Bangladesh in the market for 300,000 tons of Vietnamese rice

A Bangladeshi farmer walks on his field. Bangladesh has extended a rice trade pact with Vietnam for another five years, under which it promised to buy 1 million tons annually by 2022 to help offset domestic shortages brought by climate change. Photo by Reuters

A new deal signed by the two governments should ease the pressure on Vietnam's flagging rice shipments that have fallen to multi-year lows.

Bangladesh is looking to buy 250,000-300,000 tons of rice from Vietnam, the world's third-largest exporter of the grain, in the near-term to offset a domestic shortfall after extending a government-to-government rice trade pact, the Vietnamese government said.

The South Asian nation has extended a memorandum of understanding with Vietnam, under which it promises to import up to 1 million tons of rice a year until 2022, Vietnam's Industry and Trade Ministry said in a statement on Tuesday after signing the pact with Bangladeshi Minister of Food Qamrul Islam during his Vietnam visit.

The pact comes as a relief for Vietnam as rice shipments have been falling to multi-year lows. This is in part due to the Philippines, one of the world's biggest rice buyers and a frequent importer of Vietnamese rice, placing a purchasing cap on rice for three more years. Manila said on Monday it will only allow private traders to import 805,000 tons a year until 2020 at a tariff of 35 percent, Reuters reported.

After the MoU siging, Bangladeshi officials said their country was ready to import 250,000-300,000 tons of Vietnam's 5 percent broken rice immediately, and invited detailed offers as part of a plan to buy 500,000 tons of Vietnamese rice by the year end.

"Over the past two years, Bangladesh has faced multiple natural disasters that have damaged crops and led to a domestic rice shortage," Vietnam's trade ministry said in the statement.

Climate change has been affecting low-lying areas of Bangladesh, where arable land has been lost to saltwater intrusion and agricultural production has been damaged by droughts, floods and storms.

Bangladesh stood among the top 25 percent of the world’s most hungry countries in 2016, according to the Global Hunger Index compiled by the International Food Policy Research Institute.

The Bangladeshi government's request, its first since 2013 and a significant jump compared with the 44 tons of Vietnamese rice it has purchased so far in 2017, has prompted Vietnamese exporters to halt offers and hold on stocks to wait for prices to rise, traders said.

"The market has frozen recently due to speculation over demand," a trader in Ho Chi Minh City said. 

He said nobody was willing to sell the rice grade sought by Bangladesh given that indicative export quotations for 5 percent broken rice have been rising so far this month and hit $370 a ton last week, free-on-board (FOB) basis, from $350-$352 at the end of April.

Exporters may agree to sell at $380, the trader said, adding that prices may firm further if Vietnam secures a contract.

At $370/ton, the price is already at its highest since August 2016 but it is still around $30 a ton cheaper than Thai rice of the same grade, which may give Vietnam a competitive edge, traders said.

Vietnam's rice exports in the first four months of 2017 fell 10 percent from a year ago to 1.8 million tons, the lowest volume for the same period in nine years, based on Vietnam Customs data.