Vietnam Agribusiness Investment Policy and

PromotionVienna

October 15, 2015Viet

INVESTMENT POLICY AND PROMOTION WEEK

Importance of Agriculture

2

One of the largest exporters in the world

Global Rank

(Total Volume)

Global Rank (

Total Value)

Cashews (shelled) 1 1

Black Pepper 1 1

Coffee (Green) 2 2

Cassava (Dried) 2 2

Rice 3 4

Rubber 4 4

Tea 5 7

Source : Based on FAOSTAT

low prices compared to global averages

Major Export Products

Average Export Revenues, US$/TonObservations

World Vietnam Value Gap

Rice $639 $514 $125 (20%)• Vietnam exports more than 7 million tons per year, but

vast majority is exported as bulk, low grades. More than 30% is sold under high-volume, low-price G2G contracts

Aquaculture products $2100 $1967 $133 (6%)

• Majority of seafood exports are filleted, graded and frozen, but average prices for Vietnamese seafood remain low, due to quality & certification concerns. Significant scope exists to increase exports of higher value fresh products, smoked products, etc.

Rubber $5307 $4189 $1118 (21%)

• More than 75% of rubber is exported as natural rubber, whereas in countries like Malaysia and Sri Lanka more than 75% of rubber sector exports are finished products like gloves, condoms & tires

Coffee $4037 $2191 $1846 (46%)• More than 80% of coffee is exported as bulk green

beans, most of this low-priced Robusta, whereas many other countries export higher-priced Arabica

Tea $3333 $1594 $1739 (52%)• More than 90% of tea is exported as bulk tea, not

blended or packaged

Average Export Revenues per Ton, US$, 2011

Source: FAOSTAT, FAO Fisheries & Aquaculture Statistics Yearbook 2012, UNCTAD/ITC Trade Map

Low productivity

Small farm, low tech

State farm workers

Tea SOE

Tea manufactory/company

Vinatea

Registered processing hh

Tea processing Limited Company or Stock company

Private export company

Export

Non registered processing hh

Processed tea trader

Retailer Supermarket

Domestic consumer

Contract farmers

Free farmers

Farmers of cooperative

Cooperative Exporter

Tea leaves/buds collector

Tea leaves/buds assembling stations

Leaves/bud trader

Tea Supply Chain

Source: Tea study (ADB)

7

Inefficient supply chains

Pork Supply Chain

8

• Environment issues

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Total investment

Investment in Agriculture, forestry and fishing

Investment in agriculture is low,

Source: GSO

Bil VND

11

Framework to evaluate & select the priority subsectors for FDI promotion

To what extent: ScoreEvidence

• Will additional FDI in this sector add value to Vietnam?• Will new investors add value that is not already

provided by local farmers & existing investors?1-5

Quantity & quality of existing farmers, SMEs and investors already operating

in this sector; impact of new investors on local SMEs in the sector

• Will new investors create additional jobs? 1-5 Potential jobs generated by new investments in this sector

• Will new investors increase farmer incomes? 1-5 Improved farmer incomes generated by new investments in this sector

• Will new investors increase export revenues or

reduce imports?1-5

Potential export revenues or reduced imports generated by investments in this

sector• Will new investors improve the performance of

the value chain as a whole?1-5

Potential impact on other parts of the value chain (improved inputs or

improved sales opportunities for farmers)

SUBTOTAL 5-25

• Does investment in this sector offer an attractive proposition for foreign investors?

• Is the market (in terms of demand, supply and prices attractive?

• Is the local and regional market attractive? 1-5 Demand, supply & price trends in Vietnam and neighbouring countries

• Is the global market attractive? 1-5 Demand, supply & price trends in major global markets

• Does Vietnam offer competitive supply conditions for investors in this sector?• Does Vietnam have competitive natural

endowments (land, climate, location etc.)?1-5

Availability of suitable raw materials, land, climate, proximity to key markets,

etc.

• Does Vietnam have competitive infrastructure? 1-5 Availability and cost of power, transport, manufacturing sites, etc.

