Vietnam Rice Sector and Policy development

Nguyen Luong Nhan

Content

Context of the report

Vietnam rice sector

Overview of the Rice Industry in Viet Nam

Policy development

A quite revolution under way

Vietnam

Trade organizations AFTA, WTO, APEC, ASEAN,FAO

Statistics GDP $198.8 billion (nominal, 2015 est.) $551.3 billion (PPP, 2015 est.)

GDP growth 6.68% (2015 est.) 

GDP per capita $2,073 (nominal, 2014 est.), $6,100 (PPP, 2015 est)

GDP by sector

Agriculture: 17.00%, industry: 33.25%, services: 49.75% (2015 est.)

Labor force 54.61 million (2015 est.)

Labor force by occupation

Agriculture: 44.3%, industry: 22.9%, services: 32,8% (2015 est.)

Main industries

paddy rice, coffee, rubber, cotton, tea, pepper, soybeans, cashews, sugar cane, peanuts, bananas, poultry, fish, seafood

.

Context of the report

Current interests in Vietnam

Farmer’s interests : increasing incomes, increasing production efficiency

Sustainable development, strengthening competitiveness, reducing production cost, reducing environmental pollution and post-harvest loss

To reduce production costs, and improve rice quality by promoting the adoption of “large-scale field rice model”

Exports too dependant on the Chinese market, while traditional markets are unstable

Increasing rice exports with new lucrative markets

Restructuring the rice sector

Branding the Vietnamese rice

Traditional policies

To ensure ensuring food security and export by maintaining the stable land area for rice cultivation at 3.812 million ha in the year of 2020

To promote sustainable intensification of rice production, to reduce water pollution, GHG

Policy on floor prices in favor of farmers

Rice procurement with subsidized credits

promoting mechanization, building storage.

Management of the right to export rice

To improve the quality of rice processing, drying, milling, storage

Upgrading the value chains

Supports for loans to purchase machinery, equipment for agricultural production at favor interest rate

I. Vietnam Rice Sector

1. Born with the Wet Rice Civilization

Viet Nam is located on the eastern end on the Indochina Peninsula, extending 1,650 km from North to South. It has a total land area of 325,360 square kilometers, with approximately 20-25 percent of the land used in agricultural cultivation. Despite the limited amount of land dedicated to agriculture, over half of the land is devoted to the production of rice. The total harvested rice area is 7484600 hectares, of which 3056900 hectares are winter-spring planting, 2179800 hectares are summer-autumn planting and 2247900 hectares are monsoon planting.

Rice is the staple food crop of Viet Nam and its proportion in cereal consumption is around per cent and in calorie intake more than 50 per cent. It is the most important crop in the agricultural sector. The area cultivated with rice accounts for 82 per cent of the total crop harvest area which represented about 7.7 million hectares. About 80 per cent of rural households grow rice, almost half produce a surplus for sale.

The main rice production areas are in the two deltas along the Red and Mekong Rivers, accounting for about 15 percent of total areas in the country but account for over two-thirds of rice production in Viet Nam

Rice sector plays a vital role, ensuring food security, economic and social stability in Vietnam. It is the most important source of jobs and incomes for about 10 millions of households living in rural areas. The rice sector experienced many opportunities and challenges.

Note: Success in all of our dynasties was judged by their ability to provide enough rice to the people. King Le Dai Hanh began the Lunar New Year in 987 by concrete action reflecting his respect and love for rice farming (This is reproduced every year by farmers). This tradition was followed by all kings of Le, Tran and Nguyen dynasties later on in the Red River delta, the heart of Vietnam wet-rice civilization.

Taking off with Market-oriented reforms

Vietnam switched from the collective agricultural production system to individual-oriented contract system in 1981 generating farmer’s creativity and initiative followed by sharp increase of rice production with an average annual growth rate of 5% during 1981-1986

The has been undergoing from 1989 a gradual transition from a centrally planned socialist to a market-oriented economy under the reform process for reform and renovation in the economy. This transition has been accompanied by high growth, macroeconomic stability and significant structural change. Further reforms have also been conducted by implementing policies of trade liberalization according to Viet Nam’s

commitments under the ASEAN Free Trade Area/Common Effective Preferential Tariff scheme , the Bilateral Trade Agreement between Viet Nam and the United States (USBTA) signed in July 2000, and as part of the negotiations to enter the World Trade Organization (WTO).

