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«DEVELOPMENT STRATEGY OF THE AGRICULTURAL COOPERATIVES IN THE MEKONG DELTA, VIETNAM: SIGNIFICATION OF DIVERSIFICATION INTO BUSUNESS AND ACTITITIES ...»

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over to state-owned irrigation companies to manage before 1996 and by self ACs after 1996. In the past, the government was the one implementing the concrete canal support program. Many cooperatives strongly invested in Nguyen Van Nghiem, agricultural cooperatives in Vietnam: innovations and opportunities, 37

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improved and irrigation time has been shortened. Despite the increased price of electricity, petrol, spare parts and labor, irrigation fee has been showing a downward trend.

Input supply service (insecticide, fertilizer, seeds/seedlings) has become very competitive. This service is currently the most popular service of many agricultural cooperatives.

Internal credit service achieved rapid development among agricultural cooperatives in recent years. This service shows great potential in the future.

Agricultural cooperatives have also been responding to increased demand for micro-finances.

In terms of electricity service, while the government is still unable to construct electric power transmission and supply system in all rural areas, numerous cooperatives have mobilized their own resources to invest and build up this system. This is also one service that greatly contributes to the agricultural cooperatives’ profit.

Additionally, agricultural cooperatives also supply more or less other services such as: agricultural extension; advanced technology transfer; animal feed supply; and veterinary, processing, and consumer goods. A few others enter the fields of aquaculture, reforestation, and animal husbandry.

According to Nghiem stated in Table 3, 42% of AC's Mekong Delta provides irrigation service in 2005. My survey in 2012 shows that 68.7% AC's Mekong Delta offers irrigation services both members and non-members in 2010. Also,

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70,2% of ACs in the Mekong Delta has provided more than 3 services in 2010.

In summary, status of ACs in Vietnam has seemed to faces with opportunities as well as challenges.

2.4.2 Opportunities for AC Development in Vietnam 2.4.2.1 Opportunities from the macro environment The Cooperative Law in 1996 has made a strong improvement for developing of ACs. Because the Cooperative Law provided Vietnam’s first specific legal framework for cooperatives, changed in the thought process of the Vietnamese people about the old cooperative. The wide difference between new and old ACs is their principles of organization and operation. The most important principle clarified by the 1996 law is that assets and farmland own by individual farmers. This is opportunity from macro environment, farmers and local governors have framework and guidance for building and developing the AC. In addition, principles of AC organization and operation change into the following concept: (i) Voluntary joining to and withdrawal from the cooperative (ii) Democratic and equal management and transparency (iii) Self-responsibility and mutual benefit (iv) Community cooperation and development. It is real opportunity for ACs in Vietnam Cooperative Law in 1996 was revised twice in 2003 and 2012, the later version has many improvements, the Law is simpler but clearer in clauses and articles.

For example, definition of cooperative law in 1996 was difficulty to understand, it was clearer in definition in 2003 and it is more clarify in version 2012. For

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the nature characteristic of cooperative. It makes clear that cooperative is an economic organizations belonging to the collective economy. Cooperative can form with democratic management, self-responsibility, co-owners of the cooperative, minimum number of 7 members was formed cooperative. Although the law does not define the cooperative activities as a type of business, but it identifies cooperative’s service, productions as business service and cooperative can establish a business company belong to cooperative. The 2012 cooperative law version also allows that foreigner can to members of ACs and invest to ACs as same as Vietnamese members. Other articles in the cooperative have modified and improved based on new situation of economic development in 2012.

Many macro policies related on development of cooperative and ACs have enacted for promotion and development of ACs. The national assembly and government have encouraged AC development by issuing many new policies, it is great opportunities for developing of ACs in Vietnam. For example, resolution 13 on renovating, developing and improving the collective economy marked an important step in policy and ideology on the collective economy. Decision 94 on supported the government’s action program to continue innovating, developing and improving the efficiency of the collective economy to continue renovating policies and mechanisms to encourage and create good conditions for the private economy. Instruction 22 encouraged the application of the Resolution of 5th Conference of the 9th Central Committee on renovating, developing and improving the collective economy. Decisions 146 in 2001, 1197 in 2003 and 1252 in 2007 has guided to use state budget to payment debt of old cooperative, these

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and balance sheet. Decision 166 in 2006 have made clear subsidy training policies from government for AC management staff.

Other policies supports from macro environment follow: (i) Land policy.





Local government gives land to ACs for office buildings, storages, drying ground, service infrastructures, etc. (ii) Training policy: AC's staffs are trained to receive 50 percent of training expenses from the government whenever they participate in government training programs. Other 50 percent of training expenses is paid by local government or AC's training fund. (iii) Tax policy:A cooperative is entitled to exemption from enterprise income tax for the first three years after its establishment. (iv) Support and encouragement to establish cooperatives.

Cooperatives which are in the process of establishment can receive free consultant service from local officers for the preparation of cooperative statute, business plan, registration, etc. (v) Support on technology transfer and trade promotion. (vi) Support to cooperatives in participating in rural development projects and programs: many ACs offer services to the national program called “New Rural Buiding” because local governments sign contract to ACs and ACs provides services like a rural business companies.

In addition, state government sometimes reformed and modified some policies related to ACs but these polices has been not suitable in implementation and government has being revised on some polices. For example, decision 88 in 2005 on promoting to purchase combine harvester for ACs had to revise after three years implementation. The Cooperative Law has revised some clauses and chapters in 2003 and 2012

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development as a macro environment, and those policies have been quite effective to opportunities on ACs and ACs have good legal framework for implementation and ACs can have more opportunities development its principles.

