Vietnam's accession earlier this year to the World Trade Organization (WTO) was
widely expected to open new and lucrative market opportunities to the country's
many ambitious exporters. But since joining the global trade club, many
Vietnamese businesses now find that they are actually losing rather than
gaining access to certain markets due to growing safety concerns about their
products.
That's been particularly true for Vietnam's food businesses, which contribute
55% of exports and around 50% of total national income. In less than two
decades, Vietnam has transformed its
once centrally planned and backward agriculture sector into a major engine of
export growth, in recent years surging at annual growth rates of over 20%.
Vietnam is currently the world's biggest pepper and cashew nut exporter, the
second largest exporter of coffee, rice and seafood and among the world's
leading exporters of tea, fish sauce, soy sauce, and instant noodles.
The agricultural sector still employs the majority of Vietnam's labor force,
with around 11 million Vietnamese small-scale farm owners and businesses, most
of whom have land holdings of less than one hectare and who operate as their
own farmers and managers. As a small latecomer to several global food markets -
including Japan, China, the United States, the European Union and even
countries in the 10-country Association of Southeast Asian Nations (ASEAN) -
Vietnamese producers are being saddled by new trade and non-tariff barriers,
which are blocking the market opportunities many had banked on for their future
profits and growth.
To be sure, that was frequently the case even before Vietnam joined the WTO,
particularly for seafood producers. In January 2005, the US Department of
Commerce determined that Vietnamese shrimp exporters were guilty of dumping, or
selling at prices below production cost which resulted in material injury to US
shrimp producers. The department imposed an average 25% punitive tariff rate
against a number of Vietnamese shrimp producers.
Several of those sanctioned producers rebounded from the US's market-closing
measures, as they were able to find new global outlets for their products,
primarily in Japan and the EU. Yet Vietnam's lack of investment in quality
assurance and marketing is stymieing Vietnam's drive capitalize on its WTO
membership to open more lucrative, developed country marketplaces.
Vietnamese seafood exports to Japan and Europe began to spiral downward this
year due to producers' inability to meet their more stringent controls on
antibiotic residues and banned chemicals. That includes the Vietnamese seafood
industry's continued use of chloramphenicol as a preliminary treatment for fish
products to keep the products fresh. The substance has been banned worldwide
because it can cause severe health effects, but is still often used in some
developing countries, including Vietnam, because of its availability and low
cost.
Japan, which had previously been Vietnam's biggest global seafood customer,
started as of late last year to test all Vietnamese shrimp and cuttlefish
products. Banned antibiotics were still detected after Vietnam joined the WTO
in January this year. As a result Japan's ambassador to Vietnam warned in June
that if the situation did not improve, his country would consider a total ban
on Vietnamese seafood products. Similarly, the EU, which in 2006 purchased
about 22% of Vietnam's total fishery shipments, has also recently detected
banned antibiotics in Vietnamese catfish and has in turn restricted trade.
Those sanctions are arguably starting to have a spillover effect to other food
sectors. China's expected slide in food exports due to recent global concern
over its chemically-tainted seafood and juice drinks could have created a
competitive opportunity for Vietnam's food exporters. At the moment it doesn't
appear that will be realized, as Vietnam is increasingly confronted with
similar accusations of poor food quality - although the problems have been
played down by state-run media and government officials.
Vietnam's mounting failure to meet food safety standards will likely result in
the country missing its $3.6 billion seafood export target for this year, some
industry analysts say. And the situation could get worse before it gets better,
as American shrimp and catfish producers aggressively lobby their state health
agencies to more vigorously test Vietnamese seafood imports. The discovery of
antibiotics in imported fish and frozen shrimps by US states Alabama, Louisiana
and Mississippi, where local seafood producers compete for US markets, recently
prompted the Food and Drug Administration to take tough action.
In the first six months of 2007, a total of 240 batches of Vietnamese food
goods, mainly seafood, were refused entry into the US because they failed to
meet basic hygienic standards, according to the FDA. Banned substances detected
included salmonella, chloramphenicol, and Aflatoxin, as well as other hazardous
additives which were not named on some food's labels.
The rejected shipments included those processed by some of Vietnam's top food
exporters, including Seaspime, Mekophar, Cau Tre Enterprise, Frozen Food
Company No 4, and Acecook Vietnam Co Ltd. Because these companies are now
assumedly on the US FDA's watch list, it could cause Vietnamese seafood exports
to the US to fall precipitously since many supermarkets, restaurants and
distributors to fast food eateries rely on FDA findings. Meanwhile, local US
seafood producers are calling for tougher inspections of competing Vietnamese
products, of which they complain less than 1% are currently tested.
Out of quality control
Whether Vietnam can quickly improve its quality controls and keep these
lucrative markets open to its exporters is an increasingly crucial economic
question. Vietnamese authorities have responded by claiming they have taken
more measures to control the quality of exports, but without any clear signs of
success. Moreover, there is a lack of public information to accurately evaluate
what steps the Vietnamese authorities have or have not taken in response to
recent rejected food shipments.
