M4P week 2005

Proceedings of a series of reviewand planning events held byMaking Markets Work Better for the Poor (M4P)during the week 31 October to 4 November 2005

Copyright: Asian Development Bank 2005.© Photos: Photos: Alan Johnson, Le Cong Viet, NISTPASS.All rights reserved.

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M4P week 2005

Proceedings of a series of reviewand planning events held byMaking Markets Work Better for the Poor (M4P)during the week 31 October to 4 November 2005

Foreword

This document is a record of four days of meet-ings and discussions hosted by the ADB-DFID-ADBI regional technical assistance project MakingMarkets Work Better for the Poor between 31October and 4 November 2005. The four dayswere structured around specific themes as follows:

Day 1 (31 October) “Factor Markets Day”looked at project research outputs in the areas ofparticipatory market assessments - presented bythe Institute for Labour Science and Social Affairs(ILSSA), labour markets - presented by the CentralInstitute of Economic Management (CIEM) onbehalf of a research consortium including ILSSAand the Institute of World Economics and Politicsand land markets - presented by the M4P projecton behalf of two consortia (a) CIEM, the Centre forRural Progress (CRP) and Mekong Economicsand (b) CIEM, CRP, the Centre for LandInvestigation and Planning and the UrbanManagement Centre.

Day 2 (1 November) “Value Chains Day”focused on the application of value chain method-ologies in Vietnam. M4P is working with theCentre de coopération Internationale enRecherche Agronomique pour le Développement.(CIRAD) and the MALICA consortium to examinethe participation of the poor in supermarkets andother food distribution chains. But the day wasconsiderably enriched by presentations from fiveother programmes using value chain approachesin Vietnam including the European Union, the IFC-Mekong Private Sector Development Facility,Deutsche Gesellschaft für TechnischeZusammenarbeit (GTZ) GmbH, , The AgricultureEconomics Research Institute, WageningenUniversity (LEI) and the Center for AgricultureResearch and Ecology Studies (CARES) at HanoiAgriculture University and the USAID-sponsoredVietnam Competitiveness Initiative (VNCI).

In the evening of “Value Chains day” welaunched a coffee table book, "Entrepreneur -overcoming poverty through enterprise" in thepresence of the entrepreneurs themselves. Thebook features 15 case studies of successful links

to the market presented in a visually interestingand accessible format. The stories reveal inhuman and often inspirational terms how poorpeople can overcome challenges and obstacles inorder to take up market opportunities.

The second part of the week was more forwardlooking and speculative, relying less on projectoutputs and more on “brainstorming” aroundpossible future M4P initiatives.

Day 3 (3 November) “Research-Policy Day”looked at new approaches linking research andpolicy making via "innovation systems". An intro-ductory presentation from “the Policy Practice” wasfollowed by a panel discussion led by representa-tives of the World Bank, CIEM and UNDP. Aseriesof Vietnamese case studies presented by VietnamUnion of Scientific and Technological Associations(VUSTA) and CARE, the Vietnam Chamber ofCommerce and Industry (VCCI) and the M4Pproject completed the policy discussion. Looking tothe future, the Consumer Unity and Trust Society ofIndia (CUTS) presented their regional work oncompetition policy while DFID Vietnam presented adraft concept note for a possible M4P phase II.

Day 4 (4 November) “Public Private Day”focused on the potential for using market basedapproaches and leveraging the private sector inservice delivery and social protection. Two intro-ductory presentations by were followed by a seriesof Vietnam based case studies presented by theNetherlands Development Organization (SNV)(on behalf of the agriculture extension for the poorsub group), Veterinaries Sans Frontieres and IDE.To finish public private day, the World Bank and theDanang “Three Cities Sanitation” PMU introduceda discussion of private sector participation in infra-structure service provision.

We hope you enjoy reading the material. Manyrelated and complementary pieces of work areavailable on our website www.markets4poor.orgPlease pay us a visit!

The M4P project team

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Table of Contents

FOREWORD

Tables of Contents .................................................................................................... 4

Abbreviations ............................................................................................................. 7

Introduction to M4P .................................................................................................. 9Alan Johnson, M4P

Factor Markets Day .................................................................................................. 15

Factor Markets Day Report ............................................................................................................. 16

Participatory Livelihoods and Markets Assessments in Da Nang City ....................................... 19ILSSA, Da Nang University and Da Nang SC for Hunger Eradication and Poverty Reduction

Labor Market Segmentation and Poverty in Viet Nam ................................................................ 23CIEM, IWEP, ILSSA

The impact of Land Market Processes on the Poor: Implementing De Soto ............................. 26CIEM, Mekong Economics and CRP

Industrial and Commercial Land Markets and Their Impact on the Poor ................................... 29Center of Land Investigation and Planning, CIEM, CRP and Urban Management Center

Value Chains Day ...................................................................................................... 33

Value Chains Day Report ................................................................................................................ 34

Cross cutting issues in Agricultural Value Chains ........................................................................ 37Dominic Smith – M4P

Value Chain Approach and SME Development ........................................................................... 42Ricarda Meissner

The Participation of the Poor in Supermarkets and other Distribution Value Chains ................. 45Paule Moustier – CIRAD/MALICA

The Economic Development Impact of Rose Value Chains in North Viet Nam ......................... 53Siebe van Wijk (LEI), Amanda Allbritton (LEI), Dang Viet Quang (HAU)

Facilitating market integration of the upland poor into bamboo value chains:Upgrading strategies for local producer group ............................................................................. 64International Development Enterprises (IDE)

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The Dragon Fruit GAP Project ...................................................................................................... 74Bob Webster – VNCI

Programme for the Development of Small and Medium Enterprises ......................................... 77Thomas Finkel – GTZ

Wood Processing Sector Competitiveness Improvement Program ........................................... 82Ken Key – MPDF

Policy Day ................................................................................................................... 85

Policy Day Report .......................................................................................................................... 86

How can research-based development interventions be more effective atin influencing policy? ..................................................................................................................... 88Alex Duncan & Andrew Barnett

Discussant comments ................................................................................................................... 89Martin Rama, World Bank

Comments on Relations between development research and policy change in Vietnam ........ 93Pham Lan Huong, CIEM

Discussant comments ................................................................................................................... 96Jonathan Pincus, UNDP Viet Nam

Communications Strategy and Plans - Turning Theory into Practice ......................................... 99Dominic Smith – M4P

Research Follow-up Activities: Experience of Da Nang Case study .......................................... 100Pham Thi Binh Giang - M4P

Policy dialogue between business associations and local authorities in Viet Nam:Preliminary appraisal of requirements, situation and proposed solutions .................................. 102Tran Huu Huynh, VCCI

Competition Policy, Growth and Poverty ReductionLearnings from the 7Up2 Project .................................................................................................. 110Alice Pham – CUTS International

Discussant comments ................................................................................................................... 116John Preston, Department for International Development, London

Draft Concept NoteMaking Markets Work Better for the Poor – Phase II .................................................................. 118Nguyen Thi Ngoc Minh, DFID

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Public Private Day .................................................................................................... 121

Public Private Day Report ............................................................................................................ 122

What have we learned about the use of markets and private sector providersfor service provision in developing countries? ............................................................................ 124Jim Tanburn

Vietnam: Towards Universal Social Protection: Private Mechanismto Reach the Poor Policy Issues and Research Implications ..................................................... 132Paulette Castel

Subsidies in agriculture extension for poverty reductionAgricultural Extension for the Poor sub-group ............................................................................ 143

Harnessing Market Power for Rural Sanitation: Rural Poor as customersand not beneficiaries .................................................................................................................... 146Jaime Frias, IDE

Public Private Participation (PSP) in Solid Waste & Septage Management (SWM) ................ 152Alan Coulthardt, World Bank

Participation of private sector in regular septic tank cleaning service in Da Nang city ............. 155Nguyen Tan Lien

Annexes ..................................................................................................................... 158

Agendas ........................................................................................................................................ 159

Participants .................................................................................................................................... 163

List of M4P publications ............................................................................................................... 171

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LIST OF ABBREVIATIONS

ADBADBIAFTAAPECASEMBTACADCARES

C-CIERCECICIDACIEMCIRAD

CRPCUTSDanidaDFIDDoCDVCsEPZEUFDIFSCFTAsFTEGAPGDPGRETGTZHAUHEPRIDEIDRCIFCILOILSSAIMFIOSIPRIWEPIZLEI

Asian Development BankAsian Development Bank InstituteAsean Free Trade AreaAsia-Pacific Economic CommunityThe Asia-Europe MeetingBilateral Trade AgreementCompetition Administration DepartmentCenter for Agriculture Research and Ecology Studies at Hanoi Agriculture UniversityCentre for Competition, Investment & Economic Regulation Centre Canadien D’etude et de Cooperation InternationaleCanadian International Development AgencyCentral Institute of Economic ManagementCentre de coopération Internationale en Recherche Agronomiquepour le Développement.Center for Rural ProgressConsumer Unity and Trust Society of IndiaDanish International Development AgencyDepartment for International DevelopmentDrivers of ChangeDistribution Value ChainsExport Processing ZonesEuropean UnionForeign Direct InvestmentForest Stewardship CouncilFree Trade AreasFull Time EmploymentGood Agricultural PracticesGross Domestic ProductGroupe de rechechere et d’échanges technologiquesDeutsche Gesellschaft für Technische Zusammenarbeit GmbHHanoi University of Agriculture 1Hunger Eradication and Poverty ReductionInternational Development EnterprisesInternational Development Research CentreInternational Finance CorporationInternational Labor OrganizationInstitute of Labour Science and Social AffairsInternational Monetary FundInstitute of SociologyIntellectual property rightsInstitute of World Economics and PoliticsIndustrial ZonesThe Agriculture Economics Research Institute, Wageningen University

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Making Markets Work Better for the PoorMaking Markets Work Better for the PoorMarkets and Livelihoods in the Cities of AsiaMillennium Development GoalsMekong Private Sector Development FacilityMinistry of Planning and InvestmentNational Economics UniversityOfficial Development AidOrganization for Economic Cooperation and Development Poverty Analysis and Policy Advice ProjectParticipatory guarantee systemsParticipatory Market and Livelihood Assessment Project Management UnitPublic Private PartnershipPoverty Reduction Strategy PaperResearch & DevelopmentResearch Institute of Fruits and VegetablesSocio-Economic Development PlanStrategy for Industrialization Enhancing Dynamic Comparative AdvantageSustainable livelihoodsSmall Medium EnterprisesNetherlands Development OrganizationSolid waste & Septage ManagementThe Bamboo FactoryUnited Nations Conference on Trade and DevelopmentUnited Nations Development ProgrammeUnited States Agency for International DevelopmentVietnam Academy for Social SciencesViet Nam Bank for Agriculture and Rural DevelopmentValue ChainVietnam Chamber of Commerce and Industry Vietnam Development ForumVietnam Economics Research NetworkVietnam Standards and Consumers Association Vietnam Living Standards SurveysVietnam Competitiveness InitiativeVeterinaries Sans FrontieresVietnam Union of Scientific and Technological AssociationsWorld BankWorld Trade Organization

M4PMWB4PMALICAMDGsMPDFMPINEUODAOECDPAPAPPGSPMAPMUPPPPRSPR&DRIFAVSEDPSIEDCASLSMESNVSWMTBFUNCTADUNDPUSAIDVASSVBARDVCVCCIVDFVERNVINASTASVLSSSVNCIVSFVUSTAWBWTO

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Introduction to M4P

What is M4P?

M4P is about spreading the benefits ofeconomic growth to include the poor. M4P is adifferent approach to poverty reduction thatcomplements traditional approaches based ontargeted programmes using grants and subsi-dies. M4P recognises that the poor alreadyactively participate in markets as entrepreneurs,employees or consumers. The poor are not apassive recipient group. They have a strongdesire to improve their lives and will respond toopportunities and incentives if given the chance.Our book “Entrepreneur – overcoming povertythrough enterprise”, which will be launched thisweek, tells this story in very human and inspira-tional terms.

Through research, analysis, pilots, experi-ments and policy dialogue, M4P aims to changethe incentives and opportunities markets offer sothat the poor have a better range of choices. IfM4P is successful the poor will be more impor-tant players in markets and will gain from decentjobs, better returns on goods sold, and increasedaccess to the products and services they value.In addition, market-based innovations canextend the outreach and effectiveness of keyservices such as education, training, health,finance, extension, water and sanitation. M4Plooks at the role of all market stakeholders anddevises ways to combine public and privateresources more productively. By leveraging theresources and expertise of the private sector tomaximise development impact, M4P strength-ens, rather than undermines, market-basedsystems.

Why M4P matters

Vietnam’s draft Socio-Economic DevelopmentPlan (SEDP 2006-10) sets out clear targets forgrowth and poverty reduction. But these two objec-tives are often seen separately. Growth will bedriven by increased trade and investment. Povertyreduction is a task for Government targetedprogrammes. M4Ptries to bring growth and povertyreduction together by demonstrating interventionsthat increase the participation of the poor in marketsand spread the benefits of economic growth morewidely. Markets provide the main linkage or “trans-mission mechanism” between the lives of the poorand the wider growth and economic integrationprocess. The way in which markets function, andthe role of the poor within them is critical to thepoverty-reducing impact of growth.

M4P also offers the potential to improve theeffectiveness of SEDP implementation. Newapproaches to service delivery based on innova-tive market-based mechanisms can achievegreater outreach, effectiveness and sustainabilityof service delivery to the poor.

M4P History and continuing evolution

The intellectual origins of M4P can be traced toNew Institutional Economics and more recent think-ing about how to use market systems to support theprivate sector and meet the needs of the poor. Aframework paper entitled “Making Markets WorkBetter for the Poor” was produced by DFID/OPM in2000 and inspired a number of M4P branded inter-ventions in South Africa, Nigeria, and Bangladesh.Our M4P project, a three year regional technicalassistance project covering Laos, Cambodia and

Introduction to M4PAlan Johnson, Project Coordinator

“M4P aims to accelerate pro-poor growth by improving market outcomes that matter to thepoor in their roles as entrepreneurs, employees or consumers. M4P focuses on changing thestructure and characteristics of markets to increase participation by the poor on terms thatbenefit them. It addresses the behaviour of the private sector and therefore reinforces thestrengths of market systems, rather than undermining them”.

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M4P WEEK 2005

Vietnam, is also part of this M4P “family”. Ourproject is co-financed by DFID, ADB and ADBI andhas benefited from additional parallel or cofinancingfrom AUSAid, MPDF and CIRAD.

M4P is an evolving approach. In recent years,new theoretical developments have emergedhighlighting the central role of institutions andpolitical economy analysis in market develop-ment and long-term growth (e.g. “Drivers ofChange”, “Institutions rule!”). Other new work asshown how market-based systems can be usedto effectively provide business and financial serv-ices to the poor (e.g. the SME donors “BlueBook”; CGAP, and the ILO “Primer”). In addition,Sen’s “Development as Freedom” and C. KPrahalad’s, The Fortune at the Bottom of thePyramid provide new perspectives on a moreimportant and active role for the poor in develop-ment. Earlier this year an ADB/DFID workshopin Manila tried to bring together various M4Pexperiences. One of the resulting products is theM4P synthesis paper (available as M4P discus-sion paper number 9).

There are three parts to M4P(1) an overall analy-tical framework, (2) some specific analytical toolsand (3) and menu of market-based interventions

1. M4P a framework for understandingand analysis

Before a market can work for the poor – it mustfirst be able to work at all.

M4P examines the main components of a func-tioning market. These are identified as (a) the “coremarket” comprising producers and consumers (b)various outer layers of services and infrastructureand (c) institutions or “rules of the game”.

A market which works for the poor expands thechoices available to poor people and producesmarket outcomes that benefit the poor.

These outcomes include job opportunities withattractive wage rates, better returns on goods sold,and greater affordability of important products andservices. In terms of contributing to pro-poorgrowth, the main success indicator is the averagerate of growth of the incomes of the poor.

A key feature of a market that works for thepoor is the rate of market expansion coupled withthe growing participation of the poor in themarket. The main policy issues relate to theextent to which the state wishes to increase theuse of the particular good or service beyond themarket’s “access frontier” (see tools below).Moreover, the way in which the state intervenescan have critical market building or market limit-ing implications in addition to varying levels ofbudgetary implications.

Ultimately the main area of focus for M4P is theachievement of institutional and systemic changein the operation of markets important to the poor.The complex interaction between economic, polit-ical, institutional and social factors determinesincentive structures, the range of opportunitiesavailable to the poor and why certain contractualarrangements are in place. Change in this institu-tional and policy area is how widespread povertyreduction impact will be achieved.

2. M4P: the toolkit

A number of tools are available to conduct diag-nostic analysis of markets and develop M4P inter-ventions. These can be grouped into three mainareas (a) Poverty and Livelihood Strategy Analysis(b) Market Analysis and (c)Institutions and PoliticalEconomy Analysis.

a) Poverty and Livelihood StrategyAnalysis

Participatory Market Assessments havebeen conducted by M4P in Da Nang and Dak

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Introduction to M4P

Nong. The methodology used will be refined in2006 to produce a Source Book and Hand Book.

b) Market Analysis Factor market analysis. We already have

results from comparative studies in the NorthCentre and South of Vietnam looking at the ruralland titling system and labour market segmen-tation. These findings will be presented on“Factor Markets” day.

A number of Value Chain Studies have beensupported by the project. This work has led tospin off work on “cross-cutting” issues such ascollective action, contract farming and addingvalue through branding and labeling. Given theoverall level of interest in the topic we havedevoted a whole day of M4P week to discus-sions on the application of value chainapproaches in Vietnam. A critical issue will bethe value-added brought by the M4P “lens” orapproach to conventional value chain analy-sis. This is likely to focus on constraints andopportunities affecting the poor’s participationin global value chains and the ways in whichthe benefits to the poor can be maximized. Themethodology used will be refined in 2006to produce a Value Chain Source Book andHand Book.

The access frontier, which is defined as ‘themaximum proportion of usage possible underexisting structural conditions of technology, infra-structure and regulation’ is a useful analyticaltool that has been developed by Commark inSouth Africa. We believe it has great potential forapplication in Vietnam and will try a test applica-tion in 2006.

Structure, Conduct and Performance includ-ing measurement of the usage by the poor

c) Institutions and Political EconomyAnalysis

Drivers of Change is a way of understandingthe political economy of growth and povertyreduction that focuses on the longer-termunderlying factors that affect the incentives andcapacity for pro-poor change, as well as theprospects for reform. The approach starts fromthe local situation and examines the relativeroles of change agents, institutions and struc-tural issues.

3. M4P: the interventions

Ultimately M4P is about leverage. M4P is not adisbursement driven intervention. There are twomain ways through which M4P will achieve wide-spread impact. These are:

(a) Stimulating and facilitating policy changeand/or

(b) Leveraging the resources of others – mostlyin the private sector – through public-private arrangements.

Policy change. M4P has a model throughwhich research results are produced in order toinfluence policy. But the mechanisms throughwhich this change happens are complex and arethe subject of “research-policy” day in M4P week.

Public Private Partnership (PPP) arrange-ments. In terms of leveraging private sectorresources, M4P is not about the promotion of freemarkets for their own sake, but about determiningthe most effective interaction between public andprivate sector entities. PPParrangements offer thepossibility of leveraging the private sector toincrease the outreach and effectiveness of keyservices. These arrangements may supplementlimited Government budgets with private finance.They may also improve the quality of service provi-sion as market-based innovations make servicesmore sustainable and customer focussed. With astrong track record of sustained reform, growthand poverty reduction, Vietnam is at an opportunetime to test and develop these innovativeapproaches. Some challenges remain includingproperty rights, the allocation of risk and return,corruption, the legal status of public-privatearrangements and independent means of disputeresolution. But these issues are also central to amore mainstream “second generation” reformagenda. Given the relevance of the topic toVietnam’s current situation a day of M4P week isfocused on discussion of the potential for devel-oping public-private arrangements.

M4P is developing a menu of possible marketinterventions. Some might be used as pilots orpolicy experiments leading ultimately to systemicand policy change. Others are aimed at directleverage of e.g. investment resources. The typesof interventions are summarised in the table below.

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M4P WEEK 2005

Given the history of market failure giving way to“state failure” as Government’s attempt to correctthe market, we need to proceed with caution as wedevelop market-based interventions. We need toweigh up the benefits to be obtained against thedirect costs of the intervention and the costs asso-ciated with market distortion. Market interventionsmay fall into three broad types

a) Neutral – where the intervention is limited tothe removal of existing market distortions orpolicy changes leading to improvements tothe investment climate and systemicchanges in markets.

b) Intermediate - where the interventions arelargely non-transactional in nature andimprove the supply of and demand for goodsand services via education and training,improved information availability, and institu-tional innovations to reduce transaction costs.

c) Potentially distorting - where the interven-tions directly affect the prices of goods andservices via some form of subsidy. Suchmeasures if maintained indefinitely will distortconsumption and investment decisions and

may limit or undermine longer term marketdevelopment.

In many cases the issue is the most “intelligent”way to deploy subsidies to maximise developmentimpact without undermining the market.Experience suggests that subsidies are best aredeployed “upstream” where they do not affectprices in a market.

And in the future...

M4Premains work in progress, and we still needhelp with refining the quality of the tools and theinterventions. Some of the priority issues are:

Achieving leverage– what are the practical appli-cations that have real impact? How can we mosteffectively sell and develop Public-Privatearrangements in Vietnam?

Better knowledge management, communicationand advocacy capacity – what resources andtools do we need? Are we generating the rightmessages? Are these messages being targetedat the right audience? Are the messagesappearing at a time and in a form that the targetaudience want?

Weak ‘fundamentals’ and “enabling environment”

for growth and private sector development

Market and/or government failures

Poor access to debt and equity finance

- Government investment or PPP arrangements for the

provision of basic infrastructure and infrastructure

services

- Policy Dialogue, advocacy and the building of

constituencies and networks for change

- Public-Private Dialogue

- Value chain interventions that increase the participation

of the poor

- institutional innovation e.g. farmer groups and other

types of collective action to increase the “market power”

of the poor

- market facilitation – developing demand and supply

factors to build a market

- risk reduction e.g. guarantees and other interventions to

encourage participants in areas were risk is perceived to

be too high

- Financial Sector Innovations

Issue Intervention

13

Introduction to M4P

How can we make M4P less of a donor-phenomenon and increase its appeal amongstVietnamese advocates and with the privatesector? What specifically do we need to do to getmore effective participation and buy-in fromprivate sector players?

How can we integrate ‘Drivers of Change’ andpolitical economy approaches in a practical andeffective way?

What are the priority institutions for the operationof pro-poor markets?

References

- Bear, Marshall, Alan Gibson, and Rob Hitchins.2004. From Principles To Practice: Ten CriticalChallenges For BDS Market Development.

- Department for International Development(DFID). 2002. Drivers of Change.

- DFID/Oxford Policy Management (DFID/OPM).2000. Making Markets Work Better for the Poor.A Framework Paper.

- Dorward, A. and S. Fan S., J. Kydd, H. Lofgren,J. Morrison, C. Poulton, N. Rao, L. Smith, H.Tchale, S. Thorat, I. Urey, and P. Wobst. 2004.Institutions and Policies for Pro-poor AgriculturalGrowth. Development Policy Review 22 (6):611 - 622.

- Dorward, A. J. Kydd, J. Morrison, and I. Urey.2004. A Policy Agenda for Pro-Poor AgriculturalGrowth. World Development 32 (1): 73 - 89.

- Gibson, Alan, H. Scott, and D. Ferrand. 2004.Making Markets Work for the Poor - AnObjective and an Approach for Governments

and Development Agencies. Woodmead:CoMark Trust.

- Goletti, Francesco. 2004. Commercialization,Value Chains and Poverty Reduction. M4PDiscussion Paper.

- Joffe, Steen and Stephen Jones. 2004.Stimulating Private Investment and MarketDevelopment for Agriculture: New Approachesand Experience. Oxford Policy Management.

- Organisation for Economic Co-operation andDevelopment. 2004. Accelerating Pro-PoorGrowth Through Support to Private SectorDevelopment. DAC POVNET.

- Porteous, David. 2004. Making FinancialMarkets Work for the Poor. The FinMark Trust.

- Prahalad, C.K. 2005. The Fortune at the Bottomof the Pyramid. Wharton School Publishing.

- Rodrik, D. (ed.). 2003. In Search of Prosperity:Analytic Narratives on Economic Growth.Princeton: Princeton University Press.

- Sen, Amartya. 1999. Development as Freedom.New York: Random House, Inc.

- World Bank. 2002. World Development Report2002: Building Institutions for Markets. NewYork: Oxford University Press Inc.

- White, Simon. 2004. Donor approaches toimproving the business environment for smallenterprises. Washington: Working Group onEnabling Environment Committee of DonorAgencies for Small Enterprise Development.

Factor Markets Day

Factor Markets Day Report

Participatory Livelihoods and Markets Assessments in Da Nang City

Labor Market Segmentation and Poverty in Viet Nam

The impact of Land Market Processes on the Poor: Implementing De Soto

Industrial and Commercial Land Markets and Their Impact on the Poor

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19

23

26

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M4P WEEK 2005

Summary of Factor Markets Day

Factor markets day opened the M4P week andwas well attended with 75 participants. Thepresentations about the interaction of differentfactor markets in the PMA in Da Nang and indi-vidual markets in land and labour attracted a lot ofinterest from the participants. Active discussionsfollowed the presentations in the afternoon in twogroups focussing on land and labour issues. Therewas a plenary session in which discussion resultswere reported.

Objectives

The objectives of “Factor Markets Day” were: (i) to introduce and open the M4P week (ii) to report on the results of factor markets

research and activities including the cross-cutting participatory livelihoods and markets assessments undertaken by the M4Pproject

(iii) to generate discussions and stimulatedebate about policy regarding factor marketswith concrete policy implications

(iv) to identify research further direction in factormarkets areas

Thematic Groups

Following the presentations of the results of fourstudies about:

(i) Participatory Livelihoods and MarketAssessments in Da Nang;

(ii) Labour Market Segmentation and PovertyReduction;

(iii) The Impacts Land Market Processes on thePoor: Implementing de Soto; and

(iv) Industrial and Commercial Land Marketsand Their Impact on the Poor in the morningsession, the participants were divided intotwo thematic groups in the afternoon. Eachgroup focussed on a factor market of landand labour:

Thematic Group 1: “Live” Policy Dialogueon Land Market Issues - The M4P projectsupported two studies about land markets. Thefirst research examines both formal and informalland markets processes such as land transfers,rents, mortgages and issuance of land use rightcertificates in rural areas. The second researchlooks at the processes of converting agriculturalland for industrial and commercial purposes. Thisthematic group will discuss policy issues basedon the results of the two studies with an empha-sis on the impacts on the poor. Expectedoutcome from this session will include a set ofpolicy recommendations.

Thematic Group 2: Labor Market Issues -This thematic group will include presentation onthe Labor Market Segmentation issue and itsimplications for poverty reduction in Viet Nam.Findings of the study about urban-rural andmigrant-non migrant segmentation reveal theimportance of rural labor markets in economicdevelopment. A brainstorming on focus areas ofrural labor market would help to identify furtherresearch direction for M4P.

Overall Outcomes

Some of the main issues that emerged fromFactor Markets Day: The importance of prioritisation and the distilltion

of fewer, clearer key messages Important interrelationships exist between the

various markets e.g. land-labour-finance. Research topics need to be strongly located in

real demand and relevant to the developmentpriorities in Vietnam. M4Pshould adopt a policy-driven agenda. For example, in Labour markets,job creation is a clear priority in the SEDP

The main focus has been researchers andGovernment agencies. While these are impor-tant stakeholders, M4P could also give moreemphasis to a wider range of stakeholders.

Factor Markets Day Report

17

Factor Markets Day

These include private sector players and asso-ciations, civil society organisations such as tradeunions and consumer groups

M4P needs to strike the right balance betweenresearch and advocacy and communications. Inmany cases this requires giving relatively moreattention to communication and advocacy on thebasis of research results that bhave alreadybeen obtained.

What is the right balance between marketinstruments and administrative instruments forresolving distributional problems e.g. in landwhat is the best means of allocating land andsetting prices?. How does the negotiationprocess within the realm of non-market instru-ments function?

Thematic Group Results

Thematic Group 1: “Live” Policy Dialogue onLand Market Issues Relatively high land use levies on the issue of

land use right certificates on residential land hasprevented many poor households from receiv-ing a formal land title.

Land use levies charged for registering certainchanges in land use can be costly for the poor.

Substantial informal fees charged by communeauthorities in some areas for formal land trans-fers weigh particularly heavily on the poor.

Inaccurate surveying and measurement of landplots, particularly in the early days of land allo-cation, create difficulties for poor peopleseeking to use these certificates in the formalmarket.

Weaknesses in the system of registering trans-actions and updating cadastral records maygradually reduce the accuracy and value of theland administration system, particularly affectingthe poor

Difficulties in land-use and leasing in Viet Namare frequently an obstacle to investment andgrowth, especially in the context of switching

from agricultural to industrial use Land is made available primarily through a

heavily state-mediated administrative process ofland recovery and discretionary allocation andleasing of land use rights to enterprises by thestate

Limited state support for recovered householdsoutside of compensation and support payments

Information on the functioning of land markets isvery incomplete

A combination of research and reforms isneeded.

Several policy issues are highlighted in thediscussion for better and more effective process ofconverting agricultural land to industrial andcommercial land: Making information about land use planning

publicly available Land evaluation to close to market price Equal access to land resource for different types

of enterprises More attention to livelihoods of those who have

land taken

Thematic Group 2: Labor Market IssuesThree broad stages of activities were identified

for effective research-policy work. These were:

1. Analysis2. Adaption and Adoption of the main research

findings3. Operationalisation of the findings in terms of

policy change and implementation, andfeeding back lessons from experience.

For the existing labour market work, M4Pneeded to move towards more “Type 2” - i.e. advo-cacy - activities. This may involve developingsome specific practical messages from the laboursegmentation study e.g. new approaches to skillsdevelopment and training that are more inclusive(e.g. accessible to migrants and minority groups).

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M4P WEEK 2005

The importance of internal migration, with its posi-tive and negative aspects, was raised at severalpoints in the discussion.

For future work, a consensus emerged aroundthe need to start with the real demands ofVietnamese policymakers e.g. employment

creation in the SEDP where there is a stated needfor Vietnam to create 8 million jobs in the next fiveyears. Then a stakeholder mapping exerciseshould be conducted to identify the concerns of awider range of players in the labour market e.g.Trade Unions, Employers as well as Government,Donors and researchers.

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Factor Markets Day

Introduction

This report Participatory Markets and LivelihoodAssessment in Da Nang city summarizes the mainpoints covered by a research within the frameworkof “Making Markets Work Better for the Poor”, aregional technical assistance project supported bythe Asian Development Bank (ADB). The researchwas undertaken in Da Nang from February toDecember 2004.

The research objective in Da Nang was toanalyze livelihoods by examining the interactionbetween livelihoods and markets from theperspective of poor groups and those who partic-ipate in markets, and identifying opportunitiescreated to enable markets to operate in pro-poorand sustainable ways. As a result, solutions willbe recommended to bring more and betteropportunities for the poor to participate inmarkets.

Research objectives

(i) To provide an in-depth and holistic under-standing of opportunities and constraints,which the poor perceive as important and arefaced with in accessing and integratingvarious markets and services into their liveli-hood systems.

(ii) To obtain a detailed and more systematicanalysis of institutional arrangementsthrough which markets work in the context ofVietnam, and how these arrangements mayaffect the poor in light of the wider institutionalcontext in which they operate.

(iii) To recommend policy initiatives to promoteopportunities for the poor, making marketswork better for them and enabling them totake advantage of opportunities to improvelivelihood.

The present study incorporates contributionsfrom a wide range of representatives from theInstitute of Labour Science and Social Affairs(ILSSA), Da Nang University, and the SteeringCommittee for Hunger Eradication and PovertyReduction (HEPR) of Da Nang City.

Main findings

Poverty and livelihood strategiesPoor people in Da Nang are vulnerable due to

external changes (losing land for urbanization pro-jects) and internal problems of households (poorhealth, low education, lack of labor and marketingexperience, and ineffective social security to helpthe poor to overcome shocks to livelihoods,production, or business).

The most critical causes for falling into povertyare unemployment or employment that onlyprovides an impoverished income, uncertainty inthe job market, poor business experience, andlack of capital for production development. Povertyis also seen as the result of market failure in provid-ing opportunities for the poor in accessing basicsocial services.

The poor in Da Nang are different from thosein other locations. They face the turbulence andchanges created by urbanization, lost of produc-tive land, and changes in livelihoods. Residentialhousing and employment issues havebecome the most critical concerns of the poor inDa Nang.

The livelihoods of the poor closely reflect the realstatus of their human capital and the returns fromusing this capital. The livelihoods of poor people inDa Nang are characterized by low and unsecuredreturns, either from engagement in trading orworking as hired labor. The labor market, where a

Participatory Livelihood and MarketAssessment in Da Nang CityInstitute of Labor Science and Social Affairs, Da Nang University and Da Nang SteeringCommittee for Hunger Eradication and Poverty Reduction

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majority of the poor work, is an informal labormarket with poor labor safety conditions and loosearrangements.

Market transaction and the role ofmarketsPoor people in the study areas engage in a

variety of business and trading activities, where thevolume and returns from their business appear tobe constrained more by limited demand and salesmargins in highly competitive markets than by anyimperfections in input, finance, or output markets.Access to higher value and higher margin activi-ties is constrained primarily by lack of skills, knowl-edge, and social capital.Poor people in the areasstudied are unable to take advantage of newmarket opportunities because of high dependencyratios (especially in female-headed households),low level of education, and limited marketable skillsoutside farming.

Urbanization, livelihoods and poverty Urbanization affects the livelihoods of people

in the peri-urban areas studied in Da Nang.Experiences from other urbanization areas showthat land price is an issue. The poor cannot liveon compensation for long periods of time withoutsubstitute jobs. Residential housing andemployment issues have become the most crit-ical concerns of the poor due to their limitededucation, skills, information, capital, and socialrelations.

Urbanization increases the vulnerability of suchpeople to shocks, in situations where people havehad to move to make way for development (result-ing in loss of support from neighbors and hencereduced their social capital); and lost the ability toundertake farming (through loss of farm land) andassets (such as uncompensated loss of housingon land scheduled for development).

These effects seem to be greater on womenwho are breadwinners of their families. They havefewer opportunities for paid work, are paid lowerthan men, and usually engage in very small andtime-consuming trading that hinders their ability tofind better paid jobs. This cycle drives them intopoverty.

Policy implications and recommendations

New approaches to support the poor The research findings have helped define a new

approach to hunger eradication and povertyreduction, which incorporate markets into the liveli-hood of poor. The poor should be supported froma variety of perspectives, from local authorities (byproviding assistance), and from markets; andthrough their efforts in using markets as a driver toescape poverty.

Three main questions to be addressed (i) How can markets function better for the

poor? What are the reliable solutions toimprove the access to and participation of thepoor in markets?

(ii) How can government support become betterand more reliable for the poor? This can beachieved by agencies of state institutions byshifting thrust from providing direct assis-tance to delivering services. The effective-ness of these services should be assessedon market criteria such as cost-benefits, effi-ciency of return, coverage of policy, andcapability to support the poor to developrelevant livelihoods.

(iii) Designing and developing a reliable socialsafety net to support the poor to overcomerisks caused by urbanization and economicshocks. Aside from policy making, a socialsafety net should be provided offeringvarious solutions to help the poor establishand change livelihoods.

Holistic action New programs should address the new chal-

lenges and issues affecting the poor’s livelihood,aimed at giving them more and better access tomarkets and achieving sustainable poverty reduc-tion. The policies should focus on reducing the vulnerability of the poor in light of

emerging issues; creating more opportunities and improving the

capability of the poor to take advantage of theeconomic development process; and

increasing market return and market value toallow the poor to participate in activities to over-come poverty.

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Supporting poor people to design anddevelop sustainable livelihoods

The urbanization process should be undertakenin a more stabilizing and effective manner. Allissues should be carefully addressed and amaster plan developed to overcome any problemareas affecting people. Urbanization planning proj-ects should incorporate a plan on job generationfor local people with special attention and moreincentives given to low-income and vulnerablegroups: (i) stabilize residential areas for the poor;(ii) provide the poor with employment opportunitiesthat will create stable income in the long run; and(iii) develop effective support policies andschemes to successfully transform the livelihoodof the poor to meet new situations and preventthem from falling back into poverty.

Since the majority of poor people are unskilled,with very little experience of markets, solutions forthe poor should focus on improving qualifications,increasing resources, upgrading productivity andlivelihoods, and promoting the role of enterprisesin generating jobs for the poor.

Information delivery to the poor must beimproved, especially in urbanized areas, byproviding concrete information relating to legisla-tion, compensation schemes, and timing. In addi-tion, local authorities from various levels shouldalso develop a good two-way information channelto make sure that all information regarding theimpact of urbanization on the poor is dissemi-nated, and that the poor have opportunities toreflect their opinions to higher levels. This willcontribute to good interventions from government.Local authorities should obtain information onlivelihood strategies of poor households anddisseminate lessons learned from those whoachieved success in their livelihood. Incorporatingthese lessons into the development of pro-pooraction programs will help create solutions forimproving the living standards of local people.

Creating more opportunities for the poor toaccess markets

The poor should be aware that they should bemore motivated in mobilizing measures to over-

come their poverty. They should have a long-termvision about their livelihood, enabling them todevelop strategic planning for their future activities.

To take advantage of economic development,however, they should also be assisted in educationand vocational training to meet market require-ments and to better control and manage theirresources. In addition, they should be given thenecessary skills and experience to re-shape theirlivelihoods, when changes are required, resultingfrom urbanization.

Labor marketWorking conditions for the poor should be

improved, job-matching service system and careerconsultation developed, more reliable flow of jobinformation to the poor promoted, and vocationaltraining courses for the poor offered to meet enter-prise requirements.

Enterprises should be encouraged to employpoor people. Special packages to assist the poorin resettling should be developed, including poli-cies on employment, finance and training, anddeveloping social insurance schemes for the poor;training and encouragement must be provided toassist the poor to veer away from farming beforethey lose access to farmland or agriculturalemployment. The poor need to be given access tomore secure and better paid non-farm employ-ment opportunities and increasing non-farmearning opportunities.

Financial marketsMore access to credit funds should be provided

to the poor, as well as more information on creditsources, interest rates, loan sizes, criteria forloans, and procedures to obtain loans; and train-ing on production know-how.

Input-output markets An information network for the poor should be set

up to provide appropriate and available information.Mass organizations and trade associations shouldcreate more solutions to help the poor reduceproduction costs (providing free consultancy serv-ices, information, and technical extension).

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Planning is needed to conduct studies onsupply-demand for specific goods in the market.With the participation of the poor, this will help ineconomic restructuring and in responding tomarket demands.

Basic social services Local authorities should consider further reduc-

ing the financial contributions for poor children foreducation, and opening free-of-charge vocationaltraining for the poor to improve their practicalknowledge and technical skills to find a job aftergraduating.

The poor should receive more support formedical treatment. For serious diseases that thelocal clinic station is unable to treat, a hospital of ahigher level should be able to treat the poor withoutworry about payment.

Land issues A more adequate price frame for compensation

should be provided and land prices for landownersincreased. Compensation on land lost should notonly be covered by a lump sum but also by occu-pational transition costs for targeted households.

Improved information to the poor is needed,particularly on land prices and likely land marketdevelopments to enable them to take betteradvantage of rising land prices.

A support policy should be developed to helpthe poor access the land market. Classifying poorpeople according to target groups for differentsupporting schemes is needed. The pooresthouseholds should benefit from low-priced apart-ments in high-rise buildings. A support policy forthe poor in land use title registration and theissuing of certificates should be developed; andregistration tax and other fees reduced.

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Factor Markets Day

Economic growth can affect poverty reductionthrough several channels and the labor market isperceived as one of the main channels fromgrowth to poverty reduction. Economic growth isassociated not only with increase in income percapita, changing returns to the factors of produc-tion but also with the creation of opportunity. Sincelabor is the main asset of the poor, how the poortake advantage of the opportunity and benefit fromgrowth depend critically on the functioning of thelabor markets.

Many studies have shown that labour marketsare often segmented across regions, jobs, indus-tries, ownership, ethnicity, gender, and residencestatus. Segmentation can also take place within afirm if there is unequal treatment of workers withdifferent backgrounds such as gender or race.The main implication of segmentation is thatreturns to education vary not only with humancapital (supply-side) but also across segments. Inaddition, workers with similar skills and educa-tional attainment can also receive different non-wage benefits if they work in different segments ofthe market. Other common outcomes of segmen-tation include differences in mobility, workingconditions and promotion.

Labour market segmentation is directly linkedwith poverty through several channels. First,segmentation can affect the distribution of the pooracross various segments. Low wage, poor jobsecurity and working conditions can contribute tooverrepresentation of poor in segments with lowerreturns to human capital. Second, limited mobilityacross segments implies limited opportunity andchoices available to the poor and hence lowers theimpact on poverty of rapid growth or other targetedprograms. Final, limited mobility across segmentscan contribute to the prevalence of chronic povertyover longer term.

To determine the extent and the main causes oflabor market segmentation in Vietnam as well asits impact on poverty, a study has been conductedas a part of the “Making Markets Work Better forthe Poor” Project, jointly funded by ADB and DFID.The research team comprises of the Institute ofWorld Economics and Politics, Central Institute ofEconomic Management, and the Institute of Laborand Social Affair Studies. The research team hasreviewed important macro evidence of the linkbetween segmentation and poverty and majorpolicies that have potential impact on labor marketsegmentation in Vietnam. Available data from theVLSSS surveys 1997-98 and 2002 were exten-sively used to quantify the contribution of segmen-tation on the wage gap between poor and non-poor workers. In addition, the research teamcarried out a survey among employers, workersand government agencies in Da Nang and BinhDuong to deepen further our understanding ofsegmentation with micro evidence.

The study revealed some strong evidence oflabor market segmentation in Vietnam. There aresegment-specific returns to human capital andconsequently, workers with similar human capitalcharacteristics receive different wage and salary.The study provided supporting evidence of notonly urban-rural segmentation but also migrant-non-migrant segmentation in urban areas.

One important objective of the study is to link thesegmentation to the wage gap between poor andnon-poor workers. Overall, the average wage gapbetween poor and non-poor wage workers can beattributed to three factors: (1) difference in humancapital, (2) difference in returns to human capital,and (3) other factors treated as unobservable in thestudy. The decomposition using data from VLSSSsurveys show that on average, returns to humancapital such as education and experience can differsignificantly between urban and rural areas. Urban-

Labor Market Segmentation and PovertyA Consortium of Institute of World Economics and Politics, Central Institute of Economic Management,and Institute of Labor Science and Social Affairs

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rural segmentation has contributed significantly tothe wage gap between poor and non-poor workers.In 1998, disparity in returns to human capitalaccounted for as much as 38 per cent of the wagegap between the poor and the non-poor, whiledifference in human capital explained only 15.1 percent of this wage difference. The relative position ofthese two factors reversed in 2002 with differencein human capital contributed to 25.4 per cent, andurban-rural segmentation attributed for 19.9 percent of the wage differential between poor andnon-poor workers.

One important consequence of the urban-ruralsegmentation is that sufficiently large wage gapbetween urban and rural workers will result inrural-urban migration and the creation of non-farmemployment in the rural areas alone may not resultin the reduction of the difference in returns tohuman capital in the two areas. Even ignoring thedifference in general basic services, small amountof rural non-farm jobs will not change the returnsto human capital since there is large labor surplusin rural areas. The decreasing trend of the contri-bution of urban-rural segmentation to wage gapover the period 1998-2002 may reflect not only theimpact of rural-urban migration flow, but also thebetter functioning of labor market in Vietnamreflecting by the narrowing the gap in returns tohuman capital between different segments.

There are several types of segmentation at playand adding the other three popular types ofsegmentation, namely gender, sectoral andformal-informal, to the urban-rural segmentationreduces the contribution of segmentation to wagedifferentials between poor and non-poor workers.In 2002, the combination of all four types ofsegmentation together merely accounted for 10.2per cent of the average wage disparity betweenpoor and non-poor workers, much lower than theurban-rural segmentation alone. The sub-segmentcontributes most to the wage disparity is the groupof male formal workers with off-farm jobs in urbanareas, making up to one sixth of the wage gap.

The survey focused on a recent but increasinglyimportant type of segmentation, namely thesegmentation between migrant and non-migrantworkers. As a matter of fact, the vast majority of

migrant workers in big cities are informal workers,there is a close correlation between informal-formal and migrant-non-migrant segmentation inbig cities. The survey data show that residentialstatus (migrant or non-migrant) is one of thefactors explaining wage gap between migrant andnon-migrant workers in surveyed firms. Migrantworkers seem to receive lower wage than theirnon-migrant colleagues even they have the samehuman capital characteristics.

Analysis of the survey with employers andworkers also revealed other evidence of segmen-tation between migrant and non-migrant workerssuch as difference in the chance of getting skilledjobs or time needed to find a new job. On average,migrant workers need more time than their non-migrant colleagues to find a new job, and the prob-ability of migrants working in high-skilled job typesis much lower than that of non-migrants even aftercontrolling for human capital characteristics. Inaddition, there is an overwhelming consensusamong every type of surveyed workers that it ismuch harder for migrants than for non-migrants tobe promoted.

According to the survey data, the main barriersto find a reasonable job for migrants are lack ofjobs, health status and limited access to labormarket information. The imperfection of the labormarket clearly raises the transaction costs and theuncertainty of getting another job, and hence leadsto different returns to similar human capital char-acteristics.

The above findings imply that addressing thesegmentation issues should look beyond theaverage at some particular types of sub-segmen-tation. With evidence of labor market being moresegmented at more disaggregated levels, thedesign of pro-poor labor market policies shouldtherefore take the specificities of segments intoconsideration to mitigate the negative impact ofsegmentation on earnings disparity and poverty.

