MFN Tariff Phase-Out Could Favor the US Wheat to Vietnam?

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Wheat is not produced in Vietnam, but its consumption has increased lately. Compared with its massive population of over 100 million, domestic Wheat consumption is relatively low. The USDA estimated the marketing year 2022/2023 (MY 2022/23) Wheat imports to decline to 3.90 million metric tons (MMT) due to the war in Ukraine, causing high costs and reduced Wheat supply. Vietnam imported a larger amount of feed Wheat in CY2021 (1.08 million tons higher than in CY2020), which can serve as a substitute for corn to some extent. 

The slow resumption of tourism, plus low demand during the lockdown period in 2021, affected the total demand for Wheat-based products in Vietnam. Therefore, the USDA maintained its estimate for MY 2021/22 milling Wheat consumption at 2.1 million tons.

In 2020, Vietnam imported Wheat worth $703M, becoming the world’s 21st largest importer of Wheat. In the same year, Wheat was the 78th most imported product in Vietnam. Vietnam imports Wheat primarily from: Australia ($237M), the United States ($138M), Russia ($107M), Canada ($63.1M), and Brazil ($58.1M). The fastest-growing import markets in Wheat for Vietnam between 2019 and 2020 were the United States ($68.7M), Ukraine ($53.8M), and Brazil ($31.8M).

In 2020, Vietnam exported Wheat worth $11.7M, making it the 47th largest Wheat exporter in the world. The leading destination of Wheat exports from Vietnam is Cambodia ($9.8M), Philippines ($1.18M), Cyprus ($401k), Thailand ($321k), and Laos ($9.54k).

Vietnam’s Tariff Impact on Wheat Trade

Beginning December 30, 2021, Vietnam reduced its (Most Favored Nation) MFN tariff rate on all classes of imported Wheat, including U.S. Wheat, from 3 percent to zero. The MFN is a Normal non-discriminatory tariff charged on imports (excludes preferential tariffs under free trade agreements and other schemes or tariffs charged inside quotas). This tariff phase-out is an opportunity for U.S. Wheat to expand in the Vietnam market in the long term. At the same time, other major competitors had already benefited from tariff-free entry, including Australia, Russia, and Canada. CY2021 recorded a strong return of Australian Wheat on a bumper crop, with its market share having increased from 22 percent in CY2020 to 67 percent and offsetting a reduction from all other suppliers.

According to Vietnam Customs, Australia was the largest supplier of feed Wheat, with 39 percent of all imports, followed by Eastern Europe (Ukraine, Bulgaria, Romania) and South America (Brazil and Argentina). Australia was also the largest supplier of milling Wheat, followed by the United States. As a hard-to-replace ingredient, U.S. Wheat is used for blending in cakes, confectionery, and bread production. However, high U.S. Wheat prices led to a contraction in sales to Vietnam in CY2021, with the export volume declining by 64 percent, from 528 TMT in CY2020 to 189 TMT in CY2021.

Australia has preferential tariffs on Vietnam through existing trade agreements. By reducing tariffs for other countries, the decree will reduce or eliminate Australia’s tariff advantage. Most importantly, Australia’s 3% Wheat tariff advantage over the US and Argentina was eliminated on 30 December 2021. However, according to the AgFlow data, Australia was leading Vietnam’s Wheat import market with 1.2 million tons in April – October of 2022, followed by Argentina (0.2 million tons), the United States (0.1 million tons), Brazil (22,000 tons), and Uruguay (9,000 tons).

The impact of this change on Australian Wheat exports will be partially mitigated in the short term. This is due to poor seasonal conditions and high Wheat prices in North America. High sea freight costs also highlighted the importance of proximity to market. Australia has a competitive advantage over North American exporters in Southeast Asia.

Other sources: https://www.austrade.gov.au/                                    

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