Sustainable Agricultural Practices in Vietnam: A Supply Chain Perspective of Organic Vegetable production in Hanoi

Navin K. Veerapa Tran Manh Chien

Graduate School of Management Vina GAP

La Trobe University Hanoi

Bundoora Vietnam

Australia

Keywords: Supply chain integration, certification, Vietnam

Abstract This research paper examines critical dimensions of the production and

supply-chain methodologies employed in the production and distribution of organic vegetables in the Hanoi Region of Vietnam, framed against current accepted sustainable agricultural practices. This paper provides significant insights into organic and sustainable vegetable production by giving a voice to the relevant protagonists on the ground. Current agricultural literature on sustainable agricultural practices in Vietnam is dominated by aquaculture, tea, coffee and rice. The methodology employed is qualitative and is based on an extensive literature review and interviews with organic growers and selected channel intermediaries. The paper explicates the extant supply chains and identifies the associated distribution systems employed by farmers. It proceeds by assessing the state of organic vegetable supply chains in the Hanoi region and evaluating the strategies being adopted by the key players in the sector. It further assesses the relevance of sustainable vegetable production systems in Vietnam by examining current state of organic farming in Hanoi. While the Vietnam government heavily promotes sustainable agricultural production, it was found that no structured and sustained effort is being exerted in the area of distribution and marketing of organic vegetables. Critically the communal land distribution system presents major implications for the future of sustainable organic vegetable production practices in Vietnam. Therefore recommendations are formulated in the areas of supply chain integration, land development and certification of organic vegetables in Vietnam.

INTRODUCTION This paper establishes the context and relevance of organic vegetable farming in the Hanoi region of Vietnam by exploring historical turning points, business culture, supply chain practices and provides a wealth of insight into the operations of the actors on the ground. It is organised to provide the reader with a multi-disciplinary lens with which to understand the underpinnings of organic vegetable production and its inbound and outbound supply chains.

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Food and Vietnamese History During prolonged periods of war, starvation became a central theme to the Vietnamese existence. Ironically, food, which was once the cornerstone of community and family experience, had turned into a scarce source of survival for which neighbours competed as the communal culture that evolved over millennia was broken down by the simple lack of food. Starvation had taken its toll and profoundly shaped the Vietnamese culture (Templer, 1998). After the Vietnamese victory in the Vietnam-American war, the country became unified under the socialist leadership of the affectionately dubbed ‘Uncle Ho’ when the north assumed political and administrative control over the more developed southern part of Vietnam. This dramatic change saw Vietnam becoming heavily influenced by its communist allies thereby leading to the institutionalisation of the communal nature of its social fabric including land allocation. This war scarred history had the effect of bringing the peoples of the north and south of the country closer together and fostered a rare type of national patriotism that is uncommon in most modern societies. This form of nationalism has been a crucible for the socialistic governmental rule that has had a great influence on the Vietnamese culture especially in terms of the egalitarian and collectivist nature of the society. However, with Russia and China’s socialist influence, Vietnam became even more fully a collective society with complex interaction patterns centred on the family and clans (Smith and Pham, 1996).

Government policies, Food and supply chain reforms During the period between 1975 and 1986 while the government was fiercely pursuing its socialist agenda people were malnourished and starving. Although the unique brand of socialistic communism practised in Vietnam did not disappear, from 1986 onwards, the Vietnamese governmental ‘renovation’ policies called ‘Doi Moi’ have slowly been promoting a more capitalistic with free-market enterprises for the first time in decades. The late 1980’s and early 1990’s saw continued opening-up of the communist government rewarded by the lifting of the U.S.A.’s 30-year trade embargo in 1994; the embargo virtually crippled the country as capital and expertise were not allowed to flow into the country. Agricultural reforms included more secure land tenure, direct access by farmers to markets, decentralisation of input supplies and individual decision making (Jansen et al., 1996). This led to a comprehensive reform of the supply chain of vegetables in Vietnam that recognised key input factors to be land, water and labour and the main outputs to be quality, abundance, reliability and profits. In 1995 Vietnam joined the ASEAN group of nations and by 2007 it was admitted to the WTO. Since, Vietnam has been actively involved with the United Nations and is now one of the fastest growing economies in the World (World Bank, 2010). For a country that was until recently plagued by famines, it has accomplished the impressive feat of becoming the world’s 2nd leading rice exporter (Dawe, 2008), an amazing accomplishment for a country with a history of famines. Reports from the Vegetables and Fruits Research Institute note that vegetable farms covered 643,970 ha in 2006, with an estimated 9.65 million tones of output and an annual vegetable export value averaging between US$235 and $300 million, the main markets are mainland China, Taiwan, South Korea and Japan (Ebrahimi, 2007).

