Solutions to strengthening forestry-agricultural exports to China market

TRADE SCIENCE REVIEW 1 Trade Science Review ISSN 1859-3666 Volum 4, Number 1 June 2016 Editor in chief Nguyen Bach Khoa Vietnam University of Commerce Deputy Editor in Chief Editorial Boad Le Xuan Ba Central Institude for Economic Managerment Nguyen Dinh Huong Union of Science and Technology Associations Nguyen Hoang Long Vietnam University of Commerce Nguyen Mai Vietnam Economist Association Luong Xuan Quy Vietnam Economist Association Do Minh Thanh Vietnam University of Commerce Tran Dinh Thien Vietnam Institute of Economics Nguyen Thi Doan The Office of State President Nguyen Thi Bich Loan Vietnam University of Commerce Pham Vu Luan Ministry of Education and Training Bui Xuan Nhan Vietnam University of Commerce Dinh Van Son Vietnam University of Commerce Dinh Van Thanh Trade Research Institute Nguyen Quang Thuan Vietnam Social - Humanity Academia Contributors in abroad H. Eric Boutin Toulon Var University - France Nguyen The Tam California State University - USA ZHANG Yujie Tsinghua University - China WASHIO Tomoharu Kwansei Gakuin University - Japan HAASIS Hans Dietrich - Institute of Shipping Economics and Logistics (ISL) Bremen - Germany With a population of over 1 billion, China is certainly a huge potential market. In recent decades, the country has grown at a remark- ably high rate. China is a close neighbor shar- ing the border with Vietnam, both countries are situated in Asia-Pacific - a region with the most dynamic economic development in the world. The Vietnam-China trade relationships have been normalized and developed strong- ly since the two nations signed Vietnam- China Trade Agreement in 1991. Especially since China and ASEAN signed Framework Agreement on Comprehensive Cooperation ASEAN-China in 2002, in which China grants preferential treatments to ASEAN countries in its early harvest programs, the relationships between Vietnam and China have gone through new progress. 1. Situation of forestry-agricultural exports from Vietnam to China Vietnam and China started their diplomat- ic relationships in 1950, signed trade agree- ment in 1991. Since then, the trade relation- ships between the two countries have gone through new developments in many fields, especially trade. First off all, we would like to work out an overall assessment on the imports - exports between Vietnam and China in the 2012 - 2015 period. Export turnovers between Vietnam and China have increased constantly over the years since the two countries signed bilateral trade agreement in 1991. However, Vietnam has always run a deficit in its balance of trade with China as we have always imported big volumes of goods and services from our neighboring country. The main exports of Vietnam to China are mostly semi-processed agricultural and mineral products while we have to import high-tech, big-value items 30 Trade Science Review 4:1 (2016) 30 - 37 TRADE SCIENCE REVIEW ’S TSR Solutions to Strengthening Forestry-Agricultural Exports to China Market Pham Minh Dat Vietnam University of Commerce Email: minhdat@vcu.edu.vn Received: 28th August 2015 Revised: 30 th December 2015 Strengthening the exports of forestry-agricultural products represents a strategic targetin Vietnam's economic development in the coming time. A particularly large market like China will be a potential market to Vietnam's forestry-agricultural exports. The article generalizes the situation of exporting forestry-agricultural products of Vietnam in recent time, on this basis suggests some solutions to strengthening its exports in the near future. Key words: exports, forestry-agricultural products, China such as industrial machines, petrol, cars, motorbikes, car and motorbike components, fertilizer, pesticide, etc., which brings much higher turnovers than those of exports from Vietnam to China. According to statistics by Vietnam Customs, the total trade turnover between Vietnam and China reached US$58.9 billion in 2014. It is estimated to top US$65.77 bil- lion in 2015, increasing by 11.9% against 2014, of which exports from Vietnam to China are estimated at US$16.78 billion, increasing 12.6% and imports at US$48.98 billion, increasing by 11.7%. In terms of imports, China continues to be Vietnam's biggest importing market. The aver- age growth rate of imports from China in the period of 2011 - 2015 was roughly 19.5% a year. Major imports from China include machinery and equipment, spare parts, garment and textile, cotton and garment components, footwear, steel, steel and iron products, elec- tronic computers and components, chemical fertilizers, processing industry products, etc. Export growth from Vietnam to China is expected to reach 12.6% in 2015, a positive growth in the context that China's economy has slowed down and appeared serious insta- bility in macroeconomy (stock market