Agriculture Reference
In-Depth Information
1988 recognized the farm household as the basic unit of production. Farmers
were allowed to buy, own, and sell agricultural inputs, such as machines, water
buffaloes, and tools. Cooperative land was assigned to farming households for
10 to 15 years under different forms of contracts or bidding. Furthermore, farm-
ers were allowed to market 40 percent of contracted output. By 1989 compul-
sory government purchase of farm products was eliminated, and private traders
were allowed to purchase directly from farmers. Market-oriented reforms were
carried out in other sectors as well. The government eliminated most direct sub-
sidies and price controls, tightened government spending, set interest rates at
positive real values, unified and devalued the exchange rate, and moved toward
a more liberalized international trade. The government reduced subsidies to
SOEs and exposed them to greater competition.
When Vietnam began exporting rice, the government restricted the volume
of rice exports through the use of export licenses, even as international trade in
other commodities was liberalized. A SOE (the Vietnam Central Food Corpo-
ration [VINAFOOD]) retains the leading position (96 percent of volume) in in-
ternational trade, which is largely confined to government-to-government trans-
actions in relatively low-quality food-aid rice with a commercial price discount
to the prevailing world price to African, Asian, and Middle Eastern markets. Re-
cently, however, opportunities in international trade have been extended to the
private sector. The Government of Vietnam carries out a regulatory role, issu-
ing ordinances and decrees, but also signs contracts with other governments and
private international buyers and assigns state-owned enterprises to supply rice.
The government is playing an increasingly significant role in the development
of grades and standards to assist in the improvement of quality.
Underlying Conditions Have Changed
If the rationales are evaluated in a “market failure” sense, there are four com-
monly agreed justifications for intervention in foodgrains markets: (1) weak in-
frastructure and limited flow of price information (lack of market integration),
(2) risk mitigation for technology diffusion, (3) thinness and volatility of the in-
ternational market, and (4) inability to participate in the international market.
5
This section provides an assessment of how each of these conditions has changed
over time.
Infrastructure and Information Flow
When price policies were introduced, transport and communication infrastruc-
ture, the key determinants of efficient functioning of domestic markets, was ei-
ther lacking or limited in all of these countries. Commodity movement was
slow, traders had difficulties arbitraging over time and across space, and local-
5. See Timmer (1989b) for a detailed discussion on the rationales for public intervention.
