Illustrative image. Image: VOV
The Trans-Pacific Partnership (TPP) Agreement was concluded, marking a turning point in the history of 12 member countries, including Viet Nam. Before the TPP is officially ratified, it is necessity to identify core issues in agriculture concerning opportunities and challenges to actively develop an industry with many advantages of Viet Nam.
Premise for agricultural development when Viet Nam joins TPP
In recent years, besides the intrinsic structural causes, international and domestic economic difficulties have adversely affected agricultural production. However, the Party and State have paid much attention to the agricultural sector, giving priority to investment from the State budget and social investment for development. In the period of 2011-2015, resources for agriculture were better mobilized; total investment capital from the State for agriculture and rural development reached VND 610,000 billion, an increase of 1.83 times compared to five years ago; investment capital from the State budget and government bonds went up to VND 221.6 trillion (1.2% of GDP), 1.9 times higher than the period of 2006-2010. Investment from the non-state sector (including foreign investors) in the agricultural sector increased from VND 28,859 billion in 2009 to VND 34,474 billion in 2013. As of August 2015, there were 512 foreign direct investment (FDI) projects in agriculture and rural development, accounting for 3.1% of total FDI projects nationwide, equivalent to US$ 3.43 billion (accounting for 1.4% of the total FDI registered capital of the country). Credit for agricultural and rural development grew strongly, reaching 21%/year, higher than the overall credit growth rate of the economy (only about 18.5%).
Since 2013, the Party and State of Viet Nam have concentrated resources to the Project on Restructuring the Agricultural Sector while mobilizing fund from international organizations, domestic and foreign businesses for investment in agriculture and rural development. The Ministry of Agriculture and Rural Development has implemented this scheme in all agricultural areas and striven to take measures to improve investment and business environment in line with the Government's resolutions. Thus, key growth targets exceeded its objectives for the period of 2011-2015 and a higher than those of TPP member countries. In 2014, the total production value of the agricultural sector increased by 3.9%, GDP growth rate of the sector reached 3.49%, higher than 3% and 2.64% of 2013 respectively, total export turnover reached US$ 30.86 billion, up by 11.2% compared to 2013, and there were 10 agricultural products earned export value of more than US$ 1 billion. From January to September of 2015 alone, despite difficulties caused by natural disasters and adverse changes in the market, the growth rate still reached 2.08% of GDP, and total industry production value estimated up 2.1% compared to the same period of 2014. Thus, the average growth in the period 2011 to 2015 the agricultural sector reached 3.09%, while the goals at just 2.6%-3 %. Quality of growth improved, the proportion of added value in total production value increased from 64.7% in 2013 to 67.8% in 2014 and was estimated 68% in 2015.
The National Target Program on Building New Rural Areas has become a widespread movement across the country with VND 851.854 trillion have been mobilized for the Program of which 31.3% come from the State budget, 51% from credit capital, 12.7% from the community, 4.9% from corporate capital and 2.1 % from other sources. The State budget support is mainly for infrastructure development to serve people's daily lives, and production. As a result, many rural areas have been renovated, more civilized, contributing actively to achieve the objectives of hunger eradication and poverty reduction, improving the living conditions of rural people, and maintaining social stability. As of September 2015, on an average, each commune throughout the country achieved 11.64 criteria out of 19 criteria (an increase of 6.94 criteria as compared to 2011). There are 1,132 communes and 9 districts and towns which were recognized for achieving standards of new rural area including Xuan Loc District, Long Khanh town in Dong Nai province, Cu Chi, Hoc Mon, Nha Be in Ho Chi Minh City, Dong Trieu district in Quang Ninh province, Hai Hau district in Nam Dinh province, Don Duong district in Lam Dong province and Nga Bay town in Hau Giang province.
By the end of 2014, annual per capita income in rural areas reached VND 24.49 million, increasing by 1.9 times as compared to 2010. The percentage of rural poor households by the end of 2015 was estimated at 9.3%, an annual average reduction of 2% over the period of 2008-2015.
It is necessary to identify and harness advantages when joining TPP
It is confirmed that TPP is a relatively comprehensive and high-quality agreement on the basis of balance of interests, and is expected to promote economic growth for all Member States, such as job creation, contributing reduce poverty and improve living standards of people, encourage innovation, improve labor productivity, and competitiveness, promote transparency, good governance and improve labor and environmental standards. In fact, the TPP participating countries have different levels of development, Viet Nam lags behind the remaining 11 countries in terms of production level and market. Recognizing this situation, during negotiations on TPP, Viet Nam maintained the consistent principle of ensuring national interests in disadvantaged fields of production level and competitiveness; Viet Nam successfully defended the route in line with the spirit of vigorous restructuring in the country to grow faster and ensure market principles. In the agricultural sector, Viet Nam is facing great opportunities as follows:
First, Viet Nam's agricultural products can boost exports and flexibly regulate the market to the better. Viet Nam has many advantages now that many members of the TPP are large agricultural-product consumption markets and are likely to extend. They are the United States, Japan, Australia and Singapore. These markets will help Viet Nam reduce pressure of depending on a number of traditional but changeable markets, such as the Chinese market. During the first 8 months of 2015, it imports accounted for 35% of the total value of agricultural exports of Viet Nam, of which 48% from rubber, 64% from vegetables, 13.2% from timber, and 12.3% from cashew nut. It is also the market that many of Viet Nam’s agricultural product imports come from, accounting for over 53.5% of the total import value of agricultural inputs.
