VIETNAM: AGRICULTURAL EXPORTS CONTINUE TO GROW

UNCLAS SECTION 01 OF 02 HANOI 000737

SIPDIS

STATE FOR EAP/MLS MBROWN AND JWEBSTER
SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USDA FOR FAS/OCRA/DLUCHOK
USDA for FAS/OFSO/KWAINIO AND FAS/OGA/DRUBAS
USTR FOR DBISBEE
USAID FOR DAA/ASIA MELLIS AND EAA DSHARMA

E.O. 12958: N/A
TAGS: ETRD EAGR ECON VM

SUBJECT: VIETNAM: AGRICULTURAL EXPORTS CONTINUE TO GROW

REF: 08 HCMC 940 ("GVN Guessed Wrong on Rice")

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1. (U) SUMMARY. Vietnam's agricultural exports continue to show
strong growth and Vietnam is now one of the world's leading
exporters of a number of agricultural commodities like rice, pepper,
cashews, and coffee. It is also beginning to focus on other
products with higher margins. Ironically, a central planning-era
system of export cartels and licensing continues to hold Vietnam
back from becoming an even more prolific exporter of rice. END
SUMMARY.

EMERGENCE OF AN AGRICULTURAL POWERHOUSE
--------------


2. (U) Over the last 20 years, Vietnam has transformed itself from a
nation that had difficulty feeding itself into one of the world's
agricultural powerhouses. It has become the world's largest
exporter of pepper and currently holds a 50% share of the world's
pepper market. It is the largest producer and exporter of Robusta
coffee and the world's largest exporter of cashews. In 2008 Vietnam
produced 200% more cocoa than the previous year, and expects to
increase production by another 70% this year.


3. (U) As Vietnam continues to excel in agricultural markets around
the globe, it is also looking to expand into other higher-value
commodities such as Arabica coffee and premium rice. If Vietnam
continues to push investment in these fields, it would compete
directly with Brazil, the world's largest producer of Arabica
coffee, and Thailand, the world's largest producer of high-grade
rice.

AGRICULTURE ONE OF THE LEAST PROTECTED INDUSTRIES
--------------


4. (U) With the exception of rice, the agriculture industry is one
of the least protected in Vietnam, and the government has allowed
private businesses to serve as the trade intermediaries for many
agricultural products. These companies tend to be quite small and
nimble, and as a result, farmers and small private businesses have
had an opportunity to find and exploit new markets. There is little
state-owned enterprise involvement and the private sector plays a
direct role in export activities. Rice remains an important
exception, however, as it is a staple food in Vietnam and remains
protected by the GVN.

2009: RICE EXPORTs UP, GOVERNMENT INTERVENTION UNCERTAIN
--------------


5. (U) Despite the economic crisis and lower commodity prices, a
bumper crop of rice, which in 2008 accounted for 4.6% of Vietnam's
exports, is expected this year. Vietnam exported 700,000 tons in
April, the highest of any month in the 20 years that Vietnam has
been exporting rice. In the first four months of 2009, Vietnam
exported 2.53 million tons with a total value of $1.16 billion, an
increase of 51 percent in volume and 42.5 percent in value over the
same period last year.


6. (U) Rice exports for the remainder of the year will depend in
part on government actions. The GVN regulates both local stocks and
local prices through export contract registration, export targets,
and local prices. In 2008, when there were fears of food scarcity
worldwide and the price of rice and other commodities were at near
historical highs, the GVN clamped down on rice exports, refusing to
issue licenses for extended periods of time. The GVN argued
publicly that it was protecting consumers from high food prices and
assuring sufficient supplies (Reftel).


7. (U) The reality was more complex. Although small and medium
sized farmers in the private sector are responsible for most rice
production, mostly state-owned companies do the trading and
exporting. Many of these exports are set by forward contracts with
some of Vietnam's largest buyers, like the Philippines. As
commodity prices skyrocketed in mid-2008, SOE traders found
themselves having to fulfill orders that had been negotiated at much
lower prices, potentially losing millions of dollars. The GVN came
to their aid by driving the domestic price down to pre-inflationary
points, allowing SOE traders to buy cheaply from the farmers.


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8. (U) Earlier this year the GVN acknowledged that it missed an
opportunity in 2008 by not capitalizing on high rice prices, but
fell short of owning up to the fact that it restricted exports to
protect rice traders. The Prime Minister urged traders instead to
be fairer to the farmers and pay them higher prices. In June,
National Assembly members pointedly asked the Minister of Industry
and Trade about what they deemed as Vietnam's failed export
management system, decrying that it worked against the farmers.


9. (U) The GVN has also responded to the criticism by announcing
that it would free up the market by reducing government involvement.
Nonetheless, the GVN has yet to phase out the nationwide system of
setting caps on export contracts. After stopping the issuance of
export contracts in April, the GVN allowed 350,000 tons in contracts
in June in hopes of still reaching its annual target export amount
of 5 million tons. According to the media, the caps are still in
place in order to control export shipments, keep close track of
quantities shipped, and prevent export price dumping.

MICHALAK