Agriculture gets much-needed boost from legislators

New legal documents bring large incentives to agricultural investment but obstacles remain

Incentives in agriculture

Hi-tech agriculture is becoming an important sector for Vietnam in recent years. Many policies were enacted in 2018 to support and attract investment in agriculture, and credit is one of the factors needed to promote investment and develop this field.

According to the Provincial Competitiveness Index (PCI) 2017 compiled by the Vietnam Chamber of Commerce and Industry (VCCI) and the US Agency for International Development (USAID), only 56 per cent of agricultural enterprises had access to bank loans.

After the PCI 2017, Decree No.116/2018/ND-CP amending Decree No.55/2015/ND-CP on agricultural credit continues to expand the scope of subjects allowed to take up loans as well as available credit limits.

Hi-tech agriculture projects can be allowed to take up credit without providing collateral covering 70 per cent of the project value. In addition, the project owner can also use assets formed from the loan as a security asset.

In 2010, Decree No.02/2010/ND-CP only encouraged traditional agriculture. However, in 2018, this Decree was amended by Decree No.83/2018/ND-CP mainly about supporting technology transfer in agriculture. Therefore, such activities will be 100 per cent supported by the government in training cost and promotion in rural areas.

Besides hi-tech, organic agriculture is also gradually gaining importance due to the increasing demand for organic agricultural products.

However, enterprises producing organic agricultural products or clean products still face many difficulties because of rampant counterfeiting. Decree No.109/2018/ND-CP is the first legal document enacted to support enterprises producing organic agricultural products.

Accordingly, organic agricultural suppliers need to hire an agency to check and publish technical standards. The suppliers also need to follow the rules protecting labelling using phrases like “100 per cent organic,” “organic,” or “produced from organic ingredients.” If agricultural enterprises reach the organic standard set by the government, they will become eligible for financial support covering the cost of developing organic agricultural production.

Previously, agricultural production in Vietnam was mainly implemented by individuals, households, and cooperatives. Enterprises rarely invest in agricultural production due to the disadvantages in land rights, accounting, and financing obligations.

By issuing Decree No.57/2018/ND-CP, the government supports agricultural enterprises by giving them exemption or reducing land use fee, co-financing infrastructure construction or labour training.

Going a step further, connecting the production and consumption of agricultural products is also an important factor to develop Vietnamese agriculture. Decision No.62/2013/QD-TTg focused on building large agricultural areas and the programmes on connecting producers and consumers must be added to the planning approved by the government.

Another bright point is in agricultural insurance where the government has been piloting several initiatives since 2011. Additionally, Decree No.58/2018/ND-CP clarifies instructions for this sector, promising government subsidy in the areas of insurance for crops, livestock, and certain fisheries.

Accordingly, the government will advance 90 per cent of insurance costs for the poor and near-poor households and 20 per cent for individuals or enterprises taking part in large-scale cooperation applying technology and selected by the Prime Minister and provincial people's committees, when buying natural disaster and epidemic risk insurance.

Existing barriers

Although the change and new decrees bring incentives to agricultural enterprises, there still exist obstacles and new problems have been created.

To encourage investing and applying technology in agriculture or organic agricultural production, enterprises need to operate on a large scale. However, accessing agricultural land remains a barrier.

According to the PCI 2017, 76 per cent of agricultural enterprises faced difficulties in administrative procedures on land acquisition during the past two years. Complicated procedures to hire or buy land, inappropriate planning, and inaccurate information about land, among others, were the most prominent barriers for agricultural enterprises.

One of the biggest problems preventing investors is fake labels and intellectual property violations. There is a suspected black market for Vietnamese Good Agricultural Practices (VietGAP) certifications on clean agricultural products and functional authorities lax treatment of such violations cannot dispel the problem and costs consumer trust.

In addition, Decree No.98/2018/ND-CP has not fully addressed breaches of contract between producers and retailers. The available civil law compensation and administrative sanctions are not serious enough and are out of date.

The new and amended legislation shows the government's efforts to motivate agricultural development. However, the issues around the core factors, including property and intellectual property rights, contractual rights, and labelling have not been thoroughly solved yet. Once these barriers are removed, the Vietnamese agriculture will archive sustainable development.