And it's still unclear to many industry analysts what capacity and resources
for testing and enforcement of safety regulations are available at Vietnam's
National Fisheries Quality Assurance and Veterinary Directorate and the other
local inspection agencies. Even if quality control could be made more effective
and efficient, it may only underscore that most food-processing practices in
Vietnam do not meet international standards, and that there are no real
cost-effective alternatives without fully transforming the food-producing
sector through the procurement of expensive technologies which would
effectively erode the industry's current low-cost advantage.
Bui Chi Buu, head of the Southern Science and Technical Institute in Vietnam,
argues that the country's food producers need to invest heavily in post-harvest
technology if they want to upgrade the quality of their rice and other food
products. Such investment would also significantly reduce the loss of
agriculture products after harvest, of which 7% of gross national agricultural
products are lost due to pilferage and rot, according to industry experts.
Another major need is to invest in the country's rural transportation
infrastructure, cold-chain infrastructure and the privatization of agricultural
research that could be refocused to further develop the food export industry.
These investments, or government subsidies, are necessary on the theory that
there are existing technologies that, in the long run, would be profitable to
procure and implement to ensure food quality and safety.
For several Vietnamese food sectors, production methods clearly have to change
- and fast. This past summer, a soy sauce scandal - in which a number of soy
sauce brands sold in the Vietnamese domestic market were found to have high
levels of 3-MCPD, a known cancer-causing substance - represented yet another
case in point. The substance is sometimes added by manufacturers to increase
protein and cut down production time.
According to state-run media reports, the health inspectors had known about the
high levels of the substance beginning in 2001. Since 2004, it was also known
that the Czech Republic and Belgium had rejected Vietnamese soy sauce precisely
for their excessive 3-MCPD levels, but that no action was taken locally against
the violating soy sauce producers, whose products were still being consumed
domestically.
In state-run Vietnamese newspapers, it was recently reported that a 2006
state-conducted preventive healthcare study found that 32 out of 33 soy sauce
producers were using processes that produced high levels of the cancer-causing
substance, but most violators were not financially fit enough to upgrade their
processes and stay solvent. The report, however, was never publicly released
and while the violating producers were fined, they were not required by the
authorities to change their processing practices.
Unless new incentives are put in place for Vietnamese enterprises to adopt best
practices and deploy more modern food processing technologies, the emerging
market questions about Vietnam's food safety for both domestic and foreign
consumption will inevitably grow. Given the government's emphasis on boosting
production and seeking out new export markets, Vietnamese food producers have
failed to move aggressively to improve their quality and meet international
standards because alternatives have been frequently available to them.
A recent EU report found that contaminated Vietnamese seafood exports shipped
first to Western markets are not necessarily destroyed but rather shipped to
"easier-to-please" Asian markets. Though not necessarily for the same reason,
Vietnamese government officials are reportedly now working fast to acquire
export licenses to ship seafood exports to the Australian and Russian markets
to compensate for expected losses in Japan and the EU.
For many Vietnamese food producers, boosting production is what's primarily
associated with generating higher income. This is even more so when Vietnamese
producers are faced with lower export commodity prices, of which they are
likely to compensate for by employing more intensive farming practices to boost
output and oversupplying the market.
That's what happened in the late 1990s when Vietnamese coffee growers, facing
historic low prices, oversupplied the market with cheap, robusta coffee which
is believed to have contributed to the total collapse of global coffee prices.
It has already been alleged that Vietnam, as a new member of the WTO, has
resorted to such practices. As of November 2007, at least 30 Vietnamese firms
faced various anti-dumping lawsuits, of which four are now under formal
investigation. By one count, Vietnam has lost 23 out of 28 dumping cases filed
against its exporters and the country has never moved to file its own
anti-dumping suit.
Vietnam's world-beating food exports are mostly processed in commodity form and
hence are limited in economic value. Meanwhile value-added food goods are often
exempt from anti-dumping tariffs and command higher market prices. By many
accounts, the uneven quality of Vietnamese rice - the majority is exported
unprocessed or poorly processed - makes it inferior to Thailand's
technologically scanned and sorted products. Similarly, around 90% of
Vietnamese coffee is of the cheap, lower quality robusta variety, which often
does not meet the International Coffee Organization's minimum standards.
This, in part, may explain why the prices for both Vietnamese rice and robusta
coffee are always at least 15% to 20% lower in world markets than that of their
nearest rivals, respectively Thailand and Brazil. This is also true for aqua
products, vegetables, and a range of other agricultural commodities that have
limited competitiveness in world markets, according to the United Nations’
recently released Global Competitiveness Report.
In today's increasingly cut-throat global food economy, buying improved seeds,
having access to updated technical information, and being first to innovate a
new type of crop are no longer sufficient to generate higher incomes. The
current knowledge, technology and financing systems behind Vietnamese farmers
need to be significantly improved if the country is going to meet global
production requirements and stay abreast changing market demands.
In the immediate term, Vietnamese food exporters may be able to offset the
potential losses from failing to meet developed countries' more stringent
standards by ramping up production and selling inferior products to poor
countries' at lower prices. At the same time, that approach will sooner or
later constrain food exporters' profits and if not well-managed will accentuate
an already growing negative reputation about Vietnam as a producer that dumps
cheap and often unsafe food products onto the global market.
Long S Le is the director of international initiatives for the Global
Studies Program and also a lecturer of Vietnamese studies at the University of
Houston in the United States.
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