Improving agricultural value chain financing: A case study of Seng Cu rice chain in Lao Cai province, Vietnam
ISSN 2588-1299
VJAS 2020; 3(3): 712-725
Vietnam Journal
of Agricultural
Sciences
Improving Agricultural Value Chain
Financing: A Case Study of Seng Cu Rice
Chain in Lao Cai Province, Vietnam
Bui Thi Lam1,2, Tran Huu Cuong2, Le Thi Thanh Hao2 & Philippe
Lebailly1
1Gembloux Agro-Bio Tech, University of Liège, Gembloux 5030, Belgium
2Faculty of Accounting and Business Management, Vietnam National University of
Agriculture, Trau Quy, Gia Lam, Hanoi 131000, Vietnam
Abstract
Nowadays, agricultural value chain financing (AVCF) is considered
an effective agricultural financing approach in the world; however,
its prevalence is still limited in developing countries like Vietnam.
This paper aimed to analyze the financial gap between the demands
and the actual credit obtained of the Seng Cu (SC) rice chain
participants in Lao Cai province, Vietnam. Cross-sectional data were
collected from 160 face-to-face interviews with SC rice producers
and in-depth interviews with 31 other stakeholders involved in the
chain (demand-side) as well as the representatives of district-branch
banks (supply-side) in 2016-2017. Overall, almost all chain actors
had high financial demands, especially upland rice producers and the
leading chain actor (Tien Phong Cooperative). However, they faced
many credit constraints related to the strict risk-avoidance strategy
and the collateral requirement of the banks. Even though the SC rice
chain confirmed its high potential and many supportive linkages
among participants were developed, the decision-making of banks on
credit disbursements still depended on the individual capability of
each chain actor rather than the entire chain. Thus, some
recommendations for policymakers, producers, and agribusinesses
are suggested to enhance the financial sources going in the chain and
the effectiveness of chain actors in the locality. Specifically, banks
need to assess the creditworthiness of farmers and agribusinesses
through the enhancement of repayment capability; while the public
sector needs to enact new regulations encouraging the participation
of banks in the chain.
Keywords
Agricultural value chain finance, Seng Cu rice, rural finance, Lao Cai
province
Received: June 12, 2020
Accepted: October 15, 2020
Introduction
In recent years, the studies on AVCF have become strangely
attractive because of their effectiveness in many fields, including
Correspondence to
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Bui Thi Lam et al. (2020)
economics, society, and environment. In short,
AVCF encompasses the flow of products,
finance, agricultural knowledge, and market
information from producers to consumers.
model for agricultural development is to
approach the sector by sub-sectors and meet
tailor-made financial needs throughout that
specific value-chain. The comprehensive value-
chain approach might be the more inclusive and
increased breadth and depth of agricultural
approach provides tailored services and products
along a specific value chain in order to reduce the
financial cost and risk, enhance the effectiveness
of the chain actors as well as increase the
competitiveness and sustainability of the whole
approach, small farmers are likely to gain greater
the main livelihood of nearly 90% of the rural
affecting agricultural development, lack of
capital and difficulty in market access are the two
strongest barriers of farming actors (ibid). These
problems can be handled significantly under the
effective value chain financing approach thanks
to the diversity of financing relationships
existing in the chain. Unfortunately, the
application of AVCF in the NMM region is still
very limited and there is a lack of systematic
research on this topic in mountainous areas of the
country.
In this study, the Seng Cu (SC) rice value
chain in Lao Cai province was chosen to
represent the research on AVCF in the
mountainous areas of Vietnam. The paper aimed
to analyze the financial demands of chain actors
and credit constraints hindering their
performance as well as the chain’s development.
Methodology
It is evident that small farmers and
agribusinesses in developing countries are still
excluded from formal financial sources and the
Research sites
Lao Cai was chosen for the research on the
montane rice sector because the province had
typical social, economic, and political
characteristics representing the NMM region.
The province is located in the Northern Midlands
and Mountain (NMM), the largest ecological
area, concurrently, the homeland of the majority
the province is also endowed with favorable
natural condition for rice growing. More
in low-latitude, high solar radiation, and cool
temperature tends to achieve higher productivity
and quality. Indeed, Seng Cu Lao Cai is the
unique kind of rice recognized as the special and
safe product of Lao Cai province (Figure 1c) and
is often one of the highest selling price rice in the
national market. Regarding cereals, rice
cultivating is often prioritized over maize, so
most cropping land is devoted to rice cultivation
(Figure 1b) where it is possible to harvest rice
thanks to water availability.
AVCF
might
enable
their
inclusion.
