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Rice exports: Privileged traders earn big bucks, farmers get pennies
Two experts point out unfair profit distribution in the rice production chain, attributing it to preferential rights granted to state-owned food corporations.
Profit from privileges
In 2008, the Northern Foods Corporation earned 2.4 trillion dong ($1.3 billion) after taxes, while its counterpart in Saigon, the Southern Foods Corporation, earned just short of two trillion.
Dr. Vu Trong Binh of the Institute for Agriculture and Rural Development Policies told Tien Phong newspaper that there’s unfair profit distribution in the rice production chain.
The two big rice export corporations, the Northern Food Corporation (or Vinafood 1) and Southern Food Corporation (Vinafood 2) are the ‘big guys’ who dominate the Vietnam Food Association (VFA). This way they have the ‘inside track’ to carry out the Government’s rice export agreements with foreign partners. Their control of such contracts allows them to earn a fat profit without working very hard. Small companies now are mainly occupied in collecting rice for the Vinafood corporations to fulfill the rice export contracts.
According to Nguyen Nhu Lai, Chairman of Vinafood 1, is pleased that though Vinafood 1’s revenue was only half of Vinafood 2’s, his firm’s profit was considerably higher. “We successfully demanded higher prices when negotiating export contracts with foreign partners,” Lai explained.
Vinafood 1 has been assigned to ‘take care’ of two major markets, Cuba and Iraq. The corporation exports 400,000 tonnes of rice to Cuba every year. Half moves under state-to-state contracts, while the other 200,000 tonnes is exported under commercial contracts.
Vinafood 2, responsible for marketing the Mekong Delta crop, exports about ten times more rice than Vinafood 1, roughly five million tonnes annually.
Commenting on the food corporations’ profits, Dr. Binh said that the corporations are supposed to use part of the profit to support farmers’ re-investment in rice production. However, they have been ignoring this obligation for the last many years.
“They earn fat profits not because they are good at trading, but because of the privileges given to them,” Binh said. “In fairness, more of that should go to the farmers.”
“If they get one trillion dong, they should use half to encourage agriculture expansion, research and development and product quality management. However, neither corporation has done this,” he added.
We lack a rice export strategy
The Vietnam Food Association is the manager of rice exports. The association, after consulting its members, sets the floor export prices.
That’s just theory, explains Professor Vo Tong Xuan from An Giang University. Xuan, regarded as Vietnam’s leading rice expert, said what’s needed is a law that creates a level playing field, fair to all [companies]. VFA ought represent all [potential] exporters impartially. Its role should be to regulate the rice export volume and prevent dumping.
For now, Vinafood 1 and Vinafood 2, with neither rice fields nor farmers, dominate the VFA. The Chairman of the VFA, Truong Thanh Phong, is also the General Director of Vinafood 2. Therefore, Xuan continues, VFA has become an organization acting for the benefit of Vinafood 2, not for the farmers who have to work hard to produce rice.
A thing that’s quite odd, Xuan adds, is that Vinafood 2 has much larger revenues than Vinafood 1, but records a smaller profit. Is the southern corporation selling rice too cheaply?
Binh comments in other rice-exporting countries, the rice export strategy is decided collectively. It stipulates when enterprises launch products into the market and which floor prices enterprises should follow. The ‘rules of the games’ are very clear in these countries, and the Government rarely has to intervene the market.
Meanwhile, in Vietnam there is a problem in the governance of the rice exporters’ association, continues Binh. The association, in fact, is in run by the state-owned corporations. Small companies are not members and farmers do not have a voice. There is no clear strategy on rice export. “The way we sell rice to the world market is no different than the way farmers are forced to take whatever price they can get from middlemen.”
Thai rice companies are now successfully selling their products in supermarkets under their own brand names, because their products have established a reputation for stable quality. They do not depend on distributors. Meanwhile, Vietnam’s brand names are not seen in rice packages available at supermarkets. It is simply because Vietnam’s rice farmers still rely on middlemen.
VietNamNet, TP
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