The Role of Inputs Policy in Transforming Agriculture in

Vietnam

ByBy Nguyen Manh Hai, Nguyen Manh Hai, Central Institute for Economic Management (CIEM) Central Institute for Economic Management (CIEM)

Hanoi, VietnamHanoi, Vietnam

ReSAKSS-Asia program,ReSAKSS-Asia program,International Conference, September 25-27, 2013International Conference, September 25-27, 2013

Siem Reap, CambodiaSiem Reap, Cambodia

The key research questionsThe key research questions

• What is the role of input policy in a transforming What is the role of input policy in a transforming agriculture in Vietnam?agriculture in Vietnam?

• What are the key policies affecting agricultural What are the key policies affecting agricultural input use and what specific policies were input use and what specific policies were implemented during food and input crises ?implemented during food and input crises ?

• How these policies should be improved to promote How these policies should be improved to promote efficient fertiliser and seed use ?efficient fertiliser and seed use ?

• What are the main policy issues of agricultural What are the main policy issues of agricultural input markets in Vietnam especially those for input markets in Vietnam especially those for fertiliser and seeds and how to address these fertiliser and seeds and how to address these issues ? issues ?

GDP and sectoral growths of GDP and sectoral growths of

Vietnam, 2005-2012Vietnam, 2005-2012

4.02 3.69 3.76 4.07

1.83

2.78

4.01

2.72

10.69 10.38 10.22

6.115.52

7.7

5.53

4.52

8.48 8.298.85

7.186.63

7.526.99

6.42

8.44 8.23 8.46

6.18

5.32

6.8

5.89

5.03

0

2

4

6

8

10

12

2005 2006 2007 2008 2009 2010 2011 2012

Gro

wth

(%

)

Agriculture-forestry-fisheries Industry-Construction Services GDP

Source: Demonstration based on data from GSO

The role of agricultural inputs in VietnamThe role of agricultural inputs in Vietnam

• Agricultural inputs in agriculture play a crucial role in the sector Agricultural inputs in agriculture play a crucial role in the sector development: Substantial effects on price, supply sources, development: Substantial effects on price, supply sources, productivity, and agricultural production costs. productivity, and agricultural production costs.

• Among agricultural inputs in Vietnam, fertilisers and seeds are Among agricultural inputs in Vietnam, fertilisers and seeds are the most important, due to:the most important, due to:

• i) Vietnam is a large rice producer in the world. Cultivation i) Vietnam is a large rice producer in the world. Cultivation share is relatively large in total agricultural product accounting share is relatively large in total agricultural product accounting for 72.1% in total agricultural output value in 2011. for 72.1% in total agricultural output value in 2011.

• ii) Fertiliser cost accounts for major share of total rice ii) Fertiliser cost accounts for major share of total rice production cost (34%). Seed quality/types has a strong production cost (34%). Seed quality/types has a strong correlation to rice (and other crop) productivity; correlation to rice (and other crop) productivity;

• iii) Efficient use of fertiliser is important avoiding over-iii) Efficient use of fertiliser is important avoiding over-consumption or lack of fertilisers; consumption or lack of fertilisers;

• iv) Quality control issue should be emphasized for both iv) Quality control issue should be emphasized for both fertilisers and seeds.fertilisers and seeds.

Broad cropping pattern and input Broad cropping pattern and input demanddemand• Major crops: Rice, maize, sugar-cane, cotton, coffee, tea, peanut, Major crops: Rice, maize, sugar-cane, cotton, coffee, tea, peanut,

soyabean of which rice and maize are two main dominant crops. soyabean of which rice and maize are two main dominant crops. Rice is the largest staple crop accounting for 60% of total annual Rice is the largest staple crop accounting for 60% of total annual crop area, while the corresponding figure for maize is 9%.crop area, while the corresponding figure for maize is 9%.

• Demand for fertiliser and seed is high for these crops.Demand for fertiliser and seed is high for these crops.

• Fertiliser supply sources in 2012: Fertiliser supply sources in 2012:

+ Urea: Domestic supply of 78%; Import: 22%+ Urea: Domestic supply of 78%; Import: 22%

+ NPK: Domestic supply of 90.4%; Import: 9.6%+ NPK: Domestic supply of 90.4%; Import: 9.6%

+ DAP: Domestic supply of 68.5%; Import: 31.5% ; Imports: + DAP: Domestic supply of 68.5%; Import: 31.5% ; Imports: 100% of SA and potash100% of SA and potash

• Seed imports: 70-75% hybrid rice seed; 60% of hybrid maize Seed imports: 70-75% hybrid rice seed; 60% of hybrid maize seed; 80% of vegetable seed.seed; 80% of vegetable seed.