Rapsomanikis (2015) concludes that the
globalization of the food chains has further
isolated the small-scale farmers and they
gradually become unviable economic units. They
seem to be excluded not only from financial
markets but also from the general development
stream of humanity. In addition, financial
suppliers rarely have full insight into the
heterogeneous demands of rural households and
agribusinesses because the process requires cost
and is time-consuming. As a result, credit
services are often mismatched with the needs of
the borrowers and/or are used ineffectively. The
AVCF approach shows promise of offering a
systematic solution to achieve the triple goals:
connect the poor smallholders with their
community and society, and obtain both
financially and ecologically sustainable
livelihoods from farm- and non-farm activities.
In the Northern Midlands and Mountain
(NMM) of Vietnam, agriculture plays an
essential role in the local economy because it is
There are two main typical agro-ecologic
zones in Lao Cai, upland and lowland. In
uplands, rice is planted in small terraced plots on
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Improving agricultural value chain financing: A case study of Seng Cu rice chain in Lao Cai province, Vietnam
hillsides with limited water resource, almost
without public irrigation. On the contrary,
lowland rice is cultivated in flat fields and
harvested twice per year. Producers here also
take advantage of the well-constructed irrigation
system (Figure 1b) and many productive
infrastructures.
explore the interactions and relationships
existing among participants in different product
channels. Furthermore, their perspectives about
the policies related to agricultural supports and
linkages were precisely recorded. The latter one
was used to collect data from the household
survey and in-depth interviews to analyze SC rice
production cost of the producers and its financial
sources. Data in the study are elaborately
described below.
Four largest Seng Cu rice production
communes in two different ecological zones (i.e.
upland versus lowland, corresponding to rainfed
versus irrigated) were selected for the study,
including: (i) two lowland communes, namely,
Muong Vi and Ban Xen (green 1 and 2 on the
map, respectively); and (ii) two upland
communes called Nam Lu and Lung Khau Nhin
(orange 3 and 4 on the map, respectively)
(Figure 1a).
Secondary data collection
In this study, archival research gathered
various previous reports and relevant official
statistics about the socio-economic situation of
Lao Cai province and the NMM region. This step
helped to identify proper research sites and
representative agricultural products for the study
(Seng Cu rice). Moreover, this data source also
supported and/or compared the primary data
collected from the fieldwork in the next steps.
Moreover, the second type of documents which
served literature review and discussion, etc.
Data collection
Both secondary and primary data were
collected to conduct qualitative and quantitative
analyses. The former analysis was applied to
(c)
(a)
(b)
Figure 1. Description of the research sites
Source: Figures 1a and 1b are author's own elaboration; Figure 1c is cited from Vi Huyen (2018).
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714
Bui Thi Lam et al. (2020)
was also collected. It consisted of articles, books,
consultancy reports, technical notes, project
reports, government official reports, and policy
documents, etc.
Banks for Agriculture and Rural Development
(VBARD) and the Vietnam Bank for Social
Policy (VBSP) in Muong Khuong and Bat Xat
districts. More importantly, 31 interviews with
stakeholders involved in the chain, including
input suppliers, small collectors, large collectors,
and retailers were conducted through
convenience and judgment sampling methods.
Primary data collection
Participant observation is defined as an
ethnographic research approach in which the
researcher’s participate in the lives of the local
people while also maintaining an appropriate
distance in order to develop ongoing relations
with the people in it, and actively reflects on what
2009). However, this study prioritizes the studied
issues among the ongoing local background due
to the limitation of time and funding. This
method plays a pivotal role to what extent, in the
evaluation of the validity of data collected
important to note that finance is usually a
sensitive and delicate topic in any society.
Group discussions were held for 8 to 10
household participants to identify the current
local rice farming practices; the reasons why
farmers would not like to apply advanced
practices; and the main difficulties and how to
overcome them. In addition, the role of SC rice
in household’s economic opportunities,
livelihood, and culture was also sketched out in
these group discussions.
Data analysis
In order to evaluate the performance of chain
actors and the finance of a particular value chain,
it is necessary to have a good understanding of
their costs and benefits. Based on the
performance and the financial flows in the chain,
the weak actors in the chain were identified; and
then, recommendations on how to upgrade the
actors’ capability in particular, and on how to
strengthen the whole chain in general were made.
The household survey was conducted based
on the structured questionnaire and face-to-face
interviews to capture: (i) the specific households’
characteristics; (ii) SC rice farming practices,
input management, and its financing sources;
(iii) the costs and income generated from SC rice
production; and (iv) the farmers’ feedbacks on
banking credit and linkages among chain actors.
