Foreign investors shun farm sector, say no support from authorities

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Farmers operate a combine harvester in her field in southern Vietnam

The deputy director of a foreign-owned fruit processor in Can Tho has a tale of woe about its experience in the country: His firm had eagerly invested in Vietnam a few years ago in the hope of finding a favorable business environment. But the situation turned out to be quite different. 

Local authorities had spoken about plans to earmark areas for certain crops to support investors, but they remain on paper, Saigon Times quoted him as saying.

Without this support, his company has struggled to remain in business. It has had to support local farmers with technologies for fruit production so that their products are of adequate quality to process for export.

He spoke about other companies who are no longer interested in remaining in the country after having to do a lot of the work that should have been done by the government to support investors.

Not surprisingly, foreign investment in agriculture has plummeted in the past few years.

According to the Ministry of Planning and Investment, FDI in this sector had accounted for 8 percent of total FDI in 2001, but has since fallen to 1 percent.

Bui Tat Thang, head of the ministry's Development Strategy Department, said: "The shortage of a long-term FDI attraction strategy, poor rural infrastructure, low quality of human resources, and high risks are major barriers to foreign investors in the agricultural sector."

In the current tough economic situation, fewer foreign businesses are interested in investing in the sector, he said.

Over $86.7 million worth of FDI came into the agricultural sector in the first 11 months of this year out of more than $20.8 billion overall, according to a recent report from the Foreign Investment Agency.

Economist Pham Chi Lan said even domestic firms are not interested in investing in the sector because profits are often lower than in industry and services.

They also face risks like price fluctuations, animal diseases, and natural disasters, she pointed out.

Indonesian-invested company, Japfa Vietnam, a leading breeding firm, which accounts for 90 percent of the chicken supplied in the country, ended contracts with farmers earlier this year.

Its general director, Nguyen Quoc Trung, said the company is scaling down its business in Vietnam by half since prices have kept falling below cost (of VND30,000 a kilogram) for the past two years.

A member of the Da Lat Flower Association said one reason for the difficulty in attracting FDI is the limited land for agricultural production and high rents. "The increasing land rent will become one of the biggest barriers to foreign investors in the locality in the coming years."

Le Dang Doanh, another economist, said Vietnam still finds it hard to zone large areas for agricultural production, which is a decisive factor in attracting FDI in the sector since regulations on land compensation, taxes, and investment incentives are unclear.

He said foreign businesses have not invested in bio-technology and new plant and animal strains, and have mainly invested in basic commercial projects to quickly recoup their investment and make profits.

The Ministry of Agriculture and Rural Development said foreign investors are switching from agricultural production to importing agricultural products for distribution in Vietnam.

Most foreign-invested projects sent to the ministry for assessment before being licensed are involved in exclusive import-export and distribution of agricultural products.

This is not a good trend for the agricultural sector, Doanh warned.

Change policies

Lan said the government, to attract more FDI in agriculture, should quickly change investment policies, which are not efficient. For instance, farmers' land holdings are too small to ensure a stable supply of raw materials to foreign processors, she said.

There are no big-sized agricultural zones to supply produce of good quality and in stable volumes, an issue that needs to be resolved to attract FDI, she said.

The country should also improve training for workers in the agricultural sector, industry insiders said.

Foreign investment in operational agricultural projects is estimated at $3.35 billion as of November 20 as against $229.23 billion overall, according to figures from the Foreign Investment Agency.

Foreign invested agricultural projects often have small size with FDI of only $6.6 million each, much smaller than the average that of $14.7 million in all projects, $130 million in property ones, and $17.6 million in banking and financial ones.

FDI have been often poured in animal husbandry, animal feed production, afforestation, woodwork production and seafood. Up to 78 percent of FDI in the agricultural sector has been poured into afforestation and woodwork production projects, said the ministry.

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