Agricultural cooperatives in urbanized areas: Problems and solutions

.VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Number 1 Winter 2006 Vietnam economic management review Agricultural Cooperatives in Urbanized Areas: Problems and Solutions Lai Van Tiet* ABSTRACT Twenty years of economic renovation have brought about impressive achievements in socio-economic development for Vietnam. In conjunction with high economic growth, urbanized land areas have also expanded and narrowed the land area available for agricultural cultivation and rural housing and businesses. This paper analyzes the effect of expanding urbanized areas on agricultural cooperatives and suggests some solutions to deal with the emerging issues and problems. Introduction In concert with doi moi (economic renovation) and socio-economic development, the urbanization process in Vietnam has taken place rapidly in many areas throughout the country. Urbanization is a trend during socio-economic development, creating many opportunities as well as challenges for the development of agricultural cooperatives in urbanized areas. This article analyzes the issues and challenges for the development of agricultural cooperatives in urbanized areas in recent years, and suggests some solutions to help promote such development in the years to come. 1. Difficulties and challenges for the development of agricultural cooperatives in urbanized areas Although several encouraging policies have been issued by the government, many agricultural cooperatives have not benefited. They have faced several difficulties, such as poor awareness by managers and members of new types of cooperatives, which to a certain extent lead to poor performance, and low qualifications of managers despite the huge number of cooperative members (between 800 and 3,000 people). It is worth noting that most cooperatives provide only “pure” agricultural services without expanding their business lines, because of a lack of capital and poor facilities. In addition, agricultural cooperatives in urbanized areas face many tough challenges, including. Arable land funds are decreasing while the number of workers is increasing * Lai Van Tiet is deputy director of the Institute for Cooperative Economy Studies, Vietnam Cooperatives Alliance. 31 .VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Vietnam economic management review Number 1 Winter 2006 32 Vietnam has among the lowest agricultural land area per capita in the world (three northern sao1 per worker). The number of working days on “pure” agricultural production is small. Survey results show that only 18% of workers had 210 working days per year, with the remainder having less than 200 days per year, of which 21% only had 90 working days per year, with an average of 4-5 working hours per day2. The average agricultural land area is even lower in urbanized areas, cramming more workers into one agricultural land unit area. Over the past two decades Vietnam has been facing the consequences of high population growth. A young population means an increasing number of people in the workforce. Partial or full unemployment in urbanized areas is, therefore, a major concern not only for agricultural cooperatives but also for the government and local authorities. The urbanization process has taken place rapidly, especially in the suburban areas of cities, rural towns, along national roads, etc. In the course of this process there has been “lost” agricultural land, which has been devoted to services and industrial zones, roads, and residential areas, leading to an increasingly severe lack of agricultural land. Survey results from 45 agricultural cooperatives in the urbanized areas of Bac Ninh, Hai Duong and Hanoi in 2005, conducted by the Vietnam Cooperatives Alliance revealed that 13 agricultural cooperatives (30% of those surveyed) lost over 80% of their agricultural land area, as shown in Table 1. Table 1: Land areas lost by agricultural cooperatives due to urbanization Land loss area Cooperative (province) Total area (ha) Land loss area (ha) Proportion of total land area (%) 1 Dong Lac (Hai Duong) 468 448 95.7 2 Trung Hoa (Hanoi) 145.5 137.5 94.5 3 Nhan Chinh (Hanoi) 49 46 93.3 4 Thai Bao (Bac Ninh) 60 55 91.6 5 Lam Trai (Bac Ninh) 127 116 91.3 6 Chu Mau (Bac Ninh) 100 90 90.0 7 Tu Minh (Hai Duong) 276 244 88.4 8 Binh Han (Hai Duong) 310 272 87.7 9 Ngoc Do (Hai Duong) 276 225 80.5 10 Cam Thuong (Hai Duong) 102 82 80.4 11 Lai Cach (Hai Duong) 374 297 80.0 12 Hai Tan (Hai Duong) 118 95 80.0 13 Nhi Chau (Hai Duong) 124 98 80.0 .VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Number 1 Winter 2006 Vietnam economic management review The survey results showed that out of 45 cooperatives, there were 23 (accounting for over 51% of those surveyed) that lost more than half of their farming land. The remainder lost 20%-50%, while only eight cooperatives (17% of those surveyed) lost less than 20% of their cultivation land. Passive and slow labor structure transformation At present, 80% of the rural workforce works in the agricultural sector, providing 70% of farmers’ incomes, while only 15.65% work in the non-agricultural sector3. After losing their farming land, workers have to compete more with each other for a unit of farming land and share a limited number