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Vinafood 2 found selling rice cheap to Singapore subsidiary
It’s being asked why Vietnam Food Association allowed state-owned Vinafood 2 to sell rice for less than the export floor price.
[Tien Phong, a Hanoi newspaper, has been investigating the tight relationship between the Vietnam Food Association (VFA) and two large state corporations, Vinafood 1 and Vinafood 2.]
The Vietnam Food Association (VFA) manages rice exports. It is supposed to consult its members and then set minimum export prices.
A notice on VFA’s website showed that the floor price for export contracts on February 20, 2009 was $460 per tonne for five percent broken rice was delivered in July and August of 2009.
The floor price for July-August deliveries was lowered to $430 per tonne on July 2. Even so, Truong Thanh Phong, General Director of Vinafood 2, signed off on June 30 on a contract to sell Saigon Food Pte Ltd 5000 tonnes of five percent broken rice at $406 per tonne only.
It’s been asked why Phong, who is also the chairman of VFA and thus must be well aware of the floor price, agreed to sell rice at below the floor price. And there’s a second question: who is Saigon Food?
Tien Phong newspaper has discovered that Saigon Food is a subsidiary of Vinafood 2 that was established in Singapore on February 12.
Therefore Vinafood 2 is selling rice cheaply to its foreign subsidiary. Then what? Does Saigon Food resell the rice to Singaporean businessmen or export rice to another country at higher price?
Tien Phong also discovered that Deputy General Director Cao Thi Ngoc Hoa of Vinafood 2 is also the Director of Saigon Food Pte. Hoa sees nothing wrong with this arrangement. She told reporters by phone on October 6 that “when the company in Singapore gets clients, we obtain rice from Vinafood 2 to sell to Africa”.
“Entrusting the management of rice exports to an association whose Chairman is also the General Director of a big rice export corporation is tantamount to putting the fox in charge of the henhouse,” commented Dr. Le Dang Doanh when Tien Phong asked him about the propriety of the deal. “This is a big systemic error.”
Doanh, a well known economist, said that Vinafood 2 has employed a popular “insiders’” trick for skimming profits. Company A sells to Company B for a low price; B resells the goods to others at market prices. Meanwhile, ‘A’ Company gets a commission for the goods it sells to ‘B’ at low prices.
Doanh added that it is necessary to clarify where the money went that was earned from the spread in prices. That data will prove that it is a “blunder”, he said, to allow a business director to act as the association chairman at the same time. “No one should be both a player and the referee.”
More dangerously, Doanh continued, the quest for illicit profits will badly affect Vietnam’s rice export price, distort the market and hurt farmers. “This case needs to be taken to the police,” he declared. “This is a criminal act with serious economic consequences. We need to take criminal proceedings when we find enough proof.”
There’s work here too for the Competition Management Department [a unit of the Ministry of Industry and Trade – ed.], Doanh believes. That agency should reconsider the current mechanism under which the same big state-run corporation gets preferential loans to purchase rice and export it in big quantities, while it can also dominate the Food Association, set the rules of the game and establish export prices.
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Doanh exhorted the Tien Phong reporters to pursue this story ‘to the end.’ Following are more excerpts from that conversation.
Tien Phong: Do you think that Vietnamese farmers still don’t get their fair share of profits from the rice business?
Dr. Le Dang Doanh: There are serious problems in the profit sharing in the rice production chain. First, rice has to go through a lot of middlemen before reaching exporters. Second, farmers cannot get a decent profit, while they have to bear high risks of bad weather and price fluctuations.
We should think of a new formula that allows farmers to become the shareholders of rice export companies. The companies could provide credit to farmers and get involved in the rice production process, therefore sharing risks with farmers. Meanwhile, farmers can also share profit from rice export.
We should think of setting up a national rice export council that includes representatives from farmers and enterprises. Profit from rice export must be re-invested in rice production.
TP: When an enterprise exports rice at low prices, does that mean it has to beat down the purchase price from farmers?
Doanh: Yes, of course. The more cheaply they can purchase the rice from the producers, the bigger the profit. I think that we need to break the power of VInafood 2 in VFA.
TP: Vinafood 1 and Vinafood 2 always emphasise their important role in stabilizing the domestic market . . .
Doanh: I don’t buy that. We can reorganize the market and rice export management. Thailand is still good at exporting rice without reliance on state-owned corporations.
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VietNamNet, TP
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