THE ROLE OF AGRICULTURE IN VIETNAM'S ECONOMIC TRANSITION

One of the phases that determined the trajectory of Vietnam's economy was the post-
reunification phase between North Vietnam and South Vietnam on April 30, 1975. Two
countries with different economic backgrounds, where North Vietnam with a communist
background succeeded in conquering the leadership of South Vietnam with a capitalist
background, and finally, this unification wrapped with the name of the Socialist Republic of
Vietnam as known as common today. This victory did not significantly become a moment of
the revival of the Vietnamese economy, because it ended up experiencing a number of
fluctuations.

Vietnam was finally able to survive in several economic turmoil in the 1980s. The main reason
behind it was the willingness of this communist country to adopt a capitalist economy, through
the Doi Moi (means Renovation) campaign. This paper argues that the agricultural sector
played a major role in the transition from a centralized economy to a liberalized market
economy. The big role in favor means some factors that influenced national political decisions
from the agricultural sector, such as stagnation of harvest productivity at the national level or
harming the interests of farmers. This research is aimed to analyze how the agriculture sector
interrelated with this transition in Vietnam and to elaborate on the success of Vietnam's
development in the 1990s and the emergence of threats to this sector in the 2000s and beyond
which prompted the need for advanced technology initiation.

Economic and Agricultural Turmoil

The United States embargoed when North Vietnam was almost certain to conquer South
Vietnam. According to Martin (2009) that “President Gerald R. Ford extended trade embargo
on North Vietnam to cover the reunified nation, which means bilateral trade and financial
transactions were prohibited.” As a result, Dang (2009) explains that a combination of Western
sanctions and economic mismanagement led per capita national income to fall by over 7
percent between 1978 and 1980 and to grow only slowly thereafter. Vietnam's military
intervention in Cambodia sparked tensions with China and caused the West to distance itself
from it. Practically Vietnam only has closeness to the USSR (Union of Soviet Socialist
Republic) in the Comecon alliance.

Some records of USSR assistance to Vietnam based on Dang (2009) are:

“The one signed on October 30, 1975 was for longterm loans with credit under highly favorable
term (10 years). This agreement aimed at rationalizing and modernizing the agricultural sector,
and developing key industrial sectors. The estimated cost was $ 3-4 billion to which the U.S.S.R
agreed to fund 60%, roughly at $1.2 billion in addition to $700 million in commodity aid
available during the same period.”

With this aid, the economy was not running smoothly, as there were infelicity in the
implementation of the collective economic system and cooperative farming implemented by

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the Vietnamese government, especially in the former South Vietnam region. The principal
causes for the failure of economic development could be summarized as follows, according to
James (1997):

• The enforcement of the socialist reform of the economy in the South by

collectivization of agricultural farms and nationalism of trade and industry
completely damaged the people’s incentives for production in the South.
• Excessive bureaucracy, distorted prices, and the incentive system, and the wrong
industrialization strategy – all the products of a central command economy – greatly
hindered its economic efficiency.

Particularly speaking, in the agricultural sector, the implementation of the collectivization

system in 1978 for farmers was not as easy as expected. The collective farming system is
considered to be detrimental to farmers because the government only buys crops at standard
prices, according to the food obligation (nghia vu luong thuc) regulation, which, based on
Raymond (2008), will later be replaced with fertilizer, gasoline, bricks, and consumer goods at
subsidized. below-market prices. Unfortunately, the goods promised by the government are
inferior in quality, insufficient in quantity, delivered late, not under farmers' expectations, and
harming their interests. This situation is exacerbated by harmful actions by farming
communities, as Raymond 2008 gives an example “such as breaking machinery (up to 70% of
tractors in south Vietnam are damaged) and killing livestock,” as their insist to have their lands
be converted into the property of the cooperative. By the end of 1982, only 0.6 percent of
households in the entire Mekong Delta belonged to cooperatives. Just ten agricultural
cooperatives had been created in Ho Chi Minh City since 1975, and only six new cooperatives
had formed in Ben Tre and Long An provinces. (FBIS, 1979). A qualitative study belonging to
Raymond (2008) shows some of the complaints of farmers:

“A forty-year-old VCP member, formerly employed by the city of Hanoi but engaged in raising
pigs and cultivating roses for sale on the market, remembered the cooperatives as having “many
work teams but there was no responsibility and no rice, and living standards were low”.