of jobs. In effect, they are sharing the poverty. Moreover, the reduction of farming land areas in just a short period of time does not allow preparation for changing businesses and makes the cooperatives passive in creating jobs, leading to increasing unemployment that affects social order and security. Low education levels among people in the transformed land areas are also a major obstacle to solving unemployment. In Hai Duong province there were 4,000 households that handed over more than 1,000 ha of agricultural land for the construction of four industrial zones. The appearance of factories resulted in unemployment for 7,000 agricultural workers. Surveys show that only 4.2% of the workforce finished vocational or higher education. Similarly, most of Hung Yen’s farmers living along National Road No. 5 were virtually landless. Knowing no other job except for farming, they had to leave their villages to earn a living, causing a number of unforeseen consequences. In Ha Long city, cooperative members received compensation for the farming land lost but did not know how to invest it properly. They were worried about spending all of the money on their daily needs and did not know what the future for them and their children would hold4. It is paradoxical that the purpose of developing industrial zones, among other things, is to create jobs and to foster local and national socio-economic development. But results fall well short of expectations, with limitations in job creation for local workers. The main reason is that industrial zones require workers to have necessary skills and strict compliance with working discipline, which workers from the “lost land” areas lack. Only a small proportion of workers are, therefore, recruited locally. As a result, farmers become unemployed after losing their land. Several “hot spots” of unrest in Hung Yen and Ha Tay provinces took place because of this. Many cooperatives have difficulties in operation but have no direction for transformation The operational models of most agricultural service cooperatives are purely agricultural, especially in rural areas. The economic structure changes slowly, while there is a lack of basic conditions as well as poor infrastructure including traffic, irrigation and electricity networks to transform cooperatives into commodity production activities. Production does not meet market requirements since most agricultural products are raw, unprocessed with low quality and have high production costs, while consumption markets are passive, unorganized, and unstable. In general, most cooperative members are poor, with little or no capital accumulation, have limited opportunities to develop and are vulnerable to market fluctuations. 33 .VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Vietnam economic management review Number 1 Winter 2006 34 Agricultural cooperatives faced many difficulties even prior to urbanization. The main reasons were low average arable land area per capita, under-developed businesses, limited facilities, backward technology, inadequate investment in agriculture in suburban areas and industrial zones, a lack of experience and guidelines from all levels of government in economic structure transformation, and, in particular, weaknesses in land planning and resource development. Additional pressure faces agricultural cooperatives from the strong impact of the urbanization process. More land is devoted to building industrial zones, while the remainder is no longer used for farming because of breaks in the irrigation system, and polluted water and living environments. This pressure encourages cooperative members to migrate to “the promised land” seeking jobs with an expectation of a “changed life”. Those who remain also do not want to identify themselves with farming. As a result, some farming land has been left uncultivated in several districts such as Que Vo in Bac Ninh province, and Thuy Nguyen in Hai Phong city. Cooperative management boards are doing their utmost to identify solutions to this problem. Some cooperatives have proactively transformed into general service businesses, combining agricultural services and the development of small-scale and handicraft industries, and trade and services (market establishment, car and motorbike parking, and waste collection and recycling, etc.). However, there are several cooperatives trying to find a proper direction in business. Due to the narrowing of the scope and scale of agricultural services, the incomes of cooperatives and payments to the management board are falling. As a result, cooperatives have insufficient capital or funds for their operation and many face the prospect of dissolving. With the abovementioned challenges, identifying appropriate and practical solutions to restore agricultural cooperatives in urbanized areas has become an urgent issue. 2. Solutions for reorganizing agricultural cooperatives in urbanized areas Reorganizing agricultural cooperatives in order to enhance operational efficiency will contribute to the sustainable development of the collective economy. In addition to the efforts of the cooperatives themselves, the government should adopt suitable policies and mechanisms to encourage and foster the transformation of cooperatives’ operation in light of the trend towards urbanization. 