President Ho Chi Minh was transplanting

The Land Law in 1989 legalized the private ownership of farm assets and allocated the cooperative land to individual farmers for long-term use It allows farmers holders of land-use titles to have five rights: “exchange, transfer, inheritance, lease and mortgage”; land-use certificates were issued based on cadastral surveys. Farmers were allowed to buy, own, and sell agricultural inputs such as machines, buffaloes, and tools. They are no longer required to sell a large part of their outputs to the state at low price. Most direct subsidies and price controls were eliminated, interest rates set positive in real terms and the foreign exchange rate devalued.

The drastic increase in rice production and export since the late 1980s has transformed Vietnam from a food importing country to a leading rice exporter. In 2012, Vietnam exported 8 million tons of rice and ranked as the world’s second largest exporter, contributing to about 20 percent of world rice export. Nevertheless, the rice sector in

and enjoying a good harvest together with his compatriots

general and rice supply chain in particular has been facing various challenges. Rice value chains in general are underdeveloped from both a physical and institutional perspective, except for a number of emerging innovations initiated by farmers and private sector.

Despite of the rice supply chain is very dynamic and flexible to meet medium and low quality rice markets, it still has a number of weaknesses despite of government policies for the sector. The rice supply chain is fragmented in production, processing and trading with many layers of small-scale actors operating in the chain. The coordination of different actors along the chain is poor

The government has issued a number of policies to promote trading, consumption, and rice export, as well as improve the functioning and efficiency of the rice supply chain. These policies include: land policy; policy to stabilize rice price; policy to rice export control; and general support policy. Beside the positive results, these policies have a number of issues that need to be further improved, particularly rice export policies and farmer supporting policies.

2. Facing new challenges

Vietnam’s agricultural sector has made enormous progress. The reform process has resulted in significant changes in rice production and export. These changes have had important positive impacts on the economy and food security, but mainly negative environmental impacts. The negative environmental impacts of rice expansion and intensification suggest that the socioeconomic improvements due to rice production are not sustainable. Some agricultural growth has come at the expense of the environment in the forms of land degradation, water pollution, and increased greenhouse gas (GHG) emissions.

Concerns are also related to the quality and sustainability of agricultural growth and related patterns of development. Low quality of growth is manifested by low smallholder farmer profitability, mixed or uncertain product quality and food safety, low value

The agricultural sector now faces growing domestic competition, from cities, industry, and services, for labor, land and water. The consequences of over-intensive input and natural resource use, both for the environment and for farmer profitability – are being increasingly recognized. Vietnam’s agriculture will need to generate more economic value and more farmer and consumer welfare through a more efficient use of natural, human, and other resources. And it will need to increasingly compete on the bases of reliable supply, predictable quality, assured food safety and value addition.

Sustained agricultural growth will require structural changes in the pattern of production and supply chain organization. These are currently highly fragmented, with limited collective action at farmer level and weak direct linkages between farmers and downstream processors, traders, and distributors.

Change is also needed in the model of state management in the sector. A stronger and more sophisticated market orientation requires a change in the quality of technical and regulatory services provided by the state, in public investments and expenditures in the

sector, and in the policies applied to foster farmer and agribusiness investment. A demand-driven agriculture needs flexibility; it cannot be centrally planned. These changes are being spurred by changing market demand and opportunities, as well as fiscal considerations, the distinctive needs of a more market-oriented agriculture, and by lessons from past experiences.

3. High time for Restructuring, Modernization and Innovations

In June 2013, the Prime Minister approved the Ministry of Agriculture and Rural Development’s (MARD) Agricultural Restructuring Plan (ARP). The Plan calls for a shift in sectoral goals beyond output or trade targets to include a broader set of indicators related to the sustainable development. The objective is to increase rice farmer’s income, reduce negative environmental impacts from rice intensified farming, and enhance the competitiveness of the rice sector.

It lays a set of core principles to guide the sector’s development:

(i) agriculture will be market-led and consumer-driven, rather than state-directed and production-led; and

(ii) the government’s role will shift from being the primary investor/ service provider to being the facilitator of investments and services provided by the private sector, community organizations, research institutions, commercial banks and others.

With annual sales exceeding US$3 billion), yet, export gains are no longer translating into improved living standards for most of the Mekong delta’s 1.4 million rice-growing households, due to small farm sizes, excessive input use, a fragmented value chain. Current practices are yielding substantial environmental costs, through localized pollution and emissions of GHGs. Vietnam’s rice exports have largely targeted the lower quality (lower price) market segment, yet market opportunities and pressures are leading more agribusiness companies to focus on higher quality and speciality rice products. Achieving higher quality requires more direct linkages between organized farmers and these milling/ trading companies.