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Towards Sustainable Vegetable Production The per capita daily consumption in Vietnam ranges from 274g to 307g, which is twice the ASEAN average (Johnson, et al., 2008). Traditionally vegetables are procured at wet markets that still operate widely today. Although customer demands are getting more sophisticated, wet markets are perceived as providing fresher vegetables cheaper and at more convenient locations. However, this production is not subject to control of quality and hygiene (Shepherd, 2005). Recognizing that contaminated vegetables may have been the source of illness and disease outbreaks in the past, in early 2007, the Ministry of Agriculture and Rural Development issued strict regulations on production and certification of clean vegetables labeled SAFE (Ebrahimi, 2007). In the same year in Hanoi, about one hundred and eight out of 478 vegetable farms were found to have insufficient conditions for clean vegetables produced with clean water and limited pesticides. SAFE vegetables are typically sold 5-10 % above wet market prices (Ebrahimi, 2007; Simmons and Scott, 2007). The Plant Protection Department of the Ministry of Agriculture is responsible for certification of SAFE vegetables and random sampling to monitor the levels of pesticide residues (Simmons and Scott, 2007). Although wet market continues to thrive, this has led to the advent of more sustainable agricultural practices based around Good Agricultural Practices (GAP) (Phan et al., 2005). Agricultural Extension Centre’s provide training and start-up funds to farmers to assist in embedding sustainable practices such as integrated pest management, composting, farm screens and crop rotations. Support could also be obtained from non-governmental and other donor agencies such as ADDA (Agricultural Development Denmark Asia), a major Danish not for profit organisation funded by DANIDA (Danish International Development Agency) that has set up Farmer Training Schools for sustainable agricultural practices in thirteen provinces of Vietnam. By 2007 ADDA had trained 30, 000 farmers within 450 farmer groups (ADDA, 2010). Social sustainability through poverty alleviation is another aim of ADDA’s interventions with farmers. Since 2005 ADDA’s focus has turned to the production of organic vegetable production which Simmons and Scott report is at times confused with SAFE by the media and population. While the government is well in control of SAFE vegetable certification, ADDA with the participation of multiple stakeholders, is the sole entity awarding organic certification. This certification mechanism is called the Participatory Guarantee System (PGS). In the Hanoi region ADDA is also supporting related activities by other local NGOs and commercial entities such as distributors and a variety of retailers.

Supply chain theory and sustainable organic vegetable production Supply chains used to be driven by producers and manufacturers in ‘push’ systems (Perez et al., 2010). However a more customer centric focussed ‘pull’ system has evolved over the last decades whereby customer demand drives the supply chain and the main deliverable being customer value. Supply chain theory mandates that channel partners and intermediaries (Ross, 2010) operating in isolation from one another will not benefit from operational and scale efficiencies (Ross, 2010). Further efficiencies later in the lifecycle of supply chains can be realised through varying degrees of integration (Neuman and Samuels, 1996) between supply chain partners and intermediaries. A number of tools can be used in achieving supply chain integration namely outright acquisition, contracts and channel power (Sadler, 2007).

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Backward integration takes place when a supply chain partner closer to the customer such as a vegetable retailer starts distribution activities or a wholesaler becoming a grower. Forward integration on the other hand refers to players upstream in the supply chain performing downstream functions as well.  In an agricultural setting, this is the case when a grower starts performing wholesaling and/or retailing functions or a distributor getting involved in retailing vegetables as well.  Integration can be effected through the use of tools such as business acquisition and management contracts that lead to the implementation of information sharing by the using information technology (Bowersox et al., 2000).  Processes that are otherwise happening in isolation are aligned and the resulting integrated supply chain integration leads to improved communication, stock visibility, accurate forecasting and replenishment in the supply chain (Coyle et al. 2009). Increasing communication between supply chain partners and some degree of integration can definitely increase the prospects of achieving a sustainable supply chain arrangement. Global fresh food supply chains have to be rendered sustainable in light of the forecast global population growth from 6.8 billion in 2009 to 8 billion in 2025 (UNPD, 2009). However, with the recent Global Financial Crisis having demonstrated the vulnerability of financial markets (Romer, 2009) and industry downturns resulting from the anticipated escalation of climate change impacts, players in the agricultural sector worldwide are facing an enormous challenge. Stern (2008) identifies flash floods, coastal flooding, increased heat and fire events, and wilder weather as possible impacts from global warming. Global warming is consistently reported as bringing changes to climatic conditions across the globe and has notably affected the supply of consumer products, particularly perishable products (Torn and Harte, 2006; Stern, 2008; Parmesan and Yohe, 2003; Rosenzweig et al., 2008; Lobell et al., 2008; Crimp et al., 2008; Howden et al., 2007). The predictability of demand and supply chain reliability for a wide range of agricultural products have to be made resilient and sustainable. This is essential in the face of recent climate change events that have been associated with random social, demographic, and economic upheavals (Walther et al., 2002). It is important for suppliers and their supply chains to be able to adapt and streamline their logistical processes, as part of their strategy to survive by remaining viable and competitive. In this context that this paper assesses the sustainability of current supply chain arrangements for organic vegetables in the Hanoi. It then proceeds to formulate recommendations to ensure the long term viability of the organic vegetable sector in a Vietnamese style that fits its history, culture and future.

