Huge capital invested in safe agricultural products

VietNamNet Bridge - The market for safe agricultural products is wide open for investors.

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Many large groups in Vietnam have invested in producing safe agricultural products.

A recent study by the Institute of Policy and Strategy for Agriculture and Rural Development shows that vegetable consumption in Hanoi is about 2,600 tons per day, or 950,000 tons a year. But the current amount supplied to the city is only 600,000 tons a year, equivalent to only 60 percent of demand.

Many housewives said that they were willing to pay high prices for products that are truly safe but it is difficult for them to find “safe” ones.

This creates an absurd paradox, where US and Japanese consumers can easily purchase specialty fruit labeled “Made in Vietnam” with details on origin and hygiene clearly stated, while in Hanoi and Ho Chi Minh City consumers can’t determine where products are grown or what quality control they have undergone.

To have agricultural products that are truly clean, many families in towns have taken to growing their own.

New faces from Vietnam

VinEco, a food supply company under Vingroup - Vietnam’s leading real estate investor – began selling safe vegetables last October, six months after Vingroup announced it would invest in the agricultural sector on a large scale and production got underway.

VinEco is expected to supply up to 30 tons of 14 different types of vegetables a day, grown under the GlobalGAP and VietGAP standards at its farms in Tam Dao (Vinh Phuc province), Cu Chi (HCM City), and Long Thanh (Dong Nai province), using modern technology imported from Japan.

In August, VinEco built a 24.5 ha greenhouse in Vinh Phuc, at the cost of $44.2 million. The greenhouse, the largest of its kind in Vietnam, is equipped with Israeli technology. This facility can supply 3,500 tons of organic vegetables each year, which meet VietGAP and other global standards. This is VinEco’s second greenhouse, after the first in Cu Chi district, HCM City.

Many large groups in Vietnam have also invested in producing safe agricultural products.

According to Reuters, the Saigon Securities Trading Company (SSI) has invested in rice and seafood production while a subsidiary that specialized in mining of the Hoa Phat Steel Group has invested in an animal feed factory. By 2020 the company expects to record output of 1 million tons of feed and raise 1 million pigs a year.

Hoang Anh Gia Lai Group has invested in cow breeding and a rubber plantation.

Mobile World (MWG), a giant in retail electronics in Vietnam, announced that it would step into fresh food and fast-moving consumer goods (FMCG). Mr. Nguyen Duc Tai, CEO of MWG, said that existing demand for fresh food as well as clean agricultural products was high and supply failed to meet demand.  

FLC Group last year invested in the 1,300 hectare Lam Son agricultural farm project in Ngoc Lac District's Lam Son Commune, which includes 530 hectares of rubber and 530 hectares of sugarcane.

Recently, some businesses have also implemented big agricultural projects at home, including a cow breeding project of Duc Long Gia Lai Group, the Kobe cow and sugarcane projects of former president of Sacombank, Dang Van Thanh, and the cow farm project of TH True Milk’s boss Thai Huong.

Challenges for local investors

Despite the huge demand for safe agriculture products, investing in agriculture is not easy, experts said.

In fact, enterprises that want to invest in the sector face many obstacles. To invest in agricultural production, businesses first need land. But agricultural land is divided into small scattered plots. This creates difficulties for large-scale production and the application of high technology.

Vietnam’s legal system lacks incentives to encourage enterprises to invest in the agricultural sector. Many enterprises complain that they had invested money in such things as high technology flower planting or extracting collagen from Tra fish cartilage, but they hadn't received any priorities, such as tax exemption, said Mr. Vu Tien Loc, president of the Vietnam Chamber for Commerce and Industry.

Mr. Nguyen Nhu Tiep, Head of the National Agro-Forestry-Fisheries Quality Assurance Department, said that to have a clean supply of agricultural products enterprises must invest in the entire chain, from farming to manufacturing and supply and this requires huge capital. However, food safety chains in Vietnam remain quite small, despite receiving support from the State budget.

A report from the Vietnam Chamber of Commerce and Industry showed that the number of enterprises investing in agriculture is quite low, accounting for just 1 percent of all enterprises in the country. Up to 95 percent of agricultural investors are small enterprises, while large enterprises account for only 3.7 percent and medium-sized enterprises only 1.32 percent. Meanwhile, SMEs involving in safe agricultural production often struggle to obtain capital, according to experts.

Ms. La Thi Thu Hien, Deputy Sales Manager at Tay Bac Agricultural Products Co., said that producing clean agricultural products requires capital and low interest rates to complete the entire process from farming to manufacturing. But it’s difficult to access loans because of a lack of collateral.

SMEs, thus, have to borrow at high interest rates, which results in their products not being able to compete with conventional agricultural products. It also takes longer to produce clean agricultural products, Hien said.

Another challenge is that it is not easy to gain the trust of customers. Some suppliers have sold products with dishonest information on the packaging, casting suspicion over all clean agricultural products.

However, Vietnam's joining a series of bilateral and multilateral trade agreements, including the BTA, WTO, EVFTA and TPP, has opened up great opportunities for the agricultural sector - a pillar of the Vietnamese economy.

Agricultural sector must reform to attract foreign investment

The period from 1990 to 2000 was considered the most successful for attracting foreign capital in the domestic agriculture sector as it accounted for 15 percent of the total national FDI volume at that moment. However, the flow of foreign capital into the sector dropped from 2001 and reached US$3.72 billion, accounting for only 2.17 percent of the country’s total foreign investment volume.

According to the Ministry of Agriculture and Rural Development, the FDI capital in agro-forestry and fishery accounts for just 0.6-1 per cent of the total investment in the economy.

So far, about 50 countries have invested in Vietnam's agricultural, forest and fishery sector, including one third from Taiwan and Hong Kong, and a small volume from some developed countries.

Experts said that the agricultural sector is more at risk than any other production and service sectors. Foreign investors do not want to invest in sectors such as the farming sector, which is fraught with risks. Therefore, foreign investors tend to think twice about investment incentives offered by countries seeking foreign investment in the agricultural sector.

In addition, a small production scale, risks of diseases and old infrastructure in the rural areas of Vietnam are factors that prevent foreigners from investing.

Experts said that the agricultural sector needs to restructure production and business, including solutions on attracting investment from home and abroad.

Truong Dinh Tuyen, former industry and trade minister, said that the greatest challenge for the domestic agricultural sector is to ensure food hygiene and safety. If enterprises cannot ensure that, countries will not ask for Vietnamese farming products even if tax rates were reduced to zero.

Tuyen said that the sector should develop large production regions, nurture close co-operation in processes, and ensure reasonable distribution and close connectivity between quality, price, supply and demand. Meanwhile, the state should play a role in organizing and planning development, and developing incentive systems for agricultural and veterinary sectors.

Compiled by Na Son

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