VZCZCXRO9524
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHI #0498/01 1200448
ZNR UUUUU ZZH
R 290448Z APR 08 ZDK
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 7723
INFO RUEHHM/AMCONSUL HO CHI MINH 4654
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 03 HANOI 000498 
 
STATE FOR EAP/MLS, EEB/TPP/ABT/ATP JSPECK 
STATE PASS USTR FOR DBISBEE 
STATE PASS USAID FOR ASIA/EAA DSHARMA 
AGRICULTURE FOR FAS 
TREASURY FOR SCHUN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ETRD EAID VM
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - VIETNAM 
 
Ref: A) STATE 39410 ("Survey: Impact of Rising Food"); 
      B) HANOI 377 ("PM Declares War on Inflation"); 
      C) 07 HANOI 1729 ("Vietnam's Inflation Conundrum"); 
      D) 07 HANOI 2013 ("Inflation Hits 10 Percent"); 
      E) HANOI 394 ("Vietnam Cutting Rice Exports"); 
      F) HANOI 206 ("Record Cold Snap"); 
      G) HANOI 475 ("Vietnam Econ Highlights") 
 
HANOI 00000498  001.2 OF 003 
 
 
 
¶1. (SBU) Summary:  Tackling rising food prices is part of Vietnam's 
larger challenge of addressing soaring inflation rates, which hit 
21.5 percent year-on-year in April.  International agricultural 
experts say that they are not worried about food security, even 
among Vietnam's rural poor, noting that their local and provincial 
contacts are not sounding alarms or reporting instances of food 
shortages.  Prime Minister Nguyen Tan Dung underscored this message 
when he assured provincial officials on April 27 that Vietnam has 
enough food for itself and to meet its export obligations.  As a net 
food exporter, Vietnam should remain sheltered from violence, 
political instability and growing poverty rates feared elsewhere due 
to food shortages.  In fact, Vietnam and its large farming 
population stand to benefit from rising global food prices, 
particularly if Hanoi can tame the rising prices of agricultural 
inputs such as fuel, and farmers can enhance their productivity. 
End summary. 
 
CONTEXT: HIGH FOOD PRICES PART OF LARGER INFLATION PROBLEM 
-------------------------------- ------------------------- 
 
¶2. (U) The Government of Vietnam (GVN) continues to combat soaring 
inflation rates (REF B, C and D), which hit 21.5 percent 
year-on-year in April, according to Vietnam's General Statistics 
Office (GSO).  Food prices, which comprise roughly 43 percent of the 
basket of goods Vietnam uses to calculate its consumer price index, 
are up 34 percent from one year ago and are a significant 
contributing factor to Vietnam's inflation.  The price of rice, 
Vietnam's main staple, has gone up by 51 percent in the last year. 
Prices of other key products have also risen dramatically, with fuel 
rising 42 percent in the last six months, housing and construction 
materials up 24 percent from a year ago, and transportation prices 
18 percent higher. 
 
AMPLE STOCKS: MEASURES ADDRESS INFLATION NOT SCARCITY 
----------------------------- ----------------------- 
 
¶3. (U) It was in the context of these broad inflationary pressures 
that Vietnam, the world's second largest rice exporter, announced 
plans to cut 2008 rice exports by up to 22 percent (REF E).  Most 
international and local experts agree that lowering the price of 
rice, rather than concerns over available stocks, drove the GVN to 
cap rice exports at 3.5 to 4 million tons this year.  During an 
April 27 teleconference with national and provincial officials, 
Prime Minister Nguyen Tan Dung underscored that the country has 
sufficient rice supplies, reporting that state-owned agencies will 
continue to buy rice for national reserves and distribution to 
regions which may face a shortage.  The PM threatened to punish 
organizations and individuals engaging in speculation, which he 
blamed for the recent rise in food prices.  While Vietnam's rice 
export cap fueled fears of shortages across Asia and the world, 
Vietnam is a net food exporter and so it will likely remain 
sheltered from food shortages, threats of violence, political 
instability or growing poverty rates.  In fact, the GVN and 
Vietnamese farmers are working to increase this year's output to 
take full advantage of high global commodity prices. 
 