3.1. Supporting farmers

on a large-scale program on improved agronomic practices and management: Support to improve rice farming practices of small farmers and their organizations. Provision of

technical training for rice farmers through FFS, followed by establishment of and capacity building for farmer organizations. rice farmers will be trained on 3G3R – the most basic course. About 700 demonstration sites (i.e. FFSs) will be established to provide practical training for farmers. Awareness raising and information campaigns will be part of the training program to promote adoption of 3G3R, aiming that 70 – 75 percent of the trained farmers (i.e. 100,000 farmers over 150,000 ha) will adopt 3G3R by Year 3. Once farmers have adopted the basic techniques of 3G3R, the project then would assist them in forming cooperatives 4 (or other types of farmer organization [FO]) to move step-wise from 3G3R to application of the so-called ‘1M5R’ model.5 It is expected that some 150 FOs will adopt 1M5R.

Improved agricultural practices will be introduced to small-holder farmers. Rice farming in the MKD will deploy the 3G3R or the 1M5R which advocate for the use of certified seeds and for the reduction in fertilizer and pesticide applications and more efficient water use. Support for diversification out of rice will be based on better-informed farmer decisions and prevailing land suitability.

Integration of processes around rice cultivation may yield high livelihood and environmental benefits. Rice cultivation offers a suitable environment for fish and other aquatic organisms, and rice-fish systems have been applied. Aquaculture of insectivorous and herbivorous fish, such as grass carp can aid rice protection and decomposition of rice by-products. Ducks can act as a pest control; water buffalo provides fertiliser and can be fed on urea treated rice straw, allowing a more environmentally sound disposal method than burning. The success of this system is

dependent upon a reduced pesticide/fertiliser/fungicide load and works alongside integrated pest management (IPM) strategies. This system will also be more economically viable due to decreased input costs. Studies in the Mekong Delta show increased rice yields and incomes from integrated fish-rice systems compared with rice monocultures, furthermore IPM rice-fish farmers had the highest net income over non-IPM rice, IPM rice, and non-IPM rice-fish farmers, due to comparatively low costs and high yields in both rice and fish52. However, introduction of such a scheme should take into account the right of the landless to these fish resources. Community based fishery management is recommended; during the flooded period waters can be treated as community property, hence access is available as is access to profit if sold, depending upon participation.

training and demonstration on the basis of establishment and capacity building of farmer organizations;

support FOs in certified seed multiplication, leverage investments in collective harvesting and processing equipment and postharvest facilities to reduce post-harvest losses and improve their marketing position, and improve selected collective small scale infrastructure (roads, connecting electricity, pumps and irrigation, etc.) to maximize FO production system efficiency including crop rotations and by-products recycling; and

link them with agribusinesses to improve quality management and incentives for sustainable practices.

3.2. Supporting the private sector

supporting and leveraging private sector investments in upgrading rice processing technology and facilities for high value and quality rice through provision of medium- produce higher quality rice. It is encouraged to integrate dryers and storage facilities into rice processing plants in order to access export markets.

3.3. Supporting government agencies

In improving public services delivered to support farmer adopting improved agronomic practices and management: Provision of support to technical departments and concerned agencies of MARD and the different provinces to improve their extension skills, capacity and quality, enhance capacity of foundation seed production and certification, and monitor GHG emissions and measurements from the systems that will be adopted with improved agronomic practices. The technical services of the International Rice Research Institute (IRRI) will be provided to support MARD and provinces in designing and implementing activities.

II. Overview of the Rice Industry in Viet Nam

1. Rice Production

In Vietnam, rice is the most important food crop cultivated by more than 90% of rural households. Paddy cultivated area in 2012 was 7.74 million ha. Total paddy production in 2012 was 47.7 million tons.

Two deltas consisting of the Red River Delta (RRD) in the North and the Mekong River Delta (MRD) in the South contribute to 72% of total rice production.

Currently, the surplus of rice supply in Vietnam is concentrated in the “Core Rice Belt’ in six provinces in the MRD

‘Core Rice Belt’ in Six Provinces in the MRD

The sector is dominated mainly by small-scaled farmers. Small size of land holding and fragmentation are proven to be inefficient to production: They are the big constraints for technology innovation, affect land use method and the efficiency of the input use. The

following figure describes cost and profit of rice production by farm-size, in which cost is decreasing and profit is rising as rice farm-size is increasing.

Cost and Profit by Rice Farm Size

2. Rice Consumption

Rice serves for three purposes: food uses, animal and aquaculture feeds, and industrial uses. Rice consumed directly in everyday diet represents about 30 percent, while the share of feed and industrial uses accounts for only about 7 percent of total output.

