Green Economy: Still Nascent

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SaigonTimes English - 29 month(s) ago 6 readings

Green Economy: Still Nascent

As an important part of the green economy, agriculture in Vietnam deserves ample investment and needs appropriate development institutions so as to overcome cyclical difficulties

Green Economy: Still Nascent

By Dr. Vo Hung Dung (*)

Rice harvest in Phu Yen province. Agricultural products shipped abroad account for a quarter of Vietnam's total export and form the most important constiuent of the commodity basket of inflation
As an important part of the green economy, agriculture in Vietnam deserves ample investment and needs appropriate development institutions so as to overcome cyclical difficulties

The cycle of growth and recession is inherent to any economy. When it comes to agriculture, the cyclical process is very conspicuous: bumper crops easily lead to falling prices and vice versa. The industrial sector is no exception where industrial products apparently have even more obvious life cycles and cyclical property than farm produce. What makes a difference is those of industry have stronger resistance and better adaptivity due to managerial skills and policy support.

The importance of a particular sector cannot be fathomed accurately during a time of price crash. It is the interrelationship and the role that sector plays in interactive impacts on others that form the real benchmark. Over the past decade, the ratio of agriculture to gross domestic product (GDP) fell by 4% but its workforce plunged drastically by 17%. That means the rising productivity was due mainly to the restructuring process and abundant labor supplies. As these two factors will no longer be dominant, productivity in the agricultural sector will have to rely on knowledge and technology, which are formidable challenges.

In the next 10 years, the agricultural workforce is predicted to dive to 30% of the national labor pool. The ratio of agriculture will thus fall to presumably 10% of GDP. Expectedly, the future contingent of farmhands will accommodate more people who are older and have lower literacy. Being the lifebuoy of the economy during hard times, agriculture may thus turn out to be an economic burden.

Price hikes of agricultural products have to a certain extent triggered Vietnam’s spiral inflation. Farm produce has seen its price soaring due to rising demand, both from home and abroad, while the entire agricultural sector fails to meet demand.

Over the past 15 years, agriculture has occasionally dampened inflation, for instance, in 1999-2000 when rice prices slumped dramatically. Farmers responded then by cutting cultivated area to avoid “overproduction.” The relationship between the producer price index and the growth index of several commodities such as rice, seafood, domestic animals and poultry showed that every cycle of price crash decelerated growth. In some cases, the plunge was very deep, such as the 2004 bird flu. Contrarily, after a cycle of price hike, the growth index was on the rise and, in some cases, rose steeply. A further scrutiny shows that price rises would drop and the growth index slowed.

A close-up of the rice market

The recent rice price fall may be ascribable to increased production and the Indian takeover of the low-end rice market with her ample supplies and low prices. Several articles published in local newspapers have blamed farmers for ignoring specialists’ warns about planting excessive low-grade rice. To date, while Vietnamese low-grade rice is experiencing a glut, high-grade rice is in short supply.

In fact, both the authorities and citizens should be grateful to those “obstinate farmers” who defied specialist’ advice on getting rid of low-grade rice. Due to their “stubbornness” which ended up in low rice prices, inflation has been partly relieved and is not as high as it was in early last year.

The market is in fact much more complicated. If farmers in the Mekong Delta had planted high-grade rice on larger area than it was, would importers be willing to buy the rice at the current price, or would a price plunge follow? Foreign market penetration requires prudent steps and is by no means spontaneous “massive production” as was in the case of fish in 2006-2009 whose devastating aftermath is still lingering.

Should high-grade rice area soar, the national average productivity would plunge and rice production would drop. What will happen if the average production costs are higher than the current level? In case export is positive, the inflation pressure will be stronger. Otherwise, farmers will be the hardest-hit. But that doesn’t mean Vietnam should stay faithful forever to low-grade rice cultivation. The country should improve her crop profile and how it should be depends not only on soil conditions but also the master plan for competition strategy.

Getting rid of wrong tactics

During price crises, negative sentiment prevails and reactions are likely to go astray. Farmers’ most common response was cutting planting area. However, it will be a big mistake if policymakers and researchers take the same course as it will undermine the role of agriculture.

Vietnam has exported rice for more than two decades in which she has experienced price fluctuations and has at times come up with misleading policies. During every price hike, the policy reaction usually taken was to try to put a cap on prices. On the contrary, during price fall, officials and researchers maintained that the role of agriculture should be reconsidered in a certain way and agricultural investment should be reduced. Putting a grip of price would cut production in the next cycle and prices would spike afterwards. A cut in investment allocation for agriculture would strip this sector off its ability to meet new demand.

Agricultural products shipped abroad account for a quarter of Vietnam’s total export and form the most important constituent of the market basket of inflation. Every year, the authorities are filled with joy brought about by new achievements in the export industry, but few have ever been concerned with the fact that few farmers have become wealthy thanks to their rice or fish, let alone many are leading a miserable life.

In a time of price slump, investment reduction is the expected reaction from farmers. However, it would be disappointed if the Government addresses the problem the same way as farmers do. Food will always be a compelling need of humans. Vietnam’s advantages in the world’s rice production chain are the country’s great strength. Agricultural production depends largely on weather and there will never be weather all the time clement for agriculture. Surplus, if any, will remain a small part of the common demand. The right policy should be support for buying surplus rice when prices plunge so as to sell it when prices go up again. Such approach will help agriculture avert a sharp price fall and prevent a subsequent price fever. In agriculture, when prices suddenly soar, farmers earn the least profits. But during sudden price crash, farmers are the hardest-hit. Farmers need stability rather than overheated growth. They fret stagnation. Yet overheated growth is always followed by stagnation.

It takes time to become a green economy

“Green economy” is the term used to define one which relies more on nature and effective ecological application. In the green economy, the growth philosophy relates to environmental sustainability and better ecological effectiveness for humans’ sake.

Agriculture plays a significant role in this economic concept aside from supplying food. As part of the ecosystem, agriculture contributes significantly to environmental protection. Land overexploitation and abuse of fertilizers and chemicals in agriculture will not only be harmful to sustainable development in agriculture but also turn it into a polluter.

Striving for a green economy should be a long-term target which cannot be realized overnight and should require a transformational process, enormous capital and scientific progress capable of yielding high productivity friendly to, rather than hostile to, the environment.

So far, Vietnam’s agriculture has developed expansively and remains distant from being friendly to the environment. To change the status quo and be relevant to the green economy, it needs institutional mechanisms apart from investment. Institutions will give way to the connection between stakeholders and the long-term goals, which enhance their creativity and dynamism. In agriculture, it is tougher to install institutions than increasing capital investment.

As a typical example, farmers’ land ownership is currently a hard nut to crack, and this is merely the very first step on the long path to attaching agriculture to the green economy. That being said, why troubles have lingered in agriculture is comprehensible.

(*) Director of VCCI Can Tho

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