Vietnamese farmers are not clueless, but their game is rigged

By Lam Trong Nghia   March 22, 2019 | 04:50 pm GMT+7

Farmers are at the receiving end of asymmetric information in an imperfect market, and this needs to change.

Agriculture expert Lam Trong Nghia

Agriculture expert Lam Trong Nghia

After graduating from college in 2009, I have spent most of my time working in the fisheries bureau of the agriculture department in Dong Thap, a Mekong Delta province. Where I work, Tam Nong District, is one of the places chosen for piloting a project to reform the province's agriculture sector. My work means I met a lot of farmers, and can see firsthand the hardship they are put through to create the food we eat.

These days, prices of paddy in the Mekong Delta have fallen sharply and what has happened with the tra fish is no better, with prices dropping steadily over the past month.

I get upset when some people say that all this happens because farmers do not take care to learn about market demand and thus cultivate more produce than needed.

This argument is not correct. Farmers these days are much more aware. Bui Van Hoa is an example. In his 40s, Hoa has 20 years of experience in growing snakehead fish in Tam Nong.

Hoa says he always studies market trends through the media and the internet every time he starts a new season. "I raise the new breeds and calculate the time to harvest the fish when it is not in season so that I can get higher market prices," he says.

In 2016, Hoa earned more than VND1 billion ($43,000) in profit from a snakehead farm of two hectares (5 acres).

And Hoa is not the only one. There are more farmers like him in Dong Thap. They not only know how to gather information from different sources on the internet but also organize clubs where they meet and discuss market trends.

Those clubs are an idea that local farmers came up with on their own. Every week, those that cultivate the same produce get together at least once to share information, analyze the market and their plans. Indeed, at all the farms I have been to, I could find no farmer who was too lazy or too passive to arm themselves with updated information.

But one thing is undeniable: stories of farmers losing crops and suffering losses can be found almost everywhere across Vietnam. Figuring out prices and market demand for agricultural produce has always been a tricky task for farmers, despite their work contributing the most to the country’s success in international markets, as well as in meeting domestic food needs.

So Hoa is not a superman. The profit he earned in 2016 could not make up for the loss he suffered in 2017, when prices of snakehead fish dropped by VND10,000 (43 cents) to VND28,000 per kilo.

There are several reasons for this.

Firstly, all information about the farming sector is not shared widely, fully and accurately. Even if they spend the whole day searching and reading on the internet, people like Hoa can only see a part of the whole picture, not to mention receiving inaccurate information from unreliable sources.

Secondly, troubles like natural calamities and epidemics, which are also factors in the demand and supply balance, have become more and more unpredictable.

Lastly, complicity between traders and companies to distort the market price when they work with farmers have a lot to do with the distress that the latter suffer.

Farmers harvest fish in Vietnams Mekong Delta. Photo by VnExpess/Hoang Nam

Farmers harvest fish in Vietnam's Mekong Delta. Photo by VnExpess/Hoang Nam

If the market is perfectly competitive, the price will stay balanced based on the interaction between supply and demand. In this basic economic scenario, the right price is determined when the quantity supplied is equal to the quantity demanded. 

The supply-demand rule has been, for a long time, pinned as the major reason for agricultural prices hurting farmers in Vietnam. Throughout the nation, at forums, conferences to daily talks with farmers, the supply-demand rule is mentioned more than once. And while this is not wrong, it’s not enough to explain why it is so difficult to predict prices of agricultural produce in the country.

A more important reason, in this case, is because Vietnam is yet to have a perfect market for agriculture. There are many failures that render the market mechanism inactive and case prices to be pulled away from the equilibrium point.

One such failure is asymmetric information, a situation in which one party to an economic transaction possesses greater material knowledge than the other.

We can verify this theory by applying it to the case when farmers chopped down their dragon fruit cactuses last year.

While local firms could not find raw material, farmers had to accept selling their dragon fruit to traders at very low prices for export to China. It is obvious that "demand" was still very high, but "supply" was redundant. Traders, as buyers, knew more about the market and the distributors, so they were able to set up a wide and sustainable consumption network. Farmers failed, despite trying to get updated information. They were disadvantaged right from the beginning.

In such instances, the government has to show what it can do. As an outsider able to look at the whole picture, and with tools like policies and regulations in its hands, the government can save the agricultural market for the farmers, in particular.

Independent market analyzing centers should be established in each locality to save farmers from one-sided information. These centers should collect and analyze data inside and outside the local market and make forecasts about short and mid term market trends. Market predictions should be coherent and easy to access.

A model of such a center was established last year in Dong Thap, bringing together a group of experts and insiders. This group provides farmers with updated information and analysis, and their contributions have received positive feedback. 

For now, it's hard to say that the scenario of farmers enjoying a good harvest but not being able to sell their produce will not be repeated. The agriculture market is still far from perfect, and solutions to improve this situation lie in the hands of relevant state agencies.

If farmers get valid, credible information and other forms of support that prevent their being in a disadvantaged position from the get go, they will gain confidence about making cultivation choices and deciding their own fate.

And this will decide our fate as a nation as well.

*Lam Trong Nghia is an agricultural expert working in the Mekong Delta province of Dong Thap. The opinions expressed are his own.

 
 
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