Why Vietnam’s Law Highlights the Need to Secure Raw Material Prices

When the price of coffee, metals, energy or an agricultural commodity fluctuates sharply, the impact is not confined to global markets for long. It feeds through into profit margins, customer quotes, purchasing budgets and, at times, discussions with banks. It is precisely this risk that Vietnam is seeking to manage more effectively with a draft law on trading in commodity derivatives.

For Swiss companies, this is not merely a matter of Asian current affairs. It highlights a very practical point: commodity volatility is no longer an issue confined to major traders. It also affects industrial SMEs, processors, distributors, construction firms, transport companies and businesses whose costs depend indirectly on energy and imported inputs. In Switzerland, there is no single law that protects companies against price rises and falls. However, several regulations already require risk management practices, particularly when a company reaches a certain size or operates in a regulated sector.

Vietnam seeks to establish a framework for price hedging

The Vietnamese Ministry of Industry and Trade is consulting the business community on a draft law relating to trading in commodity derivatives. The stated aim is to fill a gap: despite Vietnam’s significant role in the export of several key products, the country reportedly does not yet have a sufficiently effective mechanism for setting reference prices and providing businesses with tools to hedge against price risks.

The draft legislation targets commodity derivatives, i.e. contracts whose value depends on the price of an underlying asset: coffee, rice, energy, metals or other commodities. For a business, the aim is not necessarily to speculate. A futures contract, for example, can be used to fix a future purchase or sale price today, in order to reduce uncertainty. An option can offer a form of protection whilst retaining some flexibility should the market move favourably. These instruments do not eliminate commercial risk, but they do help to transform it into a more clearly identified cost.

According to published data, numerous Vietnamese sectors are cited as being exposed: rice, coffee, pepper, rubber, cashew nuts, seafood, textiles and energy. The ministry also notes that companies in the agriculture, energy, aviation and industrial raw materials sectors are already using derivatives in other countries to stabilise their costs and operations.

The volumes involved show why the issue is becoming a political one. On the Vietnam Commodity Exchange, trading volumes are reported to have risen from around 58,900 contracts in 2019 to over 1.14 million contracts in 2024, with a projection of around 1.54 million contracts in 2025. The average notional value of transactions is expected to reach around 7,500 billion VND per day. The portfolio is expected to cover around 38 commodities and more than 40 types of contracts in the energy, metals and agricultural sectors. These figures reflect a shift: as hedging becomes commonplace, the law must provide a framework for clearing, margins, supervision and transparency.

Reference prices, clearing, margins: what legislation can actually safeguard

Legislation on derivatives does not bring down the price of coffee, gas or steel. Rather, it regulates the market in which businesses can protect themselves. The Vietnamese draft bill aims to cover both centralised transactions via commodity exchanges and over-the-counter (OTC) transactions. It sets out to clarify market participants, clearing and settlement, risk management, disclosure of information, transaction supervision and transactions involving a foreign element.

This terminology may seem abstract to an SME. Yet it lies at the heart of market confidence. Central clearing aims to reduce the risk that a counterparty will fail to honour its commitments. Margin requirements oblige participants to pledge collateral to absorb adverse price movements. Real-time monitoring and rules against market manipulation seek to prevent benchmark prices from being distorted. Without these building blocks, a company seeking to hedge its position may find itself facing a market that is opaque, costly or difficult to audit.

The Vietnamese project also stems from an operational observation: some markets remain fragmented and there is a lack of reliable reference prices. For an exporter or processor, the absence of credible reference prices complicates planning. How can one negotiate an annual contract with a client if one does not know on what basis to adjust prices? How can one budget for purchases if one is reliant on scattered or unrepresentative quotations? Price transparency is therefore not a mere technical detail; it influences margin setting, cash flow and the ability to explain one’s figures to a board of directors or a financier.

The proposal also refers to physical deliveries: where a derivatives contract results in an actual delivery, the handover of the goods, the transfer of ownership, import, export and specialised procedures would continue to be governed by existing laws. This is an important distinction. The derivative is used to manage price; it does not replace the customs, logistical, contractual or sector-specific rules governing the goods themselves.

