Vietnamese rice on a shelf at a store in the Mekong Delta province of Vinh Long. (Photo: VNA)Despite Vietnamese rice making history by reaching 638 USD pertonne of 5% broken rice, the highest level recorded, according to the VietnamFood Association (VFA), rice exporters' profit margin has been getting everthinner, with some reporting losses.
A major contributor, according to a spokesperson from the VFA, ishow exporters leave themselves vulnerable to price fluctuations.
Many exporters choose to sign contracts with foreign buyers firstand look for supply later. Once prices surge in the domestic market, theyeither have to negotiate or accept the losses. Another factor was how quicklydomestic prices react to global prices, which has left exporters unprepared andunable to respond.
Renegotiation often takes time and adds extra costs, furtherhurting exporters, especially those with limited financial capacity.
As of mid-November, the asking price for rice in the Mekong Deltahas reached 13,200-14,400 VND per kilogramme, forcing exporters to compete witheach other to fulfil their contractual obligations.
Experts said at this price level, they must sell at 700 USD pertonne to make a profit, significantly higher than what the global market isoffering to buy. At these elevated prices, exporters also find it difficult toengage in new contracts.
Dinh Minh Tam, Director of Co May Co., a rice export company basedin the Mekong Delta province of Dong Thap, said exporters must better positionthemselves operationally and financially to minimise the potential damage ofprice surges.
He said a large factor leading to the current situation was a lackof quality market information and failure to closely observe pricefluctuations.
To make matters worse, some cornered companies resorted to unfairbusiness practices that caused market disorder, price manipulation, commercialfraud, contractual non-compliance and a decrease in quality. It often resultedin higher losses across the entire industry and damaged the reputation ofVietnamese products in foreign markets, hindering the industry's development inthe long run.
Weakening demand and oversupply have also thinned the industry'sprofit margin as the market is approaching saturation point. According to arecent report by FiinGroup, a market company based in Vietnam, the industry'sprofit margin has decreased from 17% in 2021 to 13.5% in 2022. Rising inputcosts for fertilizers, seeds and machinery also cut into profit.
It has resulted in a significant number of companies withdrawingfrom the market and weaker appeal for the agriculture industry as a whole.Based on a scoring model by the company, it's predicted that an increasingnumber of companies will face high to very high levels of risk, 13% in 2023 incomparison to 10% in 2022.
Data from the Ministry of Agriculture and Rural Development (MARD)showed in the first 10 months of 2023, the export price reached 558 USD pertonne, a 15.3% increase compared to the same period last year. Rice exportturnover reached 4 billion USD, a 35% increase in value compared to the sameperiod in 2022./.
VNA
