Firms rush to export rice despite limitations

Monday, Apr 08, 2013 15:46


According to a recent report by the Ministry of Industry and Trade, there has been a sharp increase in the number of companies seeking a licence to export rice.

This race to rice export has placed many food companies in a risky situation and State management agencies in difficulty.

There are 100 companies in the country meeting the necessary requirements for a rice-export licence stipulated in the Government Decree 109, and 40 others that can possibly meet them.

The stipulations include having a warehouse with a capacity of at least 5,000 tonnes, a rice husking mill with a capacity of at least 10 tonnes of rice per hour, and capacity to export at least 10,000 tonnes of rice a year.

The country turns out 42-43 million tonnes of rice per year of which only 7.5 million tonnes can be exported.

Production of rice is concentrated in the Cuu Long (Mekong) Delta provinces of Kien Giang, An Giang, Dong Thap, Long An, Tien Giang, Can Tho, Soc Trang, Tra Vinh, Vinh Long, and Hau Giang.

To qualify for an export licence, many firms have invested or plan to invest in warehouses and husking mills.

In 2010 the storage capacity was only 2.63 million tonnes, but this increased to 4.4 million tonnes by last year. The figure is expected to reach 6.4 million by the end of this year.

The problem with this is that it would exceed the actual need, resulting in waste of resources.

Besides, though many companies are ready to build warehouses and husking mills, they lack the capability to efficiently carry out exports.

Of the 100 licensed exporters, only 69 managed to export more than 10,000 tonnes in 2011.

Last year the figure came down to 68 firms.

The trade ministry has already withdrawn licences issued to three companies because they were unable to export rice within 12 months as required by the decree.

To address the situation, the ministry has suggested temporarily stopping the issue of new rice export licences except to those who can meet the decree's requirements and also already have warehouses and mills.

State firms diversify

The Government said last July that State-owned companies have to complete their pullout from non-core businesses before 2015.

This is considered a critical step in restructuring them, especially those that have invested in risky sectors like property, banking and finance, and insurance.

According to a report by the Party Committee for Central Agencies Block, 21 out of 31 State-owned corporations have diversified into non-core business areas, investing a total of VND22.6 trillion (US$1.8 billion).

They include Song Da Holdings, which has invested VND6.94 trillion ($330.47 million), Petro Vietnam (VND5.4 trillion), and Electricity of Viet Nam (VND2.1 trillion).

Following the Government's diktat, some State-owned companies have started to divest from non-core areas.

Among them is Vinacomin that recently decided to withdraw capital from its non-core businesses. It has invested VND115.8 billion ($5.5 million) in the Viet Nam National Aviation Insurance Company, BIDV Expressway Development Company, Hai Ha Economic Zone Development and Investment Company, and Long Thanh Development and Investment Joint Stock Company.

But for State corporations, withdrawing from non-core areas is no easy task especially because they are required to ensure their investments are fully recouped.

The Viet Nam Northern Food Corporation (Vinafood 1), for instance, has invested in real estate, building some shopping malls, supermarkets, and residential buildings.

But the continuing slump in the property market means Vinafood 1 would have to book huge losses if it decides to withdraw from these projects.

The Viet Nam Coffee Corporation (Vinacafe) is struggling to divest from ventures like Intimex Supermarket and sugar mill.

The pullout from loss-making businesses is likely to be delayed until an appropriate time to minimise losses.

But even with other factors being favourable and the SOEs not demanding unreasonable prices, it is not going to be easy to sell their stakes because of the bad economic situation.

For instance, last year Vinacomin tried to sell all its five million shares in the Viet Nam National Aviation Insurance Company at just VND10,000, but still found no takers.

Obviously, all those that are in the real estate sector have a bigger problem on their hands than some of the others.

To encourage the process of divestment, the Government should have appropriate policies.

For instance, it could allow the State firms to run up a certain amount of loss while pulling out of a business, and set it off against future profits.

Viettel bid challenged

The Viet Nam Pay Television Association (VNPAYTV) has once again petitioned the State President, Government Office, and National Assembly to prohibit the military-run Viettel from entering the cable TV business.

It said the cable TV market, with 67 service providers, shows signs of saturation.

Besides, cable TV is not a core business for Viettel, and the Government wants State-owned enterprises to pull out of non-core businesses, it pointed out.

If Viettel gets a licence for cable TV services, other operators would suffer huge losses and there could be serious conflicts within the industry, it warned.

Earlier the association had demanded that the Ministry of Information and Communications not issue cable TV licences to telecom firms.

The ministry rejected the argument that the cable TV market is saturated, pointing out that only 20 per cent of households in the country subscribe yet.

It has even expressed its support for telecom companies entering the market.

VNPayTV's move is seen as an attempt to keep out strong players like Viettel from the market, especially since the military firm comes with a massive cable infrastructure in place.

There are around 20 million households in the country, but only 4.5 million have cable TV. The remaining don't haves are mostly in rural areas where the service is not available.

This means there is great potential in the industry.

Viet Nam Television holds a 70 per cent share of the market, with SCTV and VCTV being major providers.

This monopoly means consumers are suffering from rising prices.

The planned foray by telecom firms like Viettel, VNPT, and FPT threatens VTV's monopoly position, and promises to sharply drag prices down.

For the telecom companies, cable TV should not be considered a non-core sector since they have a large cable infrastructure.

This also means they can take cable TV to remote and rural areas where terrestrial television is necessarily poor because of weather and other conditions. — VNS

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