Acomprehensive literature survey and review ofexisting policy framework carried out by the studyshows that there is several labor and non-laborpolicies in Vietnam that have potential impact onthe labor market segmentation. Of particular rele-

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vance to the findings of the study we can name themigration related policies, training, and policiesrelated to the development of private sectors.

The relative severity of urban-rural segmentationrepresents another cause behind the rural-urbanmigration pressure. People want to migrate not justbecause of different living standards, differentavailability of opportunities but also because ofdifferent returns to similar human capital charac-teristics. As a result, effective dealing with migra-tion issues requires among others demand-sidemeasures for reduction of segmentation

A positive approach to the migration issue canbe considered, including policies addressing thesegmentation between migrant and non-migrantworkers. These policies can aim among others atimproving access to labor market information andto basic social services such as education andhealth care for migrant workers and their families.The implementation of measures aiming atempowering migrant workers should also beencouraged to eliminate the discrimination againstmigrant workers.

Strict migration related policies such as policiesabout access to basic social services or residen-tial registration can further reinforce the impact ofexisting segmentation in cities worsening the posi-tion of informal and migrant workers. In addition,strict migration related policy may contribute toaggravating the issues of chronic poverty andsocial problems in the cities since the poor migranthouseholds only have limited access to educationand they are not entitled to benefit from targetedpoverty reduction programs. Moreover, the migra-tion issue should be viewed with both positive andnegative sides and the contribution of migrants tothe overall economic development of the citiesshould also taken into consideration when design-ing migration related policies.

Segmentation between informal and formalworkers seems to make significant contribution towage disparity between poor and non-poorworkers in urban areas. Given that 3 in 4 workersin Vietnam are informal workers; policies aiming atformalization of status of workers can potentiallyhave substantial impact on poverty reduction andhence should be encouraged. As workers ingeneral have more formal status in larger firmsthan in smaller firms, policies aiming at facilitatingthe development of large private enterprises canreduce the number of informal workers andconsequently the incidence of poverty. Forexample, improving the predictability of policiestowards private sector could make a significantdifference to the growth of private firms and hencestatus of workers since it reduces uncertainty andhence raises expected profits of enterprises, whichin turn encourage long-term investment andexpansion of business.

The analysis shows that segmentation betweenfemale and male seems not to be an issue inVietnam. On average, male workers receivehigher wage than their female colleagues but thegap is small and the contribution of male-femalesegmentation to the wage gap between poor andnon-poor is negligible. For the jobs requiring skilledlabor, there is also no evidence of job segregationby gender.

A final policy implication of the study is that theanalysis confirms the importance of human capitalin determining the wage gap between poor andnon-poor workers. Since the vast majority of theworkers in Vietnam are unskilled and most of themare poor, priority in pro-poor policies should begiven to improving human capital of people, espe-cially the poor.

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Overview of rural land use in Viet Nam

In Viet Nam, land is the property of the wholepeople and the state is the representative owner.But farmers are allocated land use rights for 20years for annual crop land and 50 years for peren-nial crop and forest production land. These rightsare renewable on expiry and equate closely to fullland ownership.

Since the passage of the 1993 Land Law, rapidprogress has been made in issuing formal landuse right certificates (known as Red Books). As of2003, there were about 13 million land users in VietNam occupying a total of nearly 100 million landparcels. By October 2004, Red Books had beenissued on over 92% of agricultural land. Theprocess of issuing Red Books is planned to becompleted by the end of 2005.

The market in agricultural land is most active insouthern Viet Nam. A recent survey of the MakingMarkets Work Better for the Poor (MMW4P)Project(1) found that over 5% of agricultural RedBooks were transferred each year in three districtsof An Giang and Hau Giang provinces. Most agri-cultural land transfers are registered formally withdistrict authorities. A significant reduction in taxrates on land use right transfer in 2000 helpedpromote formal registration of land transfers. Rateswere reduced to 4% on residential land and 2% onagricultural land (from 20% and 10%, respectively).Stamp duty of 1% is also payable. The surveyshowed that the processing of most land transferstook around one month, though cases of delaysfrom three months to a year were found. Formaltransaction costs were relatively low: dong(D)15,000–D50,000 ($1-$3.5) per transaction. In

some provinces, a “one-door” service has beenestablished by which land users deal only with asingle local government transaction office.

Farmers are able to use their Red Books ascollateral to access loans, particularly from theViet Nam Bank for Agriculture and RuralDevelopment (VBARD). A high proportion of landusers mortgage their land use rights for bankloans. Figures from two districts in An Giangprovince indicate that 15–33% of agricultural RedBook holders use them as collateral for loans fromVBARD each year. The MMW4P survey showedthat mortgage transactions generally took fromfive days up to three weeks to complete, with lowformal transaction costs.

Informal rural land market

Though significant progress has been achieved,informal unregistered tenure and transactions arestill widespread in certain parts of the rural landmarket.

Rural residential land.The issue of Red Booksfor residential land has been slower than for agri-cultural land. In the MMW4P survey, over 70% ofhouseholds in only two districts out of 12 hadreceived Red Books for residential land.Consequently, the incidence of informal transac-tions in residential land is also high.

Informal mortgages. Atraditional, informal landtransaction known as co dat is commonly found inthe Mekong Delta. Full use of an agricultural landplot for a fixed period of time is transferred inexchange for an interest-free cash loan. The landis returned on repayment of the loan or forfeited in

The Impact of Land Market Processes on the Poor:Implementing De SotoCentral Institute of Economic Management (CIEM), Mekong Economics and Center for Rural Progress (CRP)

(1) For more information, see Discussion Paper No. 3 “The Impact of Land Market Processes on the Poor—Implementing de Soto.”Making Markets Work Better for the Poor Project at www.markets4poor.org.

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Factor Markets Day

the case of loan default. Such transactions are notformally registered.

Resorting to the informal land market can havegreat costs for poor people. Without state recog-nition of title, boundary and ownership disputes arecommon. Untitled land sells for much less thanland with a Red Book. Informal mortgage termsare less favorable than those offered by the banksfor titled land.

Key issues

Anumber of obstacles prevent poor householdsfrom gaining formal land titles or encourage thegrowth of informality in the land market:

High formal and informal fees. As with someother categories of non-agricultural land allocatedby the state, land use levies of between 20% and100% of land value are payable when Red Booksare issued on residential land acquired since 1993.This constitutes a significant financial burden onpoor households and, in some areas, has resultedin a high incidence of refusal to pick up Red Booksfrom commune authorities. Fees are also levied intransferring garden or pond land to residential use.In many cases, the Red Book issue involvesformal recognition of de facto land use change andconsequently incurs land use levies.

The imposition of informal fees by local officialsto process or accelerate land transfers iscommonly reported. Sometimes such fees areinstitutionalized into contributions to local infra-structure development funds. Such fees havebeen shown to push some poorer farmers intoinformal land transactions.

Lack of awareness of rights and responsibi-lities among rural land users. Many land usersare not aware of the importance of formal land titleand registration of land transactions. This is parti-cularly common in cases of inheritance or transferbetween family members. Formal registration isoften deemed unnecessary by those involved,though failure to do so can lead to family disputes.

Many obstacles to land mortgaging. Bankstaff members sometimes require informal fees tofacilitate the processing of mortgage transactions.

In addition, bank ceilings on mortgage size aresometimes cited as a problem for farmers. TheVBARD lends to a maximum of 50% of the valueof agricultural land collateral, and 75% of the valueof assets on the land, valued according to stateprice frameworks.

Local government intervention. Local govern-ment regulations have prevented formal transfer ofsmall land plots in some cases. Such regulationsare aimed at preventing land fragmentation butmay push poor farmers into informal land sales.

Inaccurate plot measurement. In somecases, Red Books issued to farmers contain errorson the designation of the plot area or location.Such problems were common in rapid Red Bookissue campaigns that took place shortly after the1993 Land Law was passed. In such cases, formalland title clearly does not contribute to increasedtenure security.

Solutions

Anew Land Law was passed in November 2003and came into effect on 1 July 2004. Reformsunder this law could have significant benefits inprotecting and developing land assets of the poor.To address some issues raised here, particularattention should be paid to the following.

Development of efficient land registrynetwork. Under the 2003 Land Law, the state landmanagement function will be separated from theprovision of land market services. New provincialand district land registries will be set up to provideservices, including the registration of land trans-fers, to land users. These registries should operatewith transparency and should be able to providequick and efficient service, thus reducing transac-tion time and costs to land users.

Capacity building for land registry officials.With the development of new land registries, signi-ficant investment must be made in staff training. Thisincludes technical training, particularly at thecommune level, and a shift from state managementculture toward customer-oriented service provision.

Enforcement of commitments on time andcost. Clear charges and time limits for various land

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transaction services are set out in the Land Lawand other related decrees. Enforcing these timelimits will reduce the scope for informal “facilitation”charges.

Increase public awareness. Awareness-raising campaigns are necessary to increasepublic perception of the rights and responsibilitiesof land users. This should focus specifically onpoor and vulnerable households. Clear informa-tion on the procedures and costs for registration ofvarious transactions, as well as time limits set outin the new legislation, should be given.

Affordable fees and taxes. High land uselevies are an obstacle for farmers to gain formal

land use rights. International best practicesuggests that the state should underwrite the costof first registration of land rights. This promoteswide-scale participation in the formal system and,in the long term, results in increased state revenuefrom subsequent dealings.

Prompt implementation of positive new poli-cies for vulnerable groups. The new Land Lawincludes positive steps to protect the rights ofvulnerable groups. These steps include requiringthat the names of spouses be entered into theregister for matrimonial property, reducing fees fordisadvantaged groups, and allocating land tocommunity groups. These steps should be imple-mented quickly.

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Factor Markets Day

The conversion of agricultural land for industrialuse is having a major impact on Vietnam’s rurallandscape. Land clearance and industrial devel-opment is evident on the outskirts of large cities,along major trunk roads and in provincial towns.According to a MONRE report on 192 major indus-trial zones (IZs) and clusters in over 13 provinces,a total of 29,214 hectares of land has been recov-ered to establish these zones by December 2004,of which 84% was agricultural land and 1.2% resi-dential land. Agricultural land was recovered from100,526 households(1).

Agricultural land conversion results from thelimited supply of currently available industrial landcompared with demand from the rapidly growingprivate sector. It is exacerbated by the privilegedaccess of state owned enterprises to land currentlycategorised for industrial purposes(2). The issue ofland conversion is important because difficultaccess and high cost of land are often cited asmajor constraints to private sector growth.However, it is controversial because of fearssurrounding the food security implications of agri-cultural land loss and the impact of displacementon the livelihoods of large numbers of farminghouseholds.

In light of Vietnam’s industrial growth rate, agri-cultural land conversion is, to a greater or lesserextent, inevitable and necessary. Morecontentious are the ways in which this conversion

takes place. The main issues surrounding theconversion process are outlined below, from theperspectives of land market regulation, displacedfarmers and private sector business.

State Regulation and ManagementPerspective

a. The bases for industrial land use planning.Land use plans, including plans for the estab-lishment of industrial zones and clusters and therecovery of agricultural and other land, arebased on provincial socio-economic plans.However, such plans are rarely derived from arealistic assessment of likely future demand forindustrial land from the private sector. Co-ordi-nation with national and sectoral planning isweak. Information on existing land use for indus-trial purposes, particularly the effectiveness ofSOE land use and actual occupancy of existingindustrial zones, also tends to be incomplete.Public or business participation in the land useplanning process appears to be negligible.Inappropriate land use planning can result inempty industrial zones, unnecessary land recov-ery and uncertainty over unimplemented landuse plans. The 125 hectare Quoc Oai IndustrialCluster in Ha Tay province serves as anexample: recovery and leasing processes had tobe halted in 2002 as land in 2 communes wereaffected by overlapping plans for the Lang – HoaLac road extension(3).

Industrial and Commercial Land Marketsand Their Impact on the PoorCenter of Land Investigation and Planning in association with Central Institute ofEconomic Management, Urban Management Center, and Center for Rural Progress

(1) Report on the use of agricultural land for the construction of industrial zones and the living standards of those from whom landwas recovered. Ministry of Natural Resources and Environment. 21st January 2005.(2) Private sector and land: availability, affordability and administration. Amanda S. Carlier and Son Thanh Tran. Vietnam PrivateSector Development Policy Note. Hanoi. May 2004.(3) Industrial and commercial land markets and their impact on the poor: a study report in Vinh Phuc and Ha Tay provinces.

Centre for Rural Progress. October 2005. ADB Making Markets Work Better for the Poor.

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b. Land conversion mechanisms. The mostcommon mechanism is compulsory administrativerecovery of land use rights from farmers by thestate combined with discretionary leasing or allo-cation of recovered land by the state to enter-prises. Recovery most often takes place within theconfines of industrial zones sanctioned bynational, provincial or district authorities.

Under the 2003 Land Law, however, variousmarket processes are sanctioned by which enter-prises may negotiate directly with farmers toaccess land. Mechanisms include receipt of landtransfer (purchase) from households, directleasing of land or capital contribution of land userights by farmers to enterprises. Such transactionsare limited only to land eligible for land use conver-sion under current land use plans. Prior to the2003 Land Law, such methods were commonlyemployed informally by enterprises in SouthernVietnam.

Current land policies and procedures tend todiscourage direct negotiation, however. In additionto the negotiated cost of land, businesses mustpay land use fees for change in land use purposefrom agricultural to industrial purpose. In northernand central regions, difficulties in direct negotiationare exacerbated by land fragmentation and thesmall size of households land holdings, resultingin complex multiple household negotiations, partic-ularly for larger industrial projects.

Reliance on administrative recovery processes,however, does result in a wide range of problemsrelating to compulsory land clearance, compensa-tion and resettlement (see below). Restrictionwithin state planned industrial zones also reducesenterprises’ flexibility with regard to location.

c. Industrial zone management mechanisms.Mechanisms for management of Industrial Zonesand clusters vary widely between differentprovinces. In some provinces, private sector infra-structure development companies, including jointventure companies, lease industrial zone land,develop relevant infrastructure then sub-leaseland to enterprises (e.g. Hanh Phuc Company,

Duc Hoa 1 IZ, Long An province). Elsewhere, non-profit state owned companies have been estab-lished to carry out a similar function (e.g. IZInfrastructure Development Company, Phu Tai IZ,Binh Dinh province). In northern provinces, indus-trial zones are managed directly by stateManagement Boards.

These institutional arrangements, together withthe scale of investment capital available and theplanned industrial zone area, have a major influ-ence on project success. In better funded andmanaged industrial zones, initial simultaneousland clearance can be completed in advance,investment made in necessary infrastructure andland made available rapidly to applicant enter-prises. In other zones, land clearance can bepatchy with existing residents living interspersedwith newly established enterprises (e.g. Phu Tai IZ,Qui Nhon City, Binh Dinh). In uncleared industrialzones, long land clearance procedures may berequired for new enterprises seeking to lease land.

d. Land pricing. Some provincial authorities uselow preferential land rents as an incentive to drawprivate investment into their local areas. Long Anprovince, for example, exempts all new investmentprojects from land rental fees throughout the termof their licence. This runs counter to declaredgovernment efforts to reduce subsidy within theland market: local governments are reluctant toallow market forces to determine enterprises’access to land. Such policies result in incomeconstraints on infrastructure development compa-nies seeking to recover their investment, disin-centive for businesses to negotiate directly withexisting land users, entrenchment of the discre-tionary system of state approval of land leases andallocations and a lack of transparency in theapproval process.

The Farmers’ Perspective

a. Compensation. The 2003 Land Law requiresthat households from whom land is recoveredshould be compensated with new land of the samecategory or its cash value. Compensation pack-ages may involve large sums of money and consti-

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tute significant costs to enterprises. For instance,one farmer whose land will be recovered for theTan Kim Industrial Zone in Can Giuoc District,Long An province told interviewers he wouldreceive 849 million VND compensation for12,000 m2 of agricultural land and 900 m2 of resi-dential and garden land, buildings, crops and othersupport4. However, farmers often perceive thatlevels offered are not ‘fair’. In some cases disputeshave been protracted and violent. For example,protests were held against land recovery for IZdevelopment in Lai Yen commune (Hoai DucDistrict, Ha Tay province): “According to variouspress agencies, about 500 people gathered toprotest, mainly elderly and children. They pouredpetrol and set fire to the Commune People’sCommittee building and attacked the home of aCommune Vice Chairman, injuring one medicalstaff and a policeman. AP also reported thatprotestors took one local official hostage”5. Whilereaction is usually less extreme than the exampleabove, compensation is frequently consideredunfair for the following reasons:

Compensation is calculated on the basis of stateprice frameworks for the current land use categoryof land recovered. Displaced land users thereforedo not enjoy any share of the benefit from theincrease in land value that results from conversionof purpose from agricultural to industrial use.

Even after increases followed the issue ofDecree 188/2004/ND-CP, state land priceframeworks issued by Provincial People’sCommittees are often still fixed below marketprices. As price frameworks are issued on anannual basis and are disaggregated into alimited number of categories, state and actualmarket prices can vary considerably.

Anomalies often exist between provincial priceframeworks for similar plots of adjacent landlying within different administrative jurisdictions.

In projects where land recovery takes place overan extended period of time, households who

wait to receive compensation at a later dateoften benefit from increased state land priceframeworks. This acts as a disincentive fortimely acceptance of compensation offers.

b. Resettlement. The 2003 Land Law requiresadvance preparation of resettlement zones forhouseholds from whom residential land has beenrecovered. In practice, this seldom happens. Ifresettlement zones are established, space is oftenlimited and procedures for selection of eligibleoccupants lack transparency. Land within resettle-ment zones is often priced higher than residentialland recovered, preventing displaced householdsfrom purchasing equivalent plots.

c. Disruption to livelihoods. Recovery of agricul-tural land often results in disruption to farmingfamilies’ livelihoods, together with social fragmen-tation and cultural disorientation. However, impactvaries depending on a variety of factors:

In areas where agricultural land productivity waslow and dependence on off-farm sources ofincome relatively high, the impact of land reco-very on farmers’ livelihoods is more limited.

Younger and better educated members ofdisplaced farming households are more likely tosucceed in changing occupation, retraining orfinding work within local industrial enterprises.However, employment of displaced householdmembers seems generally limited. A total of 88household interviews in Ha Tay and Vinh Phucprovinces revealed only 15 IZ enterpriseemployees out of 330 household members ofworking age6.

Some households lack ideas or experience ofhow to invest large, lump sum payments in newincome generating activities, resulting in waste-ful consumption.

Households given limited prior warning ofrecovery were less able to plan new livelihoodstrategies.

(4)Industrial and commercial land markets and their impact on the poor: a study report in two Mekong Delta provinces. UrbanManagement Centre, Hanoi Architecture University. October 2005. ADB Making Markets Work Better for the Poor.(5)Demonstration in Ha Tay. BBCVietnamese.com. 27th January 2005.(6) Industrial and commercial land markets and their impact on the poor: a study report in Vinh Phuc and Ha Tay provinces. Centrefor Rural Progress. October 2005. ADB Making Markets Work Better for the Poor.

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The Enterprise Perspective

Enterprises’ experience of accessing industrialland converted from agricultural use variesconsiderably depending on industrial zonemanagement mechanisms. Enterprises in LongAn province have reported completion of leasingprocedures and the issue of red books within 15days of approaching IZ infrastructure developmentcompanies for industrial land. However, issuesmet by enterprises accessing land converted fromagricultural use include:

Difficulties and delays in negotiation of compen-sation with farmers. Though compensationlevels are based on state price frameworks, insome provinces (e.g. Ha Tay) enterprises mustagree compensation procedures directly withfarmers. This has sometimes resulted in publicpressures exerted on enterprises, particularlywhere it has become known that extra paymentswere made to accelerate land clearance. Evenex post facto claims have been made regardingland already recovered.

Difficulties, costs and delays in negotiation withlocal authorities. Even though formal proceduresfor land leasing may often be completed rela-tively quickly, plot search and the securing ofagreement for the initiation of land lease proce-dures can be very time consuming. For formalprocedures, enterprises in Vinh Phuc and HaTay reported that procedures for acquisition ofland leases in uncleared industrial zones took170-190 days, dealing with 10-12 differentgovernment bodies7.

Except in the best industrial zones, many enter-prises experience difficulties with infrastructuredevelopment: road access, electricity, water,waste disposal etc.

Conversion of agricultural land to industrial useis currently a heavily state intermediated processincluding administrative land recovery at stateprices and a discretionary system of state leasingto enterprises. This contrasts with the idea of amarket mechanism of land distribution within theframework of state land use planning. State inter-mediation of this kind has resulted in rapid landconversion but is also associated with high levelsof compulsion, state discretion in leasing and diffi-culties in applying market based valuation of land.

(7) Industrial and commercial land markets and their impact on the poor: a study report in Vinh Phuc and Ha Tay provinces. Centrefor Rural Progress. October 2005. For ADB Making Markets Work Better for the Poor Project.

Value Chains Day

Value Chains Day Report

Cross cutting issues in Agricultural Value Chains

Value Chain Approach and SME Development

The Participation of the Poor in Supermarkets and other Distribution Value Chains

The Economic Development Impact of Rose Value Chains in North Viet Nam

Facilitating market integration of the upland poor into bamboo value chains:

Upgrading strategies for local producer group

The Dragon Fruit GAP Project

Programme for the Development of Small and Medium Enterprises

Wood Processing Sector Competitiveness Improvement Program

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M4P WEEK 2005

Value Chains Day Report

Summary of Value Chains Day

Value chains day was well attended, and thepresentations and themes generated a significantamount of debate and discussion.

There are many projects currently working ondevelopment approaches involving value chains.Some of these projects have an explicit pro-poorfocus, while others do not. The interaction betweena large number of value chain “practitioners” wasone of the highlights of value chain day.

While providing a good forum for discussion ofcompleted and ongoing work, one of the mainresults of value chains day was the stimulation ofideas for further work on the topic.

Objectives

“Value Chains Day” had three overall objectives.These were:

(i) To report on the results of value chainresearch and activities undertaken by theM4P project

(ii) To enable a forum for presentation of valuechain methodologies and results from otherprojects and activities.

(iii) To generate discussion and stimulate debateabout the use of value chains within threethematic groups.

Thematic GroupsAfter an initial session involving all participants,

which included cross-cutting presentations, theparticipants commenced working in three thematicgroups, each of which focused on a separateaspect of value chain methodology and research.The activities within these groups included twopresentations related to the thematic area,followed by group discussion designed to advanceknowledge on the thematic area. The thematicgroups were as follows:

Thematic Group 1: Agricultural Value Chainsand Poverty Reduction – this theme covers the

use of value chain research to categorize marketsystems in order to identify the extent to which theyare pro-poor, and to propose means of making themarket systems more pro-poor. The thematicgroup included main presentations/areas of focus:

(i) CIRAD/MALICA on supermarket develop-ment in Vietnam and the impact on the poor

(ii) Pro-poor horticulture group on rose valuechains.

These presentations formed the basis of twoconcurrently operating group discussion sessionson the theme of agriculture value chain develop-ment and poverty reduction.

Thematic Group 2:Value Chains and ActiveMarket Promotion – this thematic group coveredthe use of value chains in “action research”, whichcan be categorized as moving beyond theresearch activities described in Thematic group 1and more towards actual participation in, and influ-encing of, marketing systems.

The thematic group included presentations fromVNCI on action research and market developmentin Dragon Fruit and from IDE on action researchin development of value chains for bamboo prod-ucts. These presentations formed the basis ofgroup discussion on the theme.

Thematic Group 3: Value Chains and SectorApproaches – the third thematic focused on theuse of value chains as a tool for industrial devel-opment. The thematic group work includedpresentations from MPDF on Wood IndustryCluster Development and from GTZ on SMEdevelopment and value chains. These presenta-tions formed the basis of group discussion on thetheme of agriculture value chain development andpoverty reduction.

Overall Outcomes

Bringing together the many different pro-grammes working on value chains was asuccess. Many benefits were evident in terms ofnetwork development and information exchange.

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Value Chains Day

There is demand for further “synthesis” work onvalue chain methodologies. For example, thereare still issues relating to practical definitions of“employment” and “profitability”. This could bedone in an inclusive way using the proposedvalue chain handbook and sourcebook that M4Pproposes to support.

Collective action and institutional innovationswere important as means to change productionpractices, provide market information as wellas improve the market power of small-scaleproducers and consumers. More work neededto be done on the options and possibilities inthis area.

The importance of domestic markets (Vietnamhas a population of 82 million) should not beoverlooked.

There is a need to specify what makes valuechain methods different in the M4P context.

Thematic Group Results

Thematic Group 1: Agricultural ValueChains and Poverty Reduction Supermarkets: The group gathered ten partici-

pants (mostly of development and researchbodies). It was centered on the discussion of therecommendations of the study.

I. Defining priority recommendationsFirst, the group held a vote to determine the 2 top

priorities among the five quoted recommendations:1) Support to small-scale associations involved

in food quality promotion2) Development of pro-poor food safety control3) Improving contracts between farmers’ asso-

ciations and supermarkets4) Maintaining and upgrading street vending5) Developing new market niches

The 2 recommendations with the highest scoresare the ones related to pro-poor food qualitycontrol and street vending.

Then the group developed the objectives andmain activities for these two recommendations

II. Detailing recommendationsA) Maintaining and upgrading street vendingProblem

Mismatch between the urban market infra-

structures and the willingness to sell

ObjectivesTo maintain employment for poor food tradersTo supply consumers with safe fresh food

Main activities1) Raising awareness of the government on the

social role of street vending:a. Preparing a discussion paper on issuesrelated to the social role of street vendingb. Reviewing policies implemented in otherregions to protect street vendors, includingCambodia and Thailand

2) Organising recognition (or formalisation) ofstreet vendors on a low-cost, flexible basisa. Helping in the setting of an association of

food street vendorsb. Promoting dialogue between the associ

ation and city authoritiesc. Capacity building of street vendors on

hygiene, road traffic3) Organise infrastructures in retail markets for

temporary sale

B) Setting pro-poor food quality controlProblem

Consumers’demand for food guaranteed assafe and/or location-specific is increasing;public standards are not correctly enforced;high cost of food inspection

ObjectiveTo set up a pilot food safety control systemadapted to the low financial capacity of small-scale farmers, and to the demand ofconsumers

Main activityOrganising dialogue between consumers’representatives, farmers’ groups andtraders’ representatives (in particular super-markets) on:- the contents of voluntary standards- the inspection procedures (combining

checking of practices with checking of products)

- the division of costs among the parties

Roses: specific recommendations from the rosevalue chain presentation were discussed. A

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central conclusion is that dialogue betweenvarious actors along the value-chain isimportant to increase the level of trust andtransparency. All value chain actors had theprospect of benefiting from improved levelsof cooperation.

Thematic Group 2: Value Chains andActive Market Promotion The thematic group discussion focused on

exploring issues related to the use of active marketfacilitation and value chain development underprojects and programs with varying aims. One ofthe key questions that was debated within thegroup was what made active market promotion ofvalue chains as part of an M4P program differentto active market promotion of value chains forimproved competitiveness or sectoral growth.

Some of the key points to come from the discus-sion included: Making Value Chains work for the poor requires

promotion of the value chain “ecosystem”, whilemaintaining a focus on achieving a pro-pooroutcome.

This implies a flexible approach to promotion ofvalue chain participants, both large and small,and a concentration on the outcome of theprocess, rather than on input of activity focus.

It is far from guaranteed that promotion ofcompetitiveness of a sector, or promotion of

industry development will necessarily result in asignificant pro-poor outcome.

Governance of structures within the value chain,and governance of relationships between actorsin the value chain is a vital facet of promotingpro-poor outcomes of value chain development.

Thematic Group 3: Value Chains andSector Approaches Some of the key points to emerge from the

discussion in Thematic Group 3, based on thematerial presented by MPDF and GTZ were asfollows: There is good potential for a combined approach

to sector development, with larger organizationslike MPDF and GTZ concentrating on industrialdevelopment (which will stimulate demand forinputs) and smaller, pro-poor focused organiza-tions concentrating on improving marketsystems to enable poor producers to bettersupply industry.

The domestic market in Vietnam should receivemore consideration than it currently does. Themarket consists of 80 million consumers with arapidly rising standard of living.

Market information is a vital component of adevelopment strategy, but the main challenge iseffective and timely delivery.

Finance is an essential element of industrydevelopment strategy, probably the most impor-tant element.

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Value Chains Day

The Participation of the Poor in Agricul-tural Value Chains

Research activities concentrating on the partici-pation of the poor in agricultural value chains area key area of concentration of the “Making MarketsWork Better for the Poor” project. The researchundertaken has included commodity specificresearch studies, undertaken for rice, tea andcassava.

The research activities on value chains havealso included a large scale research on the impactof supermarket development on agricultural valuechains and poverty reduction. This includes analy-ses of value chains for products such as fruit andvegetables and fragrant rice.

Action research under the value chains area hasbeen undertaken with a one year research activitydesigned to test the feasibility of integrating uplandbamboo producers into the global value chain forlaminated flooring.

Finally, some cross cutting activities have beenstarted, including studies on Contract Farming,Branding Labelling and Trademarks and proposedresearch on SME Clustering and PovertyReduction.

The key issues examined in all of these studiesare: Are the poor benefiting from the developmentof agricultural value chains? How can the poordevelop better links to value chains?

Core Topics Related to Value ChainLinkages

During the course of undertaking research intoagricultural value chains and poverty reduction,three major cross-cutting topics have emerged:

- Collective Action and Organization

- Contract Farming- Branding, Labeling and TrademarksThese topics are the subject of ongoing or

planned research under the value chain activitiesof the project. The following sections give a briefsummary of the key theoretical concepts of eachof the cross-cutting topics, and an overview of thefindings from the research activities of the project.

Collective Action and Organization

Concepts Market power of individual producers is

extremely limited Potential for individual small producers to link to

the value chain is extremely limited Collective action for input procurement and

output marketing can increase market powerand linkage potential

Findings from Research Collective action can be a powerful tool for

empowerment of small producers of agriculturalproducts

Effectiveness of collective action is stronglydependent on the governance structures of thegroup

Contract Farming

Concepts Can provide a framework for developing a rela-

tionship between farmers and processors. Can provide the basis for sharing value, risk, and

decision making power between farmers andprocessors in a way that is mutually beneficial

Findings From ResearchFour of the key issues will have an impact on the

success of contract farming systems in Viet Namin the future.

(i) Clear and strong relationships between

Cross-cutting Issues in AgriculturalValue ChainsDominic Smith - M4P

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participants are necessary for effectivecontract farming.

(ii) Participants in the contracting system shouldbe well organized.

(iii) Contract farming is not suitable for all prod-ucts and situations.

(iv)Contracts should be made in appropriateforms.

Clear and strong relationships betweenparticipants are necessary for effectivecontract farming

Maintaining strong relationships between partiesto a contract is a vital factor in the success of acontract system. Relationships encompass boththe concept of partnerships and also the issue ofincentives for contract systems.

Partnerships: The contracting relationshipshould be seen as a partnership between theparticipants, rather than as a competitive relation-ship, or a relationship where one party exploits theother. Only by building a high level of trust andinteraction between parties to a contract will therelationship be successful. This type of partnershiparrangement can frequently extend beyond apurely business relationship to include social inter-actions and social relationships.

Partnerships are also important in regard toexternal organizations, such as local authorities,management boards, and mass organizations.Strong links can help facilitate and improvecontracting arrangements.

Many analyses have discussed a need for“strong enforcement mechanisms” for contracting.In reality if the contracting relationship is only heldtogether by the existence of “strong mechanisms,”then the relationship between the contractingparties will likely not result in a good partnership.

Incentives: Strongly related to the issue of part-nerships is the issue of incentives. To sustain andstrengthen a contracting relationship in the mediumto long term, incentives should be given to bothsides. This means that both parties to a contractshould derive benefits from the contractual rela-tionship. The payment level and negotiations mustbe attractive for both suppliers and purchasers andrisk must be shared between the parties.

Other incentives include cross-ownership andconvergence of interest of both parties, forexample where farmers are also shareholders inthe purchasing company. To develop a genuinelong-term relationship, incentives must be basedon market forces. When a cooperative is formedand operated or contracting systems undertakenon the basis of subsidies, genuine long-term incen-tives for the relationship do not exist.

Participants in the contracting systemshould be well organized

To enable a group of farmers (either small orlarge) to enter the value chain and deal effectivelywith contract farming situations, some form oforganization should take place. The organizationacts as a “peak body” for numerous farm house-holds, effectively representing their interests, coor-dinating logistics, and often entering into contractson behalf of the group members.

Numerous formal and informal groups in theagricultural sector in Viet Nam exist, includingfarmer groups, farmer “clubs”, and communitygroups based around a representative farmer.However, the form of farmer organization with thehighest level of legal recognition and the ability tosign farming contracts is the cooperative.

One of the vital ingredients for success of suchorganizations or forms of collective action is theability of the organization’s leadership. If the leaderof the organization is dynamic and well-connectedto markets and information, then the organizationhas a higher chance of success. Also, if theleaders of the organization are themselves alsofarmer members of the organization, then theyhave a stronger incentive to act in the interests ofthe farmer members.

Organizing small farmers is particularly impor-tant in Viet Nam’s context. While the agriculturesector will inevitably modernize and commercial-ize, the majority of agricultural production willcontinue to be undertaken by smallholders in thefuture. The only effective way for smallholders andpoor farmers to become actively involved in anincreasingly commercialized and globalized valuechain for their product is to become organized andcoordinated.

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Value Chains Day

Contract farming is not suitable for allproducts and situations

Contract farming systems are not appropriate forall types of agricultural products, nor are theyappropriate in all situations or environments.Contract systems work generally better if theproduct is more specialized and differentiated.

If products are relatively undifferentiated, thecosts of organizing the value chain to utilizecontracts are high relative to engaging in market-based transactions. As products become morespecialized and issues of quality and processmore important, greater coordination is requiredand contracts are potentially more useful.

This can clearly be seen in the case of contractfarming in Viet Nam, where a proportion ofcontracts for undifferentiated products (such asregular varieties of rice) have been successful. Onthe other hand, specialized products such asJapanese rice or baby corn have had high propor-tions of successful contracts.

A“one-size-fits-all” approach to contract farmingwill not be successful in Viet Nam, as contractfarming is certainly not the optimal type of marketarrangement for all types of commodities, nor is itthe optimal type of market arrangement for alltypes of farmers or localities. Decisions on adopt-ing contract farming systems should be madebased on local conditions.

Contracts should be made in appropriateforms

The form of contracts should also be suitable forthe conditions of both parties. In the case of acontract between a cooperative and a farmhousehold, it is in the interests of both parties toensure that the contract is as simple as possible.

A number of cases in Viet Nam has shown thata farming contract becomes very effective if it hasa set of clearly defined points for renegotiation ofconditions. This allows flexibility in the contractingrelationship, and can reduce incentives for break-ing contracts.

Contracts should include favorable conditions toattract both sides to participate in the contract,particularly conditions regarding price and

payment terms. In Viet Nam, farmers generallyprefer to be paid in cash so cash payments willencourage them to join contract farming. In manycases, a contract specifying the contract price atthe prevailing market price plus a percentagemarkup is sufficient to provide incentives for suppli-ers. Above all, contracts should be fair and spreadthe risk and benefits between both parties.

Branding, Labeling and Trademarks

Concepts The development of brands, labels and trade-

marks has strong potential to increase the valueand recognition of Vietnamese products indomestic and international markets.

As the poor are involved in the production ofmany of these products, there is potential forthese benefits to impact positively on the lives ofthe poor.

It is important to recognize that the developmentof branding, labeling and trademarks for prod-ucts should be considered as part of an overallpackage of upgrading of the value chain forproducts

Findings from Research

Brand, Label and Trademark developmentshould be accompanied by QualityDevelopment and Assurance

As discussed above, high quality commoditiesthat lack a brand, label or trademark generally donot attract high unit values. Conversely, even witha brand, label or trademark in place, a low qualityproduct will not be able to compete in the market-place for very long.

Fundamentally, a brand or label should distin-guish itself from other products in the marketthrough a unique identity and have consistentperformance and functions. In basic terms, forconsumers to pay a higher price for a product, abrand or label must consistently deliver some qual-ities or attributes that are worth the higherpremium.

This implies that the legal registration of a trade-mark is only one of the necessary steps to build abrand. The critical factors for success of a brandare sufficient quality, maintaining a consistent level

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of product characteristics and quality, and ensur-ing that the product meets the needs of consumerson an ongoing basis.

Development of brands, labels and trademarksfor products should be accompanied by strongefforts to upgrade quality of products and to assurethat this higher level of quality is maintained.

In the agricultural product field this could entailgreater investments in extension activities,improved post-harvest and product preservationor research into more appropriate varieties ofproduct.

The focus of quality building should be on therequirements of the buyer. Market research shouldbe undertaken both nationally and internationallyto determine which product characteristics are indemand by buyers and what quality attributes areimportant to them. This will help guide the directionof quality upgrading.

Marketing, Advertising and AwarenessRaising has been limited and should befurther emphasized

Awareness raising is an important process indevelopment of brands, labels and trademarks.This encompasses awareness raising both forproducers and consumers.

Producers: there is a need to increase aware-ness of producers and enterprises about theimportance of branding their products. This fallsinto two categories. The first category is toincrease the awareness of the importance of regis-tering trademarks as legal protection. This is espe-cially important in the context of the increasedinternational integration of Vietnam and theupcoming accession to WTO. The second cate-gory of awareness raising is to increase the aware-ness of producers of the concepts and methods ofbuilding and maintaining brands and quality. IfVietnamese enterprises want to join the interna-tional playing field, awareness and strategies onboth trademark registration and developing brand-ing and labelling will be important.

Consumers: In order to attract a higher price,there must be a high level of awareness of a

branded or labeled product, and also a high levelof awareness of the attributes and quality level ofthe product. Without an effective strategy ofmarketing, advertising and awareness raising,potential buyers will have limited knowledge of abrand or label, and a limited knowledge of whatthat brand represents in terms of quality and relia-bility. In this situation, it is difficult to attract a higherprice for a brand or label.

One of the major challenges currently facingorganizations wishing to promote their brands isthat under the 2004 Business Income Tax Law,advertising and marketing expenses can onlyaccount for a maximum of 10% of total allowablebusiness expenses. This effectively limits theamount of brand promotion and awareness raisingthat can be undertaken by enterprises for theirproducts and may hinder the development of wellknown and successful brands.

Intellectual property rights (IPR) areimportant and need protection

The development of a brand or label and theassociated upgrading and assuring quality andconsistency represent substantial investments ineffort, time and money. The inherent intellectualproperty rights need to be protected well. . If thetrademark is copied illegally by others, this couldresult in a loss of reputation of the brand and theloss of significant investment.. As mentionedabove, brands can be protected by trademarks,but the situation is somewhat different for labels.An example of this is the label “organic”, which isvery difficult to protect.

The importance of trademark protection forVietnamese products is well known through anumber of examples. Well known Vietnamesebrands, such as Vinataba, Phu Quoc Fish Sauceand Trung Nguyen Coffee have in the past beenregistered as international trademarks by organi-zations outside Vietnam, which has resulted indifficulty in selling these established brands in theinternational marketplace. In addition, while theIPR situation within Vietnam has greatly improved,many organizations still face the situation wheretheir brands and trademarks are being illegallyutilized by other organizations.

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Value Chains Day

Poor producers can be involved as part ofa branded/labeled value chain

There is great potential for poor producers tobenefit from increased value of products achievedthrough branding and labeling. However, in orderfor the poor to benefit fully from these develop-ments, there should be a good level of linkagesbetween participants in the value chain and anadequate level of incentives for all participants.

As Making Markets Work Better for the Poorproject research in rice, tea and cassava hasshown, producers that are well organized and welllinked to value chains generally are able to benefitfrom increased value of final products more thanproducers who are unlinked. Better linked produc-ers were able to develop production systems andtechniques that were closer linked to processorand consumer demand, and were able to shareinformation and obtain higher levels of technolog-ical assistance from purchasers of their products.Linked producers were also able in a number ofcases to engage in small-scale pre-processingactivities and add value to their products prior tosale to processors.

In addition, it is to the benefit of all parties if incen-tives to maintain standards are adequate at alllevels of the value chain. As discussed above,developing successful brands and labels requiresa synchronous development of quality and anassurance of ongoing quality. If there are notadequate incentives (such as price signals) to allparticipants in the value chain to improve quality,then upgrading standards and developing a

successful brand or label will be difficult.The poor are involved in the primary production

of the commodities that will become branded andlabeled products. An effective upgrading andquality improvement strategy will fully engage theprimary producers as part of the overall valuechain of the product, and will ensure that there areadequate incentives for poor producers toincrease quality and maintain quality.

In order to participate fully in value chains, it isvital that poorer producers are organized and welllinked with each other and also with other parts ofthe value chain. As discussed in Markets andDevelopment Bulletin Number 2, these groupingscan take the form of cooperatives, associations or“farmer clubs”. A further aspect of strong linkagesis the development of farmer contract systems forspecialized commodities to form the basis ofbranded and labeled products.

It is in the interest of all participants in the valuechain to ensure that the benefits from increasedvalue of products are shared amongst participants,and that there are adequate price signals toprimary commodity processors that can lead toincreased and consistent quality of production. It isunlikely that poor producers of commodities willdeliver increased quality without an increase inprice to cover the extra inputs required to producehigher quality products. Without the participation ofcommodity producers in quality upgrading, it islikely that brand and label building will not besuccessful.

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Value Chain Approach and SME DevelopmentRicarda Meissner

Why do we need a Value Chain Approach?

In times of rapid globalization, the value chainapproach is becoming increasingly important.Falling trade barriers and easy access toresources and markets around the globe rise thepressure for collective versus individual efficiency.It is no longer individual companies, which arecompeting against each other in world markets butrather entire networks of firms. Competitive advan-tage is manifested no longer only by the individualcompany’s ability to deliver good products, butrequires entire chains to work together in deliver-ing the best products in the fastest way and at thesame time innovating permanently and respond-ing quickly to changed consumer demands.

Entrance barriers to these chains becomesteadily higher and more complex. The mostcapable company cannot be effective any more, ifserious inefficiencies along the chain cannot beovercome. A highly efficient producer of cannedmaize for example is lost, if the farmers he issupplying from cannot comply with traceabilityissues. Hence, instead of focusing on growth andsuccess of the individual businesses only, interre-lationship of entire networks and the flow of goodand services are getting into the center of interest.Integration, harmonization, and coordination arethe new disciplines to be mastered in globalmarket places.

What is the advantage related to otherapproaches?

Demand-orientation: Interventions under theVC approach are usually strictly oriented towardsbuyers and market. Global demand is the basis forall action.

Private-sector –led: the VC approach initia-tives action directly within the private sector andavoids irrelevant strategies developed withoutinvolvement of real players.

Responding to consequences of trade liber-alization: the approach responds to the importanttopic of globalizations and improves the ability offirms to make use of new opportunities in differentmarkets.

Impact: Unlike in isolated approaches, impact ismore visible and often also higher in value chainprojects due to the dynamics, resulting fromcreation of new interfaces and closing of gaps inthe chain.

What is the difference between the valuechain approach and the linkages approach?

The linkages approach deals with linkagesbetween a lead company and smaller companiesin a certain area. This can be projects, which havethe objective to increase sub-contracting oroutsourcing to smaller companies or whichsupport community development in the environ-ment of a large firm. It may be also include initia-tives, which upgrade companies in the supplychains of a larger firms and which thus link twosegments of a chain together.

The value chain approach however empha-sizes the ‘value addition’ from one segment to theother, the perspective on the entire chain (“from‘farm to table’”) and the access to global markets.A group of SMEs in a country may be linked viaa value chain approach to a group of buyers in aanother country. There may be even no clear ‘linkage to a lead company’ at all, but ratherdemand from a group of global buyers andsupply from a group of efficient firms. The focusis in the value chain approach insofar not neces-sarily on linking one firm to the other, but ratheron improving competitiveness of an entire localproduction network and enabling it like this, torespond to global demand.

However, linkage projects can be parts of valuechain projects and tools and instruments of the

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Value Chains Day

value chain approach can be used for linkage pro-jects dealing with supply chains.

Who else is using the Value Chainapproach?

Approaches which emphasize the critical relation-ships among firms in chains, clusters or sectorsbecoming more and more important. Promotion ofglobal competitiveness is unthinkable in the meantime without applying value chain or clusterapproaches. Hence, leading organizations ineconomic promotion around the world give a promi-nent role to it. Those are not only donor agencies asUSAID, GTZ, Danida, DFID, DEZA , who have allextensive experience in this field but also economicpromotion agencies in developed countries as theUK, Germany, Italy, etc. use the value chain approachto boost competitiveness of their local industries.

What are the instruments and tools used?

Value Chain Analysis and PerformanceEvaluation Method to identify gaps in competitiveness of a

chain and outlines strategies to overcome them.

Integration and Coordination Instruments Many different tools have been developed to

create integration, joint vision building and jointaction within a chain.

Upgrading of Communication (Bar coding,RFID) Fast and effective communication along chains

is becoming a prerequisite for access to globalvalue chains.

Establishing Rules along the Chain Chain rules are certain aspects which are impor-

tant to comply with for all players. An example iscertification for certain food items, or issues liketraceability. Instruments have been developed,which promote ‘rule compliance’ along an entirevalue chain

Firm-level Upgrading Firms often need to be strategically upgraded

to ‘fit’ into a chain. Upgrading can be on tech-nology levels, on the managerial side, in thearea of IT. etc.

R&D Frequent innovation is important to maintain

competitiveness in international markets. Atypical problem of chains in developing countriesis their lack in new patent registration or their lowspending on R&D. Specific incentives or inter-ventions simplify access to R&D and encourageinnovations.

Info-Platform Sites, databases, discussion for a, roundletters,

events make sure that communcation andknow-how transfer along the chain takes place.

What could an initiative on value chaindo?

