by James Fairley
On 14 September, SunRice CEO Rob Gordon, head of Australia’s largest rice supplier, announced that Australia is suffering a massive shortage of domestic rice supplies and would be forced to rely on imported Vietnamese rice in the lead up to Christmas, 2020.(1)
These announcements emphasise nuances (and fear) of the growing economic fallout of COVID-19, compounded by the impacts of climate change on Australian domestic production. Perhaps more broadly however, such a shortage represents yet another opportunity for Australia in the face of growing calls for trade diversification and integration with new markets.
Australia’s rice market
Australia’s rice production remains highly variable due to changing water availability and prices of alternative crops, amounting to merely 0.4% of total anticultural production value between 2017-18.(2) According to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) and the Australian Bureau of Statistics (ABS) 2019-20 crop yielded about 57,000 tonnes of rice (3) and is, weather permitting, forecast to reach 266,000 tonnes in 2020-21. (4) This remains well below the 10-year average to 2018-19 of 629,000 tonnes. (5)
In any event, ABARES predicts that “fundamental changes in demand for water and relatively low returns for rice production mean that Australia is likely to grow less rice” and turn crops like cotton which have benefited from technological developments (6) and benefited most from the US-China Trade Dispute. (7) Founder and Managing Director of agribusiness firm Lefarm Co. Ltd and AVYLD alumni Nguyen Le agrees, stating:
“It is a natural movement towards importing more instead of producing more...the real question is, will Australia focus on importing out of necessity, or on forming sustainable long-term strategy to share and co-develop innovations with Vietnam to better align demand and supply when time comes?”
Imports remain an important part of Australian consumption
Australians consume about 300,000 tonnes of rice annually, with imports accounting for about half of all consumption – an average of 173,000 tones between 2009-10 and 2018-19. (8) Most rice imports are from long grain rice producing countries like Vietnam, Thailand, Pakistan and India, with import’s providing more stable production as opposed to Australian variable domestic production levels (9)
Australian domestic production variability of rice, particularly in the 2019-20 crop yield, highlights the increasing demand for alleviation of shortages by imports. As ABARES suggests, in the short term (and given the 2019-20 yield deficit as above), since domestically produced rice is harvested in autumn—once per year—no new domestic supply will be available in Australia until 2021. (10) Any shortages can only be alleviated via imports.
Vietnam’s rice exports
Vietnam is a key producer and exporter of rice globally and has significantly increased production and exports year on-year, meeting increasing global demand. According to Business Monitor International (BMI), Vietnamese rice exports rose by 30% year-on-year in the 2016-17 harvest due to strong demand by China, the Philippines and Indonesia. (11) As Nguyen Le goes on to say:
“As the Philippines imports the largest quantity in the region, they always play the upper hand in encouraging a price duel between Thailand and Vietnam to push exporters to come to the lowest bid possible. Because the import quota of the Philippines is so great, it pretty much drives the wholesale price scheme in Vietnam rice in the domestic market...”
Exports are forecast to continue to rise from 6.1 million tonnes in 2020 to more than 7.86 million tonnes by 2023-24. This may be driven by Vietnam’s price competitiveness against regional neighbours like Thailand, underscored by Vietnamese government intentions to increase hybrid rice variety production by 50%, bolstering future production and export capabilities.
BMI (2020): Rice export price competition 2010-2018 (USD/tonne)
Unlike its neighbours and competitors like Thailand, Vietnam enjoys elevated rice yields as a result of the governments past crop intensification policy (12), which encouraged farmers to skip crop rotation to maximise production annually.
Nevertheless, Vietnam remains challenged by the increasing water levels in the Mekong Delta, driven by climate change and its impact on soil conditions. (13) These are compounded by issues with sorting and grading, and storage of rice. (14) As 2019 AVYLD Alumni Nam Dang, founder of Cricket One LLC, an agriculture technology start-up focussing on sustainable food production, states:
“Like Australia, Vietnam is being hit hard by climate change. Saltwater intrusion in the Mekong Delta, and the river water level this year was the lowest ever in history. In provinces like Tien Giang and Ben Tre, there was not even enough fresh water for household use in the last dry season. Farming is therefore becoming more difficult, and the shift to higher value and more sustainable farming seems inevitable.”
