Agriculture Reference
In-Depth Information
tion of the quantity of rice available for export—resulting in a large variability in
exports in the later months of the year. Companies involved in exporting did not
take into consideration changing global market conditions and continued to sign
export contracts regardless of the change in the world price. At the same time the
government lowered the rice export taxes to 1 percent (5 and 10 percent broken),
and waived export taxes for 15-35 percent broken rice.
There were 15 companies with export licenses in 1996, 10 of which were
based in the Mekong River Delta. In 1996 the government assigned 80 percent of
the quota rights to VINAFOOD-2, for redistribution among its provincial food
companies. This assignment caused significant problems, with some companies
complaining that the awarding of sole rights to VINAFOOD-2 resulted in market
prices being manipulated to the disadvantage of farmers. In response to widespread
dissatisfaction with the process of quota distribution, the government changed the
system of distribution in 1997, giving control to the Provincial People's Commit-
tees. As of 2002, there were about 40 rice-exporting companies in Vietnam.
the majority of such contracts are for low-quality food-aid rice, SOEs have to
export at a discounted price, which can potentially inhibit the development of
grades and standards necessary to be competitive in the global market.
Second, the allocation and distribution of export quotas is also an issue of
concern in the country. In 1996 the government assigned 80 percent of the quota
rights to VINAFOOD-2 for redistribution among its provincial food companies.
This assignment caused significant problems, with some companies complain-
ing that the awarding of sole rights to VINAFOOD-2 resulted in market prices
being manipulated to the disadvantage of farmers. In response to widespread
dissatisfaction with the process of quota distribution, the government changed
the system of distribution in 1997, giving control to the Provincial People's
Committees. However, despite this policy change, more than 70 percent of the
rice export is still controlled by VINAFOOD-2.
Finally, given the high volatility of the world market and the lack of risk-
management institutions, advance signing of export contracts by VINAFOODs
can have adverse affects on both consumers and producers. For example, a re-
cent World Bank study indicates that, in 2002, provincial food companies had
to export through VINAFOODs to meet their contractual obligation, even
though domestic prices were higher (World Bank 2002). This action may have
benefited farmers but hurt consumers, who had to pay higher domestic prices.
The Bottom Line: Profitability of the SOEs
Given monopoly status, it is commonly held that SOEs will always make prof-
its and generate the necessary revenue for the government. In a recent paper,
