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10 Oct 2007

Agriculture

Thai Rice, 2008: Tougher Rivalry Expected…Keep a Watch on Vietnam (Business Brief No.2048)

Vietnam is regarded as Thailand's arch rival in rice exports. Presently, the country is the world's second largest rice exporter after Thailand. Competition between Thai rice and its Vietnamese counterpart in the global markets has lately become more intense. To expand their rice markets, Vietnam focuses chiefly on exports of cheaper produce. Evidently, rivalry became heightened in 1995-1996 when export prices of Vietnamese rice were phenomenally lower than Thai produce. During this period, the prices of 25-percent and 5-percent Vietnamese which white rice were quoted at USD20 and USD30-40 a ton lower than their Thai counterparts in the world market. Before 1994, price differences between the two grades of white rice from Vietnamese and Thailand stood at USD5-10 and USD20 a ton, respectively. Given this, exports of Thai rice, especially, white rice were hard hit during 1995-1996.
In 2007, exports of Thai rice have emerged from the doldrums thanks to decline in export shipments of Vietnamese rice plagued by diseases and pests. The Vietnamese government initially limit their rice exports, and finally stopped shipments in the third quarter to ensure sufficient supply for domestic consumption and to contain the domestic rice prices. This year, Thailand should take advantage of the competition lull to win back its market share in the world markets, particularly for white rice. During the first half of this year, the price difference between 25-percent Thai rice and its Vietnamese counterpart stood at USD6.3 per ton while the 5-percent Vietnamese rice was USD18.67 per ton cheaper than Thai produce.
Even so, the prospects for Thai rice exports, both in volume and price, will hinge mainly on shipments of Vietnamese rice. Therefore, Thai exporters should keep a close watch on Vietnamese rice output for 2007/08 crop year which will be available in the market at the end of this year as well as the Vietnamese government's rice export policy.
In the long term, the points that are worth following up are Vietnam's rice research and development, i.e., the breed improvement of fragrance and premium grade rice, including the upgrading of silo system, rice screening and grading as well as enhancing efficiency of transportation systems. These approaches will boost Vietnam's ability to compete with Thailand in good quality rice exports, i.e., 100% white rice and fragrance rice. At present, Vietnam's rice exports only compete with Thailand in the medium to low quality rice as most of Vietnam's rice exports presently are 5-percent white rice (36.2 percent), 25-percent white rice (36.0 percent) and 15-percent white rice (22.5 percent), while its exports of 100-percent white accounts for 1.9 percent and fragrance rice is only 0.5 percent.
The interesting points over the next 2-3 years are that Thailand and Vietnam both have policies to urgently improve production efficiency, i.e., the improvement of rice breed, transportation to maintain rice quality, including the reduction of transportation costs. These approaches will enable the export price of rice to be more competitive. As far as the Thai private sector is concerned, they must expeditiously promote research and development to find a niche market apart from the existing markets where only jasmine and organic rice are the major sales factors. Research and development on rice must be based on the principle of meeting the market's demand for health food consumption. Instances of such R&D initiatives are the development of indigenous rice breeds, herbal coated rice, rice products, i.e., snack from rice, etc.

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