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(VEN) - Major agricultural products such as sugar, pepper and cotton should be traded via commodity trading centers to guarantee farmer profits, reduce market manipulation by middlemen and create favorable conditions for agricultural product processors.
The current agricultural product purchasing system does not benefit farmers and processors. Due to the excessive layers of intermediaries, consumers have to buy products at higher prices. Furthermore, intermediaries often undercut products prices and corner the market. There is a lack of storages and centers responsible for balancing supply and demand, leading to local deficiencies or redundancy despite total productivity fully able to meet demand. Compared to international development trends, this system has been exposed as being hopelessly out of date and does not meet the demands of a modern economy's development.
Pepper production is a prime example. The pepper value chain includes growers, individual collectors, collection agents and processors. Almost all growers (86 percent) sell their products within two months of harvesting because they need the cash in order to clear their debts they have taken to invest in the previous crops and to prepare for the next season. In addition, they lack storage to stockpile their products. Growers do not sell their products directly to collection agents but through individual collectors who sell those products to collection agents or processors. Processors mainly preliminarily treat agricultural products (drying and cleaning) and sell the products on the market or provide them for exporters. In this current system, despite having enough capital and storage, collection agents seldom retain more than 30 tonnes of pepper because they are afraid of price fluctuations and having to make loan repayments. Agricultural product processors also buy small amounts of products and then sell them to their partners. About 50 percent of pepper is not processed before being sold to foreign markets. This is the reason why Vietnamese pepper is sold at lower prices on the international market.
The Vietnamese Pepper Association chairman Do Ha Nam said that this chain creates risks to collectors and sellers in terms of capital and prices. They want to sell their products as quickly as possible to clear any loans. This type of trading does not produce accurate price information that helps guarantee profits for growers and processors.
The sugar sector also faces a similar situation. Establishing distribution channels and building storage requires large amounts of capital, meaning that almost all sugar producers are unable to to provide their own distribution and retail outlets. Their products have to go through intermediaries. This means sugar producers have to follow the lead provided by intermediaries and they are not allowed to sell products to other partners. Therefore, sugar producers often compete with each other in terms of input materials because in the current system, sugar producers are dependent in terms of output.
Cotton collecting based on traditional methods also depends on intermediaries, leading to an increase in prices when materials are sold to processors, yet growers are forced to sell their products at low prices. The Vietnam Cotton Association General Sectary Do Hong Giang said that other agricultural products also face the same situation.
At the same time, some products such as coffee and rubber have safer liquidity thanks to modern trading methods provided via forward contracts. Risks in prices are put on speculators instead of growers like in other sectors. The reality shows that commodity trading centers create greater profitss for farmers and businesses.
The amount of coffee and rubber traded on commodity trading centers is increasing. According to the Vietnam Commodity Exchange (VNX), in 2011 the value of commodity traded in these centers totaled more than VND7.3 trillion. Commodity trading center members have opened 1,835 accounts with exchange revenue totaling VND65 billion per day. The Buon Me Thuot Coffee Exchange Centers (BCEC) stated that from March 2011 to December 2011, the amount of coffee traded in the center totaled 14,066 tonnes, equal to more than VND661 billion.
Nguyen Phuong Dung, the head of the Domestic Market Department's VNX Operation Management Office under the Ministry of Industry and Trade, agreed that the large value of commodities exchanged in trading centers fully met the demands of Vietnam's legal framework and had proved very useful to farmers.
To strengthen the competitiveness of Vietnamese goods in the international market, the government is intending to allow other products to appear in commodity trading centers to provide better profits for farmers and more favorable conditions for businesses to choose products for export. The Ministry of Industry and Trade's Legal Affair Department Deputy Director Pham Dinh Thuong emphasized that putting agricultural products on commodity trading centers would narrow the gap between producers and consumers, ensure farmers benefited, reduce intermediaries and market manipulation, promote the export processing sector and gradually allow the country to catch up with the international market.
However, at a seminar on developing commodity trading centers held by the Ministry of Industry and Trade, Domestic Market Department and Multilateral Trade Assistance Project (MUTRAP) 3 in Ho Chi Minh City, the Domestic Market Department said that apart from bringing more products to trading centers, commodity trading centers should improve their operating regulations such as expanding center members - as they don't currently have enough members - and consider the participation of foreign businesses. /.
By Ngoc Long
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