Rice exports: Why are Vietnam’s miracle-makers still poor?

VietNamNet Bridge - The biggest risk for Vietnamese rice growers is not the weather or the market but policies, from exchange rate policy to tax policy to a range of other policies.

VietNamNet would like to introduce the next part of the roundtable discussion on a quarter century of rice exports of Vietnam, with the participation of Prof. Dr. Vo Tong Xuan, Dr. Vu Trong Khai and Mr. Nguyen Minh Nhi.

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VietNamNet: There is a question that has not had a satisfactory explanation in a long time: Why are Vietnamese farmers -- who created the miracle of turning Vietnam from a hungry country into a rice exporter, who ended the period of starvation and created a foundation for the rise of the country's economy --  still poor?

Rice exports, rice exporting policy, vietnamese rice, vo tong xuan 

From the left: Mr. Nguyen Minh Nhi, Dr. Vu Trong Khai and Prof. Vo Tong Xuan.

Prof. Dr. Vo Tong Xuan: This is a paradox stemming from systemic weaknesses, with the root being our education. In developed countries, those who are fully trained are allowed to do agricultural production. But it is to the contrary in our country, so our farmers are just happy with the experience. They produce not in accordance with scientific recommendations, with  high production costs, poor product quality, and even unsafe food hygiene.

Meanwhile, many of the participants in the value chain of rice have privileges, and they use these privileges to take the parts that would belong to farmers.

I still remember when Vietnam resumed rice exports, I was invited to the United States and Europe to meet with rice trading groups. They said frankly that Vietnam had just joined rice exporters so it would not be easy for Vietnam to export rice like Thailand or London. It was because the state-owned rice trading companies of Vietnam were not trusted yet and the quality of Vietnamese rice was not assured, so rice from Vietnam had to bear the risk cost of $40-50 per ton. That's why we have long heard that the quality of Vietnamese rice is equivalent to Thai rice, but the price is always $40-50/ton less than Thai rice.

They said at the time that it would be best if Vietnam produced rice at their quality standards and then it would be reserved and sold in Europe and they would only collect 2% of the cost. Then I returned home and proposed the idea with a central body but it was not accepted, because they required export contracts and L/C for rice exports.

Mr. Nguyen Minh Nhi: In my opinion, Vietnam does not have a specific agricultural management strategy: who are our customers, what are the good prices, who sells the rice, what will the farmers earn each year, and for each ton of rice increase ... Instead, we completely rely on "familiar markets" and "business routines" as our forefathers did hundreds of years ago. Recently I have heard of "restructuring" but it seems that it has not moved.

We have exported rice to low-quality rice markets such as Indonesia, the Philippines, Iran, Iraq, Syria, Libya, and Cuba where the market is covered by state-owned food companies and the rice is supplied to the poor. In the past, thanks to the monopoly factor and sometimes corruption the rice business was smooth and profits were shared between two sides. Our farmers earned very little benefit, while under the government’s policy, the "required minimum profit for farmers must be 30 percent".

Since those countries changed, that kind of business was not maintained and our rice could not compete. Even in traditional markets like the Philippines, Indonesia, Malaysia ... we have to seek export contracts through tenders.

People say doing business needs partners, but now when we no longer have partners – state-owned firms – how can our state-owned rice traders do their business?

Nearly all my life I’ve supported the state-owned economy, especially in the food business, but with the current rice trading policy, only farmers and the government are the losers.

Our way of management is in heaven and it does not fit with reality. In 1992, I went to Taiwan and I saw that state-owned firms also held a monopoly in rice, sugar, salt, alcohol, tobacco trading but their farmers were extremely happy.

For our farmers, they are very lucky if they earn a profit of 30 percent.

VietNamNet: What could we learn from the inadequacies of life of farmers, with the policies as the main cause?

Rice exports, rice exporting policy, vietnamese rice, vo tong xuan 

Dr. Vu Trong Khai: Firstly, in the past 25 years we have exported rice on a small and fragmented scale, rather than a fundamental change in nature. If there has been a change, it has been just in the varieties and cultivation techniques. Over the past 25 years we still have based rice growing on household production and raw material processing enterprises.

That is, we only rely on the availability.

Even the progress of science and technology that we have, including new varieties, new farming techniques, are also difficult to apply. In fact, each farmer has only several thousand of square meters of field land on average.

Therefore, farmers cannot get rich in this scenario. We should remember that the "untie" policy (Resolution 10 issued in 1988 considering farmer households as autonomous units) was only valuable for a short time because it did not create new elements.

Secondly, we have not looked at the world in order to reposition ourselves, thereby reorganizing production in an appropriate and prudent way. The annual total value of rice exchange is many times lower than the exchange of fruit and vegetables. We have a huge advantage of tropical fruits and vegetables but we have not realized it. Many Asian countries like South Korea, Japan, northern China, etc … have a long winter when they cannot grow vegetables, not mentioning Europe.

We should also talk about the role of the entrepreneur. We do not have powerful forces of entrepreneurs who are aggressively seeking world markets. For example, looking to China, their traders go around the world to buy raw materials and sell their products.

Dr. Vu Trong Khai: Commercialization of products is the responsibility of business. Businesses must do two functions of processing and consumption. If we had the right investment policies for businesses, and not just rely on state corporation as the Northern Food Corporation (Vinafood 1) and the Southern Food Corporation (Vinafood 2), the situation would have been different.

Generally, Vietnamese businesses don’t dare to accept risk. Why? There are two elements:

Firstly, so far we have not formed a strong team of entrepreneurs, since the appearance of big names in the early 20th century as Bach Thai Buoi, the family of musician Doan Chuan (with fish sauce firm Van Van) and especially Mr. Nguyen Son Ha, a businessman and one of the first National Assembly deputy of Vietnam. As an NA deputy, he proposed to put the line "All Vietnamese citizens have the freedom of doing business" into the Constitution of 1946.

Unfortunately we did not maintain that atmosphere. The new generation of businessmen look at the context of general economic institutions and they see too many risks. The biggest risk in Vietnam is not the weather, not the market but the policies, from the exchange rate policy to tax policy to a range of other policies. Businesses are afraid of the changes because many of them “died” of that change. Bureaucracy and red tape also contribute to stamp out the will and aspirations of entrepreneurs.

Secondly, the traditional elements of history, culture and mechanisms in Vietnam do not encourage businesses to take risks, do not create the environment for them to engage, to take risks. Therefore, the majority of our businesses accept to do business that is above average.

These problems cannot be solved overnight. And it must begin with economic institutions.

To be continued…


Rice exports, rice exporting policy, vietnamese rice, vo tong xuan