An initiative on value chains may havethe objective to

Develop guidelines on how to use theapproach

create awareness on the VC approach organize training programs and workshops on

instruments and strategies identify and make known international training

programs and events in the area bring in Best Practices from other organizations

and facilitate cooperation arrangements Develop specific value chain strategies, tools

and know-how...- as a basis for a PEP country strategy- for training of local BDS providers- for development of services related to the

chain as R&D, information, IT, etc.- for direct consulting- for projects, which increase competitiveness

of a certain sector in the country Develop a resource database Identification of experts for appraisal, backstop-

ping or evaluations Develop a specific monitoring and evaluation

framework

What could Performance Indicators of aValue Chain Project be?

Value Chain Guidelines completed and acces-sible via Internet

Awareness on VC approach has beenincreased considerably

Value Chain tools are used in at least 3 PDFs

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Donors have contributed to VC projects of PDFs Internal experts are exchanged in at least 2

cases after 2 years: xx businesses have grown as a

result of VC projects after 2 years: overall performance of at least 2

value chains has improved at a rate of xx %

EU - VPSSP Approach:

Access for Provincial SMEs to GlobalValue Chains

Focus on Buyer- Driven Value Chains Selected on Future Competitive Advantages of

Provinces Intervention on Policy, Product, Market and

Logistic “Strategic BDS and Chain Governance”

Next Step: Economic Potentials Assessment Da Nang,

Haiphong and Can Tho Assessment of Gaps in Linkages to Global

Markets

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Value Chains Day

Objective

The main objective of the study is to assessconditions for an increased involvement of thepoor in the food value chains driven by supermar-kets1 and other value-adding retail outlets. Thepoor here are considered: (i) as consumers of foodproducts, (ii) as suppliers of food products – bethey producers, traders or employees of enter-prises involved in production and trade.

Questions

The main questions of the study can besummarised as follows: What are the trends in the development of

adding-value wholesale and retail distribution inVietnam (including supermarkets) – these will betermed in the rest of the document DistributionValue Chains (DVC)?

What are the effects of new distribution chainson the poor as consumers and suppliers of foodproducts?

How can modernisation of distribution better fitthe demand for food and income of the poor?

Among present and alternative distributionchains, which ones should be promoted andsupported with more positive effects on the poor?

Hypotheses

The main hypotheses tested in the study drawnfrom the literature are summarised below: As consumers, the poor are excluded from

supermarket access in the first step of SM devel-opment because of higher price and distancefrom home; the situation may change in a

second step when prices go down and theoutreach of SM widens (Reardon andBerdégué, 2002; Hagen, 2004).

As employees in trade distribution, the poor areexcluded from SM development in the sensethat SM are characterised by labour-saving andcapital-intensive innovations (self-service, massdistribution, cash registers).

As farmers, the poor are generally excluded fromsupermarket development due to the require-ments in quality assurance and large-scalesupply, as well as delays in payment (Reardonand Berdégué, 2004, 2005; Rondot and al, 2005).Conditions for the poor to have profitable accessto supermarket-driven chains and other qualitychains include the supplying of niche productsand the set up of producer groups

Supermarkets vary as regards social objectives,i.e., their balancing of ethical standards versuscompetitive pricing (Fox and Vorley, 2004).

Method

Organisation of studyThe study is organised into the following

components: Component 1: Assessing trends in the develop-

ment of supermarkets and other distributionvalue chains

Component 2: Assessing poor consumers’access to distribution value chains

Component 3: Assessing poor farmers’ andtraders’participation in distribution value chainsfor selected products: vegetables supplyingHanoi from Soc Son and Moc Chau; vegeta-bles supplying Ho Chi Minh City from peri-urban areas, Duc Trong and Don Duong

The Participation of the Poor in Super-markets and other Distribution Value ChainsPaule Moustier, Dao The Anh, Hoang Bang An, Vu Trong Binh, Muriel Figuié,Dao Duc Huan, Le Thanh Loan, Nguyen Thi Tan Loc, Ho Thanh Son, Phan Thi Giac Tam,Nguyen Duc Truyen.

(1) Supermarkets are considered here in the Vietnam definition of shops covering more than 500 m2, with self-service. In Vietnamthey include retail supermarkets and wholesale supermarkets (Metro chain).

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M4P WEEK 2005

districts in Lam Dong Province; litchi from Yenthe district in Bac Giang province in the North;flavoured rice from Nam Dinh (Hai Hau district)in the North. The choice of the case studiesresults from the following considerations: (i)involvement of the poor in production andtrade; (ii) involvement of supermarkets andother quality chains in the marketing.

Component 4: Exploring future trends in theparticipation of the poor in DVCs.

Data collectionThe data collection method for components 1,

2, 3 is presented in Table 1. The trends of thedifferent distribution chains were analysedthrough the gathering of secondary data.

Surveys on poor consumers’ access to differentretailing points were made in Hanoi, Ho Chi MinhCity and Moc Chau, as well as comparison ofprices between the different points of sale inthese cities. In-depth interviews of stakeholdersalong the chains, as well as census of traders,investigated the patterns of horizontal and verti-cal coordination that link the poor to the markets;the distribution of costs and benefits between thefarmers and the traders along the chains; therespective advantages and drawbacks involvedin supplying different types of outlets; the employ-ment impact of the different chains. Component4 is based on the presentation and discussion ofthe conclusions and recommendations of thestudy in different workshops.

Main results

The fast development of supermarketsThe official definition of supermarkets dates only

from June 2004. The main criterium is size, morethan 250 m2 for specialized supermarkets and morethan 500 m2 for general supermarkets; other crite-ria include number of products and presence oftoilets. Before 2004, the department of trade regis-

tered the number of establishments calling them-selves supermarkets, which were commonly morethan 200 m2. Based on this definition, the number ofsupermarkets has increased quickly between 1990and 2004 (17%/year in Ho Chi Minh City and14%/year in Hanoi between 2000 and 2004, toreach 55 supermarkets in June 2004 in Hanoi (plus9 trade centers, including Metro), and 71 super-markets in Ho Chi Minh City in 2005 –see Figure 1

Table 1 - Data collection per component

C1-Trends

C2-Consumers’ access

C3-Suppliers’ access

Impact on employment (retail)

Mapping of value chains

Organisation of value chains

Performance of value chains

Nr of persons employed by SM,markets, shops, street vendingNature and location of interme-diariesRelationships (horizontal+vertical)

Constraints and opportunities inproduction and marketingDistribution of costs and benefits

Census in 2 districts and extrap-olationCascade interviews from sam-ple retailers to farmersIn-depth interviews on sample oftraders (retailers, wholesalers,collectors) and farmers

4 Value chain analyses (vegetables to Hanoi and HCMC, litchi Bac Giang,rice Hai Hau)

Changes in retail pointsPolicies

Where and what they buy, andwhy they buy at certain places

Prices differences between SM,markets, street vendors

Documents/interviews fromdepartment of trade and otheradministrationSurveys of poor households:110 in Hanoi, 110 in Moc Chau,52 in HCMC (+65 non-poor)Comparison for 10 products inHanoi and HCMC

Source: department of trade, collected by Hoang Bang An (RIFAV) and Le Thanh Loan(Nong Lam University)- taking shops calling themselves supermarkets (>200 m_ for half of them).

Source: Figuié and Truyen (2005); Phan Thi Giac Tam (2005)

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Value Chains Day

Figure 1-Trends in supermarket numbers

The three leading supermarket companies are:Coopmart, Vietnamese-owned, with 13 super-markets, growing at 40% per year in terms ofsupermarket number; Metro, German-Vietnamese (4 hypermarkets, 30% per year), andBig C (French-Vietnamese, 4 hypermarkets). Thepolicies of the Vietnamese government favourretail concentration: the eviction of informalmarkets and street vendors is present in the legis-lation, while public support to supermarket invest-ment is provided for.

Little access by poor consumersMarket retailers and street vendors are the main

points of sale for the poor consumers, who rarelypurchase in supermarkets, because of price anddistance constraints (see Table 2). This situationmay change though if prices in supermarkets godown, as already reflected by the higher frequen-tation of supermarkets in Ho Chi Minh City ascompared with Hanoi: while prices in Hanoi super-markets are 10 to 40% higher than in markets, inHo Chi Minh City prices are commonly. The foodpurchased in supermarkets is mostly dryprocessed food, e.g. sugar or dry milk.

Table 2 - Purchasing behaviour of Hanoi and HCMC poor households

Income/headFood purchase places(for weekly purchases)Purchase in SM

Declared SM constraints

Declared SM advantages

Hanoi

<300000 VND/month1. Informal market (95%)2. Street vendors (30%)61% never go0% go everyweekHigh PriceDistance« No habits »Quality and diversity

HCMC

<500000VND/month1. Formal market (62%)2. Street vendors (40%) – shops (40%)33% never go15% go everyweekHigh P« No habits »

Source: Son and al (2005) – Note: this is based on a census of retail pointsin two districts (Cau Giay and Hoan Kiem) and then extrapolation to the

whole urban Hanoi as defined in 2004 (with Long Bien and Hoang Mai asnew urban districts; when taking only the urban districts as defined before2004, we find lower share for street vending than for retail markets: 45,5%for street vending in terms of employment (50% for quantities), 43,5% formarket retailers (resp. 37%), 6,0% for ordinary shops (resp. 5,0%), 4,6%

for safe shops (resp. 6%), 0,73% for supermarkets (resp., 1,4%).

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Segmentation of quality versusordinary value chainsThe study shows the segmentation of the

vegetable chains between supermarkets andquality food shops, mostly involving the middle andhigh income consumers, and supplied by farmers’

associations and large-scale farms, successful indeveloping IPM production, versus traditionalchains involving small-scale farmers, collectors,wholesalers and retailers (see Figure 2). Theorganisation of chains is similar for litchi.

Little access of the poor as tradersMarkets and street vendors are still the major

players in food distribution, when considering quanti-ties sold, areas of sale, as well as employment.Supermarkets create less employment per unit ofarea or volume than markets and street vending. Sothe development of supermarkets is likely not tocompensate the loss of employment in street vendingand market places. The share of supermarkets intotal employment by retail trade is estimated ataround 6% - without taking account street vendingnor shops, only retail markets, while the share inHanoi retail business is around 15%. Figures aresimilar for food as compared with total business. Yetfigures are higher for supermarkets when taking intoaccount indirect employment (11% instead of 6% ofemployment). As regards the share of supermarketsin vegetable trade employment, it is less than theshare in volume of business (see Figure 3). Sellingthe same quantity of vegetables provided more than3 times employment for street vendors than for super-

market employees (see Table).

Figure 2 - Simplified vegetable and litchi commodity chains supplying Hanoi and HCMC

Figure 3-Share of Hanoi vegetable retail pointsin employment and quantities

Farmers’associations +

Semi-public companies

Supermarkets

Shops

Quality stalls

Non poor consumers Poor consumers

Market retailers

Street vendors

Wholesalers

CollectorsContracts

Quality control

Farmers

Urban

night wholesale

markets

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Value Chains Day

Besides, while street vending and informalmarkets employ mainly the poor, as they do notrequire special qualifications nor investment(investment for street vending is limited to 400 000VND), entering formal markets is constraining interms of finance (12 M VND), and becoming anemployee of supermarkets may be constraining interms of qualification.

Little access of the poor as farmersThe results confirm that the poor have no direct

access to supermarkets because of the require-ments of the latter in terms of safety (for vegeta-bles) and quantities (for all products). The onlypoor farmers found in the investigated supermar-ket chains are found: In the flavoured rice chains: 20% of the farmers

(around 520) are poor (earning 50 000 to 60000VND/month). They mostly supply supermarketsthrough food companies, and more recently afarmers’ association.

In the Moc Chau vegetable chain, six familiesstepped out of poverty through contracts with thesafe vegetable cooperative which supplies safevegetable shops in Hanoi

In the Soc Son vegetable chain 32% of farmersinvolved in the safe vegetable groups supplyingBao Ha company are poor (earning less than130000 VND/month).

In the peri-urban farmers’associations supplying

Ho Chi Minh City supermarkets, 5% of farmersare small-scale (with area less than 2900 m2).

Key role of farmers’ associationspromoting qualityTen farmers’ associations, which work in the

form of commercial organisations with shares, areregular suppliers of supermarkets for the selectedproducts. Their ability to supply supermarkets isrelated to the combination of functions they bringto their members: technical training (e.g. asregards safe vegetable production), input supply,collective marketing, quality control, labelling indi-cating product origin, credit supply. Farmers’organisations are vehicles of the governmentsupport to farmers, in particular in the area ofquality development, where the city departmentsof agriculture, trade, science and technology areparticularly involved.

Slight increases in farmers’ profitsSupermarket supply through farmers’ associa-

tions generally generates increases in farmers’incomes when compared with traditional chains,with a lot of variations: no difference for babytomato chain, 42% increase for the litchi and ricechains, 25% for Soc Son vegetable farmers, 400%for water convolvulus in peri-urban Ho Chi MinhCity (see Figures 4 and 5).

Source: data on quantities traded and employment by sale points in Son and al. (taking indirect employment into account).

Table 3 - Employment by volume of trade

Selling 1 ton of vegetables retail in a day gives employment to….

13 street vendors10 retailers

8 shop vendors5 employees of medium-scale supermarkets

4 employees of Big C

Source: Phan Thi Giac Tam and Le Thanh Loan (2005)

Source: Binh and al (2005)

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Figure 4 - Costs and profits relative to the flavoured rice retail price in Hanoi

Figure 5-Costs and profits relative to the flavoured rice retail price in Hanoi (values)

Advantages and constraints of SM forfarmersWhile the main advantages of supermarkets

relate to stability in prices and quantities bought,

the disadvantages relate to their requirements interms of quality, diversity, delivery, as well as lessfavourable conditions of payment, and possibleopportunistic behaviour (see Table 4).

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Conclusions and recommendations

The study confirms the exclusion of the poorfrom supermarket-driven chains in the short term.As farmers, the poor are also excluded, except inthe case of flavoured rice and some Moc Chaufarmers. Farmers’associations with quality promo-tion (safety, taste related to origin) are key to theinclusion of small-scale farmers. Finally, super-markets differ relative to loyalty with their suppliers.

For small-scale farmers to better benefit from thedevelopment of supermarkets and other adding-value outlets, the following actions are recom-mended:

1) Support to farmers’ associations involved inquality promotion:- Dissemination of success stories- Running advisory services including techni-

cal training (on physical quality and safety)and credit programmes, i.e., for retail sale

- Designing a more clear VAT system

2) Participatory food quality control- More widespread control of food safety and

sanctions by administration- Accreditation of laboratories and origin certi-

fication bodies- Participatory guarantee systems (PGS) with

partnerships between farmers’ associations,consumers’ associations and supermarkets

3) Capacity building on contractual arrangements - Dissemination of success stories e.g. Moc

Chau vegetable cooperative- Training of farmers on rights and responsi-

bilities- Codes of good practices for supermarkets

4) Identifying new market niches for the poor,e.g. special races of pigs

For the poor to find employment in retail tradedistribution, and for poor consumers to haveaccess to diverse retail outlets, the following set ofactions is recommended:

5) Maintaining retailing diversity- Tolerating street vendors (except in main

streets) and organising credit support tostreet vendors to upgrade their business

- Consultation of traders when market relo-cation

- Organisation of farmers’ markets- Encouragement of diversity in supermarket

chains

References

List of reports

Component 1 Hoang Bang An, 2005. Trends and policy on

markets and supermarkets in Hanoi.

Table 4 - Summary of advantages and constraints of supermarket chains

Advantages for supermarketsPricesSecurity

Drawbacks for supermarketsQuality requirements

Diversity

Payment conditions

Transport

Supermarket chain

10 to 20% higherRegular weekly purchasesin quantities and prices

Physical quality requirementsSafety requirementsMore than 10 varieties requiredin HCMC (check)15 daysUnsold products have to be paidback for 2 SMDaily delivery to supermarket

Traditional chain

More variable demandin quantities and prices

Lax requirements

No requirement

1 to 3 days

On farm collection

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M4P WEEK 2005

Malica/MMWB4P, 31 p. Phan Thi Giac Tam and Le Thanh Loan, 2005.

Trends and policy on markets and supermarketsin Hanoi. Malica/MMWB4P, 47 p.

Moustier, P., Hoang Bang An, Nguyen Thi TanLoc, Phan Thi Giac Tam. Trends and policy onmarkets and supermarkets in Vietnam:summary of main results, Hanoi,Malica/MMWB4P.

Component 2 Figuié, M. and Nguyen Duc Truyen (2005). The

poor consumers' access to supermarkets inHanoi. Project report: Making Markets WorkBetter for the Poor, The Poor’s Participation toSupermarket in Vietnam. Hanoi: Malica (CIRAD-IOS) and Asian Development Bank: 63.

Hoang Bang An (2005). Price Comparisonbetween Supermarkets and other DistributionPoints in Hanoi. Project report: Making MarketsWork Better for the Poor, The Poor’sParticipation to Supermarket in Vietnam.Hanoi: Malica (RIFAV) and Asian DevelopmentBank: 4p

Phan Thi Giac Tam (2005). The PoorConsumers' Access to Supermarkets in HoCho Minh City. Project report: Making MarketsWork Better for the Poor, The Poor’sParticipation to Supermarket in Vietnam Hanoi:Malica (Nam Long University) and AsianDevelopment Bank: 30.

Figuié, M., Phan Thi Giac Tam, Nguyen DucTruyen, 2005. Assessing poor consumers’access to supermarkets in Vietnam: synthesis

Component 3 Vu Trong Binh, Dao Duc Huan, Pham Trung

Tuyen, 2005. Assessing poor farmers’ participa-tion in DVCs: the case of fragrant tam xoan rice

from Hai Hau, MALICA/MMWB4P, Hanoi, 38 p. Nguyen Thi Tan Loc. 2005. The participation of

the poor in litchi distribution chains.MALICA/MMWB4P, Hanoi, 50 p.

Ho Thanh Son, Vu Trong Binh and PauleMoustier, 2005. Assessing the participation ofthe poor in off-season vegetable value chains,MALICA/MMWB4P, Hanoi, 50 p.

Phan Thi Giac Tam and Le Thanh Loan, 2005.Assessing poor farmers’ participation in DVCs:the case of water convolvulus and tomato inHCMC, MALICA/MMWB4P, Hanoi, 46 p.

Moustier, P., Dao The Anh, Vu Trong Binh, DaoDuc Huan, Muriel Figuié, Nguyen Thi Tan Loc,Ho Thanh Son, Phan Thi Giac Tam, summary ofC3 reports, MALICA/MMWB4P, Hanoi.

Other references Fox, T., Vorley, B. Stakeholder accountability in

the UK supermarket sector. Final report of the“Race to the Top” project, Race to the top, IIED,London, 33 p., 2004.

Hagen, J. M. 2002. Causes and Consequencesof Food Retailing Innovation in DevelopingCountries: Supermarkets in Vietnam. New York,USA, Cornell University, Department of AppliedEconomics and Management: 19 p.

Reardon, T., Berdégué, J.A. and Farrington, J.2002. Supermarkets and farming in LatinAmerica: pointing directions for elsewhere?Natural resources perspectives, ODI, n°81.

Rondot P., E. Biénabe et M.-H. Collion, 2004,"Rural economic organizations and marketrestructuring: What challenges, what opportuni-ties for smallholders?" A global issue paper.Regoverning Markets, Phase 1: Review work-shop and International Seminar. Amsterdam,14-19 novembre 2004.

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Introduction

Within the last decade two important trendswithin the agriculture sector of Vietnam have beentaking place. These are diversification, whichresulted in many different agriculture sub sectors,and the development of different types of valuechains. The Vietnamese government, its bilateraland multilateral donors have various instrumentsto stimulate certain sub sectors and types of valuechains. To allocate resources in an efficientmanner it will be helpful to select those sub sectorsand supply chains which have the largesteconomic development and poverty reducingimpact. Is it for example, more rewarding todevelop policies and allocate resources for thedairy sector in Vietnam or the floriculture sector?Should the emphasis be on creating an enablingenvironment for small farmers or larger morecommercial agriculture enterprises?

The information needed to answer these kind ofquestions is often lacking. Many times the analy-sis is only undertaken at farm level, instead ofanalysing the whole value chain of farmers, collec-tors, wholesalers and retailers. In this policy briefwe present the main results of a study which devel-oped and implemented a methodology that wasaimed to provide answers to these questions.

ProPoor Horticulture

The study was carried out within the frameworkof the ProPoor Horticulture project which aimed toquantify the poverty reduction impact by the horti-culture sector in Uganda and Vietnam. The crite-ria used for the selection of the commodity for thevalue chain research were: Different types of value chains should exist for

the commodity Production taking place in both peri-urban, and

remote rural areas

A commodity in which the poor are expected toparticipate

A commodity with a research gap

Based on these criteria the choice was made tofocus on the flower sector and especially on rosesbecause: Both large companies and smallholders are

involved Produced in both peri-urban areas as well as in

rural mountainous areas So far little value chain research has taken place

within the flower sector

Flower sector Vietnam

Worldwide consumption of cut flowers was esti-mated around US$ 35 billion at the end of thenineties. In 2003 the value of the world wideexports of flowers was US$ 11.3 billion, withVietnam only exporting US$ 5.2 million in 2003according to ITC/WTO data. Despite this verymodest values, exports are growing rapidly, 38%per year since 1993.

Compared with the export market, the domesticmarket is much more important and also growingrapidly, from an estimated 3,500 hectares offlowers and ornamental plants in 1999 to 12,100hectares in 2003. Consumption data are not avail-able, but this increase in production area can beconsidered as a proxy for the increase inconsumption.

Within the cut flower sector roses, chrysanthe-mum and gladiolus, carnation and lily are the mostimportant cut flowers. No individual crop data areavailable, but according to key-informants, rosescover 35% of the cut flower area. The most impor-tant production areas are the Red River Delta inthe North, especially Vinh Phuc Province, Tu Liemdistrict (Hanoi Province) and Dalat district in the

The Economic Development Impactof Rose Value Chains in North VietnamSiebe van Wijk (LEI), Amanda Allbritton (LEI), Dang Viet Quang (HAU)

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Central Highlands. A relatively new trend is theincrease in flower production area at high altitude(1600 m) in Sapa district. This district is supplying

high quality roses during the hot summer season,from March to October.

Methodology

Based on the importance of roses, bothdomestically and international, the study focusedon rose value chains. The study limited itself toanalysing the most important rose value chainsthat supplied Hanoi.

Both qualitative and quantitative researchmethods were used. Qualitative methodologiesincluded interviews with key-informants and focusgroup meetings with all value chain actors andlocal government authorities. For the quantitativestudy surveys were held among 65 flower produc-ers, 66 retailers, 15 wholesalers, 1 large company,6 workers of flower company and 15 workers offlower retailers.

Figure 1 - Export value of flowers

Figure 2 - Main rose production areas

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The selected production areas were Me Linhdistrict in Vinh Phuc province and Sapa district inLao Cai Province. Due to research budget limi-tations Dalat district was not included into theinvestigation.

History of rose sector development in Me Linh

The main rose producing areas in North Vietnamwere almost nonexistent in the early nineties. InMe Linh district, for example, the area for rose culti-vation increased from just 18 hectares in 1994 to371 hectares in 2004. By 2004 about 2100 house-holds in Me Linh commune cultivated roses, ofwhich 1% had large farms of between 5,400 m2

and 18,000 m2, 81% had about 1800 m2 of roses,and 18% 360-720 m2. According to the Me Linhcommune officials the percentage of poor peopledeclined from 12% in 1990 to less than 1% in 2003because of roses. As a result of the increased“rose wealth”, birth rates dropped and highereducation levels increased.

Innovations took place both within cultivationand marketing. Farmers experimented them-selves to find out which rose varieties were mostsuitable. Farmers obtained these varieties fromDalat, towards which some of the innovators trav-elled back and forth. An important farmer innova-tion was the grafting of French, Dutch and Italianrose varieties on wild roses (eglantine) whichfarmers collected at first from the forest.

Changes in marketing also took place in a rela-tively short time. While in 1992 Me Linh roses wereonly sold on local markets by farmers, in 2004 alarge flower market has developed with 230 collec-tors/wholesalers, 70 large scale traders and 43cold storage warehouses. Fifty percent of Me Linhroses are now sold in Hanoi, 20 percent to otherNorthern Provinces, 20 percent to several centralprovinces, 10 percent to other destinations suchHCMC and China.

In the initial phase of the rose sector develop-ment in Me Linh, small loans to fund the shift fromrice and vegetable cultivation to rose cultivationplayed an important role. In 1996/1997 an esti-mated 60% of farmers borrowed amountsranging from VND 500,000 to a maximum VND

50 million from the agricultural bank, the PeopleCredit Fund, the Women’s union and the Farmerunion.

Extension on flowers has been offered since2000, when the first IPM courses were organisedby the district and provincial authorities. Later thePPC’s and DCC’s invited researchers from theAgriculture Genetics Institute to develop GAPs forflower cultivation. But most information wasobtained from other farmers, television, newspa-pers and books.

The biggest obstacle considered by Me Linhfarmers is the lack of suitable rose varietieswhich can be cultivated during the hot summerseason. Some farmers are now planning toexperiment with rose varieties from India.Related to this lack of suitable varieties and themisuse of pesticides, managing pests anddiseases has become very difficult. According toestimates by farmers, this caused yields todecline in 2003 with 30 percent.

History of rose sector developmentin Sapa

In 1991/1992 French researchers carried outan experiment on producing the first commercialroses on 200 m2. They had the idea that theclimate in Sapa from March to November wasvery suitable for rose cultivation. Despite this,these trials were not very successful. Until 1997,nothing happened until an innovative farmer fromMe Linh rented one hectare and successfullystarted to cultivate roses, using the innovation ofgrafting foreign varieties on wild roses. Thegrafted roses were much more successfulaccording to the farmers, because of the farbetter developed rooting system of the wildroses. After this success, many other farmersfrom Me Linh followed, who would grow roses inSapa during the summer and roses during thewinter in Me Linh.

In 2001 a foreign owned company decided toinvest in rose cultivation at large scale, cultivat-ing 14 hectares of roses. From 2002 also localSapa residents realised how profitable rose culti-vation was. They hired rose producers from MeLinh at relatively high salaries (VND 1.5

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million/month) to work for them and to learn rosecultivation techniques. In 2003 two moreVietnamese companies started rose farms andfour rose cooperatives were established. Thisincreased the cultivated area of roses to 55 ha in2003 and is expected to further increase to 110ha by 2010.

Roses are transported to Hanoi by truck, everytwo days trucks leave at 6 pm from Sapa andarrive at Quang Ba wholesale market at around 1or 2 am in the morning. The trucks belong to a fewhouseholds who can transport the roses for allfarmers at a cost of 100 VND/rose.

All rose farmers are still Kinh Vietnamese, sofar H’mong are only involved as workers on rosefarms, but this might change soon. Some of theinterviewed cooperatives had plans to expandthrough setting up an out grower scheme ofroses with H’mong farmers. Also the Lao CaiPPC has plans to fund the flower company tostart a rose out growers scheme with the ambi-tious goal of 100 hectares. The company wouldtrain the H’mong in rose cultivation and markettheir roses.

The major obstacle for farmers in rose cultivationis the difficulty to obtain more land for expansion.Suitable land for rose cultivation belongs to theH’mong, who do not want to rent out their land andwho are still hesitant to switch to rose cultivation.But some H’mong, who worked as hired labourerson rose farmers, were planning to start with rosecultivation themselves. Therefore, we expect thatin the near future an out grower scheme amongH’mong farmers will develop.

Another obstacle are the heavy rains and mistwhich have a negative impact on flower quality. No(plastic) green houses are used yet for flowerproduction, but the company was experimentingwith them and has plans to use them on a largescale in the near future.

Value chains

With the Hanoi consumers as end point thefollowing different types of value chains whereidentified:

a) Farmers wholesalers flower hawkers consumers

b) Farmers wholesalers flower stalls consumers

c) Farmers wholesalers flower shops consumers

d) Farmers flower shops consumerse) Farmers flower market stalls

consumersf) Farmers consumersg) Company wholesalers flower shops

consumersh) Company flower shops consumers

The company value chains only take place fromSapa and Dalat, while value chains a), b) and c)can start from all rose cultivation areas. Chains d),e) and f) predominantly start in Me Linh and TuLiem districts.

Rose consumption and market shares

Based on our study we estimate the total roseconsumption in Hanoi to be about 261 millionroses per year. With a population of 3 million thiswould mean about 87 roses per person per year.The largest share of these roses are supplied byTu Liem (50%) and Me Linh (30%), followed bySapa (6%).

Profitability

Roses produced in Me Linh have much smallerflowers and shorter branches than the roses fromSapa, which results in lower prices for Me Linhroses. But due to the high temperatures roseproductivity is very high, which compensates thelower prices. Furthermore, rose cultivation in Sapastops from November to March, when tempera-tures are to low, while in Me Linh production canbe year round, even though the quality in summerbecomes very low due to the heat.

(a) For reasons of confidentiality the company data were not very detailed,so these figures should be seen as a crude estimate

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Variable costs are so much higher in Sapabecause of all the hired labour. In Me Linh onlyfamily labour is used which is not included in thegross margin. The gross value and gross marginfor the company is a range because no exact pricedata was provided, but instead was calculatedbased on prices received by other large farmersfrom Sapa. For both producers in Sapa and MeLinh, pesticides were the most expensive costitem, about 25 and 42% of the total costs (includ-ing fixed costs). As farmers mostly use cheappesticides this indicates what huge amountsfarmers are using.

Employment generation

To be able to compare how much employment isgenerated by the different chains we calculated howmany Full Time Employment (FTE) units wereneeded to produce and market 10,000 roses. OneFTE was defined as 240 adult labour days per year.Calculations were made for 14 different chains andfor each chain it was estimated how many labourdays each actor in the chain had to invest to handle10,000 roses. The difference between chains 4 and5 in Sapa are that chain 4 are large rose farms (>2ha) and chain 5 are small rose farms (<1 ha). Actuallytheir marketing does not differ so we could havecombined them into one chain, but because of theirdifference in production intensity we separated them.

Of all actors farmers in chain 5a, and flowershops (in chains 1a, 2a, 4a, 5a, 6) need mostlabour per 10,000 roses. Overall 5a is the mostlabour intensive requiring 1.78 FTE/10,000 roses,followed by chain 6 and chains 4a and 1a.

Based on the total rose consumption in Hanoiand the market shares of the different chains, thetotal employment generated by rose value chainssupplying Hanoi was estimated to be about17,000 FTE.

Table 1 - Rose cultivation indicators

Table 2 - Labour generation by each chain per 10,000 roses

Indicator

Productivity (1000 roses/ha)Gross value (US$/ha)Fixed cost (US$/ha)Variable cost (US$/ha)Gross Margin (US$/ha)Cost price US$/rose

Me LinhFarmers(n=45)

900 (small)16,077 1,0956,1909,8880.01

SapaFarmers(N=6)

230 (large)17,9821,51110,1427,8390.05

Companya

(n=1)

170 (large)10,038 – 16,4773975,6264,412 – 10,8510.03

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Net value

For each actor in each chain the net value per10,000 roses was calculated. Flower shops added

the highest net value per 10,000 roses. On a perunit basis company workers added more net valuethan farmers. Overall it is estimated that chain 6added the highest net value.

Me Linh farmers who sell directly to flower shopsget US$53 more per 10,000 roses, compared withfarmers selling to wholesalers. But as we will seein Table 4, this takes more time than selling towholesalers, therefore, the net value per FTE is

lower. Farmers who sell directly to consumersobtained lower prices per 10,000 roses, which onewould not expect, unless they sold the lowerquality roses to consumers.

Per FTE wholesalers have by far the highest netvalue added. This is quite logical, as they handlelarge volumes per FTE, which compensates theirlow net value added per 10,000 roses. Also hawkershave quite high net values per FTE, higher thanflower shops, because flower shops are quite labourintensive. A lot of work has to be done before onerose is sold. Company worker’s net value per FTEwas almost the same as for farmers.

Based on the total rose consumption in Hanoiand the market shares of the different chains, thetotal net value of rose value chains supplyingHanoi was estimated to be about US$ 7.5 millionper year. Much higher than the total flowerexports of Vietnam.

Dependence on roses

Household income from roses ranged fromUS$ 540 for company workers to US$ 8,201 forlarge farmers in Chain 4. From these data itwould seem that company workers are worse ofthan farmers. This seems conflicting with resultsof net value added per FTE. The reason forhigher incomes for farmers than for companyworkers is that producer incomes are based onwork by several household members. Thecompany worker is just working alone, but stillhas her household members also obtainingincome from other activities.

Table 3 - Net value added per 10,000 roses per chain

Table 4 - Net value added per FTE per chain

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In addition, this income is earned in just ninemonths, while the other 3 months the companyworker can undertake other activities. Off allactors, farmers depends most on roses for theirfamily income. The percentage of family incomedependence of roses flower shops is estimated atjust 23%, because they obtain income from otherflowers as well. Their total flower dependence forfamily income is about 67%, for flower stalls this is43% and for hawkers 50%.

Poverty reduction impact

To assess the impact of participation in rosevalue chains on poverty reduction, we askedactors what their best other option would be if theywere not able to participate in the rose value chain.These answers were used to develop differentscenarios, were the resources used for roses(labour, land) were allocated to the best alterna-tive. All other resources and income of the house-hold were held constant. Most of the farmerswould switch to other crops, mostly vegetables oreven go back to rice, switch to livestock rearing,find off-farm job (15%), selling land (2%) or couldreally not think of any viable alternative (24%).

Table 5 - Dependence on roses for various actors

Figure 3 - Best alternative to rose retailing

Actor

Producers in Chains 1, 2, and 3Producers in Chain 4Producers in Chain 5Company workersWholesalersFlower shopsWorkers in flower shopsFlower stallsHawkers

Estimated mean share of householdincome generated by roses (%)

797561-4223-2933

Average income from roses (US$/year)

1,6118,2014,947 5805,1112,020 843 1,385 1,003

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Most retailers (esp. hawkers) would switch backto farming, followed by selling other products orstarting a new enterprise. Seventeen percent ofthe retailers had no idea what they would do if theycould not sell roses.

For farmers we calculated various scenarios.Switching to vegetable based farming system,

which included 2 vegetable harvest per year andone rice harvest. A rice based scenario, whichincluded 2 rice harvest per year and onevegetable harvest. For off-farm work scenarioswe used data from the Government StatisticOffice about income levels of different typesof off-farm labour in different provinces anddistricts.

Based on the income data of one year, currently15% of the sample in Me Linh would be consi-dered to be below the expenditure based povertyline. If farmers would not be in rose value chainsand switch to a vegetable based scenario, 45%would be below the expenditure based povertyline. If farmers would switch to off-farm jobs in VinhPhuc province they would be better of, as fewerfarms would be below the expenditure basedpoverty line. But how difficult is it for Me Linhfarmers to get an off-farm job? Especially forwomen and the middle aged? Only 15%mentioned this as a good alternative.

For farmers in Sapa, currently none of thesampled rose producers is in poverty. Switchingto vegetables would not change that. But a switchto an unskilled off-farm in Sapa district, wouldbring 3 out of the 6 farms below the expenditurepoverty line.

The scenarios for hired labourers in the valuechains and retailers are not yet calculated. As hiredlabourers are probably the most vulnerable, wecalculated for each value chain how much of theemployment generated by 10,000 roses was usedto hire labourers.

Per 10,000 roses chain 6 (large company inSapa) generated the highest hired labour FTE.About 0.73 hired labourers per 10,000 rose,almost 52% of total FTE generation. Of these hiredlabourers 90% are women and 20% were ethnicminorities. But from the interviews with H’mongworkers it became clear that these were not thepoorest. Actually the rose company was attractinginnovative farmers who wanted to learn how tocultivate a new crop. Several of them were alreadyquite successful farmers, but were interested toget experience so that they could start growingroses themselves in the future.

Table 6 - Percentage of sampled farmers below different poverty measures

Scenario

Current Status

Vegetablescenario

Unskilled off-farmwork scenario

Poverty Measurement

1 PPP$/dayExpenditure Approach2 PPP$/day1 PPP$/dayExpenditure Approach2 PPP$/day1 PPP$/dayExpenditure Approach2 PPP$/day

Sapa 5n=3

00000006767

Sapa 4n=3

00000003333

Me Linh 1, 2, 3n=47

11151515456221319

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Another important hired labour user are flowershops. For each 10,000 roses they create an esti-mated 0.22 FTE for hired labourers.

Barriers to participate in rose value chains

Compared with growing other cash crops suchas vegetables, rose cultivation requires morecapital. Especially the first year is hard wheninvestments have to be made in rose seedlingsand a well, if irrigation water is not reliable. In MeLinh first year investments are about 4 million VNDper sao (262 US$/sao). The poorer farmers canonly take this step if they have access to credit. ForMe Linh this certainly has been the case as shownin the past 10 years. This might be different forethnic minority farmers in Sapa.

In Sapa another barrier to entry could be theneed to have relations with traders in Hanoi, ascurrently no traders come to Sapa themselves.Orders are placed by wholesalers through tele-phone. Many of the current rose farmers have abackground in rose cultivation in Me Linh andgood links with traders. For H’mong farmers thismight be a barrier as they do not yet have theselinks. But we expect that in the near future thecurrent rose farmers and companies in Sapa willstart out growers schemes. They will provideknowledge and buy the roses from farmers who donot have direct links with traders in Hanoi.

Conclusions

The rose sector has been developing very fast.Driven by market demand, farmers have reactedas entrepreneurs, with most innovations deve-loped by them. Also traders with their investments

in cold storage warehouses have played an impor-tant role in these fast developments.

It is estimated that the rose consumption in Hanoihas generated 17,000 FTE and a net value of US$7.5 million. For Me Linh farmers we estimate thattheir involvement in rose value chains has lifted 30percent of them out of poverty, compared with otheragriculture based alternatives.

If farmers can not organise sales to flower retail-ers in a different way then they do now, farmers geta higher net value per FTE when they sell towholesalers, compared with directly selling toretailers. The advantage of receiving a higher pricefrom retailers is offset by the disadvantage ofspending much more time on selling the samevolume of roses to retailers compared with whole-salers. So in the current system a farmer is betteroff to sell directly to a wholesaler than to a largenumber of retailers. At the current scale, valuechain 1 seems to be most pro poor, as the hiredlabourers which are attracted by chain 6 arecurrently not the poorest. Actually the workers atthe flower company are innovators who are thereto learn. But when the cultivation area expandsand more people will be employed, it is expectedthat also the poorer will join.

Therefore, developing rose value chains incooler mountainous areas, targeting the hotsummer period, has a lot of poverty reductionpotential, as they generate employment in rela-tively remote rural areas. To make this option evenmore attractive, experiments should be done tosee if with cheap plastic greenhouses the produc-tion period can be extend in the colder wintermonths. An interesting option could be to stimulate

Table 7 - Hired labour FTE per chain to handle 10,000 roses

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the company and out growers scheme model.Attracting foreign direct investment could speed updevelopments and give access to export markets.

The high use and especially misuse of pesti-cides for rose production is one of the mostimportant disadvantages. This is especially aproblem if this happens at a large scale in therelatively unspoilt and fragile mountainous areas,where people still rely on surface water for homeconsumption. It is crucial that applied researchwith farmers develop more sustainable cultivationalternatives.

Market saturation

Unfortunately, no domestic rose consumptiondata are available, so no estimate can be madeof the growth of the domestic market. But whena rose sector policy is designed, market satura-tion should always be kept into account.According to the focus group discussions withfarmers in Me Linh, profitability per sao hasdropped from VND 8 million in 1993 to VND 5million per sao in 2004. Farmers expect prof-itability to further decrease to VND 3.5 million in2010. The main reasons for this decline are theincreased problems with pests and diseases(lower yields and more pesticides are needed),increase in input costs and a decline in prices forroses. This decline indicates that growth insupply has been catching up with the growthin demand.

According to estimates by key-informants theprice for “Sapa roses” is expected to decline whenthe production area reaches 70 hectares. The totaldemand from the Northern market is expected toobe satisfied when 250 hectares of roses are culti-vated in Sapa.

This market saturation can be prevented bydiversifying in types, colours of roses and possi-ble other flower cultivation. In addition exportmarkets should also be developed. The foreignowned DALAT HASFARM has shown that this iscertainly possible to do from Vietnam. Till dateVietnamese roses from Northern Vietnam have

hardly been exported, only sometimes to China.Cost price per rose is very competitive, but qualitywill have to improve a lot. More emphasis shouldbe on extending the vase life of the rose. Thereis a lot of scope for quality improvement, as tillnow farmers have only had very limited accessto research and extension. Through variety trials,integrated pest management and developingcheap plastic green houses a lot can be done toimprove.

So far this methodology has only been appliedfor roses. To give advice on efficient allocation ofgovernment research budgets it would be inter-esting to apply this methodology for comparisonwith other commodities as well.

Information

This research summary was based on severalproject reports which can be downloaded from theproject website: www.growoutofpoverty.nl

The research was carried out by researchersfrom:

The Agriculture Economics Research Institute(LEI) part of Wageningen UR, the Netherlands.For more information: http://www.lei.nl/uk/

The Center for Agriculture Research andEcology Studies (CARES), which is part ofHanoi Agriculture University. For more informa-tion: http://www.cares.org.vn

For more information contact:Siebe van WijkWageningen UR project officeat Hanoi Agriculture UniversityGia Lam, Trau Quy, Hanoi

Phone: +84 (0)9-12346134Fax: +84 (0)4 8766642E-mail: siebe.vanwijk@wur.nl

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Acknowledgements

This study took place within the framework of theProPoor Horticulture project. The project is fundedby the EC-PREP program of the Department forInternational Development (DFID) of the BritishGovernment and the International CooperationProgram of the Dutch Ministry of Agriculture,Nature Management and Food Quality. Theirsupport is gratefully acknowledged.

For more information about these programsvisit: www.ec-prep.org www.north-south.nl

Source: Office of Forestry Development(DARD) Thanh Hoa Province (2005)

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Introduction

As a readily renewable natural resource, bamboois a potential environmentally friendly substitute forwood. Over the past few years, Viet Nam’s exportsof processed bamboo products have risen steadilyfrom less than 10 million USD in the early 1990s toan estimated 78 million USD in 2001.1

Demand for bamboo flooring from IKEA, aleading international furniture company, and thestart up of The Bamboo Factory (TBF), a bambooflooring manufacturer in Vietnam, presents asignificant opportunity to integrate low incomefarmers in five mountainous districts in Thanh HoaProvince with international markets.

IKEA is not only agreeing to contractual arrange-ments with local suppliers for the long term supplyof bamboo products, but is also considering creationof research and development facilities to developnew bamboo-based products, support improvedvarieties and growing techniques, and devise stan-dards and a tracking system for bamboo along thelines of the current Forest Stewardship Council(FSC) model used for timber products.

Bamboo is grown in remote and mountainousareas of Thanh Hoa Province where poverty ratesare high. With more than 45,000 cultivatedhectares, Thanh Hoa accounts for approximately88 percent of the bamboo of the Luong varietyproduced in Vietnam. As one of the most popu-lated provinces in Vietnam, Thanh Hoa is home tosome 3 million people, of which approximately 85percent remain dependent on agriculture for theirmain source of income.2

Luong bamboo: A dynamic, diversifiedbusiness sector

As demand for bamboo increases, the commer-cial uses of bamboo have become increasinglydiverse and the sector more industrialized. WhileLuong culms have literally thousands of uses, byfar the most important in volume terms today is foruse in construction. The construction sector in thisstudy refers to use of bamboo for building houses,animal sheds, fences and scaffolding. It has beenestimated that bamboo used for constructionpurposes accounted for roughly 38 percent of thedemand for Luong bamboo in 2004 (figure 1).Small-scale industries were the second largestconsumers of bamboo in 2004 with roughly 29percent of total market sales.

The demand for, and uses of, Luong bambooare changing as the market expands. The demandfor bamboo for construction purposes is cedingspace to the demand for processed and industri-alized bamboo products.

(1) Source: International Network for Bamboo and Rattan (INBAR) website.(2) IDE (2000), “Overview of the Bamboo Industry in Thanh Hoa Province”, Viet Nam, Dan Salter, IDE (prepared for CIDA).

Facilitating market integration of the upland poorinto bamboo value chains: Upgrading strategiesfor local producer groupsInternational Development Enterprises (IDE)

Figure 1 - Consumption of Luong bamboo bysector, Thanh Hoa Province, 2004

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The gradual diversification of the sector intomore industrialized segments follows changes inthe relative values of the various bamboo uses andproducts. For example, in Vietnam, as peoplebecome wealthier they prefer using concrete forbuilding houses rather than bamboo. At the sametime, expanding international markets now reachconsumers in developed countries who are willingto pay substantially more for bamboo products.

The trend of industrialization in the bamboosector in Vietnam is expected to intensify over the

coming years. The projected economic growth ofthe sector for the next three years will be mainlydriven by increased demand within industrialmarket segments. Laminated bamboo productsare expected to make up the most significantshare of the sector’s industrial growth. By 2008,growth in the market niches of laminated bambooproducts, small-scale processed products andbamboo pulp (for making paper) are expected toaccount for more than 3 million trees per year,representing more than 75 percent of the totalsector expansion (figure 2).

Access to expanding, value- added marketsegments

Expanding global value chains represent apromising opportunity for poverty reduction andeconomic development in the province of ThanhHoa. Access to international markets also bringsopportunities for market actors to develop morevaluable bamboo products.

Laminated bamboo can be used as a substitutefor almost any wood product - shelves, panels,furniture, stairs, etc. Wood prices vary significantlybetween exotic hardwoods, and cheaper, fastergrowing softwoods. Laminated bamboo costs fallsomewhere in the middle of the price range of

wood products. Bamboo is attractive, and can bestained in the same way as woods where colourvariations are desired. It is also surprisingly hard,with hardness coefficients similar to those of oakand maple.

Great opportunities still exist in the market forbamboo laminated flooring. Bamboo is edginginto a global flooring market worth some 1.2billion USD per year, of which approximately 50percent is currently produced using oak with thebulk of the remainder using maple, cherry, andbirch. The market share for bamboo will likelygrow as consumer concern over sustainabilityincreases.