2.1. Solutions for cooperatives 2.1.1. Solutions for cooperatives with farming land Actively reorganizing agricultural production and shifting the rural economic structure First of all, it is necessary to create good conditions for households to transform their land, in combination with solving land fragmentation and encouraging land accumulation to form agricultural farms. Based on the master plan, cooperatives should identify staple food crops and animal husbandry production and change from purely food production to high quality commodities such as fresh vegetables, flowers, fruit, meat, fish, eggs and milk, targeting domestic markets. It is also necessary to encourage household economies to develop suitable businesses in order to increase the number of commodity-producing households, thereby fostering cooperation among households. Furthermore, cooperatives should have a plan to shift .VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Number 1 Winter 2006 Vietnam economic management review households away from purely agricultural production to non-agricultural services, creating the initial conditions to transform into either local small-scale or handicraft industries, or trade and services. These conditions will be the foundation to develop trading-industrial villages specializing in small-scale or handicraft industries, or sale villages specializing in sales and services, changing village and commune centers into commercial markets not only for themselves but also for neighboring villages and regions. Exchange should be increasingly expanded to the district, provincial and even international level. Cooperatives should restructure agricultural production following market signals. They should look at the market to organize production and investment. Information on market demand, production status, competitiveness and price fluctuations, etc. should be collected from agencies and other sources. Based on this information, costs and benefits should be carefully calculated for making decisions on investment alternatives. However, the production efficiency of cooperatives depends on their organizational nature (organized or not). If focus is only placed on encouraging production without considering processing and marketing agricultural products for households, efficiency will remain poor. Non-agricultural business should be quickly developed to speed up the transformation of the rural economic structure towards increasing the proportion of the manufacturing industry and services while decreasing that of agriculture. This can contribute to the proper reallocation of the workforce as per the motto “leaving agriculture but not leaving the (home)land”, breaking the “pure agriculture” situation and accelerating modernization and industrialization in agriculture and rural development. Non-agricultural service activities in rural areas can contribute to the reduction of social pressure and instability as well as development imbalances between rural and urban areas, reducing migration from rural to urban areas. Non-agricultural services include food processing, machinery manufacture and repair, textiles, garments, transportation, civil construction and manufacturing construction materials, trading, services, and waste collection and recycling, and especially traditional handicraft industries. Change operational methods and apply the appropriate cooperative type At present, most agricultural cooperatives provide services to households. However, their support only meets some of the demands of the production process, such as services in working the soil, irrigation, plant protection, and supply of materials/inputs, etc. Not many cooperatives are able to provide either pre-production services like providing information, capital, new technology transfer, and production consultation, or post-production services such as product processing, maintenance, and sale. In order to meet the requirements of urbanization, it is necessary to speed up the transformation to general production and trade and service cooperatives (multi-functional cooperatives), contributing to the development of rural industries and services and creating jobs for redundant workers. Depending on husbandry and plant specializations, the cooperatives should develop in the direction of specialization into businesses such as fruit planting and processing, fisheries and 35 .VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Vietnam economic management review Number 1 Winter 2006 36 aquatic products, meat and milk processing, flowers and decorative plants, and ecotourism, etc. Large-scale cooperatives could change into one-member limited liability companies to develop the scope of their activities. . Cooperatives could form federations/associations based on location and business criteria to support each other to develop. Cooperative federations/associations are socio-economic organizations established to create more power for members, helping each other to overcome difficulties and developing businesses more favorably, as per the philosophy of cooperative development. Cooperatives should not only be more active in developing such a model to have more power, but also to strengthen cooperation with economic entities in other sectors, especially