Nov 9, 2012

Vietnam - Resources from agricultural drained

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VietNamNet Bridge - Land is scarce in Vietnam. It is a valuable asset and a fundamental part of the national wealth. The market value of land increased rapidly in recent decades.

As mentioned, the value of land depends on the production capacity of the land (which is exploited by farmers), the quantity and quality of the infrastructure system and agricultural support services. The Government plays a key role in supporting more investment in agricultural activities.

Plentiful references in the World Development Report 1994 and 2009 emphasized the fundamental contribution of infrastructure and agricultural support services to growth and development, especially in the rural areas.

Improvements in quality and access to infrastructure services reduce costs in connecting producers with consumers, providing social service and landscape for the majority of the population. Reducing the cost of connection promotes trade, finance and distribution network. This helps to expand opportunities for businesses, create income and wealth.

These reports explain why the location (being defined as a specific location in geographic space) is valuable and the economic and social forces make this value change over time. Specifically, the reports focused on "economic supply of land" in economic development and growth. By doing so, the reports identified how the public investment to expand infrastructure and improve the rural landscape enhance the value of land for farmers and rural communities, while increasing wealth and welfare for them.

The topic of the World Development Report 2009, "Reshaping Economic Geography," is very appropriate for the program of industrialization and modernization of the Vietnamese Government. The report indicates three factors that determine patterns of growth and development, namely: economic density, the distance (in economic terms), and the separation (in economic and social terms).

Several suggestions can be drawn when considering growth and development patterns based on the aspects of density, distance and division. Firstly, economic development itself is inherently in tune of space. Some sites usually have an advantage over others, such as markets, transit areas, seaports, airports, raw material zones and administrative centers.

Secondly, “the market determines economic context." Markets always needs time to grow and mature, but once it is formed, it can benefit from the "urban development, the mobility of human resources and strong trade ..."

Thirdly, "... human resources focus on the places of excess, not the place of shortage ..." This is also the result of the convergence effect. Knowledge and skills of a person is more valuable where there are many people with similar skills and knowledge.

Fourthly, reducing the cost of transport will enhance the benefits of specialization and expansion of production scale. These benefits promote trade and exchange between neighboring regions (or countries) than between regions (or countries) that are far from each other.

The World Development Report 2009 has many implications for policy. When economic activities tends to geographically concentrate (due to the focusing effect, the overflow effect of knowledge and skills, and the scale of economies), effective national development policies require the Government to create resources in areas with high economic density, and use them to promote the development (increasing welfare) in areas with low economic density.

This approach should be backed by "the blind space institutions" to help avoid bias between regions or locations; promoting space investment network helps connecting regions, districts; and set the spatial target interventions to encourage social and human development across the country.

Some of the trends are well on track in Vietnam. Some locations have high economic density such as Ho Chi Minh City, Hanoi, Hai Phong, Da Nang and Vung Tau. Other cities although develop but they have much lower economic density. Some revenues from the growth poles have been used by the Government to promote wider development, such as the expansion of infrastructure, particularly electricity and roads, improvement of public services such as health and education.

The third trend is stronger commercial links (internal) in Asia. Transportation costs per unit have decreased by increasing the volume of goods and removal of trade barriers.

The fourth trend is the urban areas continue to attract a lot of rural laborers. As being mentioned before, these are mainly young and qualified workers.

However, contrary to the conclusion in the report of the World Bank is Vietnam's public investment in rural areas is declining, does not match the proportion of rural population in the total population (72% in 2008) and the contribution of agriculture to GDP (18% in 2008.) For example, in 2005 public investment in rural areas accounted for only 7% of the total investment. Data from the National Assembly for 2000-2005 shows that only 9% of the state budget for "basis investment" was spent in agriculture and rural development. Foreign investment in agriculture is also very limited (only 10% of the total foreign investment).

The difference between rural and urban investment has negative effects. It reduces agricultural productivity, reduces opportunities for farmers and rural people to generate income and wealth locally, makes more serious problems of poverty, reduces the potential for urban development, industry. This also goes against the investment model in the high-growth countries. Crowded and congested cities due to the flow of migrants from rural areas increase the cost for urban development.

By a decline in resources for other areas, agricultural growth is losing dynamism. From 1990 to 2000, agricultural output increased by an average of 5.9% per year, while from 2000 to 2008 it grew only 4.2% per year. Based on the standard of "development model," this growth rate is lower than the growth rate of other key economic sectors and the whole economy in general. The sudden decline in growth is surprising when Vietnam still needs to do a lot of work in restructuring and large segments of the population still rely on the strong growth of agriculture to escape from poverty.

International experience can make this concern increased. Evidences show that (mainly in India, China and Indonesia), one of the most effective solutions to increase welfare for rural areas and reduce poverty is to expand rural infrastructure. This requires a huge investment and then the cost for operation and maintenance.

Draining resources from agriculture is a result of the growth strategy with short-sighted vision. Urban and industrial development is being driven ahead of the development of rural areas. To obtain long-term sustainable development, both regions have to develop quickly. Agricultural growth should remain strong so the distribution of labor between regions going towards voluntary trend rather than being forced due to poverty.

Because the public policy is “do rather than what they say,” there is ample evidence that agricultural development has been abandoned.

There are two highlights to prove. The first is the asymmetry in the distribution of public investment mentioned above. Secondly, the dominant role of international organizations in the financing of essential items of agriculture and rural development. Evidences can be cited from the "Agriculture and Rural Development Plan 2007" of the Ministry of Agriculture and Rural Development, with the estimate of VND4.05 trillion of which foreign aid accounted for VND1.86 trillion (46%). This rate has been increasing and will continue to increase.

At the Consultative Group meeting in Hanoi, in November 2009, donors pledged $ 2.25 billion to support the agricultural sector from 2010 to 2015. No economic sector in Vietnam that is heavily dependent on foreign aid, such as agriculture. The government can change this by rebalancing its investment objectives.

Although the basic investment in transport systems, irrigation, storage for inputs and products, processing facilities, communications, health and education will help increase net profit of agriculture, other areas should also receive support from public investment.

One of the areas is agricultural researches for applications. There are many technologies and new techniques needing to be studied and tested to determine the applicability in the conditions of Vietnam. The Government can make use of public-private partnership to provide this service. This approach will help farmers improve crop and livestock varieties and farming techniques, and make the private sector more interested in the prosperity of the agricultural sector. That will help increase the value of agricultural land and increase the income and welfare of farmers, especially women in rural areas.

Although there have been a number of scientific and technological progresses in agriculture, especially the efforts to upgrade the team of and connect Vietnamese scholars with international colleagues, research and development, as well as other fields of study, is not adequately interested in, especially when comparing with international standards.

Increased investment to improve infrastructure and other services for agriculture requires financing. The majority of the costs for the development of industrial parks are suffered by farmers who lost their land. They only get a very low compensation. Part of "land rent" is transferred to the investors as they build infrastructure from the conversion of agricultural land. It is necessary to change this mechanism to increase the value of agricultural land and stimulate farmers to invest to increase agricultural productivity.

Ho Dang Hoa, Le Thi Quynh Tram, Pham Duy Nghia and Malcolm F. McPherson

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