Linking businesses with cooperatives to increase the value chain

Recently, the Government has had many policies to encourage cooperatives to participate in value chain links. Photo: H.Diu

Difficulties due to lack of ability, breaking the deal

According to experts, in value chain links, agricultural cooperatives both play a role in promoting links between farmer households through collective economic activities to organize production and promote vertical linkages with businesses along the value chain. Associations in cooperatives will help the organization produce a large, uniform volume of products with quality that meets the business's requirements, reducing production costs. Agricultural enterprises are the main intermediaries, playing the role of connecting and promoting vertical linkages with businesses.

However, at the National Cooperative Forum 2024, according to Mr. Huynh Van Thon, Chairman of the Board of Directors of Loc Troi Group, his business is always determined to serve farmers from seeds to services, linking production and consuming products on demand... However, many problems arise from legal status, taxes, and legality. to the situation of "breaking the deal"...

Specifically, the connection is not tight due to weak legality, leading to farmers not respecting the association contract with the cooperative, so they cannot make large orders to maintain operational efficiency. Small cooperatives lack capital to organize large production links, do not have competitive capacity or negotiating strength with input supply partners. The cooperative does not have technical and management personnel, so it cannot meet large output orders. Cooperatives have no collateral, no reputation for bank loans and no capital for production... Therefore, Mr. Huynh Van Thon commented that these are major barriers to effectively deploy production links between cooperatives and businesses.

Meanwhile, Mr. Nguyen Anh Duc, General Director of Saigon Co.op acknowledged that the production and supply scale of cooperative organizations, despite great efforts to develop, is not highly specialized. The connection between cooperatives and other economic sectors has begun to form but is still small, so the connection is not high...

Establish effective linking models

Recently, the Government has had many policies to encourage cooperatives to participate in value chain links. As for credit incentives, cooperatives are entitled to preferential credit loans for agricultural production in line with the cooperative model which is up to 70 percent of the value of the project according to Decree No. 98/2018/ND-CP on policies to encourage the development of cooperation and association in the production and consumption of agricultural products.

In addition, cooperatives can also reduce loan interest rates to a minimum of 0.2 percent per year when participating in purchasing insurance for agricultural production objects formed from regulated loan capital.

Along with that, the Government has additional preferential policies on land allocation, lease, and tax incentives; fostering and training support; trade promotion and application of science support, engineering and new technology; infrastructure investment…

However, due to weak links, many preferential policies have not been fully effective. For example, in terms of credit incentives, according to the State Bank (SBV), by the end of February 2024, credit for Cooperatives and Cooperative Unions reached VND6,024 billion (1,200 Cooperatives and Cooperative Unions have outstanding debt), down by 1.69 percent compared to the end of 2023. The SBV said that credit is still limit ed due to weak links, lacks of completed chain links, market and price risks as well as unfeasible and ineffective loan plans...

Therefore, experts say that businesses and cooperatives need to take advantage of incentives from management agencies and opportunities from the market to promote links and form value chains. Mr. Huynh Van Thon said that, in the current period, farmers and cooperatives need to link well to organize raw material sources and produce according to business orders.

But this also requires deep investment from businesses with cooperatives in terms of markets, investment in facilities, and commitment to product quality according to farming processes and order requirements.

On the cooperatives’ side, Mr. Ta Viet Hung, Director of Ba Vi Green Farm Investment and Beef Development Cooperative (Hanoi), said that many cooperative leaders themselves still do not understand what chain links are. Therefore, it is necessary to improve management capacity as well as market forecasting for cooperatives. In addition, cooperatives also request additional support in terms of capital sources, creating favorable conditions for cooperatives to borrow capital...

Sharing more about this issue, Mr. Le Duc Thinh, Director of the Department of Economic Cooperation and Rural Development (Ministry of Agriculture and Rural Development) recommended that, enterprises which are identified as the driving force of the link need to create conditions for the formation of effective link models between businesses - cooperatives - farmers associated with high technology applications.

At the same time, it is necessary to promote the development of standards and quality regulations for chain-produced products associated with product origin traceability, meeting food hygiene and safety conditions; review and innovate policy mechanisms to support agricultural cooperatives and links...