Agriculture in Vietnam: Redefining boundaries

The Vietnamese agriculture contributes to roughly 12.5% of Vietnam’s GDP.

>> Agriculture depends greatly on imported raw materials

The Vietnamese agriculture contributes to roughly 12.5% of Vietnam’s GDP. In 2022, Vietnam’s agricultural sector experienced its highest growth in recent years reaching 3.3%. Breaking it down to sub sectors, farming increased by 2.8%, fisheries increased by 4.4% and forestry increased by 6.1%. The export turnover of the whole industry was over US$53 billion, up 9.3%. Vietnam currently exports a broad range of agricultural products all over the world. Its key exports are walnuts, coffee, cashew nuts, rice and rubber, accounting for over US$10 billion worth of agricultural exports. Many of Vietnam’s agricultural products have gained access to new markets.

Vietnam's role in global agriculture

Also, Vietnam’s plant-based agriculture is experiencing rapid growth and Vietnam is becoming a key player in global agriculture. Vietnam was selected by the United Nations to host the 4th Global Conference of the One Planet Network’s Sustainable Food Systems Programme in April this year. This conference brought together experts from around the world to discuss how best to develop ‘sustainable, resilient, healthy, and inclusive food systems’. At the same time, the World Economic Forum (WEF) selected Vietnam as one of the first three countries to pilot the Food Innovation Hub, a flagship initiative of the Food Action Alliance designed to improve sustainability in food production.

Vietnam has also signed 15 Free Trade Agreements (FTAs), one more FTA negotiation recently completed in April and 3 others under negotiation. Post implementing the Vietnam-Korea Free Trade Agreement (VKFTA), Vietnam has become the third largest mango supply market for South Korea, reaching 1.7 thousand tons. This is equal to US$7.4 million. On the back of the EU-Vietnam Free Trade Agreement (EVFTA), Vietnam has become the largest source of cashew nuts for the EU. In the first 10 months of 2022, Vietnam exported 98.9 thousand tons of cashews to European markets, worth US$699 million. This represents an increase of 9.8% over the same period in 2021. The EU was also the biggest importer of Vietnamese coffee and accounted for 39% of the exports.

Government's support

For Vietnam's agriculture to shine and thrive and for it to continue contributing to the country's sustainability as well as net zero goals, the Government definitely has a critical role to play. Indeed, the country's policymakers have already been quite active in this space. To support the agricultural sector and rural development, in 2018, the Ministry of Agriculture and Rural Development (MARD) issued a list of key national products, which includes rice, coffee, rubber, cashews, pepper, tea, etc. They are eligible for preferential support measures including exemptions from or reductions in land or water surface rents, preferential credit, human resources training, etc. That's not all, Vietnam continues to implement policies to support agricultural sector and the restructuring of agricultural production to improve competitiveness, increase value-added and promote sustainable development. In 2019, the Government introduced Resolution No. 53/NQ-CP to facilitate access to credit, the agricultural insurance programme, and preferential support measures for enterprises to encourage more investment into agricultural sector and rural areas.

The Government is also focusing on tackling one of the most pressing challenges – climate change – to help agriculture sector to thrive sustainably. Due to Vietnam's geographic exposure, it is particularly susceptible to climate change which has serious effect on agriculture. In 2016, Vietnam ratified the Paris Agreement on Climate Change, committing to reduce greenhouse gas (GHG) emissions by 8% between 2021 and 2030 compared to Business-as-Usual levels using domestic resources, and up to 25% conditional on receiving international support. To realise these goals, the Government issued Decision 2053/QD-TTg, including activities for adaptation and mitigation in the agricultural sector.

Following Vietnam's bold net zero commitment at COP26, the Government approved the National Green Growth Strategy 2021-2030 with vision to 2050, which is an important policy document for the country’s economic growth and sustainable development, with specific goals related to greenhouse gas emission reductions. The commitment to reduce agricultural GHG emissions has also been affirmed in MARD's Action Plan to implement the National Strategy on Green Growth for the 2021-2030 period which was approved in 2022. It is projecting a GDP growth of 2.5-3% per year for agriculture sector. The proportion of organic fertilizer products in the total fertilizer products produced and consumed is expected to be over 30%. There is a plan to increase the number of biological pesticides used to over 30%. Also, at least 30% of the total shallow crops is expected to apply advanced and water-saving irrigation methods.

