VZCZCXRO7709
OO RUEHDT RUEHPB
DE RUEHHM #0940/01 2910526
ZNR UUUUU ZZH
O P 170526Z OCT 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5040
INFO RUEHHI/AMEMBASSY HANOI PRIORITY 3377
RUCPDOC/USDOC WASHDC PRIORITY 0083
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 5269

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000940 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA 
USAID/ANE/EAA FOR FRANK DONOVAN 
STATE PASS USTR FOR BISBEE 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
 
E.O. 12958: N/A 
TAGS: EAGR ETRD ECON PGOV SOCI VM
SUBJECT: PRESS SAYS FARMERS SUFFERING BECAUSE GVN GUESSED WRONG ON 
RICE 
 
REF: HANOI 605; HANOI 498 
 
HO CHI MIN 00000940  001.2 OF 003 
 
 
¶1. (SBU) Vietnamese farmers and newspapers are now openly 
critical of the Government of Vietnam (GVN's), accusing it of 
mismanaging the country's rice market.  The GVN sets export 
targets and rice prices, seemingly to the advantage of the 
state-owned companies.  Earlier this year central planners 
predicted that rice harvests would be poor and global rice 
prices would climb through the end of the year, thereby 
justifying restrictions on rice export.  When both predictions 
proved off target, rice farmers in the Mekong Delta saw prices 
drop; now newspapers say that 1.5 million metric tons of rice is 
in danger of spoiling in local storage.  Vietnam's press has 
begun to take the government to task over this "mismanagement" 
-- the popular newspaper Thanh Nien published the headline 
"Government ineptitude sending farmers to the poorhouse" -- 
offering a clear example of the need for continued economic 
reform of the GVN's management of agricultural commodities.  End 
summary. 
 
Government Lines up its Targets 
------------------------------- 
¶2. (SBU) Agriculture, rice in particular, is one of Vietnam's 
most heavily regulated economic sectors.  Each year the GVN sets 
export targets.  State-owned enterprises (SOE), most notably the 
Vietnam Food Corporation (VinaFoods), get exclusive rights to 
export more than half of this "export quota"; much of which goes 
to meeting Vietnam's commitments to countries like the 
Philippines and Cuba.  Private distribution and export companies 
compete for the remaining export quota.  In all cases, however, 
export rights as well as the price and quantity for rice export 
contracts must be approved by the Vietnam Food Association 
(VFA).  One of VinaFood's General Directors Truong Thanh Phong 
also happens to be the Chairman of the VFA. 
 
Planning Foibles Set the Stage 
------------------------------ 
¶3. (SBU) Early this year the Ministry of Agriculture and Rural 
Development (MARD) predicted a poor domestic rice harvest and 
steadily increasing global rice prices.  Due to poor 
winter-spring crops in the northern region, MARD initially 
projected a national annual production of just 36 million metric 
tons of paddy rice (18 metric tons of milled rice), the same 
level of production as in 2007.  These domestic supply concerns, 
combined with global food supply issues (reftels), led the GVN 
to predict rice prices would rise steadily from USD 370 at the 
start of the year to well over USD 1,000 by year's end.  At the 
same time, the GVN also estimated higher domestic demand and 
announced plans to increase the volume of rice in the country's 
strategic reserve to nearly 1.5 million metric tons, including 
additional seed stock for the next planting season. 
 
SOEs Reap Early Profits 
----------------------- 
¶4. (U) Vietnamese rice export prices did surge from USD 370 per 
ton in February to USD 1,200 per ton in late April, prompting 
the Ministry of Industry and Trade (MoIT) to suspend rice 
exports, ostensibly to tamp down fears of a domestic rice 
shortage.  In May, Vietnamese Prime Minister Nguyen Tan Dung 
ordered Vietnam's food export regulator, VFA, not to approve new 
rice export contracts for the remainder of the year, effectively 
cutting rice export targets from 4.5 million metric tons (in 
2007) to just 4 million in 2008.  This export ban was justified 
as a move to ensure domestic food security, but the GVN policy 
contributed to fears of a world-wide rice shortage and thus 
further increased the price that exporters lucky enough to have 
export quota could command. 
 
¶5. (SBU) According to the Vietnam Food Association, Vietnam 
exported approximately 3.6 million metric tons of rice over the 
first nine months of this year.  Of the 3.6 million metric tons, 
industry contacts estimate that SOEs exported close to 3 million 
metric tons.  Private exporters think this is because regulators 
rig the system in favor of the SOEs.  All exporters must apply 
to VFA for approval to export, and private exporters contend VFA 
adjudicated the opaque approval state-owned rice export 
contracts while rejecting private rice export contracts. 
 
