VZCZCXRO5788
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0737/01 2172357
ZNR UUUUU ZZH
P 052357Z AUG 09
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 9996
INFO RUEHHM/AMCONSUL HO CHI MINH 6054
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 000737 
 
SIPDIS 
 
STATE FOR EAP/MLS MBROWN AND JWEBSTER 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USDA FOR FAS/OCRA/DLUCHOK 
USDA for FAS/OFSO/KWAINIO AND FAS/OGA/DRUBAS 
USTR FOR DBISBEE 
USAID FOR DAA/ASIA MELLIS AND EAA DSHARMA 
 
E.O. 12958: N/A 
TAGS: ETRD EAGR ECON VM
 
SUBJECT:  VIETNAM: AGRICULTURAL EXPORTS CONTINUE TO GROW 
 
REF: 08 HCMC 940 ("GVN Guessed Wrong on Rice") 
 
HANOI 00000737  001.2 OF 002 
 
 
¶1. (U) SUMMARY.  Vietnam's agricultural exports continue to show 
strong growth and Vietnam is now one of the world's leading 
exporters of a number of agricultural commodities like rice, pepper, 
cashews, and coffee.  It is also beginning to focus on other 
products with higher margins.  Ironically, a central planning-era 
system of export cartels and licensing continues to hold Vietnam 
back from becoming an even more prolific exporter of rice.  END 
SUMMARY. 
 
EMERGENCE OF AN AGRICULTURAL POWERHOUSE 
-------------------------------------- 
 
¶2. (U) Over the last 20 years, Vietnam has transformed itself from a 
nation that had difficulty feeding itself into one of the world's 
agricultural powerhouses.  It has become the world's largest 
exporter of pepper and currently holds a 50% share of the world's 
pepper market.  It is the largest producer and exporter of Robusta 
coffee and the world's largest exporter of cashews.  In 2008 Vietnam 
produced 200% more cocoa than the previous year, and expects to 
increase production by another 70% this year. 
 
¶3. (U) As Vietnam continues to excel in agricultural markets around 
the globe, it is also looking to expand into other higher-value 
commodities such as Arabica coffee and premium rice.  If Vietnam 
continues to push investment in these fields, it would compete 
directly with Brazil, the world's largest producer of Arabica 
coffee, and Thailand, the world's largest producer of high-grade 
rice. 
 
AGRICULTURE ONE OF THE LEAST PROTECTED INDUSTRIES 
-------------------------------------------- 
 
¶4. (U) With the exception of rice, the agriculture industry is one 
of the least protected in Vietnam, and the government has allowed 
private businesses to serve as the trade intermediaries for many 
agricultural products.  These companies tend to be quite small and 
nimble, and as a result, farmers and small private businesses have 
had an opportunity to find and exploit new markets.  There is little 
state-owned enterprise involvement and the private sector plays a 
direct role in export activities.  Rice remains an important 
exception, however, as it is a staple food in Vietnam and remains 
protected by the GVN. 
 
2009: RICE EXPORTs UP, GOVERNMENT INTERVENTION UNCERTAIN 
----------------------------------------- 
 
¶5. (U) Despite the economic crisis and lower commodity prices, a 
bumper crop of rice, which in 2008 accounted for 4.6% of Vietnam's 
exports, is expected this year.  Vietnam exported 700,000 tons in 
April, the highest of any month in the 20 years that Vietnam has 
been exporting rice.  In the first four months of 2009, Vietnam 
exported 2.53 million tons with a total value of $1.16 billion, an 
increase of 51 percent in volume and 42.5 percent in value over the 
same period last year. 
 
¶6. (U) Rice exports for the remainder of the year will depend in 
part on government actions.  The GVN regulates both local stocks and 
local prices through export contract registration, export targets, 
and local prices.  In 2008, when there were fears of food scarcity 
worldwide and the price of rice and other commodities were at near 
historical highs, the GVN clamped down on rice exports, refusing to 
issue licenses for extended periods of time.  The GVN argued 
publicly that it was protecting consumers from high food prices and 
assuring sufficient supplies (Reftel). 
 
¶7. (U) The reality was more complex.  Although small and medium 
sized farmers in the private sector are responsible for most rice 
production, mostly state-owned companies do the trading and 
exporting.  Many of these exports are set by forward contracts with 
some of Vietnam's largest buyers, like the Philippines.  As 
commodity prices skyrocketed in mid-2008, SOE traders found 
themselves having to fulfill orders that had been negotiated at much 
lower prices, potentially losing millions of dollars.  The GVN came 
to their aid by driving the domestic price down to pre-inflationary 
points, allowing SOE traders to buy cheaply from the farmers. 
 
 
HANOI 00000737  002.2 OF 002 
 
 
¶8. (U) Earlier this year the GVN acknowledged that it missed an 
opportunity in 2008 by not capitalizing on high rice prices, but 
fell short of owning up to the fact that it restricted exports to 
protect rice traders.  The Prime Minister urged traders instead to 
be fairer to the farmers and pay them higher prices.  In June, 
National Assembly members pointedly asked the Minister of Industry 
and Trade about what they deemed as Vietnam's failed export 
management system, decrying that it worked against the farmers. 
 
¶9. (U) The GVN has also responded to the criticism by announcing 
that it would free up the market by reducing government involvement. 
 Nonetheless, the GVN has yet to phase out the nationwide system of 
setting caps on export contracts.  After stopping the issuance of 
export contracts in April, the GVN allowed 350,000 tons in contracts 
in June in hopes of still reaching its annual target export amount 
of 5 million tons.  According to the media, the caps are still in 
place in order to control export shipments, keep close track of 
quantities shipped, and prevent export price dumping. 
 
MICHALAK