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Vietnamese Agriculture under Challenges
28 | 06 | 2007
The export value of Vietnamese agricultural products is increasing. While the export value of agro-forestry products stood at only US$400 million in 1986, it jumped to US$7.1 billion in 2006, an increase of 17.8 folds.
Many Vietnamese products have gained important positions on the world market such as rice, coffee, pepper, cashew nuts, rubber and wood products. The agricultural economic structure has been gradually shifted to a more profit based model, with export-oriented industrial crops, husbandry and food crops for processing in higher and higher proportions.
 
However, apart from opportunities WTO accession brings, agriculture in general and agricultural companies in particular are encountering challenges, from their own weaknesses and from the global liberalization process. At a recent seminar on improving the competitiveness of Vietnamese companies, Mr Diep Kinh Tan, Deputy Minister of Agriculture and Rural Development, said most agricultural enterprises have small and medium scales and more than 60 per cent of forestry companies have investment capital less than VND10 billion.
He said trading agricultural products in Vietnam is very risky, because agricultural products depend on weather, climate, and seasonal conditions, in addition to having a short shelf life and storage problems. To tackle these weaknesses, Vietnamese enterprises must have sufficient information and forecasts for both the Vietnamese and global markets. But, this is out of reach of enterprises and they need support from various sources, especially from the government. However, Tan said, the Vietnamese Government has done a little to help its agriculture and agricultural companies in this aspect.
 
Possibly, any commitments to open the market in the context of global trade liberalisation will trigger challenges to the agricultural sector. For example, the sugar industry will face a major challenge from the AFTA agreement, vegetable and fruits from the AC-AFT agreement, husbandry products and temperate fruits from WTO accession, facing competition with products from Australia, New Zealand and the US. Subsequently, enterprises with weak competitiveness like husbandry (cow, pig, poultry, dairy), processed foods and sugar will face more difficulties.
 
In addition to the market opening commitments, Vietnam also pledged to allow foreign companies to import and export agricultural products immediately after it joined the WTO (except for rice export until 2011). Multinational companies have strong financial capacity, distribution networks, good information, managerial levels and other advantages. When they enter Vietnam, they will pose great threats to Vietnamese companies. To survive, Vietnamese enterprises must reshuffle, merge or become satellite companies for foreign firms.

Trade liberalisation agreements Vietnam has signed:

ASEAN Free Trade Area (AFTA): Vietnam basically completed the tax cut on farm products under the Common Effective Preferential Tariff (CEPT) programme. More than 91 per cent of farm products have tax rates of 0-5 per cent. The average tariff rate on agricultural products was nearly 4 per cent in 2006, lower than the average MFN rate of 23.5 per cent.

 
ASEAN-China Free Trade Area (AC-FTA): Vietnam has reduced taxes on fresh and living farm products under the “Early Harvest” programme from January 1, 2004 to January 1, 2008. The “normal reduction” programme on the remaining products was effective from mid-2005. The tariff will be lowered to 0-5 per cent by 2013 and 0 per cent by 2015.
 
ASEAN-Korea Free Trade Area: Vietnam wrapped up negotiations in 2006 and will implement the agreement in the near future. Vietnam is also actively taking part in negotiations on a free trade area with Japan, India, Australia and New Zealand.
 
World Trade Organisation (WTO): Vietnam has made many commitments in agriculture. On domestic market opening, Vietnam completed taxes reduction on farm products to 20 per cent. The biggest cuts are on meat, milk, processed vegetables, fruits, processed foods and temperate fruits.


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