Investment in agriculture: Reasons for difficulties

Investment attraction is difficult despite advantages

In general, Vietnam is an agricultural country with more than 70 percent of its population living by agriculture. While industries and services have seen rapid growth in recent years, agriculture remained a ‘lifebuoy’ for the economy, especially in crisis periods from 1997-1999 and 2011-2014.

Owning a long coastline, dense rivers and streams and a tropical monsoon climate, Vietnam has many advantages for agricultural development. A large population with working-age people accounting for a majority offers another advantage for Vietnamese agriculture.

Apart from these advantages, Vietnam has put in place appropriate policies to attract investment into agriculture. The government promulgated Decree 61/2010/ND-CP in 2010 and Decree 210/2013/ND-CP in 2013 regarding the policy of encouraging businesses to invest in agriculture and rural development. On September 3, 2014, the Ministry of Planning and Investment (MPI) issued Circular 05/2014/TT-BKHDT guiding the implementation of Decree 210/2013/ND-CP.

Despite the above advantages, Vietnam still meets difficulties in attracting investment into agriculture. Data from the MPI’s Foreign Investment Agency show that by the end of this July, Vietnam has attracted 21,666 foreign direct investment (FDI) projects with total registered capital of US$293.3 billion from 116 countries and territories. These include 523 projects with total registered capital of US$3.57 billion in the agricultural, forestry, and fishery sector, accounting for 2.4 percent of the total number of projects and 1.2 percent of total registered capital.

Since the beginning of this year, Vietnam has attracted US$12.94 billion of FDI through more than 2,000 projects, including new and ongoing projects. However, the agricultural, forestry, and fishery sectors saw a decline in investment attraction, with only US$64 million into 16 projects, accounting for 0.8 percent of the total number of projects and 0.49 percent of total registered capital.

Survey reports show that not only foreign investors but domestic investors are also unwilling to pour their capital into agriculture. Most investment projects in the agricultural sector are small or very small in terms of capital. Nguyen Do Anh Tuan, Director of the Institute of Policy and Strategy for Agriculture and Rural Development under the Ministry of Agriculture and Rural Development, said small and medium-sized businesses accounted for 96.53 percent of agricultural investors, of which very small businesses with less than 10 employees each accounted for 50 percent.

So, despite great potential and advantages for agricultural development, Vietnam has faced numerous difficulties in attracting investment into agriculture.

Finding the reasons

There are various reasons to explain why the agricultural sector is not attractive to domestic and foreign investors. According to Associate Professor, Dr. Bui Tat Thang, Director of the Development Strategy Institute under the MPI, investment in agriculture is risky due to unfavorable conditions caused by epidemics, weather, and natural disasters. In his opinion, agricultural products are of low profitability, and the sale of agricultural products remains unstable due to a lack of cooperation between farmers and businesses as well as the weak participation of associations.

Atsusuke Kawada, Chief Representative of the Japan External Trade Organization (JETRO) in Hanoi, said that two or three years ago many Japanese investors showed their great interest in Vietnamese agriculture, but they faced a lot of difficulties when investing in this sector. They had to negotiate with farmers to collect land for their investment projects - this is quite different from the Vietnamese government’s policy and one of the reasons why the Vietnamese agricultural sector is not attractive to investors.

Regarding this matter, Dr. Nguyen Do Anh Tuan added that when they buy or hire land, businesses have to pay local residents first and then come to local authorities to fulfill necessary procedures to change the use of land, after that local authorities will grant certifications allowing businesses to rehire land. This means businesses have to pay double for the same area of land they hire.

Thai Huong, the Chairperson of the Board at the TH True Milk Joint Stock Company, complained that although the state has announced its policy of offering material import tax exemptions for businesses which invest in high-tech agriculture, TH True Milk still has to pay these taxes at a rate of five percent. Moreover, the company had to fulfill very complicated procedures when hiring land from farms and plantations that are managed by farmers.

Attracting investment into agriculture is a good policy to bring its advantages into play. To attract investment into this sector, however, apart from advantages and timely incentive policies, state authorities need to show strong determination in enforcing policies.

Nguyen Hoa