Rice represents for 55% of the average Vietnamese intake. Per capita rice consumption in rural area is 25 percent more than in urban area.

Even though per capita consumption is declining, total rice consumption continues to grow due to population growth and the use of rice in home-made animal and aquaculture feeds, as well as the growth in food processing industry..

3. Rice export

Vietnam is a net rice export country. In parallel with the increase in rice production, rice export has increased rather rapidly since 1989 at a faster pace than production.

In 2013, among 8 million tons of rice exported, 2 -10% broken rice accounts for 44% followed by 15-25% broken rice (24%). Aromatic rice and others account for 14% total export rice volume of Vietnam. There has been an increasing trend in export of fragrant rice in recent years, while export of low quality rice (25 – 50% broken rice) is decreasing.

Although the quality of rice export has improved a lot with more than 44% of total rice exported being of high quality (2- 10% broken) compared to 90% of low quality (35 to 45% broken) exported in 1990s: export of high quality rice such as Jasmine accounts for a modest proportion of total rice export, only 6%.

Rice production and export (1000 tons)

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Vietnam rice export 2001 – 2012, Source: GSO

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III. Development of Rice Policies over past decades

1. Policy Objectives

Because of the importance of rice sector in agriculture and rural development, ensuring food security, economic and social stability, government regards rice as the most important sector in Vietnam. The government sets 4 objectives for rice sector policies, including:

To ensure national food security and price stabilization, To increase incomes and livelihood of rice farmers and the sector

competitiveness towards modernization and sustainability, To effectively use resources of land, water, labor and capital.

2. Policy formulation in the rice sector

MARD is the preeminent ministry. MARD and the Government Office share the coordinative power in formulation process. is responsible for drawing policy draft, holding policy consultation, finalizing the policy draft before submitting to the PM

MOT and MOF are key actors for issues like rice exports

MPI also involved in the decisions, as rice is a strategic commodity

The Central Institute of Economic Management within MPI is involved because it plays a key role in the reform process

The implementation of policies remained limited, due to lack of financial resources, human resources. A mechanism to evaluate the policies’ impact and effectiveness is needed for timely policy adjustment and amendment.

some limitations related to effectiveness; overlaps and inconsistencies still exist

3. Policies aimed at ensuring national food security and price stabilization

3.1. Set floor prices to ensure a minimum profit equal to 30% production costs for farmers

In Resolution No. 63 NQ-CP dated 23/12/2009, government emphasizes on raising incomes for rice producers, ensuring that rice producers will earn a profit of more than 30% over production costs. The government encourages enterprises to buy rice from farmers at the price that guarantees farmers’ profit of more than 30% over production costs is guaranteed.

Following-up Resolution No. 63, Government issued Document No. 430/TTg-KTN dated 12/3/2010 requesting the provincial people committees, based on the guidelines of Ministry of Finance and Ministry of Agriculture and Rural Development on rice production cost and cost price, define the rice production costs and set the appropriate reserve price for every season and region by adding 30% to its cost price as orientation for companies to buy paddy rice from growers.

The Government applies policies to make the companies concentrate on buying paddy rice in three months (August, September and October) at the amount of some 2 million tons at market price for National Food Reserve, temporary stock, consumption and export to promote demand with the aim to gradually increase the price to the level set by the provincial people committees. After that, the rice buying is processed normally at the price greater than the reserve one.

The loan interest needed to buy the above-mentioned quantity of paddy rice for temporary stock is totally provided by government from its budget at the first stage (1-2 years), then from the rice stabilization fund when capable enough.

The measures promote companies to buy rice directly from growers and therefore increase their income and prevent the rice overproduction that affects the market price.

However, there are a number of obstacles to implement this policy in practice:

It is difficult to calculate paddy price since there are many unseen/ uncalculated costs such as agriculture land lease, loan interests and risks involved.1 In addition, the production cost structure of different rice varieties is heterogeneous. Therefore, one floor price level set by a provincial People's Committee may cause disadvantage to producer groups having higher production costs resulted from producing different type of rice.

It is difficult to control enterprises’ procurement at the set floor price in practice. This policy has been applied mainly in the Mekong River Delta, not for other

regions.

Difficult to farmers gain a profit of 30% over production costs. According to the survey of Crop Production Department in MRD, profits that farmers received at

1

the set floor price of 4000 VND/kg of paddy for different type of rice varieties are lower than a 30% profit set by the government.

Fluctuations of rice prices from 2008 to 2012

Source: AGROINFOR, 2012

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3.2. Policy on rice procurement for temporary storage

Content:

Provide enterprises procuring for temporary storage with free-interest credits for 3 months.

