Last updated: Thursday, May 23, 2013
Vietnam Likely to Face with Oversupply of Rice?Posted: Monday, July 09, 2012
As the second largest rice exporter in the world, annually Vietnam exports one third of its rice. However, it has not been yet got rich from rice. According to a recent report, experts estimated that in about 50 years, Vietnam would have to face with an oversupply of rice.
The question raised for policy makers is that whether Vietnam should concentrate on improving productivity and promoting export or not, when the rice demand is changing.
Currently, Vietnam has exported nearly one third of rice production, contributing over 20 percent to total rice export in the world. According to Dr Steven Jaffee –Coordinator of Rural Development Programme, World Bank, although each region has to face with different problems such as drought, pests, diseases, prolonged waterlogging or high salt content water, the model of rice production in Vietnam remains stable and consistent, in contrast with the other major rice producers in Asia.
Dr Dang Kim Son, Director of Institute of Policy and Strategy for Agriculture and Rural Development said that, for the last two decades, Vietnam has achieved or exceeded the goals of food supply, it is currently an exporter of rice and food with large surpluses. As for the volume, Vietnam has exported 22 percent of rice export in the world. Success in rice productivity improvement in the past has brought Vietnam a significant progress in reducing poverty, hunger and malnutrition during the period from the late 1980s to the mid 2000s. Successes of Vietnam’s rice sector plays an important role, helping Vietnam transform from a low income country into a middle income one, Dr Son affirmed.
The contribution of rice sector to Vietnam’s economy cannot be denied, however, according to Dr Jaffee, the value of Vietnam’s rice export is still in a question. Currently, the costs for infrastructure management, water, damages to seafood production, environment, as well as Government’s capital in interest rate support for rice producers, opportunities costs when using land, water and labour force in other purposes have not been calculated in the value of rice export yet.
Mr Peter Timmer, professor of Havard University has made a lot of evidences to predict that, in about 50 years, Vietnam will have to face with oversupply of rice when world rice consumption gets its peak. According to Mr Timmer, food consumption in Asia is reducing sharply. Based on figures on the food balance sheet of the Food and Agriculture Organization (FAO), if in 1961, the share of calories from rice accounted for 40 percent of total calorie consumption per capita, recently this proportion is less than 30 percent. Annual averaged rice consumption growth rate in Asia has decreased, especially has declined dramatically from 1970 to now (down 0.47 percent).
Thus, the elasticity ratio of rice demand to incomes is declining. Meanwhile, the proportion of budget spent on rice is falling even faster. Currently, 10 percent of budget is spent on food, but 90 percent of budget is for other processing products and other added values. “It proves that farmers do not benefit much from this added value chain”, Mr Timmer said.
A highlight in the analysis of rice price in over 110 years shows that food price is on the downtrend. If inflation is excluded, food price is reduced about 1.6 percent a year, and price will decline more and more dramatically when rice productivity rises.
On the other hand, according to Mr Steven Jaffee, although Vietnam is the second largest rice exporter in the world, it lacks a specific export strategy. Meanwhile, despite its increasing rice export, food security in Vietnam does not get better when situation of malnutrition has not been approved for the last 5 years. “Even in Mekong river delta, where is considered Vietnam’s rice granary, there is no connection between rice production growth and malnutrition progress, when the Mekong river delta only ranked as no. 7 out of 8 regions of reducing child malnutrition during previous booming export period”. Mr Jaffee shared.
Moreover, right in the Mekong river delta, people cannot get rich from rice incomes, rice incomes of farmers with production scale of under 1 hectare account for only 18 percent, remaining incomes come from non-agricultural activities. For farmers with production scale of over 3 hectares, incomes from rice only account for 67 percent of their total incomes.
How to solve rice overproduction
Therefore, Mr Jaffee said, in order to ensure food security, Vietnam should separate systems and strategies for social rice export from commercial one. Accordingly, every rice export activities must base on commercial foundation, with a fair playing field for both private and state-owned enterprises.
Export should be limited by quota mechanism, but by different export taxes. Revenues from export taxes can be reinvested into programmes supporting competition and sustainable rice development Dr Dang Kim Son also gave many recommendations for the rice industry. However, as for the export, Mr Son proposed that Vietnam should improve activities of Vietnam’s Food Association (VFA) with the participation of farmers, small enterprises in all Association’s activities, not only in export.
Moreover, it is necessary to speed up equitization and restructuring of state owned enterprises engaged in food business; to apply market regulation policies such as warehousing, import and export duties…