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Diversifying forms of partnership, overcoming limitations of farmer household economy in integration

(LLCT) - After 30 years of renovation, Vietnamese agriculture has gained enormous achievements: ensuring national food security, increasing exports, and making Vietnam one of the world’s largest exporters of farm produce. The farmer household economy has constantly grown and has become an important driving force behind agricultural growth and development of the rural economy. Part of farmers has become commodity producing households and expanded the scope of their production and brought about high economic profits. However, due to their limited production scopes, conditions and capabilities and issues related to mechanisms and policies, a large part of farmers is still faced with difficulties in producing and living.

1. Realities of the farmer household economy and existing models of partnership in Vietnam 

A common difficulty facing the farmer household economy has been small sizes. The average area of farm land per household nationwide is low, at below 0.5 hectare. 35 per cent of households have less than 0.2 hectare of farm land. Small-scale production custom remains rather common. Production and business are spontaneous and isolated. Commodities are mainly for domestic consumption needs. Productivity, quality and effectiveness are low. Incomes from agriculture of most farmers are not sufficient to support their lives. Although Vietnam has farm produce surpluses and export is considered to be one of its strengths, Vietnamese farm produce is still at a disadvantage compared to that of other countries. Although some of its farm produce exports are the largest or among the largest of the world in quantitative terms, they have lower quality and values, thereby being at a disadvantage compared to commodities of the same kinds exported by other countries.

In Vietnam, there is basically a lack of connectivity between farmers and entrepreneurs, or connectivity has mainly been piloted on a small scale or of a spontaneous character. Therefore, Vietnamese agriculture has always been uncompetitive when trade agreements have taken effect or are going to do so. Compared to large-scale farms closely connected with prestigious groups, Vietnamese farmer households, which are small, isolated and spontaneous, do not have reputation for their commodities yet and lack competitiveness in world markets.

Given the fact the farmers are unable to promptly adapt themselves to changes in world markets, the State needs to increase support for farmer households so they can access information and orient their production to keep up with trends in the market. At the same time, the State needs to intensify trade promotion and build and promote brands.

At present, although the percentage of small-scale farmer households remains high, the number of medium- and large-scale households is on the rise with the establishment of farms and especially some large-scale specialized agricultural areas providing materials for processing and export industries, for example rice, shrimp, shark catfish and fruit tree growing areas in the Mekong River Delta, coffee, cashew nut, rubber and black pepper growing areas in the Central Highlands and Eastern region of the South, tea farming areas in Northern mountainous regions and in Lam Dong, and milk cow raising areas in Son La and Nghe An. These concentrated agricultural production areas are conducive to the establishment of various forms of partnership between farmer households and businesses.

In Mekong River Delta provinces, large-scale paddies are an effective model, which is manifested in production and sale, and have brought forth benefits for both businesses and farmers. For instance, for farmer households participating in large-scale model paddies in An Giang, their rice output for the 2013-2015 period increased by between 20 and 50 per cent and they earned an extra of VND 7.5 million per hectare. For export businesses, because they have mastered production processes and have brought rice quality under control, they have become more competitive when negotiating prices of exported rice with their foreign partners. Due to the above-mentioned advantages, large-scale model paddies have been multiplied nationwide so the household economy can proceed to large-scale commodity production. The implementation of this model has helped to consolidate farm land, mechanize production according to quality standards, increase productivity and reduce costs. Also, it has provided foundations for the establishment of contract-based partnerships between farmer households and businesses. Businesses participate in the supply of seeds is An Giang Plant Protection Joint Stock Company, in the supply of fertilizers and crop protection chemicals is Binh Dien Fertilizer Joint Stock Company, and in the purchase of rice is Gentraco Joint Stock Company. 

The value chain model is also another form of partnership characterized by the closed system of production, processing and sale (export). This model is conducive to higher efficiency when the benefits of the entire chain and its individual elements increase. Over the last years, there have been several successful forms of partnership, such as the Mekong River Delta export rice value chain, export shark catfish areas jointly organized by Hung Vuong Seafood Joint Stock Company and An Giang Seafood Import and Export Joint Stock Company, production and supply of sugarcanes by Lam Son Sugarcane Joint Stock Company, and seafood farming, processing and sale in Nghe An. The application of the above partnership models have overcome smallness, isolation and spontaneity in production and difficulty in sale, has strengthened joint responsibility, has fostered production according to quality standards, has stabilized sale, and has increased productivity, added values and farmer households’ incomes by 20-30 per cent.

However, besides the achievements, there are still some shortcomings. For example, partnerships are of a small scale, or unsustainable, or take time or are difficult to multiply. The internal strength of famer households remains poor. There is no mechanism for linking the responsibilities and interests of relevant parties. As for the model of large-scale paddies, although some famer households have signed contracts with businesses and have received advances from them, they still sell produce to other businesses for higher prices at times of market instability. Some processing or export businesses do not respect product purchasing contracts or do not buy at the prices on which they have agreed. In the realization of the large-scale model paddies, businesses serve as investors who provide input support, buy up produce and manage quality, so they need considerable funds. Nevertheless, because there is no mechanism for providing encouragement or support for businesses, it is hard to multiply this model.