Source: Office of Forestry Development (DARD) Thanh Hoa province (2005)

Figure 2 - Sector contribution to the total expected growth in demand for Luong bamboo,Thanh Hoa Province, 2005 - 2008

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The need to increase competitivenessin value added market segments

Demand for premium Luong bamboo is increas-ing significantly in Thanh Hoa province. Luong isgraded into different qualities depending primarilyon length, but also on thickness, dryness, unifor-mity and straightness. A culm that has a uniformcross section is worth more than a culm thattapers, for example. Similarly, culms that arethicker (which corresponds to length) or straighterare also worth more. For the purposes of thisstudy, Luong bamboo of premium quality3 is thetype that businesses of laminated products willdemand most.

Although intensification of bamboo cultivation isexpected to result in significant gains in productivityin terms of culms per hectare, the data collectedsuggests that the bamboo market in Thanh Hoa willexperience a shortage of about 3.4 million culms by2008, equivalent to 32 percent of the total estimateddemand for premium quality bamboo (figure 3).

expected gains in agricultural productivity seemambitious.

Intensified bamboo agriculture is expected toaccount for about 60 percent of the increase inbamboo supply. Agricultural output is expected togrow from an average of 264 trees per hectare in2005 to an average of 307 trees per hectare in2008. About 40 percent of the gains in the supplyof bamboo culms, therefore, is expected to beachieved through an increase in the total cultivatedarea of bamboo.

Bridging the projected 32 percent gap in supplyof premium quality Luong bamboo by 2008through intensified bamboo production will not befeasible. Smallholder agricultural intensificationputs increased stress on natural resource systemsand reutilization of cultivated land presents oppor-tunity costs to farmers.

Because importing bamboo of dependablequality from areas nearby Thanh Hoa can lead tosignificantly increased transportation costs, thecollected data suggest that increases in produc-tivity to bridge the projected gap in the supply ofbamboo in the local market should be soughtthrough productivity gains within the product-trans-formation nods of the value chain.

Increases in value chain productivity andcompetitiveness within the Luong bamboo sectorcould be achieved through more efficient use ofharvested bamboo in the process of productdevelopment and value enhancement. Valuechain productivity can become an important driverfor poverty alleviation in upland areas whereLuong bamboo is grown.

Facilitating market integration of theupland poor into bamboo value chains

In response to this situation, a consortium oforganizations has been mobilized to facilitate aprocess of market integration to support sustain-able and environmentally responsible bambooproduction - and catalyse systemic improvements

The expansion in the supply of Luong bambooculms in Thanh Hoa will come from two mainsources; the expansion of the area under cultiva-tion (number of hectares), and the expansion in theproduction of trees per hectare through agriculturalintensification (number of trees per hectare).According to the collected data, however, the

Figure 3 - Estimated demand for Luong bamboo of premiumquality, Thanh Hoa Province 2005 - 2008

(3) Bamboo culms with a circumference of 35 cm, a height of 2,500mm from the base, and older than 30 months (2.5 years).Bamboo with i) trunks relatively straight, ii) culms relatively fresh (less than 1 week of storage), and iii) trunks with less than5 percent of surface damaged by insect holes, stains, mould, mushrooms, dried surface or holes under the branches.

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in the bamboo market that favour the poor. TheMekong Private Sector Development Facility(MPDF) and GRET (a French NGO) have beengiven a grant by the International FinanceCorporation (IFC) and IKEA to raise the standardof living of farmers through income generationfrom bamboo cultivation. The farmers will providebamboo to TBF and possibly to similar enterprises.These funds have been leveraged by a contribu-tion from TBF.

The initiative is expected to create a sustain-able increase in the income of farmers in theproject areas through the development ofbamboo cultivation and a supply chain. Thegrantees will support the development of astable, sustainable supply of quality bamboo toTBF and to new niche markets, as well as protectand/or improve the environment in the projectarea through responsible cultivation of bamboo.GRET will be the main implementing agencywhile MPDF will be the primary monitoring agentto ensure that the entire process of market inte-gration is achieved.

Upgrading strategies for local producergroups

IDE has been conducting a research initiative(as part of the “Making Markets Work Better forThe Poor” program) to support successful imple-mentation of the bamboo project. The purpose isto validate the fundamental assumptions formu-lated under the project. First, to test the extent towhich bamboo smallholder producers are capableof effectively participating in the bamboo sectorexpansion into high value markets. Secondly, toidentify intervention levers at the policy level thatcan facilitate smallholder producers groups’ abilityto upgrade and effectively participate in thebamboo value chain.

The outcome of this research will serve futureefforts to scale-up and disseminate the model ofsustainable integration of low income farmersinto bamboo value chains. IDE’s project willresearch the bamboo market in five mountainousdistricts of Thanh Hoa Province in Viet Nam with

a particular focus on bamboo producers withinthe sub-system of semi-processed laminatedbamboo products (LBP).

The research initiative is aimed at generatingsubstantial evidence to address the presentedresearch questions, and to prove or disapprovethe related hypotheses as presented in theresearch plan. The research initiative contains twosub-components: I) appraisals of market opportu-nities for bamboo producers; and II) a pilot actionresearch intervention for vertically integratingbamboo producers into the LBP value chain.Although both sub-components are interlinked,they are significantly different in nature and willanswer different questions.

Vertically integrating bamboo growers intothe laminated bamboo flooring chain

The vertical integration of bamboo growers intothe laminated bamboo flooring chain requires: i)decentralizing the processing of laminatedbamboo products and subdividing bamboo culmscloser to the source of production; ii) transferringownership to producer groups of the pre-process-ing stage (for laminated bamboo products andrelated value-adding processes); and iii) facilitat-ing the process of upgrading of small-scaleproducer groups through provision of businessservices and initiation of collective action amongbamboo farmers.

In order to optimize return on product forproducer groups, the project has explored differ-ent alternatives for farmers to add value,analyzed the feasibility of producer groups partic-ipating in each of these alternatives, and testedthe assumptions behind the feasibility studiesthrough pilot processing units.

Feasibility studies have been carried out for fourcollective businesses of small-scale producergroups: a collective selling of bamboo culms; acollective pre-processing bamboo poles; a collec-tive pre-processing bamboo slats; and a collectivepre-processing both bamboo poles and chopsticks(figure 4).

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Figure 4

These feasibility assessments have been basedon a collective model that compares the differentbusiness options. This collective model of bamboosmall-scale producer groups assumes, amongother things, that farmer members of the small-scale producer groups own the process of valueaddition and product pre-processing. In otherwords, they are shareholders and have participa-tion in the equity of the small-scale processingfacility. In addition, it also has been assumed thateach small-scale producer group has a sizeableoperation with 100 shareholder farmers, a decentfacility for pre-processing and a minimum level ofinfrastructure. The model assumes that farmer-members are able to raise both fixed and workingcapital. For more details about the feasibilityassessments, please refer to the feasibilityassessment report.

The feasibility studies have also utilized marketproxies for commercial conditions such as price,volumes, quality requirements and credit to esti-mate potential economic return for each of thepotential alternatives available to farmers. Thisinformation has been combined with all theproduct development costs involved in pre-processing and value addition of bamboo.

In order to validate the assumptions behind thefeasibility studies, pilot units for processing and value

addition have been carried out with producergroups. In order to maximize the learning experi-ence, different pilot interventions have beendesigned with slight variations among them in termsof ownership, segmentation and targeting offarmers. Pilot units for processing and value additionfall into the following categories: individual bamboogrowers; bamboo farmers’groups; farmers’cooper-ative; and private market actors. These pilot unitshave served as case studies on how to improve thebusiness model of vertical integration of bambooproducers into the laminated flooring products valuechain and to test the assumptions formulated underthe feasibility analyses.4

Key initial findings

Preliminary feasibility assessments suggest thatdecentralization of processing of bamboo closer tothe source, as well as collective action createsincremental gains for farmers when compared totheir existing commercial practices of tradingbamboo culms individually.

Feasibility assessments reveal that if pre-processing of bamboo for slats is done effectively,the annual net income per farmer could be signif-icantly increased. This, however, is not the case forcollective sales of bamboo culms and collectivepre-processing of bamboo for poles.

(4) For more details about the approach refer to the document “Market Research Plan - Facilitating market integration of the uplandpoor into bamboo value chains: local upgrading strategies for producer groups”, IDE, May 2005.

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According to the feasibility assessments, pre-processing of poles would bring an incrementalincome per year of about four dollars, or VND60,000, (When compared to collective sales ofbamboo culms) which is a negligible increment.This modest increase represents less than a 10percent increase in income for bamboo farmersversus their existing practice selling individualbamboo culms to local traders. This figuresuggests that TBF is very competitive in procuringand processing poles in its own facility, i.e. the rela-tive price paid by TBF for poles when compared toslats is low. It is worth mentioning, however, thatthe price paid by TBF for poles has changed signif-icantly during the past 6 months.

Figure 5 presents the annual income availableto farmers from undertaking various types ofbamboo processing. It is worth noting that theanalysis for the various income options is relatedto the portion of farmers’ bamboo product ofpremium quality that can be utilized for pre-processing of laminated products (in blue).

In the case of pre-processed slats, by contrast,the potential net income increase for farmersseems to be significant. According to the feasibil-ity assessments, the annual net additional incomefrom manufacturing slats (of the 27 mm size)would be approximately $140 USD (equivalent toVND 2,198,454). This figure represents a 48percent increase over the net annual income avail-able to farmers from their current practices.

A combination of pre-processing activities forbamboo laminated flooring products and bamboochopstick products would create the most

substantial income increase for farmers. If farmersgroups were to pre-process poles (and slats) andpre-process chopsticks, the annual net additionalincome available to them would be in the order of$214 USD (VND 3,360,000). This figure repre-sents a 73 percent increase on the net annualincome available to farmers from their currentpractice of trading bamboo culms individually onthe open market (US$294). It is important to note,however, that these figures assume that theincome generated at the aggregate unit tricklesdown to the farmers.

Optimizing the value of culms

As mentioned above, one key aim of theresearch is to assess whether or not the subdivi-sion of bamboo culms (into several sub-products)closer to the production source will create valuefor the bamboo grower. The project interventionassumes that subdividing the culms by pre-processing laminated products will enablefarmers groups to increase return on bambooproduction when compared to selling the culmsby the bulk. The process of subdividing thebamboo would allow farmers to commercializedifferent qualities of bamboo culms and severalsections of the tree through different channels, inan effort to maximize return.

Feasibility assessments suggest that return onthe commercialization of bamboo products variesaccording to how bamboo culm is subdivided.These assessments present another implicationfor the value chain. Assessing the expectedeconomic return among mutually exclusiveoptions can provide valuable insights into the rela-tive “competitiveness” of purchase conditions asoffered by clients, in this case TBF.

In this study, analyses of the gross economicreturns of mutually exclusive options wereconducted for culms, waste, poles, slats andchopsticks. Gross economic return was used asthe key parameter for comparison. The informa-tion presented does not consider any capitalcosts involved in the development of the product.Based on current conditions, the analysissuggests that bamboo growers would benefitfrom subdividing the bamboo trees and commer-cializing subdivided products through different

Figure 5 - Value of Various Types of BambooProcssing

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channels (“multiple output linkages”) whencompared to selling culms by the bulk on theopen market as individual farmers.

Once the tree is subdivided (figure 6), the grosseconomic return of a grade 1 bamboo culm pre-processed and sold as slats is approximately VND21,043, more than twice the gross return of thesame culm sold as a bulk commodity on the openmarket (VND 9,500). It is important to note that thegross return of a bamboo culm to produce polesand chopsticks is VND 19,925, almost as high asthe gross return for use in producing slats. Thissuggests that either TBF should provide competi-tive conditions to farmer processing groups inorder to secure supply of this product or farmerprocessing groups should seriously considerentering into the business of producing pre-processed chopstick products.

These findings suggest that development inter-ventions should encourage farmer producers tocommercialize production to include developmentof multiple bamboo products in order to maximizereturn. This would also potentially improve diversi-fication of risk for farmers involved in bambooproduction.

The value of gross return for bamboo culmsvaries depending on the grade of the bambooculm. In the case of a grade 3 bamboo (figure 7),the value of the gross return of the culm if pre-processed to make chopsticks and polesoutweighs the value of the gross return of a culmof the same grade if turned into pre-processedslats. This finding suggests that a business portfo-lio that includes a combination of pre-processed

chopsticks and slats presents the highest grossreturn for farmers for bamboo culms of lesser ormedium quality. It is important to note that bambooof lesser or medium quality represent the majorityof bamboo culms utilized by farmers. Bamboo ofthe premium quality represents less than 30percent of farmer’s average annual production.

Barriers to effective market participation

Production factors can create barriers to marketentry for small-scale bamboo producers’ groupsmaking pre-processed or finished bamboo prod-ucts. For the purpose of this study, two metricswere selected in order to look at potential opera-tional barriers for bamboo growers and producersto enter into the markets for pre-processed lami-nated bamboo flooring products and chopsticks.The metrics chosen were the level of capital inten-sity in the various bamboo production processesand the level of skill specialization required forthese value-adding processes.

It is worth noting that none of the presentedincome options are mutually exclusive. In fact,pre-processing of poles and slats is sequential.The incorporation of chopsticks into the lattersequential options seems to be mutually enhanc-ing by creating more profit gains for farmerprocessing groups.

Fixed capital costs for selected bamboopre-processing options

For the purposes of this study, the estimation ofthe fixed capital costs has been simplified. Thestudy considered simple investments such as thecapital cost of pre-processing equipment, a storagefacility and the work shop infrastructure costs.

Figure 6 - Value of gross return for a grade 1 bamboo culm underdifferent processing options

Figure 7 - Value of gross return for a grade 3bamboo culm under different processing options

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Figure 8 illustrates the level of investments thatare necessary to set up a work shop facility. Thisfigure considers an appropriate level of invest-ment needed to sustain a decent operation. Forthe purposes of this study, commercializing ofbamboo culms does not require any level of fixedcapital investment.

The feasibility assessments indicate that thelevel of investment required differs substantiallyamong the selected business options for trans-forming bamboo into pre-processed products. Thefixed capital investment for pre-processing ofbamboo poles requires a level of investment ofapproximately $1,389 USD. Interestingly, the fixedlevel of capital investment needed for pre-proces-sing of bamboo slats requires an upgrade that isworth almost ten times the level of investmentneeded for pre-processing of bamboo poles alone.Finally, the combined option of pre-processingpoles and chopsticks, an operation currently inpractice in the project areas, would require farmersgroups to invest as much as $4,163 USD, almostthree times the level of investment for pre-process-ing of bamboo poles alone. The option of combi-ning pre-processing poles and chopsticks requiresless than half the investment level requiredproducing slats.

Level of working capital required forselected bamboo processing options

For the purposes of this study, the value ofworking capital was defined as the value of theadvances required for transportation servicesand inventories of bamboo products – from thepoint at which it is procured by farmers until thepre-processed product output is purchased bythe buyer. The feasibility study indicates that theuse of working capital is considerable, even when

compared to the level of required fixed capitalinvestments.

Value-addition by producers

Together with the feasibility studies, pilot units forprocessing and value addition have been carriedout with producers’ groups in the project area.These pilot units have been set up to validate theassumptions behind the feasibility studies. Twokey interventions are being tested through thesepilot experiments. The first one is the transfer ofownership of pre-processing of laminated bambooproducts from TBF to small-scale bamboo produc-ers’groups. The second one is the facilitation of theprocess of upgrading of small-scale producers’groups through provision of business services andthrough the initiation of collective action amongbamboo farmers.

As described above, the research is using pilotinterventions as case studies that have beendesigned with slight variations among them. Pilotunits for processing and value addition consist ofthree farmers groups involved in four differentpilot situations that fall into the following cate-gories: individual bamboo growers, bamboofarmers’ groups, farmers’ cooperatives and aprivate market actor (enterprise). From these,the focus of the work during the past two monthshas been on the farmers’ cooperative model andthe private market actor (enterprise) model. Theindividual bamboo growers’ case will beexplored once the aggregation models havebeen consolidated. The bamboo farmer’sgroups (organized by GRET) are incipient andhave not generated sufficient data at the timethat this report has been prepared.

The farmers’ cooperative model has beenassessed through the Thiet Ong and Thiet Kefarmers’ cooperatives. These cooperatives havebeen initiated under the “Improved Livelihoodsfor Mountainous Communities” project currentlybeing implemented by the Centre CanadienD’etude et de Cooperation Internationale (CECI)with support from the Canadian InternationalDevelopment Agency (CIDA). The private marketactor model is currently being explored throughthe Xuan Phu chopstick cooperative.

Figure 8 - Fixed capital costs for selectedbamboo transformation options

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Lessons learned from early implemen-tation of pilot pre-processing units

The lessons learned from the pilot units forprocessing and value addition that have beencarried out with producers’ groups in the projectarea can be grouped into two main categories,namely, lessons pertaining the local value chain oflaminated bamboo products and lessons related tothe several forms of incorporation of small-scalebamboo producers’ groups.

Lessons from the local value chainof laminated bamboo products

Trials of pilot pre-processing units by the ThietOng and Thiet Ke farmers’ cooperatives in BaThuoc district have not yielded conclusiveevidence about the commercial sustainability ofpre-processing bamboo products for TBF.However, some valuable insights were collectedthrough two failed attempts by one of the farmers’cooperatives to supply bamboo culms to TBF’sfacility in Thuong Xuan.

First, formal arrangements among marketplayers in the bamboo laminated flooring valuechain need to be in place if substantial competi-tiveness of the value chain is to be achieved. It isevident that these arrangements have been weakthus far. The emerging evidence from early imple-mentation of the pilot units suggests that arrange-ments between actors in the chain may have to befacilitated by an external actor (a catalyst), as initialbarriers exist to self-generated intra-value chainagreements.

Second, because the level of specialization of thebamboo slats product line is high, small-scalebamboo producers’ groups have been hesitant toenter this business without a mechanism to cover thecapital investment in processing equipment. Pre-processed bamboo slats, as specified by TBF, cancurrently only be supplied to them. TBF is the singleplayer in the market that can buy these 27mm slats.

Third, during the past 6 months, intra-valuechain pressures for increased profit margins have

led to substantial changes in the market conditionsof laminated bamboo products for flooring. Duringthe past 6 months the market has been extremelydynamic. With a view to increase its productivity(better quality bamboo at the lowest cost), TBF hasmade substantial changes in product specifica-tions. In addition, TBF has experimented with newmethods of pre-processing to increase productiv-ity within their own operations.

Fourth, the nature of pre-processing ofbamboo for flooring products has demandedconsiderable logistic capacity from producersuppliers. The maximum period of transit timefrom the moment bamboo culms are harvestedto the moment they are delivered to TBF’s facil-ity is 7 days. The need for product supply ofdependable quality has prompted an expandedsearch from producer suppliers, as only a portionof farmers’ current bamboo production meets therequired standard.

Fifth, discretionary grading of bamboo culmsand bamboo products has increased the costs ofbusiness informality. Due to the existing pressuresfor profit margins and the opportunity for dishonestbehaviour by the procuring and/or selling party,discretionary grading of bamboo has negativelyaffected the participation of small-scale bambooproducers’ groups in the market system.

Finally, the farmers cooperative (Thiet Ongcooperative) and bamboo farmers group (initiatedby GRET) faced difficulties in organizing farmersto supply TBF. The established local marketplayers (collectors and traders) reacted to theemergence of direct commercial linkages betweenfarmers’ groups and TBF by increasing thepurchase price for bamboo products offered toindividual farmers.

Lessons from incorporating small-scaleproducers’ groups

The options for transferring ownership of the pre-processing of laminated bamboo products tofarmer producer groups (as stakeholders in thebamboo market) are fairly limited5. Under the

(5) Although studying the options for transferring ownership of value adding activities is a subject of this research, the responsibilityfor transferring ownership is not part of the duties of the study team.

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farmers’ cooperative model, the level of farmers’participation in the equity of the cooperativeremains unclear. Situated in the district of BaThuoc, the Thiet Ong cooperative was establishedwith CECI’s assistance in June 2004.

Several valuable insights were gatheredthrough two failed attempts by one of the farmers’cooperatives to supply bamboo culms to TBF’sfacility in Thuong Xuan. Two shipments ofbamboo culms from the farmers’ cooperative toTBF were registered during the past 6 months.The first shipment consisted of approximately400 culms. The records indicated that the gradingproportion among the supplied bamboo culmswas not satisfactory to TBF. In fact, TBF statedthat although 25 percent of the shipment wasconsidered as “unacceptable”, TBF would notmake any product rejection. The second ship-ment was less successful. The rate of rejectionwas 75 percent. According to local sources, mostof the bamboo product collected by cooperativesthat was supplied to TBF was not procureddirectly from their registered member farmers butfrom non-registered farmers.

During the reporting period, the private marketactor (enterprise model) represented by the XuanPhu chopstick cooperative consistently providedculms and pre-processed products (poles) to twofacilities operated by TBF. Estimates indicate thatsince May 2005, approximately 20 shipments of3,000 poles per truck (totalling 60,000 poles)have been delivered by Xuan Phu Cooperative toboth the facility in Thuong Xuan and the facility inQuan Hoa.

Several reasons seem to explain the perform-ance gap between the farmer’s cooperative and

the private market actor in effectively participatingin the value chain of laminated bamboo flooringproducts. First, the diversified operation of pre-processing bamboo by the Xuan Phu cooperative,which consists of both a chopstick processingbusiness and a laminated pre-processing busi-ness, has increased capacity within the coopera-tive to utilize not only greater portions of thebamboo culms but also to utilize bamboo culms ofvarious grades. Maximizing the utilization ofbamboo produce has increased the competitive-ness for the Xuan Phu cooperative.

A second factor that constrained small-scalebamboo producers’ groups effective participationin the bamboo flooring chain was the weak gover-nance structure of the cooperative due to a lack ofaccountability by the managing agency of thecooperative (the steering committee) to its princi-pals (the farmer stakeholders). Reports from thefield indicate that the steering committee (andmanagement board) of the farmers’ cooperativemodel was less flexible and had less capacity toreact to opportunities that called for rapid decision-making.

Another factor that seems to have hindered thecapacity of the farmers’ cooperative to performduring the process of supplying bamboo culmsand pre-processed products to TBF is their inabi-lity to deal with the informal costs of doing business.

Finally, the Xuan Phu chopstick producing coo-perative (the private market actor) counts a truck aspart of its capital endowment. Although access totransportation by the farmers’cooperative seems tobe fairly good, subcontracting transportation ser-vices and costs related informal transportation feescreated a disadvantage for the farmers’cooperative.

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Overview of Dragon Fruit Production inVietnam

The production of Dragon Fruit in Vietnam hasa number of key characteristics: Production is characterized by a large number of

relatively small-scale growers Over 100,000 tons produced annually in

Vietnam Main growing region - Binh Thuan province in

the South of Vietnam China is the traditional export market for

Vietnamese Dragon Fruit, but this market isshrinking

Small amounts of exports to the EU are beingundertaken at present

Three varieties exist world-wide with the redskin/white pulp variety being the most common

in Vietnam Israel, Thailand & Central America are competitors

Dragon Fruit GAP Project Objectives

Adoption of Good Agricultural Practices (GAP) EUREPGAP certification Higher-value export market access Capacity building - sustainability Demonstration/sustainability for fruits & vegeta-

bles

Collaborators

The Dragon Fruit GAP project involves 5 collab-orating organizations, funded by three fundingbodies.

The Dragon Fruit GAP ProjectBob Webster, VNCI

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Dragon Fruit Value Chain

The Dragon Fruit Value Chain can be repre-sented by the diagram below, which shows the

Dragon Fruit SWOT

Strengths High production capacity Easily grown Pest and disease resistant Long shelf life Available year-round Attractive, aesthetic Developed growing technique

Weaknesses Narrow product line/variety Fierce competition No LT marketing strategy High transportation costs Not widely known outside of Asia Bland taste?

Opportunities Top VN strategic fruit Post-harvest technology “New” exotic fruit Small but growing niche

Attractive to children and health-consciousconsumers (in Europe)

Emerging processing options mproved varieties possible

Threats Cheaper air freight elsewhere Yellow varieties better taste Wide range of other exotic fruit for consumers Traceability difficult with large number of small

producers SPS barriers to US, Japan, Australia, etc

Project Activities - Adopting GAP andEUREPGAP

Benchmarking survey of current practices Technical assistance and training on GAP, pack-

house procedures (HACCP, GAP), & pest riskassessment (PRA)

Development of quality control & traceabilitysystems

Development of GAP manual, etc. Pilot EUREPGAP farmer groups in Binh Thuan

linkages between growers in Binh Thuan andconsumers in Vietnam and overseas.

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Project Activities – Higher Value MarketAccess

EU market research and competitivenessanalysis

EU/US market entry requirements workshops Working with METRO HK to access EU market Establishing national grading standards Marketing and branding strategy development

Desired Impact

Increased awareness of benefits of GAP Farmers obtaining EUREPGAP certification Sales to higher end markets Establishment of national grading standards

Next Steps/Going Forward

More dragon fruit farmers EUREPGAP certified Understand and approach higher value regional

markets (China, Taiwan, and Singapore)? Demonstration and application for other fruits VIETGAP?

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Background

Vietnam's development strategy aims to achievean effective economic growth. Its success dependsto a large degree on the development of the privatesector, which consists mainly of SMEs. Sincearound 2000, the reform of the private sector hasaccelerated markedly and initiated a rapid growthof private small and medium enterprises. However,Vietnam's integration into the world market andparticularly the country's scheduled entry into theWTO in 2005, requires to further accelerate thereform process. This includes extensive adjust-ments of the legal and institutional framework anda consistent strengthening of the competitivenessof the still new private industrial sector.

A major problem is that the Vietnamese privatesector, and small and medium enterprises inparticular, is not yet sufficiently competitive. As aresult, most companies cannot yet withstand thecompetitive pressure resulting from liberalizationand the opening to the world market. Major prob-lems continue to exist in relation to inconsistenciesin the legal framework for SME, as well as in theimplementation and enforcement of policies andlaws, in particular at the provincial level. Thecompetitiveness of many Vietnamese products isstill low, also due to limited availability of special-ized services assisting companies to meet therequirements of international markets.

Objective/Target Group

The overall objective of the SME PromotionProgramme is to improve the competitiveness ofprivate small and medium enterprises in Vietnam.It aims at creating an enabling environment forSME development, and at improving the relevantframework conditions for SME development at thenational and local level. It pursues this aim through4 closely integrated components: SME policy andinvestment climate, local economic development,competitiveness of selected sectors, and materialtesting and other specialized technical services. Inorder to achieve tangible and measurable impacts,the Programme focuses on 4 pilot provinces aswell as on selected agro-industrial value chains,and aims at supporting the consistent implemen-tation of reforms at the provincial level.

The Programme cooperates with a wide range ofpartner organizations on the Vietnamese side,beyond the partners mentioned above, with some ofthe key agents in policy reform, such as the CIEM,the Prime Minister Research Commission and theMinistry of Justice, as well as a broad array of publicand private organizations and service providers.

Other instruments of German DevelopmentCooperation provide essential contributions to theProgramme, in particular with respect to the provi-sion of qualified human resources and trainingopportunities. The Programme also integratesdevelopment partnerships with the internationalbusiness community (through PPP). Aclose coor-dination is maintained with the international donorcommunity and the government-donor coordina-tion mechanisms.

Implementation

Component 1 - SME Policy/EnablingEnvironment focuses on supporting key reform

Programme for the Development of Smalland Medium EnterprisesThomas Finkel - GTZ

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actors in creating an enabling business and invest-ment climate. To this end, it improves mechanismsfor the preparation of laws and other legal docu-ments (e.g. by better assessing the likely impact oflegal reforms), strengthening the dialoguebetween the stakeholders of the public and privatesector, and supporting a consistent implementa-tion of reforms.

This will lead to better preparation and imple-mentation of selected policies and laws for theprivate sector, and thus to an improved legalframework for SME at the provincial and nationallevel.

Component 2 - Local EconomicDevelopment aims at supporting the implemen-tation of reforms and an effective improvement ofthe investment conditions at provincial level. It willadvise on the consistent implementation of thelegal framework (e.g. in the rolling out of theUnified Enterprise Law), strengthening thedialogue between local Governments and theprivate sector, creating mechanisms for invest-ment promotion and business start-up, andsupporting the development of institutional andpersonnel capacities at the provincial level.

This leads to an improved investment climate atprovincial level, i.e. more efficient and business-friendly administrative procedures, and improvedpromotional programmes and services for SME.Ultimately, the effect will be higher investment andmore competitive companies, and thus economicgrowth and employment.

Component 3 - Competitiveness ofselected Sub-sectors/Value Chains focuseson the agro-industrial sub-sector, specifically thefruits and vegetables value chain, as well as

agro-industrial value chains/clusters identified inthe pilot provinces. Its aim is to improve the insti-tutional and policy framework for these sectors,to strengthen specialized sector-specific busi-ness development services, and to build link-ages between local companies and the nationaland international market.

This will lead to improved institutional capacityand cooperation linkages in the sub-sector, bettermarket access, and as a result to an increase inthe value added created locally, to higher industrialoutput and exports, and thus higher income.

Component 4 - Material Testing andadvanced Technical Services advises on thedevelopment of new services, especially theadaptation of existing services to the require-ments of SME. The main focus is on developingnew and complex services in the area of materialtesting (e.g. failure and lifetime analysis andpreventive maintenance). It will also build up newservices in quality and environmental manage-ment and social standards, in particular based onthe demand of the agro-industrial value chainsand the provinces supported under theProgramme.

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This will lead to an improved institutionalcapacity and a services network of providers, andthus an improved offer of specialized services.Enterprises, which have better access todemand-oriented and specialized services, willbe better prepared to meet international techni-cal and management standards and will improvetheir access to international markets.

A case for looking into niche markets –An activity of Component 3 -Competitiveness of selected Sub-sectors/Value ChainsLooking into the best practises described in the

literature on value chains, the role of multination-als seems to be predominant. This is justifiable,since it is the large international retailers, super-markets, traders and industry firms that areleading, if not to say dominating, the majority ofglobal value chains. Becoming part of theseproduction and service networks is an importantstrategy for many small and medium enterprises(SME) in developing countries. It is because ofthis that international organizations - in theirefforts to support SME in developing countries -try to build up partnerships with the lead compa-nies of the different value chains. Within its PublicPrivate Partnership (PPP) program, GTZ hasengaged in many successful partnerships withlead companies, getting their contributions –sometimes in cash, sometimes in kind - to helpupgrade local suppliers and trading partners.

However, there are also countless nichemarkets in which smaller international companiesare building up their production and tradingnetworks, i.e. “governing their value chains”, andhelping local SME to become part of or improvetheir position within the specific value chain.These niche markets provide local SME withbusiness opportunities that are as attractive asthose which multinational companies can offer.For this reason, from a development point ofview, it is worth-while to look deeper into theseniche market value chains, the players involvedand how local SME can gain from taking part.

The partners of the project and theirmotives

Binca Seafood GmbH is a German importer of

seafood. Being a relatively small company, itimports primarily deep-frozen seafood specialtiesfrom Asia to market them in Europe. For thecompany, fish from organic aquaculture is agrowing high-end niche market worth developing.

Naturland e.V. is a German non-profit organi-zation which was set up in 1982 to promote certi-fied organic food production. Its key activity is thedevelopment of standards and the certification ofeligible products. It therefore has a strong inte-rest in developing value chains of new organicproducts.

The local partners are small breeders andprocessors of catfish. Under the umbrella of theAn Giang Fisheries Association in the MekongDelta in southern Vietnam, they are eager toopen up new export markets. For them, organiccatfish production represents a unique opportu-nity in times when their traditional markets areendangered by protectionism as well as scandalswhich are caused by food safety problems.

GTZ works on behalf of the German Ministryfor Economic Cooperation and Development(BMZ). Supporting Vietnamese SME and at thesame time preserving the environment throughthe introduction of environmentally friendlyproduction methods is of key interest to theorganization.

The partnership approach

GTZ has operated its Public PrivatePartnership program in Vietnam since 1999 withgreat success. Behind the somewhat misleadingterm PPP stands a simple approach. Throughthese development partnerships with the busi-ness community (as PPP are called more appro-priately), GTZ and private sector companiesengage in jointly financed projects that havesound economic motives and at the same timeare of high importance from a development pointof view. In most cases, it is a private sector drivenapproach, where the proposals for new projectscome from companies and most activities arecarried out by them.

This is also the case in the organic catfishproduction in Vietnam, where Binca Seafood,

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Naturland and the local producers and proces-sors are the leading actors. In other morecomplex projects, GTZ is actively involved as afacilitator between different stakeholders. It alsouses the experiences made within the develop-ment partnerships for its advice to local govern-ments and institutions. To be able to do this, itactively seeks companies to get involved in part-nerships within its long term consulting projectsat the meso and macro level.

The know-how transfer

The overall objective of the project in Vietnamis to develop and establish organic catfishproduction with a small pilot group of Vietnameseproducers and processors. The local companiesare all SME, since it is easier for Binca andNaturland to work with them in order to developthe value chain of this niche market and build upsound and stable trading relations.

As a first step of the project, guidelines fororganic catfish production and certification had tobe developed and agreed upon with relevantVietnamese institutions. Consulting for that part ofthe project mainly came from Naturland, based onits experience with similar value chains (organicshrimp production and certification in Ecuador withGTZ and in Vietnam with Swisscontact).Afterwards, a pilot project was introduced forchanging the production management of the localcompanies from conventional to organic practices.In order to help the local SME applying the organicstandards, both Binca Seafood and Naturland arestrongly supporting them through the help of aVietnamese consulting firm and local institutions.By involving these local partners, a know-howtransfer from Binca and Naturland is taking place,

not only to the companies involved, but alsoto important business development serviceproviders. Therefore, the basis for an expansion ofthe organic production to further local producersand processors is being laid.

The work on certification is carried out by anauditing company from Thailand, strongly reduc-ing certification costs and building up the regionalknow-how on organic certification.

Since organic production of agricultural productsstill exists on an extremely small scale in Vietnam,the partners had to look hard for suppliers oforganic feed. This very first step within the valuechain of organic aquaculture represents theweakest point at the moment, since feed must bepartly imported from neighbouring countries,increasing production costs. In the future, it will becrucial for the partners to further upgrade local feedsuppliers and help them fulfil the strict technicalstandards for organic production.

Once the organic fish has been produced, localprocessors will receive training and capacity build-ing from Binca in order to increase local process-ing steps and improve packaging techniques. Bydoing this, more value is being added to theproduct inside of Vietnam, increasing the profit oflocal processors and at the same time keeping theend price of the final product competitive.

At the end of the day, all companies involved inthe project will depend on the success of themarketing efforts of the German seafood importer.For this reason, at this early stage of the project,efforts are already being undertaken on thecommercial end of the value chain. The projectand the prospective new product are presented attrade fairs and through other marketing channels.

Altogether, the approach tackles all the stepswithin the value chain, from the feed supplier tothe final consumer. Most importantly from adevelopment point of few, it helps local SMEupgrade within the value chain. This upgradingtakes place in the form of applying organic stan-dards, increasing processing steps and improv-ing packaging. This will all result in a better pricefor their product, as well as it will open up newmarket opportunities.

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The outlook

Only just having started with the pilot project onchanging local production to comply with organicstandards, more commercial actors have becomeinterested in the approach. On the one side it isother local producers and processors that want totake part in this promising value chain. On theother hand it is European supermarkets that havealready shown strong interest in buying theproduct once it is deliverable on the market.

Lessons learned

Although it is quite early to talk about lessonslearned from the current project, there are someinteresting points that have also been observedwithin other PPP projects in similar nichemarkets.

Starting out with a relatively small scale pilot thatinvolves small international buyers and small localproducers in a niche market, impacts can rapidlyexpand by involving more partners at a later stage.If the private sector partners are the leadingplayers, a relatively small public investment from adevelopment organization can thus cause broadpositive impact. In the case of the organic catfish,some European supermarkets have alreadyshown interest in the product.

Additionally, experiences gained in the organicniche market can be used to help improve thecompetitiveness of local SME as well as envi-ronmental and social standards in the mainstream market as well. Strategic alliancesbetween GTZ and the private sector show thatstructural deficits of whole commodity marketscan be addressed by involving all relevant stakeholders within the value chain, private sector,governments and civil society.

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Rationale for Supporting the WoodProcessing Sector

The wood sector is one of Vietnam’s nation’sfastest growing industries, registering an annualaverage growth rate of 50% between 2000 and2005.

The wood sector is also, among the country’s topten export industries, with a national exportrevenue contribution of 4 percent in 2004 and 5%in 2005.

The wood sector employs around 500,000workers and the size of the workforce is expectedto increase over the next 5 years.

There are good potential opportunities forupstream supply-chain linkages (forest planta-tion projects in Vietnam and Laos)

There is strong interest from large internationalbuyers: Kingfisher, Metro…

Support for the sector has a good alignment withIFC’s strategy- IFC has two clients in the sector

The sector presents good opportunities for envi-ronmental and social projects

The sector presents good opportunities for devel-oping SME support industries

The Binh Dinh Cluster

Located around the port city of Quy Nhon A concentration of more than 70 wood process-

ing and export companies (2/3 are local SMEs) Most companies have similar family type of

ownership Management style generally poor Scale of production mostly small to medium

- Small: 3 – 10 containers/month- Medium: 10 – 40 containers/month

Companies produce similar products: Gardenfurniture

Companies export to similar markets: EU, US

Wood Processing Sector CompetitivenessImprovement ProgramKen Key – MPDF

National Wood Product Export Revenue

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Rationale for Selecting the Binh DinhCluster

The province’s major source of revenue- $120 million wood product export from $180

million total export (2004)

The province’s major source of employment- 20.000 employed (2004). Women account

for 60% of the workforce

Companies face similar issues (initial obser-vations)- High raw material price (imports)- Relatively low margins (outdoor furniture)- Insufficient market information

- Outdated management practices- Low operational efficiency- Poor H, S & E (Health, Safety and

Environmental) Standards

Program Concept

Objective Improve competitiveness leading to sustainable

profit growth of cluster companies

Approach Technical assistance: Training courses at cluster

level for greater outreach; consulting atcompany level for deeper impact and demon-stration effect

Capacity building to local BDS Seek a strong commitment from participant

companies and support from internationalbuyers

Implementation Steps Hot-topic workshops to attract interest from

companies for the program Industrial needs assessment to identify common

problems among companies Design and implementation of specific assis-

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tance projects to solve common problems Monitoring and evaluation to ensure project

quality and measure impacts

Current Activities and Results

3 Workshops - Financial management and Leadership- Production and HR management- Export market requirements and RM source

information

Participation: 132 participants from 31 companies Feedback: very positive (rated 4.5 on a 1-5

scale) repeated requests for continuing assis-tance activities.

Next Step Activities

Industry need assessment - Assessment area: focus on production oper-

ations, cost efficiency health, safety and envi-ronment and social responsibility

- Assessment teams: foreign and local experts - Assessment results: “quick fixes” and

program design

Industry Resource Center - Explore the possibility of building local BDS

for cluster- Rationale: strong buyer/supplier connection,

information resource, cluster cooperationcatalyst

Policy Day

Policy Day Report

How can research-based development interventions

be more effective at in influencing policy?

Discussant comments

Comments on Relations between development research and policy change in Vietnam

Discussant comments

Communications Strategy and Plans - Turning Theory into Practice

Research Follow-up Activities Case Study Experience from Da Nang

Policy dialogue between business associations and local authorities in Vietnam

Preliminary appraisal of requirements, situation and proposed solutions

Competition Policy, Growth and Poverty Reduction

Learnings from the 7Up2 Project

Discussant Comments

Draft Concept Note

Making Markets Work Better for the Poor – Phase II

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Policy Day Report

Policy Day Objectives

1. To obtain a better understanding of the rela-tionship between research, the uptake ofresearch findings and policy change.

2. To be updated on recent thinking in this areaas well as on experience within Vietnam.

3. To share experience in this area with peersand develop practical recommendations toimprove policy research linkages.

Theme: The links between Research andPolicy Change

Anumber of development interventions, includ-ing M4P, aim to support the development ofevidence-based policy making. This has largelyinvolved supporting a process of generating goodquality research products in “strategic areas”,presenting research findings to policy makers,and then assuming some impact on policy-makers’ decisions. However, new thinking andliterature on the research-policy link (e.g. ODIRAPID) is now shifting away from this more linearapproach towards a more dynamic and complexview that emphasises a two-way processbetween research and policy, shaped by multiplerelations, networks and reservoirs of knowledgeThe key question is “Why are some of the ideasthat circulate in the research/policy networkspicked up and acted on, while others are ignoredand disappear?”. The answer to this seems to liein a combination of several determining influ-ences, including

(a) The political context,(b) The actors (networks, organisations, indivi-

duals), and(c) The message and media.

An initial presentation will set the overallcontext and introduce the latest internationalthinking on research policy relationships. Then anumber of Vietnam-based discussants willattempt to provde a series of “bridging”comments to link the international ideas to the

realities of Vietnam. A series of case studies willprovide specific examples of the issues inVietnam.

Success indicators

The day will have been successful if participantsfeel:

1. better informed about the issues relatingresearch and policy change

2. stimulated to develop or improve networkingand collaborative working;

3. positive about the contribution they canmake over the coming year.

Policy Day

Some of the main issues that emerged in theplenary discussion are:

There are no simple answers to achievingpolicy impact. It may be useful to think interms of ‘innovation systems’ (see main pre-sentation).

We need a clear understanding of the decisionmaking process and the role of consensusbuilding in Vietnam.

A tension exists between the distillation offewer, clearer simple messages and thedanger of oversimplifying complex issues.

Communications and advocacy in M4P needsgreater emphasis. Research products needpackaging for specific target groups.Disseminating key results and the intelligentuse of the mass media should be rewardedmore than generating research so that theseimportant aspects of M4P’s work are incen-tivised and receive more support and staff time.

The M4P message e.g. market-based thinkingand approaches needs clarification and “embed-ding” in the Vietnamese transition context.

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Better knowledge sharing and networksbetween researchers should be supported aspart of M4P and other donor interventions.

Policy-making is still seen as synonymous withlaw making in Vietnam. Law making is not veryevidence based. Are policy makers really opento the use of research findings?

Better universities and think-tanks are a meansto establish a more independent researchindustry in Vietnam. Existing Vietnameseresearch initiatives, including Masters andDoctoral programmes, could be leveragedmore effectively by donors then at present.

There remains a need for good reliable data.

Knowledge sharing between other M4P initia-tives e.g. ADBI M4P work in Laos andCambodia, Commark and Finmark in SouthAfrica, Katalyst in Bangladesh and Propcom inNigeria could be improved. This would facili-tate cross-learning as well as leveraging someof the preparatory and theoretical work that hasalready been done.

International M4P knowledge sharing shouldbe carefully structured around themes andoutputs of common interest to ensure that thelessons are useful and relevant.

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How can research-based developmentinterventions be more effective at influencingpolicy and practice?Alex Duncan and Andrew Barnett1

This paper is a summary of a forthcoming M4P discussion paper on this topic

1. Introduction and purpose of paper

The purpose of this paper is to think about waysin which those who are involved in Making MarketsWork (MMW) initiatives can be effective in influ-encing development policy and practice. It startsby presenting two case studies of recent examplesof influential research-based approaches. It thenaddresses in particular three issues:

How we can most usefully think about the link-ages between researchers and policy-makers

The need to understand the institutional incen-tives facing policy-makers

The risk of undervaluing communication.

2. Two case studies

This section draws lessons from two exampleswhich share parallels with the MMW approach.These are: sustainable livelihoods (SL), andDrivers of Change (DoC). They are not alterna-tives: SL is an approach to development thatdefines aims, and sets out ways to achieve them;DoC is a political economy analytical frameworkthat can be applied to a range of developmentapproaches.

The sustainable livelihoods approach. TheSLapproach is a way of approaching development

which focuses on the means by which house-holds, and especially poor households, canimprove the level and stability of their livelihoods.It emphasises households’ assets (financial,human, social, physical and natural) and the waysin which these can be built up, and combined sothat households can improve their livelihoods.

SL is often cited as an example of success ininfluencing the development agenda2. The firststatement of the approach is attributed to RobertChambers in 1986, later elaborated and devel-oped in an IDS discussion paper3. These ideaswere adopted and pursued by a number of peopleand agencies, but can be said to have reached themainstream when they became a central part ofDFID’s 1997 White Paper, and were developedover the following two to three years for practicalapplication4.

This case exhibits a number of important char-acteristics: the process of developing ideas tomainstream practice took over 10 years; the SLapproach provided a simple narrative thatsummarised a wide range of theory and empiricalevidence (aided by a single diagram); it was timelyin that it was available in a credible form when in1997 DFID staff needed a sharper focus onpoverty reduction; momentum in a complex situa-tion was maintained by a network driven by a well-

(1)The authors work with the Policy Practice Ltd. They would welcome comments at: alex.duncan@thepolicypractice.com orandrew.barnett@thepolicypractice.com(2)This subsection draws on background material prepared for DFID’s Policy Paper on Research ‘Research for poverty reduction:DFID research policy paper,’ by Martin Surr, Andrew Barnett, Alex Duncan and Melanie Speight, DFID 2002. (3)‘Sustainable Livelihoods, Environment and Development’, 1987, Robert Chambers, IDS Discussion Paper 240. The ideas werefurther specified in Chambers, R., and Conway, G., (1992), 'Sustainable rural livelihoods: practical concepts for the 21st century',IDS Discussion Paper No 296. (4)“Sustainable Rural Livelihoods: What Contribution can we Make?” ed. Diana Carney. DFID, 1998.

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resourced dedicated unit; and it shows the needfor “blue sky” research, because the early devel-opment of SL was not demand-driven.

Drivers of Change. The DoC approach is ameans of trying to understand the realities of polit-ical, social and economic changes, and (in thecontext of development) how they impact onpoverty reduction. The approach focuses on theinstitutions and underlying factors that createincentives that cause agents of change to behavein particular ways.