has gone down, foreign trade turnover and for- eign reserves have reduced, investors tend to withdraw from China market, etc.) The exported products of Vietnam to China can be categorized into 3 groups, including: forestry-agricultural products (accounting for 31% of export turnover in 2011-2015 period); fuel, material and mineral products (accounting for 15%); processed industrial products (accounting for 45%). In 2015, the exports of fuel and material prod- ucts such as crude oil, coal reduced sharply in accordance with the policy of reducing crude minerals of the Government. Forestry and agricultural products repre- sent the traditional exports of Vietnam, play- ing an important role in the overall trade rela- tionships between the two countries. In the period of 2011 - 2015, exports of these prod- ucts account for nearly 31% of Vietnam's total export turnover to China, increasing from US$3.7 billion in 2011 to an estimated US$4.5 billion in 2015. The proportion of these products in the total export turnover remains quite stable to the previous period from 2006 to 2010. In 2015, export turnover of forestry and agricultural products is esti- mated at nearly US$4.5 billion, increasing by 25% from 2014, accounting for 26.8% of the total export turnover from Vietnam to China. Among forestry and agricultural products, vegetables are items bringing in stable and big turnover. Particularly in 2015, thanks to a sharp increase in the demand for these prod- ucts in China, export value of Vietnam's veg- 31 Trade Science Review TRADE SCIENCE REVIEW ’S TSR Table 1: Export-import revenues from Vietnam to China between 2011 and 2015 (Unit: million USD) Source: Ministry of Industry and Trade 2011 2012 2013 2014 Estimated for 2015 Total revenues 35,718.752 41,172.590 50,213.705 58,773.566 65,769.139 Exports 11,125.034 12,387.816 13,259.368 14,905.643 16,784.575 Imports 24,593.718 28,784.773 36,954.336 43,867.922 48,984.563 etables to China has risen strongly in compar- ison with previous years. In the first 10 months of the year, their export turnover reached US$989.674 million, an increase of 268.8% against the same period of US$368.237 million. The exports of fresh fruit and vegetables to China have increased strongly because Vietnam mostly exports these products via border routes through border gates of neigh- boring provinces such as Yan Nam, Guangxiao, etc. rather than through official ones to enter China's market. When exporting via unofficial cross-border routes, Vietnam can enjoy tariff preferences that China spends on goods exported via border routes and can also reduce preservation fees required for such perishable products as fresh fruit and vegetables. The exports of fruit and vegetables to China have always been stable in terms of turnover. They have always accounted for a high proportion in the total fruit and veg- etable export turnover of the country. In the first 11 months of 2015, the proportion reached 64.86% of the country's total turnover. As for cashew nut: Vietnam is the second biggest cashew nut exporter in the world, after India. China is one of the major markets for Vietnam's cashew nut (rank second after the US), accounting for a high proportion in the total cashew nut export turnover of Vietnam 32 Trade Science Review TRADE SCIENCE REVIEW ’S TSR Table 3: Proportion of cashew nut exports to China in the total cashew nut export turnover in 2011 - 2015 Unit: million USD Source: Ministry of Agriculture and Rural Development and calculation by authors Table 2: Export turnover of fruit and vegetables to China market in 2011 - 2015 Unit: million USD Source: Ministry of Agriculture and Rural Development and calculation by authors 2011 2012 2013 2014 First 11 months of 2015 Total export turnover of Vietnam fruit and vegetables 622.576 828.937 827.043 1491.109 1670.248 To China 146.119 218.062 302.250 435.741 1083.403 Proportion (%) 23.5 26.3 36.5 29.2 64.86 2011 2012 2013 2014 First 11 months of 2015 Total cashew nut export turnover of Vietnam 1473.145 1470.343 1470.243 1995.063 2191.743 To China 300.389 289.225 299.745 313.303 304.451 Proportion (%) 20.4 19.7 20.4 15.7 13.89 Cashew nut exports of Vietnam to China market in this period does not show consider- able growth in export turnover as our prices are lower than those of other countries. Besides, Vietnamese enterprises were not quick enough in catching information of China market but signed contracts to sell cashew nut to China for the whole year with low prices (the highest price was only US$4 a kilo), so when cashew nut prices increased highly at the year end (US$5 a kilo), they had to suffer an average loss of US$300 a day. As for rubber: exports to China account for an average 51% of the country's total rubber export turnover to the world in the 2011-2015 period. In 2015 alone, the exports of this product to China is estimated