The volume of rice for procurement is proposed by VFA at market price to stabilize domestic market and export. 

When market rice prices fall below the price which is announced by the People's Committees of provinces and cities, Government establishes the rice price stabilization fund and allows enterprises to use this fund to purchase rice for temporary storage. The

goal of Government is to increase demand in the market to ensure that farmers earn a profit of more than 30% over production costs.

Despite efforts of government in supporting farmers to improve their income, the effectiveness is limited for farmers do not sell directly to exporters, but through middlemen. The beneficiaries of this policy are enterprises, banks and traders rather than the targeted farmers. The rice market of Vietnam is complicated with participation of too many players: the rice growers, collectors, huskers and polishers, wholesalers, retailers, companies etc. Rice is mostly sold from the growers to collectors or the private husking and polishing plants, with only a very small part of rice being sold directly to the state-owned companies.

3.3. Policy for restricting the conversation of rice-fields to other crops

Content: With a view to keeping the rice cultivation areas at 3.8 million hectare up to 2020 thus ensuring food security, restrictions are used on the conversion of rice land to other activities: that means not farmers but the government makes decisions about land use and crop choice.

his policy is important when land use planning is dominated by powerful economic forces and pressures of industrialization and urbanization process and agricultural land, particularly rice land often transformed for other uses.

The lessons learned: these restrictions pose a serious constraint on the production and the export of the rice sector in connection with liberalization of the rice policy regime. The Government’s attempt to control the diversification of the agricultural production by managing the allocation of land among the different sectors is leading to an agricultural production structure that does not reflect the country’s comparative advantages.

3.4. Restrictions on conditions to export rice for private sector

Export quota was used as a control on the volume of rice exports during first years, then replaced by export tax. In addition, the Government sets restrictions for private companies to be certified to export rice as follows

Enterprises must have more than 5000-ton specialized storage Own at least a milling factory with capacity of over 10 tons per hour They must maintain minimum storage, equivalent to 10% of export volume of rice

in 6 previous months.

Removal of internal rice restrictions

While the Mekong Delta region produces a rice surplus, in the northern provinces there is a rice deficit. Restrictions were put in place to ensure interregional equity in terms of security of rice supplies and to control illegal exports. The restrictions were mainly enforced in the form of fees, taxes, police checkpoints, permit requirements, and explicit bans. These measures all acted as a tax on internal trade in rice because they increased costs. Restrictions on domestic trade in rice were removed in 1997. Government Decision No. 140 (1997) abolished licensing and the control of domestic food transportation, and allowed farmers to buy, process, transport and conduct business activities for domestic consumption.

Rice export policy development

Trade policies such as export promotion, the replacement of quotas by tariffs, and the reduction of trade barriers were reformed. By 1998 the import management of consumer goods shifted to tariffs rather than quotas or licensing, although seven categories of goods remained under quantitative restrictions. Customs tariffs were introduced in 1988, and the number of tariff lines and tariff rates increased The effective rate of protection for some industries was quite high because tariffs on inputs and capital goods tended to be quite low while tariffs on consumer goods were high. Although the average tariff rates did not seem out of line compared to other developing countries, most of the imported items were in the high tariff bracket (between 30 and 60 per cent) and formed the bulk of State tariff revenues Similarly, the export tax structures were complex and suffered from frequent changes. In 1999, there were 12 rates of tax ranging from 0 to 45 per cent, with an average rate of 14 per cent. Private companies were first allowed to engage directly in external trade in 1990/1991 and the trade licensing procedure for enterprises was progressively simplified throughout the decade. In 1998, the Ministry of Trade totally eliminated the licensing requirement. This allowed the foreign invested enterprises to export goods not specified in their investment license, and domestic enterprises to export their production directly without an export/import license. However, the range of goods traded was limited by the scope of the activities that were recorded on companies’ business registration certificates.

Removal of quota on imported fertilizers

Vietnamese rice production uses around 9 million tons of inorganic fertilizers per year, mostly imported.

Relaxing and removal of rice export quotas

The Government has controlled the volume of rice exports since Viet Nam re-entered the international rice market as an exporter in 1989. The quota is based on estimates of domestic supply and demand and is set each year by MARD, the State Planning Committee, and the Ministry of Trade. The right to export rice under the national quota was allocated to two regional state-owned trading enterprises and a number of provincial state-owned trading enterprises. The provincial Government was authorized to allocate the quota after the reform of quota allocations in 1997.

