Where it’s needed
Vietnam has constantly struggled to attract FDI to its agriculture sector despite being an agricultural country.
Vietnam’s agriculture sector welcomed some positive news at the close of 2017, with the FLC Group working with Japan’s Farmdo Joint Stock Company to boost the country’s high-tech solar farm network using one of the most advanced technologies in the agricultural sector applied in many countries around the world.
Farmdo Chairman Mr. Masayuki Iwai said the high-tech agriculture-electricity hybrid model has received strong support from the Japanese Government and the company is ready to bring the modern technology to Vietnam. “We are very much interested in the potential of agriculture in Vietnam because of its good natural resources and agriculture promotion policies,” he said.
Mr. Trinh Van Quyet, FLC Chairman, said the signing of cooperative agreements with high-tech agricultural enterprises from Japan such as Farmdo is a necessary step in improving productivity and moving away from traditional production methods to create quality products.
Sector of potential
Vietnam’s potential in agriculture, according to Mr. Quyet, is evidenced by its fertile soil and tropical monsoons and the government’s efforts to develop the sector. “High-tech agriculture is a government-focused sector that facilitates development,” he said. “The Prime Minister has recently directed a credit package of about VND100 trillion ($4.4 billion) for high-tech agriculture,” according to Mr. Nguyen Anh Minh, Deputy Director of the International Cooperation Department at the Ministry of Agriculture and Rural Development (MARD).
The number of foreign companies in the sector is rising. The Kato Group is working on a project in tuna fishing worth more than $770,000, from now to 2020. The OTA Kaki Company has undertaken a project in the central highlands’ Lam Dong province to develop high quality flowers and an effective distribution system. The Bejo Financial Group from the Netherlands, meanwhile, is investing $11.5 million in Lam Dong province to produce and export the highest quality vegetables in Southeast Asia, and the Dalat Hasfarm Co. has also invested $25 million in implementing Vietnam’s largest flower project.
Mr. Atsusuke Kawada, Chief Representative of the Japan External Trade Organization (JETRO) in Hanoi, said that Japanese investment will increase in Vietnam’s agriculture sector in the future. “Enterprises see Vietnam as an attractive market and many will make investment decisions shortly,” he explained. “Their focus is on areas such as technology transfer, equipment supply, seeds, greenhouses, dried fruit, fresh vegetables, and flowers.”
Though Vietnam is recognized as an agricultural country and FDI projects are indeed being implemented, the amount of foreign investment remains low. At the macro level, Vietnam’s agriculture sector has major potential but is fragmented, and most FDI projects are small and primarily in seafood processing and fruit and only in certain localities, according to a report from the Foreign Investment Agency (FIA) at the Ministry of Planning and Investment (MPI). There are no foreign giants investing in large-scale cultivation at the moment.
Vietnam’s main investment partners in agriculture are Japan, the US, and South Korea. Agriculture value is quite a deal lower than potential, and an over-abundance of livestock and poultry projects has slowed down the pace of agricultural development.
Agreeing with the FIA report, Mr. Tran Xuan Dinh, Deputy Director General of the Department of Crop Production at MARD, said that FDI as well as support for agriculture are scattered in Vietnam. He emphasized with VET that total FDI in agriculture, forestry, and fisheries as at November 2017 totaled 511 projects with registered capital of $3.4 billion, which places the sector 12th in project numbers and 10th in capital among all sectors attracting FDI over recent years. FDI to agriculture, for example, is less than one-tenth of the capital in manufacturing, electricity, gas, and motor vehicles. “The share of FDI in agriculture has risen slightly, from 0.6 percent of the total in 2012 to 0.8 percent in 2013, 1 percent in 2015, and 1.2 percent in 2016,” he pointed out. “But this is far too low compared to potential.”
Barriers to overcome
It’s also clear that both Vietnamese and foreign agriculture enterprises continue to face difficulties when operating in Vietnam. The greatest challenge is importing high technology for agricultural production from developed countries due to issues relating to intellectual property rights, which has a negative effect on modernizing the sector.
The problems are varied. “Many South Korean businesses are looking to invest in agriculture in Vietnam, because the recently-signed free trade agreement (FTA) removes tariff barriers for agricultural products heading to South Korea, but they have difficulties finding suitable locations and have concerns about collection, storage, and transportation,” said Mr. Hong Sun, General Secretary of the Korean Chamber of Business in Vietnam (KORCHAM). He added that preferential policies in agriculture, such as infrastructure support and human resources development, are only available to domestic small and medium-sized enterprises (SMEs), not FDI enterprises.
The FIA report also identifies administrative procedures as a major factor in foreign investors being uninterested in agriculture, as they can often take several years to complete. By the time projects are licensed, the technology to be used has become outdated or even obsolete. Local agriculture enterprises also lack high-level scientific staff to conduct in-depth research. Investment is also hampered by low financial capacity and limited knowledge.
Mr. Dinh emphasized four main factors. Vietnam is among the countries most affected by global climate change, which makes investors hesitate. Farm sizes tend to be small and scattered, leading to difficulties in using machinery and advanced science and technology. Administrative procedures are still too complex, and it’s hard to come to agreements with farmers. “Many foreign enterprises have told the ministry that farmers too often disagree about land planning and farming practices and can’t be persuaded otherwise,” he said.
Agriculture is a strength of Vietnam and a key economic sector, so solutions simply must be identified. From the enterprise perspective, Mr. Nguyen Viet Hai from the Pan Group in Ho Chi Minh City said that support policies are needed to create equality in the business environment for foreign enterprises and support both domestic and foreign enterprises, while those on land allocation should be reconsidered. “There should also be incentives for enterprises to invest in remote areas,” he added.
Mr. Kawada emphasized that information on Vietnamese enterprises should be regularly updated on websites, which would help investors have accurate information when researching the possibility of investing in Vietnam. “We will also cooperate with authorities in Vietnam to actively assist Japanese enterprises interested in Vietnam,” he said.
Mr. Dinh said that MARD has created specific strategies for attracting FDI into agriculture, which have been submitted to the government for approval. The ministry will coordinate with MPI to revise, amend, and supplement existing regulations that are not suitable with Decree No. 210 on encouraging enterprises to invest in agriculture and rural areas.
Because land policies are among the greatest barriers for foreign enterprises investing in agriculture, he said, MARD will propose the National Assembly and the government consider revising land laws to remove constraints and create the conditions necessary for both domestic and foreign enterprises to invest in agriculture and rural areas. “A specific policy on agricultural cooperatives is being urgently drafted for submission to the government for issuance shortly,” he added.
There are four fields receiving incentives, he said: the production and development of plant varieties and animal breeds; the production of auxiliary materials to create high added value; the production of food supplements for animal feed production, technology for environmental treatment breeding, and production equipment breeding facilities; and the full processing of agriculture, forestry, and fisheries products.