SUNS  4316 Wednesday 4 November 1998


ASIA: RECESSION SOWS FRIENDLIER RIVALRY IN RICE

Bangkok, Nov 3 (IPS/Prangtip Daorueng) -- Thailand and Vietnam's renewed efforts at cooperation on international rice pricing is no ordinary business deal, but a means of survival for both in the midst of Asia's recession.

The deal, however, is unlikely to produce results quickly given the long-time, fierce competition for export markets between two of the world's largest rice producers.

This latest accord on rice cooperation between Thailand and Vietnam was seen as the most significant outcome of Vietnamese President Tran Duc Luong's October visit to Thailand, the first by a Vietnamese president since 1976.

"We are proud that only two South-east Asian countries export the most rice to the world market," announced Luong, who said the ministries of commerce and agriculture from both countries were discussing pricing policies.

In many ways, the rice accord highlighted how the ideological clash of the Cold War and the Vietnam War era has given way to a new war on the economic battlefield.

Indeed, commercial ties between Thailand and Vietnam have deepened so that two-way trade reached 750 U.S. million dollars last year and is projected to reach 1 billion dollars by end-1998. Likewise, Thailand is now Vietnam's ninth largest foreign investor, with 78 projects worth 1.1 billion dollars.

But efforts to treat each other more as friendlier fellow exporters instead of cut-throat rivals in rice exports has not always proceeded smoothly.

Cooperation in rice trade was first established between Thailand and Vietnam in 1991, as part of an effort to avoid a price war.

But the implementation had been hindered by the fact that both sides viewed each other as competitors, particularly in the production of 25% broken, or medium-grade, rice.

"Vietnamese rice is low-grade rice, compared to rice that Thailand has produced. A few years ago, the need to bring in foreign currency made Vietnam sell their rice a lot cheaper than us," said Somboon Pathaichang, manager of the Rice Export Association of Thailand.

He recalled that Thailand had tried to propose better cooperation on pricing at the time, because Vietnam's price was $100 lower per tonne than Thai rice.

"Later it (price competition) was getting a bit better but again Vietnamese price is still $30 lower than our price," Somboon observed.

Thailand, the top rice exporter, exported 5.3 million tonnes of rice last year, followed by Vietnam which has taken the place of the United States place as the second largest exporter. In 1997, Vietnam sold between 2.5 to 3 million tonnes to the international market.

While the annual demand for rice in the world market in the past 10 years has been 18 to 19 million tonnes, this year Thailand expects to sell about 6 million tonnes of rice.

Export projections for Vietnam this year are 4 million tonnes.

According to the Rice Export Association, Vietnam now can produce 17 million tonnes of rice yearly. This capacity is almost as high as Thailand's, which produced 18.8 million tonnes of rice this year.

This assessment makes Thai exporters feel that price cooperation is better than competition.

"We totally agree with this government policy (of cooperation on rice pricing). It is no good for us in Thailand as well as Vietnam to keep on compete with each other," Somboon added. "But to do this we need to be sincere. First of all both sides must really be able to share information with each other."

Of late, Thailand and Vietnam's exports have been complementary rather than in competition with each other because of room provided by growing world demand for rice, not least due to natural disasters in various parts of the world including floods in China.

However, this is no guarantee the rice market will continue to have only a bright side.

Vietnam is facing a decline in agricultural production as its agricultural growth this year will only be 3 percent, down from last year's 5.5 percent.
Luong said Vietnam is seeking cooperation with Thailand to improve its food and agricultural-processing technology and marketing strategy to enhance the quality and add value to Vietnamese crops, in order to help struggling Vietnamese farmers.

Despite its protected economy, Vietnam has not been spared the effects of the regional downturn which has forced it to cut GDP growth estimates from 9 percent to 6-7 percent this year.

Last month, Vietnamese premier Pham Van Khai admitted the country is facing the worst downturn since economic reforms started a decade ago due to natural disasters, the regional crisis and slow reforms. However, Luong says things remained under control despite Vietnam's problems.

Still, economic analysts see some trouble for Vietnam in the rice sector because of tightness in supply at home.

"The need to bring in foreign currency through rice exports without a good enough strategy created a rice shortage in Vietnam," noted Somboon. Early this year, the Vietnamese government had to give orders to slow down exports.

Vietnam has also had transportation problems that have at times caused exporters to fail to ship rice to clients. "I think that's why Vietnam now realises that cooperation could be beneficial for them (too)," said Somboon.

While Vietnam is struggling to upgrade its rice exporting system, Thai exporters also fear a drop in prices due to financial instability in countries in Asia, which consumes 90 percent of rice production and is Thailand's biggest market.

"Now our client countries are all having a tough time. It is possible that they will turn to exporters with lower-price rice," Somboon said.

Indonesia has been Thailand's biggest customer recently. But given its economic problems, Indonesia has delayed the shipment of almost 400,000 tonnes of rice it ordered last year.

The details of the Thai-Vietnam rice cooperation deal have yet to come out, but just the same experts say this latest attempt at friendlier rivalry could lead to better prospects in the future.

Said Somboon: "Although it looks like a gentleman's agreement at the moment, I think both governments will come out with some practical measures soon."