Evaluation

future growth in the rice sector depends on exports and export expansion depends not only on trade liberalization but also on the development of an effective marketing system able to meet the changing needs of domestic and international markets

Land Law

Resolution No. 10 of 1988 identified the household as the primary unit of agricultural production, giving them long-term land-use rights. It initiated a process of allocating collective land to individual households.

The Land Law of 1993 formalized the rights of households to rent, sell, inherit, mortgage, or transfer their use-rights. It also established a system of land-use certificates to be allocated to households. By 1999, 10 million households (87 percent of the agricultural households) had been allocated certificates for 5.7 million hectares (78 percent of the agricultural land).

Even though land can be used as collateral in accessing bank credit, in practice this is not yet resulting in an expansion of rural credit. Use of land as collateral is limited by the ability of banks to auction land. This constrains the link between credit and land market and slows down the expansion of rural credit.

Lessons learned

The equal distribution of land assets is a key ingredient for the poverty-reducing effect of market reform. While in other Asian countries the proportion of landless is around 20 percent of the population in rural areas, in Viet Nam the landless population is around 2 percent. Thus, an increase in the rice price would generally imply an increase in income for majority of farmers.

Contract farming

Decision No.80 issued by PM promotes contracting between agribusinesses and agricultural producers, regulating all contract of farm produce, incentives encouraging and remedies in cases of default, and responsibilities of concerned local governments and agencies.

Signed contracts serve as the legal basis for the responsibilities and obligations, protecting the rights and legal interests of actors.

Those enterprises joining farming contracts enjoy following incentives

shall be allowed to use land free from rent, for the implementation of construction works for processing factories, storehouses, accommodations for workers…

shall be granted priority for participating in the implementation of exporting contracts on agriculture products or in temporary storage of agriculture product programs of the government.

shall be supported a part of the expenditures of the enterprises in irrigation, electrical system for large rice-field consolidation

Enterprises shall be supported a maximum of 50% of the expenditure on training and technical guidance for the farmers under contract.

Farmers organizations enjoy

shall be allowed to use land free of rent if for the implementation of construction projects (drying, processing, storage) for consolidated large fields

granted priority in export contracts or temporary storage by government

supported 50% of the training fees and technical guidance expenditures

For farmers incentives

Free technical training, free market information

shall be supported seeds for the first crop in large field consolidation

Farmers shall be supported 100% of the storage expenditure in enterprises with maximum duration of 3 months.

Irrigation

Even though the total rice cultivation area has decreased, the irrigated rice area and the harvested rice area have been increasing since 1976 as Vietnam attaches great attention to irrigation systems. 85% of rice areas are irrigated.

The improvements in irrigation and drainage in the Mekong River Delta have allowed single rice cropping system during the rainy season to double and triple rice cropping system

During the process of shifting from self-supporting production to highly intensified rice systems there has been a total investment of ~125 trillion VND in irrigation infrastructure during the last four decades with more than 100 large to medium scale hydraulic works and more than 8000 other irrigation systems (reservoirs, irrigation and drainage gates and pumping stations)

In term of Institutional development, the Vietnamese government still has the major institutional predominance. Since the 21st century the policy of irrigation management transfer led to the establishment of water user associations (WUAs) and the development of participatory irrigation management (PIM). WUAs gain responsibilities for commune and inter-commune branch canals and structures and  PIM has been introduced in provinces supported by international donors. Irrigation service fees were collected until 2008 and abolished afterwards

The irrigation sector faces great challenges. High amount of water losses due to insufficient irrigation systems and structures which lack maintenance. The current status leaves much to improve the system towards a sustainable irrigation management. The participation in international conferences and the trend of the government to decentralize and implement a participatory based irrigation management suggest that this country is willing to develop its policies further for long-term food security and saving natural resources.

In term of legal framework, the Law on Water Resources (from 1998)  provides rules and regulations for the use of water resources for irrigation. The Ordinance for the Exploitation and Protection of Irrigation Works and different secondary regulations are about water use and the protection of water resources

New trend in irrigation

The trend is decentralization concerning irrigation management with announcements on irrigation and management transfer and different guidelines concerning the WUAs and PIMs. Main infrastructure and complex systems will remain under the responsibilities of

IDMCs while WUAs gain the responsibilities for commune and inter-communes structure.

The Ministry of Natural Resources and Environment (MONRE) is recommending a shift in policies from supply-focused to demand-focused approach: the (re)implementation of fees, duties and tax policies. These are supposed to reflect the real costs of a water unit in order to ensure the security and sustainability of water services.