Key policies affecting agricultural input useKey policies affecting agricultural input use

• Land policies:Land policies:

• ““Contract 100” policy applied in 1981: collective cooperatives Contract 100” policy applied in 1981: collective cooperatives assigned agricultural land to groups of farmers or farmers; assigned agricultural land to groups of farmers or farmers; production is under the management of cooperatives and the production is under the management of cooperatives and the farmers are paid based on earnings in rice production output and farmers are paid based on earnings in rice production output and on the number of contribution days in three stages of the on the number of contribution days in three stages of the production process at the end of season. production process at the end of season.

• 1987 Land Law and Resolution No. 10-NQ/TW in 1988, farmer 1987 Land Law and Resolution No. 10-NQ/TW in 1988, farmer households were recognized as self-controlled economic units for households were recognized as self-controlled economic units for the first time. The Resolution No. 10 was a real “renovation” the first time. The Resolution No. 10 was a real “renovation” policy in agriculture issuing new regulation on piece-work policy in agriculture issuing new regulation on piece-work contractcontract

• Land Law in 1993: Land was re-allocated to farm households for Land Law in 1993: Land was re-allocated to farm households for stable use and this encourages farmers to expand the cultivation stable use and this encourages farmers to expand the cultivation land area. The land law was revised in 2003 with more freedom land area. The land law was revised in 2003 with more freedom for land users. for land users.

• The 2003 land law revision is on-going now in Vietnam.The 2003 land law revision is on-going now in Vietnam.

Major input policy changesMajor input policy changes• Before 1988 (economic reform): Fertiliser and seed prices were Before 1988 (economic reform): Fertiliser and seed prices were

fixed by the government. Domestic fertiliser market was fixed by the government. Domestic fertiliser market was fragmented by administrative borders, imports from former fragmented by administrative borders, imports from former Soviet Union and Eastern Europe by protocols. Seeds supplied to Soviet Union and Eastern Europe by protocols. Seeds supplied to cooperatives and state farms according to state plans.cooperatives and state farms according to state plans.

• 1989-2003: + Fertiliser and seed prices basically determined by 1989-2003: + Fertiliser and seed prices basically determined by the market but SOEs were still dominant the domestic markets; the market but SOEs were still dominant the domestic markets;

• + Abolishing market fragmentation of administrative borders. + Abolishing market fragmentation of administrative borders. • + Imports from all other countries and Provincial People + Imports from all other countries and Provincial People

Committee entitled to verify and select a list of capable fertiliser Committee entitled to verify and select a list of capable fertiliser importing companies. Before 2001: fertiliser import quotas importing companies. Before 2001: fertiliser import quotas applied. After 2001: the quotas were only oriental, technical applied. After 2001: the quotas were only oriental, technical barriers applied.barriers applied.

• + Joint-ventures with foreign partners for fertiliser investment + Joint-ventures with foreign partners for fertiliser investment (1989-1998); Private fertiliser companies were set up (1999 (1989-1998); Private fertiliser companies were set up (1999 onwards); Since 1989, investments from all sectors including onwards); Since 1989, investments from all sectors including state, private and FDI were encouraged in seed sector, especially state, private and FDI were encouraged in seed sector, especially since 2003.since 2003.

Key policies affecting agricultural input useKey policies affecting agricultural input useCurrent effective fertiliser policiesCurrent effective fertiliser policies

• Fertiliser prices were basically determined by the market. Fertiliser prices were basically determined by the market. However, fertilisers were subject to price stabilization (2012 Price However, fertilisers were subject to price stabilization (2012 Price Law)Law)

• MARD releases the List of fertilisers which are allowed to be MARD releases the List of fertilisers which are allowed to be produced, traded and used in Vietnam.produced, traded and used in Vietnam.

• The importation of fertilisers which are not in the The importation of fertilisers which are not in the tested/experimented “List” must be agreed by MARD.tested/experimented “List” must be agreed by MARD.

• Individuals and organisations are responsible for the quality of Individuals and organisations are responsible for the quality of their fertilisers imported or exported. MARD is responsible for state their fertilisers imported or exported. MARD is responsible for state management on fertilisers including, among others, organisation management on fertilisers including, among others, organisation of undertaking researches and application of science and of undertaking researches and application of science and technology in fertiliser use and production, control, inspection and technology in fertiliser use and production, control, inspection and treatment for violations in organic fertiliser production and use. treatment for violations in organic fertiliser production and use. MOIT has similar roles with respect to mineral fertilisers; MOIT has similar roles with respect to mineral fertilisers;

• All economic sectors are encouraged to invest in fertiliser All economic sectors are encouraged to invest in fertiliser production and trading. production and trading.

