Sept. 12 (Bloomberg) -- Rice production in Vietnam is poised to drop next year for the first time in more than a decade as the second-largest shipper promotes other crops, lessening competition in the global export market.
The switch is designed to boost farmers’ incomes, and corn is one of the alternatives that will be favored because of good demand and high yields, according to Pham Dong Quang, deputy head of the government’s crop-production department. A plan to convert rice-growing areas will be approved by the Ministry of Agriculture and Rural Development before the end of the year, Quang said in an interview in Hanoi.
A reduction in supplies will benefit India and Thailand, Vietnam’s biggest export rivals, as global supplies increase to an all-time high. The three nations accounted for about two-thirds of worldwide shipments last year, according to data from the U.S. Department of Agriculture. The first decline in Vietnam’s crop may happen as early as next year, Quang said.
“If Vietnam’s rice production goes down, it will tend to benefit exporting countries and tend to hurt importing countries,” said David Dawe, a Bangkok-based senior economist at the Food & Agriculture Organization. The plan “sounds relatively good in the sense that they’re encouraging flexibility on the part of farmers,” said Dawe.
Vietnamese 5 percent-broken rice has dropped 3.4 percent this year to $400 a metric ton in August, according to USDA data compiled by Bloomberg. Rough-rice futures traded at $15.58 per 100 pounds in Chicago, 2.7 percent higher in 2013.
Milled output in Vietnam has increased every year since 2001, rising 34 percent to 27.4 million tons in the period, according to the USDA. Shipments surged from less than 100,000 tons in 1988 to 7.4 million tons in 2012-2013 as Vietnam promoted reform and embraced international trade. India shipped 9.7 million tons that year, as Thailand exported 7 million.
“Rice output may fall in the next few years because farmers will switch,” Quang said, without giving a forecast. While the issue of boosting rural incomes has been addressed for some years, it’s now become much more urgent amid the difficult economic situation and more competitive rice market, he said.
The $142 billion economy is expected to grow 5.4 percent this year, according to Vu Duc Dam, chairman of the government office. That would be a third year of expansion less than 6 percent, the worst run since 1988, according to data from the International Monetary Fund. Agriculture accounted for 17 percent of gross domestic product in 2012, data from the Hanoi-based General Statistics Office show.
The global harvest of the staple for half the world has grown to a record even as export demand stagnates. The crop will gain 1.9 percent to 477.9 million tons in 2013-2014, according to the USDA, which forecasts worldwide exports of 39 million tons this season, in line with the total in 2011-2012. The Philippines, previously the biggest importer, won’t buy any overseas rice in 2013 as it becomes self-sufficient, Agriculture Secretary Proceso Alcala said last year.
Thailand is among countries raising rice output as Prime Minister Yingluck Shinawatra’s government buys the crop at above-market rates to boost farmers’ incomes, with losses of about 137 billion baht ($4.4 billion) seen for last year. Thai stockpiles will gain 24 percent to a record 15.5 million tons this season, a USDA forecast shows. The government will sell 1.2 million tons to China over 12 months and seek further deals, Commerce Minister Niwattumrong Boonsongpaisan said yesterday.
Output in Cambodia, which borders Vietnam, will expand to the highest ever this season at 4.9 million tons. The country plans to increase its exports to 1 million tons by 2015, Kan Channmeta, undersecretary of state, told a conference in May.
The Vietnamese government won’t set targets for how much of each crop needs to be grown, leaving the choices to farmers and local governments, depending on market demand, Quang said. The government will provide growers across the country with technical training, seeds and suitable irrigation systems to support the conversion effort, he said.
The country has about 4 million hectares (9.9 million acres) of riceland, where farmers can also grow other crops, Quang said. The most fertile areas will still be reserved for rice and it will remain the key crop with the biggest growing area, he said.
Urbanization will cut into the 4 million hectares, and Vietnam plans to maintain 3.8 million hectares in 2020-2030, he said. Corn has yielded 9 tons to 10 tons per hectare in some test programs in the Mekong Delta, he said, referring to the region in the south.
While rice is not very lucrative, yields are relatively stable and it’s not that vulnerable to pests and diseases, the FAO’s Dawe said. Fruits and vegetables are more vulnerable to attacks and price fluctuations are high, creating additional risks for farmers, with risks for corn between the two, he said.
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