with state-owned ones. In agricultural production, especially in commodity- specialized areas, cooperation among industry and agriculture, cooperatives, the state economy, other sectors and households will help the households to overcome backward production methods, changing rural areas in the direction of urbanization and shortening the time for industrialization and agricultural and rural modernization. In this relationship, acting as a representative, cooperatives play a role in bridging the state and household economies. Cooperatives, on the one hand, receive support from the state and implement programs and projects relating to the household economy, while on the other hand they assist state-owned enterprises to expand direct and effective services to farming households. State-owned enterprises facilitate cooperatives to expand and enhance the efficiency of production and service businesses by acting as agencies for supplying input and output markets for households. Properly organize production and service systems in the cooperative economy Services provided by cooperatives should not be limited to some simple stages of the production process like the old traditional method but, importantly, must be able to select prioritized services and put more focus on certain methods and processes to meet the demands of urbanization. Cooperatives should also be effective economic organizations, providing better support services to households and promoting their development in the direction of producing commodities, contributing to the acceleration of the industrialization and modernization process in rural areas. “Input” services: By collaborating with state-owned enterprises and well-known businesses, cooperatives should provide their members with high quality breeding animals and plants, fertilizers, animal feed and pesticides at a reasonable price. Cooperatives should also organize the supply of raw materials and energy to their members, exploit capital resources as well as provide information and new technology to their members to foster business development and diversification. Cooperatives should be supported by the state, scientists, and investors, in which investors play the most important role. In order to invest efficiently, cooperatives should be active in building feasible business plans, guiding their members to gradually change technology and apply new advanced technology in production. As regards raising capital, the experience of China and Taiwan shows that internal capital accumulation from the agricultural sector plays an important role in the development of non-agricultural businesses in rural and suburban areas and in the development of town–village enterprises (TVEs). Cooperatives in urbanized areas should .VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Number 1 Winter 2006 Vietnam economic management review adopt proper strategies to encourage their members to invest the compensation received from land sales into production via internal credit services, in order to create more jobs and improve their long-term living standards. This activity will also prevent farmers that have lost their land from spending the money on building houses or buying cars or motorbikes, which may be a waste of capital. “Output” services: These are major functions of agricultural cooperatives in urbanized areas. In general, most household products are sold directly to other economic sectors. Most farmers are at a disadvantage when selling their products because of difficulties in negotiation with the purchasing enterprises. Therefore, cooperatives should be responsible for selling the products of their members, or alternatively be strong enough to become a “partner” of these enterprises. Cooperatives should sign output sales contracts, register product trademarks, disseminate information and implement marketing campaigns such as participating in trade fairs and agricultural product markets, and building up good marketing systems in the agricultural sector, gradually developing efficient contract farming5. 2.1.2. Solutions for cooperatives losing most of their farming land For cooperatives in non-industrial/trade villages Cooperatives should create favorable conditions to bring industries/trades to villages by providing training in suitable industries/trades or, alternatively, by supplying material services or selling the products of villages and communes with industries/trades, thereby being able to take control of one stage of the process such as raw processing before sending these on to trade villages for products finalization. In order to develop new businesses, cooperatives should properly organize job training for their members, based on cooperation with government vocational schools and cooperative alliance job training centers, as well as institutions from other economic sectors, or provide appropriate self-training. It is essential to combine job training and job creation. For businesses that use new technology and modern equipment, it is necessary to provide training to workers in order to make them qualified and skilled. In the initial difficult phase, cooperatives should choose jobs and technologies that are labor intensive. The experience of China has successful examples of such a model, especially