Organic Vegetable Supply Chain in Vietnam: Marketing & Finance Perspectives

Tran Tri DungDHVP Research & Consultancy

tran@vietnamica.net

Pham Hoang NganThe Vietnamese Initiative for Food and Agricultural Policy

pham@vifap.org

Organic production of agriculture is a tradition…

Ho Chi Minh (left), 1962

Working on fields, today

•Sustains the health of soils, ecosystems and people.•Minimal use of off-farm inputs •Management practices that restore, maintain, or enhance ecological harmony

and ADDA introduced…organic agriculture in 2004

2004-2010: Agricultural Development Denmark Asia, in collaboration with Vietnam’s National Farmers Union, developed a framework for organic production and marketing (http://vietnamorganic.vn/)•A non-profit initiative •Lack of consideration for resources’ limitation•Trial and error process•Narrow window for private sector

SUSTAINABILITY?

Production• Organic agriculture production area

– Small (2010):• 21,000 ha = 0.2% Viet Nam’s agricultural area (2010)

– Fragmented: two largest suppliers for Hanoi (2012)• Soc Son district: 30ha ~ 0.15%• Luong Son district (Hoa Binh province): 15ha ~ 0.075%

• It’s hard to expand production area:– Relaxation of field is the expense of cost-sensitive farmers– Surge of land prices in peripheral areas of big cities– Urbanization and industrialization– Tough negotiation with neighbor for merging fragmented

pieces of landWay below a full-swing development

Growers• Motivations:

– Able to learn quickly organic cultivation techniques

– Income is improved by three, even four, times

• Challenges:

– Complicated procedures and standards

– Expensive PGS certification: US$2,000 (excluding experts

expenses that are covered by int’ aids)

– Lack of industrial disciplines

• Some large investments:

– Organik Dalat: 15ha, first EurepGap farm

– ASIMCO (Hoa Binh): 2.2 ha

Organic Vegetables Company (OVC)

•Organize production•Educate farmers•Technical and financial supports to growers• Assure farmers’ income

ODA funded companiesThe Great Organizer & Coordinator

•Trading and marketing jobs•Educate consumers•Raise funds

Lack of commercial motivation & viability Entrepreneurship & Creativity

Branding: Greenlink, Ecolink, Ecolife..

Government & Associations

• International donors &

development agencies:

Initiators

• Central and local

government fully support

• VOAA: established in Oct.

2011Vietnam Organic Agriculture Association:First Meeting on May 22, 2012 in Hanoi

Marketing = Educating• Educating farmers

– Responsible growers/producers• Educating local government

– Organic agriculture for sustained development

• Educating consumers– Above-average income, urban

households; much concern about food safety and health

– Definition of organic produce• Trust building process

– The most convenience services– Virus marketing– Loyal clients group– E-commerce

• Educating the OVCs themselves: how to do a real business

Loyal clients visited organic production sites

Next education: making a fortune from agriculture production

Wakening..

A recruitment of sale collaborators:

•Retired people

• Simple works

• Performance-based income

• Social responsibility

Limited Supply• Vietnamese people want

vegetables every day.. but not the

same vegetables

• Supply of organic produces is

limited:

– Quantity

– Type of vegetables

• Caveat: Organic & safe vegetable

• Long-life wet market

Korean market

What is the difference?

‘Quasi’ Business of OVCs• Gross margin: 45 to 47% of

revenue• Sale volume: $80 to $150 per

day• Greenlink:

– Top quarterly sale: $2,000– Manager salary: $1,000/month

• Ecolink:– Monthly revenue: $10,000– Still struggling with financial

distress• Well-invested business

facilities.. but for what?

An organic vegetable store

Also organic cosmetics!Shop rental cost: US$600/month

Finance: Start-up• Most important source of

funds: ODA, int’ aids• Venture investment

Connecting the dots..

Relationships

Empirical examination

Lessons for research & business

Creativity

Cultural Dimensions

Entrepreneurship

Creativity

Japan Korean

Viet Nam?

‘Organic’ Car

Future: The Entrepreneurs

1ha on the side of Red River; 15 minutes to Hanoi’s downtown

Ecolink (a veteran):

• 2014: Sufficient supply sources for organic certified foods

• 2014: Certifier for local market• 2015: Export of 200 MT of

organic teas and 400 MT of organic spices (30% for Fair-trade market).

• 2015: 10,000 customers• Develop international brands of

organic tea/spices in key markets (EU, America, Japan)

A new comer:

Farmers are entrepreneurs: growers/producers + traders + capitalists

THANK YOU!