at 522 thousand tons with turnover of US$724.9 million, rep- resenting 49.3% of the country's total rubber export turnover in this year. China is now the biggest rubber-consuming market in the world, followed by India and Japan. The country consumed around 4.8 million tons in 2014, increasing by 13.1% over the same period of 2013, accounting for 39.1% of the world consumption and is expected to increase to 6.8 million tons in 2018, of which a considerable amount of natural rubber is imported from Thailand, Indonesia, Malaysia, etc. with the total import volume of 2.61 million tons in 2014, making up for 54.8% of the total consumption in 2014. As for rice: with favorable climate, Vietnam always ranks second in the world in rice export volume (after Thailand), of which exports to China account for an average 24.9% of the total rice export turnover of Vietnam in the entire period of 2011 - 2015. In 2015 alone, rice exports to China is expect- ed to reach 2.3 million tons with turnover of US$945, accounting for 34.5% of Vietnam's total rice export turnover in this year. 2. Overall evaluation of forestry-agri- cultural exports of Vietnam to China In terms of export turnover: export turnover of Vietnam's forestry and agricultur- al products to China market has increased over the years. Forestry and agricultural prod- ucts, which have long been Vietnam's key exports to China, are now subject to tariff reduction from China, so the competitiveness of Vietnam agricultural products has been strengthened and accounted for an increasing- ly large proportion in the total forestry-agri- cultural export turnover of Vietnam. In terms of agricultural product structures: currently natural rubber still remains No.1 exported product of Vietnam to China in terms 33 Trade Science Review TRADE SCIENCE REVIEW ’S TSR Table 4: Proportion of export turnover to China market in the total rubber export turnover in 2011 - 2015 Unit: million USD Source: Ministry of Agriculture and Rural Development and calculation by authors 2011 2012 2013 2014 First 11 months of 2015 Total rubber export turnover of Vietnam 3234.706 2859.876 2859.898 1780.610 1368.300 To China 1937.566 1326.472 1129.422 746.926 680.527 Proportion (%) 59.9 46.4 39.5 43 49.74 of volume and value. This is because China now has bigger demand for these products in serve for its fast-growing automobile industry. Annually, the country imports around 60% of Vietnam's total rubber export revenue. After rubber there come cashew nut and fruit and vegetables, the turnover of which are quite high (over US$30 million a year). Vietnam is the world's second biggest rice exporter so via China market, Vietnam can export its rice to China's neighboring coun- tries and African nations. China is now importing more rice from Vietnam to meet its domestic demand and increase exports to the third party. Although export turnover of forestry-agri- cultural products of Vietnam to China market has gained high and stable growth, there are some main limitations as follows: + Most exports are crude products or semi- processed products with low prices, low com- petitiveness because preservation and pro- cessing technology after harvest is backward, forms and models are not appropriate to con- sumers' tastes and there are no good brands. + Forestry and agricultural production is dispersed rather than concentrated. + Vietnam forestry and agricultural prod- ucts do not have good brands, partly because production scale is small, so enterprises do not have enough budget to build up brands, also because they do not have sufficient awareness of the roles and values of branding in international trade. + Export activities to China market still remains unofficial, depending on individuals, specific slots, seasons and crops. Enterprises have not set up strategies to exploit China market effectively, nor paid adequate atten- tion to market research, they are not quick and dynamic enough to grasp opportunities when China has some adjustments on its import-export policies. + Forestry and agricultural products are mostly exported to China via border route and attract the participation of all economic sec- tors. The import-export administration at bor- der gates is ineffective, resulting in severe competition in purchases and sales, which have caused loopholes for partners to press on prices, thus causing loss for enterprises. + Payments are mostly made by cash or barter, this has restricted credit activities of banks in support for exports. 