The collected data in this study were
analyzed through indicators of the value-added
analysis by using the program Value Links 2.0
(Springer-Heinze, 2018). These three leading
indicators are defined as follows:
In this study, the sampling size of household
survey was determined through the underlying
ퟐ
퐙 풙 풑 풙 (ퟏ−풑)
n =
ퟐ
(i) Intermediate Cost (IC) includes the total
value of purchasing variable inputs (goods and
services) used in agricultural production cycles.
퐞
Where: n is the sampling size; Z is the
statistical value in accordance with the level of
confidence desired in the normal curve (e.g. Z =
1.96 for 95% level of confidence); p is the
estimated proportion of SC rice producers in the
district population (p = 0.5); and, e is the desired
level of precision (7.75%). Based on these, the
sampling of 160 households was identified,
including 80 upland and 80 lowland SC rice
producers.
(ii) Gross Output (GO) is the total value of
the main and by-product outputs generated.
(iii) Value Added (VA) is the total worth
created on agricultural production and calculated
by the following equation: VA = GO – IC
To test whether the differences between the
groups mentioned above were significant, we
used descriptive statistics, the Student’s T-test. In
this study, the T-test was done to examine the
statistical hypothesis on the role of credit access
in agricultural production through the
Intermediate Cost (IC), Gross Output (GO), and
Value-added (VA) indicators.
In-depth interviews were conducted with
officials working at the Department of
Agriculture and Rural Development at three
administrative levels (provincial, district, and
communal) and clerks working at the Vietnam
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Improving agricultural value chain financing: A case study of Seng Cu rice chain in Lao Cai province, Vietnam
their economic activities in the chain (-). Among
The Results and Discussion
the external financing going from outside the
chain, bank credit played the most important role
due to its availability in terms of the large
loanable funds, flexible duration (short- and
long-term), and low interest rates. As the weakest
financial point, internal financing within the
chain was mainly devoted to producers through
vertical and horizontal linkages among
participants.
Financial demands of SC rice chain participants
Main actors participating in the Seng Cu rice
value chain consisted of: (i) producers (upland
and lowland); (ii) input suppliers; (iii) small
collectors; (iv) large collectors (Tien Phong
Cooperative: TPC and others); and (v) retailers.
Among the chain participants, producers and
large collectors played important roles in the
quality management of rice as well as in the
development of the chain. The growers
determined the yield and quality of paddy rice in
the production phase, while the large collectors
performed multiple post-harvesting tasks (e.g.,
collecting, storing, processing, trading, and
delivering) and decided on the quality of milled
rice and the value-addition generated. Notably,
TPC was considered the leading actor due to their
remarkable contributions to the management of
the quality of paddy rice along the marketing
channel as well as innovation to gain more value
addition of relevant participants.
Credit demands of SC rice growers typically
consisted of the following two types: short-term
credit to buy commercial inputs (certified seeds
and fertilizers) and long-term credit to purchase
fixed assets. Besides the demands for seasonal
loans for buying inputs, in lowland, SC rice
farmers needed long-term loans for buying
agricultural machinery, such as tillage machines,
reapers, threshers, millers, and dryers. In
uplands, producers wanted to borrow money to
create a self-made irrigation system with the cost
varying from 5 to 12 million VND because of the
absence of public irrigation there, which was
only invested in lowland areas. Besides this,
upland producers needed long-term credit to buy
cattle for land preparation, traction, and
transportation. They also wanted to repair the
storing place to better ensure the quality of the
paddy.
Figure 2 reveals the financial flows (internal
and external financing) and the commodity
movement (inputs and paddy rice) through the
SC rice chain. Notably, credit demands of SC
rice chain participants included short-term credit
for operational cost and long-term credit for fixed
assets. Overall, each chain player had specific
credit demands depending on their available cash
accumulation/equity (+) and costs required from
The second most important actor in SC rice
chain was TPC, who was considered the leading
Figure 2. Financial needs of key actors in the SC rice value chain in Lao Cai
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716
Bui Thi Lam et al. (2020)
Table 1. Cost-and-Benefit Analysis of the TPC and large collectors in 2017
Products
TPC
Other large collectors
I. Cost and benefit generated in a business year
Paddy purchased (tons)
700
800
Total cost (mil. VND)
10,631
16,085
11,575
14,240
2,665
Total revenue (mil. VND)
Total value added (mil. VND)
5,454
II. Cost and benefit generated from 1kg of dried paddy converted
Unit selling price (1000 VND)
Intermediate costs (1000 VND)
22.98
15.19
17.80
14.47
1. Value added (1000 VND)
7.79
5.48
3.33
2.72
2. Gross profit (1000 VND)
Source: In-depth interviews (2017)
player. TPC exploited the trademark “Lao Cai
Seng Cu Rice” and served high-end market
segments nationwide. In doing so, TPC paid
attention to the management of the quality of rice
in both production and processing stages. In the
production phase, TPC signed up contract-
farming with producers and funded high-quality
inputs in advance, such as certified seeds, organic
pesticides, and special rice fertilizers. In
addition, TPC assigned one technician to
collaborate with farmers and take charge of
disease control. TPC collected fresh paddy at the
fields to prevent farmers from mixing ordinary
paddy with Seng Cu as well as to prevent side-
selling, which used to take place in the past. In
the processing phase, TPC invested modern
processing machinery such as dryers, millers,
polishers, wrappers, and vacuum-packers. This
state-of-the-art processing technology enabled
TPC to achieve a higher rate (66%) of milled rice
compared to that of the large collectors (60-
65%). To gain more value on Seng Cu rice, TPC
continuously innovated to have a diversity of
marketable products, such as white rice, brown
rice, germ rice, alcohol (main products), broken
rice, and bran (by-products); while other large
collectors only focused on one commercial
product, the white rice.
