Home    Practice    Solutions for Vietnamese agro-products to participate in the global value chain
Tuesday, 24 October 2017 09:08
1664 Lượt xem

Solutions for Vietnamese agro-products to participate in the global value chain

(LLCT) - The renovation and completion of mechanism as well as the business environment have initially established the capability of Vietnam’s agro-products to take part in the global value chain. The accession to WTO and bilateral and multilateral economic integration have given way for Vietnamese agro-products to integrate into the global market. The policies on agriculture, commerce, science-technology have been issued and implemented, contributing to improve agro-products productivity and quality, processing value as well as export value. Vietnam’s agro-products have seen a higher position compared with those of other countries.

1. Results of the participation of some of Vietnam’s agro-products in the global value chain

Currently, Vietnam’s agro-products are exported to more than 100 countries worldwide, and their export turnover has been increasing year by year. In terms of global market share and ranking among exporters, several of Vietnam’s agro-products account for a big share and hold high ranking. For example, Vietnam’s cashew nuts take up to 38.23% of global market share - thus being ranked the biggest market share holder; pepper, 25.18% (1st rank); rice, 18.12% (2nd rank); coffee, 8.23% (2nd rank); natural rubber, 3.23% (4th rank)(1).

According to a research on the ability to participate in the global value chain, in Research and Development (R&D), 38.68% of participants surveyed evaluate rice as good while 30.17% think it is fairly good; for coffee, the corresponding percentage is 34.84% and 29.9% respectively.

With regard to production, for rice, 41.94% of people surveyed think rice has a fairly good capability for participation, 37.43 % assess its capability as good. For coffee, the equivalent percentage is 24.41% and 42.13%.

In processing, the percentage assessing rice at good level is 41.32% and 31.89% at average level. For coffee, the percentage is 37.80% and 23.62%, respectively.

In distribution, the percentage for rice as good and average is 35.82% and 39.40% respectively; for coffee, it is 37.01% and 36.22% respectively.

The service is assessed to be at lowest capability(2).

Some Vietnamese agro-products and several particular value chains of Vietnamese enterprises have taken part in the global value chain. Vinacafe coffee chains, Binh Thuan dragon fruit chain and chains of FDI entrepreneurs such as Néscafe, Metro, etc, have brought Vietnam’s agro-products to oversea retail outlets. Especially, in the coffee consumption in the domestic market, the recent significant growth has proven the positive results of strategic marketing campaigns from big brands such as Highlands Coffee, Gloria Jean’s, The Coffee Bean & Tea Leaf, Trung Nguyen and Illy.

Though Vietnam’s coffee has not been able to establish strong international brands yet, some enterprises have initially reached out to the international market. Besides, more and more multi-national companies have expressed their concerns and invested in the coffee industry of Vietnam, contributing to increase its capability to participate in the global coffee chain. More and more Vietnamese exporters have participated in the programs for sustainable coffee development.

The renovation and completion of mechanism as well as the business environment have initially established the capability of Vietnam’s agro-products to take part in the global value chain. The accession to WTO and bilateral and multilateral economic integration have given way for Vietnamese agro-products to integrate into the global market. The policies on agriculture, commerce, science-technology have been issued and implemented, contributing to improve agro-products productivity and quality, processing value as well as export value. Vietnam’s agro-products have seen a higher position compared with those of other countries.

Besides the initial successes, there remains shortcomings to be overcome. Specifically, the capability for participation in the global value chain is still limited. Small-scaled production makes it difficult for mechanisation, resulting in low productivity and inconsistent quality. Most of farmer households lack market access capability, their work is based on experience and subjective calculations.

Vietnam’s agro-products have just participated in several stages such as planting, collecting and preliminary processing and raw materials export - the chains with lowest added value. In stages with high added value like R&D, processing, distribution (retail) and marketing, we still fail to have an active participation, or the participation, remains low.

In agricultural production, farmers are still suffering many disadvantages. A research jointly conducted by OXFAM and Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD) in An Giang shows that among the three elements in the export value chain (farmers, middlemen and exporters), farmers have to pay highest expenses (63%), the other two just account for 37%, yet when it comes to profits, the corresponding percentage that they make are reversed. “In the rice production and export chain, the parties that gain most profits are fertilizers and plants protecting chemicals suppliers, rice export coordinators, followed by purchasing and export enterprises and middlemen. They normally take more than 70% of gained profits while farmers can only have less than 30%”(3). For coffee value chain, farmers just gain about 10% of profits in the overall added value of the product(4).