Agricultural R&D

Funds from State budget to Agricultural R&D keeps increasing, though still small compared to the Asia-Pacific region (0.41 of State budget). Over US$ 50 million (0.2% of the whole State budget) is disbursed every year through MARD for R&D projects in agriculture. Rice remaining top priority, other topics include crops, livestock, water resources and land use planning.

Additional funds through joint research projects by foreign donors and international organizations (World Bank, ADB, Belgian Development Corporation, DANIDA, the Ford Foundation, SIDA, AusAID, JICA, CIRAD, ACIAR, FAO…) come to support.

Researcher numbers in Vietnam steadily increase to 12,000 by 2013 working in supervised by MARD in 12 institutes (: the Vietnam Academy of Agricultural Sciences (VAAS), the Highland Agricultural Research Institute (HARI), the Institute of Agricultural Policy and Strategy (IAPS), FSIV, VIWRR, NIAH, NIVR, IAEPHT, SIWRR, IAS, MRRI, and SOFRI) and nine higher-education agencies.

More than 50% of researchers are postgraduate, including MSc and PhD. In some institutes, more than 30% of researchers have been trained overseas (Belgium, Holland, Germany, Australia, UK, USA…)

Trend of cooperation and networking

Cooperation between universities of agriculture across the country

Cooperation between MARD research agencies and universities of agriculture

Cooperation between MARD research agencies

Cooperation between MARD research agencies and international research institutes. Research agencies with a focus on rice collaborate with the International IRRI and Asian national rice research institutes

The involvement of the private sector is modest but increasing, mostly to cash crops

Trend of reorganization and merging

The total number of agricultural R&D agencies under MARD reduced from 28 to 12 with a view to avoid duplication of research efforts.

Farming Extension

In 1993, the Government decided to found a public extension system, NFEC has 40,000 staff at national, provincial, district and commune levels, or 1 public extension worker per 280 farming households on average and a total annual funding of around 20 millions USD or nearly 2USD/farming household/year with the following tasks

Technology transfer from research institutions: the introduction of new or improved techniques and seeds to farmers (e.g. high-yield varieties of rice)

Advisory services: on-site diagnosis and problem-solving to help farmers improve their current practices,

Facilitation: helping them farmers solve their own problems, often through guided discussions and field trials, demonstrations to identify appropriate technologies

Building farmer-led and demand-driven extension

Market information to farmers

Field-based participatory learning activities (farmer field school).

The market reform cannot be translated into actual growth unless other institutional conditions are in place. In the case of Viet Nam, these conditions was a relatively good irrigation and extension system.

Policy related to tax

In order to encourage individuals/groups to invest in agriculture, they enjoy lower income tax and lower tariff and

Import tax exemption for goods served as inputs for agriculture and fishery production projects (such as seeds, animal breeds).

Value Added Tax exemption for raw or semi-processed agricultural products, seeds and animal breeding, agricultural services (land preparation and harvesting). VAT tax rate of 5% is applied for many agricultural inputs and rice

2 main areas that agriculture investors enjoy preferences and supports from government: Investors enjoys lower rental or zero rental on renting land, supports on renting land up to 50% in the first 5 years

Labor training costs up to 100% for small enterprises investing in special areas

Market development: supports can be up to 70% of total cost of advertisement

Consultant services: supports up to 50% cost of consultant services in areas of investment, law consultant, R&D, and others

R&D: supports up to 50% cost of research projects for new technology

Transportation: up to 50% actual transportation cost, under certain conditions

Furthermore, there are additional incentives for projects involving technology transfer in difficult socio-economic areas in accordance with the law.

Policy related to credit

Investors doing business in agriculture can avail state credit amounted up to 70% of the investment project (fixed) capital, term of loans could be maximum of 15 years for special project), fixed interest rate during term of loans.

In addition, there are subsidized credit for investors in agriculture stipulates that farm households, individuals, cooperatives and enterprises enjoy subsidized credit when purchasing assets for agriculture production and house construction in rural areas.

Poor farmers can borrow at rate of 4% per annum from Bank of Social Policy and Commercial farms can borrow up to 500 million VND without collateral from Agribank.

Direct payments and subsidies under various forms

Content:

Supporting 500.000 VND/ha/year for organizations, households, privates producing on specialized land of wet rice;

Exempt poor households and agricultural households in difficult communes from agricultural land use tax

Reduce 50% of agricultural land use tax for the rest of households

Credits with subsidized interests to buy machines, materials for services in supply chain (plough, harvesting…)

Exempt from irrigation fees

Invest in general services in science technology and agricultural extension

Poorest have access to subsidized credits of Bank for Social Policies

Free vocational training

Production inputs given free or subsidized by pro-poor national and international programs (less and less applicable)

Lessons learned

Direct payments and subsidies of any sort to farmers are not the efficient use of State scarce budgetary resources. However, it is understandable these instruments are used poverty purposes and not for raising the national competitiveness.

