Philippines rice import duty cut from 35% to 15% likely to benefit Vietnam

The Philippine government has slashed the import tariff on rice from 35% to 15% under an executive order signed by the President Ferdinand Marcos Jr. June 20.

The new tariff is likely to come into effect July 5 and is expected to boost Vietnam's rice trade.

The plant to cut the duty was initially approved by the government's National Economic and Development Authority on June 4, pending ratification by the president.

The Marcos administration's move is primarily aimed at controlling inflation and is likely to support rice trade in the region.

"The implementation of an updated comprehensive tariff schedule aims to augment supply, manage prices and temper the inflationary pressures of various commodities, consistent with the Philippine national interest and the objective of safeguarding the purchasing power of Filipinos," President Marcos said.

This latest tariff policy is also expected to boost Vietnamese rice exports, market sources said.

As the world's largest rice purchaser, the Philippines depends heavily on imports to satiate the enormous demand for the staple crop. In particular, the it typically buys 4 million mt/year of rice, with nearly 80% of shipments coming from Vietnam.

"Philippine rice importers will buy more rice from Vietnam to fill up the domestic supply deficit," said Leocadio Sebastian, former agriculture undersecretary. "We are already buying most of our rice from Vietnam because of quality preference."

The challenge for the government is to invest more in enhancing the productivity -- such as technology scaling and irrigation -- of local rice farmers to reduce their production costs and sustain the profitability of rice farming, Leocadio said.

Advantage Vietnam

Unfazed by the latest rice tariff cuts, some market sources said they believe the benefits will go directly to Vietnamese exporters, rather than local Filipino rice farmers and exporters.

Vietnamese rice prices are expected to soar in the next two months, while prices in the Philippines may fall, a Vietnam-based rice exporter said. "The Philippines will import more than usual amid tariff cuts," he said. "No more smuggling of rice from Malaysia."

Vietnamese rice exports in May increased 18.2% year on year to 856,197 mt, according to the data from Vietnam customs released June 10.

Over January-May, Vietnam exported 4.026 million mt of rice, up 11.2% from the same period last year, mainly to the Philippines (1.83 million mt, up 19.6% year on year), the data showed.

Philippines-based traders and buyers have asked Vietnamese suppliers to resume preparing and loading cargoes for their outstanding contracts, another Vietnam-based exporter said. They have also placed new orders in large quantities for shipment in July and August, he said.

Prices seen dropping

In the coming months, rice prices could decline amid a sizable harvest in the region.

"Despite a prolonged dry season, a good harvest among major rice suppliers (India, Thailand and Vietnam) and with the projected good harvest in the coming season, we are hoping that global rice prices will dip in the coming months," Leocadio said.

Platts, part of S&P Global Commodity Insights, assessed Vietnamese 5% broken white rice FOB down $20/mt week on week at $539/mt FOB June 20, and Fragrant 5% broken down $30/mt week on week at $574/mt FOB.

However, many market participants said they believe the direction of rice prices in 2024 is more likely synced with India's export policy.

In August 2022, India, the world's biggest rice exporter, banned broken rice exports and imposed additional duties on non-basmati white rice outflows. It also restricted non-basmati white rice exports, imposed a 20% duty on parboiled rice shipments and fixed a minimum export price for basmati at $950/mt by July 2023.

Subsequently, rice prices spiked across the region amid a sudden supply shock and prices have remained relatively high since then.

But with a La Nina-ledfavorable monsoon season in the offing this year, India is very likely to remove the majority of the trade restrictions on rice, market sources said.

So, as the global rice trading sector looks on with optimism, the ball is firmly in the court of the re-elected Narendra Modi government.