Modern strategies vital for agricultural funding surge

Modern strategies vital for agricultural funding surge

Le The Binh, investment promotion specialist at Capital Asset Management Co., Ltd. (CAM) told VIR that Japanese enterprises are paying attention to funding opportunities in the high-tech agricultural sector in Vietnam.

However, after numerous years of a CAM fund devoted to implementing the investment promotion programmes to attract Japanese enterprises in Vietnam, effectiveness has not been as hoped.

“Japanese enterprises want to expand investment in the country, especially in high-tech agriculture, to capitalise on the sector’s potential but they continue to hit barriers during the implementation of their plans,” Binh said.

In the first five months of this year, the agro-forestry-fishery sector accounted for the lowest ratio of foreign direct investment inflows. According to the Foreign Investment Agency under the Ministry of Planning and Investment, $81.9 million across 19 projects entered the country this year by the end of May. The accumulated figures as of May in the sector are 505 projects worth $3.69 billion. The figures for the agricultural sector in particular are much smaller compared to the total invested amount.

According to Binh, the agricultural sector has yet to attract many investors because the sector can be plagued with numerous risks relating to natural calamities and diseases, while the incentives in term of land hiring fees and taxes are not attractive enough.

Ambassador of Japan to Vietnam Yamada Takio said, “The biggest barrier is the instability in rental land. Around 80 per cent of Japanese firms with investment in high-tech agriculture face problems related to cultivating land.”

Landowners have asked investors to return the land even before rent agreements expired and have even increased rents when the two parties failed to reach a compromise. Furthermore, landowners use land as collateral for secured loans and when they are unable to repay debts, the land is revoked. In many cases, the partners signing the land rent agreement are not the landowners.

Policy shake-up

In an attempt to address some of the issues, last month the Ministry of Planning and Investment began collecting the opinions of ministries and other relevant authorities for a draft decree on mechanisms and policies to attract investment into agricultural and rural development, which will replace the existing Decree No.57.2018/ND-CP on encouraging investment into rural and agricultural development.

The draft decree covers many types of new incentives regarding the renting of land and water surfaces, credit, transfer, and the application of high technology, human resources training, market expansion, and investment in the manufacturing of agricultural machinery and equipment.

In the past, the government has issued resolutions to encourage cooperation and association in the production and consumption of agricultural products. The new decree will focus more on preferential mechanisms and policies on hiring cultivated land, business premises, tax incentives, credit support, labour training, market development, and investment in infrastructure.

Nguyen Dinh Tung, CEO cum general director of Vina T&T Import and Export Trading Service Co., Ltd, which specialises in exporting fruit to the US, Australia, and Canada, told VIR about the disadvantages for overseas investors when they look to enter Vietnam – including some that may not be covered by any upcoming regulatory changes.

Failure, said Tung, often comes from lack of relations with farmers via cooperatives. Investors also face difficulties in finding large enough arable land areas.

Meanwhile, domestic enterprises find it easier to work with cooperatives in order to ensure stable and diverse supply sources.

For example, Vina T&T decided to sign contracts of product consumption according to the company’s export ability with cooperatives in the area, with stable and higher prices than the market. At present, the company is expanding growing areas across the country, for example, longan in Dong Thap, rambutan in Ben Tre, mangoes in Vinh Long, star apples at Soc Trang, and dragon fruit in Tien Giang. These provinces are in the Mekong Delta region.

“The cooperative model has numerous advantages, because farmers have much experience in cultivating high-quality fruits and their family members will also join in the cultivation progress,” Tung said. “In addition, growers have progressive ideas which may not work well on a small scale. For this reason, they want to link up with enterprises to ensure output with a reasonable price.”

Tung added that it is difficult to persuade households to join cooperatives in order to work with a company, and thus the company has to be flexible.

“For example, I had to go to each household to convince them to join the cooperative, and I had to study the cultural characteristics of each locality before talking with them. In this situation, the domestic enterprises have more advantages thanks to understanding the domestic culture,” Tung said.

Inevitable trends

Understanding these disadvantages, savvy foreign investors have often arrived in Vietnam in search of domestic partners to help them out, but recent restrictions on travel have thwarted many efforts.

A survey by the Japan External Trade Organization, which was published just before the pandemic occurred, showed that 70 per cent of Japanese enterprises in Vietnam wanted to expand investment in the country, especially in the field of high-tech agriculture. This looked set to open up huge opportunities for domestic agriculture to develop, but several months later the pandemic put paid to many of their plans.

Before that, a number of big deals were signed. In late 2018, Sojitz Corporation spent $35 million buying 10 per cent stake in The Pan Group, one of Vietnam’s leading agricultural and food companies.

It proposed to provide pig breeding households with a management application using an IT platform, helping farmers adjust feed amounts and track the animals’ health via their movements.

The Sojitz project was part of the Japanese government’s plan to inject $4.75 billion into 23 projects in nine ASEAN nations.

Sojitz Vietnam said at the time that Vietnam’s agricultural sector has great potential for development thanks to fertile soil and diversity in crop plants. The country also has policies to promote this sector’s growth. Via using experience and technology from Japan, Sojitz Vietnam will support domestic partners, including The Pan Group, to establish the food value chain and expand the distribution system.

Binh at CAM said that these days, investors are more likely to seek domestic partners rather than fully invest into projects in Vietnam. “However, only a small volume of deals can get to the final round because of problems in investment promotion progress, lack of transparent information from domestic partners, and lack of support from authorities,” Binh said.

Explaining the situation, he said that demand and supply have to be brought together through more effective investment promotion programmes.

“Parties can organise numerous bilateral business meetings, but most of these meetings are not effective. We need meetings involving more enterprises to allow better networking. Domestic enterprises have to prepare carefully the dossiers about their operation, business strategy, and their expectations before negotiating with foreign investors,” Binh said.

Another way, he added, is organising “shark tank” programmes to help startups that are not successful in calling for investment in order to help domestic companies look for suitable partners.

Although new policies are gradually being completed, more incentives are needed to promote mergers and acquisitions activities involving foreign investors.

“Last week, the prime minister asked state authorities to cut their expenses on organising meetings and business trips both domestically and overseas by half to save money during the pandemic. This will reduce the number of investment promotion events. Instead, we should have policies to encourage organisation of negotiations for specific deals,” Binh said.

“The authorities need to accompany enterprises from the stage of completing investment procedures and throughout operations, understand their difficulties, and build solutions to deal with their problems instead of just using slogans that they are committed to creating the most favourable conditions for investors.”