Agriculture Reference
In-Depth Information
The Rationale and Operations of SOEs
In a letter to WTO for its accession, the Government of Vietnam states “price
stabilization” as the prime objective for the formation of VINAFOODs. For ex-
ample, to justify the purpose of VINAFOOD-2, the letter states “[VINAFOOD]
was established under Decision 311/TTg dated May 24, 1995 of the Prime Min-
ister in order to strengthen the state capability of food market control and sta-
bilization as well as domestic price stabilization” (Government of Vietnam
2000b). However, the actual operation of the food SOEs does not seem to be
consistent with this objective. Available data show that VINAFOODs neither
procure from the farmers to ensure a floor price nor do they distribute directly
to the consumers in response to price hikes to ensure a ceiling price (see Table
8.3). Thus, export control appears to be the only public intervention that indi-
rectly contributes to price stabilization in Vietnam.
Although the official rationale for food SOEs is price stabilization, two
other justifications are often cited in the literature. First, as indicated earlier,
most of the surplus in Vietnam is produced in the Mekong River Delta, with
smaller surpluses from the Red River Delta. The rest of the country is either food
deficit or is marginally self-sufficient. As a consequence, the first priority of the
rice export policy has been to guarantee domestic consumption and export the
remaining surplus. To achieve this objective, commonly referenced as a na-
tional food security objective, the government has to control the export of rice.
Thus, the food security priority is the commonly given justification for allow-
ing only SOEs to export rice through a system of export quota permits.
The other rationale dates back to the days of the marketing board, but is
being revisited in some recent literature. In a recent paper, Ghosh and Whalley
(2004) have argued that, in the absence of viable alternative options, buying and
selling can be an efficient way to increase government revenue. They further ar-
gue that price control can be a mechanism to insulate the domestic market from
volatility in the international market, which can in turn reduce transaction costs.
However, as we discuss in the next section, instead of generating public rev-
enue, SOEs are actually incurring losses in recent years.
Economic Implications of the Dominance of SOEs
An ideal way to draw economic implications of SOE operation would be to con-
duct a comprehensive benefit cost analysis, but such an analysis could not be
conducted because of the lack of data. Therefore, this section largely relies on
critically examining the operational structures that have implications for private-
sector development, public expenditure, and profitability of the SOEs.
Public Supports to SOEs: Preferential Credit and Tax Exemption
The actual social costs of running SOEs for price stabilization often remain elu-
sive because of various supports—regulatory, financial, and logistical—that the