• Does Vietnam have competitive skills &

supporting services?1-5 Availability & productivity of suitable workforce and supporting services

• Does Vietnam offer a conducive business

(regulatory/institutional) environment?1-5

Absence of regulatory or institutional barriers that might deter investors or

hinder their performance

SUBTOTAL 6-30

Overall Evaluation: 11-65

Subsector Prioritisation Criteria

Evaluation Key:5 =

Very positive

4 =

Positive

3 =

Neutral

2 =

Negative

1 =

Very negative

Note: weightings for each criteria can be adjusted based on priorities; analysis presented in this report assumes equal weigh t for each criteria

Vietnam Agribusiness: Investment Policy and Promotion

12

Combining the scores for each subsegment yields the following conclusions – for the crop subsectors…

Subsegment

Value for Vietnam Value Propositionfor Investors

OverallLack of

existing

investors

Extra jobsFarmer

incomes

Trade

balance

Impact on

value-

chain

Local

market

Global

market

Natural

assets

Infra-

structure

Skills &

services

Business

environ’t

Seed

production17 17 34

5 1 4 2 5 2 3 4 5 2 1

Agrochemical

production16 18 34

2 1 4 4 5 2 2 3 5 5 1

Commercial rice

farms12 19 31

1 1 2 4 4 1 4 3 5 5 1

General rice

mills10 20 30

1 1 2 2 4 2 3 4 5 5 1

Specialty rice

mills 21 24 45

4 2 5 5 5 2 4 5 5 5 3

Rice products

manufacturing 19 25 44

3 3 3 5 5 3 4 4 5 5 4

Commercial

coffee estates13 18 31

2 1 2 4 4 1 4 2 5 5 1

Robusta coffee

mills9 18 27

1 1 2 2 3 1 3 3 5 5 1

Arabica coffee

mills18 21 39

4 2 4 4 4 2 5 3 4 3 4

Instant/ground

coffee mfg.11 22 33

1 2 2 3 3 1 3 4 5 5 4

Fruit/flower/veg

farms20 23 43

4 5 3 4 4 3 5 4 3 4 4

Fruit/flower/veg

storage/packing24 25 49

5 5 5 4 5 3 5 5 3 5 4

Fruit & Veg

processing24 23 47

5 4 5 5 5 2 4 3 5 5 4

Evaluation Key: 5 = Very positive 4 = Positive 3 = Neutral 2 = Negative 1 = Very negative

Vietnam Agribusiness: Investment Policy and Promotion

13

The subsegments that offer the most value to Vietnam and the best value proposition to investors appear to be as follows

Attractiveness of Value

Proposition for Investors

Value of FDI

for Vietnam

Prioritisation of priority subsegments for proactive FDI promotion

Seeds

Agrochemicals

Rice farms

General

rice mills

Coffee farms

Robusta mills

Coffee processing

Fruit/veg/

flower farms

Dairy

ranchesMilk

processing

Dairy products

Animal

meds/vets

Feed crops

Feed processing

Specialty

rice mills

Rice products

Arabica mills

Fruit/veg storage/packing

Fruit/veg processing

Fish

farms

Fish grading/packing

Fish processing

Priority subsegments

FDI would valuable for Vietnam, but proposition for investors is unclear

14

The sector scan also identified a number of policy implications for increasing FDI in agriculture

Policy implications for increasing FDI in agriculture

1. Fiscal incentives and government support

2. Investment promotion capacity

3. Regulations restricting operations of foreign investors in key parts of agribusiness value-chains

4. Establishment & enforcement of standards

5. Import tariffs on inputs

6. Continuing role of SOEs in many agribusiness value chains

Other policy implications – for increasing farmer incomes

7. Price-sharing formulae or equity/profit shares for farmers

8. Joint industry funds for R&D and marketing

Key policy implications

Vietnam Agribusiness: Investment Policy and Promotion

Vietnam Agribusiness: Investment Policy and Promotion

Progress to date:• Adopted our recommended list of sub-sectors as FDI priorities. • Now working on several key reforms highlighted in our scan, namely building

investment promotion capacity, establishment and enforcement standards, State Owned Enterprise reforms, price sharing and promoting linkages between FDI and local agri firms.

• Our recommendations regarding building investment promotion capacity are reflected both in the FDI policy Decree and have been subsequently translated into a concrete action by MARD through the recent establishment of an Investment Promotion Task Force.

• The FDI Policy Decree now been formally approved by MARD’s Minister.• MOU with Dong Thap Province

THANK YOU

INVESTMENT POLICY AND PROMOTION WEEK