The collection, processing and consumption of agro-products are incomplete and unsustainable with many levels of middlemen. Farmers mostly sell products to middlemen and purchasing agents. In addition, the technical regulations and procedure for collection and processing are not strictly followed, resulting in low quality and cheap price.

In consumption (export and retail distribution), the brand setting-up and development of agro-products remains limited. Besides, the maintenance, development and protection of agro-product brands are facing many difficulties due to brand stealing or the Vietnamese products brands have been registered overseas. (For example, Trung Nguyen coffee brand has been registered in some states of the USA, or Central Highlands coffee has been registered in China).

The thinking on state management and business administration in accordance with the value chain model is still limited. Up to now, few strategic planning policy-makers on agricultural development and trade can fully understand the global value chain and the necessity of our participation. Agro-products export enterprises of Vietnam mostly use FOB price, seeking commercial contracts and implementing them in the mode of reverse deduction (meaning that deposit is paid before products are collected and delivered, and then the price is confirmed); export partners are not stable, and there are few long-term contracts. Despite the fact that Vietnam agro-product’s export turnover accounts for nearly US$20 billion a year, and some products are world-leading exports, there remain hundreds of competing exporters, resulting in Vietnam’s limited role in the market and the price.

2. Some solutions to promoting the participation of Vietnam’s agro-products in the global value chain.

Firstly, science and technology solutions.

Agro-product value is not only generated by farmers but also contributed by their scientific-technological content. The scientific-technological content in a product not only affirms the brand but also works as a criterion to define the developmental level of each country. To this end, the following measures should be taken into consideration:

The State should encourage universities, research institutes and scientists to create more high-quality scientific and technological inventions for agriculture.

Priority should be given to researches on biological technology to create more high-quality, high-yield, disease-resistance floral and fauna breeds, thus ensuring Vietnamese agriculture’s integration. These new breeds should meet diversified demands of customers. Biological technology should focus on food safety and maintain a clean and sustainable agricultural environment.

The duration from invention to application and across-the-board application should be shortened. This will save a lot of time and money while making timely use of current inventions. The intangible depreciation in agriculture will be minimized.

International cooperation in scientific research should be strengthened. The State should have clear-cut targets and strategies for technological transfer in agriculture, calling for support for resources, policy planning consultancy, supervision of scientific-technological applications in agriculture.  Cooperation programs with international agricultural organizations should be set up to facilitate agricultural extension activities, contributing to hunger elimination and poverty reduction. Regional and international cooperation forums and workshops to exchange experience and information, as well as international fairs and associated training activities on agricultural science should be held on a regular basis.

Scientific and technological activies should be socialized. All economic sectors should be encouraged to do research and science-technology transfer (land rent discount, preferential loans for capital construction, permision to bid over research topics and training programs funded by the State budget). Technical advances should be well received (equipment and technology import tax exemption, favorable conditions should be created to attract experts, joint ventures and investments attached to high technology transfer). Enterprises should be encouraged to invest in technology to improve the added value in the export goods (at present, added value of agro-products exports is just 50%; according to scientists, if appropriate investment is made, this percentage can reach 70%)

Secondly, production organization solutions

Effective economic models and production organization forms should be established: the connection between farmers and enterprises, cooperatives, scientific organizations, industrial associations and consumer market should be encouraged to support the development of household economy in the direction of suitable-scale poultry farming or ranching.

Household economy should be developed in the direction of specialization and large-scale production thanks to favorable conditions such as land regrouping, landlease, and scientific and technological application. Sectors specialized in specific products and materials for processing and export should be set up.

Industrial associations should be organized to link households, farms, and small traders, and support them to increase production scale, improve management and agricultural investment efficiency, strengthen the production link between farm households, enterprises and the market.

Mechanism and agricultural policies should be continuously reformed.

Land policies should encourage and support farmers to follow the planning of land and production to form specialized production zone, facilitating investment in infrastructure, science - technology for large-scale agricultural production.

For policies on capital, finance and credit: the financial policies should be completed, people’s credit fund established to mobilize available capital among the public; loan procedure should be reformed for better access, longer loan term, suitable for production and trading circle of agro-products. Business mechanism and legal framework should be transparent to attract investment resources from all economic sectors and non-governmental organizations. Financial sources should be combined under the principle of joint work between the State and the people; the system of shops providing fertilizers, equipment, breeds and purchasing shops should be established at communal and regional levels.