METHODOLOGY Adoption of a case study approach in researching the organic vegetable sector in Hanoi provided opportunities to conduct exploratory research into specific factors that influenced the evolution of the supply chain linking the different players within it. In business disciplines such as accounting and marketing, it has been recognised that case studies are likely to provide more meaningful results in examining complex relationships and transactions than research methods that rely solely on quantitative analysis (Bonoma, 1985; Kaplan, 1986). While quantitative analysis can indicate certain relationships within an organisation, it cannot identify the actual inner or interpersonal transactions that bring them about (Diesing, 1972).

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Use of a case study enabled the present researchers to consider potential insights into how supply chain factors interact to affect the business process. Furthermore, the case study provided a firm basis for theory building and verification. Patton (1990) argued that there are no rules for sample size in qualitative inquiry. Sample size depends on what the investigator wishes to know, the purpose of the inquiry and what can be done with available time and resources. Given that the primary reason for the case study was to understand the interactions of the different players in the organic vegetable supply chain in Hanoi, and also due to the need to keep the data manageable, it was felt that a narrative approach was appropriate to combine the information-rich case studies resulting from field work. Drawing from academic literature and government papers and reports, and interviews of supply chain partners in the organic vegetable sector in Hanoi, the supply chain is actually mapped out and discussed against the back drop of supply chain management theory.

Case Selection and Description The present investigators utilised a chain sampling approach to select critical organisations for interviews and subsequent analyses (Patton, 1990). This method involved first asking a retailer who was dealing in organic vegetables to nominate organisations (and key personnel within these organisations) that he felt had significant involvement in organic vegetable business in Hanoi. This process identified five key organisations involved in organic vegetable production and distribution as key respondents. They were a farmer group, two non governmental agencies (NGOs), one local and one international, a major commercial distributor of organic produce, a state owned retailer and a private retailer.

Data Collection Analysis and Quality Control Methods The main body of data was generated from interviews using a pre-designed set of questions as part of a method known as the Case Study Protocol (Yin, 1994). In line with recommendations by Yin (1994) the research project included the following sections:

o An initial overview of the project in terms of project objectives and potential case study issues

o Clear field procedures, credentials and access to sites

o A sequence of questions that the authors used as a guide during the semi-structured interviews employed to collect data

o Guide for the final report (outline, format for the narrative)

The quintessential characteristic of case studies is that they strive towards a holistic understanding of cultural systems of action (Feagin et al., 1990). In addition to interviews, data were collected through on-site observations and relevant documents. Prior to conducting the interviews, the Case Study Questions Protocol was examined by the two authors who are experienced in field research techniques. The second author is fluent in Vietnamese and was instrumental in providing the axiological (Berg, 1989) aspect of the data collection. Interview notes were taken following on the spot translation. During and after each site visit, a full account of the visit was prepared by drawing on interview transcripts and field notes.

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A supply chain description was developed by utilising participants’ responses to the Case Study Questions Protocol, field notes and documents. The respondents played very clear supply chain roles that can be identified as supply inputs, distribution and retailing. The two investigators transcribed and reviewed the interview transcripts to ensure the accuracy of data and that no contextual meaning was lost during translation.

FINDINGS Although organic vegetable production and distribution is at the verge of

embarking on full commercial scale in the Hanoi region in Vietnam, so far it has been only through the efforts of projects funded by the not for profit sector that organic vegetable has been produced in that part of Vietnam. These projects dealt only with women farmers and the aims were:

o Poverty alleviationo Promoting sustainable agricultural practiceso Promoting healthy dietary habits through consumption of organic veggies

Modern sustainable agricultural practices started through projects funded by ADDA (Agricultural Development Denmark Asia) which launched Integrated Pest Management (IPM) projects in1999-2005. ADDA has been involved in organic related activities since 2005 through a five year project ending in October 2010. The project has generated a number of reports, research and customer surveys covering the different aspects of the whole organic vegetable supply chain.

