Vietnam's food security and pullout from world rice markets
By Jon Fernquest[Introduction | Vocabulary | Article | Reading Questions | Answers]
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Today's article is on the problems that Vietnam has had with its rice crop recently.
Vietnam has suspended rice exports to other countries in order to make sure that it has enough rice to feed its own people.
Historically, governments have always had to make sure that they have enough food to feed their people.
This is as true now as it was hundreds of years ago.
This need for "food security" has always been an essential part of a country's sufficiency economy.
Unpredictable events such as droughts, hurricanes, insect infestations, disease, and war have made rice harvests in Asia unpredictable for hundreds of years.
Governments have always taken steps such as storing emergency supplies of rice or controlling the supply and price of rice.
Depending on how long Vietnam's problems persist, there might be opportunities for Thailand to step in and fill the demand that Vietnam can no longer supply.
Thai government rice stockpiles are currently high due to high rice prices offered during the Thaksin administration's intervention in rice markets.
For further reading, read the details about Vietnam's rice exports from Vietnam's Agricultural Ministry website.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. Why has Vietnam stopped rice exports?
2. Have the rice shortages in Vietnam caused rice prices to go up or down?
3. Why did Vietnamese rice farmers have to "cut crop areas" and lose a large part of otheir rice harvest?
4. What has been the effect of the insects and rice virus on exports of Vietnamese rice?
5. What natural disasters in Vietnam this year required the government to provide rice?
6. Does Vietnam face the risk of another natural disaster this year?
7. What problems has the Mekong delta region of Vietnam faced in its rice production?
8. How great has the effect of insects been on rice prices in the Mekong delta region?
9. What long-term impact might high rice prices and supply restrictions have on Vietnam's rice exports?
10. Under what conditions would Thailand benefit from Vietnam's suspension of rice exports?
11. Where is the new demand early next year expected to come from?
12. What rice markets do Vietnam and Thailand compete in?
13. Has Thailand become more or less competitive on international rice markets recently?
14. How does rice rank among Vietnam's agricultural exports?
15. Are speculators currently allowed in Vietnam's rice markets?
16. What action is the Vietnam's government to keep prices down?
Bangkok Post Article: November 15, 2006
Vietnam suspends exports of rice
HO BINH MINHHanoi - Vietnam has halted rice exports as domestic prices have surged to record highs after pests and bad weather reduced output, Prime Minister Nguyen Tan Dung said.
The decision could open up a window of opportunity for Thailand to boost exports of the grain, traders said.
"Rice exports must be immediately halted to ensure food security and stabilise market prices,'' Dung said in the directive sent on Sunday to government agencies and the Vietnam Food Association.
Agriculture Minister Cao Duc Phat said on Friday southern farmers had lost 800,000 tonnes of paddy worth $125 million after they cut crop areas to clean up brown grasshoppers and the rice plant virus infecting thousands of hectares of fields.
The market is expecting marginal impact from the halt as the recent price surge had slowed overseas demand. Phat said only a few deals had been signed for loading early next year.
Ships, which arrived before Sunday for loading for Cuba and Indonesia, would not be affected by the restriction, while all other deliveries must have government approval, Dung said.
Typhoons and floods earlier this year damaged fields in central provinces, prompting the government to send in food aid.
A typhoon in the South China Sea is heading to the region. Vietnam said Typhoon Chebi, the Korean word for "a swallow'', is forecast to dump rains on Vietnam's coast today but the Central Highlands coffee belt would not be hit.
Pests have been the main problem in the southern region incorporating the Mekong delta food basket, where the price of paddy surged to 30-year highs of 3,100 dong ($0.19) per kg in the past two weeks.
Traders said Vietnam could lose key buyers, the Philippines and Indonesia, if high prices and supply restrictions remain for a longer period.
Thai traders said overseas buyers had covered positions for December shipments and were unlikely to return to the market until early next year.
"If they continue to suspend exports until early next year, that would definitely benefit Thailand's rice exports, given that new demand is expected to come in during that period,'' a Thai trader said, referring to the ban by Vietnam.
They said new demand was expected from several markets, including Africa, which is also a key buyer of Vietnamese rice.
Thailand 25% broken grade stood yesterday steady at $255 a tonne, free-on-board, $10-$15 a tonne lower than Vietnam's 25 percent broken grade.
Thailand and Vietnam compete on mostly lower grades of white rice, but Thailand has lost market share in Indonesia and the Philippines in recent years due to relatively higher prices.
Rice is Vietnam's largest foreign exchange earner among agro-products. But January to October export revenues fell 7.8% from a year ago to $1.2 billion, the government said.
Dung urged officials from the trade, agriculture, finance and provincial authorities to deal strictly with speculators. He has ordered to release rice from national stocks to stabilise prices.
Dung also urged the Agriculture Ministry to start growing the key winter-spring rice crop on time. Pests delayed planting of the current crop, which would delay harvest by two weeks.
Vietnam's rice exports in the first 11 months of this year are forecast to fall 9% from a year earlier to 4.6 million tonnes, the Vietnam Food Association said.