TVEs. However, priority should be given to the development of sectors using high technology in order to build up competitiveness for the cooperatives in the context of deeper economic integration. In advantageous areas, cooperatives should shift to commercial and service models. They can operate, de jure, in whichever service sectors are permitted by the government. However, in practice, cooperatives should develop into several business models: market management cooperatives, of which there are five in Hanoi and 15 in Ho Chi Minh City, and service cooperatives in sectors such as electricity, car parking, electronic/electrical repair, healthcare, tourism, hotels, the environment, cultural and sporting events, weddings, funerals, and industrial catering services. For cooperatives in industrial/trade villages 37 .VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Vietnam economic management review Number 1 Winter 2006 38 Firstly, cooperatives should further develop existing trades/industries and adopt new ones, in which more priority is given to high technology in order to improve business efficiency, as technology is a factor in increasing productivity and reducing production cost as well as enhancing product quality in order to find success in a competitive and integrated environment. More training should also be given to cooperative members in order to meet higher market demand, which requires both good quality and design. Talented people should be identified and given additional training. Experts in the fields of techniques and management should be employed when necessary for business development. It is also essential to invest in the schooling of children of cooperative members, so that they will have a good education for the long-term development of the cooperative. 2.2. Suggestions for government policies Urbanization is a definite tendency during industrialization and modernization. However, the lack of sound preparation in the development of industrial zones has cause anxiety among farmers, as they are not prepared for such a situation. The government is, therefore, challenged to provide the impetus needed to help agricultural cooperatives in industrialized areas to develop, fostering the economic restructure and ensuring social equity. To reach these targets, the government should issue and implement the following policies: Land policies The government should take prompt action in planning urbanized areas, building centralized industrial zones, issuing land use right certificates (LURC) in unplanned areas, creating conditions in which farming households are able to lease their land, change the land use purpose and transfer land for accumulation and concentration on production, thereby transforming the economic structure and forming commodity farms. It should also provide LURCs to cooperatives and allow them to use them as collateral for bank loans. A land tax policy with “special” remissions should also be applied to these cooperatives. Policies on land clearance compensation when transferring agricultural land to urbanized or industrial land should be improved to meet the following requirements: satisfactory compensation for land, including compensation for damage to properties on land and income lost from land, particularly agricultural land, and compensation for resettlement of those who lose their land. An appropriate and fair cost estimation should be implemented in order to ensure land owners can maintain a normal life after losing their land (including arranging resettlement, transferring compensation to equity, creating jobs via vocational retraining or other support from cooperatives, etc.). In regions where land is sold to build industrial zones and urban areas that encroach upon infrastructure, there must be more effort made to improve irrigation, traffic and electricity networks to facilitate the use of remaining agricultural land, and avoid land remaining uncultivated. Technology policies Advanced technology in creating new crop varieties, developing clean agriculture, transforming the economic structure, and increasing the productivity of animal husbandry and .VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Number 1 Winter 2006 Vietnam economic management review plants appropriate to the ecosystem should be applied in agriculture in suburban areas as well as in industrial zones. The proportion of basic capital investment from the state budget should be increased in order to improve the quality of infrastructure and to provide more funds to foster advanced scientific and technological application and economic structure transformation in agriculture. Agricultural extension centers should be more active in disseminating and popularizing new farming techniques to farming households through cooperatives. Cooperation among research institutions, agricultural extension centers and cooperatives should be strengthened in order to shorten the time required for transferring and applying the results into practice. For cooperatives that have transformed to produce, process, and sell agricultural products, the government should provide support in terms of capital investment and subsidize prices for technical investment, especially in advanced scientific and technological application. Moreover, in the