Agriculture is a critical component of Vietnam’s economy, especially in terms of employment and contributions to exports. Output grew at a steady yearly average of 4.3% between 1990 and 1999, against population growth of only 1.8%.

Within agriculture, the food crop sub-sector, consisting primarily of rice, maize, potato, sweet potato and cassava, accounts for nearly 47% of the gross value of total agricultural output. The industrial crop sub-sector contributes 29%, while the livestock sub-sector contributes about 24%. Horticulture is increasingly becoming an important source of income for farmers.

In general, Vietnam’s agricultural policies center on industrializing and modernizing and rural areas and restructuring labor, all to raise income for farmers. Leaders view developing higher value export products and robust export markets as the keys to those goals.

Accordingly, the government has in place a plan through 2010 to focus on improving processing techniques, coordinating the processing industry with development of growing areas and investing in modern equipment to produce high quality consumer and export goods. This program also targets by 2005 a stable annual agricultural growth rate of 4.8%, food grain production of 37 million tonnes per year and an increase in average farm income by 1.7 times more than the 2000 level.

Domestic investment is projected to soar. The government plans to spend U.S.$7.7 billion from the domestic budget and investment credits in the next few years on its agricultural programs.

The Vietnamese government also has successfully encouraged foreign investments in agriculture, numerous plantation, processing and animal husbandry projects with a combined investment capital of nearly U.S.$2.1 billion. The agriculture ministry has set a target of attracting U.S.$1 billion more in foreign capital for 100 more projects by 2005.

With its emphasis on exports, the government has been working to achieve integration with existing and potential trade partners. In the framework of the ASEAN Free Trade Area, Vietnam has pledged that by 2003, it will cut import taxes to an amount not exceeding 20% while abolishing all restrictions in import volumes. By 2006, the government expects to limit import tax rates to no more than 5% for these trading partners.

Vietnam also is actively preparing options to negotiate with the World Trade Organization for admission, although years of discussion are likely to be required before the country satisfies conditions for membership. Domestic opposition from farmers and from non-competitive agricultural processing enterprises is expected to hamper the necessary reforms.

WHEAT AND FLOUR MILLING

After a period of explosive growth that began in the late 1990s, Vietnam’s flour milling industry faces difficult times, based largely on overcapacity, and competition from regional flour producers.

From one mill with an annual capacity of 180,000 tonnes in 1997, Vietnam today has more than 12 relatively large mills with total annual capacity of about 700,000 tonnes, wheat equivalent. Four more mills are expected to come on-line this year, raising the total milling capacity to more than 1 million tonnes.

Even though flour consumption continues to increase at a rate of about 10% a year, demand growth so far has fallen short of the new capacity. As one local publication stated earlier this year, "For the time being, wheat flour production projects would not be welcomed as supply has outstripped demand."

According to U.S. Wheat Associates, more than 60% of all Vietnamese flour consumption is in the south, with the remainder in the north. Flour consumption is limited outside of major urban areas. Estimates of flour consumption are that 50% is used for all forms of noodles, 30% for baguette-styled bread, 10% for western-styled breads and 10% for cakes, cookies and biscuits.

The majority of the country’s new mills are either state-owned or joint ventures, although a few are privately held. Following its broader agricultural policies, Vietnam has actively encouraged foreign investment in its flour milling industry. Many of the joint venture partners are overseas entities such as AWB Limited, Malaysia’s PPB Group Berhad and Morimasa Group Enterprises of the British Virgin Islands.

In addition to overcapacity, Vietnam’s ailing flour millers recently were forced to cope with a new tariff on wheat imports. Since the tariff was raised from zero in December, wheat shipped to Vietnam has been subject to a 5% import duty, in addition to the 5% value-added tax, threatening the industry’s very existence, according to local reports.

In February, imported wheat cost about U.S.$165 a tonne, excluding the VAT, while domestic flour prices were about U.S.$280 a tonne, barely enough to cover costs, an official of the Dai Phong Flour Mill reported. At the same time, imported flour cost only about U.S.$277 a tonne, which included the 15% flour import tariff and 5% VAT, making it hard for Vietnam’s millers to compete with the imports.