Credit service for farmers should be improved by extending time of payment so that they can access further loans for continued production, buying new breeds, and applying new technologies. Credit should be closely attached to agricultural extension while loans should be attached to the support of capital management and technological application in production.

Agro-product processing units should be set up.

Rural infrastructure, especially the electricity system for production, the systems of transportation, communication, water supply and sewage, should be improved to encourage agro-product processing enterprises to set up branches in localities, supporting farmers during harvest time.

Farmers should also be encouraged to jointly invest in the modern chain of agro-product preliminary processing to preserve product quality; to establish cooperative production and service form of operation, in which farmers contribute capital and organize preliminary processing, maintain equipment and allocate reasonably services among households. In the long run, the State should plan and develop the preliminary processing and preservation infrastructure so that farmers can rent them for temporary warehouses or preliminary processing places.

Thirdly, agro-product trading solution

Trade promotion and provision of market information should be intensified.

The information system should be completed with information on the business environment, distribution system, domestic and international agro-product prices, short-term and long-term forecasts, providing full access to available information for people and entrepreneurs.

Two-way information channels should be set up, linking information from leaders to producers, merchants and consumers. Market information should be popularized; industrial organization, production targets, commercial promotion strategies, crop forecast should be renovated, closely linking the State and the private sector.

Investment should be made to building a contingent for market information and forecast. Market information activities should be regularly organized (conferences on industry forecast, market news, TV and radio channels on market, etc); information should be provided timely, fully and accurately to farmers as well as enterprises in the value chain of industries.

Investment should be made in establishing agro-product trading floors, linking directly strategic specialized areas (rice in Mekong River Delta, coffee in the Central Highlands, etc) with commercial activities in key international markets. Risk management measures following the market mechanism should be taken, such as  insurance, construction of warehouse systems, application of modern transaction forms (bidding, scheduled delivery, e-commerce, and so on), reducing the risks to the minimum level, and avoiding risks caused by market fluctuations.

The system of distribution, logistics, and supporting services for agro-products should be quickly developed.

Several large distributors should be focally developed to be capable of competing in domestic market and gradually in international markets, including both retail and wholesale systems. Apart from improving the competency of big corporations such as Vinacafe, Vinatea, Vinafood, some agro-products markets  such as rice, coffee, pepper and cashew nuts should be launched in the coming time. Once the trading floors go into operation, term contracts will be signed, improving the Vietnamese agro-products’ capability of participation in the global value chain. Logistic enterprises should be quickly developed to reduce business cost as well as to improve the efficiency of both producers and enterprises, facilitating the participation in the global value chain. The State should support enterprises in building modern warehouses and silos to store products during the peak harvest time.

Fourthly, the close link between farmers and enterprises should be consolidated; the brands and trademarks of Vietnam’s agro-products should be promoted

The cooperation between farmers ad enterprises should be fostered, creating a close and long lasting association, forming a modern value chain. In this modern value chain, profits from final products are shared reasonably and equally among parties.

The close link between participants in the program for building brands for agro-products should be created with the following elements: the State, scientists, farmers, middlemen, processing factories and rice export enterprises.

To make this link work sustainably, the State should devise a suitable mechanism to encourage and create motives for all parties to work at their best functions and roles while creating a legal corridor that requires their observation. Only by that way can the link become stable, long-lasting and effective. In addition, the State also should expedite the planning, forming focused and specialized agro-products zone, attaching materials production to processing industry and the market; guiding, controling and supervising all program participants.

For scientists, it is necessary to research on disease-free high-quality breeds, and guide farmers to plant, take care of, harvest and preserve them in a correct way.

For farmers, their production should follow scientific instructions in production, harvesting, preservation and the stipulated terms of the contracts signed with processing factories.

For processing factories, they should purchase agro-products or provide post-harvest preserving services for farmers.

For agro-product export enterprises, they need to register the product brands with domestic and international authorities, and actively promote these brands, especially in markets which require high-quality products such as Europe, America and Arab countries. Simultaneously, due attention should be paid to packaging, pre-, during and after-sales services.

______________________

 
l Endnotes:
(1) General Department of Statistics: Annual Statistics 2014, Hanoi, 2015.
(2) Dinh Van Thanh: Improving the competitiveness of Vietnam’s agro-products in global value chain, State-level project, 2010.
(3) Prof. Vo Tong Xuan (2011): A research on application of agro-products production and consumption value chain, Online Tia sang Magazine, June 22.

 

Dr. Ho Thanh Thuy

Institute of Political Economics

Ho Chi Minh National Academy of Politics

Related Articles

Contact us

Links