¶4. (U)  Local and international experts, including FAS/Vietnam, the 
UN Food and Agriculture Organization (FAO) Representative in Vietnam 
and the World Bank's (WB) Rural Sector Coordinator told Econoff that 
they did not fear food scarcities, even among Vietnam's rural poor. 
Severin Kodderitzsch of the World Bank noted that his national and 
provincial official contacts are "entirely calm" about rising food 
prices, and have not yet sounded alarms nor called for WB 
assistance.  "We have not heard of any instances of shortages," 
added FAO's Andrew Speedy. 
 
DEMAND: LITTLE EVIDENCE OF SHORT-TERM SHIFTS IN CONSUMPTION 
------------------------------------- --------------------- 
 
¶5. (U) Once unable to feed itself, Vietnam has transformed its 
agricultural sector to produce more than it needs domestically, and 
now exports significant quantities of pepper, coffee, cashews, 
seafood products and rice, among other products.  Vietnam exported 
 
HANOI 00000498  002.2 OF 003 
 
 
4.5 million metric tons of rice in 2007, which accounted for roughly 
12.8 percent of its total rice production and 20-25 percent of the 
rice traded on the international market.  Per capita consumption of 
rice is currently around 150kg/year; 12 percent lower than ten years 
ago (according to FAS/Vietnam's April 2008 Grain and Feed Report). 
This change in consumption patterns is largely a result of rising 
incomes and greater access to other foods as Vietnam has integrated 
into the global market. 
 
¶6. (U) As world fuel prices and the cost of inputs such as 
fertilizer and pesticide continue to increase, Vietnam's GSO reports 
that the price of rice has risen 51 percent over the last 12 months, 
and 17 percent in just the first three months of 2008.  Other key 
agricultural commodities have also jumped in price.  While national 
data is not currently available for individual products, data from 
the Ho Chi Minh City Statistics Office provides some indication of 
price jumps, reporting that y-o-y meat prices are 59 percent higher, 
fishery and seafood products 24 percent, and milk and butter are up 
23 percent.  Newspapers report that a small number of consumers may 
be cutting their consumption of meat products and eating more 
lower-cost goods such as vegetables, but there is little evidence of 
a widespread shift in consumption patterns.  Many of Vietnam's 
poorest are subsistence farmers of commodities like rice and are 
therefore less affected by rising prices on the market, while others 
living close to the poverty line have to date been able to feed 
their families despite the higher prices, according to FAO's Speedy. 
 
 
SUPPLY: NO SIGN OF FOOD SHORTAGES 
--------------------------------- 
 
¶7. (U) Despite an earlier cold spell which affected the north and 
central regions of Vietnam (REF F), rice production is expected to 
remain relatively consistent with last year.  Analysts are 
predicting only a slight decline in output from 35.36 million tons 
in 2007 to 35.21 million tons in 2008, despite an approximately 
35,000 hectare drop in the total harvested area for rice.  Higher 
anticipated yields and a shift to higher-production, more 
pest-resistant rice strains should compensate for the reduction in 
cultivated land.  Government officials and industry observers are 
encouraging farmers to increase productivity and switch to higher 
yield varieties of rice to ensure domestic food supplies and to 
enable Vietnamese farmers, over half of Vietnam's labor force, to 
take advantage of higher global prices.  Corn production, another 
key domestic grain, is expected to increase 8 percent over 2007, as 
a result of improved yields and an increased cultivation area, 
according to FAS/Vietnam's April Grains and Feed report.  In the 
foreseeable future, there are no signs of food shortages in 
Vietnam. 
 
POLITICAL IMPACT 
---------------- 
 
¶8. (SBU) Vietnam is politically stable and calm, despite rising 
global commodity prices.  Post is not aware of instances where food 
prices have led to public protests or outcries.  Moreover, many 
believe that Vietnam's cuts in rice exports were as much a political 
maneuver to demonstrate that the GVN is taking proactive steps to 
address the rising cost of living, as they were to bring about real 
price reductions.  UN Development Program Senior Country Economist 
Jonathan Pincus asserted that the GVN instituted the export cap as a 
measure of "political stability." 
 
