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The middle man: Necessary for the rice economy?
The Vietnam Food Association (VFA) has suggested restructuring the force of “thuong lai” (Small merchants who serve as intermediaries between enterprises and farmers, purchasing rice from farmers and reselling it to enterprises). Yet this plan has proven to be unworkable.
VFA wants to restructure or eliminate thuong lai because it believes that, without the middle men, farmers will be able to sell rice at higher prices.
In Dong Thap province alone, farmers provide some one million tons of rice every year. The Dong Thap Food Joint-Stock Company, the province’s main rice buyer, only purchases 0.2 million tons. How can farmers sell the other 800,000 ton? The thuong lai collect the other 800,000 tons by visiting the house of every farmer to purchase rice. They then contact enterprises and exporters in Dong Thap and neighboring provinces to buy this rice.
If Vietnam does not have thuong lai any more, exporters must travel extensively to collect rice. If so, they will be able to purchase rice at lower prices, but some argue that they will also endure rising travel costs.
Currently, the thuong lai are well-organized among themselves. Every large intermediary group has 5-10 boats to carry purchased rice. With a wide network that reaches out to every corner in hamlets and communes, information about prices and the crop harvest can be updated hourly.
One head of a food company explained that if just one business raises the rice collection price by 50,000 dong per kilo, the thuong lai force other enterprises to raise their price by 50,000 dong per kilo within a day. This shows how rapidly the middle men groups lai can update their information.
A lot of thuong lai even have staff in hamlets and communes, informers who contact these middle men with necessary information about how fast the harvest is going, which rice farmers have collected and when they need to sell rice. Therefore, thuong lai know exactly what farmers want and where they need to go to collect the rice they need without spending a lot on travel. Other enterprises cannot organize such a comprehensive system that works so effectively in a short time.
VFA itself admits that thuong lai are very necessary and indispensable in rice collection. However, it hopes to reorganize the power of these intermediaries.
Under VFA’s proposal, the middle men must register the volume of rice they collect on each trip and and the length of their trip. Enterprises will set prices before every trip and, if the market price declines, enterprises must purchase rice from intermediaries at the prices they promised. Meanwhile, if the market price goes up, enterprises can purchase rice from middle men at the market price.
According to VFA, this will guarantee the thuong lai their profits, while farmers will always be able to sell rice at high prices.
However, many experts have pointed out that this will do more harm than good.
Will a network that already operates effectively and stably endure restructuring in accordance with VFA’s idea? Experts say that the biggest advantage of thuong lai is their flexibility. They won’t like doing everything as instructed by enterprises. Meanwhile, different enterprises will have varying opinions about the market.
Like all other businessmen, these intermediaries want to work with enterprises that they think are the best, instead of working with assigned enterprises. Under the VFA’s solution, the thuong lai can always be sure of their profit. Yet, they cannot optimize their profit by accepting high risks to obtain the highest possible profit.
VietNamNet, TBKTSG
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