VietNamNet Bridge – The Vietnamese laws clearly stipulate that foreign businessmen are not allowed to collect materials directly from Vietnamese farmers. However, they still have been attempting to control the material growing areas in Vietnam to optimize their profits.

The Ministry of Industry and Trade has released the Circular No. 08 which takes effects on June 7, 2013, on the foreign invested enterprises’ activities of goods purchase and sale.

Director of the Domestic Market Department -- Vo Van Quyen, emphasized that this is not a new regulation at all. The circular only concretizes the existing provisions mentioned in the Decree No. 23 which guides the implementation of the Commercial Law.

“The regulation has been applied since 2007 already, under which foreign invested enterprises can buy Vietnamese goods for export, but they must not collect materials directly from Vietnamese farmers, but have to do this through Vietnamese licensed businessmen.

Foreigners attempt to control material growing areas

A report of the Ministry of Agriculture and Rural Development (MARD) showed that foreign invested enterprises have controlled 50-60 percent of the total coffee output, or 600,000 tons per annum. In Dak Lak province alone, there are eight foreign invested coffee collectors, namely Ngon Coffee, the branch of Louis Dreyfus Commodities, Dakman, Amazaro Vietnam, the branch of Newman Group, branch of Olam Vietnam, the branches of Ha Lan Vietnam and Vinh An companies.

In Gia Lai province, the volume of coffee the branch of Louis Dreyfus Commodities alone collected accounted for more than 40 percent of the total export coffee turnover in 2012.

According to the Vietnam Pepper Association, 7 foreign invested enterprises collect material and export pepper. In 2012, the enterprises exported 36.6 percent of the total export turnover, an increase of 11.6 percent compared to 2011.

Chief Secretariat of VPA Tran Duc Tung said that in the first quarter of 2013, foreign enterprises saw a very high growth rate in terms of export turnover. One of them reported the 280 percent growth rate.

“Foreign enterprises have been controlling the material growing area thanks to their powerful financial capability and the large distribution network,” Tung said. “Some of them are believed to conduct the transfer pricing when buying pepper at high prices and selling to the foreign holding companies at lower prices.”

The jump of foreign invested enterprises into the material collection market has benefited farmers who can sell materials at higher prices. However, Vietnam does not think that this would bring long term benefits.

The director of a leading coffee export company has warned that when foreign groups can control the material growing areas, they would be able to control the coffee industry.

He affirmed that the enterprises would not pay high for materials for ever. Once they can control the whole material area and eliminate domestic firms out of the market, they would lower the purchase prices.

“This happened in some countries in the world already. If the government does not do anything to stop this, the scenario would occur in Vietnam as well,” he said.

Dr. Hoang Tho Xuan, a trade expert, affirmed that under the trade treaties Vietnam signs with other countries, foreign invested enterprises have the right to collect goods for export and distribute domestically through Vietnamese enterprises, not directly from producers.

“Therefore, we have every reason to prevent foreign enterprises from making transactions directly with farmers,” Xuan said.

Phong Vu