Supply chain inputs Land that can be certified for organic vegetable production must have been either uncultivated or certified SAFE, whereby fertilisers and pesticides are used in controlled amounts, and left idle for at least three years. Water used in organic farming is drawn from bore holes. Pest control is by way of traps and flowering plants grown to attract insects away from the vegetables. Seeds are procured from the same sources that provide seeds for vegetables destined for wet markets as well as SAFE certification. However agricultural land capable of producing quality organic vegetable in the vicinity of Hanoi is very expensive and is subject to communal allocation policies by local authorities. This accounts for the fact that it is very hard to have adjoining farmers using common practices such as sustainable farming. Further farmers tend to cultivate multiple crops within their allotment. However to further complicate matters, land of different quality within the same allotment is equitably divided the farmer families. This accounts for the fact that land of a certain quality appropriate for organic vegetable production of about one hectare may be subdivided between at least ten farmer families who may not all subscribe to the same agricultural practices.

Production of Organic Vegetable in the Hanoi region of Vietnam Through 140 Farmer Field Schools and classes of 30 farmers, ADDA has trained 4200 farmers aggregated into 100 farmer groups. To date, only twenty five of those have potential for large scale production and supply. Since the farmers cannot handle communication with the customers, these farmer groups go through ten coordinators trained by ADDA who provide direct link to customers. ADDA identifies organic vegetable customers as being typically expatriates, office workers and local Vietnamese educated in the benefits of organic vegetable consumption. ADDA is an active

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intermediary that also provides training, technical support, quick test certification. The training delivered by ADDA includes the following:

o Designing the farmo Crop rotation and Life cycle approacho Production planningo Disease controlo Harvesting and Packaging

A Vietnamese not for profit organisation ‘Action Center for City Development’ (ACCD) conducted another organic vegetable project funded by the Australian aid agency, AUSAID, for one year beginning in June 2008, to the tune of AUD 50, 000. For the first 6 months 10 farmers from Bai Thiong Village, Thanh Xuan Commune, Soc Son District, received intensive training by ADDA, followed by another 20 in the subsequent 6 months and another 30 in a subsequent 12 month extension of the project with no extra funding from AUSAID. By June 2009, 30 of the farmers were selling organic produce and by the end of 2010, a total of 60 are expected to be able to sell with ACCD providing direct market access and managing the communication between the farmers and the customers.

Please insert Figure 1 about here.

Figure 1 also indicates the Soc Son and Luong Son parts of the Hanoi region that currently have organic vegetable farms. It also includes a large scale project in Anlao which is at a developmental stage. Currently ADDA figures indicate that about 11 hectares are under organic cultivation and the total combined production is about one and a half tons daily in the Hanoi region of Vietnam. Each hectare is currently producing about one ton of organic vegetable per week.

Organic Vegetable Distribution and Retailing The not for profit intermediaries ADDA and ACCD receive orders from end customers and growers within the farmer groups under their respective programmes distribute directly to the customers in 5 kg boxes at VND 15000 per kg, the minimum order size being 10 kg. Since the not for profit project funding were used up and project renewal was not awarded additional funding, ADDA hired an external consulting group to identify a potential commercial distributor to try to give the organic sector a boost. The distributor selected was Phuc Dai Viet. The distributor however has minimum order requirements for which most minimarts and small scale retailers do not qualify. They supply Big C, a major supermarket in the Hanoi region. Currently ACCD is also considering initiating a similar distribution venture that may see the emergence of a commercial distributor to minimarts and smaller retailers on a contractual basis. However there are two other distributors ASIMCO, a commercial distributor that distributes to state owned and operated HAPRO supermarkets, and Biznet, a government pilot project that

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retails organic vegetables through an outlet called GreenLink. Figure 2 shows how all the major players in the organic farming sector in the Hanoi region are currently organised.

Please insert Figure 2 at about here

Organic vegetables distributed directly to end consumers by farmers are cleaned, processed and packaged by the farmers and delivered by motorbikes. The same mode applies when vegetables are transported to small scale retail stores. However distributors such as ASIMCO and Phuc Dai Viet may even use small trucks. Organic Vegetables on retail store and supermarket shelves are selectively packed in plastic film bags that carry the PGS (Participatory Guarantee Group) certification sanctioned by a multi-stakeholder group supported by ADDA.

