Vietnam’s agricultural sector at a crossroads

Author: Nguyen Van Giap, University of Economics Ho Chi Minh City

 

In 2018, Vietnam’s agriculture sector witnessed its highest growth rate in recent years — 3.76 per cent. Export revenue from the sector was US$40 billion, with a trade surplus of US$8.72 billion. Prime Minister Nguyen Xuan Phuc expressed expectations for the sector to fulfil the aspirations of the nation, and suggested that Vietnam should strive to join the group of 15 largest agricultural nations in the world.A farmer harvests rice by a paddy field outside Hanoi, Vietnam 10 June, 2019 (Photo: Reuters/Kham).

In the 1980s, Vietnam was a country short of food and hungry. Under pressure from food shortages, the government allocated most of its public investment to the agricultural sector — to agricultural research and extension, agricultural irrigation and infrastructure, and agricultural input production facilities. Since then, agricultural productivity has increased rapidly, contributed significantly to national food security and competed successfully in international markets with cheap and raw foods.Agricultural policies in the 1990s led the sector into several dominant intensive monoculture agricultural systems. Rice monoculture prevailed in the Mekong Delta, and this intensive rice production heavily applied inorganic fertilisers and pesticides that caused water contamination and soil infertility. Vietnam’s Central Highlands became home to intensive production of coffee and pepper — crops that have caused extensive deforestation and groundwater depletion. Expanding shrimp farming along Vietnam’s coast has caused serious destruction of mangrove forests and ecosystems.

In addition, agricultural land is under pressure from rapid urbanisation and industrialisation. Households with small plots of agricultural land of less than 0.2 hectares increased from 26 per cent in 2001 to 35 per cent in 2011.

In the past 30 years, Vietnam has opened to international markets by joining various bilateral and multilateral trade agreements. International market integration is a strong force to lift up the agricultural sector. The old generation of trade agreements focussed on tariff reduction, custom procedures and sanitary and phytosanitary requirements. A recent ‘new generation’ of trade agreements — such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Vietnam–EU Free Trade Agreement and Investment Protection Agreement, and the Regional Comprehensive Economic Partnership (RCEP) — provide even more opportunities to agriculture. But they also require fundamental institutional changes to the sector, particularly regarding labour, social and environmental issues.

Vietnam is now classified as one of the world’s five worst climate change affected countries. Rice production is affected by rising temperatures, water availability, salinity intrusion and inundation in the Delta regions. For regions facing a high risk of inundation, aquaculture is a promising solution in the near-term. Coffee production in the Central Highlands is hit hard by the changes brought by evapotranspiration and frequent and intensive droughts. These climate change challenges will require the sector to innovate with climate-smart agricultural technologies.

Vietnam’s agricultural sector has made excellent progress in terms of productivity, output and exports. But this has come with the problems of resource use inefficiency and unsustainability, farmer welfare losses, and poor quality and unsafe foods. The largest beneficiaries of the sector’s development have not been farmers or domestic consumers, but foreign consumers and large multinational agricultural corporations who benefit from low labour costs and lax environmental regulations. Consequently, resource-exploitative agriculture is widening the income gap between farm and non-farm sectors and within rural areas. Concerns about food safety and environmental degradation in Vietnam are also emerging.

The Vietnamese government is aware of these issues. In response, Hanoi has initiated several policy reforms in the sector — including an agricultural restructuring program, a good agricultural practice (GAP) and certification program, a food safety program, value chain development, land consolidation and automation. These policies are aimed at achieving a diversified, sustainable and high value-added agricultural sector, but so far they have been ineffective and implementation is slow. Hanoi can no longer afford its state-led agricultural sector development strategy due to its limited capacity and the degradation of its land resources.

The first problems persistently faced by Vietnam’s agricultural sector is its institutional failures in regulating production, environment regulations, and agricultural input and output markets. The second problem is the sector’s poor capacity to generate and disseminate information transparently — an information asymmetries problem. A third problem is the sector’s poor human resources due to a lack of young, educated, skilled and entrepreneurial people.

Policies and institutional reforms that drive innovation and increase efficiency — such as reforms directed towards agricultural land, research and food safety — are crucial. Administrative controls on land and poor state management in both input and output markets is delaying the agricultural sector’s transformation, which could be accelerated if the government draws back its direct involvement in the sector and takes on a facilitator role.

At this critical crossroads, the persistent obstacle to the sector is its weakness in technological and management innovation. The state-led development strategy is not flexible enough to help the sector face new challenges arising from international markets, new geopolitical situations and climate change. But the Vietnamese government still believes that it can directly lead the sector’s development. The government is also not ready to relinquish its control over agricultural resources, and the current public agricultural administration system is too big to be broken up. This means the future of Vietnam’s agricultural sector remains uncertain and dependent on whether the government can reform its agricultural administrative system.

Nguyen Van Giap is a lecturer at the School of Government, University of Economics Ho Chi Minh City, Vietnam.

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