initial stages, tax relief should be applied on incomes earned from advanced technological application and interest rate preferences granted on loans for advanced scientific and technological application. Partial or total subsidies should also be applied to the costs of training networks for teaching advanced technology to farmers5. Policies to provide capacity building and vocational training to cooperative staff and members The process of training human resources for cooperatives should be improved since their qualities are far below the required level. In order to have a qualified board of management, capacity building is required in the positions of head, accountant and the chief of the controlling board. In the initial stages, the government should support 100% of training costs for these three positions. Previously, since most of the rural workforce has been in the agricultural sector, the proportion of the trained workforce was quite low at approximately 8.3%, which is 3-4 times lower compared with the urban workforce6. Under pressure from urbanization, vocational training activities should be vigorously fostered and considered a national-level program. In the short term, those activities should be provided for by the state budget with contributions coming from project programs and the employees themselves. Policies in investment, finance, and credit In order to develop small-scale and household industries in combination with the urbanization process, the government should improve macroeconomic investment policies such as infrastructure investment and agriculture and industry extension, which can create jobs for farmers. The government should also pay more attention to key investment projects, offer preferential loans to agricultural production processing projects, shift the economic structure and expand business lines. In addition to capital contributions from cooperative members, more favorable access to loans from credit institutions (including job creation funds, cooperative development support funds, credit insurance funds, etc.) should be offered to cooperatives that shift their operations from agricultural to non-agricultural services. The government should also cover the loan interest of cooperatives participating in key investment projects and guide them on how to use the funds efficiently. Market policies 39 .VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Vietnam economic management review Number 1 Winter 2006 40 The government should create favorable conditions for establishing a comprehensive market system. More investment should be made to establish institutions focusing on research and forecasting demand for agricultural products and commodities in international and domestic markets. These institutions will provide consultation services, build development strategies for agricultural production, and form a network between those institutions to farmers through cooperatives. Market networks, agricultural production exhibition centers and diversified selling methods, including e-commerce, should be developed. The role of cooperatives in providing services and selling the products of households and farms should also be better brought into play. The government should also extend foreign-trading rights to cooperatives and minimize the list of commodities subject to import and export quotas and shipment licenses. It should also support cooperatives in accessing both domestic and international markets via supporting their participation in trade fairs and exhibitions, and assist the managerial board of cooperatives to have the opportunity to study and access both domestic and international markets. By implementing the abovementioned solutions, cooperatives in urbanized areas can overcome the difficulties and challenges and develop in the context of urbanization and economic integration. Notes 1. One “northern sao” is equivalent to 360 sq.m 2. Social policies for Vietnam’s Rural Areas, National Political Publishing House (pages 83- 84). 3. Cooperative Economy Magazine: Ha Long City after Urbanization – Landless Agricultural Cooperatives, Issue No. 13, 23-9-2004. 4. “Contract System” in the World and in Vietnam – Prospective Agriculture Production Model. Information Center, MARD, Issue No. 3, 2001. 5. Nguyen Dinh Huong: Urbanization and Urban Management in Hanoi 6. Pham Thi Can: Vietnam’s Cooperative Economy in Agriculture in the Present Day, National Political Publishing House 2003. References ƒ Nguyen Dinh Huong (2000), Urbanization and Urban Management in Hanoi, (in Vietnamese), Political Publishing House, Hanoi. ƒ Pham Thi Can (2003), Cooperative Economy in Vietnam in Present Days (in Vietnamese), Political Publishing House, Hanoi. ƒ Nguyen Van Bich, Chu Tien Quang, and Luu Van Sung (2001), Cooperative Economy and Cooperatives in Vietnam: Performance and Directions for Development, (in Vietnamese), Political Publishing House, Hanoi. ƒ Tran Dinh Long (2004), Agricultural Cooperatives in Vietnam: difficulties and Solutions, (in Vietnamese), Agricultural Publishing House, Hanoi. ƒ Economy and Forecasts Review # 5, 9, 11 (2004). .VEMR. Economic policy debate AGRICULTURAL COOPERATIVES IN URBANIZED AREAS... Number 1 Winter 2006 Vietnam economic management review ƒ Vietnam Economic Times # 69 (2003). 41