This is different from what happened in Northern Vietnam. This region has implemented
collective farming since the 1960s, so based on Cima and FRD (1989) “By 1975 more than 96
percent of peasant households belonging to cooperatives were classified as members of "high-
level cooperatives, or farmers who had contributed land, tools, animals, and labor in exchange
for income.” This situation in the 1970s was not directly proportional to agricultural
productivity. This is due to the lack of monitoring and weak regulation enforcement from the
government due to the focus on war, causing farmers to be in a comfort zone by doing many
odd activities, and their performance is not productive.

Agriculture has been stagnant for a long time. Vietnam's national rice production fell from
11.83 million tons in 1976 to 10.60 million tons in 1977. The following year, production was
even less at 9.79 million tons. In the Mekong Delta, state food procurement decreased from
950,000 tons in 1976 to only 398,000 tons in 1979. (General Statistics Office 1996). At the

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conclusion of the Third Five-Year Plan, agricultural yields are unable to meet supply needs in
the developing industrial sector. according to Cima and FRD (1989), “agriculture still accounts
for about 44 percent of national income, even though the reference for developed nations is
closer to 10 percent”. As a result, the country's production is not sufficient to meet the growing
population for food, fuel, and others. Truong (2020) The shortages forced the country to rely
heavily on foreign aid, which amounted to 38.2 percent of the state's budget from 1976 to 1980.

However, the parliament remained adamant about the socialist economic program. According
to Vo (1988) that at the Fifth Party Congress in March 1981, the VCP still affirmed in the
conclusion of its political report that the VCP would continue its pursuit of the construction of
a socialist economy, which means put forth the Third Five Year Plan to be implemented from
1981 to 1985 that sought to advance “large-scale socialist production,” including the
completion of agricultural cooperation in the South by 1985. However, this plan and monetary
reforms regulation failed again then brought down the economy with the 700 percent inflation.

The Turning Point

The breakup of the Comecon alliance caused Vietnam to lose its best trade connections at the
time, prompting Vietnam to consider liberalizing the economy. The situation was unstable at
the elite level at that time, and the several debates were inevitable to take this big decision.
Until finally in 1986, as explained by Cima and FRD (1989), Vo Van Kiet, vice chairman of
the Council of Ministers and member of the Political Bureau:

“While mentioning gains in fisheries and forestry, he noted that nearly all farming
subsectors—constituting 80 percent of the agricultural sector— had failed to achieve
plan targets for 1986. Kiet blamed state Boards, for their failure to ensure appropriate
''material conditions" (chiefly sufficient quantities of chemical fertilizers and
pesticides) for the growth of agricultural production. He also blamed the state price
system for underproduction of key "industrial crops" that Vietnam exported, including
jute, sugar, groundnut, coffee, tea, and rubber.”

The speech was quite historic and became an inspiration for contemplation at that time.

Finally, in 1986 the VCP congress at that time decided to re-regulate their economic system,
with the Doi Moi reform campaign. Literally, Doi Moi is a transitional step from a Communism
Economy to a Socialist Oriented Market Economy, which in simple terms according to
Karadjis (2005) is a “multi-sectoral market economy where the state sector plays the decisive
role in directing economic development, with the eventual long-term goals of developing
socialism". Operationally, the government regulates several things, namely imposing free-
market incentives, encouraging the formation of private businesses, and opening access to
foreign investment. The Doi Moi campaign might be described as Vietnam's catalyst to
accelerate the second stage of Rostow's theory of modernization (1960), otherwise known as
the preconditions for take-off, because “this campaign tends to reduce the nuances of a
conservative government and economic system.”
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The initiation certainly cannot be separated from the fact that the three five-year VCP
development plans have not been successful enough for the development of this country. In
particular, the agricultural sector has finally experienced a counterproductive phase, coupled
with the situation on the ground which shows the poverty of farmers. The raw price did not
match the production capacity, the intervention in cropping patterns harmed the farmers, the
transfer of land ownership by the farmers ironically made the farmers like factory workers who
were paid so that they became lazier and demotivated, and the state failed to meet the food
needs and wages of farmers. It was a blow to the communist state which had abandoned the
proletariat as the main social base.