The government’s tariff payment policies also create hurdles for millers, who are required to pay the tariff within 30 days of importing wheat. Economic problems arise from this schedule because banks will grant loans only for production costs, not for tax payments, according to the director of another mill.

Currently, millers are lobbying the government for credit accommodations, to extend the tax payment period from 30 days to 60 or even 90 days or to reconsider the wheat tariff altogether.

LIVESTOCK AND FEED INDUSTRY

Vietnam’s livestock sector continues to expand quickly. The swine industry has received particular attention from the government, which hopes to develop export markets for pork.

The government is also encouraging farmers to expand dairy herds and milk production to reduce Vietnam’s growing imports of milk powder. The poultry sector remains a high-cost producer and is not seen as a key investment area.

Annual demand for animal feed in Vietnam currently is estimated at 10 million tonnes, and commercial feed production accounts for 20% to 25% of the total feed output. About three-fourths of the feed mills are located in the southern provinces.

The feed industry has also experienced rapid growth. In 2000, according to Ministry of Agriculture, Vietnam had 110 animal feed mills operating at about 75% of capacity and producing about 2.1 million tonnes of commercial feed.

In the past two years, feed mill numbers and capacity continued to increase. In 2001 alone, the country’s annual commercial feed production capacity is estimated to have jumped by at least 500,000 tonnes to as much as 3.3 million tonnes a year. The agriculture ministry is targeting annual feed production of between 5 and 6 million tonnes by 2010.

But as with flour milling, the feed industry’s rapid expansion has not come without economic pain as demand has yet to catch up with new capacity. In late 2001, low livestock and meat prices led feed users to seek cheaper rations, resulting in frenzied competition that "left the animal feed market very distressed" and creating some novel promotions.

Large feed maker Phap Viet, for example, tried to lure customers with handouts of monosodium glutamate seasoning, along with notebooks, T-shirts and caps. American Feed, a U.S. company, reportedly offered refrigerators as prizes to motivate sales agents.

"The market has grown more crowded than a chicken coop," one report bemoaned, with 127 domestic companies and 10 foreign firms from France, Taiwan, South Korea, the U.S. and China.

Those figures compared with just 40 domestic and three foreign companies five years ago, industry executives said. Profits were vanishing as companies shoveled out feed below cost, while quality was becoming a major concern, they added.

Vietnam’s feed industry heavily relies on protein inputs such as soybean meal, corn gluten and amino acids. In 2001, soybean meal imported to Vietnam increased to 520,000 tonnes from 400,000 in 2000. India and Argentina are the leading soybean meal suppliers to Vietnam.

In 2002, meal imports are likely to increase again, to around 550,000 tonnes, to meet increasing commercial feed production levels. The government also has exempted soybean meal from import tariffs, helping to build imports.

Maize currently is a much less important feed ingredient in Vietnam rations. The country produces about 1.8 million tonnes of maize annually, an amount that is adequate to meet most domestic feed demand; imports in the past two seasons have reached only 50,000 tonnes a year.

Even so, the government is working to assure that Vietnam won’t become dependent on maize imports. The agriculture ministry in May announced a plan to increase maize area to 1.2 million ha from the current 700,000 by 2005, with the harvest expected to jump to between 4 million and 4.8 million tonnes.

The ministry wants to ensure that commercial maize crops are key in the development of targeted rural areas. For example, the ministry plans 7,400 ha of maize nurseries, producing hybridized seeds for 85% of all maize-growing areas.

Planned aquaculture is another focus of expansion. The potential area for planned aquaculture development is estimated at 1.82 million ha, including 1 million of fresh water, 375,500 of brackish water and 445,000 of marine water.

Inland aquaculture has existed for a long time in Vietnam, but most systems were extensive, with fish feeding on farm waste inputs and/or domestic wastes. The government aims to develop a more intensive, modern aquaculture industry.