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Cablegate: Vietnam Cutting Rice Exports; Stories Differ On Scale And

VZCZCXRO4942
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHI #0394/01 0980948
ZNR UUUUU ZZH
R 070948Z APR 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 7550
INFO RUEHHM/AMCONSUL HO CHI MINH 4539
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 HANOI 000394

SIPDIS

STATE FOR EAP/MLS
USTR FOR DBISBEE
AGRICULTURE FOR FAS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EAGR ECON ETRD VM
SUBJECT: VIETNAM CUTTING RICE EXPORTS; STORIES DIFFER ON SCALE AND
REASONS FOR REDUCTION

Ref: A) Hanoi 377 ("PM Declares War On Inflation");
B) Hanoi 206 ("Frozen Assets);
C) Monserrate-Brown April 1, 2008 Email

HANOI 00000394 001.2 OF 002


This cable is Sensitive But Unclassified. For official use only,
not for dissemination outside USG channels or posting on the
internet.

1. (SBU) Summary: Vietnam, the world's second largest rice exporter
in 2007, announced it will cut 2008 rice exports by 11 percent, and
may reduce rice export volume by a further 11 percent, pending
yields of early-year harvests. Despite recent international press
reports identifying a domestic rice shortfall as the justification
for the cuts, GVN data and estimates by industry analysts are not
forecasting lower output in 2008. Rather, the Government says the
cuts are an effort to stem rising domestic rice prices and curb
inflation, postulating that an increased supply on the local market
will stabilize, and perhaps reduce, the price of rice for domestic
consumers. The policy may also be designed to demonstrate that the
Government is aware of the effects of inflation and is taking
measures to minimize its impact on the cost of living. Some
prominent experts, however, are decrying the Government's
intervention, saying that it harms farmers and protects state-owned
export companies. End summary.

GVN EXPLAINS REASONS FOR CUTTING EXPORTS
----------------------------------------

2. (U) Vietnam, the world's second largest rice exporter, may cut
its rice export volume by up to 22 percent in 2008 in an effort to
stabilize domestic rice prices and curb inflation, which hit 19.4
percent year-on-year in March (REF A). In a March 26 directive, the
Government of Vietnam (GVN) announced that it will reduce rice
exports to 4 million tons (down from 4.5 million tons in 2007, an 11
percent cut). The GVN may further adjust the limit to 3.5 million
tons (22 percent lower than 2007), according to a statement by Trang
Hieu Dung, head of the Ministry of Agriculture and Rural
Development's (MARD) Planning Department. While announcements of
this type are not new (between 2005 and 2006 the GVN cut exports
from 5 million to 4.5 million tons), the GVN's decision to cut
exports this year has coincided with similar decisions by other
leading rice export countries like India, fueling fears of shortages
across Asia.

3. (SBU) GVN officials have declared that Vietnam will continue to
fulfill its signed rice export contracts - primarily with
neighboring ASEAN countries and Cuba. In late March, for example,
Vietnam signed a tender to fulfill its pre-existing obligation to
supply one million tons of rice to the Philipines, which constitues
a significant portion of Vietnam's early yield. To ensure Vietnam
continues to meet its contractual commitments, however, the GVN has
extended an earlier freeze on new export contracts through June.
Mr. Truong Thanh Phong, Chairman of the Vietnam Food Association, a
quasi-governmental organization that serves as the GVN's mouthpiece
on rice industry issues, announced that if Vietnam's early rice
yields are bountiful, the Government may ultimately relax its
prohibition on new contracts in early summer.

RICE AND COMMODITY PRICES RISING
--------------------------------

4. (U) GVN statements indicate that the decision to limit rice
exports is driven largely by the belief that an increase in supply
on domestic markets will stabilize prices. The GVN is seeking to
dampen the impact of rising commodity prices, with mid-March rice
prices 36 percent higher than March 2007, joining an overall trend
wherein prices for foodstuffs (i.e., products such as eggs, milk,
vegetables, dry/canned foods) have risen an average of 28 percent
compared to a year ago, grain prices have risen 21.5 percent and
housing and construction materials nearly 18 percent. Prices on
other items, including electricity, water, fuel and gas, have also
increased.

5. (SBU) There are some signs in the market that domestic rice
prices have stabilized, and even fallen slightly (five percent),
since the export restrictions were announced. (Comment: Perhaps as
important as true price stability for the GVN is the perception
that, through this policy, leaders are aware of the rising rice and
commodity prices on Vietnamese citizens and are proactively working
to address the situation. End comment.)

NO DOMESTIC SHORTFALL
---------------------


HANOI 00000394 002.2 OF 002


6. (U) Recent international press reports have pointed to domestic
production shortfalls as the reason for Vietnam's decision to cut
rice exports. MARD data and industry expert estimates, however, do
not forecast a shortfall this year. A record cold spell in January
and February (REF B) is not expected to decrease overall rice yields
significantly, although it will delay by about one month the first
rice crop of the year in the north. Any loss of output in the north
will more than likely be made up for by increased yields in the
Mekong Delta - where in some areas, yields are expected to increase
to 6 tons/ha from 5 tons/ha last year. Local analysts also refute
recent press reports that Vietnamese rice yields will suffer due to
a pest outbreak, saying that the impact of pests in 2008 will be no
larger than in past years. In fact, total output in 2008 is
expected to remain relatively stable at 35.21 million tons (down
slightly from 35.26 million tons last year).

SOME DOUBTERS
-------------

7. (U) The GVN decision to cut exports has some vocal, and
prominent, detractors. Professor Vo Tong Xuan, former Dean of An
Giang University and widely-acclaimed expert on rice farming in
Vietnam, discounts the official justifications provided by the GVN.
In an interview with Vietnamese press outlet VietnamNet, Dr. Xuan
expressed his belief that the export limits are in place to protect
state-owned export companies who won international tenders at low
prices, but are now unable to buy rice supplies domestically at a
price that prevents them from taking a loss. During the interview,
Dr. Xuan blamed poor macro-economic policy making for the current
"inflation crisis," and criticized the GVN's intervention for
harming farmers in order to protect large state-owned enterprises.


COMMENT
-------

8. (SBU) Past years have shown that GVN-announced targets for rice
and commodity exports are flexible and subject to adjustment,
particularly in the third quarter when crop data is more readily
available. Most experts believe that a reduction in exports as high
as 22 percent is unlikely in 2008, estimating instead that Vietnam
will export from 4 to 4.5 million tons of rice this year, equivalent
to an 11 percent reduction. As Professor Xuan's outspoken criticism
shows, some constituencies are not supportive of the export cap.
Rice farmers stand to lose the most if the GVN keeps exports low, as
the policy prevents them from taking full advantage of high global
rice prices at a time when input prices (fertilizer, pesticides and
labor) are rising rapidly.

9. (U) This cable was coordinated with FAS and ConGen HCMC.

MICHALAK

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