Agriculture plays an important role in Vietnam, helping the country maintain economic growth and food security. But the sector needs more investment in processing to boost its economic value.
The share of agriculture in the economy has been rising steadily since 2005 and is estimated at over 20% of the gross domestic product (GDP). In 2010, the agriculture sector achieved spectacular growth in export revenue, with over US$19.2 billion, up 22.6% from 2009 and 77.3% above the target. Export this year is also expected to keep the strong growth tempo. However, the sector needs practical solutions for some problems if it is to maintain sustainable development.
Little value
Vietnam boasts of being a major agro-product exporter in the world, with many agro-products ranked in the list of top ten. The country has secured the first position in pepper and cashew nut export, the second in rice and coffee, the fifth in rubber and the ninth in tea. However, Vietnamese farmers and businesses have earned little from the products. Export prices have increased 10-30% year after year but profit has not kept up with the growth tempo.
According to the General Statistics Office, Vietnam’s agro-product exports have increased steadily owing to the rising prices. However, the price rise is also a cause of concern, as businesses pay little attention to increasing the value of the export products.
Take cashew nut export as an example. Since 2006, Vietnam has surpassed India to become the world’s top cashew exporter. This year, the Vietnam Cashew Association (Vinacas) has set an export target of US$1.4-1.5 billion, US$300 million higher than last year’s exports, based mainly on the increase of cashew prices. A Vinacas member says with the steady price rise, it’s not necessary to invest in increasing the value for cashews. “It requires big money for investment in a cashew processing factory,” he says, adding that no enterprises want to make such an investment amid the current high lending rate.
The same story also goes with other export agro-products. The rising price of coffee, currently above VND50,000 per kilo, has helped coffee farmers earn more income. However, Vietnam exports only coffee beans without going through processing. Do Ha Nam, vice chairman of the Vietnam Coffee and Cacao Association (Vicofa), says exporters of coffee beans earn an average profit of some 10-15%, while coffee processors rake in 85%.
According to the Central Institute for Economic Management, 70% of Vietnam’s export fisheries are semi-processed products under the frozen form. Before 2010, exporters earned US$3 from a kilo of tra fish fillets, but the price of raw fish was as high as US$2.5 and the production cost and profit made up the balance.
For coffee, Vietnam ranks second after top exporter Brazil in terms of export volume, but is the top in robusta coffee export. However, over the past years, Vietnam’s coffee has accounted for a large share of the volume of export coffee returned in the export market.
For tea, the export volume has increased annually but the export value has decreased compared with Chinese tea. The export value of Sri Lanka tea has risen 18% per year while that of Vietnam has fallen 20%, as Vietnam exports only semi-processed tea while the tea of other exporters has more added value, and thus fetches higher prices.
Climate change impact
Vietnam’s agriculture is forecast to face great challenges from climate change in the coming years, and one visible impact is the fall in productivity.
Nguyen Thai Hoc, chairman of Vinacas, says Vietnam’s cashew production has declined continuously due to climate change. The current output averages one ton per hectare, and the figure is forecast to fall due to climate change. “Indonesia’s cashew production from the 2011 crop has fallen nearly by half due to climate change. If Vietnam does not have cashew varieties adaptable to climate change, the country could hardly achieve the production target of two tons per hectare as set out in its cashew development strategy to 2020,” Hoc says.
The situation with coffee does not look better as well, as aged coffee plants, which make up nearly 20% of the coffee production area equivalent to 100,000 hectares, need replacements over the next five years. Vicofa has estimated that coffee production could hardly surpass 1.2 million tons per year if the aged coffee is replaced with the current coffee strains, and the annual export revenue will stand at just US$1.5 billion if Vietnam continues to export raw coffee beans.
Vietnam’s population is estimates at 100 million by 2020. The negative impacts of climate change, such as shrinking rice farmland due to seawater penetration, is posing a big challenge for the country in its effort to ensure food security. Agriculture experts have estimated that Vietnam will be able to export only 1.2-2 million tons of rice annually over the next 20 years, down by 80% from the current level.
According to the Ministry of Agriculture and Rural Development, in any circumstances, Vietnam is determined to keep 3.8 million hectares of rice farmland with an average yield of seven tons per hectare.
Capital shortage
The main cause of the weakness of Vietnam’s agro-product export sector is the lack of capital for investment in modern processing technology to increase the value of the products and improve packaging. Luong Van Tu, chairman of Vicofa, says Vietnam should offer credit preference to coffee exporters if the country wants to hold a dominant position in the world’s coffee market.
According to Vicofa, the coffee industry has yet to make strong investment in processing, except for some financially capable enterprises such as Vietnam Coffee Corporation and Trung Nguyen Coffee Enterprise. However, their combined processing capacity is only 100,000 tons, or less than 10% of the total coffee export volume of Vietnam.
“Due to capital shortage, farmers have to sell coffee immediately to local coffee traders after a harvest to have money to repay loans for fertilizer, insecticide and labor. Meanwhile, local coffee traders also have to sell the product right away to have funds for new deals. Foreign traders will raise prices when the coffee is sold out, and local traders will lose because they have no stock left,” Tu says.
In the rice export sector, there were more than 250 businesses, big and small involved in the trade last year, competing fiercely by undercutting prices. As a consequence, the local rice price was pressed to a low level, prompting the Government to interfere with a price floor rule to help improve the income of rice farmers. The Government also issued a decree stipulating the conditions for rice export trade. According to the Vietnam Food Association, the new decree has helped reduce the number of rice exporters to 80 and raise the price of Vietnam export price.
Over the past decade, despite many barriers in major markets, mainly the U.S. and the EU, Vietnam tra fish export has increased steadily and domestic tra fish production has increased significantly, reaching 1.5 million tons in 2008. However, to keep the export price of tra fish at a high level and improve the fish quality, early this year, the Vietnam Association of Seafood Exporters and Producers (VASEP) began to implement a plan to cut tra fish production. The plan has reaped some initial success when the export price of tra fish has increased by nearly half a U.S. dollar from the 2010 level, hovering at US$3.2-3.5 per kilo in the European and U.S. markets.
At the European Seafood Fair 2011 held in Belgium last May, products processed from tra fish of Vinh Hoan Company won the top prize in the processed tra fish category. This is the initial success for Vietnam’s seafood industry’s effort to gradually turn from semi-processing to fine processing for higher added value.
The Ministry of Agriculture and Rural Development has set a target of increasing the value of agro-products by 8-10% annually. To achieve this target, it has increased efforts, such as extending credits and financial support for enterprises to invest in processing technology and intensifying promotion in major export markets to help exporters gain better access to the market.
Source: SGT
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