Hurdles and harvests: Vietnam’s agricultural outlook

By VnExpress   January 21, 2017 | 04:28 pm GMT+7
Hurdles and harvests: Vietnam’s agricultural outlook
A farmer pumps water to a rice paddy field in Tien Duong village, outside Hanoi. Photo: Reuters

The government is seeking ways to consolidate and scale-up agricultural production.

Agriculture is one of Vietnam’s economic mainstays with the sector accounting for 17 percent of gross domestic product in 2014. The sector also currently employs nearly half of the country's workforce.

However productivity growth in the sector has been slower than most countries in Southeast Asia since 1990, said industry experts, who blamed the slowdown on the fact that the sector has long relied on high intakes of labor and capital to maintain its momentum.

There are many constraints, according to the Vietnam Chamber of Commerce and Industry (VCCI) in a 2015 survey.

More than half of those surveyed said they made extremely low profits, while about 40 percent either suffered losses or just broke even, and only 9 percent reported profits as high as expected.

According to the survey, which analyzed about 700 agribusinesses across the country, those constraints ranged from small-scale farming to limited access to credit.

Small scale farming threatens growth

The small scale of most Vietnamese farms makes it difficult for agribusiness to make the most from local production.

Government statistics show that 75 percent of farmers in the Mekong Delta’s An Giang province, which is one of the country’s largest rice-growing areas, are cultivating less than one hectare (2.47 acres) of land.

Experts say it requires more than 3 hectares of farmland to maximize productivity and remain profitable.

“Instead of dealing with one large producer, as is often the case in Western countries, companies operating in Vietnam have to deal with multiple small landholders,” Nguyen Van Khai, chief executive of Pan Group, an integrated agriculture and food manufacturer, told Oxford Business Group.

“If you are dealing with 300 hectares in Vietnam, you have to work with 300 people,” Khai added.

Small-scale farming has become a costly hurdle to the overall efficiency of agricultural production.

For instance, post harvest losses in the Mekong Delta, also known as Vietnam’s rice bowl where nearly half of the country’s rice is grown annually, are estimated to be as high as 25 percent each year. To put the figure in perspective, Vietnam could lose about VN25 trillion ($1.1 billion) per year due to post-harvest losses.

Besides, statistics show that farmers in the Mekong Delta utilize about 100,000 tons of pesticide and more than 2 million tons of fertilizes each year. Scientists say that these figures could be cut by half with large-scale farming.

Limited access to credit

Agribusinesses make up only 1 percent of all businesses in the country, according to the General Statistics Office. 90 percent of the 3,600 businesses involved in the agriculture sector are micro- or small-sized, while 50 percent have registered capital under VND5 billion ($220,000).

Meanwhile, farmers have only received lukewarm support from the government. The Institute for Policy and Strategy of Agriculture and Rural Development (Ipsard) cited data from the Organization for Economic Cooperation and Development as saying that Vietnam spends only 7 percent of its budget for agriculture on direct subsidies, compared to 55–60 percent in Japan and South Korea.

Plus only about 1 percent of foreign direct investment is flowing into the agricultural sector, said Ipsard.

The Vietnamese government has pushed banks to lend more to the agricultural sector with the hope that with a steady increase in credit, productivity will also grow.

Credit growth in the agricultural sector rose steadily by 17.4 percent from 2010-2015, close to the average growth in the banking sector of 13.39 percent, said the central bank.

Official data showed as of September last year, commercial banks had lent VND925 trillion ($40.7 billion) to agribusinesses, a 13.43 percent increase from the year before, accounting for 18 percent of the total outstanding loans in the country.

However, higher farm credit has not necessarily helped needy farmers, said economist Vo Tri Thanh.

The economist pointed to the gap between credit growth and the agricultural sector’s productivity. Given the steady increase in credit, productivity should have also increased, but this has not been the case.

A survey of Indonesia, Thailand, Malaysia, the Philippines and Vietnam found that when credit grows 1 percent, the average growth of the agriculture sectors in these five countries stands at 0.13 percent, Thanh said.

According to an estimate, Vietnam’s agricultural production growth has fallen over the past three years. The agriculture sector even recorded negative growth of 0.7 percent in the first half of last year, according to the Ministry of Agriculture and Rural Development, after taking a hit from adverse weather conditions.

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