The Philippines appears to have successfully exploited the stiff competition between two large rice exporters, Vietnam and Thailand, to force the prices down.
The Philippines said it will no longer import rice as domestic production is high enough to satisfy domestic demand.
Some exporters think that if Vietnam cannot sell rice to the country, the Vietnamese rice market would collapse. However, analysts commented that it would be better for Vietnam not to sell rice to the Philippines under the current mode.
In order to get the right to sell rice to the Philippines, exporters have to travel there to attend bids opened by the Filipino National Food Authority (NFA).
The exporters who win the bids must offer the lowest prices, and the prices must not be higher than ceiling prices set by the authority.
Both Vietnam and Thailand offered prices higher than the ceiling price of US$340 per tonne for 25% broken rice set by NFA in the June 5 bid, which NFA opened to seek suppliers of 250,000 tonnes of rice.
Vietnam got the right to supply 150,000 tonnes of rice later, after it agreed to lower the selling price.
More recently, Vietnam offered to supply 100,000 tonnes of rice at US$416 per tonne, but it still lost the June 15 bid because the NFA’s ceiling price was much lower, at US$408.14 per tonne.
In late February, Vietnam also won the right to provide 300,000 tonnes of white long grain rice to the Philippines under the G2G (government to government) contract, after it agreed to slash the selling price to the same level offered by Thailand.
Analysts said that once NFA sets the ceiling price, this means that the Philippines, or the buyer, always has the right to set the prices.
Therefore, Vietnam and Thailand have to compete with each other to win the contract under Philippines’ control.
For many years, the prices of 25% broken rice have been set at levels hovering around US$340 per tonne, which is very close to the production cost.
However, in most cases, Vietnamese exporters decided to lower the selling prices in order to win the contracts. They did not want to return to Vietnam empty-handed.
Since the exporters could not sell rice at high prices, they tried to force the prices down in the Vietnamese market. As a result, Vietnamese farmers could not make reasonable profits.
According to the Vietnam Food Association (VFA), Vietnam had exported 2.1 million tonnes of rice by the end of May, earning US$870 million, a decrease of 10% in export volume and 13% price decrease in comparison with the same period in 2014.
To date, Vietnam has signed contracts on exporting 3.5 million tonnes of rice, or 8% lower than the same period of last year.