Key policies affecting agricultural input useKey policies affecting agricultural input use

Current effective seed policiesCurrent effective seed policies

• Seed prices were determined by the markets.Seed prices were determined by the markets.

• Seed regulations are stipulated in Seed Ordinance No. Seed regulations are stipulated in Seed Ordinance No. 15/2004/PL-UBTVQH11: National and foreign organizations 15/2004/PL-UBTVQH11: National and foreign organizations and individuals are entitled to operate on plant seeds if they and individuals are entitled to operate on plant seeds if they meet required conditions.meet required conditions.

• Regulations on seed copyrights and labels, on testing, Regulations on seed copyrights and labels, on testing, inspection and new varieties approval and protection were inspection and new varieties approval and protection were stipulated and updated over time. stipulated and updated over time.

• MARD often promulgated lists of plants/seeds permitted in MARD often promulgated lists of plants/seeds permitted in production and trading. Seed quality, in principle, is production and trading. Seed quality, in principle, is accredited by 2011 Circular No. 79/2011/TT-BNNPTNT and accredited by 2011 Circular No. 79/2011/TT-BNNPTNT and thus, in principle, should be better controlled. thus, in principle, should be better controlled.

• Private investment and FDI in addition to the state investment Private investment and FDI in addition to the state investment in seed industry and businesses.in seed industry and businesses.

During 2008 food and fertiliser crisesDuring 2008 food and fertiliser crises

0

100

200

300

400

500

600

700

800

900

US$/

ton

Domestic rice price Rice FOB price NPK price

• The 2008 food and fertiliser crises had significant adverse effects in Vietnam although it lasted in very short time

• Temporary rice export ban in Vietnam: substantial reduction in domestic rice prices especially from April to July 2008. This led to a lower fertiliser domestic demand and prices especially from August 2008 to the end of the year.

• There was no significant fertiliser/input policy responses creating difficulties for farmers. The government policy: quick responses for domestic rice price stabilisation but slower in responses to fertiliser market.Source: Own demonstration based on

MARD’s data

The policy formulation and The policy formulation and

implementation processimplementation process • There is still inefficiency in policy formulation procedure in There is still inefficiency in policy formulation procedure in

Vietnam including agricultural policies.Vietnam including agricultural policies.

• Fertiliser and seed policies: often promulgated at central Fertiliser and seed policies: often promulgated at central level, while local/provincial people committees could issue level, while local/provincial people committees could issue implementation guidance: Lack of effective mechanism to implementation guidance: Lack of effective mechanism to gather opinions of affected parties.gather opinions of affected parties.

• The policy implementation is a top-down process: lack of The policy implementation is a top-down process: lack of resources both financial and human may result in improper resources both financial and human may result in improper implementation/enforcement of the policy. implementation/enforcement of the policy.

• Unclear (or too general) articles in higher legal documents Unclear (or too general) articles in higher legal documents may cause some consequences: i) lower legal documents may cause some consequences: i) lower legal documents will lean toward being advantageous to state management will lean toward being advantageous to state management agencies; ii) Lower legal documents are allowed to agencies; ii) Lower legal documents are allowed to “stipulate” some articles in higher legal documents.“stipulate” some articles in higher legal documents.

Key agricultural input policy issues Key agricultural input policy issues and recommendationsand recommendations

• The agricultural land: shrunk due to industrialization and urbanization: The agricultural land: shrunk due to industrialization and urbanization: good land planning and post-acquisition policies demandedgood land planning and post-acquisition policies demanded

• Agricultural land tenure (20 years) is too short making less motivations Agricultural land tenure (20 years) is too short making less motivations for better use and conservation of the land. for better use and conservation of the land.

• There should be a market for agricultural land in Vietnam due to slow There should be a market for agricultural land in Vietnam due to slow agricultural land accumulation agricultural land accumulation

• The scattered and overlapping responsibilities among ministriesThe scattered and overlapping responsibilities among ministries

• The enforcement mechanisms for both fertiliser and seeds policies are The enforcement mechanisms for both fertiliser and seeds policies are still weak and penalties for quality violations: not strong enough. In-still weak and penalties for quality violations: not strong enough. In-transparency and information asymmetry in domestic fertilizer markets transparency and information asymmetry in domestic fertilizer markets result in too many “intermediate” distribution agencies.result in too many “intermediate” distribution agencies.

• Lack of facilities and fund for quality control of fertiliser and seeds.Lack of facilities and fund for quality control of fertiliser and seeds.

• Fertiliser and seed extension services are “thin” compared to farmer Fertiliser and seed extension services are “thin” compared to farmer demands. demands.

Thank you very much Thank you very much

for your attention !for your attention !