¶6. (SBU) Industry insiders assert that SOEs bought significant 
stocks of rice early in the year, anticipating that export 
prices would rise significantly.  As a result, it was rice 
traders rather than farmers who reaped the majority of the 
benefit from rising export prices.  According to market surveys, 
the reference price that buyers paid Vietnamese farmers for rice 
 
HO CHI MIN 00000940  002.2 OF 003 
 
 
varied from US 403.18 for one ton of rice in March, US 470.37 
per ton in April, US 592.55 per ton in May, US 549.79 per ton in 
June, US 537.57 per ton in July, US 488.70 per ton in August, to 
US 458.16 per ton in September.  During this same period, export 
prices shot to US 1,200 per ton.  Farmers also missed out 
because some of the price volatility was a function of traders 
and distributors building inventories early in the year in 
anticipation of rising prices -- little rice was actually 
purchased from farmers when prices were at their peak. 
 
Then the Tide Turned 
-------------------- 
¶7. (U) By mid-summer Vietnam's rice harvest was proving 
significantly better than expected, increasing by over 1.5 
million metric tons over the same period of last year.  One top 
rice processor and exporter estimated that Vietnam will harvest 
37.5-38 million metric tons of paddy rice (19 million metric 
tons of milled rice) in 2008.  At roughly the same time, 
rice-importing countries had secured adequate rice supplies and 
producers were already beginning to expand production.  The GVN 
authorized VFA to resume approving rice export contracts in 
July.  When Vietnamese newspapers reported that Thailand would 
sell 4.4 million metric tons by September 30 to avoid spoilage, 
domestic Vietnamese prices fell below USD 500 per ton, less than 
half of the price in early May.  Popular newspapers (e.g., Thanh 
Nien) began to publish stories focusing on the collapse in price 
of rice and inventories "rotting in the bins" in the Mekong 
delta.  At the same time the price paid for harvested rice was 
dropping, the cost of inputs like fertilizer and pesticides 
surged due to rapid inflation. 
 
The Press Points the Finger at the GVN 
-------------------------------------- 
¶8. (SBU) "Government ineptitude sending farmers to the 
poorhouse," a front page article in Thanh Nien (Youth) 
proclaimed on October 6.  Newspapers like Thoi Bao Kinh Te Sai 
Gon (Saigon Economic News) argue that the government must ensure 
national food security, but the GVN is choosing a strategy that 
hurts farmers.  They assert that against this backdrop of 
falling prices and rising costs (ref B), farmers will be tempted 
to grow less rice, making the task of ensuring national food 
security more challenging.  The press points out that the best 
way to ensure national food security is to implement transparent 
and predictable policies that encourage rice cultivation; what 
farmers need most is a stable market offering a reasonable price 
for their products. 
 
Private Exporters Blame the SOEs, Call for Transparency 
--------------------------------------------- ---------- 
¶9. (SBU) One private rice exporter in the Mekong Delta further 
blames Vietnam's opaque rice export mechanism for distorting 
pricing.  Private exporters must obtain regulatory approval from 
the VFA for every rice export contract (with a maximum term of 
two months), including the volume and price of each contract the 
private exporter plans to sign.  Planning is difficult for 
private sector exporters because the GVN fixes rice export 
quotas each quarter without ever making public the quota fill 
rates.  If exporters think they want to negotiate a rice export 
contract, they must ask the VFA if there is export quota 
available, and "the answer is usually no", one private rice 
exporter explained. 
 
¶10. (SBU) Private sector rice exporters believe the GVN 
manipulates rice exports to the benefit of state-owned Vinafood 
and its affiliated companies.  As the state regulator for export 
volume and price, the VFA often mandates export prices for 
private rice export contracts above market price so that 
international buyers shy away.  VFA argues that the approval 
process ensures that naive exporters are not taken advantage of, 
but exporters contend the GVN should instead apply a uniform 
minimum export price.  Private exporters also suggest more 
transparency would solve the problem:  by publishing annual rice 
export targets and the percentage reserved for SOEs, the GVN 
would allow private sector exporters to make plans.  Private 
traders also point out that the prices for SOE export contracts 
are not published, creating an atmosphere of general suspicion 
in the industry. 
 
Comment: 
-------- 
¶11. (SBU) Vietnamese farmers are understandably disappointed 
since they had visions of selling new crop rice at high prices. 
These hopes were dashed as prices fell, though only after 
 
HO CHI MIN 00000940  003.2 OF 003 
 
 
state-owned companies like Vinafood I and II made money off 
their privileged position as exporter and one-step removed 
regulator of exports.  As the media blames the GVN for 
mismanaging the rice industry, the unspoken subtext is that SOE 
profit is coming at the expense of farmers.  While the rice 
example is particularly egregious, the government's bias toward 
state-owned enterprises is one the biggest challenges 
confronting the private sector in Vietnam.  End comment. 
 
¶12. (U) This cable was coordinated with Embassy Hanoi. 
FAIRFAX