The south-east Asian country had already bought 500,000 tonnes from Vietnam's state exporter, and was in talks with Hanoi to acquire a further 1m-1.5m tonnes, traders said. Both governments would not confirm the contracts.

The deal, which would meet the bulk of Manila's rice needs this year of about 2m tonnes, signals a move among food-deficit countries to source supplies through diplomatic rather than commercial channels, in order to prevent price spikes.

Manila's rush last year to secure rice through large commercial tenders was seen as one reason behind the jump in prices to a record high of US$1,100 a tonne for Thai medium quality rice, the world's benchmark, up from US$350 in 2007.

The move is also a response to some exporting countries restricting their commercial overseas sales. India, the world's third largest exporter, has yet to restart its commercial sales as it tries to keep its domestic market well supplied, but it is selling on a government-to-government basis.

Ben Savage, of Jackson Son & Co, the London-based rice brokers, said the 500,000-tonne deal was for "25% broker Vietnamese rice" and it was sealed at US$420 a tonne, including freight.

The financial times - January 16, 2009