ECONOMIC IMPACT: OPPORTUNITIES AND CHALLENGES 
--------------------------------------------- 
 
¶9. (U) Vietnam remains a heavily agrarian economy.  Rising global 
food prices offer lucrative opportunities for farmers to reap 
greater profits on the domestic and international markets. 
Professor Dao The Tan, former Director General of Vietnam's 
Agriculture Science and Techniques Academy, pointed out that many 
agricultural workers are abandoning recent efforts to diversify 
their crops to instead increase rice production in response to 
skyrocketing world prices.  The rising costs of inputs (such as 
fuel, fertilizer and pesticides) and transportation, however, are 
cutting into these potential gains. 
 
¶10. (U) On a macro-scale, insomuch as food prices are driving higher 
inflation, they are impacting Vietnam's growth.  In late April, the 
National Assembly approved a GVN proposal to revise the projected 
GDP growth rate from the 8.5-9 percent target to seven percent. 
National Assembly members would not, however, budge on the poverty 
 
HANOI 00000498  003.2 OF 003 
 
 
reduction target of 11-12 percent (REF G).  National Assembly 
Economic Commission Chairman Ha Van Hien directed the GVN to observe 
closely the impact of rising prices on Vietnam's farming families 
and rural communities, warning that the high inflation rates Vietnam 
is experiencing, if not properly addressed, could threaten to erase 
the economic benefits they have attained as a result of Vietnam's 
recent economic success. 
 
ENVIRONMENTAL IMPACT 
-------------------- 
 
¶11. (U) The Ministry of Natural Resources and Environment's (MONRE) 
Insitute for Environmental Strategy and the Ministry of Agriculture 
and Rural Development's (MARD) Institute for Agriculture Strategy 
and Policy report that no research has been conducted on the 
environmental impact in Vietnam caused by rising food prices. 
Deputy Prime Minister Nguyen Sinh Hung, however, recently instructed 
the GVN to look into increasing productivity and land use efficiency 
at 130 state-owned farms.  Higher food prices and the push for 
greater agricultural productivity have drawn into focus Vietnam's 
challenge of land allocation.  The rush to attract foreign 
investment and fuel the modernization of the economy has led to 
growing urbanization; rice paddies are overtaken in the interest of 
developing new industrial parks and factories.  Higher commodity 
prices may lead some provincial authorities to re-evaluate recent 
land allocation decisions in pursuit of the most profitable use of 
that land. 
 
GOVERNMENT POLICY RESPONSE 
-------------------------- 
 
¶12. (U) On March 31, Prime Minister Dung unveiled a seven-pronged 
strategy to combat inflation (REF B).  This was preceded by the 
March 26 announcement of rice export cuts -- the first and most 
visible action the GVN has taken in response to rising food prices. 
In addition to capping exports, the GVN has instructed traders not 
to sign new rice export contracts until June, at the earliest, to 
ensure domestic supply and depress prices on the local market. 
Existing rice export contracts have not been affected.  Prime 
Minister Dung has also asked the Ministry of Finance to look into 
rice export taxes, although it is not clear whether this would be in 
addition to or in lieu of the export cap.  MARD and MONRE officials 
have encouraged farmers to increase productivity to move from 
subsistence farming to a level where they can better meet the 
growing global demands for agricultural commodities.  The 
DPM-ordered investigation of land use at state-owned farms is also 
part of Vietnam's effort to improve agricultural output, which the 
GVN views as a key component of tackling inflation. 
 
IMPACT ON POST PROGRAMS 
----------------------- 
 
¶13. (U) Post has not seen any impact on programs from the rising 
cost of food. 
 
POLICY PROPOSALS AND COMMENT 
---------------------------- 
 
¶14. (SBU) The causes of Vietnam's inflationary issues are broader 
than the food price increases (REFS B, C and D), and any effort to 
tackle increasing food prices must be made in tandem with efforts to 
address those other factors.  FAO and World Bank experts described 
Vietnam's rice export cap as "unnecessary," and opined that based on 
their past experiences, such a measure will likely not bring about 
the GVN's desire for lower prices.  These experts suggest instead 
increased spending on agricultural research, irrigation projects and 
national poverty and hunger reduction programs would be a much more 
effective way of holding down prices while staving off concerns over 
food shortages.  On balance, Vietnam has the potential to reap 
benefits from the run up in global food prices, particularly if the 
GVN finds a way to tame the soaring inflation rates at home. 
 
¶15. (U) This cable was coordinated with FAS/Vietnam and ConGen HCMC. 
 
 
 
MICHALAK