1. How would you comment on Vietnam's advantages and disadvantages in attracting FDI into the agriculture sector?
In the general growth of the whole economy in the first 6 months in 2021, the agriculture, forestry and fishery sector increased by 3.82% over the same period last year (contributing 12.15% to the overall national growth).
Recently, the Government has issued many policies to attract businesses to invest in the agriculture sector. For example, enterprises with special agricultural projects that rent or sub-lease land and water surface from households and individuals to implement investment projects are entitled to the Government's investment incentives. The country will provide funding equivalent to 20% of the land rent and water surface rent for the first 5 years since the project is completed and put into operation. Or, the government supports agricultural product processing establishments, livestock and poultry slaughter establishments with 60% of the investment capital and not more than 15 billion VND/project to build infrastructure for waste treatment, transportation, electricity, etc.
Human resources are not maximized: Abundant labor force is an advantage, but vocational training programs and projects are not really appropriate and effective, so the quality of labor is still low. In 2020, untrained agricultural, forestry and fishery workers was around 12 million people, accounting for 89.97% of the total number of agricultural, forestry and fishery workers in working age.
Small production is still the majority, quality of products is not high: Development and production is still scattered and small. Most of the production units are of small scale with low investment capital, so the production and business efficiency is not high.
Environmental pollution is still a big issue: The production of agriculture sector has revealed more and more clearly the weaknesses in protecting the ecological environment in recent years. The collection and treatment of waste are still inadequate. The disposition of bottles and packaging of pesticides right in fields, lakes, ponds, canals, rivers and streams is quite common. In 2020, there are 4,096 communes nationwide that do not have a collection point for bottles and pesticide packaging, accounting for 49.37% of the total number of communes in rural areas.
Non-advanced agricultural technology: most (if not all) of agricultural production remain outdoor, making it easily directly affected by risks from natural disasters, epidemics (in cultivation and animal husbandry, aquaculture) at any time, affecting production and profits of enterprises.
2. Under Decision No.255/QD-TTg approving the Plan on restructuring the agricultural sector in the 2021-2025 period, the country would focus on developing sustainable agriculture as well as enhancing quality, added value, and competitiveness of local agricultural product. From this, how do you forecast some prospects for appealing FDI in the agricultural sector in the years to come?
According to Decision 255, the following fields will be of focus in the next 4 years:
- Cultivation field
Vietnam aims to increase the proportion of fruit trees to 21%, vegetables to 17% to meet the consumption demand of the market, contributing to ensuring national food security.
- Livestock field
Adjust the structure of livestock herds, aiming to reduce the proportion of pigs, increase the proportion of poultry and herds of cattle.
- Fishery field
Promote offshore agriculture, focusing on objects of high economic value; development of organic aquaculture.
- Salt industry
To renovate, upgrade and modernize infrastructure, apply technical advances to increase production of industrial salt and clean salt; to form a key industrial-scale salt production area in the South Central provinces; sharply reduce the area of manual salt production, converting inefficient salt production areas to other areas with higher economic efficiency.
3. It can be said that one of the bottlenecks of investment into the agricultural sector is the local mindset. What are the solutions to overcome the barriers and attract more foreign investors into Vietnam's agricultural sector?
- Creating investment incentives for FDI projects in the agricultural sector, for example: preferential loans for projects investing in developing raw materials for the sector, projects that apply biotechnology; support scientific research activities, tax incentives, land levy.
- Applying guarantee mechanisms for FDI businesses, work with banks to create favorable access of foreign companies to private capital.
- Developing support mechanism for projects suffering from natural disasters or at risk of market price fluctuations.
- Developing one-stop-shop regulations for FDI investors, simplify investment procedures especially with regard to land clearance.
- Developing the vocational training system in rural areas. Vietnam has a lot of protocols with other countries in the EU aiming at the exchange of agricultural knowledge in various forms that should be maximized.
- Promoting the role of local organizations in supporting FDI investors to approach local farmers.
4. As FDI into the hi-tech and sustainable agriculture is considered as a current trend and solution. What have been the main concerns of foreign agribusiness regarding sustainable development?
The biggest difficulty when investing in agriculture for FDI enterprises is securing agricultural land. Even when there is a land fund for agriculture, the procedures are also relatively time consuming and difficult. In addition, the transportation of agricultural products between production place and consumption place is still difficult due to the lack of synchronous infrastructure.
Currently, foreign investors are not allowed to receive the transfer of agricultural land use rights, are not allowed to rent agricultural land directly from households, nor are they allowed to use this leased land as collateral for loans, leading to limited access to land resources and it is impossible for foreign investors to form a large enough land area to implement big projects. Nevertheless, in some localities, if there are land funds, priority is given to the planning of industrial parks because they will generate higher and faster revenue.
5. Which strategies should the Government adopt in the 2021-2025 period in order for the country to realize those targets?
Besides those mentioned in Answer 2 above, some other recommended strategies include:
- Guide e-commerce trading floors to facilitate sellers and traders of agricultural products to join the floor; and
- Promote the application of high technology in transporting agricultural products. Currently, the process of transporting and exporting agricultural products often damages about 40% of products, causing great cost to the economy.
Please do not hesitate to contact the author Dr. Oliver Massmann under firstname.lastname@example.org. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.