Development of agri-food sector needs untying knots in mechanisms

The agri-food industry has been maintaining high resistance to the Covid-19 pandemic, with the potential to boost economic recovery. It posted a growth of 4 percent in 2020, equivalent to a gross domestic product (GDP) contribution of US$3.7 billion.

Growing vegetables under the VietGAP standards in Cu Chi District in HCMC. (Photo: SGGP)

The pandemic remains complicated in the world, so it is necessary to take fiscal measures and policy mechanisms to promote the development of the agri-food sector. This is the result of the report "The economic impact of the agri-food sector in Southeast Asia" conducted by Oxford Economics under commission by Food Industry ASIA (FIA).

Lots of growth opportunities

According to the report by Oxford Economics, before the pandemic, Vietnam's agri-food sector has contributed greatly to the national economy with $86.4 billion to GDP in 2019. Currently, this industry is also providing 27.5 million jobs, accounting for half of the country's workforce, and is the most important source of job creation in the economy. Besides, the agri-food sector also contributes a total of $13.2 billion to the country's tax revenues.

In the context of the widespread pandemic, Oxford Economics stated that Vietnam is currently ranked second out of 10 countries on the expectation of economic recovery in the agri-food sector with a score of 6.6 on a 10-point scale, just behind Singapore. This is partly because Vietnam has prevented the spread of the Covid-19 pandemic quite early and reduced economic losses. The agri-food sector is still suffering from the pandemic, with a growth rate of 4 percent last year, equivalent to a GDP contribution of $3.7 billion.

Developing in the context that challenges interlace opportunities, but the restructuring of the agri-food sector in the direction of improving the value of agricultural products and linking production has brought positive results for the development of the agri-food sector of Vietnam in the past time. According to the General Department of Vietnam Customs, last year, exports of vegetables and fruits to Thailand reached $157 million, up to 209.7 percent compared to 2019. With such import value, Thailand has risen to third place in the largest markets for Vietnamese fruits and vegetables after China and the US.

Noticeably, in the opposite direction, the import of vegetables and fruits from Thailand in 2020 has decreased dramatically. In 2019, imports of vegetables and fruits from Thailand reached $487 million, then in 2020, it decreased sharply to only $78 million, down by up to 84 percent. Due to the sharp decline, Thailand has dropped from first place to third place, after China and the US, among the largest fruit and vegetable exporters to Vietnam. In 2020, for the first time, the export turnover of vegetables and fruits to Thailand has surpassed the import turnover from this country. It is also the first time that Vietnam has had a surplus of vegetables and fruits in this market. The vegetable and fruit products of Thailand and Vietnam are quite similar, and Vietnam still has plenty of room to penetrate this market.

Improving processing capacity and added value for agricultural products

The agri-food industry can create a great driving force for Vietnam's economic recovery after the pandemic, but it also poses risks of the market supply and demand, fiscal policy measures, and the prolonged pandemic can disrupt the recovery momentum of the economy in general and the agri-food sector in particular.

James Lambert, Director of Economic Consulting, Asia at Oxford Economics, said that recommended that, for Vietnam to continue to be one of the fastest-growing economies in the world, policymakers must provide the most conducive conditions for the agri-food industry to successfully rebuild itself. In the context that the economy is forecasted economic to face several difficulties this year, the Government of Vietnam should pay attention to this point when making any policies that may affect the agri-food sector. An increase in sales tax, for instance, can reduce the needs and economic well-being of Vietnamese households as food and beverages account for more than one-third of household expenditure.

The Executive Director of the American Chamber of Commerce in Vietnam (AmCham Vietnam) Mary Tarnowka also said that with the role as an important pillar of the Vietnamese economy, the agri-food has shown its high resilience with a strong growth rate. The crisis is also an opportunity for the agri-food sector to promote food security and sustainable growth. Vietnam should continue to diversify the agri-food sector as before the pandemic by improving processing capacity, creating higher added value in agricultural technology, manufacturing, and supplying services for the whole industry.

To take advantage and make the best use of the FTAs signed by Vietnam to expand the export scale, the Government has approved the project for the development of the fruit and vegetable processing industry in the 2021-2030 period. The project set a target that by 2030, the export turnover of vegetables and fruits will reach $8 billion-$10 billion. Of which, the proportion of export turnover of processed fruit and vegetable products will be above 30 percent; fruit and vegetable processing capacity will reach 2 million tons of products per year, nearly two times higher than that in 2020. The project also aims to attract new investment in 50-60 large-scale and medium-scale fruit and vegetable processing facilities by 2030; build and successfully develop some modern vegetable and fruit processing groups and enterprises at regional and international standards.

To achieve the above objectives, the task of the project is to promote investment in improving the fruit and vegetable processing capacity, develop facilities for preliminary processing and preserving of fresh fruits and vegetables, promote the processing of key fruit and vegetable products with high added-value, organize the production of material fruits and vegetables to serve the processing, and develop markets for vegetables and fruits.

Generally, some experts said that the Vietnamese agri-food industry has many advantages to make a breakthrough. Therefore, in the development strategy, the Government needs to strengthen preferential policies to encourage enterprises to boldly make investments, build brands, register copyrights, support enterprises to develop domestic distribution channels and trade promotion, and advertise brands in the international market. It is necessary to identify the barriers that make Vietnamese agricultural products unable to dominate the market, such as processing and product quality that has not been paid much attention to. Especially, domestic enterprises have not actually been “untied" in terms of taxes, mechanisms, and infrastructure. For example, Vietnamese rice is subject to a zero percent tax rate when exporting, but when retailing domestically, it is imposed a tax rate of 5 percent, causing the selling price to increase. As a result, it has failed to create price competition in the market. On the other hand, it is essential to invest more in rural transport infrastructure to attract investors.

Dr. Tran Hoang Ngan, Director of Ho Chi Minh City Institute for Development Studies:

Vietnam's agriculture has a lot of potentials, if we attract large investors to invest in agriculture, we will solve the problem of modernization, increase added value for agricultural products, and help the productivity of the whole country to be better. It is estimated that the current productivity in agriculture is only equal to 38 percent of the general labor productivity of the whole economy and accounts for about 40 percent of the total workforce of the country. Therefore, it is necessary to solve the traffic problem to be able to lead to agricultural development. The developed agriculture both provides Vietnamese brand export agricultural products and implemented well the strategy of food security and inflation control.