1). For example, although TPC collected less
paddy rice (700 versus 800 tons), TPC’s total
value-added investment enabled them to gain
twice more than the average collector, 5.5 and 2.7
billion VND in 2017. SC rice in TPC’s marketing
channels had better quality, which partly
explains the difference in selling prices and the
higher value addition and profit of TPC. In turn,
farmers participating in this channel also gained
higher value addition. Indeed, among the six
channels, farmers participating in the TPC
channel gained nearly 12,000 VND per kg of
rice, followed by 11,200 VND per kg in the
channel (3) of the small and large collectors
innovation, TPC strongly needed short-term
loans for buying inputs, which were financed in
advance for farmers, and for collecting fresh
paddy at the harvest time in May – July and
September – October.
Almost all large collectors owned the out-of-
date processing machine system, which led to a
reduction of recovery rate, as mentioned above,
and a decline in the quality of rice milled
compared to TPC. They desired to get long-term
loans to replace the old machinery by the modern
ones to improve the quality of rice, and then,
reach larger markets outside the province and
region. Currently, their products were not
packaged carefully and high-quality, so, their
shelf life was 2-3 weeks only, while that of TPC,
The portfolio of marketable products
explained the significantly higher value addition
of TPC over that of other large collectors (Table
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Improving agricultural value chain financing: A case study of Seng Cu rice chain in Lao Cai province, Vietnam
the standard package, was 3 months. In addition,
they also needed loans to improve their
storehouse, in particular, reducing the losses they
encountered due to the presence of various pests
in their storehouse.
Firstly, they often shared their work in the
field (e.g., preparing land, transplanting, and
managing diseases, etc.), discussed and learnt
agricultural
knowledge
and
advanced
technologies together. They reduced labor costs
because of shared labor in transplanting and
harvesting activities. Besides, working together
allowed most rice plants to grow at the same
time/stage (from vegetative, reproductive, to
ripening), thus maximizing the use efficiency of
water, harvesting machines, and other related
things. Altogether, this shared labor among
farmers resulted in higher productivity and better
quality of paddy rice and reduces paddy losses.
Small collectors mostly living in upland areas
collected paddy rice ordered by the large
collectors. They were better-off producers. They
needed money from the bank to buy small trucks
that would allow them to collect more paddy per
trip so that they could reduce their transaction
cost, at the same time, keeping them safe when
traveling in mountainous areas. They also
applied for VBARD’s loans to improve the
paddy rice storage conditions of their storehouse.
Retailers had good financial availability;
therefore, they nearly had not had a high credit
demand.
Secondly, some CIGs were also social
networks, in which farmer members could
borrow money for urgent needs without paying
interest from other members. It was self-
managed and called the credit revolving fund
(FAO, 1995). Many CIGs also took advantage of
the “buy together, sell together” method (i.e.,
collective marketing), and obtain better prices
based on the increase of bargaining power in the
commercial transactions and higher discounted
rate due to buying in bulk. Clearly, CIGs
contributed to increased profits of farmer
members in general and SC rice producers in
particular.
Internal financing among key chain actors
This study identified two internal financing
sources of the SC rice value chain: Common
Interest Groups (CIGs) and Contract Farming,
which were in parallel with horizontal and
vertical linkages in the chain. The volume of
funding was still small, and only some producers
benefited from the chain.
CIGs - a horizontal linkage
Thirdly, farmer members benefited from
CIGs by having improved access to and
participation in productive services, such as
extension and contract-farming with enterprises
(e.g., with TPC and Muong Khuong
Cooperative). They also benefited from technical
training provided by the enterprise linkage.
CIGs are considered a socio-economic
development instrument, which is called
Economic Interest Group (EIG) by FAO & ADA
(2016). EIG collaborations create a financial and
non-financial ecosystem and a well-served
infrastructure to meet value chain development
requirements and/or local economy. In this
system, both government and banks also
participate in meeting the financial demands and
other supportive activities in the chain; thus
creating a multi-stakeholder relationship to
support each other.