Bipartisan calls for trade diversification
Australia’s rice deficit and the growing viability of enhanced trade in rice with Vietnam are strengthened by growing socio-political sentiment about strategic reliance and trade imbalances brought about by the economic consequences of COVID-19. (15)
The impact of a halt to globalisation and economic interconnection (whether through border closures, localised shutdowns of manufacturing and exporting or otherwise) has accelerated calls for a rethink about who, why and what Australia partners with, in trade and innovation. (16)
There are calls for Australia to look beyond its traditional partners in China, Japan, the United States and South Korea (who together account for 55.5% of Australian trade) and towards “growing regions that complement Australian goods, services and expertise, which offer significant potential to diversify”. (17)
Opportunities with Vietnam
Nguyen Le rightly states,
“based on geographical nature, Vietnam makes the perfect candidate as an exporter partner of rice to Australia.”
As such, Australia should leverage its strengths in the Commonwealth Scientific and Industrial Research Organisation (CSIRO) among others, to partner in innovation with countries like Vietnam (18) for ultimately, partnership in innovation, not trade, will determine Australia’s economic future.
SunRice CEO Rob Gordon’s suggestion that Australia would be ‘forced’ to rely on Vietnamese rice is indicative of broader sentiment about how Australians view Vietnam and greater engagement with the country. However, these circumstances should be viewed as an ample opportunity for Australia to meet domestic demand albeit more financially efficiently, while concurrently driving new partnerships in trade and innovation.
Nam Dang suggests Vietnam and Australia should leverage each other's strengths:
“The benefits of both countries align where Vietnam has a competitive advantage over rise and Australia over cotton and technology. These advantages represent tons of trade opportunities…”
Indeed, Australia can expand its relations with Vietnam by driving meaningful mutually beneficial improvements in this industry. Canberra can drive new partnerships in innovation, leveraging institutional knowledge in the CSIRO, ABARES and others to aide Vietnamese rice export quality and growth to Australia. These Departments can concurrently strengthen existing policy agendas in rice by other Departments like the Australian Centre for International Agricultural Research (ACIAR) (19) Canberra can also explore existing Australian networks with Vietnam in the private sector, by working with Australian companies, like SunRice, who have growing investments in the Vietnamese market. (20) As Nam Dang goes on to say:
“SunRice is a good case study where an Australian company has brought technology and global standards to transform the rice supply chain [in Vietnam] to higher value, being more sustainable to the benefit of farmers, producers, exporters and consumers…”
Concurrently, Canberra can support Australian farmers to transition to crops benefiting most from technology like cotton – a sector which has benefited greatly from the US-China Trade Dispute (xxi) and a fast-growing import for Vietnam. (21)
In the end, Australia should not view imports from Vietnam as a last resort, but an opportunity for the forging of longer term meaningful links with emerging partners for both our sakes.
About the author:
James is a Policy & Program Officer at the Australia-Vietnam Young Leadership Dialogue, currently completing a Master of Governance and Public Policy at the University of Queensland, following studies in Australia, France, Singapore and Vietnam. As a former DFAT New Colombo Plan Scholar, he has experience across KPMG Vietnam & Cambodia and several law firms in Australia.
(1) Daily Mail (2020), ‘Warning Australia is running out of RICE - and may not have a single homegrown grain left by Christmas’
(2) Australian Bureau of Statistics (2020), ‘Value of Agricultural Commodities Produced, Australia’ (‘ABS’).
(3) Australian Bureau of Agricultural and Resource Economics and Sciences (2020), ‘Analysis of Australia’s food security and the COVID-19 pandemic’ (‘ABARES’).
(4), (6), (8), (10) ABARES (2020), ‘Australian Rice Markets in 2020’
(5) ABS (2020), ‘Value of Agricultural Commodities Produced, Australia’
(7), (11), (14), (21) Business Monitor International (BMI) (2020), ‘Vietnam Agribusiness Q4 2020’
(9) ABARES (2020), ‘Analysis of Australia’s food security and the COVID-19 pandemic’
(13) United Nations International Fund for Agriculture Development (2020) ‘Vietnam’s rice production threatened by climate change’
(15) The Atlantic (2020), ‘The Modern Supply Chain is Snapping’
(16) Australian Institute for International Affairs (2020), ‘Trade Diversification is Essential for Australia’s Recovery’
(17) KPMG (2020), ‘Australia's trade and investment: Diversification and opportunity’
(18) Fairley (2020), ‘Innovation Nations: The Argument for Collaboration with Vietnam’
(19) Australian Centre for International Agricultural Research (ACIAR) (2018) ‘ACIAR-VIETNAM RESEARCH COLLABORATION STRATEGY 2017-2027’
(20) SunRice (2018) ‘ NSX Announcement: SunRice Group Aquires Vietnamese Processing Mill’
(22) Statista (2020), ‘Volume of Cotton Imports in Vietnam from 2007 to 2019’