Introduction1.1 PurposeJoining the Global Value Chain (GVC) is believed to bring developmental and technological advantages. This essay aims to shed light on the applicability of this academic and policy circles’ claim to Vietnam’s rice sector, a leading rice exporter. By relating Vietnam’s rice sector, value chain history, status, and policies to existing theories and literature on GVC linkages and upgrading, I will explore the potential gains and losses that the country will encounter upon increased participation to GVC. The implications on the sector’s innovation and development systems shall also be analysed.
1.2 Vietnam’s history of rice export successVietnam has been successful in its attempt to boost the country’s rice sector, even surpassing its national supply quota (World Bank, 2012). From being one of the poorest countries (Demont et al., 2017), it emerged to be one of the leading rice producers in the world catering to 135 territories worldwide (Bach et al., 2016), and sharing 22% of the rice world export in 2012 (World Bank, 212). This success in the rice industry can be attributed primarily to the high productivity in the country’s rice producing belt, Mekong Delta (MKD), which led to transforming Vietnam’s status from rice deficit to huge rice surplus economy (Demont, 2017).
It is currently the third largest rice exporter in the world, having a supply capacity of about 8 million tons per year as compared to 1.42 million tons when it first participated in the world rice export market in 1989 (Bui et al., 2017).
It even became the leading rice producer and exporter in 2010, and the second to India in 2012 (Bui et al., 2017). Bui et al. (2017) also mention that Vietnam has a comparative and competitive advantage lying in the prize, market size, and international and market trade. It exports mainly to countries in Asia and Africa where rice is a staple (Demont, 2017).The feasibility of this remarkable economic surge of Vietnam is attributed to the Doi Moi policy of December 1986, which aimed to reform the then inefficient economic system without altering the political system (OECD, 2015).
The reformation opened opportunities for foreign trade and investment, as well as the establishment of domestic and foreign private firms (Diez, 2016). 1.3 The remarkable economic boom came with a price The existing system successfully distributed rice from surplus to deficit areas for many years. However, it is considered as underdeveloped in a technical and institutional point of view as it has little coordination, relatively fragmented, and low on innovation and efficiency (World Bank, 2012).Moreover, despite the success in export market integration and high production capacity, Vietnam has yet established a trademark due to the weak vertical and horizontal linkages of its rice sector (Demont, 2017). This leads to a failure in capturing rent and to a slowly diminishing export value (Bui et al.
, 2015). The absence of a national brand also made the market suffer from a weak international reputation as rice from Vietnam has been categorized in a low-quality and low price segment market (Demont, 2017).Though the export revenues increased, the underlying costs of input including fertilizer, machinery, and labour also rose (World Bank, 2012). According to this World Bank report, 40-50% of Vietnam’s exportable rice prices can be attributed to imported fertilizers and agro-chemicals.
Demont (2017) states that this rise in the input cost outpaces the nominal increase in producer paddy prices and this means the market cannot maximize its value-added content on export rice just by continuing to rely on its cost-competitive strategy. Another concern is the equity and environmental sustainability of the current structure. Smallholder farmers don’t get to improve their standard of living by making incremental productivity gains, while those with large landholdings and in an agro-ecologically preferable location benefit the most from specialized rice production (World Bank, 2012). The excessive use of pesticides and fertilizers due to insufficient production standards put a threat on the environment. To address these concerns, technical knowledge and policy development are necessary. The absence of a trademark, weak international reputation, and issues on equity and sustainability poses a question whether Vietnam should restructure its rice value chain.
1.4. What are Global Value Chains and why are they relevant? Global Value Chains (GVCs), which emerged as a concept in the 1990s, enabled interconnectedness of multinational enterprises (MNEs) (Bach et al., 2016). Value chains describe the organization of the complete cycle of activities involved in bringing forth a product or service, from its conception to its consumption and beyond (Gereffi, 2005).
It involves activities including research and development, design, production, marketing, distribution, and customer support (Cattaneo, 2013) of which in Vietnam’s rice industry, are not yet well defined. The popularization of value chain started in 1985 in a publication by Michael Porter, where the concept illustrates how firms can develop ‘competitive advantage’ by adding value within their organization (Bach, 2016). Value addition in the rice sector is comprised of activities including bulking, storing, grading, and packaging, and marketing (Nkuba et al.
, 2016).2. Analysing the status of Vietnam’s Rice Value Chain2.1 The nature of rent capture According to Kaplinsky (2000), there are three significant components that should be considered in analyzing effective value chains. First – value chains are dynamic rent repositories, second – some degree of governance is required, and lastly – effective value chains are a product of systemic, and not of point efficiency. Kaplinsky (2000) categorized value added into trade rents, technological, organizational, relational, and branding rents.
These rents can be captured by meeting conditions like availability of resources (including knowledge and capabilities of actors), infrastructure, and comparative advantage in the market.