Some of the ideas that are central to DoC havea long history in political science literature, but hadrelatively little impact on the policies and practicesof development agencies. This changed in2001/02 with a paper by a DFID official (while onsabbatical) on understanding how change comesabout, a country study of Bangladesh,5 and theWorld Bank’s Low Income Countries Under Stressapproach (LICUS.) initiative. With political supportfrom the then Secretary of State of DFID, andcatalysed by a DoC team within DFID, theapproach was rapidly and widely adopted, in some25-30 country offices.

The main characteristics of this case are: oncethe transfer from the academic realm to a devel-opment agency occurred, take-up was very rapid;this is explained largely by the strength of demand,both at the political level and technical levels; a keyrole was played by a dedicated unit; and, as in theSLcase, there was a need for underlying researchto be available. It is too early to say whether thismomentum will be sustained, or whether theapproach has in fact improved development effec-tiveness.

3. Research-policy linkages

What form do linkages take? The idea of astraight-line relationship researchers and policy-makers, whereby researchers generate ideaswhich are taken up by policy-makers, is too simple.

ODI’s Research and Policy in Development(RAPID) programme has produced a usefulconceptual framework for capturing real-lifecomplexity, based on three main factors: context(politics and institutions); characteristics of theresearch (relevance, credibility and communica-tion); and links (networks, civil society and trust.)6

Using this framework, a few points from the casestudies may be emphasised:

Context: the context is crucial, and in particularthe ways in which it creates effective demandamong policy-makers; but feedback loops meanthat the context is in turn affected by theresearch; and timing is important, but hard topredict.

Research characteristics: there need to bepre-existing credible research-based ideas thatcan be drawn on and reformulated; and theadoption and sustainability of the approach willdepend largely on its meeting the objectives,pressures and concerns of the policy-makers.

Links: there are multiple interactions betweenstakeholders; networks have been important inmaintaining momentum; and the approaches sofar appear to be more deeply rooted amongdevelopment agencies than among govern-ments of developing countries.

From research to innovation. The need tocapture the complexity of research/policy linkagesprovides an argument for broadening the way wethink about research. There is now a growing liter-ature on systems of innovation,7 summarisinginternational best practice on linking research withpolicy and practice. The emphasis is on the use ofthe ideas, and not just on generating ideas. Fourelements of innovation systems may be high-lighted: the need for both the supply push of theresearch community and the demand pull of theusers of new knowledge; the role played bynetworks that provide frequent two-way commu-nication channels between the many actors in the

(5)‘Understanding pro-poor change: a discussion paper,’ Sue Unsworth, September 2001; and ‘Bangladesh: Supporting thedrivers of pro-poor change,’ Alex Duncan, Iffath Sharif, Pierre Landell-Mills, David Hulme, and Jayanta Roy. DFID, Bangladesh,June 2002.(6)See: http://www.odi.org.uk/RAPID/Lessons/Framework.html(7)See “From ‘research’ to poverty-reducing ‘innovation,’ Andrew Barnett, 2004. Paper available on:http://www.thepolicypractice.com/experience.htm#SCIENCE

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network; the importance of intermediary organisa-tions in searching through and adapting the rangeof options within the stocks of existing and newknowledge; and the context of the system.

The implications for MMW practitioners are theneed to: understand the full range of issues thatare critical to successful influence on policy andpractice; seek to build the wider innovation system;and encourage continuous interaction betweenresearchers and users.

4. The context: the incentives facingpolicy-makers

Contextual factors are crucial. They create aset of incentives that affect the behaviour ofdifferent stakeholders in an innovation system,and strongly influence what policy-makers adoptand implement. A helpful framework for thinkingabout these institutional incentives is thatdiscussed above, the Drivers of Change . Themain features of the DoC analytical framework(see diagram) are that: It distinguishes, and studies the interactions

between:- Foundational, or underlying, factors

(inclu-ding natural and human resourceendowments, and the stock of technologies)

- Institutions (the political, social and

economic frameworks of rules structuring thebehaviour of agents)

- Agents (individuals or organisations pursu-ing particular interests, including policy-makers (whether political or in the civilservice), researchers, the private sector,NGOs, and development agencies)

Interactions work in both directions, betweenfoundational factors and institutions, as well asbetween institutions and agents.

Actions by specific agents can affect the institu-tional framework. Agents can also affect foun-dational factors, but in a way that is mediated byinstitutions. In the same way, foundationalfactors impact on agents in a way that is medi-ated through institutions. Institutional perform-ance is therefore central to understandingchange processes

The framework is dynamic since changes infoundational factors or institutions, or the behav-iour or interests of agents, will function as driversof change of the system as a whole.

Applying this framework to the innovationsystem approach is case-specific, but analysingthe agents, the incentives and disincentives thatact upon them, and the institutions and founda-tional factors should provide insights into what willmake it more likely that different stakeholders willtake up the MMW approach.

Source: adapted from Duncan et al (footnote 8.)

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5. The risk of undervaluing communication

Irrespective of whether a linear research-policy-maker model or a more complex innovations-system model is adopted, good communicationsamong the stakeholders is critical; and it is oftenneglected. The innovation system way of thinkingsuggests that effective innovation results fromcontinuous two-way interaction between thesuppliers of new knowledge and the users of newknowledge; communications therefore need to beadequate to support this complexity.

The task of communicating research to policy-makers can be severe, as recent work by the UKCabinet Office’s Government Social ResearchUnit shows9. There is often a mismatch betweenresearchers’ and policy-makers’ perceptions ofwhat evidence is valid: researchers emphasisetheory, empirical proof, taking enough time, andqualifying results; policy-makers emphasise rele-vance, timeliness, and clarity of the message.Further, much research output is simply inacces-sible. For policy-makers, research evidence isoften too long, verbose, detailed, dense, impene-trable, jargonesque, methodological, untimely andirrelevant10. What these results suggest is not justthat there is often a communication problem, butthat real dilemmas arise: messages can notalways be simple; timeliness is hard to predict orget right; and evidence is often not conclusive.

There are several factors for MMW practitionersto bear in mind in relation to communication: ideallythe narrative should be simple but not simplistic,timely, and from a source the audience believe tobe trustworthy; an awareness of the need for goodcommunication should be built in from the start,differentiating the various audiences to beaddressed and understanding their needs;communication involves a range of players, not justresearchers and policy-makers, and is two-way;the message must be put across in a way that iseasily accessible, using the most appropriatemedia; and the initiative needs a champion withclear responsibility for maintaining the momentum.

6. Conclusion

Some lessons emerge from the literature ontheory and from past experience on what is likelyto be most effective in influencing policy andpractice. However, it is hard to avoid the conclu-sion that there can be no hard and fast guide-lines, and there is no alternative to intelligent,entrepreneurial, and strategic opportunism. Thisneeds to be based on careful analysis of indivi-dual situations, and in particular of the context inwhich researchers and policy-makers interact,both among themselves and with the other stake-holders who influence innovation in policy andpractice.

(10)Ibid.

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Discussant commentsMartin Rama,Lead Economist, The World Bank, Hanoi

Three aspects of policy making in Vietnam wereexamined:

1. Policy Experimentation – the use of policypiloting is common in Vietnam (e.g. BTAandAFTA as pilots for WTO accession) and is auseful way to “test” policies

2. Consultation – Vietnam has strong andeffective consultative mechanisms to buildconsensus around policy. But these remainlargely within Government. A challenge forthe future is to extend the consultationprocess to include civil society beyond themass organisations.

3. Research – ownership is strong in Vietnamwhich is a good thing as research needs astrong Vietnamese grounding. Research willbe increasingly important as Vietnam movesfrom relatively easy technical reforms suchas trade liberalisation to more difficult chal-lenges such as: a health system that is inclu-sive; state asset management and the chal-lenges of “imported inflation” in a more glob-alised economy.

Vietnam’s rapid progress means that thetimescale for donor action is rather short. Perhapsfive to ten years. Ideas and Incentives (highlightedin the main presentation) are important drivers ofeffective policy-relevant research. But two morefactors can be added: People and Data.

Training people is extremely important and therole of scholarships for building research capacityshould not be overlooked. Scholarships areimportant for exposing researchers to a wider

“market” for new ideas and approaches.Incentives remain important and perverse incen-tives exist for research. Many of the topresearchers will be drawn into banks and manage-ment consultancies. But donors will also draw topresearchers into their own supply-driven agendasthat may produce work that is not particularly rele-vant to the priorities of Vietnam.

Good data and access to it is extremely impor-tant. The story of Household survey data is agood one in Vietnam and there has been goodexperience with developing a good quality dataset and allowing wide access to it for a variety ofresearch topics. Various bits of work on value-chains have also provided a number of entrypoints at different levels.

As a final point it would be good to see Vietnam’sresearch move from the TOR model (driven bydonor demands) to a real partnership model.There are five models that are good examples:

1. Direct unconditional funding to institutes2. The ASEM trust fund implemented by VASS

and administered by the World bank withrelatively light conditions.

3. The Canadian IDRC competition forresearch e.g. through the VietnamEconomics Research Network (VERN)

4. The Africa Economic Research Consortium,and

5. The DFID financed Poverty Analysis andPolicy Advice Project (PAPAP) at the WorldBank which allows for very flexible use of aTrust Fund.

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Comments on Relations between developmentresearch and policy change in VietnamPham Lan HuongCentral Institute for Economic Management

Development research and policy making aretwo increasingly intertwined issues in Vietnam,whose relation is established on the necessity forpolicy effectiveness.

1. Stakeholders to development researchand policy change

Stakeholders in development research andpolicy change in Vietnam include policy makers,domestic researchers, international researchers,and the target group of policies, as well as inter-mediary institutions, including the government anddonors.

Like in other countries, when issuing a newpolicy or changing an existing policy, policy makersin Vietnam first have to balance various interestgroups. For example, whether or not to apply theprogressive personal income tax mechanism orapplying a same tax rate for all groups. Will theprogressive tax discourage the highly qualifiedexperts in the society? And will the single tax rateaffect the income of the poorest groups?

Similarly, considerations of policy relating tohunger alleviation and poverty reduction are diffi-cult. Whether to provide free education for all orjust for the poor groups and regions? Shall therebe a special policy for remote areas, where therethe rate of poor households is the highest, or shallit be for the delta, with high density of poor people?

Policy makers in Vietnam are often those withpractical experience, but may not be well trainedin theory; therefore, their solutions for most of thecases are originated from the practical needs.The policy makers’ expect research results avail-able in the shortest time possible, much shorterthan the time needed to conduct research ofreasonable quality. In addition, recommendations

should be clear, with a small number of choicesand assumptions.

Vietnamese researchers emphasize too muchon theory, offer a lot of assumptions, and ask for acertain period of time to conduct research.Conclusions from their research are too generalignoring political dimension. In addition, quality ofsome research is poor.

Meanwhile, international researchers in VietNam are good in theory, methodology and inter-national experience. But sometimes they are farfrom the domestic circumstances. Each countryhas its own characteristics; therefore, a lessonfrom one country can not be a blue print for others.

Policy target groups: without a clear under-standing about the policy, they are ignorant orunsupportive. The interest groups will only supportthe policy when they benefit from such policy.

Donors: often have to address the demands ofthe country/organisation that they represent.Sometimes, these demands are not in line with theneed to support concrete researches for policyplanning by the Vietnamese government.

There are different types of policies (shortterm/medium term/long term, policy for one sector,a group of sector or for the whole economy, for aregion, several regions or for a group or severalgroups)

2. Methodologies to include researchfindings in policies

Demands pull: policy makers ask researchers/donors for the research findings. In this case, theresearch findings are quickly included in policies,because they meet the need of policy makers.

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For this reason, ministries have the tendency toplace orders on their affiliated research institutes.Advantages: the researches satisfy the policymakers’ demands; research organizations haveaccess to the most updated information(Huong3). However, one of the disadvantages ofthis method is that policy research is not inde-pendent, but depends on the line ministry’sinstructions.

Supply push: One of the characteristics ofpolicy making is the requirement for researches onissues of interest in the shortest possible time.Therefore, researchers should actively interceptthe demands for researches, and should be ableto provide early forecast on the need for policychange, while proposing their products to policymakers. To make this a reality, researches shouldbe provided with opportunities to regularly speakto policy makers, government’s policies and guide-lines and other necessary information.

3. Reasons leading to research findingsnot turned into policy change

The quality of researches are poor: due to thelow level of researchers, data are not good andnot close to Vietnam’s reality.

The policy makers’ ideas and that of theresearchers do not meet each other. Policymakers only use products they need for policymaking, while researchers only create productsthat they think are good. The quality ofresearches may be good, but they may not bethe urgent issues.

Policy makers do not know that there areresearches about their issues of interests. Thisis also popular in Vietnam. On the one hand,researchers do not have means to advertisetheir products to policy makers. On the otherhand, policy makers do not know where to findresearches to support their policy makingprocess.

Policy recommendations by the researchestouch upon large interest groups, leading to thecreation of lobbying groups for the maintenanceof existing policy, or of researches criticizing therecommendations.

Researches are of good quality, but policymakers are ignorant to apply, or because therecommendations are sensitive.

Many researches are too technical and lengthy,and policy makers are too busy to read andcomprehend.

4. Vietnam’s experience since 1980

Shifting from making policy based on good prac-tice, which have been spontaneous in the past,to actively placing order for researches to servepolicy making purposes (Contract 10, ThreePlans in the early 80s, public expenditure,decentralization of budget)

Shifting from situational policies, which createpolicy instability and conflict, to policies withoverall goals and reducing economic distortions,which make policy more consistent and stable.

Shifting from conducting quantitative andgeneral theoretical researches (dialectic materi-alism, analysis) to a combination between quan-titative and qualitative according to more scien-tific and diverse methodologies.

Better research capacity, with better trainedresearchers.

Shifting from policy secret to making public anddisseminating policy information (budget collec-tion and expenditure)

Shifting from administrative order and volunaristtype of policy to policies based on researchesand consultation and agreed by the society.

Increasing the policy makers’ responsibility. Donors shifting from technical assistance

according to their subjective ideas to researchesrequested by government (need assessment,government and ministries consultation)

Vietnam is more active in placing order for tech-nical assistance by donors for policy making.

Political factor is very important. Breakthrough reforms are triggered at crises.

5. Remaining issues

The qualities of some researches are not good. Some researches do not provide recommenda-

tions that can be turned into policy (just generalrecommendations), or are unfinished and needfurther research.

Some good recommendations are not used inpolicy making (M4P)

Research capacity of university and non-statesector is weak.

Researchers’ independence.

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6. Recommendations

There should be mechanisms and motivationsfor policy makers to order researches. One waycan be the accountability mechanism for weakor wrong policy.

Capacity building for researchers should beprovided, together with practical information andexperience. There should be a combinationbetween international experts’ good analysisand Vietnamese researchers’ understanding oflocal conditions.

Research institutes should be independent, atfirst can be under the government. In the future,there should be competition in research (state,non-state, university, etc.)

Improving the quality of researches: improvingaccess to information and data for researchers.

Creating environment for both sides to dialogue.

Creating a network of researchers and policymakers to provide information for both sides.

Wide consultation Ministries and sectors should provide informa-

tion on research needs for researchers, andannouncements for research needs (can beposted on ministry website)

The same thing for the government and donors’partnership. WTO has a focal point, why not inthis case.

Disseminating research findings by variousforms.

Making information available on website accord-ing to topics.

Policy Brief. And summary the findings of previous

researches in a thread. Special features of the mass media. Journals and newspapers articles .

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Discussant CommentsJonathan PincusSenior Country Economist UNDP Viet Nam

Research and policy change

Country specificity: The kinds of policies thatare possible in any given country depend on thehistory, institutions, technology and culture of thecountry concerned. Even the most carefullycrafted policy will have unintended conse-quences resulting in part from the peculiarities ofthe local economy, society and polity. Althoughpolicy research can never account for all possi-ble contingencies, familiarity with the localcontext helps policymakers and researchersavoid obvious mistakes. Policymakers areinstinctively attentive to local conditions, butresearchers (particularly economists) tend toregard history, politics and culture as obstacles togeneral theorising (recall Josef Schumpeter’sfamous lament: ‘Economists don’t read!’). Inrecent years, donors have moved away fromgeneric policy prescriptions and towards policyimpact assessments as part of the larger shiftfrom structural adjustment to ‘poverty reductionstrategies’. This is a welcome change as thelatter have tended to take greater notice ofcountry specific conditions.

Politics matters: One of the negative unin-tended consequences of the theory of ‘rent-seeking’ that emerged in the 1970s was thepopularisation of the idea that politics is somehowunclean and that policymaking therefore neededto be sanitised of it. But politically insulated tech-nocrats have not made better policy than politi-cians (for example, the fatal errors of Indonesia’stechnocrats leading to and during Indonesia’sfinancial crisis 1997-98). Policymaking is aboutchoices and balancing interests, and therefore isalways ‘political’ regardless of whether the poli-ticking is overt or sub rosa. International organi-sations now recognise that they were wrong topromote the idea of policy without politics, andare now more concerned to explain to differentinterest groups precisely how the policies that

they favour will impact upon them. They are alsomore anxious to find local champions for theirpolicies than in the past. Donors should alsoencourage host governments to increase partic-ipation in the policymaking process as much aspossible.

Simple is not better: In a world characterisedby complexity and uncertainty, policymakers oftenlatch on to simple messages that appear, on thesurface at least, to offer a way out of the morass.In the 1980s market fundamentalists offered ‘getthe prices right’ as the solution to all problems. Butas is usually the case, the devil was in the details.Which prices are the right prices? Does ‘the magicof the market’ always result in the right prices? If itdoes then why do Europe, the United States andJapan intervene so pervasively in the markets forcapital, energy, labour, land and agriculturalcommodities? Some researchers have arguedthat simple messages may distort the truth but theyare an acceptable ‘second best’solution given thatdeveloping country policymakers are unable tograsp the finer points of economic theory. But moreoften than not it is the finer points that matter most.Simplifying the message may buy some actionnow but only at the cost of storing up problems forlater. Emphasising law making over implementa-tion also undermines the rule of law, as peoplebecome accustomed to flouting laws that are notactively enforced.

Experience in Viet Nam

Bottom up change: In a recent book entitledThe Power of Everyday Politics Ben Kirkvlietmakes the important point that Viet Nam’s agrar-ian reforms began with local level change andwere only adopted by the national leadershipafter the changes had succeeded in local (and tosome extent unlawful) experiments. There arenumerous other well-documented examples inViet Nam of policy change originating in local

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deviations from national guidelines. Someobservers go so far as to argue that doi moi haslargely consisted of a process of national policycatching up with local change. National and inter-national researchers in Viet Nam have learnedthis lesson well, and have increasingly turnedtheir attentions to assessments of provincial orlocal policy experiments.

Learning from the neighbours: One of themost striking, and under-reported features of poli-cymaking in Viet Nam is the careful attention thatpolicymakers pay to the recent and in somecases not so recent historical experiences of EastAsian neighbours. Some familiar phrases fromthe Socio-Economic Development Strategy havetheir origins in China, Taiwan and even MeijiJapan. The Vietnamese leadership is eager tolearn from the the implementation of successfulpolicies in countries like Singapore and Malaysia.As much as we in international organisations inHa Noi like to think that we ‘have a seat at thetable’ we should not delude ourselves that themenu was prepared in Washington, New York orGeneva. This is hardly surprising given the twothousand year history of interaction between thecountries of this region, but perhaps easy to over-look since these discussions do not generate thepress releases and publications that normallyaccompany donor-government dialogue.

Growing diversity: Another positive trend isthe increasing diversity of research andresearchers in Viet Nam. A new cohort ofresearchers trained both at home and overseasduring the doi moi period is now in place, andsome have already taken up leadership roleswithin their institutions. International and evensome local NGOs are now publishing importantpublications that attract the attention of policy-makers in Viet Nam and abroad. The country isnow more comfortable with the presence of inter-national scholars than in the past, and thenumber of books and scholarly articles on VietNam has increased as a result. For example, theSocial Science Citation Index lists 121 articles onViet Nam published in 1990, and 269 publishedin 2000. In 2005, 277 have already beenpublished with more no doubt still to come.

Policy as Lawmaking: A tendency exists in

Viet Nam to equate policymaking with lawmaking. Policy change in this model emergesfrom the legal departments of the variousministries and central agencies, resulting in lawsput forward to the National Assembly, decrees,regulations and circulars. This pattern is commonin contemporary Southeast Asia and was oftenfound in European countries during their ownindustrialisation era. Viet Nam’s efforts to accedeto the World Trade Organisation has contributedto this tendency in that the country needs to putin place the legal framework for a marketeconomy in a very short period of time. Theproblem with the law making as policymakingapproach is that it does not pay sufficient atten-tion to implementation. For example, the Ministryof Agriculture and Rural Development can banthe use of Category I and II pesticides, but if thelaw is not accompanied by a plan for enforcementand institutional change, and resources to imple-ment such a plan, then it is not so much a policyas a statement of intent. Hazardous pesticideswill continue to flow into the country from acrossthe border and farmers will continue to use them,poisoning themselves and our vegetables andfruit. More attention to policy impact assessmentsis needed to shift the focus of policymaking fromlegal outputs to policy outcomes.

The Way Forward

Better Universities: Universities do not yet playmuch of a role in policy research in Viet Nam. Mostuniversity professors are not engaged in research.This not only reduces the size and diversity of theresearch community in Viet Nam, but also meansthat the next generation of students is being taughtby academics that do not see research as animportant part of their job. Developing a researchculture in Viet Nam—and a culture of answeringpolicy questions on the basis of reliableevidence—will mean improving the quality of thenation’s universities, and drawing them into policyresearch.

More independence: The best way to improvethe quality of national research is through compe-tition. Government research organisations mustbe made to compete with researchers in universi-ties, civil society and the private sector. More diver-sity would also deliver more and better information

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to policymakers who need to hear the unvarnishedtruth from the research community.

Reliable data: The lack of reliable data is stillthe most important obstacle to carrying out goodpolicy research in Viet Nam. The situation iscertainly much better now than a decade agoboth in terms of the availability and quality ofgovernment statistics. It wasn’t that long ago thatthe government budget was considered a statesecret too sensitive to share with internationalorganisations. But much remains to be done. A

regular and reliable labour force survey is a toppriority. The government and international organ-isations also need to do more to help build capac-ity within government to collect, analyse anddistribute statistics. Technical assistance shouldnot only help the government get on with the jobnow but should also build capacity for the future.An indicator of success would be the extent towhich surveys are carried out to internationalstandards without the presence of internationalconsultants at every stage of design and imple-mentation.

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Communications Strategy and Plans – Turning Theory into PracticeDominic Smith – M4P

There are three main objectives of the project: Commission/Undertake research into Making

Markets Work Better for the Poor – get peoplethinking about this area

Build capacity to undertake this type of research Translate good research to policy influence/

usefulness

Up to now, the first two objectives have beenachieved to a reasonable standard. The projecthas commissioned a large number of researchstudies, and many of the researchers involved inthe project have gone on to undertake other inde-pendent research in the area.

However, the third objective of the project hasnot been achieved to the same degree as the firsttwo. This is understandable, as undertakingresearch and building capacity are logical precur-sors to starting to develop policy influence.

The M4P project is now in a position of having ahigh degree of recognition, but not yet necessarilyhaving a high degree of recognition of specificresearch initiatives or policy findings.

In order to start to achieve the third objective ofthe project, and to improve overall project commu-nications, a communications strategy was devel-oped in late 2004 (downloadable as DiscussionPaper Number 8 from www.markets4poor.org).The project is now in the process of turning thiscommunications strategy into a practical, workingcommunications action plan. This is still very mucha work in progress.

The communications strategy will acknowledgethat the project has numerous “customers” forinformation. These include: Policy Makers – High level officials, generally at

the central level who are responsible for the finaldecision on direction of policy

Policy Implementers - Officials, generally at theprovincial level, who are responsible for draftingcirculars and other legal instruments to put policyinto practice.

Policy Workers - officials in ministries who areresponsible for developing policy advice andpolicy positions for policy makers

Policy Thinkers - researchers and academicswhose work provides inputs for policy workersand makers

Groups - this category includes groups of alltypes, such as civil society, cooperatives,working groups, associations etc.

Key Players- peak organizations, donors, banks,projects, programs, NGOs etc.

The M4P project will make use of a number ofdifferent communication alternatives: Direct/Indirect Targeted/non-targeted Complex/non-complex

The key point will be to get the key messagesand concepts communicated in an appropriateform. Above all, the motto of communication acti-vities will be

KEEP IT USEFUL

If the communication is useful to the audience,then there is a far higher probability of the audienceadopting recommendations contained in thecommunication.

The communication action plan is a work inprogress, and policy development and communi-cation activities will be one of the main focus pointsof M4P in 2006.

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Introduction

In 2004, the Making Markets Work Better for thePoor project (M4P) commissioned the Institute ofLabour Science and Social Affairs to undertake aParticipatory Market and Livelihood Assessment(PMA) in Da Nang City. The research objectivewas to analyze livelihoods by examining the inter-action between livelihoods and markets from theperspective of poor groups and those who parti-cipate in markets, and identifying opportunitiescreated to enable markets to operate in pro-poorand sustainable ways. Solutions were recom-mended to bring more and better opportunities forthe poor to participate in markets. The researchconcluded in December 2004, and the researchoutputs included a final workshop in Da Nang, adiscussion paper and a briefing paper.

Following the undertaking of the PMA in DaNang City in 2004, a number of follow-up activitieswere implemented by the M4P team andmembers of the research team in 2005 in order tostrengthen the project’s communications andadvocacy for selected research outputs. Theseactivities include site visits, meetings, discussionsand briefing sessions. The aims of the researchfollowing-up were to:

(i) transfer knowledge and provide informationrelating to policy conclusions to local policymakers and implementers at differentlevels. This first step is important in raisingawareness and understanding about theresearch among wider stakeholders, whichmay result in a better adopting and adap-ting of research results;

(ii) determine how useful the results of the PMAwere to local authorities in their planning andpolicymaking activities;

(iii) analyze any factors contributing to theusefulness of research results;

(iv)stimulate further discussion and exchange of

ideas relating to the PMA and the conceptsof Markets for the Poor;

(iv) learn lessons to be applied to the develop-ment of future advocacy and research follow-up activities; and

(v) learn lessons to be applied to the underta-king of PMA in other location.

Through meetings and discussions in DaNang, the team was able to achieve the objec-tives that were set out. The results achieved weregenerally positive, with the team finding that theresults of the research were well received andhighly appreciated by key stakeholders and poli-cymakers, that the research results were timelyand that policymakers have utilized the researchresults in a concrete manner in development ofpolicies and strategies for Da Nang, especiallythe development of policies relating to disadvan-taged families who have been relocated as aresult of urbanization.

The team was also able to generate discussionsamongst various groups regarding the concepts ofmarkets and their impact on poverty reduction, andwere able to draw lessons for the design of futurepolicy advocacy and research follow-up activitiesand for the design and undertaking of the PMA inother provinces.

Usefulness of research results

The research results from the PMA have beenwell received by the poverty reduction commit-tee of Da Nang City, and have been utilized bythem to form the basis of a series of concreterecommendations to the People’s Committee ofDa Nang. On the basis of these recommenda-tions, the People’s Committee has approved anumber of policies designed to assist the func-tioning of various markets and contribute topoverty reduction, especially amongst those

Research Follow-up ActivitiesCase Study Experience from Da Nang Pham Thi Binh Giang - M4P

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households which have been displaced as aresult of urbanization.

Specific policies enacted include: adoption of astep-by-step urbanization instead of wide scaleurbanization with more attention given to jobcreation and other livelihoods aspects for re-located people, exemption from school fees forpoor families who have been displaced, easierregistration procedures for social services for re-located families, and the timely provision of elec-tricity meters for re-located families.

Factors contributing to the usefulnessof research results

The research results can be categorized ashaving a high degree of usefulness for policymak-ing and policy implementation in Da Nang. Anumber of factors have contributed to the successin transferring research results into useful policyapplication. These include:

(i) the involvement of the Da Nang povertyreduction committee from the beginning ofthe research study formulation and imple-mentation;

(ii) the positive and supportive attitude of the DaNang People’s Committee and the relevantdepartments;

(iii) the timeliness and relevance of the researchstudy to the needed policy development andimplementation and

(iv)the experience and personal qualities ofkey members of the research team as wellas the social network they established in DaNang before and during the research imple-mentation.

Stimulation of further discussion andexchange of ideas

Holding small group meetings with officials atthe ward, district and municipal level wasextremely useful, both in terms of generatingdiscussions about markets for the poor and theimplementation of poverty reduction policy atdifferent levels as well as in terms of providing ameans of transmitting information and ideasbetween different levels of government. Smallgroup meetings seem to be more effective thanbig, formal workshops in providing information

and briefing research results to local staff atcommunity level and encouraging them to givefeedback, comments and discuss about practicaland policy issues. By involving local staff indiscussions in a more active way, the level ofinterest and adoption of information by them willbe higher.

Lessons to be applied to the development offuture advocacy and research follow-up activities

The process of research follow-up work in DaNang provided a number of lessons learned toapply in the development of future activities forother research studies for a better policy commu-nications and advocacy:

(i) activity should be well coordinated with localpartners, and materials should be sent wellin advance;

(ii) many levels of local government, as well ascivil society should be included whichensures voice of different stakeholders beheard and design of research matches theexpectations and requirements of localpartners;

(iii) small working groups can provide very effec-tive means of stimulating discussion andfeedback, especially for community levelstaff to raise opinions independently fromtheir supervisors or managers;

(iv) it is important for the research team to beskilled in advocacy activities and policy andadvocacy work is planned to start rapidlyafter conclusion of study in order to maximizeimpact;

(v) messages and recommendations should befocused and practical; and

(vi)effective support to local level policy makingand policy implementation takes time andcommitment. To link a research with policies,research dissemination should not be limitedwith just reports and result workshop butinvolve a number of follow-up activities on anon-going basis.

Elements (i) and (ii) above are helpful in gettingsupport from local stakeholders as their concernsare listened, their understanding of the researchobjectives and methodology is increased and theirparticipation in the research implementation isencouraged.

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1. Why is dialogue necessary?

The Vietnamese state is a state of the people,by the people and for the people and many impor-tant principles have been approved, such aspeople know, people discuss, people implementand people supervise, regarding activities of thestate apparatus. Dialogue means the essence andways to implement those principles.

“Changes can not be made with the use of forceor from the outside: they must be made from theinside and the most effective way to ensuresuccessful changes in society is through open andfrank dialogue”1.

Theories on economics or conducts seem tohave agreed that people’s participation in the state’slaw-making process not only ensures democracyand human rights practices but also is of greatsignificance from the economic point of view.

First of all, for targeted subjects “participationcan help create responsibility toward the commu-nity serving as a necessary factor to mobilizesocial funds at a high level. If people believe thatthey participate in something that can directlyaffect their own interest, they will be ready toaccept changes. But if they think they are just theoutsiders or the government does not pay atten-tion to their concerns, compulsory changes willtrigger their anger and can cause negative social

impacts.” "Participation helps people figure outthe changes, making it easier for them to beaccepted and not reversible when the firstchance appears”"2. Regarding the apparatus andthe quality of decisions: “The fact that thegovernment keeps its decisions secret and doesnot allow people to express their viewpointstowards policies that can affect their lives and thecountry’s prosperity will reduce the will to takeresponsibility and the quality of decisionmaking”3. The participation of policy beneficiariescan bring about great benefits. Researchershave shown that people’s participation in devel-opment projects can provide necessary informa-tion that is hard to be collected from the outside.Participation also brings about commitments,resulting in greater efforts.

Outlawed sectors have very convincing refer-ences. Government projects on environmentalprotection with the involvement of the communityhave more possibility to be successful. Even ineducation, schools, where the voice of pupils’parents is heard, are better than others, becausethis encourages pupils’ parents to pay more atten-tion to their children’s studies. Participation mustbe considered a process in both the central andthe grassroots levels. Participation does not simplymean voting, it requires open dialogue withpeople’s active involvement to create a forum forall individuals to voice their opinions on decisionsthat can affect their own interests.

Policy dialogue between business associationsand local authorities in VietnamPreliminary appraisal of requirements, situationand proposed solutionsTran Huu HuynhHead of the legislation departmentThe Vietnam Chamber of Commerce and Industry

(1)Joseph Stiglitz, Participation and Development: Viewpoints from the comprehensive development model, World Bank in 2002. (2)Ibid(3)Ibid

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As Vietnam is developing a market economy,community interests and groups of interests can bedifferentiated and dialogue is the best way to resolvedisputes between not only different groups of inte-rests but also between them and local authorities.

2. The role of policy dialogue betweenbusiness associations and localauthorities in Vietnam

Active participation of the business sector andthe private economic sector in the formulation oflaws and policies is one of the important factors oftransparency in the business and investment envi-ronment. Increasing policy dialogue is a solution toimprove local business environment becausepolicy dialogue contributes to:

(i) Resolving obstacles for businesses andinvestors. Providing state managementagencies with information about busi-nesses’ problems so as to work out timelysolutions.

(ii) Increasing the capability to predict andtrust in the business and investment envi-ronment;

(iii) Reducing bureaucracy, corruption andcumbersome procedures in the state appa-ratus; creating pressure on the governmentto increase business efficiency;

(iv) Taking advantage of the support of enter-prises and business associations when localauthorities begin to implement certain proj-ects or programs;

(v) Limiting socio-economic wastefulnessthanks to the community;

(vi) Realizing the mechanism "people know,people discuss, people implement, peoplesupervise", particularly at a time whenVietnam is shifting from a planningeconomy to a market economy, creatingfair dialogue.

(vii) Helping reduce risks and disputes amidincreasing international integrationcommitments;

Decentralizing power to the grassroots level toenhance the role of local administration, increa-sing state budget for localities. Dialogue will help

better manage the use of the state budget withtransparency. Contributing to increasing the effec-tiveness of state investment sources, minimizingsecret links, particularly secret economic links.Amid fierce competition between localities toattract investment, close relations between localadministration and the business circle is one of theadvantages for competition. Increasing dialoguebetween the government and business associa-tions is one of the most effective ways to expressthose close relations.

3. Dialogue between businessassociations and local authoritiesin Vietnam at present

3.1. Lack of transparency is a commonproblem of all localitiesAccording to a recently announced survey by

the Vietnam Chamber of Commerce and Industry(VCCI) and the project to increase Vietnam’scompetitiveness (VNCI)4, transparency has beenconsidered by private businesses as one of thebiggest obstacles for the current business envi-ronment. The below picture demonstrates this,among 9 of the components of the provincialcompetitiveness index5 (PCI), the average trans-parency index of all 42 surveyed provinces andcities reached only 4,67 on the 10 grade scale.Meanwhile, other indexes such as market partici-pation and the time and money spent for the imple-mentation of government policies are higher.

(4)VCCI and VNCI, provincial competitiveness index in business environment in May 2005.(5)Provincial Competitiveness Index

Source: VCCI and VNCI, provincial competitivenessindex in business environment in May 2004.

The average transparency indexof all 42 provinces and cities

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Regarding policy dialogue, the survey hasshown that only 8 out of the 42 surveyed provincesand cities had over 20% of their businesses sayingthat provincial authorities and relevant agencieshad discussed legal changes and policies towardsbusinesses, while 38 of the surveyed provincesand cities had over 70% of their businesses belie-ving that it is hard to predict local government’senforcement of regulations and laws. Meanwhile,reality has shown that transparency and increa-sing policy dialogue help create attractive businessand investment environment.

The below table lists the 20 provinces with thehighest transparency index in the survey of theVCCI and the VNCI. Transparency is one of the9 indexes to form the PCI, but there is a closelink between the transparency index and thePCI. 10 of the 20 provinces with the highesttransparency index have the highest PCI.Except for Binh Thuan and Bac Ninh provinces,the remaining 18 provinces are in the upper halfof the provinces and cities having the highestPCI (provinces from number 1 to 21 among the42 provinces and cities).

Source: VCCI & VNCI, provincial competitiveness index in businessenvironment in May 2005.

Table 1: the 20 provinces with the highest transparency index

Province

Qu∂ng Ninhßµ NΩngB◊nh ThuÀnBfinh D≠¨ngB◊nh ßfinhPhÛ Y™nH∂i PhflngV‹nh LongTp. H Ch› MinhNgh÷ AnV‹nh PhÛcBæc NinhH≠ng Y™nßÂng NaiC«n Th¨Th∏i B◊nhB’n TreKi™n GiangßÂng Th∏pQu∂ng Trfi

Grades ontransparency(10 grade scale)

7,126,726,146,056,045,845,695,585,575,555,375,375,345,195,155,134,924,744,724,72

Rank in PCI

7230112131931718523156984102111

Grades on provincialcompet i t i venessindex (PCI)

62,9370,6753,9776,8260,6060,4459,4068,5659,6159,5665,0958,0660,0364,1461,2961,3965,2461,1358,6561,09

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3.2. Different types of policy dialogue inlocalities nationwideAt present, policy dialogue between businesses

and local authorities often takes place under thefollowing forms: Regular meetings at the beginning of the year

(or the end of the year) between provincialauthorities and representatives of local busi-nesses. Currently, many provincial and cityauthorities work with local business associationsto organize meetings with representatives oflocal businesses. These meetings often takeplace within a day with the aim to honoroutstanding businesses for their good perform-ance, review local socio-economic developmentand investment attraction. Dialogue on policy isnot the focal point.

Training courses organized by ministries andbranches. If there is any new document thatneeds to be disseminated for implementation,relevant ministries and branches organize train-ing courses and classes. On this occasion, busi-nesses have the chance to meet leaders of rele-vant ministries and branches to discuss prob-lems in their fields, particularly in Tax andCustoms. The Ministry of Finance has askedlocal relevant agencies to organize quarterlyregular dialogue.

Through dialogue in each specific sector organ-ized by business associations. In some locali-ties, local business associations organize meet-ings with local business people on specificsubjects and invite representatives from relevantstate agencies to attend.

The establishment of working missions compris-ing of representatives of local relevant agencies(could be representatives of associations) toresolve burning issues and organize dialoguewith businesses to help them resolve difficulties.

Other dialogue: dialogue at the headquarters fstate agencies, via television, radio and theinternet....

3.3. The role of business associations inorganizing dialogue betweenbusinesses and local authorities is stillweakAt present, business associations are often

located in major cities such as HCM city and

Hanoi. Meanwhile, in other provinces, there arealmost no business associations or their opera-tions are not effective:

According to unofficial statistics from the VCCI,in 2004, in 45 provinces and cities nationwide,there were only 254 business associations. Ofthe figure Hanoi had the highest number of 78,HCM city 36, and Bà Ria – VÚng Tàu 13. Someprovinces such as Bình Ph≠Ìc, Trà Vinh, BπcLiêu… had no business associations. Currently,the network of young business associations hasbeen widely established in provinces, youngbusiness clubs and associations have been setup in 46 provinces and cities with a membershipof 3.0006. Business clubs have attracted manylocal business people therefore provinces thathave few business associations only have busi-ness clubs. In addition, trade and industry asso-ciations also exist in many provinces and citiesand except for those in some cities, the majoritydo not operate effectively.

At present, activities of business associations inpolicy dialogue are still limited: Regularly, leaders of local business associa-

tions are often state officials (such as the deputydirector of the planning and investment depart-ment, the industry or trade department…).Officials that run business associations are oftenretirees. Therefore, many business associationsonly have mere formality.

The budget of local business associations isvery limited. It is hard to collect membership feesfrom businesspeople. Other services of busi-ness associations are not popular either.Therefore, budget limitations also hinder busi-ness associations’ activities, including organiz-ing dialogue.

Local authorities in a number of provinces do notfacilitate conditions for the operation of localbusiness associations. It is partly because therole of business association is not highly valuedand that in reality the operation of many busi-ness association is not effective.

A number of business associations still under-estimate their role or still depend too much onlocal administration.

Meetings with business associations are mainly

(6)Information from the council of young Vietnamese business people.

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for local state agencies to inform them of newstate’s policies. This is just a one-way relation-ship. Meanwhile, dialogue needs the involve-ment of the two sides, particularly the participa-tion of business associations.

4. Some examples of goodimplementation of policy dialogue

In reality, many localities have seen positivesigns in policy dialogue over recent years:

dialogue mechanism in the tax andcustoms sectors

On November 4th, 2004, the Minister of Financereleased decision 3597 on the issuance ofdialogue mechanism on tax payers and customsdeclarants7. This mechanism is compulsory for alllocal tax and customs agencies. Under this mech-anism, there are two types of dialogue, frequentand periodical dialogue.

Frequent dialogue is held everyday at the head-quarters of tax and customs agencies at all levels.Tax and customs at all levels must arrange highlyqualified personnel to collect information, settledoubts, problems and complaints of tax payersand customs declarants in their authority.

Specific complaints will be sent to specificsections; in case complaints or proposals exceedthe authority, they will be submiitted to be settledby authorities at a higher level.

The collection of information and complaintsthrough frequent dialogue should be written indocuments, which clearly define which section willbe responsible for and the time needed to resolvethose issues (if the agency has the responsibilityto settle problems) to let dialogue partners know.Through frequent dialogue, tax and customsagencies gather necessary information to preparethe content for periodical dialogue...

The organization of periodical dialogue throughdialogue conferences is clearly stipulated for all

levels, in which the Tax and Customs departmentsat the provincial level and the tax department at thedistrict level must organize a dialogue conferenceevery 3 months. Customs departments, depend-ing on the real need, can organize frequentdialogue or dialogue conference to resolve newemerging problems and do not have to wait for theorganization of periodical dialogue.

The tax and customs sectors must review,assess and draw experiences in all areas andarrange specific sections and personnel torersolve necessary issues: Answer with document to petitioners about the

content that higher officers have promised toanswer after verification and inespection.

Submit authorities at higher level issues thatexceed authority, which are proposed atdialogue conferences. Propose and ask agen-cies at higher level to adjust mechanisms andpolicies to conform with reality.

Submit authorized agencies issues related totheir operation as assigned by the state andinform petitioners about that.

Work out programs, plans and ways to amend,finalize or issue tax and customs managementand supervisory procedures.

10 days after dialogue conferences, local taxand customs agencies must report the outcome ofthe conferences to higher officials by documents.The report must include: the content of thedialogue, who participate in the dialogue, what isreached at the dialogue together with issues raisedduring preparation for the dialogue and during thedialogue, the outcome of the settlement of peti-tions and complaints at dialogue conferences,questions to be answered later and the timeneeded, what should be learned, report to higherofficials to work out or amend policies and mech-anisms or management procedures, pendingissues and ways to resolve issues emerged afterdialogue conferences.

The general content of petitions and answersmust be sent to participatory subjects throughbusiness associations or organizations that they

(7)The content of this decision can be found at the website of the Ministry of Finance at: www.mof.gov.vn or that of the GeneralDepartment of Taxation at: www.gdt.gov.vn

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belong to for them to follow and supervise theimplementation.

The experience of ßÂng Nai province8.

ßÂng Nai is one of the first provinces inVietnam to organize dialogue between busi-nesses and relevant agencies. Currently theprovince still maintains the forms of periodicaldialogue, including: Dialogue between state agencies and busi-

nesses in industrial parks. This activity is heldevery 3 months at each industrial park or clusteror district.

Dialogue between representatives of themanagement board and industrial infrastructuredevelopment companies. The dialogue is heldquarterly aiming to remove obstacles for indus-trial infrastructure development companies.

Briefing among provincial leaders and thosefrom relevant agencies (such as managementboards of industrial parks, the planning andinvestment department, the natural resourcesand environment department, the tax depart-ment, the department of labor, invalids andsocial affairs…). This activity is held every 3months (it will increase to every 6 months). Themeeting will work out ways to resolve pendingissues related to business environment andinvestment attraction.

Through this dialogue, businesses having diffi-culties can asked state agencies for assistance toresolve them. This is also an opportunity for stateagencies to disseminate newly issued regulationsand policies. Provincial authorities also holdfrequent dialogue with local businesses and busi-ness associations, through which to accelerateadministrative reform, increase the efficiency oflocal government agencies ad create harmoniza-tion between local government and businesses.

Dialogue between local government andbusinesses via the internet in Ho ChiMinh city.

The system of "Business-local administrationdialogue" (at www.doithoaidn.hochiminhcity.gov.vn) has been established by the HCM cityPeople’s Committee to quickly resolve difficutliesrelated to state management that businessesencounter during production. Trhrough thesystem, businesses’ petitions will be quickly sentto be resolved by responsible sections.

Statistics showed that by October 2005, after 2years of operation, 555 businesses and businessassociations have logged onto the this website ofHCM city. The website sees around 3.800 hits amonth on the average. 18 state managementagencies (15 agencies belonging to people’scommittees and 3 agencies belonging to centralministries and sectors) are involved in the system.Of which, the HCM city trade and investmentpromotion center plays the role of coordinator andsupervisor. Agencies that receive businesses’peti-tions the most are the Tax Department, thePlanning and Investment Department, the SystemManaging Board....

The number of questions businesses sent to thesystem by October 2005 was 1.514. Of which, thenumber of questions in the first year of operation wasonly 575, while in the second year the figureincreased to 939, up 59% from the year 2004.Businesses’ concerns include issues related to tax,business expansion, representative office, increas-ing business funding, administrative management...9

5. Initial appraisal of dialogue betweenbusiness associations and localadministration

5.1. Dialogue between business associationsand local administration has not been popular in alllocalities. The organization of dialogue only has amere formality and is not effective. There has notbeen specialized dialogue on specific areas.

5.2. Because of bad preparation (not enoughinformation about the issue, not invite authorized

(8)VCCI and the Asia Fund, research on the optimum reality in economic management at the provincial level,second publication(will be published in 2005).

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agencies…) many dialogue were just Q&Asessions between businesses and state agencies.Petitions and opinions of businesses and businessassociations raised at annual dialogue are mainlycomplaints and denunciations. There has not beenany dialogue that collects opinions to help formu-late and amend policies or contribute to localsocio-economic development plans. What busi-nesses raised at some major dialogue were notgrouped in a central issue.

5.3. Anumber of state agencies do not care andcreate conditions for the organization of frequentdialogue. There has still been bureaucracy insome state officials, as they do not consider busi-ness associations important partners.

