Supporting access to credit for sustainable shrimp production
In the last eight years, a lot of shrimp farmers in Vietnam have suffered heavy losses and could not recover their production because of disease outbreaks. As reported by the local authorities, about 42,673 hectares were hit by white spot syndrome and eosinophilia-myalgia syndrome (EMS) in the Provinces of Soc Trang, Bac Lieu and Ca Mau.
According to a survey conducted in 2015 by the International Collaborating Centre for Aquaculture and Fisheries Sustainability (ICAFIS), 71% of shrimp household producers in Soc Trang did not have enough financial resources to invest and recover production. At the same time, due to these diseases, bad weather, intensive farming methods and bad quality seeds, shrimp mortality has been increasing from 22% in 2010 to 58% in 2014.
Given the alarming figures, since 2014 the State has issued several policies and loaning programs to promote the development of agriculture, such as:
- Resolution no. 14/NQ-CP, issued by the Vietnamese government to provide loans for the development of agriculture, forestry and aquaculture for exporting. This resolution promotes shared value, risks and benefits between actors that in turn could help promote inclusive business and CSR practice at the company level, enhances access to finance for small scale producers, reduces the collateral rate for processing company (estimated only 10% of granted amount) and financial risks for banks through multi-stakeholders' monitoring (banks, processing company, all value chain actors, local government), and;
- Decision no. 1050/QĐ-NHNN, issued by the State Bank about pilot program to provide loans to value chains that apply advanced technology in agriculture/aquaculture in line with resolution no. 14/NQ-CP.
Following the new resolution, to date 28 companies have received loans, including two companies from the aquaculture sector and 26 from the agricultural sector.
In December 2015, Oxfam organized a workshop on "Developing loaning criteria for the shrimp value chain in the Mekong delta". Participants to the workshop shared their concerns about accessing credit. Despite the new policies, they reported that many barriers still exist for shrimp producers to access the loans, since:
- There is no specific guideline for commercial banks to assess value chain based loan applications;
- Having to take into account their financial risks, commercial banks grant small loans, which are however not sufficient for producers to recover their production;
- Small-scale shrimp producers and processors are not capable enough to develop value chain based business plans for loan application due to limited understanding and interpretation of loaning programs.
The workshop confirmed that the shrimp industry requires dedicated policies, mechanisms as well as dialogues to enhance the capacity of producers and processing companies to develop business plans and meet the requirements of banks, in order to receive loans.
In March 2016, a new SWITCH-Asia project started in Vietnam, precisely to support a sustainable and equitable shrimp production and value chain development in the Provinces of Soc Trang, Bac Lieu and Ca Mau. The Shrimp Value Chain project is led by Oxfam and implemented in cooperation with ICAFIS.
The project contributes to eradicate environment-unfriendly practices in the shrimp industry and replace them with more sustainable ones through the:
- Facilitation of sustainable production practices that are socially and environmentally responsible;
- Introduction of environment-friendly practices and innovations, such as auto-efficient feeding systems (that could help reduce much of waste from production and Co2 emission), efficient oxygen pump system, water fan system and aerator (for energy and water efficiency);
- Adoption of environment-friendly antibiotics and biotics to reduce chemical usage in production which in turn would reduce soil and water pollution as well as post-harvest waste;
- Introduction of environment-friendly and innovative management practices with respect to energy and water use in processing companies;
- Engagement of producers and companies in applying sustainable management of mangrove forest and secure the livelihoods of mangrove shrimp producers.
In October 2016 the project collaborated with the Vietnam Banking Strategy Institute to conduct a survey "Evaluating the financial need in the shrimp value chain" in the three provinces of Soc Trang, Bac Lieu and Ca Mau, which account for up to 93% of shrimp production area and 84.4% of shrimp production yield in Vietnam.
The activity intended to evaluate the status of loaning programs for the shrimp value chain according to the Resolution No. 14/NQ-CP (addressing access to credit for the agricultural value chain) and Decree no. 55/NĐ-CP about "credit policies for agriculture and rural development" which sets also specific credit lines for small scale producers and cooperatives without collaterals, high-tech agriculture and aquaculture and value chain models.
The evaluating team from the Vietnam Baking Strategy Institute has worked with the provincial Departments of Agriculture and Rural Developments, 24 commercial banks and 7 shrimp value chains from shrimp processing and exporting SMEs in the three provinces.
The evaluation recorded the difficulties faced by the shrimp value chain actors and the urgent need to develop suitable policies for shrimp producers and processing companies to access loans and help banks reduce risks in providing loans.
The surveyed commercial banks identified the following difficulties in providing loans to SMEs from the shrimp value chain:
- High risks in shrimp production, due amongst others to high density, unsustainable production practices, low protection of shrimps against diseases, and climate change;
- High outstanding credit;
- Difficulties in managing monetary transaction;
- "The loaning program for value chain is not practical enough for banks to apply", as stated by Mr. Le Van Viet, Director of Soctrang branch of Kienlong State Bank.
From their side, the shrimp processing companies shared the following difficulties in accessing the loans, namely:
- Relatively high interest rate compared to other countries;
- Land policy, which does not consider agricultural land as a valid collateral;
- Interference by intermediaries or foreign companies in the transactions with small-scale producers.
During field visits conducted as part of the survey in October, discussions were held with relevant stakeholders on how to improve access to loans and financial risk management for producers who adopt sustainable production practices. Not only would they be supported in accessing credit but by switching to environmental friendlier practices they would also be able to reduce diseases and risks, cut feeding and waste treatment costs and secure a steady supply to processing companies and exporters.
In view of more sustainable production practices, the project is in fact promoting the adoption of sustainable standards such as:
- BMP (Best Management Practice)
- VIET-GAP (A Good Agriculture Practice of Vietnam)
- ASEAN SAIP (the Shrimp Aquaculture Improvement Protocols of ASEAN)
- ASC (Aquaculture Stewardship Council) with a focus on Participatory Social Impact Assessment and Biodiversity Environment Impact Assessment)
- BAP (Best Aquaculture Practices)
In the coming months, the SWITCH-Asia project together with the provincial Departments of Agriculture and Rural Development will collaborate closely with banks to promote various loaning programs in order to help the shrimp industry develop sustainably, have more value and build a global trademark.
Additionally, the SWITCH-Asia project plans to advocate for a new decree on value chain finance or at least for a regulation of the State Bank that guides commercial banks in assessing value chain loan applications, in which the following four key criteria shall be assessed:
1. Shared benefit between companies and small scale producers (by investment, fair farming contract, shared risks...);
2. Sustainable production practices and risk management/mitigation in which all value chain actors practice and comply with international standards that help them meet the increasing market requirements and reduce risks;
3. Agricultural insurance: next to risk management and mitigation plan, the value chain must also buy insurance. Agriculture is such a risky business that insurance companies are not interested
4. Multi-stakeholders' monitoring mechanism.
Written by: Vu Van Thuy (SWITCH-Asia project)
Edited by: SWITCH-Asia Network Facility