VietFinanceNews.com - Local rice market has experienced volatile situations this year, especially prices of raw rice. Many rice traders ascribed the price hike, even in the harvest season, to the presence of financial investors. Is this actually the case?
To enter the rice business, financial investors can establish new companies or pour capital into existing firms. Those could be export companies or supplying enterprises. There is an argument that while the goods supply is almost unchanged, the abundant capital inflow would push up the purchasing power and prices.
Such argument is not convincing enough because the rice export volume this year has risen strongly, putting more pressure on the raw rice purchasing than ever. Besides, in a market with much expectations on surging prices, speculation may occur in all phases with any factor. Hence, although resources may be committed to the rice business, it does not necessarily mean a long-term investment. Financial investors often inject capital via a legal entity or invest in existing enterprises. However, since most rice companies have not been listed on the bourse yet, the investment committed is still limited.
Meanwhile, intermediary traders deemed the mobilized capital an unofficial channel rather than an investment of the financial sector.
Another phase in the rice production chain subject to consideration for whether financial investors have made strong presence is export activity. The figures on export turnover of the leading enterprises in 2010 and the first eight months of 2011 showed few fresh faces in the list of top 15 companies.
Analysis can be carried out from another angle, which is reviewing whether the proportion of the country’s leading firms over the total number of export enterprises has changed or not. If medium-sized enterprises’ exports are on the rise, it can be assumed that investors have poured capital into those firms.
There are over 200 rice exporters in Vietnam and the major market share used to belong to the two big corporations, VNF1 and VNF2. These two firms, along with 10 leading enterprises in the market, accounted for above 60% of the export turnover. Statistics showed that familiar companies still remained in the list of top 10, top 15 or top 20, meaning no new face has shown up.
In case financial investors had actually jumped in, the market pie would be further divided, or it is to say the export share of the aforesaid firms may dwindle against the total export volume. However, the comparative data in the Jan.-Aug. period of 2011 and in 2010 showed no significant change in the total exports among top enterprises. Therefore, it can be stated that financial investors have yet to manipulate rice export, or their investment is not big enough to turn the situation around.
Nevertheless, as for the enterprises recently licensed under Decree 109, this is a signal that outside investment is seeking way to enter rice export. There are probably several rice processing and export investment projects submitted to authorities and called for foreign capital. In the next few years, the game would become more vigorous.