Apart from many advantages of this vertical
linkage, some CIGs in SC rice chain still had
existing drawbacks. Some leaders of CIGs found
it challenging to tackle/resolve conflicts arising
between poor and non-poor members. Non-poor
farmers complained about the non-diligence of
poor members to conduct a common mission of
the group. By contrast, poor farmers noticed
unfriendly behaviors of higher-income farmers,
which hindered them from proactively
connecting with others. Hence, it is necessary to
conciliate and create a supportive relationship
among group’s members by the group leader.
CIGs were vertical links of 10 to 20 Seng Cu
rice producers. This model was more prevalent in
uplands than in lowlands. About 333 Seng Cu
rice-growing households belonged to 21 CIGs in
the two communes of Muong Khuong district.
Among the CIG members, 73% were classified
as poor. CIG members gained at least one of the
three following benefits:
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Bui Thi Lam et al. (2020)
(Miller & Jones, 2010). Besides the advantages
of having good quality fertilizers, the borrowers
also received technical assistance on disease
control and sustainable farming practices from
company technicians. Most respondents who
contracted with VJF stated that the learning they
had from the technical assistance enabled them
to reduce the amount of fertilizers and the cost by
close to 8%. The JVF fertilizers contributed to
increasing their crop production by almost 15%.
Vertical linkages between farmers and
enterprises
TPC signed contracts with 57 producers in
Muong Vi commune, Bat Xat district. If
producers requested inputs such as certified
seeds, organic pesticides, and fertilizers, TPC
would prefund their requests. Miller & Jones
(2010) called this internal financing source as
contract farming or forward contract.
Unfortunately, limited working capital of TPC
hindered them from prefunding inputs and
purchasing fresh paddy from farmers. In 2017,
TPC collected 700 tons of paddy rice, which used
less than 30% of TPC’s machinery capacity
invested. Because the machinery was
underutilized, the depreciation cost was
relatively high and the profit was low. To fully
utilize the plant capacity, TPC needs to increase
its harvesting and collection of paddy rice by
increasing its equity, so it could sign more
contracts and fully meet the prefund requests of
producers. But presently, TPC lacks the financial
capacity to contract a more significant number of
farmers.
External financing of SC rice chain
In Lao Cai province, two state-owned banks,
VBARD and VBSP, dominated the formal rural
credit market. These two banks were strongly
supported by the Government to obtain the goals
of agricultural development and poverty
reduction. VBSP provided preferential credit
packages to low-income customers following
government regulations, while VBARD
provided credit to customers with higher
incomes. VBARD accounted for the largest share
in terms of the outstanding loan, while VBSP had
the highest number of household clients. For
example, in the formal and semi-formal rural
markets of Lao Cai, the outstanding loan of
VBARD and VBSP accounted for 81.2% and
18.5% of the total credit volume, respectively.
Moreover, 64% of households borrowed from
VBSP and 34% borrowed from VBARD. Under
the rural credit market like the quasi-monopoly,
the rural customers were restricted in the choice of
formal financial services and could not do
anything about the quality of services offered by
indicate that almost all chain participants had high
financial demand; however, they face many
obstacles to fulfill those demands.
Another enterprise participating in the chain
is the Vietnam-Japan Fertilizer Company (VJF).
VJF made contracts with SC rice producers in
Ban Xen commune, Muong Khuong district. VJF
provided fertilizers (with technical assistance as
to when was the right time to apply, what was the
right type, and how was the right application
done). To access this in-kind credit, growers first
registered the land area in which they planned to
cultivate SC rice with the communal authorities;
next, they indicated the quantity of fertilizers that
they would need for the upcoming cropping
season. Following that, the assigned local
authorities examined their land and desired
fertilizers. After this assessment, the communal
center then confirmed and guaranteed that the SC
rice producers were included. Finally, the
communal officials signed a contract with VJF.
The contract stipulated that the rice producers
would receive fertilizers, and in turn, payback
after harvest.
Among 160 Seng Cu rice producers, 136
households (85%) applied for a loan application
at banks and only 97 households of them (71%)
were able to access credit (Table 2). On average,
their obtained credit satisfied 67% of the desired
total amount. More specifically, lowland farmers
obtained more credit from these banks than
upland producers, 32.1 million and 21.1 million,
respectively. The reasons are explained as
mentioned above, upland farmers face more
obstacles of credit access related to collateral
(land use certificate) and human capital
(education, skills, and ethnicity, etc.).
