by Mario Sequeira

Fifteen years ago, agriculture accounted for about 40% of Vietnam’s Gross Domestic Product. In 2004, it made up about 23% of GDP. Reflecting the industrialization of the once agrarian country, industry today accounts for about 39% of Vietnam’s GDP and services 38%.

While industrial output has grown by about 10% over the past decade, agriculture has grown at an average of about 4%. Both sectors have diversified. In industry, production of steel, garments, footwear, cement and vehicle assembly have expanded rapidly. In agriculture, non-food crop production, particularly coffee, pepper, tea, rubber, sugarcane and horticulture, has leaped. The growth spurt has been enabled by the policy of doi moi (renovation) adopted by the Vietnamese government in 1986. Designed to gradually deregulate and liberalize the economy, doi moi is a comprehensive process of reform that is continuing today as the government adjusts to the demands and pressures of an economy that is opening up.

The results have been dramatic. From 1992-97, average GDP growth doubled that of the 80s to 8%. Before doi moi, Vietnam imported one million tonnes of rice annually. By 1989, it became a net exporter and in this decade is often the world’s second or third-largest rice exporter.

Given agriculture’s critical role in the economy — it employs about 63% of the country’s 82 million people — doi moi was applied fairly quickly to the sector. Two of the key reforms implemented were the recognition of the household family farm as a unit of production and granting an extension to land use rights through the 1993 Land Law and its subsequent amendments.

Vietnam’s prime agricultural centers are the Mekong River Delta in the south and the Red River Delta in the north. Farming is made up of typically small subsistence plots. There are more than 11 million household farms averaging less than a hectare in size. Larger commercial farms number about 113,000 and are about 5 hectares each.

The Land Law enables a quasi-land market to exist and lays down procedures for land use rights to be transferred, exchanged, leased, inherited and mortgaged.

The policy of liberalization was designed to make the country self-sufficient in food and improve the incomes of people by expanding production and taking measures to facilitate that expansion. Diversification to higher-value crops and export expansion were targeted to play a significant role in the change.

Rice is a staple and the main crop. It accounts for about two-thirds of total area sown. Production in 2003-04 was 33.4 million tonnes and is estimated to be the same in 2004-05.

Maize is the second biggest food crop, followed by a variety of cash and industrial crops, including potato, sweet potato, cassava, sugarcane, pepper, cashew, rubber, coffee and tea.

An important change in the agricultural landscape is the rapid move towards higher-value industries such as horticulture and aquaculture. In many parts of the country, rice farmers are switching to more profitable rice-shrimp production, growing rice in the wet season and shrimp in brackish water in the dry season.

The policy of doi moi has also seen the liberalization of the commercial and trade environments. Domestic markets have been deregulated, foreign trade liberalized and competition promoted.

The 1997 Commercial Code and 1999 Enterprise Law set guidelines for the operation and establishment of private enterprises. However, there has not been a surge in the number of private companies, owing to the dominance of government owned enterprises, which receive preferential treatment and hence make it more difficult for private companies to compete.

Financial institutions lending Vietnam money in its push towards liberalization, such as the World Bank and the Asian Development Bank, have called for removing restrictions on the market in land use rights (in some districts, the State dictates what crops must be grown), reforms to the credit system, investment in rural infrastructure such as irrigation and transport, and investment in human resources such as health care and education.

There is also room for productivity increases. Vietnamese farms are typically small and labor intensive. Mechanization is still at a very low level, hampered by small land holdings, scattered plots and poor rural infrastructure.

In 2001, the government outlined a 10-year plan in which it recognized many of these challenges. Already, state owned enterprises are being divested and zones are being designated to encourage large-scale production of crops alongside processing facilities.

WHEAT AND FLOUR MILLING
Vietnam does not produce any wheat and as a result, annual imports are high to meet the domestic flour milling needs.

The wheat flour milling industry produces about 650,000 tonnes of flour annually to meet domestic needs. Flour is used to make instant noodles and wet noodles (46%), baguette style breads
(30%), other bakery and confectionary products such as cakes and steamed bread (20%) and feed (3%), mainly for the aquaculture industry.

As incomes have risen during the past 15 years, eating patterns have changed. Although rice remains a staple, the Vietnamese diet is shifting towards more processed and wheat-based foods and confectionary goods.

Competition among the country’s 23 flour mills is fierce. Last year, two new mills opened but two others shut because of oversupply. While the mills are operating at about 50% capacity, annual production is rising.

In 2003, flour production reached a record 665,000 tonnes to meet better-than-expected demand for feed and increasing consumption. Production in 2004 is estimated to have decreased to about 592,000 tonnes as a result of reduced demand from aquaculture and a
decline in exports of instant noodles.

In 2003, Vietnam imported 915,000 tonnes of wheat. In 2004, the figure is projected to be 805,000 tonnes. Vietnamese imports are driven by price rather than quality. As a result, Vietnam buys very little wheat from the U.S. One-third of its wheat comes from China, followed by Australia, India, Canada, Pakistan and Russia.

LIVESTOCK AND FEED
Vietnam’s livestock sector has been growing at a faster rate than the crop sector. The two biggest industries are swine and poultry, the latter severely affected by the outbreak of bird flu in December 2003 and new cases this year.

In 2003, meat production was 2.3 million tonnes, of which 1.8 million tonnes were pork and 373,000 tonnes poultry. The swine herd is put at about 25-million head and poultry flock at 254-million head.

The growth in livestock has been accompanied by growth in commercial feed production, estimated at 10-13% annually over the past five years. Of total commercial feed production, 70% is industrial ready to use feed and 30% concentrate feed.

In 2004, the industry produced 3.8 million tonnes of feed, the same as in 2003.

The biggest challenge to the commercial feed industry is cost, as 60% of the raw material required for commercial production is imported. These ingredients make up 70% of the cost of production.

These ingredients include soybean meal, corn, fishmeal, meat and bone meal, rice and wheat bran, and feed premixes and vitamins.

The Vietnam Animal Feed Association (VAFA) said last year’s import made Vietnam’s feed prices 20-25% higher than that of neighboring countries. It has asked the government to reduce the import tariffs on maize to zero from 5% and to 5% on lysine from 15-20%. The government has not responded.

In 2004, Vietnam imported 1.1 million tonnes of soybean meal, mostly from Argentina and India, and 95,000 tonnes of maize, mostly from China. There are 182 animal feed and premix manufacturers in Vietnam. Of these, 138 are feed mills producing both finished feed and concentrates. Fifteen are foreign-owned and the rest state-owned and private enterprises.

The biggest foreign owned companies are Proconco and Tomboy of France, Uni-President, Taiwan, Cargill, U.S., and CP, Thailand, who hold the lion’s share of the market. WG