Certification Certification of Organic vegetable production is effected by ADDA technical officers. Regular and random tests are conducted on site at organic farms before the vegetables are certified PGS. The PGS group is constituted by ADDA, ACCD, farmers and scientists. However, customers tend to trust specialised small scale organic vegetable retailers more than much larger supermarkets where they suspect product mixing with SAFE vegetables. Small scale retailers can only place small order sizes and retail at slightly higher prices than larger supermarkets which may account for the former enjoying a better quality perception. Retailers believe that the end consumers tend to trust government awarded certifications such as SAFE certification more than the PGS certification issued by ADDA. The latter is currently looking at establishing a certification programme for organic vegetable retailers.

DISCUSSION Because of the physical screening requirements for organic production, groups like ADDA and ACCD had to encourage farmers holding adjoining plots to combine their lands and efforts in order to farm organically. However farmers are tempted to return back to producing in order to sell at street corners and wet markets. They consider requirements of processing and packaging too tedious in order to supply to the current buyers of organic vegetables in Hanoi City. While they report being able to recover their costs and stay out of poverty, they will not qualify organic vegetable farming as being financially attractive. They remain committed only because of their desire to contribute to the health and well being of society. As a result the supply of organic vegetable has not been consistent and retailers want to enter into contract with distributors and NGO sustained projects cannot ensure such coordination and supply levels in the longer term. The major trend in the current setting is the movement away from projects towards commercialisation. Small scale retailers want to enter into contract with distributors and intermediaries such as ASIMCO, Phuc Dai Viet (PDV), ADDA and ACCD respectively. While ADDA has spearheaded

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commercial distribution through PDV, it is still supplying end consumer such as expatriates and other office workers. By late 2010, to satisfy growing demand for organic vegetables in the Hanoi market, ASIMCO had initiated an attempt to integrate its supply chain backwards. Accordingly it is planning to engage in production on an initial area of 2.2 hectares in the Luong Son area by purchasing a fifty year leasehold that begins in 2011. This project will therefore not suffer from the reality of the Vietnamese communal land allocation system. ASIMCO has strong links to the in-store retail market through its access to the HAPRO retail chain.Similarly a private entrepreneur has acquired a lease for 30 hectares of land at Anlao near the port city of Hai Phong. He intends to dedicate half of it to organic vegetable farming and the other half to SAFE vegetable production. While the benefit here will be large scale production, the challenge will be the transportation requirements and the associated costs to supply the Hanoi market and freshness assurance.

CONCLUSION This paper, besides being highly topical, has presented an intimate view of the different actors within the supply chain of organic vegetables in the Hanoi region of Vietnam. The project has identified the traditional communal land allocation system by local government authorities as a major hurdle to large scale and commercially viable production of organic vegetables. This system ensures equitable distribution of land in terms of plot size and soil quality but results into one hectare being divided between at least ten farmer families. These farmer families are being trained by players in the not for profit sector and they have to comply to a certification regime, processing and packaging requirements since organic vegetables are sold mostly to a market composed of expatriates and highly educated Vietnamese nationals. It is widely accepted among the respondents interviewed during the conduct of this project that the support from the not for profit sector is not sustainable because trained farmers will find it very easy to revert to growing for wet markets. The restrictive communal land allocation system, expiration of project funding by successive projects by not for profit organisations, certification and processing requirements have accounted in the recent past to a shrinking supply to small scale retail stores. However the establishment of supply chain systems in the organic vegetable sector is taking pioneering steps by the enlistment of commercial distributors to drive satisfy growing demand. Even more encouraging is the backward integration of ASIMCO, an organic vegetable distributor, into organic farming. Such strategies have the potential of ensuring more reliable supply to retailers and may hold the key to the survival of the organic vegetable production in Vietnam. This research has found that Vietnam needs to develop a certification system that has government support and standards supported by law. Further organic farms should be located in regions where they can be contiguous and these areas should be located in close proximity to distributors in order to minimise costs associated with transportation. This will ensure that organic vegetables remain affordable to a market segment that is economically viable to service. From a supply chain perspective, the farmers, distributors and retailers should be integrated to a level that can potentially render organic vegetable production commercially sustainable and uninterrupted.

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Figures

Figure 1: Organic vegetable production areas supplying the Hanoi region

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Thanh Xuan Xuan Giang

Soc Son

Luong Son Anlao

Legend:

Direct input

Intermediary function

Vegetable supply

Fig 2: A depiction of the organic vegetable supply chain in the Hanoi region of Vietnam

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Organic Farms

Labour from farmer families groups

Farm land allocated by local authority

Water from boreholes/well

Seeds from traditional market

Packaging

Small scale vegetable retail stores

Hapro and Big C Supermarket

End Consumers

Marketing

Distribution & Processing Centers

(ASIMCO and PDV)

ADDA

Training,

PGS Certification

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