Vietnam to Set up Food Group?

Recently, the Ministry of Agriculture and Rural Development has proposed the establishment of a food group to deal with the volatility of rice prices. However, there are certain disputes on the formation of such a big entity which will require a large source of finance to be operational. It is also doubted ability of this entity in stabilising rice prices and ensuring food security in the future.

Enhancing capacity of agricultural sector

According to Deputy Minister of Agriculture and Rural Development Diep Kinh Tan, the scheme on the formation of the food group has been studied by the ministry for long because the food industry is always a backbone economic sector of Vietnam. To sell out rice, ensure a minimum 30 % of profit on rice cultivation and lift incomes of farmers by 2.5 times in 2020, the establishment of such a food group is necessary.

To ensure the above targets, Vietnam must build and develop a core food group able to intervene, dominate and stabilise the market; build a barn system capable of storing 4 million tonnes of rice in the Mekong Delta where new storehouses with a storing capacity of 2.5 million tonnes will cost VND6,500 billion and the repairing and upgrading of existing storerooms of 0.94 million tonnes will take VND469 billion. Food traders will also manage barns with an individual capacity of 5,000 to 30,000 tonnes. In addition, the country needs to invest in a new modern silo system capable of storing 800,000 tonnes and install modern drier systems to dry at least 10 million tonnes of rice a year by 2015.

Dr Hoang Tho Xuan, Director of the Domestic Market Department under the Ministry of Industry and Trade, said: The rice market stabilisation and food security are always a hard task for the agricultural sector. Currently, as rice distribution has many intermediary stages, merchants usually offer low rice purchasing prices. Indeed, it is necessary to restructure and professionalise this force and a State-run entity is needed to dominate and control it.

Feasibility

According to economic experts, this is one of major economic development projects because agriculture is a very important economic sector and Vietnam is now the second largest rice exporter in the world. Existing weak stages like sales, prime price, trading price, exporting price and market forecast need to be discussed carefully before reaching final decisions.

Organisational apparatus is also a concern for the feasibility of the project. The Ministry of Agriculture and Rural Development now has 16 corporations. Two of them have gone public, 12 have been transformed into limited liability and one merged with another (Vietnam Salt Corporation was merged with the Vietnam Northern Food Corp). Particularly, the agricultural sector currently has only one economic group, namely the Vietnam Rubber Industry Group (VRG).

After more than three years, VRG has mobilised nearly VND9,000 billion from other economic sectors in addition to initial State-owned equity of VND10,000 billion. The formation of another food group is now a good sign for the agricultural sector development because Vietnam is an agricultural country where more than 40 million tonnes of foods, including 38-39 million tonnes of rice, are harvested each year. Each year, Vietnam exports some 10 million tonnes of rice and uses up 30 million tonnes. A powerful food group will be an important economic entity to regulate the food market in Vietnam as well as international markets where it is a major player.

Mr Nguyen Dinh Tai, Director of the Centre for Corporate Management and Training Consulting under the Ministry of Planning and Investment, said: The establishment of an economic group needs an approval of the Government to ensure a high feasibility. Besides, the Government has completed the reshuffle of State-owned enterprises and the formation of a new State-owned economic entity may trouble organizational structure. Additionally, the financial capacity of a big economic group needs to be taken into account. The Vietnam Rubber Industry Group (VRG) has a capital of VND18,988 billion but it is not a big amount for a non-agricultural enterprise. Thus, the capital limit for the food group also needs to be weighed up and down. – VCCI

Tags: Vietnam Food Group