more than 5 times over the same period. According to the explanation of Mr. Tran Tan Duc, Acting General Director of Vinafood 2, it was thanks to good management and determination to cut costs; besides closely monitoring market developments, promptly seizing opportunities.
Demand for rice remains high
Recently, Brazil has reached an agreement to buy 60,000 tons of rice from Thailand. Meanwhile, the Indonesian National Food Agency (Bapanas) informed that the first rice harvest usually takes place in March or April, but this year the earliest harvest time will be in May, two months later than usual. The reason is that El Nino has caused a prolonged drought across the country. "It could lead to an increase in rice prices because the supply will be tight in the first quarter of next year," Mr. Arief Prasetyo Adi, head of Bapanas, told the press. According to the latest forecast of the US Department of Agriculture, in 2024, Indonesia and Nigeria will be among the world's largest rice buyers with an expected output of about 2 million tons.
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