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IV. A quite grass-root revolution under wayLike in some other developing countries, the reaction to the needs of reality of policy-makers is fairly slow. As a matter of fact, various innovations have started successfully, waiting to be institutionalized by Government policies before multiplication.

1. Rice and flowers

These flowers in rice fields in Mekong Delta look pretty, but their main purpose is to attract friendly insects that kill pests.

About 4,000 farmers in the provinces of An Giang, Vinh Long, Kien Giang, Ben Tre and Long An, Can Tho, have planted flowers along their paddy fields of around 2,000ha (Viet Nam Farmers Association).

Farmers said the cultivation of flowers near rice fields and the use of advanced farming techniques helped raise profits by VND3 million ($140) per hectare per crop due to reduction of production costs and higher price of rice .

2. On farm diversification into flowers and clean vegetables

Coming to the flower village of Sa Dec, Mekong delta at anytime of the year, tourists seem to be lost in a fairyland, full of colors and aromas of diverse flowers and plants, namely dahlia, hydrangeas, orchids, areca, wrightia religiosa, Hibiskus rosa-sinensis and African marigold. The village also boasts several varieties of roses with different colours of red, violet, pink, white and orange.

Thanks to a favorable climate and fertile soil together with the great passion of the locals for flowers, the trade of growing flowers has strongly developed and turned the village into the largest flower growing area in the south. Each household can earn hundreds of millions of dong from each hectare of flowers.

After years of development, Sa Dec has now over 212.4 hectare of flowers.The village’s flowers are transported by boats on the Tien River to other provinces in Cuu Long River delta and Ho Chi Minh City, and even are exported to Laos, Cambodia and China.

3. Rice, Duck & Shrimp Rotation Farming of the Mekong Delta

There is a farming system in Mekong Delta of Vietnam which is ‘Rice-duck and shrimp rotation farming’ in the Ben Tre Province. Farmers used to plant paddies, raise ducks and catch small creatures in paddy fields to maintain food self-sufficiency.

Farmers developed new rotation farming to reduce disease risks of shrimp farming and to improve the local environment. Now farmers use paddy fields for breeding shrimps in the dry season and for growing rice paddies in the rainy season.

4. Restoration of Deepwater rice

Deepwater rice – also known as floating rice − is native to the Mekong River Delta and held significant cultural, ecological, environmental and historic value.

In a new initiative, farmers, with support from university researchers plan to re-expand the area under floating rice cultivation. This is sparked by the recognition that floating rice has multiple ecological, social and economic values that are very relevant to rice production in contemporary Vietnam. The farmers plan to develop niche markets for the rice grain in Vietnam and abroad, and create an eco-tourism centre

Floating rice is first grown on rainwater until flooding occurs in mid-August. As the flood water level rises gradually the rice plants stalks lengthen to follow the rising water upwards. When the water level recedes in November, the rice plants lie flat on the ground, flower and produce grain which is then harvested in December. During the flood

Farmers collect freshwater fish in the floating rice fields

season, farmers also harvest wild fish inside the flooded fields. The average rice yield is from two to two and a half tons per hectare. Farmers store some rice seeds in their homes for growing the next crop.

The floating rice system is unique among other rice systems in Vietnam because no pesticides and only a small amount of chemical fertilizer are used. Because of this, farmers and consumers perceived that floating rice is very good for health. This is in contrast to the high-yielding varieties of rice that grow three to four crops per year and that are agrochemical intensive. As the high-yielding varieties rice has replaced the floating rice, farmers have observed that the wild fish have also seemed to disappear. These wild fish were rich protein sources, especially for the poor whose daily meals had relied on fish catch.

Economic benefits

Regarding economic benefits, although the yield of floating rice is quite low, the net return is relatively higher than that of the winter-spring and summer-autumn high-yield variety rice crops grown by other farmers.

Environmental benefits

The floating rice–upland vegetables cultivation system provides several significant environmental benefits. The floating rice area provides an important habitat for freshwater fish and birds

Floating rice creates large amounts of straw which in the dry season is used as a mulch to cover soils on which vegetables are grown. This conserves soil moisture that is then utilized by these crops. It also adds to soil organic matter and thereby returns nutrients to the soil. Furthermore, this agro-ecological system can both reduce greenhouse gas emissions and sequester carbon, because farmers do not burn the straw.