As far as the exported farm produce value chain model is concerned, there is a lack of mechanisms for linking the responsibilities and interests of players. There are still some intermediary forms. There is a lack of the role of key players. State-owned enterprises authorized as export hubs still do business using traditional methods or only aim to achieve their targets or quotas. They have failed to seek or expand markets or adjust production to trends in consuming high-quality farm produce. As a result, for a long period of time, Vietnamese farm produce has been sold at low prices, affecting the benefit of the entire chain as well as that of farmers. The role of the State in assisting and fostering partnerships remains indistinct. There are no mechanisms for encouraging businesses to invest in agriculture and rural areas.

2. Solutions for improving partnership models               

Firstly, land policy obstacles must be continuously removed so farmer households can expand their production to a scale large and competitive enough to ensure their production and increase their incomes. 

This is a fundamental premise for shaping new-style farmer households. Let’s consider the examples of the impact of the sizes of farmer households on productivity, incomes and added values of three types of households involved in large-scale model paddies in 2014 in An Giang province. As regards productivity, small-sized households achieved 5.9 tons per hectare, medium-sized households 6.1 tons per hectare, and large-sized households 6.3 tons per hectare on average. Regarding incomes, small-sized households earned 8.5 million VND per hectare, medium-sized households 11 million VND per hectare, and large-sized households 11.8 million VND per hectare on average. 21 per cent of small-sized households, 23 per cent of medium-sized households and 25 per cent of large-sized households participated in the added value chain.

Obviously, household sizes have a major impact on the household economy. Therefore, it is necessary to adjust land relations to requirements for the restructuring of the economy and labor force and overcome the situation where farmers have land but do not earn enough from it and where part of farmers must leave their villages for other places to earn a living, thereby leaving their land uncultivated. It is important to recognize the value of land use rights as a type of asset, convert these rights into capital, gradually reduce administrative intervention, reallocate the use of land reasonably so farmers have enough land for production, give rise to a generation of farmers who are professional and creative at work and know how to enter into cooperation and partnership in replacement of the generation of farmers who mainly rely on familial succession and personal experience. To that end, there must be specific regulations concerning the development of agriculture in such a way that specialized farming areas are established in light of the market; those which plan the use of land; those concerning the increase of household sizes; and those on land transfer conditions and transferees. Taxes on the transfer of land use rights must be issued when the land in question is excessively large. Redistribution of land should be organized when necessary. Illicit transactions and speculation must be prevented. The State should provide support for people who take vocational training, who change their careers and who are under special circumstances.

Secondly, partnership models need to be further improved

As for the large-scale model paddies, businesses are to serve as investors and organizers of production, apply scientific and technological advances, and be responsible for consumption markets while farmers are to function as contractors, focus on following businesses’ instructions, adhere to quality standards, and receive partial compensation for initial capital construction costs. Agricultural business differs from industry and services in that production cycles are long, crops are vulnerable to natural disasters and diseases, profitability is low, and farm produce markets keep changing. Therefore, for sustainable development and multiplication of the large-scale model paddies, the State needs to introduce policies aimed at encouraging businesses to invest in agriculture through prolonging land rentals, reducing corporate income taxes, reforming administrative procedures and timely solving investors’ difficulties or questions.

As far as connectivity within the value chain is concerned, there must be tighter bonds between its players. There are three issues which need to be addressed. Firstly, the responsibility of these players must be determined through establishing and agreeing on contractual relations where their responsibilities and interests are determined in an equitable, public manner and where there are less intermediary players. Secondly, key players must be selected. These players are often processing (exporting) businesses in charge of some administrative functions of the entire chain: drafting and agreeing on contracts; seeking market-related information; setting quality standards for importers; seeking, selecting and expanding markets; negotiating prices; and building and promoting brands. Thirdly, there must be mechanisms for managing inputs such as seeds, fertilizers, pesticides and cattle feed... In the short run, it is necessary to perfect solutions; seek and select prestigious suppliers and manufacturers; encourage investment (especially joint ventures); and manage distribution (particularly at agents). In the long run, there must be road maps and steps for local production of some products such as seeds, fertilizers and cattle feed, so these products will always be available and input costs for farmers will be reduced.

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1. Department of Crop Production of the Ministry of Agriculture and Rural Development: Conference on Summarizing the implementation of the large-scale paddies movement 2011-2012, Agriculture Publishing House, 2013.

2. Nguyen Cuc: State policies for farmers amid the realization of WTO commitments.

3. Vu Trong Khai: Large-scale paddies and contract-based production, the Economic Studiesjournal, issue No. 10-2012.

4. Dao The Anh: Research on the Mekong River Delta rice chain value, the Science and Technologyjournal, issue No. 7-2013.

5. The Department of Agriculture and Rural Development of An Giang province: Report on Agriculture and rural development 2013 - 2014.

Assoc. Prof., Dr. Nguyen Manh Hung

Nguyen Tat Thanh University, Ho Chi Minh City

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