3. Solutions to strengthening the exports of Vietnam's forestry-agricultural prod- ucts to China market * Improving the quality of forestry-agri- cultural products - Setting up large-scale cultivation spe- cializing zones with close connection with modern post-harvest processing and preserv- ing technology. To increase competitiveness, there is only one solution, that is to plan and expand the area, set up large-scale cultiva- tion-specializing zones closely connected with modern post-harvest processing and pre- serving plants. In Vietnam's fruit and veg- etable industry, processing and freezing tech- nology to lengthen product vitality has scarcely applied. Most of present processing and preserving technology is backward and inadequate. The lack of freezing stores and modern transportation vehicles has resulted in big post-harvest damage, thereby reducing our product competitiveness in the domestic and foreign markets. - Investing heavily in researching and developing new varieties, importing new varieties, improving current variety, support- ing farmers in using new varieties to create high-quality and low-cost products. We have lots of research institutes on variety but the development and application of new varieties have some problems, mostly because these institutes and farming-support systems do not 34 Trade Science Review TRADE SCIENCE REVIEW ’S TSR provide sufficient cares and instructions for farmers on choosing varieties, caring, har- vesting and preserving crops. These problems have resulted from the unprofessional cultiva- tion and production practices which are affected by the psychology of a self-reliance industry in which farmers grow crops as they like without caring about varieties. Let's take the lessons learned from watermelon exports as an example. Hundreds of trucks transport- ing watermelon to China were held in Lang Son border gate partly because of price pres- sure, but another reason was our quality was too low, ripe and unripe watermelons were mixed together, packaging was not up to stan- dard. These problems resulted from backward cultivation methods, small production scales, low-quality varieties. Cashew nut production has also faced the same situation. Productivity of cashew nut in Vietnam is comparatively lower than India due to impure varieties. The only competitive advantage of Vietnam lies in low labor cost but this edge will rapidly disappear as the costs are now increasing gradually. - Building up national standard system for exported forestry and agricultural products, establishing agencies in charge of checking, supervising product quality. To penetrate and keep foothold in international market in gen- eral and China market in particular, Vietnam agricultural products must be produced from a clean, safe and sustainable agriculture. Amid this situation, there requires the coop- eration between trade associations and rele- vant state agencies to create and issue nation- al standard sets for exported forestry and agri- cultural products, set up safe production pro- cedures and transfer to producers. It is also necessary to set up specialized agencies to check and supervise product quality, reject product lots which cannot meet requirements of food safety and hygiene. * Fostering market information and trade promotion The government should research to well organize the information system to update changes in import and border trade policies of China's central and provincial governments as well as information about China market. For their parts, enterprises should have their own information channel on China market rather than totally depend on Government's information system as this system can hardly meet the detailed requirements of enterprises. The fastest and most frequent way informa- tion collecting and providing system is via trade missions and representatives of Vietnam to China. * Building up brands for exported forestry-agricultural products Building up brands must be considered an immediate action. Previously, enterprises did not adequately cared about building up their brands as they were reluctant to high costs, high risks and insufficient resources to carry out. But a good brand can help improve the competitiveness of Vietnam forestry and agri- cultural exports, especially amid present con- texts when we are determined to promote exports, a strong brand can help us fulfill this goal within our hands. * Completing policy mechanism, promot- ing production and exports of forestry-agri- cultural products The government should well implement the duties of granting land, leasing land and licensing land ownership to create legal framework for producers to borrow loans or "exchanging and reallocating land plots" to facilitate the application of intensive cultiva- tion and agricultural automation. The govern- ment should research and issue master plans to create a foundation for localities to deter- mine structures and orientations of using land specifically and sustainably for each area. 35 Trade Science Review TRADE SCIENCE REVIEW ’S TSR The government should have insurance policies to help farmers quickly resume their production and trading when exposed to objective risks. The government should also encourage and create