Focus on Vietnam

by World Grain Staff
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Vietnam has one of the fastest growing economies in the world, but it remains a largely agricultural society, with a farm sector dominated by a big rice crop which makes it the world’s second biggest exporter. In recent times, increased wealth has encouraged some consumption of wheat-based products, and it has built up a large flour milling sector, even though its own wheat production is nil.

Communist-run Vietnam followed China in economic liberalization with the ‘Doi Moi’ (renovation) program which started in 1986. It has two big state food corporations, Vietnam Southern Corporation (Vinafood 2) and Vietnam North- CHINA ern Food Corporation (Vinafood 1), which buy rice and export it.

The International Grains Council (IGC) said Vietnam will produce 23.8 million tonnes of milled rice in 2008-09, compared with 24.4 million the year before. In 2009, it will export 5.1 million tonnes compared with 4.7 million in 2008, according to the IGC’s latest estimates. That makes it the world’s second largest exporter behind Thailand, which is predicted to export 8.9 million tonnes.

More than half of Vietnam’s rice production and 90% of its rice exports come from the Mekong Delta or Cuu Long region, which spreads across 12 provinces with 2.97 million he hectares oof farmland.

According to the news agency Reuters, Vinafood 2, Viietnam’s top rice exporter, announced plans in February to build the largest rice trading market in the Mekong Delta as well as a warehouse network. Citing the Saigon Times as its source, the agency said Vinafood 2 would invest more than 600 billion dong ($35.3 million) to build the market complex in the district of Thot Not outside the city of Can Tho.

A rice trader based in Can Tho told Reuters the new warehouses, some of which could be upgraded from Vinafood 2’s existing facilities, would ensure stable supply for the exporter, the agency said.

According to a report published in March and included in the U.S. attaché’s roundup of news from the country, Prime Minister Nguyen Tan Dung has told the two Vinafood companies that they must buy all the rice on offer this year and ensure that farmers earn a profit of at least 30%. He called on them to do everything needed to ensure the position of Vietnamese rice in the international market while ensuring domestic food security.

On Feb. 20, the government halted the registration of new rice export contracts for shipments before the end of June, the IGC said. "The amount to be loaded in the first half of 2009 had already far exceeded the official target," it said.

That included some big sales. "In contrast to recent years, the Philippines secured most of its 2009 import needs in a single purchase, in January, of 1.5 million tonnes from Vietnam, encouraged by that country’s ample and competitively priced supplies," the IGC said.

Market activity, as exporters looked for supplies to cover the sale to the Philippines, meant increased export values for rice. "Nevertheless, with winterspring crop harvesting soon to begin, and mindful that fresh supplies could potentially weigh on values, the government raised minimum export prices for key grades," the IGC said. "Despite monthly gains of around 10%, quotations were still very competitive when compared to those in Thailand, ensuring sustained buying interest."

According to the Vietnam Food Association, rice exports from Jan. 1, 2009 to March 6, 2009 totaled 1,145,058 tonnes, FOB, worth $454.907 million. Total rice exports in 2008 were 4,679,050 tonnes, worth $2.663 billion, FOB.

The IGC also reported that following a meeting in Hanoi of government officials from Vietnam and Thailand, Thailand’s Deputy Commerce Minister announced on Feb. 19 that the two countries had signed a Memorandum of Understanding to cooperate on stabilizing rice prices. "Although precise details were unavailable, the official noted that the agreement encompassed cooperation between policy makers, exporters and farmers," the IGC said.

RICE CONSUMPTION DOWN

According to an attaché report published last year, Vietnam’s rice consumption is about 150 kilograms per year per person, a 12% drop from the level of 10 years ago. "This decline in rice consumption is consistent with patterns in other countries in Asia, where as the economy develops, consumers have greater means and access to other foods, with consumption of rice per capita tending to decline as income increases," the report said. "In Vietnam’s case, the data indicate a constant level of increase in rice consumption, much of which appears to be attributable to use in homemade animal and aquaculture feeds and the beer industry." The report said that the beer industry uses up to 30% milled rice in its ingredients.

Vietnam may not have taken full advantage of its position in the world’s rice market, according to the report. "There is a feeling here that Vietnam has not benefitted fully from this position due to poor marketing strategies," it said. "Contracts for the entire years’ exports are often signed within the first two quarters of the year, locking in prices, which may be much elevated when the contracts are actually fulfilled."

WHEAT PRODUCTION AT ZERO

Vietnam does not produce wheat, but the crop is playing a bigger role in the national diet. Vietnam has responded by creating a flour milling sector based on imports. "They have quite a flour milling industry," said Mark Samson, vice-president of U.S. Wheat Associates in Singapore.

"Before 1992 they were major flour importers," said Samson, who noted that flour imports at that time were around 400,000 tonnes.

He put the total number of mills in the country at 31. "There are about 14 to 15 mills that probably capture 60% to 70% of the current market," he said. "The other mills are basically mills that deal in the feed industry."

The growth of Vietnam’s milling industry meant that the country moved from the position of being an importer of 400,000 tonnes of flour to imports two years ago of 1.1 million tonnes of wheat. "The market is expanding quite rapidly," Samson said. "They are expanding their diets quite rapidly. We’re quite happy with the marketplace there."

The popularity of one product is overwhelmingly responsible for the growth of the wheat flour market. "The flour segment in the country is about 60% for instant noodles," he said. The expansion is being driven by the popularity of instant noodles among rural consumers who eat them as a convenient breakfast and sell the rice they produce.

A further 15% of the wheat market goes to the shrimp feeding industry. "It tends to take low quality wheat. The rest is higher end," Samson said. "There is a French style baguette. There are four new bakeries which are producing a western-style pan bread."

The biggest seller of wheat to Vietnam for milling is Australia, with a market share of about 50%. The U.S. has around 15%. Samson noted that Vietnamese importers have also been buying from Russia and the Black Sea region.

Vietnamese millers recently have been facing stiff competition from foreign millers, which pushed wheat imports down to around 900,000 tonnes last year. "The reason was that the Chinese flour milling industry looked at it as an opportunity to export flour," he said. "A lot came in for the noodle industry."

According to the IGC, Vietnam will import 150,000 tonnes of flour in 2008-09, the same level as in 2007-08, but up from 46,000 tonnes in 2006-07.

The increase in flour imports forced many of the mills to limit production. "Many of them just went into hibernation," Samson said.

He said flour consumption will probably continue to grow, especially as the income of Vietnam’s young population rises.

Chris Lyddon is World Grain’s European editor. He may be contacted at: chris.lyddon@ntlworld.com.

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