Wall Street Journal
April 16, 1999
Vietnam Government Tentatively OpensBy ANYA SCHIFFRIN
Rice-Exporting Trade to Private Firms
Dow Jones Newswires
HO CHI MINH CITY, Vietnam -- Vietnam is tentatively opening its vast, politically sensitive rice-exporting trade to private companies.
In the Mekong Delta, where hundreds of small trading companies use rickety boats to haul bags of rice along Vietnam's waterways, two firms have been granted dramatically widened horizons: The rest of the world.
The government is hardly opening the floodgates. One of the two firms, Vinh Phat, which has a modest annual milling capacity of 100,000 metric tons, was granted initial rights to export 6,000 tons this year, on a trial basis. But it's a significant step. Foreign economists have long urged Vietnam's government to open rice exporting to competition, theorizing that it would boost domestic prices, directly benefiting millions of poverty-stricken farmers.
Vietnam is the world's second-largest rice exporter, behind Thailand. However, Vietnam's farming peasants are among its most chronically impoverished citizens, and rice growing is the biggest employer here.
Big Profits for Government
Within Vietnam, rice trading is largely a private-sector business. But that ends at the border. Hanoi has long required all rice traders to sell to the state before rice can be exported, which generates big profits for the government. For example, a standard grade of rice, known as 5% broken, trades around $225 a metric ton on the global market, but Vietnam's monopolies pay local traders only about $195 a metric ton.
"Everything is private until you get to the government level," says Juels A. Carlson, former Vietnam country manager for U.S.-based Cargill Inc. "What the government food companies do is the paperwork."
Hanoi relies on the profits earned by government export monopolies, and says uncontrolled private-sector exports could compromise Vietnam's food security; too much rice might be exported, leaving hunger behind. But with Vietnam's cautious adoption of doi moi -- the name given Hanoi's late-1980s program for making the economy more market-oriented -- small steps like this have become possible. Among the beneficiaries is Vinh Phat, a small, family-run company. That company's experience is a direct reflection of the promises, some tangible but many unrealized, of doi moi.
Vinh Phat's director, Tran Ngoc Trung, says he was eager to get started. "I was very happy when the government said I could export rice," Mr. Trung says. "We can make bigger profits this way."
Vinh Phat, which means "Prosperity Forever" in Vietnamese, is run by Mr. Trung's family, the Trans. It was started in 1992 after five relatives pooled their savings to set up a company with chartered capital of 150 million dong, or about $10,800 at today's exchange rate.
Originally the family traded cashews, coffee beans and other commodities, but it decided to expand its business in the early 1990s, seeing hope in doi moi. Mr. Trung, whose grandparents came from southern China, won't release financial details, but he values Vinh Phat today at 25 billion dong. "The government didn't help the company, but they allowed us to grow," Mr. Trung says.
In 1993 he opened a rice warehouse and milling facility in Ho Chi Minh City, and in 1995 he opened a bustling mill in Can Tho, in the Mekong Delta. That was followed in 1996 by a larger one in An Giang province about two hours from the town of Long Xuyen, toward the Cambodian border.
Additional Quotas Expected
Mr. Trung declined to discuss the process by which he received his export quota from the government, but said he has already applied for an additional export quota of 30,000 tons for this year, and has heard that half has already been approved. The same goes for the other wholly private company to be given an export quota this year, Thanh Hoa Co., in the southern province of Tien Giang. That company received an export quota of 5,000 tons for 1999, and is applying for an additional 20,000 tons for this year; it says 10,000 tons has already been approved.
"I just talked to the province officials about this. They know me and my mill very well, they know my potential, and they helped me," said the Thanh Hoa director, Pham Van Tu, explaining how he got the additional quota.
The government's Ministry of Trade, which oversees exports, declined to comment on the decision to allow small-scale rice exporting by private companies, or explain the selection process.
Individuals in the rice-exporting industry say political connections likely play a key role in the selection process. In the past, export quotas typically have been allocated to the Southern Food Corp. and Northern Food Corp. duopolies (also known as Vinafood I and Vinafood II), as well as to some smaller, provincial-run food companies.
Rice traders say cash can also help. They say a typical bribe paid by a provincial-run exporter might total $1 to $3 per ton of quota.
Mr. Trung says he didn't pay anyone for his export rights, but that he did work his government contacts. "You know how Vietnam works. I didn't apply formally for permission. I lobbied a lot of people," Mr. Trung says.
Other private rice traders in the area said they were unable to meet the stringent capital requirements Hanoi has set out for private companies wishing to export rice directly. When the government said in January 1998 that it would allow private-sector companies to apply for rice export licenses, it sketched out several requirements: Companies must be involved in rice production, have investments in processing or storage facilities, have overseas customers, and be financially credible enough to obtain bank loans. There were only a handful of companies in the country, analysts said, that would immediately be able to meet those requirements.
Too Small to Threaten
Vinh Phat's small size may also have worked to its advantage, since it is too tiny to pose any real threat to the monopolies. "They are the best private company in the province, and they are too small to really compete with the state-owned food companies," said an official in An Giang province, where Vinh Phat has its largest processing facility.
Despite their elevated status, Vinh Phat and Thanh Hoa face some particularly Vietnamese hurdles. Some other local rice traders say they doubt the reliability of private-sector companies. Because such companies don't have financial support from the government, they may be more likely to break contracts when prices rise above agreed-on levels, the traders say -- a common problem in Vietnam. "We prefer to deal with state-owned companies," said one Vietnamese rice trader in Ho Chi Minh City. "They want to maintain their reputations, so they are more likely to stick to their contracts even in the face of market fluctuations."
Meanwhile, foreign analysts have lauded the shift toward privatization, small though it may be. "Although the volumes they are being allowed to export are too small to make much difference," says Nicholas Minot, an economist at the Washington-based International Food Policy Research Institute, "this is a very positive development."
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