Global Rice News

Rice Exporters in Vietnam Face Challenges Amid Rising Prices

Vietnamese rice exporters are being urged to better understand the market and minimize risks to overcome the challenges they are currently facing. Despite Vietnamese rice reaching its highest recorded price of $638 per tonne for 5% broken rice, exporters are experiencing thin profit margins and, in some cases, even losses. One of the major factors contributing to this situation, according to industry insiders, is the vulnerability to price fluctuations.

Many exporters choose to secure contracts with foreign buyers before securing their own supply. This leaves them exposed to domestic price surges, forcing them to negotiate or accept losses. The swift reaction of domestic prices to global prices also catches them off guard and ill-prepared to respond effectively. The process of renegotiation takes time and adds extra costs, further impacting exporters’ profitability, especially for those with limited financial capacity.

As of mid-November, the asking price for rice in the Mekong Delta has reached VNĐ13,200-14,400 per kilogramme, leading to intense competition among exporters to fulfill their contractual obligations. Experts suggest that, at this price level, exporters need to sell at $700 per tonne to make a profit, significantly higher than the current global market price. Consequently, it becomes challenging for exporters to engage in new contracts and expand their business.

Đinh Minh Tâm, director of Cỏ May Co., a rice export company based in the Mekong Delta province of Đồng Tháp, emphasizes the need for exporters to improve their operational and financial strategies to mitigate the potential damage caused by price surges. He believes that a lack of quality market information and failure to closely monitor price fluctuations contribute to the current situation.

Furthermore, some companies resort to unfair business practices, including market disorder, price manipulation, commercial fraud, contractual non-compliance, and compromised product quality. These practices not only lead to higher losses across the industry but also tarnish the reputation of Vietnamese rice products in foreign markets, hindering long-term industry development.

The industry’s profit margin has been further impacted by weakening demand and oversupply, as the market approaches saturation. According to a report by Việt Nam-based market company FiinGroup, the industry’s profit margin decreased from 17% in 2021 to 13.5% in 2022. Rising input costs for fertilizers, seeds, and machinery also eat into profits. Consequently, several companies have withdrawn from the market, negatively impacting the overall appeal of the agriculture industry.

Based on a scoring model developed by FiinGroup, it is predicted that the number of companies facing high to very high levels of risk will increase from 10% in 2022 to 13% in 2023.

According to data from the Ministry of Agriculture and Rural Development (MARD), rice export prices in the first 10 months of 2023 increased by 15.3% compared to the same period last year, reaching $558 per tonne. Rice export turnover also saw a 35% increase in value, amounting to $4 billion. It is expected that in the remaining two months of 2023, rice export turnover could reach $4.2 – $4.3 billion.

Despite the challenges faced by Vietnamese rice exporters, the industry remains resilient and adaptable. By implementing measures to better understand the market, manage risks, and improve operational efficiency, exporters can navigate these obstacles and continue to thrive in a competitive global market.

Source: Ein News