Vietnam conquers poverty with rice

With 70% of the population still living in the countryside, a successful rural economy is still the key to financial progress
Peter Collins, Business Times 1 May 08;

NOTHING illustrates Vietnam's remarkable economic turnaround better than its farm sector. In the mid-1980s, with farm collectivisation going horribly wrong, the country was on the brink of famine. But by the early 2000s Brazil, the world's largest exporter of robusta coffee, was astounded to find itself being overtaken by a country most of its people had barely heard of. More recently, Vietnam has surpassed India as the world's second-largest rice exporter after Thailand.

Vietnam's farmers have become important competitors in all sorts of agricultural produce, from nuts to peppers to rubber. They are even selling tea to the Indians. Its fishermen and foresters are also doing well by feeding the world's growing demand for seafood and timber (though not always sustainably). Vietnam's exports of farm, forest and fisheries produce rose by 21 per cent last year, to US$12.5 billion, and further growth is expected.

The success of Vietnam's economic transformation is often measured by the falling share of agriculture in the country's gross domestic product. Industry and services are indeed growing even faster than farming and absorbing its surplus labour.

Agriculture, forestry and fisheries now provide barely half of all jobs in Vietnam, compared with over two-thirds only 10 years ago. Even so, over 70 per cent of the population still live in the countryside, so a successful rural economy will remain the key to maintaining Vietnam's impressive progress on cutting poverty.

Vietnam's agricultural miracle was achieved by a simple but powerful device: the invisible hand of Adam Smith's free market. Having snatched the land from the people in the disastrous collectivisation, the government gave it back to them (evenly shared among households) on longish leases, starting in the late 1980s.

This was similar to China's agricultural reforms around the same time, which also greatly reduced poverty by giving small farmers exclusive rights to work their plots. However, in China the freehold of the land remains vested in local collectives, without a clear indication of who represents them. That allows unscrupulous local officials to sell land to developers from under the feet of farmers. In Vietnam the freehold remains with the central government, so such problems are rarer.

Creating large-scale and equitable land ownership - one of the biggest privatisations yet seen - was one of several steps that freed Vietnamese farmers to conquer the world, explains Vo Tri Thanh of the Central Institute for Economic Management in Hanoi. Another was the stabilisation of the economy in the mid-1980s, bringing inflation down from a hair-raising 1,000 per cent or so.

A third was the gradual liberalisation of farm prices. Also important, says Mr Thanh, was Vietnam's increasingly open trade policy.

None of this would have happened had Vietnam not had fertile soil and plentiful rains, with large tracts of coastal plain and river deltas ideal for cultivation. But Vietnam's experience shows that economics is as important as geography for agricultural success.

One reason why the remaining pockets of poverty in Vietnam are concentrated in the forested highlands is that the market-based agricultural reforms have been slowest to reach those parts. Some of the country's diverse ethnic minorities depend on foraging in the forests and until fairly recently were regarded by the authorities as wreckers rather than guardians of the woodlands.

In truth, say academics, plantation owners migrating from the lowlands have been more of a threat to the trees. The solution, being worked on rather slowly, is to give minority communities patches of forest to tend.

Until now the government and the international agencies advising it wanted farmers to move away from bulk commodities and diversify their crops faster. However, says Ajay Chhibber, the World Bank's boss in Vietnam, the recent recovery in commodity food prices should prompt a rethink. Perhaps, with the world crying out for just the sort of staples Vietnam is good at growing, it should stick to them.

In February President Gloria Macapagal Arroyo of the Philippines, which is struggling to feed its growing population, publicly asked Vietnam to guarantee its supplies of rice. The Vietnamese government is beginning to worry that diversification may have gone too far, with many rice growers in the Mekong Delta having switched to shrimp farming.

In Ba village, in the central province of Quang Ngai, Bach Ngoc Re, a 61-year-old farmer, is more than happy to go on growing rice on the two small plots that he and his wife were given in the land redistribution.

Standing barefoot in one of them, measuring just 810 square metres (8,700 square feet), he says he now comfortably gets 200kg of rice in each of the year's two harvests. And the price has been rising for four years. He got 3,000 dong (S$0.25) a kilo for his last crop, against 2,500 dong a year earlier.

The local officials who managed the land redistribution tried to share out the best and worst land fairly, so families often got several tiny scattered plots. Mr Re is lucky to have only two; in northern Vietnam the average family has six or seven. More recent land reforms have aimed to consolidate holdings to improve productivity: Vietnam's output may be impressive, but it takes far more input of labour than in neighbouring countries

Scott Robertson, an economist at Dragon Capital, says that time will solve the problem, because the children of today's farmers are getting an education and will find better jobs off the land. Moreover, many leases will come up for renewal in the next decade - Mr Re has only nine years left on his - which will provide opportunities for consolidation. A further leap in productivity will be needed just to maintain the current output because industrialisation is chewing up farmland on the edges of towns.

Vietnam's free-trade policies have increasingly exposed farmers to volatile world markets. They might enjoy more bargaining power if they clubbed together in producer cooperatives, says Atsuko Toda of the UN's International Fund for Agricultural Development, but farmers are resisting the idea because it reminds them of the failed collectivisation of the past.

Farmers in Vietnam are vulnerable not only to price swings but also to floods, drought and other natural disasters, yet attempts by insurance companies to create policies for them have not gone far. Their best insurance policy might be to diversify into non-farm cottage industries. Vietnam's government, like Thailand's, has been promoting 'craft villages' specialising in homespun products. The country's booming tourism industry could bring hordes of rich customers eager to buy such things.

Vietnamese farmers have concentrated so hard on quantity that they may be neglecting growing concerns about food quality and hygiene among rich-country consumers. Mr Nguyen of Indochina Capital, which is keen on investing in agribusiness, predicts that Vietnamese agriculture will soon face a 'quality-control crunch'. Consumer pressure will force farmers and food processors to make it easier to trace foodstuffs and use fertilisers and antibiotics more sparingly.

In the longer term, however, another, far bigger risk looms. Climate change could devastate Vietnam. Most of its farmland and population are near sea level and there is evidence that the sea is rising. The latest forecast by the UN climate-change panel envisages a 28-58cm rise in the sea along Vietnam's coast by 2100 but does not rule out a 100cm rise.

Vietnamese scientists say that would submerge one-eighth of Vietnam's land area, as well as making extreme (and crop-destroying) weather more common. -- The Economist

The writer is The Economist's South-east Asia correspondent