HO CHI MINH CITY (BLOOMBERG) - Top rice exporter Vietnam is struggling to replenish government reserves after consumers around the world rushed to secure supplies of the food staple because of the worsening coronavirus pandemic.
The South-east Asian nation asked local traders in March to supply rice for state stockpiles, with those offering the lowest prices winning government contracts. In usual years, traders would be given about three months to buy the rice from farmers and deliver it to the reserves department.
This year, the virus upended those plans, and that could push Vietnam to further tighten rice export restrictions.
Rice prices, in Vietnam and abroad, have surged since the government tendered for supplies, and traders can no longer deliver the rice without making a loss. Of the 28 traders that won contracts, 24 have either cancelled or declined to sign the contracts, according to the reserves department.
Phat Tai is one such company. The exporter would suffer a loss of 1,500 dong (nine Singapore cents) per kg if it fulfils its contract to supply 17,900 tonnes of rice for state reserves, said an executive at the company, asking not to be identified discussing a sensitive matter. That would be a total loss of over US$1 million (S$1.4 million).
Similarly, state-owned Vietnam Northern Food, which agreed to supply 4,500 tonnes of rice, has delayed signing the contract, according to Mr Au Anh Tuan, head of the customs department's division of customs management and supervision, citing data from the reserves department. A spokesperson for the food company, commonly known as Vinafood 1, declined to comment.
Wholesale prices of low-quality rice in Vietnam have soared to about 10,000-10,200 dong per kg, a 10-year high. Thai white rice 5 per cent broken, an Asian export benchmark, was up 30 per cent this year to the highest since 2013 last week.
Commitments for more than 46,000 tonnes of rice have had to be scrapped in the last few days, according to the reserves department. There were just 7,700 tonnes added to state reserves as of Tuesday, only 4 per cent of the 190,000 tonnes planned for this year, the department said.
Most winning bidders were found to have registered for rice shipments this month due to a turnaround in Vietnam's rice export strategy, Mr Tuan said.
The country had halted overseas rice sales for nearly three weeks on concerns over food security because of the virus.
On April 10, it lifted the suspension, but instead put a limit on how much can be exported. With prices and the opportunity for profits high, traders rushed to apply for the quota.
Phat Tai has registered to ship more than 13,000 tonnes this month, the executive said. Meanwhile, Vinafood 1 submitted customs declarations to export 7,200 tonnes in April, according to Tuan.
Vietnam's officials may try to force traders back to fulfilling the stockpiling target.
The reserves department will hold another tender for rice soon, its representative said. Also the finance ministry, which oversees both the customs and state reserves departments, has proposed suspending low-quality rice exports until mid-June to ensure stockpiles targets can be met.