5.4. The implementation and supervision of theimplementation of issues raised at dialogue are notgood resulting in repeated issues at other dialogueafterward. Several issues raised at the dialoguewere not completly resolved by state agencies. Anumber of state agencies pledge to answer,consider and resolve businesses’ petitions afterdialogue but do not carry out the work.

5.5. Many issues raised by businesses at thedialogue exceed the authority of local agencies,therefore the common solution is receiving thosepetitions and send them to central state agencies.But in reality, businesses rarely receive feedbackfrom central state agencies.

5.6. Business associations have a weak role inpolicy dialogue. Together with the difficulties relatedto apparatus and funding, business associations donot take the initiative in proposing effective dialogue,they still underestimate themselves and depend toomuch on local administration in many cases.

5.7. Because of the unstable business environ-ment which lacks transparency, businesses arenot confident in large and long-term investment,thereby not actively contributing to the law makingprocess and policy dialoge on a long-term basis.

5.8. The legal corridor is not clear and does nothave regulations on conditions, order and proce-dures for the organization of dialogue, as well aslocal agencies’ responsibility in resolving petitionsof businesses and business associations.

6. Proposed solutions to improve thequality of policy dialogue

The state: Central ministries and sectors should apply

the experience of the Ministry of Financewhen asking local relevant departments andagencies to organize periodical dialogue withbusinesses.

Regulations in the law on the issuance of legaldocuments of people’s councils and people’scommittees in 2004: "based on the content ofthe draft of legal documents of people’s coun-cils, people’s committees, functional agenciesmust collect opinions of targeted subjects in anappropriate way" and "the role of opinioncollecting agencies that have the responsibil-ity to study the opinions and suggestions tomake adjustments to the draft documents "(point 3, 4 article 4) is not specific. Study busi-ness’ opinions to make adjustment is a must(except for secret documents of the state asstipulated by the law). Give feedback tobusinesses by document in a specific time isa must.

Create conditions and promote the establish-ment of business associations. There is a needto adjust regulations so that business associa-tions can register for establishment instead ofbeing granted licenses to be set up at present.Create conditions for the establishment of manybusiness associations, which represent diversegroups of interests.

Collect businesses’ opinions through businessassociations on legal documents and policies tobe issued by local administration, particularlythose on socio-economic development andshort and long-term plans.

Regulations on the order and procedures in thecollection of opinions, ways to resolve peti-tions, results and publicize on the media toinform to and be supervised by the businesscircle and the public.

Make public opinions and suggestions bybusinesses and business associations on theprovince’s website. The annual meetingbetween provincial authorities and busi-nesses will review the number of organizeddialogue between businesses and relevantagencies as well as the number of resolvedissues and petitions…

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Business associations: For localities that have many business associa-

tions can consult or under the sponsorship of theVietnam Chamber of Commerce and Industry toorganize quarterly or annual dialogue with localauthorities on the legal environment and socio-economic policies. Business associationsshould increase dialogue with relevant depart-ments and management committees. On thebasis of dialogue with relevant agencies anddepartments, gather issues that exceed theauthority to submit to provincial authorities.

Business associations should review and makepublic the outcome of dialogue to its membersand businesses, increase the supervision offunctional agencies in resolving businesses’petitions and business associations so as tohave appropriate intervention if the process isslow or not in the right direction

Invite local authorities to attend meetings ofbusiness associations to together work out localsocio-economic development plans. Take part inthe Fatherland Fronts, recommend outstandingdelegates among the business circle to People’sCouncils to help better receive and resolve peti-tions of businesses and business associations.

Increase the supervision of local agenciesthrough the Fatherland Fronts or through budgetallocation and bidding projects with state invest-ment or ODA, job creation and poverty reductionprograms… to create opportunities for busi-nesses, particularly those involved in thisprocess.

References

1. VCCI and VNCI, provincial competitivenessindex in business environment May 2005.

2. VCCI and the Asia Fund, research on theoptimum reality in economic management atthe provincial level, second publication (to bepublished), 2005.

3. The Ministry of Home Affairs, report on anumber of issues on the organization, oper-ation and management of associations in2004 and the 2005 program, documents atthe conference to review the operation ofassociations in and orientations for 2004organized by the Ministry of the Interior andthe VCCI in March 2005.

4. Joseph Stiglitz, Participation and Develop-ment: viewpoints from the comprehensivedevelopment model, World Bank 2002.

5. Report of the HCM city business-localadministration dialogue system managingcommittee, presented at the 2-year reviewconference in HCM city October 2005.

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Good afternoon everybody! I am here today onthe invitation of Alan and his team to share someof the findings under a project on competitionpolicy and law that my organisation (CUTSInternational) is currently implementing in Vietnamvis-à-vis the linkages between this theme subjectand the possibility of making the markets work forthe poor in the country, with a view to exploringsome new windows for the future of the M4Pproject.

My presentation, as can be seen from its name,is going to be focussed on a subject quite differentfrom the various presentations that have beenmade during the past few days – competitionpolicy and law.

As happened in Vietnam, the recent years haveseen most developing economies in the world,including those once committed to centraleconomic planning, taking great efforts in theirprogression toward the market economy. In thisagenda for reform, comprehensive developmentof the legal and regulatory framework has been afocus, with competition law and policy as an inte-gral part, especially now that the need for, and therole of, such a law and policy in the developmentprocess is broadly accepted in principle. Thisrecognition notwithstanding, competition remainsa relatively new concept to a major part of thesociety in these countries, and around it thereremain a lot of misconceptions and/or confusions.This is not surprising, since as a matter of fact, themeaning of competition and the way in which it isperceived to work and contribute to developmentdiffer widely (sometimes even contrastingly)among theorists, policy-makers, bureaucrats andbusiness people.

Competition, as defined in the way of classicaleconomists, is ‘a process of rivalry between partic-ipants in the market who would compete by chang-ing prices in response to market conditions,thereby eliminating excessive profits and unsatis-fied demands’.

While in the neoclassical view, ‘a market couldbe defined as competitive when there was a signif-icantly large number of a homogenous products,so that no sellers had enough of a market share toenable them to influence the product price bychanging the quantity that they put on the market’.

Industrial organisation theorists, on the otherhand, opined that, ‘the performance of an industry,largely measured in terms of profitability, varieswith market structure, which in turns influencesenterprise behaviour’.

Competition, whether understood by the behav-ioural or the structural approach, is different from‘competitiveness’, which reflects capability andability: it determines the power to compete andrelies on own strengths and weaknesses, whilecontinuously searching for external opportunitiesand threats. Competition, on the other hand,reflects action and result: it implies struggle butdoes not exclude co-operation given the opportu-nities and threats.

How about competition policy and law?Competition policy refers to those policies orgovernment measures that have direct bearingson the behaviours of enterprises and market struc-ture. Competition policy constitutes an inherentpart of economic policies, and may embraceseveral elements such as trade liberalisation,

Competition Policy, Growth and Poverty ReductionLearnings from the 7Up2 ProjectAlice PhamCUTS InternationalCentre for Competition, Investment & Economic Regulation (C-CIER)

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industrial policy, and investment and privatisationpolicies. The main objective of competition policyis to preserve and promote competition as ameans to ensure the efficient allocation ofresources in an economy. This should result ingrowth, equitable distribution, and lower pricesand adequate supplies to consumers.

Competition law, on the other, is a body of legalrules which are set to ensure fair competition onthe market, by regulating enterprises’ competitiveconducts, prohibiting restrictive agreements andabuses of dominant positions which might impedethe competitive process in the market and violatethe legitimate rights and interest of other marketparticipants, including the consumers. Competitionlaw is a core part of competition policy.

The biggest challenge in the developing worldtoday is to get rid of abject poverty that deprives alarge section of their population a dignified life.Obviously, the policy-makers of these countriesremain overwhelmingly preoccupied with design-ing and implementing policy measures to tacklethis problem. Hence, no policy response can bedesigned in these countries without looking at howit will affect the poor. Competition policy and law isno exception.

There are a number of anticipated influencesthat competition policy and law are to have both inregard to the poor as consumers and as produc-ers and/or suppliers of goods and services. Suchareas of influences include:

(i) reduced price of basic commodities andservices;

(ii) increased quality of basic commodities andservices;

(iii) increased opportunities for access tomarkets for commodities and services;

(iv) changes in market opportunities for employ-ment and enterprise developments (bothnegative and positive);

(v) changes in externalities such as environ-mental, health and safety; etc.

Such areas evidently affect the well-being of thepoor, their capacity to avoid poverty and theirdevelopment options. As have been rightly pointedout by the World Bank in their World DevelopmentReport 2000-01,

“Markets work for the poor because poorpeople rely on formal and informal markets tosell their labour and products, to finance invest-ment, and to insure against risks. Well-function-ing markets are important in generating growthand expanding opportunities for poor people.”

“Well-functioning” implies markets that workefficiently and without distortions i.e. competitivemarkets. However, such markets are rarely foundin any economy, due to a multitude of reasons.Market failures may prevail instead, especially incertain sectors, where competitive markets maynot be the optimal structure or yield desired results,such as: telecommunications, energy (electricity,oil and gas), transport (seaports, civil aviation,roads and highways, railways), water, and finan-cial sector (banking, capital market, insurance),etc. Or competition can be distorted by anticom-petitive practices exercised by the players in themarkets. This is where competition policy and lawhas a role to play: to correct market failures, andregulate the various distortions.

Anticompetitive practices comprise of a widerange of business practices in which a firm or groupof firms may engage in order to restrict inter-firmcompetition to maintain or increase their relativemarket position and profits without necessarilyproviding goods and services at a lower cost or ofhigher quality. These practices include price fixingand other cartel arrangements, abuses of a dominantposition or monopolisation, mergers and acquisitions(M&As) that restrict competition and vertical agree-ments that foreclose markets to new competitors.

What is very often ignored is the fact that theprevalence of anti-competitive practices inmarkets hurt the poor more. A rich person wouldnot mind paying a dollar more for buying a goodbut for people living with less a than a dollar a daygetting value for money for every cent they spendis more vital. Individuals and families with lowerincomes have to spend a greater proportion oftheir income on goods and services, and therefore,

Economicpolicies

which affectcompetition

Competitionlaw

Competitionpolicy

+ =

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high prices arising from anti-competitive practiceswill have a greater impact on them than othersegments of the society1.

The market for agricultural products, forexample, is very often considered to be anexample of a perfectly competitive market. Thismight be the case for farmers as there are a largenumber of them, particularly in poorer parts of theworld. However, for consumers, the experience isdifferent. Farmers do not reach the consumersdirectly as there is a chain of intermediaries.Unfortunately, this set of intermediaries, espe-cially when they happen to be huge transnationalagribusiness groups and retail chains, does notalways work in a competitive manner. Thus, thefinal consumers of agricultural products do notget the advantage of a competitive market.Hence, a huge gap exists between the prices theconsumers pay, and the prices the primaryproducers receive2.

The intermediaries abuse their monopolisticdominance in the market for final products, whilstin the markets for primary products, they abusetheir monopsonistic dominance. A World Bankreport estimated that the divergence betweenproducer and consumer prices may have costcommodity-exporting countries more thanUS$100bn a year; and suggests that imperfectcompetition at the intermediary level is the keyfactor3. The case of the international coffeemarket is illustrative in this regard. According toa United Nations Conference on Trade andDevelopment (UNCTAD) report, annual exportearnings of coffee producing countries, in theearly 1990s, were US$10-12bn and global retailsales about US$30bn4. About a decade later,retail sales exceeded US$70bn, but coffee-producing countries received only US$5.5bn5.The main reason for this divergence is that

coffee distribution is a roaster-driven chain andfour big roasting companies control 45 percentof the global market (See the illustrativediagram). How much of these amounts do thepoor farmers growing coffee in Lao, Vietnam,and Cambodia deserve and how much havethey received so far for their contribution to thissupply chain?

Of the 1.2 billion people on earth who live inextreme poverty, approximately 75 percent liveand work in rural areas and about two third s ofthem draw their livelihood directly from agriculture.Thus one can hardly overestimate the issue of link-ages between market imperfections in agriculturalgoods and poverty. I would come back to thesedistortions in the supply chain again in an examplein Vietnam in subsequent parts.

(1)CUTS International (2005), Competition Regimes in the World – A Civil Society Report (Advance copy), edited by Pradeep S.Mehta. (2)Mehta, P., Nitya Nanda and Alice Pham (2005), Multilateral Competition Framework: In Need of a Fresh Approach, CUTSInternational, Jaipur, India. (3)Morriset J. (1997). Unfair Trade? Empirical Evidence in World Commodity Markets Over the Past 25 Years. Foreign InvestmentAdvisory Services (4)Consumer coffee firms contest this figure, stating that it includes the drink coffee sold across counters in shops, in a personalcommunication from Nestle’s.(5)“Commodities, Markets and Rural Development”, Roundtable Meeting organizeorganised by UNCTAD, April 30, 2003, NewYork (www.un.org/esa/coordination/ecosoc/hl2003/RT7%20summary.pdf).

(Adopted from Bill Vorley, “Food, Inc.: Corporate concentrationfrom farm to consumer” UK Food Group, 2003, London)

The global coffee bottleneck

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Coming to the 7Up2 project and thecompetition scenario in Vietnam. The 7Up2 project - “Advocacy and Capacity

Building on Competition Policy and Law in Asia” –is a two-year programme implemented by CUTSInternational, an India-based NGO, in Vietnam,Lao, Cambodia, India, Bangladesh and Nepal,with support from the State Secretariat onEconomic Affairs (seco), Switzerland, the SwissCompetition Commission (COMCO), and theDepartment for International Development (DFID),UK (www.cuts-international.org/7up2.htm).

The main objective of this project is to bringabout developments in competition law and policyand implementation performance in project coun-tries, viz. building up capacities of policymakers,law enforcers, civil society organisations,consumer groups, and other stakeholdersconcerned; advocating for the enactment of acompetition legislation where absent and the effec-tive implementation of any in place; to the ends ofbetter economic governance and development inthe integration and cooperation process.

The project is designed into two phases: Phase I - Research on the competition scenario

in project countries, which analyses the compe-tition regimes in project countries, where exists,and various socio-economic policies affectingcompetition.

Phase II – Advocacy and capacity building. Onthe basis of the research findings from Phase I,further advocacy and capacity building activitiesare to be undertaken towards the ultimate goalof building a healthy competition culture in allproject countries.

Until present, a comprehensive report on the“Competition Scenario in Vietnam” has beenprepared on the basis of the results of literaturereview and field research undertaken by countryresearchers at the Central Institute for EconomicManagement (CIEM), providing several insightsinto the situation in Vietnam vis-à-vis competition,in all aspects and problems. An AdvocacyDocument has also been prepared as a base forlaunching Phase II of the project. Several advo-cacy and capacity building activities have beendone with the National Assembly of Vietnam, theCompetition Administration Department (CAD) in

the Ministry of Trade and the Vietnam Standardsand Consumers Association (VINASTAS).

Briefly about some of our main findings oncompetition vis-à-vis the poor in Vietnam underthis project. Since the “Doi Moi” policy in 1986,competition has been infused into the economy,together with the liberalisation, privatisation andde-regulation process. Market institutions arebeing developed, and legal and regulatory frame-works for all types of economic transactions arebeing updated and completed. Most recent land-mark is the adoption of the Competition Law 2004,which starts to be effective from July 2005.However, more needs to be done if this youngcompetitive process is to achieve any of itsexpected outcomes, benefiting the poor, bringingin the excluded and resulting in economic devel-opment with equity for all.

Due to the private sector participation andcompetition from imported goods and services,Vietnamese enterprises are faced with morecompetitive pressures: they have to adopt bettertechnology, more efficient production andmanagement mechanisms, and of course reducethe profit margins they could have enjoyed asdominant or monopolistic enterprises prior toreforms. This ultimately leads to reduced prices,wider choice and better quality for the consumers.Various examples can be quoted in this regard,such as the case of sugar, telecommunications,motorcycles, pharmaceuticals, etc.

Nevertheless, monopolistic elements/tenden-cies remains in various industries and sectors ofthe economy. To make matter worse, restrictivebusiness practices (RBPs) and unfair trade prac-tices (UTPs), abuses of market power are quiteprevalent. Many have been reported by the localmedia, though no effort has been made to addressthem in a systematic manner or in a single studyfor common reference. The reportings, however,have generated considerable attention as well asawareness from the public. Unfortunately, due tothe absence of a competition law until recently inVietnam, and shortcomings in conceptual under-standing of the issues, those anticompetitive prac-tices have been regulated under many differentlaws and regulations and not treated with the justand necessary level of scrutiny. Many cases have

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escaped severe punishment by the State, andcontinue to harm the society as well as the overalleconomy, for example the case of beer, steel,pharmaceuticals, and telecommunications, etc6.

In addition, various types of power asymmetry(both domestic and international) exist, which:

(i) impede market participation by the poor,(ii) deprive the poor of access to affordable

commodities and services, and(iii) block sufficient interactions between the

producers and the consumers, resulting inbad deals for both groups. Vietnameseenterprises continue to be unable to thriveand gain profits on the global markets. Is thissimply a competitiveness problem or thereis some bottlenecks somewhere that needto be addressed?

Some key bottlenecks include:(i) incomplete competition and regulation

framework and underdeveloped marketinstitutions,

(ii) weak administration capacity and weak ruleof law,

(iii) market failures and anticompetitive prac-tices,

(iv) lack of information and/or information asym-metries.

Let me come to the conclusion of my presenta-tion by quoting a very small example of a distortionthat happened in the market recently, which,despite having quite an effect on the poor farmerin Vietnam, might have been overlooked by manyof us here.

Duckling Monopsony in Vietnam

Many poultry slaughterhouses in Ho Chi Minh City have been forced to close down their business recently since

they could not get any supply. Thousands of household in Long An district, Tay Ninh province, who used to supply

ducks to these slaughterhouses, now forced to sell their ducks to only the Huynh Gia Huynh De Company in Ho

Chi Minh City, are lodging their complaints.

The duck-breeding households’ complaints were against the decision of the Long An Veterinary Department

forcing them to sell their ducks only to the Huynh Gia Huynh De Co. According to the decision, farmers would not

be given transportation permits if they wanted to sell their ducks to any other businesses. Huynh Gia Huynh De

Co, therefore, could impose any price level for their purchases on the sellers.

Ms. Tran Thi My Le, owner of the Tan Thanh duck-breeding farmhouse based in the Tan An Commune (Long

An), said, “The decision of the of the Long An Veterinary Department instructing us to sell our ducks only to the

Huynh Gia Huynh De Co has caused us great price losses. We got around VND5000-10000 less for each kilo-

gram of duck sold to this company, as compared to the selling prices to other businesses.”

Other farmhouse owners in Tay Ninh province also lodged the same complaints, saying that the decision had

bestowed monopsonistic power on the Huynh Gia Huynh De Co, resulting in price loss for farmers. The current

selling price on the market was VND32000 per kilogram, while the Huynh Gia Huynh De Co only purchased ducks

from farmers at the rate of VND18000-20000 per kilogram. Therefore, for each duck whose weight ranges from

2.9 kilogram to 03 kilogram, the farmers would lose around VND30000-40000.

(6)For more detailed information on these anticompetitive practices, please see the various forthcoming publications underthe 7Up2 project, especially the Country Report and Advocacy Document mentioned earlier, and a series of e-newslettersproduced within the framework of the same project.

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The story not only signifies the distortions that anarbitrary administrative decision could cause to thecompetitive environment, but also exemplifies howthe power and information asymmetry in a supplychain can harm both the poor producers and theconsumers in the market in terms of prices.

Research work conducted so far under theproject has been severely limited by the absenceof well-documented evidence on anti-competitivepractices and abuses of market powers. To

address this issue and strengthen the voice ofindividual poor producers/ consumers who arevictims of such abuses, the role of the civil societyis a crucial element. The civil society can act asan advocate, a means to spread knowledge andinformation, monitoring enterprises’ competitivebehaviours and recording consumer grievances.They can also serve as a dialogue spacebetween consumers, the business communityand policy makers to address the concerns (Seethe following diagram).

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The story not only signifies the distortions that anarbitrary administrative decision could cause to thecompetitive environment, but also exemplifies howthe power and information asymmetry in a supplychain can harm both the poor producers and theconsumers in the market in terms of prices.

I will begin by noting the excellent work oncompetition policy in Vietnam that is being orga-nised by CUTS as part of the 7-Up 2 project, aproject that DFID is pleased to support. In particu-lar, I commend the fine contribution being made byAlice Pham of CUTS, who has just spoken.

What do we mean by ‘competition’? Astandarddefinition is that it is the process of rivalry betweenfirms that are striving to gain sales and to makeprofits. This sounds like self-interest, and it is, butthe effects generally benefit society. Effectivecompetition means that the most efficient methodsof production will be used, and that resources willgo to the products that society values most highly.There will be continuing incentives for innovationto increase productivity, and consumers will benefitfrom lower prices, better quality and a greatervariety of goods and services.

‘Competition’ and ‘competitiveness’ are notsynonymous, but firms are far more likely tosucceed in export markets if they operate withincompetitive domestic markets.

Competition and competition policy are oftenoverlooked as specific issues in discussions oneconomic development. This is somewhatsurprising, given the strong links that existbetween competitive markets and economicgrowth, and between growth and poverty reduc-tion. The question of competition policy iscertainly relevant to the still-evolving role ofmarkets in Vietnam, and to the possibility of

making markets work better for the poor.

There have been recent positive indicationsfrom some major international organisations thatrecognise the contribution competition andcompetition policy can make. The ‘WorldDevelopment Report 2005’, published by theWorld Bank, emphasised the importance ofcompetition on investment decisions, and on inno-vation, new products and new technology. ‘AsianDevelopment Outlook 2005’ released by the AsianDevelopment Bank in April this year, emphasisedthat effective competition policies are needed “ifAsian countries are to maintain their high rates ofgrowth and employment”.

While, as in all fields, there is a range of views onthe role of competition policy, the assessment bythe Nobel Prize winning economist Joseph Stiglitzthat “strong competition policy is not just a luxury tobe enjoyed by rich countries” is significant.

For markets to work well, there must be compe-tition between suppliers. The existence ofcompetition in markets, strengthened by theapplication of competition policy and law, helpsthe poor in two broad ways. One is through thelink between competition and growth, and the linkbetween growth and poverty reduction. The otheris that competition law provides a mechanism forinvestigating, and acting on, specific competitionproblems in markets.

The benefits possible from the existence ofcompetitive markets are large. However, it is notsustainable, or socially equitable, that there shouldbe no limits to the power of suppliers, whetherdomestic or international. While most markets workwell most of the time, the exceptions can be veryimportant, and particularly so for the poor. There areseveral possible reasons for market failure, and

Discussant CommentsJohn PrestonCompetition Policy ConsultantInvestment, Competition and Enabling Environment TeamDepartment for International Development, London

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competition policy and law cannot provide remediesfor all of these causes. What competition law cando is to provide the means to investigate and actagainst problems that result from anti-competitiveactions by firms. Such actions include: collusion between competitors, such as

through price fixing, sales territory restrictionsand bid-rigging

the misuse of market power by monopolists orlarge suppliers, and

undertaking mergers and acquisitions thatreduce the number of competitors in a market.

As Alice Pham noted earlier, the poor can beaffected by the absence of competition in marketsas consumers, as the operators of small busi-nesses and as the recipients of governmentprovided services.

a) As consumersStudies in a number of countries in Asia and

elsewhere have recorded the existence of cartelsin the supply of basic items such as sugar, breadand flour. ‘Bundling’, which involves retailerscompelling buyers to purchase items they mightnot want, or might be able to buy more cheaplyelsewhere, in order to be allowed to purchaseitems that they do want, has been reported forcountries that include India.

b) As small business peopleSmall business people can be prevented from

competing fairly if there are unnecessarily expen-sive or time consuming processes to go throughto obtain permission to enter in a market. Smallbusiness people can also be harmed if they arenot able to obtain the inputs they require on fairterms, or if there are unreasonable restrictions onthe ways in which they can sell and distributetheir products.

c) As recipients of government-providedservices

Bid-rigging over tenders for government

procurement appears to be widespread. Somereported examples include the supply of poly-thene piping for the distribution of drinking waterin Nepal, and school building construction inChina. Bid-rigging pushes up the prices thatgovernments must pay, thereby reducing theservices they are able to provide from theirinevitably constrained budgets.

Competition policy in the broad sense includesall of the public polices that can impact on compe-tition in markets. It implies the need to recognisethe impact that some Government regulationsmight have on the ability of firms to enter markets,or to compete on fair terms with other suppliers.Competition policy is relevant to regulations andpolicies at all levels of government – national,provincial and municipal. It is relevant also todecisions on privatisation and to methods ofprocurement by governments. The breadth ofthe policy measures that can impact on contribu-tion creates the need for competition advocacy,and for actions to help develop a ‘culture ofcompetition’ within a country. When a culture ofcompetition exists, the possible impact of policymeasures and business actions on competition inmarkets forms a natural part of decisions bygovernments and by firms.

Because competition law is a general law ofgeneral application, its use can increase the trans-parency of business arrangements.

Vietnam has a new competition law, and theCompetition Authority is moving to make it fullyoperational. But the existence of the law, and thework of the Competition Authority, need to besupported by broad recognition of the role ofcompetition at all levels of government, by thebusiness community, and by consumers. Suchsupport is justified by the contribution thatcompetition policy and law can make to thewelfare of consumers, and particularly the poor,in Vietnam.

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This current Markets for the Poor Project ofADB is co-financed by the UK Department forInternational Development (DFID). As part of itsstrategy for supporting social and economic tran-sition of Vietnam, DFID is exploring whether thereshould be a second initiative on markets for thepoor when the current project finishes at the endof 2006. The below draft note outlines the contextfor this consideration and the issues that might befurther looked at and developed. The note wasdiscussed during the week but has not beenapproved by DFID management.

Questions and comments are welcome andshould be addressed to Nguyen Thi Ngoc Minh,DFID Vietnam Economic Adviser, at nn-minh@dfid.gov.uk

Basic InformationThe draft Socio-Economic Development Plan

(SEDP) for 2006-2010 commits Government tosustaining high growth and poverty reductionthrough continued transition to a market-basedeconomy. The development of more completemarket institutions and the improvement of theprivate sector investment climate will “unleash”the economic potential of people, creating jobsand driving pro-poor growth according to thePlan.

Market and other exchange systems are criticalbecause of their resource allocation role thusproviding the linkage and transmission mecha-nisms that enable the poor to participate inprocesses of economic growth. Making marketswork better for the poor (M4P) is an analyticalconcept developed by DFID and adopted by otherdonors (ADB, SIDA) aiming to accelerate pro-poorgrowth by improving those market outcomes thatmatter most to the poor, as producers andconsumers of products and services.

An existing US$2 million project co-financed withADB and AusAID is due to be completed inDecember 2006. A recent Output to PurposeReview is positive about the impact of the project,suggesting the need for follow up activities througha second phase but recommending a differentinstitutional home to that of a donor office to ensureeffective impact on government policies.

The Purpose of M4P phase 2 would be to “Helpensure economic markets develop and functionin ways that yield benefits to poor people asVietnam becomes more integrated into the globaleconomy”. The objective of the new phase wouldbe to establish a multi-donor financing facilitysupporting research and advocacy work toaddress the obstacles for pro-poor marketoutcomes. This will help establish, more clearlythan in the existing SEDP, and strengthening thelink between growth and the reduction of povertyin people’s lives.

Particular areas of interest include public-private partnership for service provision, localbusiness-government dialogue, RegulatoryImpact Assessment, and the continuation ofsuccessful areas of the existing project e.g. insti-tutions and value-chains analysis. Ways ofworking would include i)research to understandoperations of markets that are directly relatedto the lives of the poor, their participation of inthose markets and necessary changes to bringout more pro-poor market outcomes; andii)communication and advocacy to inform andpromote policy changes. In this process, localresearch and lobby skills will be built for impac-ting on policies.

Strategic fitM4P is the second strand of DFID’s strategy to

support Vietnam’s economic and social transition

Draft Concept NoteMaking Markets Work Better for the Poor – Phase II Nguyen Thi Ngoc Minh DFID Vietnam Economic Adviser

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to a market economy in which government’s roleis seen as that of regulation and facilitation andthe private sector’s that of greater involvement inproduction and service provision. The first strand,Beyond WTO, focuses on building governmentcapacity to respond to issues directly related topro-poor global integration. The second, M4P, willfocus on the direct operation of markets that affectpro-poor growth, thus addressing the enablinginvestment environment and the role of privatesector players, which is one of the three pillars ofa modern society namely the state, the privatesector and the civil society.

As a multi-donor facility it will contribute signifi-cantly to donor harmonisation. It will be one of afew strategic initiatives of DFID Vietnam for capac-ity building in long-term issues of pro-poor growthand market led equitable development, thus fittingwell in DFID Vietnam Vision.

Markets for the Poor is a DFID initiated conceptthat has been welcome by a number of donors buthas not been taken up fully by any. The ADB wouldhave a constraint in financing and leading acountry TAproject in this area, which is not directlylinked to an investment loan. A regional TA like thecurrent one would not have to be linked to a loanbut the regional dimension was found by the OPRas not effective as originally thought.

Other existing initiatives by other donors inprivate sector development do not addressdirectly the issues of fundamental operations ofmarkets in pro-poor ways. DFID should there-fore lead in this key area of the pro-poor growthagenda and will have to invest certain amount oftime in the design. However if a project isapproved the management burden on DFIDlater will not be heavy as it would be a flexiblefacility run by local partners.

Cost estimate and Duration£60,000 for design and £2 million for at least 5

years. Co-financing from other donors will be iden-tified during design.

Significant Design/Policy/Implemen-tation issuesKey appraisal issues will include: lessons to be

learnt from M4P phase 1; establishing closerlinks to the policy processes through a steeringcommittee to ensure coverage of issues acrossa range of government agencies; the design ofincentive structures to promote sustainablecapacity development in research and in theprivate sector lobbying for policy change; thesimplification of implementation and co-financingmethods; scope for influencing other donors’policies and programmes; ways of strengtheninglinks with other projects e.g. CUTS for competi-tion policies, MPDF and wider EU SME supportAction Plan, and suitable management arrange-ments outside DFID to reduce the administrativeburden.

Risks include: insufficient linkage with andcorrespondingly little influence on the policyprocesses; and possible overlap with otherdonors’ activities in a crowded field of support forprivate sector development. Mitigatory factorsinclude: the new M4P approach to promotingprivate sector development in a pro-poor way;Government commitment to developing marketinstitutions for high growth and to pro-poor devel-opment which will help obtaining acceptance ofthe concept; broad consultation to define amechanism to ensure better linkages with poli-cies and a harmonised and flexible demand-driven approach in suppor-ting private sectordevelopment to avoid duplication and ensurerelevance to the needs.

Consultation process Government agencies, researchers, civil

society organisations, NGOs and donors will beconsulted.

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Timetable to project approval

ActionDevelopment of CNApproval of CNStakeholder consultation

Design processFinalisation of designApproval/Signing of Financing AgreementsProject Start-up

By whomTeam, Donors and VN partnersDFIDV, Head of Office DFID HQ, government, privatesector, researchers, other donorsConsultants/ DFIDVTeam and VN partnersDonors/MPI/other agenciesM4P staff and VN partners

By whenOct – Nov 05Nov 05Dec 05 – Jan 06

First half of 06September 06October 06Late 06

Public-Private Day Report

What have we learned about the use of markets and private sector providers

for service provision in developing countries?

Vietnam: Towards Universal Social Protection:

Private Mechanisms To Reach The Poor Policy Issues And Research Implications

Subsidies in agriculture extension for poverty reduction - Agricultural Extension

for the Poor sub-group

Harnessing Market Power for Rural Sanitation: Rural Poor as customers

and not beneficiaries

Public Private Participation in Solid Waste

& Septage Management

Participation of private sector in regular septic tank cleaning service

in Da Nang city

Public Private Day

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132

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Public Private Day Objectives

1. To obtain a better understanding of howpublic (and donor) interventions can mosteffectively leverage the resources of theprivate sector in order to achieve greaterdevelopment impact.

2. To be updated on recent thinking in this areaas well as on experience within Vietnam.

3. To share experience in this area with peersand develop practical recommendations forfuture actions.

Theme: M4P as a tool to leverage thedevelopment impact of the private sector

Private firms are the major drivers of sustain-able growth and employment in Vietnam. A keychallenge for M4P is to define suitable publicinterventions that encourage private firms toextend the “frontier” of their activities so that thepoor are increasingly involved. One aspect iswhere firms engage the poor as employees or assuppliers in a value chain. Another involves thepoor as customers buying services and prod-ucts. The particular historical circumstances ofVietnam mean that Government is oftenassumed to be the “natural” provider of infra-structure, social protection and other essentialservices. But continued rapid growth in theeconomy and limitations on the ability of thestate to finance and provide the range of serv-ices needed suggests the time is right toconsider alternative approaches. Various public-private arrangements offer the possibility ofsupplementing limited Government budgets withprivate sector investments and market-basedinterventions. Service provision using the privatesector may potentially be more sustainable andcustomer focussed. But there remain unresolvedissues concerning property rights, the allocationof risk and return, corruption, the legal status ofpublic-private arrangements and independent,means of dispute resolution. To investigatethese questions in more detail, the day is dividedinto two broad parts:

1. Using innovative market-basedapproaches to enhance the outreach ofservice delivery to the poor

2. Public-Private arrangements to leverageprivate investment in the infrastructurethat matters to the poor – PPP and the provi-sion of pro-poor infrastructure

Success indicators

The day will have been successful if participantsfeel:

1. better informed about the role of public-private arrangements in development

2. stimulated to develop or improve networkingand collaborative working;positive about the contribution they canmake over the coming year.

Summary of the main points of discussionon Public Private Day

Expectations about the relative roles of thestate and the market are still uncertain inVietnam. The nature of Vietnam’s transitionmeans that these roles are in a state of changeand re-definition. In some sectors there arepolitical limits on private sector providers andthe reliance on the market as the means of allo-cating resources.

An entry point for M4P may be to concentrateon the “business model” for service provisionrather than the ownership structure. Forexample, looking at issues such as who pays,who provides, the coverage of the poor, therange of choices available to poor consumersand the extent of cost recovery.

M4Pneeds to sell the concept of leveraging theprivate sector to extend the outreach of serv-ices and improve their effectiveness.Interestingly, experience suggests that privatesector involvement in e.g. urban wastemanagement actually improves the perform-ance of existing public providers through a

Public-Private Day Report

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competitive effect. Well designed publicprocurement can help private sector providersemerge and develop in certain servicemarkets.

More attention needs to be paid to regulatoryaspects of market performance e.g. throughthe implementation of competition policy. Ina move to more private sector participation inservice provision the pro-poor impactsshould be monitored e.g. can small enter-prises win service provision contracts? Arethe services extended to the poor as well asthe rich?

M4P is not about the promotion of free marketsper se but rather about determining the mosteffective interaction between public and privatesector entities. For example, how can subsi-dies be used intelligently to maximise develop-ment impact without undermining the market?.

Subsidies best are deployed “upstream”where they do not affect prices in a market.Examples are the removal of systemic insti-tutional or infrastructural bottlenecks andconstraints to market development, or marketbuilding and facilitation. But price reducingsubsidies in the market itself may underminelonger-term market development.

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This paper provides a number of exampleswhere markets and private sector providers play arole in service provision. In this context, ‘markets’is to some extent a code-word for all of the systems(socio-cultural, etc.) within which poor people live.

This Paper has four main parts: A. Measures that governments can and should

take to allow markets to work for the poor; B. Evidence that markets are already working

for the poor; C. Examples of interventions by development

agencies to make markets work for the poor;and

D. Examples of interventions by large compa-nies serving the poor profitably.

The examples shown tend to question thecommon perceptions that: The private sector provides for the rich, and the

public sector for the poor” The poor prefer would prefer free or highly

subsidised services; cheap, commercially-provided services are low in quality”

Services such as health, education are mainlyfinanced by the public sector”

Market development requires a different way ofoperating; it is a much broader agenda than, forexample, helping poor people to find markets forthe goods and services that they can produce(although it would typically include that). It is aboutadopting new models that serve the poor within

their current realities; in particular, it is about part-nership and win-win situations, more than the useof public funds to reach pre-determined goals thatare deemed to be desirable. It is necessarily aboutaccepting that public funds can achieve far more,if they leverage commercial dynamics rather thandisplacing them.

A. Measures that governments can take tomake markets work for the poor

Traditionally, governments have intervened invarious ways to serve the poor, for examplethrough the following mechanisms: Subsidised provision of a service or good

through a parastatal or government agency Funding to others, including private companies,

to provide the service or good Transfer to the poor the means to buy the

service or good, for example through vouchers Obligation (or exertion of moral pressure) on

existing providers to cross-subsidise the exten-sion of the service/good

Establishment of an industry-specific levy fund tosubsidise expansion of access where it iscurrently unviable

Most of these examples risk displacing marketinitiative, rather than building on it, or encouragingit. They have evolved partly as they can be imple-mented in the short term, and can generatesubstantial profile. They can also be targeted veryprecisely. However, they typically represent

This paper is an edited version of “Making Markets Work for the Poor- Insights from International Cases”prepared for the Centre for Development and Enterprise, (www.cde.org.za) in August 2005 as part of theCommark project in South Africa. We gratefully acknowledge the cooperative spirit shown by Commark(www.commark.org) in allowing us to make use of this paper.

What have we learned about the use of marketsand private sector providers for service provisionin developing countries?Jim Tanburn

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approaches adopted in wealthy countries, wherevalue for money is not always the highest priority;this Paper considers the case of developing coun-tries, where governments are often not wellresourced. Given such resource constraints, whatshould government priorities be?

One part of the answer must relate to keyelements of infrastructure, where governmentexpenditure can address 'bottlenecks' and allowindustries or sectors to develop in pro-poor ways.However, there is general consensus now thatgovernments in developing countries should placevery high priority on streamlining the regulatoryframework and 'rules of the game' - to make formal-isation easier (or, in some cases, practicable) andmore attractive, and so to promote participation inthe formal market economy.

Hernando de Soto argues that the main reasonthat the poor remain poor -and that the informalsector remains informal -is that they cannotformalise their assets. The two essential elementsin this diagnosis are heavy business regulationand weak property rights, which are particularproblems in poorer countries.

The World Bank’s “Doing Business” report for2005 finds that: Businesses in poor countries face much larger

regulatory burdens than those in rich countries.They face 3 times the administrative costs, andnearly twice as many bureaucratic proceduresand delays associated with them. And they havefewer than half the protections of property rightsof rich countries.

Heavy regulation and weak property rightsexclude the poor from doing business. In poorcountries 40% of the economy is informal.Women, young and low-skilled workers are hurtthe most.

The payoffs from reform appear large. A hypo-thetical improvement to the top quartile of coun-tries on the ease of doing business is associatedwith up to 2 percentage points more annualeconomic growth.

Thus, it is not so much a question of whatgovernments might need to do. But more a caseof streamlining the regulatory environment forwhich the government is directly responsible. The

2005 report gives a long list of "simple solutionsand where they have worked", although unfortu-nately, few of the poorest countries are listed there.

The most important aspect of market develop-ment in urban property is undoubtedly the cost offormalisation. De Soto cites the following examples: Registering a small garment workshop on the

outskirts of Lima took 289 days and cost $1,231;obtaining legal authorisation to build a house onstate-owned land took six years and elevenmonths, requiring 207 administrative steps in 52government offices; to obtain a legal title took728 steps

Authorisation to build a dwelling on urban landin the Philippines took 168 steps, involving 53public and private agencies and taking 13 to 25years

Acquiring and legally registering a lot on state-owned desert land in Egypt required 77bureaucratic procedures at 31 public andprivate agencies

Obtaining a lease to settle on government landtook 65 bureaucratic steps, requiring onaverage more than 2 years. To buy the landrequired another 111 bureaucratic hurdles, and12 more years.

Poor people pay much more to occupy andkeep hold of urban property, than do their morewealthy compatriots; simply put, it is expensive tobe poor, as it is much more difficult to establish anddefend any legal rights to property. This meansthat many additional costs are incurred. Severalinitiatives are therefore under way to address thisfrom the regulatory point of view; few, however,have yet demonstrated great impact. In manycases, the legal processes take several years ofcontinuous work, and practically speaking are outof the reach of anyone who does not have eitherreserves or good connections.

Another way in which Governments interact withmarkets is as customer. In Dar es Salaam,Tanzania, for example, the contracting out of solidwaste collection and street sweeping by theMunicipality to small enterprises and CBOsrapidly created more than 1,500 jobs. Coverage ofwaste collection increased from a 5% to morethan 40%, with a much higher level of servicereaching the poor.

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B. Evidence that markets are alreadyworking for the poor

Education is highly valued by poor people, andgovernments have therefore placed high priorityon achieving wide outreach with free or subsidisededucation. In practice, though, it has been difficultfor governments in developing countries to meet

the aspirations of their citizens for universal educa-tion of adequate quality. As a result, there is oftenextensive provision of education on a commercialbasis., There are many ways in which the privatesector can and does play active roles in the provi-sion of education; the potential roles are also quitedifferent, as Table 1 below makes clear :

There are some indications that poor peoplemay at times prefer to pay for private education,than access the cheaper government provision.This may be because private education providersare often operating in a highly competitive market,and they are therefore under great pressure toprovide a quality service. Similarly, commercialproviders are often very decentralised in theirmanagement and operations, leading to a highlevel of flexibility and innovation. Private providersmay be more dispersed than government schools,and therefore more accessible to poor people.

Training, like education, has for a long timebeen considered a duty of government to provide,or at least to subsidise. Again, though, it has oftenbeen difficult for governments in developing coun-tries to fund the recurring costs of vocational train-ing in particular, to an adequate standard. Andagain, there is some indication that poor peoplewould prefer to access training from commercialproviders; reasons given include: the trainer is often known to the trainee, so giving

some assurance of quality and post-trainingsupport

the training is in the local language the training is available in formats that work for

the trainee (e.g. evening classes, shortsegments)

commercial training providers often have closerlinks with potential employers post-training; forexample, some Vietnamese training providersreport that they can assure their trainees ofemployment on successful completion of theircourse

commercial providers are under some competi-tive pressure, so are more likely to offer a flexi-ble and innovative training product of quality

In telecommunications, and specifically inmobile telephony, there is abundant evidence thatcommercial providers can and do serve very largenumbers of relatively poor people, given the rightregulatory environment. Technology has beendriving telecommunications in recent years, butthe policy framework provided by the national

Table 1: Key Roles for the Respective Sectors in Education

Public Sector Overcoming market failures Where needs are likely togo unmet because of market failure or where socialbenefits or services exceed the private benefits Providing for the poor, rural and under-servedProvision of a safety net for citizens that cannot paymarket prices, either through providing servicesdirectly or by creating incentives for the private sec-tor to undertake the task Implementing appropriate regulations to ensure qual-ity Setting, monitoring and accrediting standards,disseminating information to guide choice Controlling costs Arguably a necessary task wherethere is little competition, no parallel public provision,or where consumers are poorly informed

Private Sector Improving quality In needing to maintain and developtheir businesses, they tend to innovate and transmitbest practice Improve customer service Better customer focus – anassertion supported by the number of poor parentsthat send their child to a private school even when apublic school is available at lower cost

Improve management standards Businesses can actas a partner in transferring important managementskills Developing new services An essential role wheredemand is expanding or the patterns of demand arechanging

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government must be supportive if beneficialchanges can be realised. In particular, govern-ments must resist the temptation to shield undulythe established telecoms provider (which is oftenstate-owned) but to allow sufficient competitionbetween established and new providers. Thisapplies particularly to mobile telephones, wherecommercial providers have shown themselvesvery willing to invest, given the right signals fromgovernment.

Specifically, the technology of second genera-tion (2G) mobile telephones offers many attrac-tions to people in very small enterprises: Pay-as-you-go requires little up-front investment

and no credit history; the owner can limit theliability if the phone is lent to others, and calls canbe received at no charge

No fixed place of business, literacy or particularlanguage ability are required

If there is competition between providers, theytend to adopt low-margin, high-volume businessmodels; the technology itself is very low-cost

The opportunity to leapfrog protected landlineproviders, and to reach rural areas that arecurrently not served at all has motivated manymobile providers to invest heavily, even in envi-ronments that look very unpromising (e.g. post-conflict). The technology of secure payment bySIM card is opening up many exciting possibilities

Similarly, examples exist in municipal affairs,and specifically in water supply, where commercialproviders are often serving poor people who arenot being served at all by public providers. Thegovernment's stance is either actively hostile, ordiscriminates by default against commercialproviders; despite this, the achievements in LatinAmerica especially are impressive.

C. Interventions by development agenciesto make markets work for the poor

There are few examples of successful inter-ventions to up-grade the education and trainingmarkets as a whole. Development Banks inparticular have implemented training voucherschemes in Latin America and elsewhere,increasingly with the rationale of up-grading the

whole training market on a sustainable basis. Inpractice, however, it is difficult to pick up marketdevelopment outcomes, often for the followingreasons: Voucher schemes are generally popular with

both voters and funders, so have often contin-ued for many years; their effects on the marketwill only become clear once funding hasstopped

Voucher values have often been high (up to 90%of the cost of the training course) and as a result,their market development effects have probablybeen reduced

In some cases, lack of transparency andbureaucratic delays have reduced marketoutcomes substantially

In markets which were initially very thin, much ofthe voucher value may have been absorbed inincreased prices for training services

There is a trend to use donor funding toanalyse whole market systems, and to select themost appropriate interventions, whatever thosemight be. One example given is the strengthen-ing of commercial radio stations in Uganda intheir ability to reach and serve people in theinformal sector with information and advice; thestations are also acting as a forum for discussionabout issues of concern to informal sector oper-ators. All programming is supported by commer-cial sponsorship, and has an estimated 7 millionregular listeners.