Recently, the Government of Vietnam approved the National Electricity Development Plan for 2021 – 2030, with a Vision to 2050. Known more commonly as the Power Development Plan 8 (PDP8), this masterplan has been almost three years in the making. The PDP8 highlights the significant investment required to develop Vietnam’s energy sector and presents potential opportunities for foreign energy firms. Once executed, this will have an impact on the agriculture sector as well.

>> Agriculture sector aims to increase use of organic fertilisers

The role of financial institutions

Financial institutions also have a significant role in advancing agriculture's net zero agenda by channelling green finance, educating the market and helping agriculture companies build a sustainability mindsdet. Banks like HSBC are willing to support or consider green trade (supported by certain certifications) or machinery/capex to support sustainable production. We’re in the process of closing a green loan for a local company in the farming and seafood industry. We previously provided ASEAN's first Push facility to Nutifood (dairy) to support capex and working capital. As one of the world's largest financial institutions with far-reaching international connectivity, who has committed to and seriously involved in net zero transition since the very early stage, our support for agriculture companies goes beyond banking solutions. Whether they need guidance, financing or insights, we can support their business to prepare for the transition.

Mr. Surajit Rakshit, Head of Global Trade and Receivables Finance, HSBC Vietnam

This is clearly in line with HSBC’s overall sustainability strategy and we have been helping clients to foster this with our strong capability in the space. Our sustainability strategy has, at its core, a commitment to support our customers understand and act on their transition to lower emissions and to help them achieve their wider sustainability ambitions. In early 2022, HSBC Vietnam has announced a commitment to arrange up to USD12 billion of direct and indirect sustainable financing for Vietnam and the corporate sector in Vietnam by 2030. We are leading the way to meet our client’s sustainability needs and making good progress with our commitment, achieving roughly 14% of the target by completing a number of notable green transactions for clients with solutions ranging from green trade financing options to sustainability linked loans to sustainable supply chain finance. Such climate commitments of financial institutions open up a world of opportunity for agriculture companies to tap into green finance to support their growth and sustainability agenda.

The role of the agriculture businesses

Agriculture companies have become more proactive and serious in developing and executing their sustainability strategy – from circular economy, to sustainable supply chain, to other environmental and community support programs. They focus more on green agriculture not only to help Vietnam reduce its carbon footprint in agriculture productions but also to meet the increasing demand from export markets (US, EU) for sustainable products in the agriculture and aqua sector.

Agriculture companies have also become much more agile and sophisticated in how they manage their treasury activities, moving away from cash transactions to online platform. They are also looking for ways to digitalize their internal activities, and further improve and optimize their working capital. I want to highlight this point because the general perception in Vietnam is agriculture business is very cash heavy, which has gradually changed and the Government has been trying to modernize the industry with various initiatives.

Agriculture is an encouraged sector and the State Bank of Vietnam (SBV) has capped the VND short term lending interest rate at 4.5%. There are many financing options available like loans for payment to farmers on the input side as well as loans against export/packing credit for the output side. Increasingly agriculture companies are paying more attention to support their ecosystem and have become more interested in solutions such as supply chain financing or distributor financing. This also becomes one of their competitive advantage when competing with each other in the fierce pricing environment. HSBC has been at the forefront in supporting companies with these solutions. Be it sub sectors like farming, seafood exporters, animal feed companies, sugar exporters or dairy and agri product companies, HSBC has been helping clients with trade loans and working capital solutions across the entire spectrum.

As highlighted earlier, agriculture plays a significant role in the Vietnamese economy. We have seen momentous transformations happening in this sector. There are challenges around global macro-economic factors, inflation, negative impacts of climate change, shortage of highly skilled labor and increased competition. However, with a strong commitment from the government as well as the various government initiatives and the FTAs, the prospects for the agriculture sector are bright over the next few years.