favorable conditions to form the linkage between state, cooperative and private sectors so as to establish concen- trated cultivation zones specializing in pro- ducing high-quality and safe products. This should be done together with creating new varieties, instructing intensive cultivation methods and post-harvest preserving technol- ogy, making strategies, building up brands, establishing distribution network and devel- oping markets for the members. The govern- ment should also have policies to support export activities along Vietnam-China border line by setting up transaction centres, ware- houses, freezing houses in the border gates. * Completing legal corridors in Vietnam- China trade relationships - Cooperating in plant quarantine. At pres- ent, Vietnam forestry and agricultural prod- ucts are mostly exported to China via unoffi- cial ways. After joining WTO, China has not encouraged imports via unofficial border ways. Therefore Vietnam should shift to offi- cial exports to enjoy tariff preferential treat- ments and enable products to penetrate cities located deeply inside China, where income and demand are high. At present, the cooper- ation agreement on plant quarantine has not been signed between the two countries, so the governments should urge relevant agencies to discuss, negotiate and sign the agreement early as agreed upon in the fourth session of Committee for Economic Cooperation Trade Vietnam - China. The two countries need to further their commitments on promoting and fostering border trade, deal with problems in border trade payment, cooperate to fight against tax avoidance, smuggling, illegal money transfer, etc. The two countries should build up mech- anism for periodical cooperation and exchange of methods to administrate and supervise border trade at provincial and sec- toral levels to facilitate enterprises to exchange, check, quarantine and pay for goods. - Completing tax policies. The exports of Vietnam fruit and vegetables are facing fierce competition from products of the same kinds from Thailand in China market. However, export turnover of fruit and vegetables in the first 10 months of 2015 still increased 268.8% over the same period of 2014. But fruit and vegetable exports still encounter lots of difficulties for various reasons, one of which is because tax policies are inappropri- ate and uncontrollable to enterprises. Vietnam fruit and vegetables are subject to a tax rate of 12-24% in China market, much higher than the rate of 0% that Thailand products have long enjoyed thanks to a bilateral agreement between Thailand and China governments on reducing tariffs for fruit and vegetable imports-exports. Conclusion To reach the goals of increasing export turnover, especially turnover of forestry-agri- cultural products, to China market, there should be more efforts from different parties in production and processing of Vietnam. Summary Ñaåy maïnh xuaát khaåu noâng laâm saûn ñang laø muïc tieâu chieán löôïc trong phaùt trieån kinh teá cuûa Vieät Nam trong giai ñoaïn saép tôùi. Ñaëc bieät vôùi moät thò tröôøng roäng lôùn nhö Trung Quoác thì ñaây seõ laø thò tröôøng tieàm naêng cho haøng xuaát khaåu noâng saûn cuûa Vieät Nam. Baøi vieát naøy nhaèm muïc tieâu khaùi quaùt thöïc traïng xuaát khaåu noâng laâm saûn cuûa Vieät Nam trong giai ñoaïn vöøa qua, 36 Trade Science Review TRADE SCIENCE REVIEW ’S TSR thoâng qua ñoù coù nhöõng nhìn nhaän ñaùnh giaù ñeå ñeà xuaát nhöõng giaûi phaùp nhaèm ñaåy maïnh xuaát khaåu noâng laâm saûn cuûa Vieät Nam trong giai ñoaïn tôùi. References: 1. Nguyen Bach Khoa (2000), International Trade Marketing, Statistics Publishing house. 2. Nguyen Bach Khoa (2003), Trade and Export Marketing Policies for Vietnam Agricultural Products, Statistics Publishing house. 3. Trinh Thi Ai Hoa (2007), Vietnam Agricultural Product Export Policies, Theories and Reality, National Politics Publishing house, Hanoi. 4. Doan Thi Hong Van (2010), Import- Export Management, Labor-Society Publishing house. 5. Vo Tong Xuan (2008), What Should Vietnam Agriculture and Farmers do to Integrate to the World Economy, Communism Journal. 6. Ministry of Agriculture and Rural Development, Reports of 2011, 2012, 2013, 2014, 2015. 7. French Bradley (2002), International Marketing, Prentice Hall - New York. 8. Lee F. Peoples (2004), International Trade in Agricultural Producs, Oklahoma City University School of Law, United States. 37 Trade Science Review TRADE SCIENCE REVIEW ’S TSR PHAM MINH DAT 1. Personal Profile: - Name: Pham Minh Dat - Date of birth: 27 July 1980 - Workplace: Vietnam University of Commerce - Position: Trade Science Review 2. Major research directions: Trading Policies, Marketing, International Trade 3. Publications the author has published his works: - Trade Science Review - Journal of Economic Development - Journal of Economic Management - Business Review