2.4.2.2 Opportunities from the micro environment Ratio of Vietnamese farmers enrolment to ACs has increased since 2000.

Vietnamese farmers had improved their understanding about the new AC and recognised socio-economic benefits through ACs. As a result, the national average proportion of farmer enrolment in ACs has been increasing. Figure 8 reports that 7.9% Vietnamese farmers joined ACs in 2000, compared with 19.2% in 2005 and 28.5% in 2010.

28.5 % 30 25 19.2 20 15

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AC customers are increasing because ACs provide services with many advantages and benefits to both members and non-members. ACs provide some

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AC services. For example, the irrigation service, harvest rice by combine harvester service, agricultural training service, and high quality seed services because ACs get subsidies from government for providing cheap and advantageous services to farmers.

ACs are improving their services and getting supports from other business companies. For example, ACs provide input supply services and get support from business companies on gas, diesel, fertilizers, pesticide, material and other products. Business companies gave advantages to ACs such as cheaper price in sales and allowance in payment.

The service’s demand from farmers has increase because many challenges have affected during the industrialization and weather changing in Vietnam.

Individual farmers cannot do better services by themselves. Agricultural labors shift to city for working in industrial zones, lack of labor during harvest season is serious in Vietnam, farmers need more machine services from ACs. Natural disaster has increased because of effecting from global warming and weather changing. The World market needs large quantity products, small farmers need to collaborate for adapting with market demand. Therefore, ACs can be a good representative organization for small scale farmers in Vietnam. This is an opportunities for ACs The competitive between ACs and cooperative groups, agri-business

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be free business tax during first 3 years establishing compared with that of agri-business are 3 months free of business tax. Cooperative groups are also strong competitor with ACs for offering services. But Cooperative groups of farmers are simple in organization and are not tide in management and weak organization rules, provide services at small scale area. Therefore cooperative groups is strong competitive with small and weak ACs.

2.4.2.3 Opportunities from the internal environment AC’s services have increased in term of number of service, type and quality services. Most of ACs provided from one to three services in 200839, over 54% ACs provided more than three services in 2010 40. Also, 41.4% of AC's Mekong Delta provided more than 3 services in 2005 compared with 70,2% of ACs in the Mekong Delta has provided more than 3 services in 2010.

Types services have changed depend on demand of farmers. For example, most of ACs offered services related irrigation, electricity supply, plant protection, input supply, extension (New crop, varieties, new technology) before 200841. From 2010, most of ACs expand more services related marketing, production cost, quality product, environment and non-agricultural services. For example, my field survey in 2012 shows that most of weak ACs in the survey provided only irrigation service, otherwise, a good ACs provide from 4 to seventh services and, average ACs provide from two to three services.

Nguyen Van Nghiem, MARD, 2011 39

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services to both members and non-members, and AC service scale has increased rapidly in volume. As the result, AC operation results have improved as shown in Table 4 that only 21.7% of number of ACs in Vietnam earned a profit in 2002 compared with 68.2% in 2010. Therefore, number of ACs earn profits from their services have increased, this a good signal for ACs in Vietnam. In contrast, the proportion of ACs having losses decreased from 9.4% of national ACs in 2002 to 5.2% in 2010. It means that number of ACs losses in their business have reduced because ACs have improved their services operation.

Table 4: No. AC's Improved Business Result

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Table 4 further reports the amount of annual profit increased from VND 15.2 mil in 2002 to VND 27.4 mil in 2010. While the amount of losses fell by nearly haft in the same period. This seems important because the amount of loss decreased more than the percent of ACs reporting losses, meaning that even those ACs that reported losses in 2010 had lower losses.

ACs’ scale size has increased. Many small-scale ACs have merged together within a hamlet. AC operational capacity improved and competition against other ACs and agribusiness companies after merging increased. For example, Table 5

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2.4.3 Challenges for AC Development in Vietnam 2.4.3.1 Challenges from the macro environment Cooperative Law revised version in 2012 and other polices Government still contain many problems and unclear points. Central government revised Cooperative Law and enacted many policies related on development of cooperatives, however, Law and polices are not well applied to good effect for ACs because of some unclear point and lack of guidance documents for implementation.

Therefore, few macro polices are challenges to ACs.

The Cooperative Law and the reformed versions have unclear clauses and are inconsistent with the ICA principles. For example, if ACs dissolve (bankruptcy), their capital assets transfer to the local government (Article 48 and 49). According to my opinion, the law should be clear that property and capital were given by government and subside programs, these will be transfer to the local government. Other property and capital were bought by members contribution, these property and capital should give back to members.

Another unclear point is that dividends (share profits) are distributed only

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capital.

In addition, the Law is unclear clauses and not mention about open membership, democratic member control, members’ economic participation, autonomy and independence, education and training and information, Moreover, many policies for AC development provide inadequate instructions about finance, financial management and incentives for cooperatives.

For example, decision 181 in 2004 and 88/2005 require the local government including towns, districts and communes governments to provide land for building the AC office, but provides no instruction as to a financial source if the local government has insufficient budget for buying land. As a result, 42.6% of ACs had no office in 201242; however, such ACs usually occupy a small room in a commune office, pagoda or member’s house as their office. In addition, decisions do not mention about “land use certificated” when local government give land to ACs.

Some ACs got land from local government, but ACs has not get land use cartificated, which ACs can give to bank as a mortgant for getting a loan.

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mortgage at any bank if the AC has a business plan. But any bank requires mortgage at least 70% value of a loan and banks don’t care about the Decision 67.



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