Opening up vast new markets within the TPP, Viet Nam will be more flexible and better restructuring export and import market of agricultural sector, avoiding the situation of “good harvest but low price.”
Second, higher competitiveness of agricultural products due to benefits from commitments to tax reduction or exemption. When TPP takes effect, most of agricultural export taxes will be reduced to 0%, or are maintained at a low tax rate. Viet Nam has a huge competitive advantage in comparison with the countries which are not members of the TPP in terms of exporting agricultural products of the same type, especially key commodities such as aquatic products, furniture, rubber, cashew, and pepper. Typically, Viet Nam’s furniture exports to the US accounted for 39%, and Japan 15% of the total export value. Thus Viet Nam’s advantages are very large compared to countries with similar production conditions.
Third, foreign investment attractiveness. Certainly, when there are more advantages in trade in goods, lower import and export taxes, along with the favorable geo-economic position in terms of sea and air routes, Viet Nam has increased its attractiveness to foreign investment. The important issue is to know how to absorb FDI in the most effective areas for development, raising the productivity and quality of agricultural products.
Fourth, opportunities, objective and driving force to promote agricultural restructuring. When Viet Nam integrates strongly and comprehensively, its agriculture has to comply with market rules while ensuring basic objectives of welfare for farmers; the State supports and creates a favorable environment for all economic sectors’ operation, research, transfer of science and technology, market development, infrastructure for production and life, stronger investment socialization, attaching importance to the role of community organizations and other forms of mutually beneficial links in the chain of production and consumption of products. TPP will be the driving force and the requirements to promote agricultural restructuring faster and more efficiently.
In summary, when joining TPP, opportunities for fast growing in agriculture are huge and quite comprehensive. TPP should be viewed as an economic leverage to explore and apply the breakthrough development solutions. Agriculture needs to capture fast, timely turn TPP opportunities into practical effect. With the traditions of hardworking, dynamism, creativity and experience after 30 years of renovation, and international integration, agriculture has really become an open economic sector and certainly benefits from TPP.
Overcoming challenges for development
Though opportunities and advantages are fundamental, in order to bring them into play, Viet Nam’s agriculture is also facing many great challenges including market opening which must be overcome to develop. They are as follows:
First, Viet Nam's agriculture is mainly small scale, household size and export of raw agricultural products. Currently, the agricultural sector boasts 3,500 enterprises, accounting for only 1.01% of the total number of enterprises throughout the country, mostly small and micro businesses, (enterprises of less than VND 5 billion accounting for about 60%), which cannot join in the main distribution system, thus can easily make exports unsustainable, not regulate production and marketing.
Most of farmer households in Viet Nam, the basic unit of production in agriculture, are small in economic potential, individual producers and not compatible to the market economy and current integration. The country has about 11.9 million agricultural households of which 35% have less than 0,2 ha of cultivable land, 69% of households have less than 0.5 ha of cultivable land and 80% of households with less than 1 hectare of of cultivable land, only 20% have more than 1 ha. And 10.36 million households grow trees and plans, on an average each household has only 0,62 ha; 5.1 million households plant perennial trees, on an average each household has just 0.7 ha. More than 4 million households raise pigs, 77% of them raise less than 5 pigs; 7.9 million households raise chicken, 90% of them raise less than 49 children. Out of the total 21 million agricultural workers, 97.25% have not received vocational training, only 1.5% were trained at primary level, 1.23% at secondary level and 0.21% at university level. Given individual production and business, the economic power of farmer households is small with little, and low risk resilience.
Viet Nam has only exported agricultural products in the form of raw materials, or semi-processed or sub-contracts, so prices, quality, and added value of agricultural exports are very low.
Second, TPP offers an opportunity to reduce tariffs for all partners, leading to flows of imports of agricultural products from the TPP Member States to Viet Nam with more competitive prices hence more pressure on domestic producers. TPP is considered “test dose” for restructuring the agricultural sector, if the management apparatus, farmers and businesses do not reform and link together, on the common playing field objectively regulated by the market, they will easily “loose in the home field.” Some production areas, and traditional commodities are being supported by the State in order to motivate development in recent years, but when joining TPP without competitive advantages in terms of productivity, cost, quality and safety they can hardly sustain the growth. In particular, the livestock sector of Viet Nam is said to be disadvantaged when Viet Nam joins the TPP because of its low level of development, while it is the advantage of many other developed countries, such as Canada, Australia, and the USA. Therefore, the restructuring of the livestock sector must be done urgently towards promoting production chain, considering business as the centre, linking to the new-style cooperatives, and livestock raising households; first of all livestock products must be clean, safe, and of good quality. It is necessary to restrict imports of inputs, especially feed; convert part of low value crop acreage to growing animal feed raw materials, highly concentrate on production of food supplements to reduce livestock production costs; import high productive, quality and effective breeds to enhance competitiveness and ensure sustainable development.
Third, Viet Nam’s distribution of some agricultural commodities will continue to face difficulties in non-tariff barriers, if it maintains the current quality management method.
With the above analysis, in order to effectively adapt to the TPP, while the TPP has not been officially approved by Member States, in the immediate future, it is necessary to early publicize basic knowledge and the provisions of TPP for people as well as local firms, especially on challenges and advantages, tariff reduction schedules, opening of markets, review to harmonize the provisions of domestic laws with TPP, continue to concentrate on restructuring program aimed at improving the efficiency of agriculture, competitiveness and developing the supply chain of agricultural products.
This article was published in Communist Review No 883 (May 2016)