However, this rigorous approach to marketdevelopment has not yet been rolled out in manycases, except where it was achieved under adifferent banner in the past. The AppropriateTechnology approach, for example, had manywell-publicised failures, but a few spectacularsuccesses -which invariably built on marketdynamics to reach millions of people in sustainableways. Most of these successes were related toagriculture.

**Editor’s note: The example of the marketbased provision of rural sanitation services by IDEis featured in the paper and was the subject of aspecific case study during M4P week and isfeatured as a separate paper in these proceedingsrather than part of this summary.

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One of the most famous success stories fordevelopment in recent years has been in micro-finance (MF); many new micro-finance organisa-tions have been built on indigenous systems forensuring debt repayment. In the process, theseMFIs have reached millions of poor people withcredit facilities. While delivering some impressivenumbers, this approach existed alongside theexisting market for financial services, and onlyinteracted with the financial system at the nationallevel when it was forced to do so. The traditionalmicro-finance approach was, strictly speaking,therefore not sufficiently comprehensive orsystemic to be termed a MMW4P approach.

More recently, however, the MF 'industry' hasrealised that access to credit is not sufficient, andthat a full range of financial services is required; forsome, access to savings facilities, for example, ismore important than access to credit. This has ledto growing interest in insurance, transactionbanking (especially remittances) and other finan-cial products. Now, there is a further shift emerg-ing, led partly by CGAP, towards looking at entirefinancial systems, or markets -a MMW4Papproach. There is relatively little documented onthis approach yet, however.

D. Examples of interventions by largecompanies serving the poor profitably

Apart from what public funds might achieve,another option is for private companies to identifyprofitable opportunities to serve the poor, that no-one had previously noticed. This may require inno-vative business models that are radically differentfrom current operating practices. Some of theexamples presented here, therefore, are the workof commercial enterprises, that have found prof-itable ways to serve the poor.

This approach is currently being championed byC.K. Prahalad, WRI and others, on behalf of verylarge companies; meanwhile many smallercompanies have been doing this for many years.Prahalad's book cites many case studies, and twoare summarised in this Paper. One example, inurban property, involves a Mexican cement manu-facturer, which has dramatically expanded itssales by facilitating savings clubs among poor

people; the savings are used to build house exten-sions, for which the company provides technicaladvice and a full range of building materials.

A well known example is GrameenPhone, ajoint-venture telecom company set up inBangladesh by Grameen Bank –with capital fromthe Norwegian company Telenor and loans fromdonors – to provide mobile telephony to itssubscribers. It provides a wide range of productsin line with this mandate, many of which are bene-fiting poor people. In particular, it has launched a“Village Phone Programme”, which since 1997has provided some 45,000 telephones to 39,000villages in Bangladesh, bringing access to the tele-phone networks to some 70 million people.

The formula is simple: a subscriber – usually awoman, hence the label “Village Phone lady” –borrows around $350 from Grameen Bank andrepays the loan by selling phone services to herfellow villagers who, usually for the first time, canenjoy the economic and social benefits of telecom-munication contact with the outside world.

The Village Phone Programme produces fairreturns on GrameenPhone’s investment: althoughVillage Phone operators account for only 3.5% ofthe company’s total subscriber base (of over 1.3million) they provide 15% of its total grossrevenues. With 700 base stations GrameenPhonealready offers coverage to 49 of the 64 districtswhich make up Bangladesh. The companyproposes to expand the number of base stationsto 800 so that it can offer coverage to the entirecountry.

In 2002 GrameenPhone was the largest sourceof FDI in Bangladesh; as of May 2003 thecompany had invested over US$ 230 million in theBangladeshi economy. GrameenPhone is thesecond largest corporate taxpayer in Bangladesh,having paid US$ 284 million in taxes between itsinception in 1997 and May 2003.

Another example is of an Indian commoditytrader which has installed internet terminals in11,000 villages so that farmers can sell directly tothem, bypassing the previous government monop-oly and ensuring better prices for them. Both

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examples, however, involve individual companieswhich have been willing to adopt new businessmodels, and are reaping the benefits while improv-ing the lives of the poor. These companies havenot addressed the market as a whole, but areincluded here since they point to future potential onan even larger scale, if other companies are willingto follow their example.

Conclusions

This topic remains emotive, as many peopleinvolved in development feel that, in the longterm, basic services ought to be provided bygovernment, essentially without charge for thepoorest of the poor. Meanwhile, however, mostgovernments of developing countries do not havethe resources to meet these expectations in theforeseeable future, and the market has steppedin to fill the gaps. Sometimes this provision is ofcourse of low quality, or even provided in waysthat are fraudulent.

Overall, though, there is evidence that poorpeople actually prefer provision by the privatesector, where that is possible, for a range ofreasons. In addition, there is much evidence thatthe private sector could do a better job in somecountries and sectors if the policy and regulatoryenvironment was more conducive. There aretherefore very persuasive arguments for looking atMMW4Pmore rigorously than before, to bridge thegap between what ought to be, and current reality.Markets probably offer the only realistic option inthe near future to reach millions of people withessential services.

In this perspective, governments have a crucialrole to play in providing an enabling environment -ensuring fair competition, setting the rules of thegame and enforcing them effectively. This shouldbe an easier role to play than some of the inter-ventionist strategies that governments currentlyimplement; such strategies have been highlyeffective in reconstruction scenarios, followingdisasters and wars. In more stable situations ofsteady growth, however, they probably do notprovide adequate value for money; governmentswould be better able to achieve their goals byenabling whole markets to develop.

The examples here show that, in some disci-plines (such as telecommunications), the expert-ise in developing service markets is already muchin evidence. Regulation has succeeded in attract-ing investment, incorporating social developmentgoals and ultimately supporting open competition,thus bringing prices down to low levels. However,in other disciplines (such as vocational training),the task of market development has only recentlystarted. There is clear potential for more trainingcourses, advice and exchange of knowledge onservice market development between disciplinesand countries, particularly for government staffcharged with policy-making and regulation.

Controversially, it has been noted that countrieswith robust democracies have not necessarilyachieved greater poverty alleviation than countriesthat are not democratic32. It is argued that demo-cratically-elected governments are forced to takea short-term view, and are therefore often obligedto offer subsidised assistance to strategically-important sub-groups of voters (which may notinclude the poor). The longer-term and moresystemic perspective, for example around thedevelopment of markets, can be lost in thiscontext.

Until now, it has been more difficult for develop-ment agencies to see the opportunities inherent inmarket development. They are, by nature, govern-ment-supported administrations with short timehorizons, looking for predictable and measurableresults. Their strategies are only gradually shifting,for example from rolling out methodologies thathave been 'proven' elsewhere, to more entrepre-neurial and creative strategies. Typically, interven-tions now start with a wide range of pilot activities,only a few of which are expected to bear fruit; stafflearn by doing. Over time, the promising interven-tions are fine-tuned and expanded, while thosethat are not working are stopped.

One area worthy of much more exploration isthat of profitable opportunities for the privatesector, and how development agencies can facil-itate their exploration. Some are experimenting,for example, with shared investment in the risk fora limited period of time (typically 18 months). Afterthat time, the intellectual property generated by

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the experience becomes public, and the private-sector partner has to innovate on its own in orderto stay ahead.

Ultimately, it is not a question of advocating'trickle-down' or other charged concepts, but ratherof reaching the maximum number of people, giventhe resources available. Many entrepreneurs arekeen to play their part in their local society, and theimage of unbridled, and even exploitative capitalismis not generally appropriate. More importantly, givingpoor people choices as consumers also enhancestheir dignity, in a way that handouts and charitynever can. Those working in the various disciplinestouched on in this Paper are discovering commonground, in their work to enhance and expand exist-ing service provision by the private sector, alreadyin evidence in many developing countries.

Preferences

- H de Soto, The Mystery of Capital: Why capital-ism triumphs in the West and fails everywhereelse, Bantam Press / Black Swan, 2000.

- Doing business in 2005; Removing obstacles togrowth. World Bank, IFC and OUP.http://rru.worldbank.org/DoingBusiness/ p 3.

- S Bakker, J Kirango and K van der Ree, Public-Private Partnership for Sustainable EmploymentCreation in Waste Management, Dar esSalaam. Paper submitted by ILO to theWorkshop "Planning for Sustainable andIntegrated Solid Waste Management", Manila,the Philippines, 2000. p 2.

- M Latham, A handbook on private sector partic-ipation in education: A review of possible waysand means, 2002. Centre for British Teachers /World Bank, www.cfbt.com p 13.

- M Latham, A handbook on private sector partic-ipation in education: A review of possible waysand means, 2002. Centre for British Teachers /World Bank, www.cfbt.com p 16.

- J Tooley and P Dixon, Private Schools for thePoor: ACase Study from India, 2003. Centre forBritish Teachers www.cfbt.com pp 10-11.

- H Alderman, P Orazem and E Paterno, SchoolQuality, School Cost, and the Public/PrivateSchool Choices of Low-Income Households inPakistan, 1996. Policy Research Department,The World Bank

- M Lockheed and E Jimenez, Public and PrivateSecondary Schools in Developing Countries,1994. Draft World Development Report 2006,World Bank, Washington DC, USA. Box 7.2, p7.10. www.worldbank.org/wdr2006

- M Hileman and J Tanburn, The Wheels of Trade:Developing Markets for Business Services,Intermediate Technology Publications, London,2000. p 62

- A Suzuki, Business Training Markets for SmallEnterprises in Developing Countries: What dowe know so far about the potential? InternationalLabour Organisation (ILO) SEED WorkingPaper number 32, 2002. www.ilo.org/seed

- J Tanburn and A Didar Singh, ICTs andEnterprises in Developing countries: Hype orOpportunity? International Labour Organisation(ILO) SEED Working Paper number 17, 2001.www.ilo.org/seed p 13

- GrameenPhone revisited: Investors reach out tothe poor, © OECD 2004

- J Tanburn and R Kamuhanda, Making ServiceMarkets Work for the Poor: The Experience ofUganda, Business Services MarketDevelopment Project, DFID/ILO, Kampala 2005.

- www.mtnvillagephone.co.ug

- World Telecommunication Development Report2003, International Telecommunications Union,Geneva. http://www.itu.int/ITU-D/ict/publications/wtdr_03/material/Chap4_WTDR2003_E.pdf

- C. K Prahalad, The Fortune at the Bottom of thePyramid, Wharton Business School 2005.

- T M Solo, Independent Water Entrepreneurs inLatin America: The Other Private Sector inWater Services, World Bank, 2003

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- S Fries, T Lysenko and S Polanec, TheBusiness Environment and EnterprisePerformance in Transition: Evidence from aLarge-Scale Survey. European Bank forReconstruction and Development, London,September 2004. p 21

- New Designs for Water and SanitationTransactions: Making Private SectorParticipation Work for the Poor, Water andSanitation Programme / Public PrivateInfrastructure Advisory Facility, May 2002. p 30-31 . http://www.wsp.org/publications/global_newdesigns.pdf

- Doing Business with the Poor: A Field Guide,World Business Council for SustainableDevelopment, 2004 www.wbcsd.org

- J Frias and N Mukherjee, Private SectorSanitation Delivery in Vietnam: HarnessingMarket Power for Rural Sanitation, Water andSanitation Programme, Jakarta, February 2005.www.wsp.org pp 1-6

- F Schneider, Size and Measurement of theInformal Economy in 110 Countries Around theWorld, Johannes Kepler University of Linz,2002.

- See www.echoupal.com

- V Kurien, India's Milk Revolution. Investing inRural Producer Organizations Institute of RuralManagement, India, 2004. http://www.world-bank.org/wbi/reducingpoverty/docs/FullCases/India%20PDF/India%20Milk%20Rev olution.pdf

- http://www.nddb.org/achievement/ataglance.html

- A Varshney, University of Michigan, inMeasuring Empowerment: Cross-disciplinaryPerspectives, edited by Deepa Narayan, WorldBank, 2005.

- See various examples on www.bdsknowl-edge.org; also M Hileman and J Tanburn, TheWheels of Trade: Developing Markets forBusiness Services, Intermediate TechnologyPublications, London, 2000.

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I. TOWARDS AN INTEGRATED PUBLICPRIVATE SOCIAL PROTECTION SYSTEM- The Challenge of Universal Coverage

A social protection system is the set of formalmechanisms, public and private, that seek toinsure individuals or households against largeshocks to their well-being. The death of a bread-winner, his or her inability to work in old-age,serious health conditions and large fluctuations inincome (like those resulting from natural disasters,health shocks or job loss) are obvious examplesof such shocks. In traditional societies, house-holds cope with these shocks on their own. Largefamily sizes, multi-generation households, andstrong kinship networks are among the informalmechanisms used to pool risks in traditional soci-eties. Economic development, with its associateddemographic transition and rural-urban migration,puts these mechanisms under stress. A socialprotection system aims at bridging the gapbetween the declining effectiveness of traditionalmechanisms and the expanding demand forprotection against shocks.

Part of this gap is typically filled in by thegovernment, through publicly run old-agepension systems, survivor and disability benefits,health insurance programs and, in some cases,unemployment insurance schemes. Thesesystems often operate through the labor market,reaching households with formal sector workersamong their members. Government interven-tions such as emergency programs for areas hitby natural disasters could also be counted in thisrespect. Part of the gap is also filled in by profit-oriented enterprises, which offer specific financialproducts to cope with shocks (life insurance,property insurance, health insurance, savingsproducts for old-age). However, the experience

shows that the typical insurance products offeredby the private sector only reach individuals andhouseholds with high incomes. This is also truein the case of Vietnam.

There are several reasons why the poor tendto be excluded from access to private insuranceproducts. High administrative costs usually leadto sizeable insurance premiums, that poorhouseholds cannot afford. (Siegel, Alwang andCanagarajah, 2001) The relative complexity ofpremiums, benefits and contingent payments isoften difficult to grasp for individuals and house-holds with limited financial knowledge. Morefundamentally, the insurance market is charac-terized by problems of asymmetric information(Rothschild and Stiglitz, 1976). It is difficult forprivate enterprises to distinguish between high-and low-risk customers, and when in doubt itcould be safer for them to abstain from providinginsurance. It is equally difficult to distinguishbetween customers who are honest and thosewho might be tempted to abuse the system (bypretending to be sick, for instance). Because thepoor are more exposed to adverse shocks, andhave fewer assets that can be used as guaran-tees, market failure is bound to affect the poormore severely.

Governments usually provide social protectionunder the form of schemes based on inter-generational solidarity, whereby contributions arelevied on one population group, such as activesalaried workers, to pay the social insurancebenefits of another, such as older workers whohave retired. The pay-as-you-go social securitysystem that Vietnam currently has in place is anexample of this approach. In other cases, govern-ments seek to protect individual savings for oldage through specific regulations, supervision and

Vietnam: Towards Universal Social Protection:Private Mechanisms To Reach The Poor PolicyIssues And Research ImplicationsPaulette Castel

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guarantees. The fully-funded system envisionedin Vietnam’s draft social security law falls in thissecond category.

While governments in many developing coun-tries have set up social protection systems, reach-ing the poor has proved difficult and universalcoverage often remains a distant hope.Mandatory insurance schemes typically fail due tolimited enforcement capacity, especially in thepresence of large informal sectors. Voluntaryinsurance schemes do not attract the poor, who donot assess their old-age and health risks properly,or cannot focus on the long run, given how hardthey are struggling to make ends meet in the shortrun. These problems are compounded by frequentweaknesses in the design of the systems, in termsof access (who can participate), nature of thebenefits, availability of physical infrastructure (likenearby offices), or long-term sustainability (Lundand Srinivas, 2000).

2. Private Social Protection Mechanismsfor the PoorHow to bring access to insurance to the poor is

an issue at an early stage of discussion. Aconsen-sus has yet to emerge, and much more researchis needed. Most of the current experiences inusing private mechanisms rely on local initiatives.But two broad schemes, micro-insurance groupsand credit unions, deserve especial attention.These schemes tend to be independentlymanaged by local groups of mainly self-employedworkers (including farmers) who pool resources toreduce individual risks.

These schemes are mainly used to address aspecific set of shocks to household wellbeing.Many micro-insurance schemes cover unexpectedexpenses such as healthcare treatment andfuneral costs. They also provide some form of lifeinsurance, by including provisions on the cancella-tion of loan repayments if the borrower dies. Thepremium, in this case, takes the form of additionalfees on borrowers. Credit unions provide emer-gency loans for consumption purposes.

Micro-insuranceMicro-insurance groups can be found in many

countries. However, there are few examples

where these groups provide a large range of insur-ance services. Despite their integrated framework,and frequent external support, the coverage ofinsurance services by this type of institutionremains disappointingly low. Coverage is definedin this case as the ratio between the number ofinsured and the number of potential participants.Several explanations have been proposed toexplain this outcome. It could be that the paymentof insurance premiums generates too much stresson low-income households, and excludes thepoorest. This is despite the fact that premiums tendto be heavily subsidized, thanks to the externalsupport. Frequent delays in processing the claimsand disbursing the benefits also reduce the bene-fits from being insured. The willingness to partici-pate is further diminished because benefits areoften rather low in relation to the level of the actuallosses.

Micro-insurance groups are also financiallyvulnerable. Pricing insurance products is morecomplex than determining interest rates.Importantly, the pattern of transfers in any insur-ance mechanism is such that financial reservesneed to be first built, and then properly managed.Lack of expertise in these relatively sophisticatedareas, combined with the small scale of their activ-ities, explains why most micro-insurance institu-tions are in a precarious financial situation.

Better design of micro-insurance products,greater cooperation between these institutions andcommercial insurance providers, and largeraccess to insurance and financial managementexpertise could improve the efficiency of the micro-insurance institutions, as discussed below. Theexperience shows, however, that among thepotential participants in micro-insurance groups,only the relatively better-off get involved. Thepoorest of the poor still cannot afford to do so, orare simply unwilling to participate.

Emergency loansCredit unions, and mutual self-help groups are

the most widespread micro-finance institution.However, most of them provide access to credit tosmall business, rather than addressing socialprotection needs. Experiences of credit unionssupporting low-income earners for consumption

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purposes are well documented in developed coun-tries (Tensey, 2001).

In developed countries, credit unions for low-income groups operate as financial intermediaries,providing both credit and insurance services(McGregor and McKillop, 2003). All membersmust make a deposit prior to being admitted to thecredit union. In case of a bad shock, members caneasily have access to a “soft” loan, with a relativelylow interest rate. The prior deposit can be inter-preted as an insurance premium. But unlike morestandard insurance services, access to loans bycredit unions is not restricted to a specific type ofrisk. Moreover, interest is paid on deposit as longas the emergency loan is not claimed. Comparedto other insurance mechanisms, the credit unions’ability to cover bad shocks broadly could be betteradapted to the needs of the poorest.

In developing countries, credit unions are usuallyan extension of informal local savings-and-loansgroups, whose activities have been widenedthrough the development of banking services orthrough linkages with commercial banks. Accessto larger sources of funds (sometimes at subsi-dized interest rates) and safe-saving services facil-itate the mobilization of their members’ resources.This, in turn, makes it possible to both reduce thecost of borrowing and rewards members’ savings.Overall, micro-finance institutions have proved tobe effective in expanding access to credit to thepoor. In particular, their strong networks and pres-ence in the field reduce the transaction costsrelated to customer screening and loan recovery.

Emergency loans, however, are only part of thecredit unions’ business. The constitution of thejoint-liability groups which are the key to reduce therisk of default in the case of productive loans mightbe more difficult to establish in the case of emer-gency loan. It is possible to take advantage of thefact that emergency loans are extended within thesame community where the credit union operates.To the extent that the overall access to credit by thecommunity would be compromised by repaymentdifficulties, there is a strong incentive for commu-nity surveillance. In the end, the success of anemergency loan scheme depends, also, on thestrength of community bonds.

3. Design Features to Improve Coverageamong the PoorThe experience with micro-insurance mecha-

nisms and emergency loans in developing coun-tries has provided useful lessons regarding thedesign of their key features. It also has implica-tions regarding the role government should play.

Insurance productsThe risks typically covered by micro-insurance

groups concern unexpected expenditures andunexpected losses of income. Examples of theformer are funeral expenditures (to a limit), healthexpenditures (partial coverage of hospitalizationand specific interventions) and property losses(partial coverage of the reparation of roofs, wallsetc.) The latter include life insurance (for naturaland accidental death) and incapacity to work(either temporary or permanent).

The design of the package of services provided istherefore a key determinant of the success of micro-insurance initiatives. The package must be adaptedto the needs of the targeted population, while beingcompatible with the financial capacity of the insur-ance provider. Households’ willingness to insuredepends on their assessment of the frequency of therisks they face and the size of the loss they mightendure. But due to the limited savings capacity ofthe poor, premiums need to be small. However,small premiums can only sustain low levels of bene-fits, especially when the frequency of the coveredevents is relatively high, as in the case of healthinsurance. Unless a large subsidy is available, it ispreferable to focus the insurance products on riskswhich have a relatively low frequency, a relatively lowcorrelation among customers, and large welfareimpacts. The death or incapacity to work of a bread-winner is an example of such risk.

Other risks, such as health shocks, are lesswell-suited for a micro-insurance package. Awell-functioning insurance scheme for health expendi-tures might involve transaction costs which are fartoo high for a locally-based micro-finance institu-tion. Effective risk pooling, whereby a large portionof the insured population is healthy, could helpbring the costs down. But such pooling might bedifficult to attain for insurance mechanisms oper-ating at very local levels.

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Insurance managementSetting an insurance scheme requires specific

financial expertise. To determine the level ofpremiums it is necessary to estimate thefrequency of the risks that are being insured, andthe magnitude of the losses associated with badshocks. To profitably invest and manage theresources collected, to assess and process theclaims, and to rapidly disburse the benefits, somefinancial expertise and administrative capacity isrequired. Such expertise is seldom available atlocal levels. This explains why most providers ofmicro-insurance have turned to commercialinsurance companies for the management oftheir insurance schemes. This is the so-calledpartner-agent model, where the formal insurancecompany assumes the financial risks and themicro-finance institution serves as a “match-maker”, to provide lower-cost links between theparties (Siegel, Alwang and Canagarajah, 2001).

Although setting micro-insurance schemes mayrequire to turn to commercial insurance providersfor their technical and financial expertise, themicro-finance institution must be more that asimple intermediary. Commercial insurancecompanies are not familiar with the characteristicsof the poor, and therefore do not have services andproducts well-suited to their needs. Furthermore,anecdotal evidence suggests that the paperworkof commercial insurance companies overwhelmslow-income (usually low-educated) customers,whereas the process to assess claims can beunfriendly. The role of the micro-finance institu-tions is, therefore, more than to simply guaranteethe insurance provider an adequate collection rate.Micro-finance insurance groups must get activelyinvolved in the business: from the design of theinsurance scheme, to the assessment of theclaims and the delivery of the benefits.

Government regulationDespite the apparent similarities between micro-

insurance and micro-credit, these are two entirelydifferent businesses. Moreover, the needs forregulation vary across different stages in the lifecycle of these mechanisms. Examples of fraudand corruption are not uncommon, and experi-ences with self-supervision have usually not beensuccessful. Prudential supervision can, further-

more, lead to increased access to externalfunding, more professionalism, higher quality serv-ices and broader coverage.

Nationwide guidelines could facilitate the coor-dination of efforts across micro-insuranceschemes and, eventually, their financial coopera-tion. Those guidelines must be well-integrated withthe regulations applying to commercial insuranceproviders, since their participation is often required.But nationwide regulation can also deter thecreation of new micro-finance institutions. Amongthe most often cited examples are the level of theminimum start-up capital and the credit-ratinghistory requirements. Micro-finance institutionshave trouble abiding by these regulations. Theirgeographical concentration and lack of collateral-ized portfolios do not help either. Their activities aretherefore limited, as is their access to resources.These problems call for the use of more flexiblesafeguards in the supervision of these institutions(GTZ,2004).

Because of stringent regulations, many micro-finance institutions are not authorized to takesavings deposits, which in turn limit their ability tolend. Widening the scope for emergency loans forthe poor requires a growing focus on safe bank-deposits in their communities. Access to safe-saving instruments is an effective way for the poorto smooth their consumption in the event of badshocks. Another obvious advantage of savings isthat, by definition, their mobilization is not affectedby the usual adverse selection and moral hazardproblems. However, safe-savings deposits raisespecific regulatory issues, especially in relation toconvenience and security (Armendariz de Aghionand Murdoch, 2000).

It follows that the provision of insurance mecha-nisms for the poor must be organized in a way thatcombines self-help organization at the communitylevel, appropriate government guidelines toencourage its scaling up, and proper incentives forcommercial financial intermediaries to participate.While both community organization and financialintermediaries can be seen as private sectormechanisms, they may fail to provide a broadcoverage of services to the poor, in a sustainableway, in the absence of coordination and regulation

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efforts by the government. At a minimum, adverseshocks are dealt with through social assistanceand targeted programs. A second layer, involvingsmall-scale insurance schemes and emergencyloans, is likely to emerge as well. But in theabsence of risk pooling and appropriate partner-ships with commercially-oriented financial institu-tions, it is bound remain small in terms of cover-age, and frail in terms of sustainability. A soundregulatory environment is needed to support themove to a broader system, in which larger-scalecommunity-based organizations team up withcommercial banks and insurance companies tooffer micro-insurance products and emergencyloans to the poor. However, it is mainly the better-off among the poor who will benefit from this thirdlayer, with social assistance remaining the mostcommon social protection mechanism for thepoorest among the poor.

Which of these three levels of social protectionfor the poor a particular country will attain dependson a series of factors. First, there is the willingnessof poor households to buy micro-insurance prod-ucts. Such willingness is conditioned, amongother things, by the nature and severity of theshocks they are exposed to. Second, there is thelocal capacity to develop community-basedgroups and offer micro-insurance products in afinancially viable way. The extent to which shocksare correlated across households at the local levelmatters in this respect. Finally, there is the willing-ness of the government to coordinate and supportcommunity-based organizations, as well as thesoundness of the regulatory framework for theparticipation of commercial banks and insurancecompanies.

4. Vietnam’s Strategy towards UniversalSocial ProtectionThe government of Vietnam considers the

expansion of the social protection to the entirepopulation as a priority. The ComprehensivePoverty Reduction and Growth Strategy (CPRGS)refers to the willingness “to conduct social insur-ance policies with the aim of expanding coverageof social insurance to all the parties as well as todiversify the voluntary safety net system”.Particular interest is attached to the developmentof local insurance programs built “on a community

basis for the informal sector following the principleof group insurance (at minimum household insur-ance)” (Government of Vietnam, 2004). Access toproperty insurance, including livestock and crops,is mentioned explicitly. More broadly, the CPRGSarticulates the government’s willingness to reducethe vulnerability of disadvantaged households,combining both traditional and innovative solu-tions. Expanding the coverage of social insurance,and diversifying the “voluntary safety net” areamong the latter.

Regarding the expansion of social insurance tobroader population groups, the government iscurrently revising the Social Security Law, in linewith the strategy expressed in the CPRGS. In thesame context MOLISA is considering the possibil-ity of creating a voluntary pension fund for farmersand the self-employed.

Despite being in principle mandatory, the cover-age of the formal social security system amongprivate sector wage earners is currently very low,especially among those who are employed byhouseholds businesses. About 20 percent of allworkers in private enterprises, households enter-prises included, were registered with VSS in 2002(Castel, 2005). Several reasons can be cited toexplain this outcome. Among them, many workersbelieve that current consumption, housing invest-ments or their children’s education are better alter-natives. On the employers’ side, the attempt toreduce taxes contributes to this situation. The newSocial Security Law, if coupled with a significantimprovement in the management of VSS and itsrelationship with workers and employers, couldlead to an increase in coverage. Also, as theeconomy develops and integrates with the worldeconomy, private sector firms will become increas-ingly formal. These changes will take time,however. Meanwhile, many workers employed bythe private sector may remain without formal socialprotection coverage.

The creation of a pension fund for the self-employed and farmers will provide these groupswith the opportunity to save for their old-age. Atpresent, MOLISAdoes not appear to be consider-ing products for health, sickness, invalidity and lifeinsurance coverage for these groups. If the new

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system takes hold, and develops well, newfeatures will probably be introduced. But in themeantime, publicly-provided social security cover-age will remain limited for the self-employed andfarmers.

Arange of insurance and micro-insurance prod-ucts are currently available in Vietnam (ILSSA,2004). Overall, the sector is growing rapidly, but itis doing so from a low base. After all, the law oninsurance business was only passed in 2000. Themost dynamic part of the sector caters to upper-income groups. But there are some interestingexperiences in servicing low-income groups aswell. Besides the 18 insurance companies in oper-ation, several micro-finance organizations andmass organizations have developed programssuch as aid funds, hunger and calamity reserves,and cash allowances for war invalids, families ofwar martyrs, revolutionary and veterans. Not allthese activities qualify as insurance, however.

Life insurance Among the insurance companies currently oper-

ating in Vietnam, Baoviet proposes productsrequiring the payment of very low premiums. Forlife insurance, the premium can be as low as VND15,000 per person per year for young adults under31 years of age. This is for a 5-year term policyinsurance with a value of VND 5 million in case theinsured person dies. Mass organizations (inparticular the Women’s Union) and sometimesmicro-finance institutions are used as brokers. Lifeinsurance coverage among participants in micro-finance schemes should help reduce the risk ofdefault on credits when a borrower dies.

Health insurance Voluntary health insurance funds were estab-

lished in 2003. At present all these funds are semi-public institutions, operating through insurancegroups, in which all Vietnamese citizens can partic-ipate. Representatives of the insurance groups(such as mass organizations, heads of schools,etc.) directly collect the premiums and buy theinsurance cards for all participants in the fund. Thelevel of premium varies depending on the funds.In a few cases, the number of the members in thehousehold is a key determinant. The funds coverall primary-health costs (prevention, health check

etc.) and charge a co-payment of 20 percent onother health-related expenditures.

The extent of coverage among low-incomegroups is presumably low, due to the relativenovelty of the scheme (ILSSA, 2004).

Limited coverage among low-income groupsmay also be related to the difficulties experiencedin having access to quality health-care service,even when insured. This is because governmentprices the cost of health-care service interventionssubstantially below the actual cost of treatment.Consequently, health-care providers consider thatthey are badly reimbursed for their services. Thissituation causes difficulties for patients to accesshealth-care services if they cannot afford the addi-tional out-of pocket expenses (see World Bankand others, 2004, for an evaluation of these expen-ditures). Moreover, due to the limited budget of thehealth sector, the services provided by localhealth-care centers can be of poor quality. This, inturn, reduces the incentive to enroll, especiallygiven that insurer may not favor the health-carefacilities which are preferred by beneficiaries.

The poor (defined as those having a poor house-hold certificate), ethnic minority people, andhouseholds living in mountainous areas or inextremely difficult communes, are in principlecovered by Health Care Funds for the Poor(HCFP). Set by provincial People’s Committees,HCFPs can either buy health insurance cards fortheir members or directly reimburse the costs ofhealth-scare services supplied to them by hospi-tals and other public providers. In the first case, thepremium must be at least equal to VND 70,000 perperson per year. The State budget subsidizes 75percent of that amount. The premium roughlycorresponds to the average cost of treatment(excluding medicine and health tools) of thepoorest group of the population, including thosewho did not seek any treatment (Hauff and Knop,2004). The funds are authorized to get additionalresources from local budgets and national andinternational organizations and individuals.

According to VSI, there were roughly 3.9 millionbeneficiaries in 2004 (another 6.4 million peoplehave voluntary health insurance). But coverage

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could expand even further. Some poor people donot seem to be aware of their rights. The proce-dures for reimbursement appear to have over-whelmed others. Also, some among the poor areexcluded. Among them are migrants who are notofficially registered in the district they live, in andpoor households who are not eligible simplybecause of the low poverty line used by MOLISAuntil recently. The revision of the criteria used tomeasure poverty, and the re-definition of benefici-aries of the HCFPs, should help expand coveragefurther in the years to come. But the gap betweenthe actual cost of treatment and the resourcesprovided by the health insurance funds mayremain a disincentive for providers to deliver healthservices to the poor (UNDP 2005).

Emergency loansThere are very few studies on the provision and

the impact of emergency loans in Vietnam. Thesurvey of insurance and micro-insurance productsconducted by ILSSA (2004) found that interest-based lenders, pawnshops and two savings-and-loans funds of the Women’s Union (in Nghe Anand HCMC) were providing emergency loan serv-ices. Besides these cases, a detailed study ofhouseholds of the Duyen Hai district in Tra Vinhprovince also indicates that it is common for poorhouseholds to borrow in-kind. Rice is indeedborrowed in small quantities from friends and rela-tives, but small traders also lend rice through theshortage period leading up to the harvest(Pairaudeau, 1999).

Among the Government's large-scale creditprograms, the Social Policy Bank (VBSP) hasexplicitly included emergency loans among itsproducts. VBSP was established in 2003, toconsolidate in a single institution the numerouslending programs that were directed to low-incomegroups (the Bank for the Poor, People’s CreditFund and others). Households can borrow up toVND 10 million in order to cover living expendi-tures. No collateral is required. VBPS has appar-ently stopped the People’s Credit Fund demandthat borrowers buy shares before being entitled totake loans (like in the framework of a credit union).Borrowers must instead be certified by thePeople’s Committee of their commune and be partof a credit and saving group (World Bank, 2003).

These two requirements aim at reducing the riskof default, but they also considerably increase thetime it takes to get a loan. As a result VBSP hasprocessed very few emergency loans.

Accordingly, it has been argued that thedemand for emergency loans would be betterserved through grand-based social welfareprograms rather than through subsidized credit(World Bank, 2003, UNDP 2005). At present,however, the National Targeted Programs do notprovide any significant cash-support to poorhouseholds (even those with certification). Onlya half of the claimants of Pre-harvest StarvationProgram actually receive help (UNDP, 2005).Proposals to further develop these programs arein preparation (MOLISA, UNDP, 2005).Meanwhile, movements in and out of poverty willremain frequent. The provision of emergencyloans might be an effective tool to protect near-poor families from falling into poverty whenconfronted with serious health shocks or workincapacity.

II. ISSUES FOR FURTHER RESEARCH INTHE CASE OF VIETNAM

The overview in the previous section suggeststhat a private-public partnership for the provision ofsocial protection coverage to the poor is feasiblein Vietnam. The government is making a deter-mined effort to expand the coverage of formalschemes. Publicly- and privately-run mandatoryand voluntary insurance schemes are emerging.Some public institutions are already mandated tofocus on low-income groups. Baoviet has insur-ance products with very low premiums, the HCFPsand the newly created voluntary health insuranceprograms bear promise, and VBSP could expandits emergency loan business. On the private sectorside, grassroots organizations, NGOs and micro-finance institutions have been experimenting withmicro-insurance and emergency loans.

1. The demand side

In the absence of subsidies, private participationin the provision of social protection can only takeplace if households are actually willing to buy insur-ance products. It is therefore necessary to esti-

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mate how much households would be willing topay in order to be protected against bad shocks.This information would allow a better understand-ing of households’ attitudes towards insurance. Itcould be used to assess demand, from the privateproviders’ perspective, and to consider whethersubsidies would be justified, from the govern-ment’s perspective.

Frequency of bad shocks Statistical data can be used to measure the

frequency of adverse shocks affecting poor house-holds, such as disability (with incapacity to work),illness and death of a household member. GSOestimates mortality and morbidity rates among theVietnamese population at the national level, andalso for some specific provinces. Informationabout disability is more scattered. However,mortality and morbidity rates are not available bylevel of income. International experience indicatesthat disability, illness and death probabilities arehigher, other things equal, among the poor. Low-income groups tend to live in less well-sanitizedareas, where outbreaks of contagious diseasesare more frequent. But this is not consistently trueacross all diseases. Data from Vietnam show thatthe proportion of the population that is ill andunable to work is twice as high among the poorand near-poor as it is among the rich (World Bankand others, 2003). Since a vast majority of thepoor and near-poor works in agriculture, fishing,transportation and construction, it is also likely thatthe incidence of accidents and work injuries is alsohigher than for the population at large. Whenconsidering providing micro-insurance for the low-income groups, it is therefore necessary to beready to cope with a higher frequency of adverseshocks. But how much higher is still unclear, anda first important research question concerns themagnitude of this gap.

Regarding emergency loans, the relevant infor-mation to gather concerns the mechanismsthrough which how low-income earners might bepushed into poverty. A systematic comparison ofincome and consumption dynamics among poorand near-poor households would be needed forthis purpose (Blundell and Pistaferri 2002,Skoufias and Quisumbing 2003). It would thus bepossible to assess the capacity of households to

smooth consumption when confronted withincome shocks. But this type of evaluation isdemanding, as it requires observations on theconsumption and income of the same householdsover time.

Consumption lossInsurance is not the only available mechanism

to protect household consumption againstadverse shocks. Other coping strategies includegetting additional labor income, borrowing, sellingassets and getting support from the community.How much households value insurance productsdepends on the fraction of the undesired changesin consumption which can be off set through theseother mechanisms and on how much householdswould like to substitute insurance to these othermechanisms. In the end, the issue boils down toestimating the elasticity of substitution betweenformal insurance and each of the other copingmechanisms.

It was long accepted that community risk-sharing (mostly among villagers) was wide-spread and quite efficient among low-incomeearners in developing countries. But recentevidence calls into question this received wisdom(Murdoch, 2002). It appears that some shocksand some individuals are not well covered byinformal, community-based coping strategies.Whether this is so in Vietnam is another relevantempirical issue. Family and community ties areagreed to be particularly strong. According to theVHLSS, about four fifths of all households hadreceived some remittance income in 2002,usually from relatives living abroad or fromhousehold members who had migrated within thecountry (World Bank and others, 2003). In astudy on access to credit by a sample of HCMChouseholds, it was observed that many in thepoorest quintile had benefited from support byfriends and relatives, and had access to interest-free loans from mass organizations (Nguyen ThiMai, 2004). But friends and relatives were animportant source of credit for the top quintile,accounting for 50.8 percent of their borrowing,compared to 17.1 for the poorest quintile.

Detailed analysis of community-based supportsuggests that mutual assistance among house-

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holds is an imperfect substitute for insurance.Mutual assistance operates through repeatedinformal transactions based on reciprocity, requir-ing a mix of gifts and interest-free loans. As aresult, these transactions are confined to narrownetworks of friends and relatives (Fafchamps andLund, 2003). These networks may not have thesame efficiency among high- and low-incomepopulation groups. In Vietnam, a large share of thehouseholds surveyed in various HCMC districts in2001 effectively got help from relatives and neigh-bors. However, high-income households weretwice as likely to get help as low-income house-holds (Van Ngoc and Tran Tam, 2004).

To assess the extent of community-based risksharing in Vietnam, it would be important to betterunderstand the nature of existing social networks,and especially the role of migration. It would alsobe advisable to identify which kind of adverseshocks elicit community support, and which onesdo not. Learning about the concentration of finan-cial, labor, input and output transactions within andbeyond villages seems to be an interestingapproach in this respect (Udry and Conley, 2004).

It is argued that the most important risk-copingmechanism for the poor, by far, is self-insurance(Murdoch, 1999). But this is a particularly costlymechanism, as it involves no pooling of risk acrosshouseholds. Given that low-income earners havealmost no financial assets, they can smoothconsumption through the sale of livestock hold-ings, grain stocks, consumer durables or tools. Allof these options entail efficiency losses. The alter-native is to borrow, but the lack of collateral makesthis option very onerous. Empirical studies haveconsistently found that households are reluctant inselling livestock in response to shocks (Kazaingaand Udry, 2004). The costly nature of self-insur-ance suggests that the poor should be willing torely on genuine insurance. Research could there-fore focus on estimating the overall capacity of self-insurance of poor households, and their willing-ness to replace this copying strategy with thepurchase of insurance products.

In practice, the willingness to buy insurance canbe assessed through direct surveys of low-incomegroups, designed so as to elicit the value they

attach to various hypothetical insurance products.The actual behavior of households who haveaccess to specific insurance products can also beused to infer how their characteristics influencetheir decision to purchase such products. A moreanalytical line of work involves using this informa-tion to assess, from a public economics perspec-tive, whether the subsidization of particular insur-ance products, or particular household types,would be warranted. And how much it would cost.

2. The supply side There are important analytical issues related to

the supply of micro-insurance products or emer-gency loans and, more broadly, to the organizationof the market. The experience of the existing,small-scale micro-finance organizations and self-help groups can be used to assess what deter-mines their chances of success or failure. In thiscase, the focus of the research has to be on theorganizational arrangements, financial situationand overall performance of suppliers. Other rele-vant questions refer to the prospects to scale upexisting arrangements, extending beyond theirfrequently narrow community basis. In this case,collecting household views, either through struc-tured interviews or through focus group discus-sions, could be a good starting point.

Various organizations actually offer insuranceproducts (and, more exceptionally, emergencyloans) to low-income groups. But little is knownabout their accessibility and use by poor house-holds. Information could be gathered on theawareness of potential beneficiaries regarding theproducts offered, their premiums and benefits, theprocedures for processing claims, and the overallcustomer service. This information, in turn, couldhelp determine whether lack of participation is dueto limited information, or rather the reflection of adeliberate choice.

More generally, it would be important to assessthe extent to which low-income households actu-ally understand insurance mechanisms. It is widelybelieved that their understanding is partial.Experience show that poor households havetrouble accepting that occasional participation isnot effective, or that benefits in the event of a bad

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shock are not simply proportional to the premiumspaid. Confusions of this sort can create mistrust ininsurance products, and discourage low-incomehouseholds from purchasing them. Evaluatingthe need to educate the targeted population is,therefore, an important first step (Brown, 2001).

REFERENCES

- Armendariz de Aghion B., and J. Murdoch,2000: “ Microfinance beyond group lending”.Economics of Transition, volume 8, p.410 – 420.

- Basu P., and P. Srivasatava, 2005: “Scaling-UpMircofinance for India’s Rural Poor” PolicyResearch Working Paper 3646, World Bank

- Beegle K., R. Dehejia and R. Gatti, 2003: “ChildLabor, Crop Shocks and Credit Constraints”.NBER working paper 10088, November.

- Blundell R., L. Pistferri L and I. Preston, 2002:“Partial insurance, Information andConsumption Dynamics” Institute for FiscalStudies Working Paper 02/12

- Brown W. (2001): “Microinsurance: the Risks,Perils and Opportunities – a Guide through theQuestions to address before developing aproduct. Adraft copy of an article to be publishedin the Small Enterprise Development Journal.

- Byass, 2003: “Patterns in mortality in Bavi,Vietnam 1999-2001” Supplement toScandinavian Journal of Public Health 62,October.

- Conning J. and M. Kevane, 2003: “Why isn’tthere more Financial Intermediation inDeveloping Countries?”. World Institute forDevelopment Economics Research, DiscussionPaper No. 2002/28, June.

- Devarajan S. and J. Hammer,1999: “Public -Expenditures and Risk Reduction” PolicyResearch Working Paper 1869, World Bank

- Dupre D., 2001: “Accident at Work in the EU1998-1999”. Statistics in Focus, Eurostat

- Fafchamps M. and S. Lund, 2003: “Risk-sharing

networks in rural Philippines” Journal ofDevelopment Economics 71, p.261-287.

- Government of Vietnam, 2002: “The compre-hensive poverty reduction and growth strategy(CPRGS)”, Hanoi.

- GTZ, 2004: “Supervision and Regulation ofMicroinsurance” report from Financial SystemsDevelopment http://www.yearofmicrocredit.org/docs/Microinsurance_Regulation.pdf.

- Guiso L. and Paiella M., 2001: “Risk aversion,wealth, and background risk” Discussion PaperSeries Centre for Economic Policy Research.

- Haggerty and T. Reid, 2002: “EpidemiologicalData on Health Risks in the Philippines” in SocialReinsurance a new approach to sustainablecommunity health financing”, ed. By Dror D. M.and A. Preker, ILO-World Bank.

- ILSSA, 2004: “Risks Management FinancialProducts Available in Vietnam”. Hanoi, June2004.

- Jalan J. and M. Ravallion, 1997: “Are the poorless well insured? Evidence on vulnerability toincome risk in rural China”, Research PolicyWorking Paper, World Bank, June.

- Kazianga H. and C. Udry, 2004: “Consumptionsmoothing? Livestock, insurance and drought inrural Burkina Faso” Economic Growth Center,Center Discussion Paper 898, University of YaleNovember .

- Lund F. and S. Srinivas, 2000: “Learning fromExperience: A gendered approach to socialprotection for workers in the informal economy”ILO, STEP, WIEGO.

- McCarty A., 2001: “Microfinance in Vietnam: asurvey of schemes and issues” Department forInternational Development, Hanoi.

- McCord M., J. Isern and S. Hashemi, 2001:“Microinsurance: A Case Study Of An ExampleOf The Full Service Model Of Microinsurance-Provision Self-Employed Women’s Association

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(SEWA)” a report for MicroSave – Market-ledsolutions for financial services, February.

- McGregor P. and D. McKillop, 2003: “CreditUnions and the Supply of Insurance to LowIncome Households” n.152 Royal EconomicSociety Annual Conference.

- Morduch, J., 1999: “Between the Market andState: Can Informal Insurance Patch the SafetyNet?’, World Bank Research Observer, Vol.14,No.2, August, pp.187–207.

- Morduch J., 2002: “Consumption smoothingacross space testing theories of risk-sharing inthe ICRISAT study region of South India” WorldInstitute for Development Economics ResearchDiscussion Paper No. 2002/55, June.

- Nguyen Thi Kim Chuc and others, 2003: “PublicHealth in Bavi, Vietnam: a collaborative project”Supplement to Scandinavian Journal of PublicHealth 62, October.

- Nguyen Thi Mai H., 2004: “The poor and theiraccess to credit” in Poverty alleviation, migrationand urbanization Ho Chi Minh City in compara-tive aspects, Vietnam Academy of SocialSciences, and Southern Institute of SocialSciences February.

- Nguyen Xuan T. and others, 2003: “Theeconomic burden of unintentional injuries: acommunity-based cost analysis in Bavi,Vietnam” Supplement to Scandinavian Journalof Public Health 62, October.

- Paraideau N., 1999: “Who wins? Who loses?Microfinance in Duyen Hai District. Tra VinhProvince. Oxfam GB.