Why was the Vietnamese parliament able to think about and formulated this idea with a
naturally authoritarian state system? This was related to the party culture and the history of the
formation of the VCP in Vietnam. Truong (2020) in his comparison between China and
Vietnam that “consolidation preceded state formation in China, setting the country on a
predominant path of confrontation, the Vietnamese Communist Party embarked on state
formation as an inchoate organization that necessitated greater compromises and
accommodation.” This was the reason why VCP parliament characterized by a greater degree
of inter-institutional autonomy than China because the composition of party management was
more collective and had quite representative relations with lower levels of society, such as
farmers and fishermen. Truong (2020) further explains that “party functions are more clearly
delineated from those of the state, and the legislature exercises oversight of the government.”
This explains why Vietnam responded to social problems in a more institutionally structured
manner and managed to read problems if they would to and were determined for doing it.

Table 1 Major changes in trade and agricultural policy in the first few years of Doi Moi (Dang,
2009)

Year Change in trade and exchange system Change in agriculture

1987 - Law on Foreign Investment - - Land law established private use of
introduction of ‘open door’ policy allocated land in agriculture
1988 - Foreign exchange control decree - Cooperative method of agriculture
liberalises retention of foreign loans production abandoned in favor of
- Devaluation of trade and invisible households
payments - Farming households given long term
rights to use land for agricultural

1989 - Law on Import and Export Duties
introduces the customs tariff
- Producers of exportables allowed to
sell to any appropriately licensed
foreign trade company
- Land Law creates nontransferable-
exclusive land use rights for
agriculture
- Nearly all forms of direct
subsidisation of production and price

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 control removed - end of ‘two price’
system

1990s - Turnover tax and profit tax - Agriculture Bank of Vietnam

introduced allowed to lend to households
- Law on Foreign Investment revised
- Export duty on rice reduced from 10
% to 1 %

Various changes were made to improve the economy and social order through Doi Moi. The
main focus of economic and trade improvement is of course on opening up foreign investment
and setting custom tariffs for exports and imports. The government also no longer focuses on
large-scale exports but prioritizes to meet the requirement of basic domestic needs first. From
the agricultural side, it is clear that the status of the majority of the land returned to private
ownership is carried out for the benefit of the farmer's household. In addition, the government
also supports farmer productivity by allowing banks to provide loans for farming businesses
and no longer enforces a standard price system. Even when juxtaposed with the Biersteker
(1991) version of the state intervention category, the Doi Moi concept tends to state capitalism,
where state intervention is reduced even though it still has a fairly large portion, but provides
flexibility.

Good news followed. According to Raymond (2008), Vietnam's production of rice increased
from less than 242 kilograms per person in 1987 to 293 kilograms per person in 1989.
Vietnamese rice exports more than doubled from 0.91 million tons in 1988 to 1.95 million tons
in 1992, despite crop losses caused by flooding, making Vietnam the world's third-leading
exporter of rice, and by the late 1990s, Vietnam's rice exports often exceeded three million tons
per year. At the same time, Raymond (2008) also revealed that “In the Mekong Delta, and in
the Red River Delta in northern Vietnam, the number of cooperatives decreased by 36 percent
during the same period”.

The Need or Agricultural Technology in Vietnam

Generally, in the 1990s to 2000s, technology in the agricultural sector revolved around on-farm
technology that focused on increasing crop yields, such as superior seeds, fertilizers, and
cropping patterns. This kind of technology was certainly implemented by Vietnam, with
several success stories presented by FAO (2011), namely the discovery of hybrid duck
genetics, a project to increase local milk production for consumption by residents, and so on.
However, the agricultural sector encountered a new threat in the 2000s era, those are the decline
in agricultural land and the decrease in the number of workers in the agricultural sector. This
decline needs to be addressed with the existence of technology that streamlines farmers'
production activities, of course at a lower cost than the use of agricultural machinery.
The land problem that emerged in the late 1990s was a large amount of agricultural land that
was converted into non-agricultural land. According to Nguyen (2013), the land area of Pa
experienced a decline of 2.5 million hectares in 1995-2000. The main reason for this conversion
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is the need for urban and industrial development, as is the case for agricultural land conversion
which is common in various parts of the world. Furthermore, the threat of agricultural land
comes due to climate change in the Mekong Delta area. The rice and aquaculture center areas
of the country are predicted to be affected by global warming with the potential for rising sea
levels, as stated by Truong et.al (2022).
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