The government has decided to cap rice exports this year at five million tonnes. Vietnam has yet to set export target for 2007. REUTERS
Vocabulary
suspend - stop temporarily, stop for a period of time
pests - insects that damage food crops
open a window of opportunity - create opportunities for a limited period of time (think of an open window as being the limited opportunities, when the window closes the opportunities are gone)
food security - making sure that a country has enough food to eat under the future, even if there is bad weather, crop diseases, or war (this is part of government policy, if a country imported all of its food, a bad economy or war might cut off the supply of food (See Wikipedia on food security)
stabilise market prices - reduce movement in rice prices (here stop them from increasing due to shortages)
Vietnam Food Association - the organisation responsible for managing exports and domestic distribution of rice
paddy - rice that has been harvested, threshed, but not yet milled
grasshoppers - an insect with long legs and antennae (See Wikipedia)
rice plant virus - a disease that has a negative effect on Vietnamese rice production
marginal impact -
a typhoon - a large violent storm with strong winds, rain, high waves, and tornadoes, also known as a hurricane (See Wikipedia on tropical cyclones and the weather)
a belt - an area or region that is long and narrow and has a special reputation for something (for example "the commuter belt" means a residential area outside of a city, the "bible belt" means a part fo the United States with mostly evangelical Christians, or a "green belt" is an area with many trees and plants)
the Central Highlands coffee belt - an mountainous region in central Vietnam rugged mountain peaks, extensive forests, many hilltribes, and rich soil (See Wikipedia on Geography of Vietnam and Tây Nguyên)
a river delta - the mouth of a river, where the river flows into an ocean, sea, or lake (See Wikipedia on river deltas)
Mekong delta food basket - the delta of the Mekong river, an important rice producing region (See Wikipedia on the Mekong river delta)
a covered position, to cover a position - to cover a short position in a commodity or stock by purchasing the commodity or stock
broken grade rice - a lower grade of rice
free-on-board - "the Seller owns the goods until they are loaded on the truck (or other vessel) at the Seller's location. Therefore, the selling price includes cost of the goods plus the cost of loading onto the truck or other vessel" (Source, also see Wikipedia)
market share - a company's sales as a percentage of the market they are selling in (for example Microsoft has a market share for computer operating systems that is close to 100%, See Wikipedia on market share)
speculators - people who buy and hold the rice until the price rises and then sell for a profit
release rice from national stocks - when their is an dangerous shortage of rice the government sells rice from the emergency supplies of rice that they hold
Answer Key:
1. Why has Vietnam stopped rice exports?
To "ensure rice security" and "stabilise market prices."
Rice is an essential of the Vietnamese diet.Insects and bad weather have reduced output and created a rice shortage in Vietnam.
2. Have the rice shortages in Vietnam caused rice prices to go up or down?
Up. With demand remaining the same, if supply decreases then the price will rise.
(Note: Draw and shift supply and demand curves to see this, supply decreasing meands
that the supply curve shifts upwards to the left, see Wikipedia on supply and demand)
http://en.wikipedia.org/wiki/Supply_and_demand
3. Why did Vietnamese rice farmers have to "cut crop areas" and lose a large part of otheir rice harvest?
They had to cut these crop areas to get rid of insects (brown grasshoppers) and a virus that has infected rice plants.
4. What has been the effect of the insects and rice virus on exports of Vietnamese rice?
The "recent price surge" has "slowed overseas demand" and "few deals had been signed for loading early next year."
Insects and the rice virus has caused a rice shortage. The rice shortage has caused rice prices to rise in Vietnam, so Vietnamese rice is more expensive than, let's say, Thai rice, so people buy Thai rice.
Since rice is a commodity there is one price on international markets. The article implies that Vietnam's rice market is closed to imports, because if imports were allowed, rice prices in Vietnam would be at the lower international level.
5. What natural disasters in Vietnam this year required the government to provide rice?
Typhoons and floods in the central provinces.
("Typhoons and floods earlier this year damaged fields in central provinces, prompting the government to send in food aid.")
6. Does Vietnam face the risk of another natural disaster this year?
Yes, Hurrican Chebi is heading south from Korea.
7. What problems has the Mekong delta region of Vietnam faced in its rice production?
Insects have reduced production in the Mekong delta and prices .
8. How great has the effect of insects been on rice prices in the Mekong delta region?
Rice prices have increased to "30-year highs."
9. What long-term impact might high rice prices and supply restrictions have on Vietnam's rice exports?
Vietnam could lose "key buyers" such as the Phillipines and Indonesia.
10. Under what conditions would Thailand benefit from Vietnam's suspension of rice exports?
New demand is expected early next year, so if the Vietnamese rice exports are still in effect at that time, Thailand could step in and fill the demand.
11. Where is the new demand early next year expected to come from?
Africa, as well as other markets.
12. What rice markets do Vietnam and Thailand compete in?
Markets for lower grades of white rice.
13. Has Thailand become more or less competitive on international rice markets recently?
Less competitive, Thailand has "lost market share in Indonesia and the Philippines in recent years due to relatively higher prices."
14. How does rice rank among Vietnam's agricultural exports?
It ranks number one.
15. Are speculators currently allowed in Vietnam's rice markets?
No.
("Dung urged officials from the trade, agriculture, finance and provincial authorities to deal strictly with speculators.")
16. What action is the Vietnam's government to keep prices down?
It is releasing rice from the government stocks of rice.
("He has ordered to release rice from national stocks to stabilise prices.")