- Rothschild M. and J. Stiglitz, 1976: “Equilibriumin Competitive Insurance Markets: An Essay onthe Economics of imperfect Information”.Quarterly Journal of Economics, November:29-650

- Siegel P., J. Alwang and S. Canagarajah, 2001:“Viewing Microinsurance as a Social RiskManagement Instrument” Social Protection

Discussion Paper Serie 116, World Bank June.

- Skoufias and Quisumbing 2003:”ConsumptionInsurance and Vulnerability to Poverty” FoodConsumption and Nutrition Division DiscussionPaper 155, International Food Policy ResearchInstitute.

- Tansey C., 2001: “Community DevelopmentCredit Unions: An Emerging Player in lowIncome Communities”. Capital Xchange , TheBrookings Institution Center on Urban andMetropolitan Policy.

- Udry C and T. Conley T., 2004: “Social Networksin Ganha” Economic Growth Center, CenterDiscussion Paper 888, Yale University.

- UNDP, 2005: “Beyond HEPR: AFramework forintegrated National System of Social Securityin Viet Nam”. Policy Dialogue Paper 2005/1,Hanoi.

- Van Ngoc L. and Tran Tam D., 2004: “Socialnetwork and status attainment in the life of city-dwellers” in Poverty alleviation, migration andurbanization Ho Chi Minh City in comparativeaspects, Vietnam Academy of Social Sciences,and Southern Institute of Social SciencesFebruary.

- World Bank, 1994: Averting Old Age Crisis:Policies to Protect the Poor and promoteGrowth. Oxford University Press, WashingtonD.C.

- World Bank, 2004: “Financial sector policyissues note: Vietnam Bank for Social Policies”World Bank, Hanoi.

- World Bank and others, 2003: “Poverty”.Vietnam Development Report 2004, Joint DonorReport to the Vietnam Consultative GroupMeeting, Hanoi December 2003.

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RationaleDifferent views on subsidies

Subsidies create dependencies Subsidies distort power relationships Subsidies are needed to protect the poor Subsidies are a short term instrument to help the

poor gain market integration

Use of subsidies Subsidies are very common in Vietnam

- Promoting export- Sustaining SOE’s- Alleviating Poverty

Different forms- Free inputs- Reduced transport cost- Reduced irrigation fees- Guaranteed prices

Why subsidies in agriculture?Subsidies in agricultural sector are often

intended to change the traditional croppingpatterns and practices and to promote diversifica-tion in agricultural production (Beckman)

Do farmers really need subsidies? Farmers have indicated to prefer credit opportu-

nities over free inputs (UNDP – farmer needsstudy)

Effects of subsidies in Vietnam Positive

- Rapid and widespread production improve-ment

- Poverty reduction

Negative- Benefits mainly for better off farmers- Distortion of market mechanisms

- Farmers participating because of allowances- Extension workers acting as sales agents

So why this study? Get clear understanding of extent and impor-

tance of subsidies Get clear understanding on impact on poverty

reduction

Because Government acknowledges that subsidy poli-

cies have missed intended targets. – Reaching the right beneficiaries and avoid-

ing excess dependency on the state are tobe ensured

– Subsidies are to be gradually lifted.

Vietnam’s entry into the WTO: – Government will have to review its policy with

regard to subsidising the agricultural sector. – Support in the form of beneficial export condi-

tions or price support to producers will no longerbe tolerated.

– Support in the form of non-trade distorting meas-ures, however, such as public investment inresearch, training, extension, will be tolerated.

ObjectivesTheme: Contribution of subsidies in agricultural

extension to poverty reduction in Vietnam

Special attention to: improved livelihoods in terms of increased food

security and income, reduced vulnerability andmore sustainable natural resources manage-ment

sustainability in terms effects and impacts thatlast when subsidies are withdrawn, thus dealingwith capacity building and organisational inte-gration of the poor

Subsidies in agriculture extension for povertyreductionAgricultural Extension for the Poor sub-group

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promoting a demand-driven service provision effects of subsidies of local and regional market

mechanisms

Expected outcome Knowledge of the nature and importance of

subsidies in agriculture extension given bygovernment and international developmentprogrammes

Understanding of the effects of subsidies in agri-cultural extension - on the livelihoods of poor men and women, - on sustainable poverty reduction and - on demand-driven service provision

Main determinants for a successful contributionto poverty reduction through - the use of subsidies in agricultural extension

and - through alternative approaches

Recommendations for supporting the poorthrough agriculture extension

Main Research Questions What are the most common forms of subsidies

in agriculture extension currently given bygovernment and international developmentprogrammes and how will Vietnam’s entrance tothe WTO affect these forms of subsidy

What access women and poor people have tosubsidies in agricultural extension?

How sustainable is the contribution to povertyreduction achieved by providing subsidies inagricultural extension?

How do subsidies in agricultural extension affectopportunities for establishing a demand-drivenextension service and the local/regional marketmechanism of demand and supply?

What are the key elements and necessaryconditions to guarantee a successful contribu-tion to poverty reduction through

the use of subsidies in agricultural extension and alternative forms of support in agricultural exten-

sion? What are appropriate key features and suitable

work frames of future governmental and inter-national development programmes and policies

Some resultsGovernment extension funding

Majority of budget spent on salaries

14.3 billion VND (1993) to 90 billion VND (2004)excluding salaries

Modest results:- Only 0.06% of agricultural area reached- Less than 0.5% of farmers receive training

Government subsidies in extension Training: Pay participants 15.000 VND/day Models:

- Based on location: 60% subsidy for seedsand 40% for fertilizers and other inputs inupland; 40% subsidy for seeds and 20% forfertilizers and other inputs in lowland.

- Based on beneficiaries: 100% subsidy for allmodel inputs for the certificated poor in“extension for the poor” project or in exten-sion components of Program 135, HEPRand fixed cultivation and resettlement

Other forms of subsidies (not directly related to extension) Input supply

- (managed by CEMA, carried out by agricul-tural material/trade companies): subsidy forprices and transportation costs of key inputsfrom low land to upland

Output selling: - subsidy for transportation costs of some key

outputs from upland to lowland (managed byCEMA, carried out by trade companies)

Contract farming: - subsidy by the commodity companies to

develop their material base for process-ing/export

Government commitment to reducesubsidies

Under ADB ASDP programme MARD will: terminate subsidies on hybrid maize seed; support poverty reduction for poor farmers

through subsidised hybrid rice seeds, indicatingthat - the subsidy be limited to poor farmers iden-

tified in the commune list of poor farmers; - the subsidy to the same farmer will be

phased out over a 3-crop period; and the amount used for the subsidy should be

limited and the funds should be used for exten-sion.

monitor to ensure that no province will subsidise

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Public Private Day

commercial production of hybrid rice or maize. - The savings from subsidies will enable the

staff to focus on group-based extensionactivities and to redirect expenditures in thefield to higher priority extension activities.

terminate subsidies for the commercial produc-tion of hybrid rice seeds, - the funds used instead for the transfer of

hybrid rice seed technology through exten-sion activities.

Draft National Target Programme on PovertyReduction

Reduce grant subsidies; increase the contribu-tions of the households into application ofadvanced techniques.

Subsidise 80-100% of input costs in demon-stration models for the poor who are ethnicminorities in remote, upland areas; and subsidy50% of input costs in demonstration models forthe poor living in other areas, the remaining willbe contributed by the households.

Draft new 135 programmeRecognizes the limitations of subsidy policies,

but still contains Provision of subsidies for crop varieties and

animal breeds, fertilizer, purchase of products…” “Carry on price subsidies, i.e. for crop varieties

and animal breeds with high productivity,production materials and tools, pesticide, fertil-izer. Production input and output subsidies…”

Draft 5 year SED Continue to use subsidy as a main vehicle for

targeting the poor- Increase funding for hunger eradication and

poverty reduction by intensifying creditschemes

- Support the poor to develop production andbusinesses.

- Provide agricultural product price subsidythrough funds and development of extra jobsand crafts

NGO and Donor extension fundingEach organization, each project, each location

has its own particular subsidy policies Training: Allowances paid to training participants Models, Experiments/Trials: Subsidy for physi-

cal input

Some issuesInput supply

Monopoly/Limited Choice vs. Free Choice Who get the real benefits: Poor Farmers vs.

(State) Trade Companies and Better-offFarmers

Market-viable/led vs. Supply-pushed Permanent vs. Phasing-out

Market Access Subsidies vs. Promotion

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MP4 WEEK 2005

Market based approaches: somecharacteristics

Ability to perpetuate market development - masons continue to promote their services

after the project phased out Responsiveness for the customer of sanitation

services - Deferred payments & PSS warranty

Market transaction (when, how, from whomto buy)

Conduciveness to local innovation - walls can wait- proliferation of cement ring makers

Conduciveness to operational efficiencies andaccountability from SP- Full Capital Cost-recovery- The market price auto-regulation (competi-

tiveness)

Rural sanitation in Vietnam: A reflectionof the global sanitation stalemate

Access to sanitation lags behind access to watersupply

Access to sanitation in rural areas remains aprivilege of the richest groups

Validating the new paradigm IDE Project aimed at testing:

- Whether rural families will invest in latrineswhen a range of low-cost models are avail-able from local private sector suppliers

- The extent to which targeted promotionalcampaigns can influence consumers’ deci-sions regarding sanitation investments.

Project Implemented in 2 Coastal provinces inrural Vietnam, with similar conditions:- Socioeconomic- Environmental

Project duration: 2.5 years

Harnessing Market Power for Rural Sanitation:Rural Poor as customers and not beneficiaries Jaime Frias, IDE

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Public Private Day

“Mr. Latrine” representing

“Hygiene, Civilization, and Health”

Slogan: “Be an exemplary person in a culturedvillage”

Communities

Experimental group

Control group

Households

53,886

5,440

Poor households as% of total population

19.1

19.7

% of households own-ing a safe latrine

16.0

18.3

A process to unleash market forces

(1) Perform situational assesments

(2) Perform market assesments

(3) Perform markettable assesments

(4) Build localsupply

network

(5) Develop an advertisingand promotion campaign

(6) Link supply

and demand

(7) Implementpromotionactivities

(8) Broadcast

communicationcampaign

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MP4 WEEK 2005

Market assessments: someconsiderations

The way latrines are acquired- Commercial vs. non-commercial- Roles of the household members

The time when latrines are acquired- Seasonality of demand- Family events related factors

Innovation gapsWhich technologies are- sustainable- desired- available - affordable

What prevents the market to work for the under-served

- Demand and supply constraining factors What opportunities exist to further develop the

market- leveraging on: - early adopters - Peer pressure - community mobilization

Lessons learnt from implementationBiased cost perception of sanitation- Soviet legacy of over-design- Lack of local references

Response:- Standardized a range of options (demon-

strations)- Promoted on-the-spot information exchange- Promoted competitiveness

Segmentation & targeting

Cost Initialperception

(% respondents estimating

cost)

Monitoring records

(% latrines under that cost)

US$71 or less - 91

US$65 or less < 10 37

Perception gap (respondents w/out latrines)

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Public Private Day

Response:- Conveyed a concept that contained proven

drivers of demand- Motivating benefits: prestige, convenience &

children development- Value reframing of latrines when compared

to competing assets- Mechanism to exert peer pressure were

placed

Few incentives for service providers toenter & develop the market

Sanitation masonry is a seasonal activity & asecondary source of income

Low product differentiation was not conducive tolocal innovation

Response:- Stimulated demand for sanitation on behalf

of service providers- Covered investment for adapting appropriate

technology to the local needs Village masons lacked of credibility before

prospect customers The community relied on the commune health

professional as the technical authority for latrinedesign

Endorsed masonry skills through the local healthnetwork

The market called for new sanitationmasonry skills

Investment in sanitation was not a priority

Response:- Engineered affordability through technical

partnerships- Trained 541 service providers

(respondents w/out latrines)

Cost Households without

latrines

Households with

un-hygienic latrines

Households

with proper latrines

constraint as a reason fornot having a latrine

Portion of respondents owning a TV or a karaoke set

58 88 90

Portion of respondents w/ cash

91

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MP4 WEEK 2005

Awakening the market: The results

Increased access to improved sanitation In the experimental group of communities:

- Latrine construction has grown fourfold- Increased access to improved sanitation

In the experimental group of communities:- Rate of household ownership of a hygienic

latrine has doubled

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Public Private Day

A cost effective approach The market value of capital investment lever-

aged by 2004

The market reached the rural poor

% of poor households in the total population (Dec 02) % of poor households among all latrine buyers (Sep 03 –

Dec 04)

19.1 10.7

Population category Household annual income(US$)

Average householdinvestment in sanitation(US$)

Investment as % ofannual householdspending

All latrine buyers 592 66 11.1

Poor latrine buyers 362 55 15.2

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MP4 WEEK 2005

OUTLINE OF PRESENTATION

Advantages of PSP Common concerns about PSP Range of institutional options Common PSP models Options on the extent of PSP Competition or negotiation? Importance of regulation Opportunities for PSP in urban environmental

services Other PSP initiatives in WB projects

ADVANTAGES OF PSP

Can bring additional investment and operatingcash

Better able to mobilise funds from privateinvestors

More efficient and productive and can deliver amore cost-effective service

Management and administration more flexi-ble/effective

Enables improved service coverage private sector normally has better knowledge of,

or access to, technology Can lead to improved efficiency of the public

sector due to competition with private sector

COMMON CONCERNS ABOUT PSP

Rate of Reform must be gradualbecause:

concept relatively new in Viet Nam particularly inthe SWM sector

existing political, institutional, financial, legal andregulatory framework does not encourage PSP

local private firms presently operating in theSWM sector are small and have limited experi-ence and access to the capital

Private Sector Financing: Small local businesses may not be able to

finance major capital investment required topurchase compactor trucks and other equip-ment for urban solid waste management, butstep by step approach possible

Alternative is for government to purchase theequipment and arrange a lease/purchaseagreement in parallel with service contracts

Government Labour Redundancy: Privatisation may result in significant loss of

employment for government workers - particu-larly URENCO/WSC employees

Termination of government employment couldbe minimised by:- initially supporting PSP in areas where

URENCO/WSC presently does not operate- assisting URENCO/WSC workers to either

gain employment with private businessescontracted to provide SWM services orestablish their own private business whichcould then bid for SWM contracts

RANGE OF INSTITUTIONAL OPTIONS

Public Service Enterprises / CommercialisedPublic Utilities

Public/Private Joint Ventures Private Companies/Enterprises including limited

liability companies, joint-stock companies andprivate unlimited enterprises

Cooperatives, Non-Government Organisations& Community-Based Organisations

COMMERCIALISED PUBLIC UTILITIES

Advantages: Operate under the Enterprise Law Able to pay higher salaries and offer more incen-

tives than Government departments, but still

PUBLIC-PRIVATE PARTICIPATION (PSP) IN SOLIDWASTE & SEPTAGE MANAGEMENT (SWM)Alan Coulthardt, World Bank

153

Public Private Day

limited Can enter into performance contracts with

employer

Disadvantages: Employees are still Government servants Companies are subject to civil service human

resource constraints Limited “arms length” relationship with employer

PUBLIC / PRIVATE JVS

Key Potential Strengths: Combines the advantages of the private sector

with social responsibility, environmental aware-ness and local knowledge of public sector

Both partners have invested in the company andtherefore both have a strong interest in seeingthe venture work

Full responsibility for investments and operationgives both partners major incentive to make effi-cient investment decisions & to develop innova-tive technological solutions, since efficiencygains will directly increase profitability

Early participation by both partners allows forgreater innovation and flexibility in project plan-ning

Key Potential Weaknesses: Potential conflict of interest Private sector tends to focus on the “bottom line”

while governments on the process Early involvement of both parties that is required

for JVs typically precludes the use of traditionalpublic bidding procedures and promotes alter-native procedures such as direct negotiation -this can raise transparency and corruptionconcerns

COMMON PSP MODELS

Service Contracts Management Contracts Lease Contracts Concession BOT/BOO Full divestiture (Equitisation)

SERVICE CONTRACTS

Great potential to provide better system opera-tion, allowing government to obtain improve-ments in performance and efficiency throughtechnology transfer and the acquisition of tech-nical and/or managerial capacity

Relatively low-risk option for both parties Low barriers to entry Limited scope, – limited benefits

MANAGEMENT CONTRACTS

Transfer responsibility for operation and mainte-nance to the private sector

Can be fee based, or performance based Good for introducing new technical or manage-

rial methods Can be a good first step towards higher level of

PSP

LEASE

Private company pays for the right to operateand maintain Government owned facilities

Enables Government to pass on most of thecommercial risk

Appropriate where there is scope for big gains inoperating efficiency

CONCESSION

Different from a lease in that the privatecompany is required to invest in extending/reha-bilitating facilities

Concession period has to be long enough toenable the company to recover the cost of it’sinvestments

Needs very effective regulation

BOT/BOO

Good solution for dealing with building new“production” facilities

Not so effective where problem is inefficientprovision of services

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MP4 WEEK 2005

OPTIONS ON THE EXTENT OF PSP:PARTIAL, FULL, or OPEN

Partial- Discrete activities e.g. collecting bills, main-

taining vehicles, transferring waste- Part of entire service e.g. full service for one

or more districts

Full- Contract out the service for the entire city to

one company - monopoly

Open- Allow more than one contractor to offer serv-

ices throughout the city – customer’s choice

COMPETITION OR NEGOTIATION?

All types of PSP are most effectively procuredthrough a competitive process

Negotiated contracts always run the risk asbeing perceived as involving corruption – evenif they don’t!!

Some disadvantages of competition:- Takes time- Expensive for bidders – especially in compli-

cated deals like concessions and BOTs- Can limit innovation

However, disadvantages rarely outweigh theadvantages

THE IMPORTANCE OF REGULATION

National laws Contract will include “regulations” – service stan-

dards of quality and quantity etc Authorisation of variations and arbitration of

disputes

Long term contracts like leases, concessionsand BOTs are the most complex to regulate

Private company will want to minimise risk ofpayment – who approves tariffs and how arethey adjusted?

OPPORTUNTIES FOR PSP IN URBANENVIRONMENTAL SERVICES

Solid Waste streetsweeping waste collection and transportation fee collection community-based program in areas where

limited access or lower population densities construction & demolition waste port waste

Septage septic tank pump-out and septage haulage

OTHER PSP INITIATIVES IN WB PROJECTS

HCMC Environmental Sanitation Project:divestiture of some city drainage enterprises andmanagement contract to operate and maintainwastewater facilities;

Water Supply Development Project:service/lease contracts for operation & mainte-nance of district town water supplies

Rural Water Supply & Sanitation Enterprises:Joint stock companies (province/commune) tobe established to take responsibility rural water& sanitation facilities

Small town and IZ water supplies: studies foundthat private entrepreneurs are investing in watersupplies for towns and industrial zones.

155

Public Private Day

The Existing Situation Of Septic TankCleaning Before Private SectorParticipation

The private sector was not encouraged to partic-ipate in implementing the service. Householdsonly requested service when their septic tankblocked.

Vehicles were not technically checked and areof bad quality and unsafe.

Disposal of sludge took place at illegal locations(e.g. disposal in rivers and drains)

URENCO as the major service provider: Subsidized by the State Service provider with monopoly. Inactive in service.

Households’ request for service were not met byresponses from the service provider. Septic tankswere in use for 20-30 years leading to pollution ofthe environment including the air and groundwater.

Causes Service was only requested when the tank was

spilled. Service provision was not consistent and unsta-

ble with only 2 vehicles/day/year Cost of service is high, unreasonable

LimitationsWhen requesting service, customers have to

pay once, spending a big amount.

The Consequences: -Residents pay less atten-tion to the service and the request for service onlycomes when an environmental problem happened

The overall result is a seriously polluted envi-ronment

Danang Sanitation Project is Sub-project of Vietnam Three CitiesSanitation Project

Participation Of Private Sector In Septic TankCleaning Service In Danang City

Implementation CostWaste water surcharge: VND 300/m3 - Surcharges from other activities – According to Decision No. 07/2004/QD-UB

dated 20 January, 2004 from Danang People’sCommittee

Implementing Organization

Establishing implementation plan: All septic tanks of the city cleaned regularly (5

years) The location of the tank is marked on a GIS map. Customer has right to select and supervise the

service provider. Installing open valve for cleaning the tank.

Resources of: 1 tank truck ( 7HHs/day) 11 tank trucks (77 HHs/day)

Mean coverage of 20,000 HHs/9 months/year 100,000 HHs/ 5 years

Operation is according to the managementsystem:

Agreement in service cost (by contract) - Performance according to license - Establishing customer data base.

PARTICIPATION OF PRIVATE SECTOR IN REGULARSEPTIC TANK CLEANING SERVICE IN DANANG CITYSUB-COMPONENT OF DA NANG SANITATION PROJECT FUNDED BY WORLD BANKNguyen Tan Lien – Director of Danang PIIPs – PMU

156

MP4 WEEK 2005

Encourage participation of privatesector

All private enterprises participate in equally. Fair competition. Stable work, increasing income Employment solved Investment in equipment freely Improving quality of service

Community Benefits All households receive the service Septic tank of household cleaned regularly. Poor households also receive the service (cross

subsidized) Urban environment better, improve the heath of

community Service fee is not much, colleted by water supply

surcharge.

Social Benefits Reducing O&M cost of the sewerage and

drainage system. Protected groundwater Preservation of the environment.

THE EXISTING SITUATION OF PRIVATESECTOR PARTICIPATION OF SEPTIC TANKCLEANING SERVICE IN DANANG CITY

Private contractor: Having business license Skilled worker. The equipment is technically guaranteed Compliance with the regulation of company.

Performance according to license Providing VAT invoice.

Result: 13 contractors participating 11 contractors for cleaning and transferring

sludge. 2 contractors for drilling and installing the valve

for cleaning septic tanks.

The IEC activity: Using the mass media Direct to each ward and group including delivery

of brochures, and Sending registration application to households

Checking registration application Receiving the application , getting information on

a GIS map Surveying the distance from the area where the

vehicle parking to the cleaning location.

Provide license for contractor of drillingand installing valve of cleaning the tank

Provide license in an orderly way. Inform the drilling plan to households. Finish within one day before cleaning.

Payment for contractor- Payment twice a month (middle and end of

month)- Contractors provide required documents.

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Public Private Day

Results Serving about 10,000 households. Percentage

of septic amount transferred out of the city in2005 has increased by 320% in comparisonwith previously. According to the plan, the ratewill be increased to 641% (compared with beforethe project implementation, where the number ofhouseholds served was 2,800 hh/yr).

Customers are satisfied with the services. Wastewater surcharge increases are accept-

able because of residents’ agreement.

SUMMARY

100% of septic tanks are cleaned within5 years.

Volume of collected sludge is used for manu-facturing fertilizer service for agriculture

Continuous increasing the fee of wastewater Environment has improved in Danang city

RESULTS OF THE YEAR 2004 AND 2005

Year 2004 (Pilot) Year 2005 (6 months)

Wastewater surchage collectedthrough water supply (bil.VND)

5.27 6.314

Amount of septic transferred (m3) 18,000 40,000

Number of households pumped out 4,500 10,000

Cost paid for service (bil. VND) 1.2 3.2

Annexes

159

163

171

Agendas

Participants

List of M4P publications

159

Annexes

Making Markets Work Better for the PoorFactor Markets DayAgenda

Factor Markets and Poverty Reduction in Vietnam

Registration

Welcome, Introduction, Opening of M4P Week

M4P Activities, Challenges and Key Achievements 2005

Participatory Livelihoods and Markets Assessments in Da Nang city and

Dak Nong province

Tran Tuy Hoa – Institute of Labour Science and Social Affairs

Labour Markets and Poverty Reduction in Vietnam

Nguyen Manh Hai – Central Institute for Economic Management

Land Markets: Implementing de Soto in Rural Vietnam and The

Transformation of Agricultural to Industrial Land Use: Issues and Impacts

on the Poor

Le Cong Luyen Viet – Making Markets Work Better for the Poor

Tea/Coffee Break

Discussion

Synthesis, drawing lessons from the morning presentations

and setting up for the afternoon work

Lunch

Introduction to group work

Group Session 1: “Live” Policy Dialogue on Land Market Issue

Group Session 2: Brainstorming on Rural Labor Markets

Tea/Coffee Break

Reporting back from group sessions

Summary and Closing

Factor Market Day

Monday

31 October

08h30

09h00

09h15

09h35

10h00

10h30

11h00

11h40

12h00

13h00

13h05

15h00

15h30

16h30

160

MP4 WEEK 2005

Thematic Group 1:

Agricultural Value

Chains and Poverty

Reduction

Supermarkets and

the Poor

Paule Moustier –

CIRAD/ MALICA

Rose Value Chain

Siebe Van Wijk – Pro-

poor horticulture

Group Discussion and

introduction to

afternoon work

Dominic Smith – M4P

Group Discussions

Siebe Van Wijk

Thematic Group 2:

Value Chains and

Active Market

Promotion

VNCI Thang Long

Dragonfruit

Robert Webster -

VNCI

Bamboo

Jaime Frias, Hien,

Trang - IDE

Group Discussion and

introduction to

afternoon work

Alan Johnson M4P

Coordinator

Group Discussions

Alan Johnson M4P

Coordinator

Thematic Group 3:

Value Chains and

Sector Approaches

to Industry Promotion

GTZ/SME value chain

development

approach

Thomas Finkel – GTZ

MPDF Industry

Promotion Activities

(Wood Furniture

Cluster)

Key Key - MPDF

Introduction to

proposed Clustering

and Poverty

Reduction Study

Le Cong Luyen Viet –

M4P

Group Discussion and

introduction to

afternoon work

Group Discussions

Ricarda Meissner - EU

Coffee Break

Reporting Back From Group Sessions

Synthesis

Launch of Coffee Table Book

Case Studies Dinner

Registration

Welcome, Introduction

Cross cutting issues - Branding, labeling and trademarks, collective action and

contract farming

Dominic Smith – M4P

Market Approaches and Facilitation

Alan Johnson - M4P Coordinator

Sector Approaches to value chains and industry development

Ricarda Meissner - EU

Introductions to group work presentations (6 presenters)

Coffee Break

Value Chains Day

Tuesday 1 November

08h00 - 08h30

08h30

08h40

09h00

09h20

09h40

10h00

10h15

10h45

11h15

13h30

15h15

15h45

16h30

16h45

19h00

Making Markets Work Better for the PoorValue Chains DayAgenda

161

Annexes

Making Markets Work Better for the PoorPolicy DayAgenda

Policy Day

Thursday 3 November

08h00-08h30

08h30

08h35

09h00

09h15

09h45

10h30

11h00

11h15

12h00

1300

1345

1430

1500

1545

1715

Research – Policy Linkages: how can we most effectively achieve

policy impact?

Registration

Welcome, Introduction

(a) innovation systems, rather than linear researcher-practitioner relations;

(b) importance of dissemination; and (c) political-economy thinking in

addressing incentives for adoption of research findings.

Alex Duncan - The Policy Practice, UK

Q&A for clarification

Discussant comments from other policy-oriented projects

Martin Rama (World Bank), Pham Lan Huong (CIEM) and Jonathan Pincus

(UNDP)

Plenary discussion

Tea/Coffee/Orange juice/Water

M4P communication strategy and action plan

Facilitating policy dialogue on market development: short case studies:

a) Danang case study (Pham Binh Giang, M4P)

b) VUSTA and VN NGOs Policy Feedback project (Nguyen Anh Thinh,

Care in Vietnam)

c) Establishing local level dialogue between business associations and

government (Tran Huu Huynh, General Director, Legal Department,

VCCI).

lunch

Group work on practical actions to improve policy research links

report back to plenary

[end of policy session] Tea/Coffee/Orange juice/Water

The Future for M4P Lesson Learning from other M4P experiences (Richard Boulter, (DFID

HQ) Links with other related work e.g. Competition policy (Alice Pham,

Consumer Unity & Trust Society (CUTS), Jaipur, India Possible Future Directions for M4P (Nguyen Thi Ngoc Minh,

DFID Vietnam)

Plenary Discussion

end

162

MP4 WEEK 2005

Making Markets Work Better for the PoorPublic-Private DayAgenda

Public-Private Day

08h30-08h50

08h50

09h00

09h45

10h00

10h30

11h00

12h00

13h00

14h00

15h00

15h30

17h00

Public Private Arrangements for Growth and Poverty Reduction

Registration

Welcome, Introduction

Using innovative market-based approaches to enhance the outreach

of service delivery to the poor

An introduction to the issues - (Jim Tanburn)

Q&A for clarification

Case Study : Markets and Social Protection (Paulette Castel)

Tea/Coffee/Orange juice/Water

Plenary discussion

lunch

Three case studies Water and Sanitation (IDE) Non-subsidised Agricultural extension, (SNV) Non-subsidised Veterinary services, (VSF)

Plenary Discussion

Tea coffee

Public-Private arrangements to leverage private investment in the

infrastructure that matters to the poor – PPP and the provision of pro-poor

infrastructure An introduction to the issues – (Alan Coulthart, World Bank) Danang Case Study (tbc) Plenary Discussion

Ends

163

Annexes

FACTOR MARKETS DAY

No

DONORS

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

GOVERNMENT

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

Name

Alan Johnson

Benoit Trudel

Anna Morris

Carrie Turk

Cerstin Sander

Doan Hong Quang

Kees Van Der Ree

Le Cong Luyen Viet

Le Thi Thu Huong

Maria Cecilie Pautsch Weischer

Merten Sievers

Ngo Minh Huong

Nguyen Ngoc Minh

Nguyen Thi Thanh Nga

Paul Kelly

Philipp Essl

Rob Swinkels

Pham Thi Binh Giang

Nguyen Thi Kim Anh

Dang Thi Thanh Thuy

Dominic Smith

Bui Viet Bao

Dao Chung Chinh

Dao Quang Vinh

Do Thi Thanh Van

Doan Tue Nhan

Gian Thanh Cong

Khuc Thi Thanh Van

Le Thi Phuong

Nguyen Bich Ngoc

Nguyen Hong Quang

Nguyen Hong Quang

Nguyen Manh Cuong

Nguyen Manh Hai

Nguyen Thu Hong

Vu Le Y Voan

Tran Tuy Hoa

Tran Van Sinh

Organization

M4P Asian Development Bank

ILMC

DFID

WB

DFID London

WB

ILO

M4P Asian Development Bank

FAO Regional Vegetable IPM Programme

in Asia

Embassy of Denmark

PRISED, ILO Hanoi

ADB

DFID

Country Economist Unit, UNDP

SEMLA Program (SIDA)

UNDP

WB

M4P-ADB

M4P-ADB

M4P-ADB

M4P-ADB

MOLISA - Vu Lao dong Viec Lam

MONRE

ILSSA

Vien Nghien cuu Dia chinh

Hiep hoi Ca phe Ca cao Viet Nam

ILSSA

Vietnamese Academy of Social Sciences

(VASS)

Institute of Sociology

ILSSA

Trung tam Nghien cuu Phat trien

Vien Khoa hoc Xa hoi Vietnam

MOLISA

CIEM

MONRE

Farmer's Association

ILSSA

ILSSA

164

MP4 WEEK 2005

No

18

19

20

RESEARCHERS

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

NGOs

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

MEDIA

1

2

Name

Pham Lan Huong

Thai Phuc Thanh

Tran Kim Chung

Alex Duncan

Anna Lauridsen

Ivan Cucco

Do Hau

Dominic Smith

John Sawdon

Laura Prota

Mai The Cuong

Ngo Viet Hung

Nguyen Danh Son

Nguyen Le Na

Remco Oostendorp

Scott Robertson

Pham Ngoc Linh

Nguyen Quoc Phuong

Vu Quang Thinh

Vu Quoc Huy

Boun-Tieng LY

Alice Pham

Blanca Perez

Bruno Moser

Grégoire Chauvière Le Drian

Javier Costa Garcia

John Marsh

Koen Den Braber

Le Thi Phi

Le Thi Sam

Le Thi Thu Huong

Maarten Siebe van Wijk

Marco Van Grinsven

Nguyen Luong Nhan

Nguyen Thanh Tung

Nigel Smith

Tran Thuy Nguyen

Tu Oanh

Nguyen Hong Phuc

Vu Huyen

Organization

CIEM

ILSSA

CIEM

UTS Sydney

Hanoi University of Architech

Agrifood Consulting International

Mekong Economics

Macquarie University

VDF

Hanoi University of Architech

Sustainable Development Institute for the

North (SDIN)

MKE

Free University

MCG Management Consulting

COLIP

MCG Management Consulting

NEU

Sustainable Development of Peri-Urban

Agriculture in South-East Asia (Cambodia,

Laos, Vietnam) Project

CUTS International

AIDA

International Public Economics

Codespa Foundation

Oxfam Hong Kong

Organic Agriculture Project - ADDA Denmark

NIFP Center

Oxfam GB

Plan

Wageningen UR LEI

VECO Vietnam

VECO Vietnam

IFAD Field Liaison Office

Seed Partners

Oxfam Quebec

CitiBank

VietNamNet Online Newspaper

VIR

165

Annexes

VALUE CHAINS DAY

No

DONORS

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

GOVERNMENT

1

2

3

4

5

6

7

8

RESEARCHERS

1

2

3

4

5

6

7

8

9

10

11

Name

Maria Cecilie Pautsch Weischer

Do Le Thu Ngoc

Hoa

Rob Swinkels

Hoang Tuan Dung

Doan Tien Giang

Tago Penrose

Robert Webster

Kenneth Key

Ricarda Meissner

Thomas Finkel

Nguyen Nhu Quynh

Alan Johnson

Le Cong Luyen Viet

Pham Thi Binh Giang

Dang Thi Thanh Thuy

Nguyen Thi Kim Anh

Dominic Smith

Nguyen Thi Ngoc Minh

Cao Thu Anh

Nguyen Phuong Mai

Le Diem

Hoang Thi Mai Huong

Bui Duc Son

Nguyen Van Bay

Bui Quoc Hoi

Ha Van Quang

Dang Viet Quang

Dao The Anh

Hoang Bang An

Vu Trong Binh

Alex Duncan

Anna Lauridsen

Marije Boomsma

Nguyen Thi Tan Loc

Joep Slaats

Pham Thien Huong

Laura Prota

Organization

Danish Embassy

Country Economist Unit, UNDP

DFID

World Bank

MPDF

VNCI

UNDP

VNCI

MPDF

EU

GTZ

GTZ

M4P-ADB

M4P-ADB

M4P-ADB

M4P-ADB

M4P-ADB

M4P-ADB

DFID

NISTPASS

NISTPASS

Rural SME Associations

Vietnam Farmer's Association

VPSSP

Me Linh Peoples Committee

Me Linh Peoples Committee

Economic Dept. Sapa People Committee

Hanoi Agricultural University

VASI

RIFAV

VASI

Private Sector Development

RIFAV

IAE

Macquarie University

166

MP4 WEEK 2005

No

12

13

14

15

16

17

18

19

20

NGOs

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

Name

Ivan Cucco

Nguyen Quoc Phuong

Dinh Thi Thu Phuong

Phan Thi Giac Tam

Tran Mai Huong

Nguyen Hai Ninh

Dao Trung Thanh

Nguyen Dinh Tien

Nguyen Thu Hong

Boun-Tieng LY

Hoang My Lan

Javier Costa Garcia

Koen Den Braber

Luong Minh Ngoc

Nguyen Luong Nhan

Nguyen Thuy Trang

Nico Janssen

Paule Moustier

Pham Quang Nam

Phan Thanh Giang

Muriel Figure

Maarten Siebe van Wijk

Gregoire Chauviere Le Drian

Jaime Frias

Trevor Clark

Nguyen Van Quang

Bui Ai Trang

Amanda Allbritton

Bearne Wiler

Tiago Wandschneider

Organization

UTS

Trung tam Dieu tra quy hoach dat dai

Truong Xuan Consulting Company

Nong Lam University

HAU

HAU

MCG Management Consulting

HAU

Truong Xuan Consulting Company

Sustainable Development of Peri-Urban

Agriculture in South-East Asia (Cambodia,

Laos, Vietnam) Project

Institutional Development and Advocacy,

VECO Vietnam

Codespa Foundation

Organic Agriculture Project - ADDA

Denmark

Oxfam Quebec

VECO Vietnam

IFAD Field Liaison Office

SNV Hanoi office

CIRAD

Oxfam Great Britain

Oxfam Quebec

CIRAD

Wageningen UR LEI

ADETEF

IDE Vietnam

Oxfam Quebec

IDE Vietnam

IDE Vietnam

Propoor Program

CELL

CIAT

167

Annexes

POLICY DAY

No

DONORS

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

GOVERNMENT

1

2

3

3

4

RESEACHER

1

2

3

4

5

6

7

8

9

10

11

12

13

Name

Carrie Turk

Jim Tanburn

John Preston

Hoang Thi Phuong

Richard Boulter

Cestin Sander

Rob Swinkels

Nguyen Thi Ngoc Minh

Martin Rama

Pekka Seppala

Bui Thi Bich Lien

Jonathan Pincus

Alan Johnson

Dominic Smith

Pham Thi Binh Giang

Le Cong Luyen Viet

Dang Thi Thanh Thuy

Nguyen Thi Kim Anh

Nguyen Quoc Phuong

Nguyen Thanh Thinh

Tran Huu Huynh

Tran Ngoc Ca

Dau Anh Tuan

Adam McCarty

Alex Duncan

Anna Lauridsen

John Sawdon

Khuc Thi Thanh Van

Nguyen Tuy Hoa

Le Thi Phuong

Laura Prota

Ivan Cucco

Hoang Xuan Thanh

Nguyen Trung Thanh

Joep Slaats

Pham Lan Huong

Organization

WB

ILO

DFID

CIDA

DFID

DFID

World Bank

DFID

World Bank

Finland Embassy

Asia Foundation

UNDP

MP4-ADB

MP4-ADB

MP4-ADB

MP4-ADB

MP4-ADB

MP4-ADB

Trung tam dieu tra quy hoach dat dai,

MONRE

Ministry of Science and Technology

VCCI

NITSPASS

VCCI

Mekong Economics

Mekong Economics

Vietnamese Academy of Social Sciences

(VASS)

ILSSA

IOS

Macquarie University

UTS

Ageless IP Attorneys and Consultants

MCG Management Consulting

CIEM

168

MP4 WEEK 2005

No

NGOs

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

MEDIA

1

Name

Alice Pham

Grégoire Chauvière Le Drian

Hoang My Lan

Koen Den Braber

Nguyen Luong Nhan

Nguyen Thi Le Hoa

Nguyen Thuy Trang

Nguyen Tri Dung

Nico Janssen

Pham Quang Nam

Scott Robertson

Tran My Hanh

Tran Huu Hung

Vu Thi Thu Phuong

Pham Manh Cuong

Christophe Heraudeav

John Marsh

Trevor Clark

Le Thi Sam

Tran Thuy Nguyen

Nguyen Thanh Tung

Marco van Grinsven

Nguyen Anh Thinh

Vu Huyen

Organization

CUTS

Institutional Development and Advocacy,

VECO Vietnam

Organic Agriculture Project - ADDA

Denmark

VECO Vietnam

Oxfam GB

IFAD Field Liaison Office

Oxfam GB

SNV Hanoi office

Oxfam Great Britain

Oxfam GB

Oxfam GB

Oxfam GB

Oxfam GB

Oxfam Solidarity Belgium

Oxfam Hong Kong

Oxfam Quebec

Oxfam GB

Oxfam Quebec

IFAD Field Liaison Office

VECO Vietnam

VUSTA/CARE

VIR

169

Annexes

PUBLIC PRIVATE DAY

No

DONORS

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

GOVERNMENT

1

2

RESEACHERS

1

2

3

4

5

NGOs

1

2

3

4

5

6

7

8

9

10

Name

Nguyen Thi Ngoc Minh

Jacob Fjalland

Nguyen Thi Thanh Nga

Kees van der Ree

Peter van der Bloemen

Cestin Sander

John Preston

Richard Boulter

Le Duy Hung

Jim Tanburn

Alan Johnson

Dominic Smith

Pham Thi Binh Giang

Le Cong Luyen Viet

Nguyen Thi Kim Anh

Rick McGowan

Dang Thi Thanh Thuy

Nguyen Tan Lien

Le Thanh Binh

Alex Duncan

Alan Coulthart

Anna Lauridsen

Ms. Mai

Le Thi Phuong

Bernard Wyler

Elsa Salamé

Grégoire Chauvière Le Drian

Koen Den Braber

Ngo Thi Loan

Nguyen Luong Nhan

Nico Janssen

Phan Thanh Giang

Le Thi Thu Huong

Nguyen Van Quang

Organization

DFID

Fisheries Sector Programme Support,

MOFI-DANIDA

Country Economist Unit, UNDP

PRISED, ILO Hanoi

Royal Netherlands Embassy

DFID

DFID

DFID

World Bank

ILO

M4P-ADB

M4P-ADB

M4P-ADB

M4P-ADB

M4P-ADB

ADB TA4483

M4P-ADB

Danang PIIPS - MPU

URENCO Danang

MUSTRA/MOT

Vien Xa hoi hoc

ILMC

ADETEF

Organic Agriculture Project - ADDA

Denmark

Oxfam Great Britain

VECO Vietnam

SNV Hanoi office

Oxfam Quebec

Plan

IDE

170

MP4 WEEK 2005

No

11

12

13

14

15

16

17

18

Name

Rashmi Pendse

Paulette Castel

Nghiem Thi Duc

Trevor Clark

Frieh Chevalier

John Marsh

Jaime Frias

Patrice Gautier

Organization

IFC-MPDF

IDE Vietnam

Oxfam Quebec

CWD

Oxfam Hong Kong

IDE

VSF

171

Annexes

The Asian Development Bank-Vietnam ResidentMission is currently implementing a regional projectcovering Cambodia, Laos and Viet Nam entitled“Making Markets Work Better for the Poor”(MMW4P). The purposes of the project are to: (a)conduct analytical work on the functioning ofmarkets and the extent to which the poor are ableto benefit from them, and (b) to build capacity tosupport pro-poor market development throughresearch activities, networking and the promotionof policy dialogue in the three project countries.

In order to make the results of the variousresearch activities more widely available, theproject produces three main types of regular publi-cation. These are:

The Markets and Development Bulletin, abimonthly newsletter on topical market-related

issues produced jointly with the Mekong PrivateSector Development Facility (MPDF) and theCentral Institute for Economic Management(CIEM).

M4P Briefing Papers - Short, four page,summaries of research work aimed at a generalnon-technical audience

M4P Discussion Papers - more in-depth 20-30page reports on research projects coveringmethodologies, results and policy implications.These are aimed at practitioners and policymakers in the subject area of the research.

Soft copies of the below publications are avail-able at www.markets4poor.org. Hard copies canbe collected at the ADB office in Hanoi.

M4P Publications

No. 1

No. 2

No. 3

No. 4

No. 5

Upcoming MDB

No. 6

No. 1

No. 2

No. 3

Upcoming publications

No. 4

No. 5

MMWB4P BULLETINS

Adding Values to Vietnam's rice industry and Improving the Incomes of the Poor

Linking farmers to Markets through Contract Farming

Empowering the Poor by Strengthening Formal Rural Land Titles

Pro-poor Branding Labeling and Trademarks for Agricultural Products

Taking the next step: what influences the Decision of Household Businesses to

Formalize into companies

Migrant & Non-migrant workers: positions & opportunities

OTHER PUBLICATIONS

Entrepreneur – Overcoming poverty through enterprise (15 cases)

Institution workshop: Which institutions are critical to sustain long term growth in

Viet Nam? April 2004

Inception Workshop: Making Markets Work Better for the Poor, November 2003

Contract Farming

Entrepreneur – 50 case studies

172

MP4 WEEK 2005

For more information, please contact: Nguyen Kim AnhM4P, Asian Development Bank Vietnam Resident Mission 23 Phan Chu Trinh Street, Hanoi Tel: (844) 933 1374 Email: info@markets4poor.orgwww.markets4poor.org

No. 1

No. 2

No. 3

No. 4

No. 5

No. 6

No. 7

No. 8

No. 9

No. 10

No. 11

No. 12

No 1

No 2

No 3

No 4

No 5

No 6

No 7

No 8

No. 9

Upcoming papers

No. 10

No. 11

No. 12

No. 13

BRIEFINGS

Linking the Poor with Rice Value Chains,

Private Enterprises Formality and the Role of Local Government,

The impact of Land market process on the poor: Implementing De Soto,

The participation of the Poor in the Value Chain for Tea,

Efficiency and Effectiveness of Microfinance in Viet Nam - Evidence from NGO

schemes in the North and South Regions

Issues of Contracts: Applications to Value Chains in Vietnam

Lessons of Transition for Understanding the Functioning of Markets

Functioning of Markets and the Livelihoods of the Poor

Strategies For State-Led Social Transformation: Rent Management, Technology

acquisition and Long-Term Growth

Commercialization and Poverty Reduction

Participatory Livelihood and Market Assessment in Da Nang city

Labor Market Segmentation and Poverty

DISCUSSION PAPERS

The Participation of the Poor in the Value Chain for Tea

Private Enterprise Formality and the Role of Local Government

The Impact of Land Market Processes on the Poor: Implementing De Soto

Market Systems and Poor Communes

Factor Markets in Viet Nam: Capital – Labor – Land

Communication Strategy: Engaging and Connecting People

Agricultural Commercialization, Value Chains, and Poverty Reduction

Participatory Markets and Livelihood Assessment in Da Nang City

M4P - An introduction to the concept

Labor Market Segmentation and Poverty

The Participation of the Poor in Supermarkets and other Distribution Value Chains

Synthesis

Vietnam:

Towards Universal Social Protection:

Private Mechanisms to Reach the Poor

Policy Issues and Research Implications

Trends and Regional Variations in Household Consumption Patterns in Vietnam:

Analysis of Vietnam Households Survey data

Asian Development Bank

Viet Nam Resident Mission

Unit 701-706, Sun Red River Building

23 Phan Chu Trinh Str., Hanoi, Vietnam

C o n t a c t