Agriculture Reference
In-Depth Information
supports, SOEs have incurred losses in recent years. The operation of food
SOEs does not appear to be consistent with the underlying policy rationale,
which is to stabilize prices across time and space. Available data show that
SOEs neither procure from farmers to ensure floor price nor do they distribute
directly to the consumers to ensure ceiling price. That is, price control mecha-
nisms work only through regulating the export quota, which can indirectly af-
fect the domestic markets.
The implicit costs of regulatory support are also found to be significant. In
one instance when SOEs received an interest-free loan from the Export Promo-
tion Fund in 2000, implicit estimated support was within the range of US$2.4-
5.0 million. Similarly, given that more than 70 percent of total rice export is
controlled by VINAFOODs, the exemption or reduction of value-added tax,
which has often been offered to food SOEs, can also amount to significant hid-
den subsidies. Finally, recent studies indicate that SOEs incur losses, which are
most likely covered by budgetary support.
These findings give rise to several questions relevant to policy. The most
fundamental ones are: (1) In view of a maturing private sector, what justifies
the continued dominant role of SOEs in Vietnamese rice market? (2) Could the
policy objective of insulating domestic market from fluctuations in interna-
tional prices be achieved more cost effectively through alternative institutional
mechanisms? (3) Will further reforms of SOE operations be welfare enhanc-
ing? (4) Could resources devoted to SOEs be invested in projects that are so-
cially more desirable?
A more comprehensive analysis is necessary to exhaustively answer these
questions, but some preliminary answers can be offered from available studies
and international experiences. First, no justification can be given to the price-
stabilization argument, because SOEs are not engaged directly in the price sta-
bilization of rice. Second, insulating domestic markets from the volatility of the
global market will probably be needed in the foreseeable future, but interna-
tional experiences suggest that this objective can be achieved more cost effec-
tively through alternative policy mechanisms. For instance, a recent study in In-
dia suggests that, compared to buffer stocking through parastatals, variable levy
and subsidies on private stock can be cost effective and welfare enhancing.
Third, the analysis of Minot and Goletti (2000) demonstrates that incremental
steps in trade liberalization (establish an export tax to replace the export quota
and then reduce the tax slowly) can benefit poor households, which are pre-
dominantly rural farmers, and results in estimated net gains of US$200 million.
Finally, there are obvious alternatives in which public resources can be invested
—including marketing infrastructure, risk-management institutes, and human
capital—that can yield higher social returns. However, determination of return
and prioritizing investments is beyond the scope of this study and therefore left
for future research.