In total, VJF provided 5 tons of rice
fertilizers for 10ha of Seng Cu rice in the
commune. This type of farmer-engagement by
VJF is termed the Input Trade Credit enterprise
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Improving agricultural value chain financing: A case study of Seng Cu rice chain in Lao Cai province, Vietnam
Table 2. Credit access of key Seng Cu chain actors in Lao Cai
Interviewees have …
Credit size (mil. VND)
… credit
… credit
Volume
desired
Volume
Satisfied extent
(%)
Actor
demand
access
Received
Producers (n = 160)
Small collectors (n = 9)
Large collectors (n = 11)
TPC (n = 1)
136
97
5
41.2
120
26.6
80.0
750
67.2
83.3
75.0
33.3
75.0
6
10
1
10
1
1,000
6,000
200
2,000
150
Retailers (n = 12)
8
6
Source: Household survey (2016-2017)
Without formal credit access, producers fell
in the four following scenarios: (i) investing
lower as the dosage recommended by local
extension; (ii) using mainly home-made inputs,
which often have lower quality than commercial
ones, especially seeds; (iii) buying inputs with
later repayment; and (iv) borrowing money from
moneylenders with high-interest rates. The
findings show that the investment in SC rice
production of lowland growers was twice as high
as that of upland growers (Table 3). Nearly half
of the lowlanders and three-fourth of uplanders
confirmed that they could not apply farming
practices as recommended due to financial
shortage, which leads to sub-optimal use of their
inputs regarding timing, quantity, and
distribution. As a result, irrigated lowland rice
often yields higher than upland rice, 5.3 and 4.4
tons ha-1, respectively.
afford the certified seeds because of their high
price (80,000-130,000 VND/kg). Similarly,
upland producers used more manure and a
small quantity of chemical fertilizers.
Meanwhile, lowlanders overused the chemical
inputs (fertilizers and pesticides) to maximize
the paddy yield.
There were 14.6% and 8.8% of the total
upland rice cost funded from banks and informal
lenders (cash) and enterprises and input suppliers
(in-kind credit), respectively. In practice, most
loans obtained by upland farmers were small and
long-term loans, from 10 to 20 million VND,
which were provided by VBSP and VBARD.
These loans helped them to buy a cow
(accounting for 70-80% of borrowed money) or
to improve a self-made irrigation system. The
remaining money was often spent on
consumption, followed by agro-inputs, including
SC rice seeds. As a result of low investment, the
agricultural productivity of SC rice in the
uplands remained low. The upland farm
households were in debt, and, many of them were
worried about their debts when the repayment
date approached, implying that the bank faced
high non-repayment risks.
Concerning the self-financing source of
upland farmers, notably, they had a few cash
accumulations from the previous seasons (9.3%).
Therefore, they used mainly home-made inputs
(57.1%). For example, 56% of the upland
growers used ‘self-produced’ seeds, and they
exchanged these with other local producers
(22%). It means that only 22% of them purchased
certified seeds as compared to 85% of lowland
producers. It is evident that the quality of seeds
directly influences the quality and productivity of
paddy rice. Although many upland growers knew
about the role of the SC rice seed, they could not
Lowlanders obtained a balanced structure
among four financing sources, varying from
nearly 20% to 25% (Table 3). Clearly,
lowlanders obtained more credit from banks and
input suppliers. Our survey reveals that upland
farmers suffered from higher interest rates
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720
Bui Thi Lam et al. (2020)
Table 3. Seng Cu rice production and financing sources of producers in 2016
Terraced uplands
Irrigated lowlands
(n = 80)
All
Items
(n = 80)
(n = 160)
Total intermediate cost (1000 VND/ha/year)
Seeds
1,641
4,476
1,209
441
3,426
7,025
4,088
2,458
16,997
2,533
5,750
2,649
1,450
12,381
Fertilizers
Pesticides
Operational services
Total
7,766
Source of investment (%)
Cash accumulation
9.3
57.1
14.6
8.8
28.4
25.6
26.9
18.4
0.7
18.9
38.5
23.5
15.8
3.3
Home-made inputs
Credit from banks and informal actors
Credit by enterprises and input suppliers
Gov. subsidies in seeds and fertilizers
Source: Household survey (2016)
10.2
charged by local input suppliers than lowlanders.
The reasons come from their distance: lowland
farmers lived close to Lao Cai city, meanwhile
upland ones lived in remote areas and the poor
infrastructure led to higher transaction costs. On
average, the interest rate charged to lowlanders
was 1.5-2% per month, meanwhile, that of
uplanders was 3-5% per month. Under their loan
use structure, the interests on these credits
accounted for 12% and 10% of the total SC rice
production cost in uplands and lowlands,
respectively. It means that formal credit
constraints undermine the profit of upland
producers and keep them still living in poverty.
