Agrifood sector foreseen to continue its growth trajectory after pandemic

Matt Kovac - Executive director of Food Industry Asia

What are the implications of the pandemic for Vietnam's agrifood sector?

According to The Economic Impact of the Agri-Food Sector in South East Asia report by Oxford Economics, commissioned by Food Industry Asia, the Vietnamese economy is estimated to have grown in 2020, despite the situation.

However, ongoing developments of the pandemic, supply and demand risks, and fiscal risks are threatening to disrupt the growth of the sector, and to stimulate growth a rethinking on anything that could hinder recovery needs to be addressed. Such risks include the increase in prices for agricultural commodities and input costs for manufacturing and retail, which will pass through to distributors too.

Along with that, any other policy and new regulation that would be considered a major cost to the industry needs to be handled with care, so that it does not impact the industry further.

How does this crisis affect food demand and prices, especially with major commodities?

Governments around the region, including Vietnam’s, are under the pressure to tackle the fiscal deficits that have widened as a result of the pandemic. The agrifood sector in Vietnam also faces the risk of fiscal adjustments.

With Vietnam’s low prevailing sales tax rates by global standards, there are better prospects of a sales tax hike. This poses a significant risk to demand and the wider economic recovery, due to the high proportion of food spending in overall consumer baskets. More than a third of household spending in Vietnam is accounted for by food and non-alcoholic beverages, meaning a potential tax increase could dent demand.

How should we support farmers and organisations in the next months to protect them and prevent the health crisis from transforming into a food crisis?

Equipping farmers with the right digital tools, platforms, and new skills can help improve productivity of the agrifood sector. Some of these tools can help farmers monitor production, assess damage from natural disasters, and even implement early warning action protocols. It enables them to be both efficient and sustainable.

More importantly, a recovering agrifood sector requires growth throughout the entire industry. There are tremendous opportunities for the sector to tap into given the tools for innovation. The country will stand to benefit if it makes the right investments in the key trends that have been identified.

What are your recommendations for the government to help the agrifood sector overcome the challenges and stay resilient?

Vietnam needs to create a conducive and pro-growth trade environment to facilitate continued access to production and ensure food supplies remain open. The nation has seen a history of protectionist policies, but we have also witnessed amazing progress in terms of liberalisation which benefits domestic and foreign businesses. Conducive trade conditions mean that Vietnam can ensure a reliable food network for both consumers and producers.

Policymakers in the country should also review whether they are unintentionally setting up roadblocks for the industry. For example, measures like taxes on certain ingredients like sugar or banning exports of selected foods should be carefully considered. In early 2020 when the pandemic first hit, we saw how Vietnam had stopped accepting new trade contracts to protect food security.

While such fiscal or regulatory reforms seek to address some key health or trade problems in the country, as well as generate fiscal revenues, the history of such interventionist policies is littered with examples that have backfired because they hurt consumers, businesses, and the state treasury without delivering the intended benefits.

To succeed with such measures, the government and policymakers must engage in regular communication with stakeholders to be equipped with expertise and support that will enable them to develop effective policies and programmes that can better achieve intended outcomes.

As the Oxford Economics study on Vietnam has shown, the agrifood sector is a significant contributor to the economy, in addition to being a major employer and primary sector in ensuring the country’s food security. Any fiscal or regulatory measure should be considered in the context of supporting the sector to drive the country’s recovery and growth from the pandemic.

How can the agrifood sector adopt more technology and address logistics and supply difficulties?

Over the last few years, there has been a strong focus on the use of science and technology in Vietnam’s agrifood sector. While the use of technology still has room to grow, there are aspects of the sector that have benefited from the integration of modern technology.

Some of this includes big data, blockchain, plant growth monitoring cameras, environmental sensors, and automation in farming. Larger enterprises in Vietnam have also invested significantly in high-tech automation, including for watering machines and soil tillers. Vietnam has also made some advancements in gene technology in selecting and creating species of crops and livestock with high yield of good quality and resistant to diseases.

What is the outlook of Vietnam's agrifood sector in the second half of 2021?

As a key pillar of the national economy, Vietnam’s agrifood sector remains resilient during the pandemic, and has great potential to drive further economic recovery. According to the Economic Recovery Matrix in The Economic Impact of the Agri-Food Sector in South East Asia report, Vietnam placed second across 10 countries when it comes to the sector’s expected economic recovery, with a score of 6.6 out of 10, coming in just behind Singapore.

This is in part due to Vietnam’s early containment of the virus and minimised economic fallout. The sector had seen a 4 per cent growth in 2020, equivalent to a $3.7-billion increase in GDP contribution.

With this resilience even at the current challenging time, the sector is expected to continue growing. The pandemic is seen as an opportunity for Vietnam’s agrifood sector to drive the country’s economy to greater heights, promote food security and sustainable growth, while continuing to support over half of Vietnam’s entire workforce.