[Vnbiz] LExis Nexis Vietnam Rice Thailands Arch Rival Worth Watching

[Craig Stevenson]

Thai Press Reports
April 24, 2006 Monday
*ACC-NO:* A2006042161-10CAF-GNW

*LENGTH:* 1416 words

*HEADLINE:* VIETNAMESE RICE THAILAND'S ARCH RIVAL WORTH WATCHING

*BODY:*


Section: Research - *Vietnam* has evolved from being a net rice importer to
an exporter of this commodity since 1988. A few years later, the country
became the world's third largest rice exporter, behind Thailand and the US.
Currently, it ranks second behind Thailand in rice exports to global
markets. *Vietnam* is thus regarded as Thailand's arch rival in rice
exports, as this country has a well developed irrigation system and uses
up-to-date technologies in production, thanks to intensive research and
development. As a result, the country's average yield per rai has risen
considerably, and is continually trending higher. In addition, their rice
storage facilities have been well developed as well, which results in rice
being maintainable longer and this in turn helps improve the Vietnamese rice
quality.

*Vietnam* sets a target for rice production in 2006 at 38-39 million tons,
up by 15.2-18.2 percent over the 33 million tons in 2005. This increase will
likely be achieved with increased production after a drought that wreaked
havoc on highland rice plantations in the northern region of the country,
and floods that hit the southern rice cultivation areas hard last year. This
year, *Vietnam* will likely export about 5 million tons of rice. Among its
key markets are Asia, Africa and Cuba. They also have an ambitious plan to
penetrate the high-value rice markets, i.e., Japan, South Korea and Austria.
However, the 2006 target for rice exports is lower than 2005 exports when
they shipped more than 5.2 million tons, worth nearly USD1.4 billion; which
had been a year-on-year rise of 27.4 percent in volume and 47.3 percent in
value over the previous year. The greater-than-expected increase in
Vietnamese rice exports last year could be attributed to hikes in prices of
Thai rice, its main competitor. This has proven to be a windfall to *
Vietnam,* as many countries, i.e., Iran, Uruguay, Syria and Nigeria have
turned to buying the cheaper Vietnamese rice instead.

However, significant obstacles that are in the way of rice exports from *
Vietnam* include: - *Vietnam* has made efforts to expand its production and
exports of fragrant rice. They could claim success in some markets, given
that their grain is cheaper than Thai or Indian counterparts. Export prices
of Vietnamese rice are around USD 280-285 per ton. On the downside, their
rice quality is inconsistent and an adulteration problem is quite rampant.
Nonetheless, research and development on fragrant rice grains have been
steadily conducted in *Vietnam.* Against this backdrop, *Vietnam* may emerge
as Thailand's main competitor in exporting fragrant rice, in the future.

In 2005, *Vietnam* rice exporters were faced with financial problems because
banks cut loan extension to 25 percent from existing levels, which inhibited
Vietnamese rice exporters from buying more rice and holding it for later
gain. As a result, the price of rice in *Vietnam* fell continuously in 2005.
In addition, provincial food distributors began doing their own accounting
during reorganization, which hurt their access to credit from banks because
most banks would lend only to the well-established company, Vinafood.
However, in 2006, the *Vietnam* Food Association asked the Ministry of
Agriculture and Rural Development to encourage banks to provide them with
more loans to purchase stock for the next season. *Vietnam* rice exporters
had signed export orders with many countries, and it was expected that *
Vietnam* would be able to export more rice than targeted if exporters could
solve their financial problems.

With regard to Thailand, Thai rice production in 2005/06 equaled
29.82million tons of paddy - with a major crop volume of
23.39 million tons and a second crop of 6.43 million tons ? up 4.4 percent
over the previous year when major rice planting areas were facing with
drought or infrequent rain. The Ministry of Commerce has set an export
target for 2006 of 7.5 million tons of rice worth USD2.34 billion at an
average price of USD312 per ton. Thailand, at present, can maintain its
status of the world's no. 1 rice exporter because *Vietnam's* export figures
are still far behind, however, *Vietnam* rice export growth is accelerating
fast, and Thailand thus cannot relax.

Specifically, Thai rice is more expensive than *Vietnam's,* which is because
the Thai government still employs a price intervention program to shore up
the price of rice in the domestic market. As a result, most of the Thai
harvest is in government warehouses. The government's policy has had a
substantial effect on rice trading and pricing. In addition, the stronger
Thai baht, which is close to THB38.00/USD, and this has pushed the price of
Thai rice high in global market.

This year, the Vietnamese government has implemented a policy of improving
rice quality and focusing on exporting high-quality rice, as well as set a
minimum export price which should be beneficial to Thai rice exports because
prices in the world market should not fall too much lower forcing Thai rice
to undercut such prices and thus Thai rice will remain competitive with *
Vietnam's* in the world market. However, *Vietnam* will continue to be
Thailand's major competitor, and one that we will have watch closely.

Some time ago, *Vietnam* was Thailand's rival for rice exports, particularly
for low- to medium-quality rice, as Thailand and *Vietnam* had targeted the
same countries for rice exports. Since 2005, *Vietnam* has seized some of
Thailand's market share by relying on lower prices to attract trade
partners. This year, price competition will be less severe because
*Vietnam*has defined a minimum export price. However, since 2005,
*Vietnam* has also entered into the competition for exports of high quality
rice, and expanded in this market by improving their rice silos to reduce
moisture in rice and developing more appropriate storage systems, as well
promoting Vietnamese brand names overseas. At present, jasmine rice remains
the only market segment in which Thailand can compete with *Vietnam,* but
Thailand should not be negligent because *Vietnam* is now expediting the
development of fragrant rice to compete in this market, too, which is
considered an up-market motivated by high export prices.

As the rivalry in rice exports to the global market gets tougher, the
government and businesses related to Thai rice exports must adapt strategies
to cope with the changing marketing situation. The government has mapped out
five rice development strategies guidelines: 1. Manufacturing development to
control and manage output efficiently, and promote rice production in
designated zones, expediting the production of good quality rice to replace
low quality strains, and preparing a database on rice production and
marketing for planning purposes.

2. Adding value to rice, for example, a project on the development of
organic rice production, research and development on processing technologies
for rice products, a project on marketing development for rice products,
plus the establishment of a complete rice export service center, etc.

3. Rice market penetration - Thailand is still the top-ranked rice exporter
in the world, and emphasizes the high-end and mid-market segments.

4. Improving the quality of life for rice growers in terms of revenue and
the environment.

5. Development of management and supporting production development centers
at the community level - some 14,000 centers - by 2008. The role of these
community centers would be to help in the development and distribution of
good quality rice seeds in each area, as well as R&D on cultivation
techniques. There would be 200 rai of rice paddy land set aside for each
center. Each center would serve about 4,000 rai of rice growing land. At
present, there are 4,556 centers producing about 50,000 tons of high-quality
seeds. The establishment of these centers will be an important key to
developing the potentiality of Thai rice in growing high- quality rice to
respond to the global market.

At present, the competition between Thailand and *Vietnam* has intensified
because *Vietnam* has begun to seize the market for high-quality rice. In
the past, there was competition in the low- to medium-quality rice markets
segments. That was a warning for Thai exporters and the government to
stimulate product development of Thai rice and find new strategies to
stimulate rice exports to cope with the increased rice exports of *Vietnam.*

(Kasikorn Research Center: 11 April 2006)

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