Consequently, upland growers still used mainly
home-made seeds to cultivated and certified
subsidized seeds for food.
As described previously, the TPC attempted
to manage the quality of SC rice through (i)
finance in advance high-quality inputs for
farmers via contract farming; (ii) collection fresh
paddy in the field and pay by cash; and (iii) using
modern machinery system. Therefore, TPC
always had high credit demand from commercial
banks. TPC’s total assets reached 6.4 billion
Vietnam Dong (VND) with an equity capital of
3.75 billion VND (55%). Based on the value of
collateral (i.e., land use certificate) assessed by
VBARD, TPC borrowed 2 billion VND with an
interest rate of 11.8% per year. TPC would need
to borrow a short-term loan within 5 months at
the harvesting time (May to July and September
to October). The remaining amount was financed
by family members, private money lenders, and
other enterprises. However, all these financing
sources still were short-term and TPC had to pay
back anytime, therefore, TPC could not
proactively use the borrowed money. With 700
tons of paddy collected, this volume just used
less than 30% of TPC’s machinery capacity. This
under utility led to a high depreciation cost and a
low profit.
Most upland producers belonging to the
ethnic minority people received a subsidy from
the Government (Program 135). In the year that
the survey was conducted (2016), farm
households received all seeds of SC rice based on
their registered rice-growing area and 8kg of
NPK per sao (1 sao = 360m2). Its average value
was 707,000 VND per household, accounting for
10% of the total production cost. However, these
certified seeds mostly came too late compared to
the planting season in uplands. Due to water
availability, their production cycle started in May
and ended in October. The Lao Cai Seed Centre
tended to deliver them with Seng Cu rice seeds
that they harvested in the lowlands in June only.
Small collectors and large collectors, on the
other hand, borrowed money from banks and
721
A study on the tax obligations and perceived tax compliance of small and medium enterprises
received an average of 83.0% and 75.0% of the
requested amount, respectively (Table 2).
Compared to other participants, these satisfied
rates were higher, meanwhile their performances
were poorer than other chain actors.
lower value at the real-estate market. These are
the reasons why bank officials consider lending
to upland farmers to be riskier than lending to
lowland farmers.
Besides constraints related to collateral,
social and human capital also became credit
constraints of many farmers. Both banks,
VBARD and VBSP, disbursed loans to farmers
mainly by the lending group method; in which,
the assessments of local authorities (the leader of
lending group, the head of the village, the head
of Mass Organization, and the representative of
the commune) played a crucial role in screening
the loans before disbursement and banks’
that lending group assessments led to difficulties
for bank officers to evaluate applicants (i.e., they
“look the same”) and to make the right decisions
on credit disbursement.
The credit gap among the demand of chain
actors and their obtained loan size was explained
by banks’ credit provision and the strict risk-
avoidance strategy. As regulated by the Decree
No. 55/2015/ND-CP, farm households could
borrow from VBARD the amount of up to 50
million VND without collateral. Moreover, farm
households having a contract with a purchasing
enterprise could take a non-collateral loan of up
to 100 million VND. In addition, the
Government issued Decree No. 98/2018/ND-CP
(formerly Decision No. 62/2013/QD-TTg) to
stimulate linkages between producers and
enterprises, in which agribusinesses were also
facilitated to gain access to bank credit.
However, in practice, in order to minimize risks,
VBARD required collateral, like the land-use
certificate (LUC); they lended up to 70% of the
LUC’s value based on the Government’s
regulation or up to 50% of the value estimated by
the land market price. Consequently, nearly all
chain actors (producers, collectors, and TPC)
faced credit constraints related to collateral.
Although the SC rice chain, especially TPC and
producers linked with TPC, had high potential,
VBARD’s decision-making still relied on
collateral.
Concerning human capital, which was the
third factor affecting credit access, lowlanders
had more advantages than uplanders. For
example, they had higher educational levels,
more labour and fewer dependents, more
diversity of non-farm income, and higher
available financing as the bank’s requirement
concluded that credit constraints of farmers in
mountainous areas of Vietnam were linked with
low/none of the following three types of capital:
physical (collateral), social (network among their
community), and human capital (education,
knowledge, and skills, etc.). The participation of
VBARD in the chain was able to help remove
various financial challenges and promote their
economic performance that was limited and the
effectiveness that was still low. In doing so,
VBARD needs to change the mind-set to focus
more on potential agricultural chains, like the
Seng Cu rice chain, and assess directly the
repayment capability of customers through
reliable information, not just focus on collateral
as currently.