In Switzerland, no single ‘shield’, but a duty of due diligence

Based on the sources available here, Switzerland has not announced any legislation comparable to the Vietnamese draft specifically targeting commodity derivatives for all businesses. The Swiss framework operates differently: it imposes requirements relating to governance, internal control, financial reporting or risk management, as appropriate.

The Swiss Code of Obligations stipulates that companies subject to ordinary audit must provide information on risk assessment in their annual report, in accordance with Article 961c of the Swiss Code of Obligations. These companies must also be able to demonstrate to the auditors the existence of an internal control system, in accordance with Articles 728a and 728b of the Swiss Code of Obligations (CO), and the auditors must submit a written report to the general meeting. The thresholds cited by the Confederation’s SME portal are clear: the standard audit applies to companies that exceed two of the following three thresholds for two consecutive financial years: a balance sheet total of CHF 20 million, a turnover of CHF 40 million and an annual average of 250 full-time employees.

For an SME below these thresholds, this does not mean that the management of raw material prices can be improvised. It simply means that the formal legal requirement is not the same. In practice, banks, investors, major clients and management bodies increasingly expect a structured assessment of risks. An unexpected rise in the price of a raw material can turn a profitable offer into a loss-making contract. A sharp fall can also pose a problem if the company has purchased too early, built up expensive stock or agreed to rigid price commitments with its suppliers.

Certain Swiss sectors are, moreover, subject to more direct regulation. The Ordinance on Financial Institutions, which came into force on 1 January 2020, requires securities firms to have an appropriately organised risk management framework and effective internal controls, in particular to ensure compliance. In the electricity sector, the Ordinance on Electricity Supply stipulates that distribution system operators must define, implement and document structured procurement strategies to protect themselves against market price fluctuations. These examples do not cover the entire economy, but they point the way: document, manage, monitor.

Hedging does not begin with a financial product

For a Swiss company, the first step is not necessarily to purchase a forward contract or an option. Hedging often begins with a simple analysis: which raw materials really influence the cost price? What proportion of the total cost do they account for? Which customer contracts allow a price increase to be passed on? Which suppliers impose variable prices or long lead times? This analysis must be proportionate to the size of the company, but it must be precise enough to guide decision-making.

Contractual clauses play a central role. An indexation clause may stipulate that the price changes in line with an agreed benchmark. A renegotiation clause may open the door to discussions when the market moves outside a reasonable range. A pricing formula may share the risk between supplier and customer. These mechanisms must be drafted with care, as a poorly defined clause can create more disputes than it resolves. The choice of index, the frequency of adjustments, supporting documentation, notice periods and exceptions must be reviewed on a case-by-case basis.

Diversifying suppliers is another prudent approach. Whilst it does not guarantee better prices during periods of global tension, it reduces dependence on a single counterparty, a single region or a single mode of transport. Inventories can also cushion the impact of a price rise, provided they do not tie up too much cash or increase the risk of obsolescence. As for derivatives, they can be useful where exposure is significant, recurring and well-measured. However, they require expertise, internal limits and correct accounting treatment. A poorly understood hedge can become an additional risk.

Finally, monitoring must be regular. In an SME, this can take the form of a monthly dashboard linking purchase prices, margins, open contracts and current commercial offers. The key is to link market monitoring to concrete decisions: adjusting a quotation, revising a clause, securing a quantity, renegotiating a deadline, or deciding not to hedge because the cost of protection appears disproportionate.

The Vietnamese project highlights a broader trend: commodity markets are becoming increasingly financialised, structured and regulated. Swiss SMEs do not necessarily have to adopt the tools used by large corporations, but they would be wrong to treat volatility as a one-off occurrence. In an environment where prices can rapidly affect profitability, genuine protection begins with clear governance: knowing what one is buying, what risks one is exposed to, who makes the decisions, within what limits, and with what documentary evidence.