Soaring costs keeping pace with prices as producers fail to cash in on crisis
By the time he realized what was happening, it was too late. Government intervention was roiling the markets, and his local trader was refusing to buy his newly harvested crop. He was stuck with seven tonnes of unsold rice in his storage shed, waiting for his trader to decide on a fair price.
“We are just countryside folks – we don’t understand anything about the price fluctuations,” Mr. Luan said in an interview on his farm in southern Vietnam, surrounded by sacks of unsold rice.
While the price of rice has doubled in recent months, most farmers are benefiting very little – even in Vietnam, the world’s second-biggest rice exporter.
Their revenue has increased, but so too have their input costs – especially fertilizer, closely linked to the price of energy. Fuel, required for pumping water to their rice paddies and transporting their harvest, is another fast-rising cost. Even the cost of labour is skyrocketing as farm workers insist on higher wages because of Vietnam’s record-high inflation rate.
In interviews across Vietnam, rice farmers unanimously reported that their costs have nearly doubled since last year, leaving them without any increase in income, despite the surging rice prices in domestic and global markets.
“Every time the price of rice increases, the cost of fertilizer seems to rise by about the same amount,” Mr. Luan said. “If the government can somehow stabilize the cost of fertilizer, we could actually increase our incomes.”
The 38-year-old farmer expects no increase in his income this year, despite the panic buying and soaring prices of the past week. “Only the traders and the processing plants are profiting,” he said.
Analysts agree with him. “The profits are not in the hands of the farmers,” said Vo Tong Xuan, a rice economist and professor in Vietnam. “The profits are enjoyed by middlemen and speculators who hoard the rice to sell it at a higher price.”
He worries that the Vietnamese government, bowing to pressure from urban consumers, will order a reduction in rice prices. This would impoverish many farmers, since their costs are still rising, he said.
Most of Vietnam’s farmers are unable to benefit from the surge in global rice prices because the government is limiting rice exports this year in an effort to protect its domestic supply. The restrictions are “very unfair to farmers,” Mr. Xuan said.
Those limits, in turn, are allowing speculators to exploit the situation. There is mounting evidence that the latest jump in rice prices was triggered by speculators who capitalized on fears that the export restrictions were a harbinger of future shortages in Vietnam.
Just down the road from Mr. Luan’s farm, another farmer is washing bags of rice seeds in preparation for his next crop. “It’s very hard work, and not very profitable,” says the farmer, 36-year-old Tran Van Binh.
“Look at those empty fields over there,” he says, pointing to former rice paddies that are now covered in grass. “Many people have left their fields barren because they can’t afford the fertilizer and pesticides. The farmers aren’t happy at all. Only the traders are making big profits. That’s the way it always is.”
Mr. Binh harvested three tonnes of rice this spring and sold it for about $625 per tonne, up from about $440 per tonne for his last crop in the fall. But his costs increased to about $440 a tonne, up from about $250 last fall. So his net profit for the entire three tonnes – about $560 – is about the same as it was last year.
In northern Vietnam, the rice fields are smaller and the hardships are greater. Some farmers can grow only enough rice for their own meals, so they have been badly hit by the rising input costs.
“The government should do something to limit the cost of fertilizer,” says Nguyen Thi Van, a subsistence farmer on a small plot near Hanoi. “We need some support from the government. Our costs are too high and my income is falling.”
Another threat to food security is the steady disappearance of farmland. Many of Vietnam’s farmers have been forced off their land to make room for industrial parks and urban developments. By some estimates, as much as 4 per cent of its farmland has been lost to development in the past five years, and 2.5 million people have been forced off their farmland. “I hope this can be stopped or we will face a real dilemma,” Mr. Xuan said.
One long-time farmer near Hanoi said the government forced him to leave his farm in 2006 to make room for urban development. Now he struggles to earn a living as a motorcycle driver, earning just three or four dollars a day. “I’m lucky if I can earn enough to buy a few kilos of rice,” he said.
WHO’S TO BLAME?
Some of the factors behind the rise in Asian rice prices, which have almost trebled this year:
With only about 30 million tonnes of rice traded annually, government supply curbs, such as those from New Delhi and Hanoi, have spooked importers, such as the Philippines and Bangladesh, at a time when global stocks have halved since hitting a record high in 2001.
On the Chicago Board of Trade, financial speculators looking for the next big commodity play have helped lift prices by about 80 per cent this year. To a degree, hoarding by consumers has also fed the rise by spurring importers to seek supplies sooner.
DIVERSIFICATION OF LAND USE
In some countries such as the Philippines, production is failing to keep up with demand because paddy land is being overtaken for industrial development, or because farmers are seeking other trades.
In poor nations rice consumption is rising, but this is partly offset by falling per-capita consumption in big countries such as China. Data from the U.S. Department of Agriculture shows that consumption in China – which accounts for 30 per cent of world consumption – has fallen by 3.9 per cent over the past five years. But global consumption has risen by 2.7 per cent over the same period.