In Lao Cai, a provincial project aimed to
provide LUCs to all households since 2014,
which belonged to the national land titling
program nationwide. Until 2019, the project had
not delivered any LUCs to households. The
process of obtaining LUCs in Vietnam took time
and was complicated due to the perpetual
splitting of family plots. Many adults got married
and established an independent family, but they
did not obatain LUCs yet. As a result, 2-4
households owned one family LUC together;
therefore, only one household could use the LUC
as collateral. In uplands, local farmers had to face
more credit constraints than lowlanders. In-depth
interviews with VBARD’s representatives
showed that lending on upland areas facede
higher transaction costs, higher natural risks, and
To sum up, this study shows that difficult
banking access (i.e., external financial sources)
seems to be the biggest obstacle for SC chain
actors to reach their optimal performance. Thus,
improving credit access is considered as the entry
point for breaking the cycle: low investment, low
Vietnam Journal of Agricultural Sciences
722
Bui Thi Lam et al. (2020)
productivity, low efficiency, and low
income/profit. Indeed, financial availability can
help farmers to optimally apply inputs in terms
of quantity, quality, and appropriate time.
Similarly, TPC can also enhance efficiency and
increase income by expanding farming contracts
with farmers, purchasing the volume of paddy
desired, as well as developing marketing
Unfortunately, they received smaller credit
volume than the amount that they desired. They
often bought livestock, followed by goods for
consumption, and then, agro-inputs, including
SC rice seeds. Currently, the home-made inputs
account for 66% of the production cost; neither
their investments nor productivity and income
have improved clearly. Many households were
worried about how they would repay their debts,
which implies the non-repayment risk of banks.
channels
(e-commerce,
retailing,
and
wholesaling). For other large buyers, they can
improve the processing machine system to
improve SC rice quality and reduce wastage. To
access banking credit, it is necessary to
collaborate among relevant actors, including
chain actors (farmers and agribusinesses), banks,
and the public sector, which is presented in the
underlying implications.
Likewise, TPC, the leading actor in the
chain, needs more capital to enlarge contracts
with producers, and consequently increasing
paddy collected, which would allow them to
maximize the use of their machines. TPC collects
fresh paddy and makes payments in the field to
prevent growers from mixing ordinary rice with
SC rice and from breaking the contract by side-
selling. The five months from harvest till sale,
TPC would need 6 billion VND, but they could
only borrow 2 billion VND. To compensate for
this deficit, TPC partly fills its financial shortage
by borrowing money from private lenders who
charge a much higher interest rate. This does not
only reduce the profit of TPC, but also keeps the
benefit of farmers being low. In contrast, the
small and large collectors face constraints in
accessing credit to build warehouses and fund
part of their trade.
Conclusions and Implications
Conclusions
It is a common belief that the right finance at
the right time contributes to greater efficiency
and better quality of agricultural products; hence,
increased incomes of relevant chain participants.
This is clearly seen in the case of SC rice, where
almost all chain actors had high financial needs
but their credit demands had not been met.
Indeed, they faced financial constraints due to a
lack of collateral, and the strict risk-avoidance
strategy of the banks, especially VBARD.
Implications
An effective value chain financing depends
on four actors, including: (1) producers; (2)
agribusinesses; (3) rural banks; and (4) policy-
makers. Therefore, the paper suggests relevant
recommendations for these key actors as follows.
Overall, 85% of the 160 SC rice producers
had financial demands, while 71% successfully
applied for a bank loan with an average amount
of 26.6 million VND, which was lower than their
desired amount (41.2 million VND). Lowland
producers obtained a higher loan size than upland
producers, 32.2 and 21.1 million VND,
respectively. Lowlanders have more advantages
in funding their rice cultivation, not only having
higher self-financing ability, but also having
easier access to bank credit and in-kind credit
provided by enterprises (i.e., input trade credit
and contract-farming).
To handle difficulties in accessing banking
credit, farmers’ creditworthiness needs to be
assessed by banks. To do that, they have to
improve their repayment capability through their
appropriate farming practices and financial
management. Besides this, farmers must comply
with the contractual agreements signed with
banks and/or enterprises, especially the term of
the appropriate loan use.
To
enhance
their
creditworthiness,
By contrast, upland producers needed both
short-term credit for commercial inputs and long-
term credit for buying livestock and maintaining
the irrigation system of their terraced plots.
agribusinesses need to reduce their three existing
weaknesses by: (i) Standardizing the financial
reports according to the current regulations; (ii)
723
A study on the tax obligations and perceived tax compliance of small and medium enterprises
August 6, 2018.
Using more banking service in transactions,
which allows banks to capture cash flows of
agribusiness; and (iii) Improving the
management capability and the effectiveness of
loan use.
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C. & Hofmeister R. (2011). Financing agricultural
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customers,
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farmers,
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Rural banks also need to participate in the chain
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