The Vietnamese government will issue a new circular to prevent FDI companies from buying agricultural products directly from farmers.
New circular limit FDI company access to agricultural products
Circular 8 issued by the Ministry of Industry and Trade will take effect from June 7 stated that FDI companies in Vietnam can only buy agricultural products from licensed Vietnamese traders unless international treaties, to which Vietnam is a party, stated otherwise.
According to the minister of Agriculture and Rural Development, FDI companies have taken over 70% of the animal feed industry.
In the Central Highlands, 12 FDI companies have exported 50-60% of total coffee production. The Louis Dreyfus Commodities' export volume alone accounted for over 40% of coffee export output in Gia Lai Province in 2012. The FDI companies also bought and exported 36.6% of the black pepper output last year.
Pham Quang Dieu, chief economist of the Agricultural Market Analysis and Forecast Company said many FDI companies only buy the product and did not invest in the agricultural resources despite their investment permit's requirement.
Meanwhile he said domestic companies, who have supported the farmers during the production process, lost due to FDI companies paying the farmers higher prices.
Dang Kim Son, head of Institute of Policy and Strategy for Agriculture and Rural Development said about 30 FDI companies are collaborating with the Ministry of Agriculture and Rural Development to support the farmers achieve better production output. If this circular went into effect, it could discourage firms from investing into the raw materials.
Philippe Bacac, CEO of Metro Cash and Carry in Vietnam said they are carrying out an aqua hygiene product project. The farmers would be given support including materials and skills training to meet EU standards. Bacac said they would not make any profits if they followed Circular 8.
A number of experts said the relations between domestic firms and farmers were still very vague and there was a lack mutual benefit in their relationships. Farmers earned too little so domestic firms should tighten their collaboration.
"We should learn from Indonesia. Their regulations stated that FDI companies are only allowed to buy from their own invested farmers and raw materials. Their permits will be revoked if they don’t make any investment within three years period," and expert said.
FDI companies have been able to dominate the market because of their superior supplies of capital and human resources. The authorities should find a reasonable way to encourage farmers, local firms and FDI companies to all benefit.
