Porter’s Model Approach for Rice Industry
Why should Vietnam develop rice production as its competitive advantage? Rice is one of the leading food crops in the world with 85% of its production accounted by human consumption (The Importance of Rice, 2011).Rice is also the most important crop to millions of small farmers who grow it on millions of hectares throughout the region, and to the many landless workers who derive income from working on these farms.In the future, it is imperative that rice production continue to grow at least as rapidly as the population, if not faster.
The world’s annual rough rice production will have to increase markedly over the next 30 years to keep up with population growth and income-induced demand for food (The Importance of Rice, 2011).
In Viet Nam, rice plays an important role in national food security and political stability. Rice also has a direct effect on social security because it is consumed by a vast majority of the total population and is an important source of income for more than 60 million people living in agriculture and rural areas. Rice is the country’s main crop, accounting for more than 90% of total cereal production.
Since the 1990s, the volume of rice exports has risen dramatically, making Viet Nam the second largest rice exporter in the world. Nevertheless, serious food security concerns in the country remains. Pockets of poverty and malnutrition persist more in remote areas and among ethnic tribes (Asian Development Bank, 2012 p. 01). Average food per capital has been increased rapidly, but inequally among regions: In 2007, Mekong is 1,075 kg, South Central Coast 287 kg; the North West 217 kg and the Central Highland 174 kg (the variation between the Mekong and the Central Highland is 6. 17 times)(Nguyen Vu Hoan, 2010 p. 3). Furthermore, rice industry is critical in the Vietnamese’s sustainable economic environment. Rice export helps increase foreign currency inflows and capital accmulation for the industrialization modernization process of the country. Specifically, the increase in rice export volumn means a growth in national incomes, in turns, a growth in national GDP. Realizing rice’s significance and the various threats, the government does not only seek solution but also plays an important role in the international rice market, and consequently, in the food security of the international community
The factorial determinants Land is the first and foremost production material in rice cultivation. The soil fertility dominates profoundly the intensiveness ability and production prices. According to a survey of the Agriculture Ministry, land area with agriculture capability is above 10 million hectares, in which 8. 5 million hectares are suitable for rice cultivation (The Necessity of Vietnam’s Rice Expor, 2011). Therefore, land resource in Viet Nam has advantages in both intensive and extensive farming.
In addition, the climate is ideal for rice due to the combination of humidity and stormy weather. Also, the canal and river systems spread densely throughout the country, especially the three major rivers including Red, C? and Nine Dragons Rivers, which provide farmers with huge amount of water. These natural conditions helps create a solid foundation for rice industry in Viet Nam. The human resource is another factor contributing to rice production. 50% of national labour force participates in farming with broad knowledge and experience passed down by their ancestors (Asian Development Bank, 2012 p. 1). The Vietnamese culture has been attached deeply to rice cultivation; consequently, the people possessed various compatible skills with the particular weather conditions in Viet Nam. The amount of research and development carried out has been considerable. Many new rice varieties have been introduced offering much higher yield than the old ones. Besides, new production model has been applied and used successfully in boosting productivity, together with efficient irrigation system.
Advanced drainage, aluminum, salt removal techniques are deployed to improve rice quality (Asian Development Bank, 2012 p. 02). Viet Nam is the country to have cheapest cost of production within South-East Asia, especially in Mekong Delta – cheapest in the world. This creates price competitiveness for Vietnamese rice in both domestic and foreign market (The Competitiveness of Agricultural Products in the Context of Joining AFTA, 2003). The infrastructure system is continually upgraded to help make use of every source efficiently.
The Government is currently working with foreign countries especially Australia. The two nations are carrying on several projects on projects: build Cao Lanh Bridge; Mekong Delta infrastructure and Vietnam Rural Energy Distribution to provide efficient delivery of power service by power companies; also a Southern Coastal Corridor connecting between Viet Nam, Thailand and Cambodia. As soon as these instructions go into operation, many efforts can be made to exploit potential benefits that have not yet been seen (AusAid, 2013). The overnment also concerns about the educational and health level of people from rural areas. The systems of school at all levels are being constructed new, upgraded and temporary primitive schools and classes are being eliminated. Besides, rural health care system continues to be enhanced quite comprehensive, truly becomes the rural residents’ crucial initial health care system, growing both in terms of number of health stations, qualification of health service providers as well as the physical facilities. (Agricultural and Fishery Situation in Vietnam, 2011). The Demand Conditions
As the Viet Nam’s economy has been growing, leading to higher living standards especially in big cities, the demand for consumption goods is rising including rice. Moreover, people get access to high quality rice both from foreign and domestic market. Therefore, a potential growth in demand for superior quality rice is obvious and people will turn to other rice exporters like Thailand if its rice quality is higher. However, domestic production can take over the rice market by producing high quality rice with lower prices based on new production model and continuous innovation in machinery and rice varieties.
If the rice industry can successfully address this sophisticated demand, it can exploit profits from high-end market both domestically and internationally by producing much higher value-added rice. The Up and Downstream Industries The upstream industries supporting rice production include machinery, fertilizers and pesticides. The government realized the importance of these industries so it implemented policies to encourage investment on R&D and facilities. Vietnam has recently working on a project building a huge milling house with capacity of 100,000 tons per annum, in Mekong Delta region (Huynh Xu TTXVN, 2013).
Also, the collaboration of many agriculture scientists and experts has resulted in eco-friendly fertilizers and pesticides using green recycled components, helping paddy field to grow more quickly. The packaging industry is in the downstream process in rice production. In order for the rice to be in the market, it must be packed properly first. An automatic packaging line is being used in many rice processing factories. The government does realize the benefit packaging could bring especially in marketing, value added function and brand perception. It is now encouraging competition among package production firms for a higher quality packaging.
Rice manufacturers also cooperate with the packagers on their own packaging designs. The structure of the industry and its rivalry The economic units are mainly dominated by small-scaled farmers and there is significant land fragmentation. Theoretically, there is no competition among cooperatives. However, due to the fact that the whole rice production process is managed by Agriculture and Rural Development Ministry and its regulations and standards put on the farmers to produce high quality rice, the Vietnamese rice competitiveness is considerable relative to other countries’.
Moreover, the pressure to compete with other big rice exporter drives manufacturers to continuously upgrade their production model. The other contributing factors Chance Joining WTO provides several opportunities for rice exports. First, WTO is a big playing field offering a huge market including one for rice consumption as before Viet Nam became member of WTO; rice is limited in participating in global market. Besides, many enterprises have access to advanced technology in rice production.
Secondly, a complete law system has been introduced in order to be able to join WTO, which encourages foreign investment funds since the other countries think Viet Nam has a m? e stable environment. Finally, there will be no unfairness in case of conflictions as the WTO’s commerce policy is applied to Vietnam ensuring our rights in international playground (Rice production situation after joining WTO, 2009). Wars are still big issues in many regions of the world and will continue to be. And food security is at stake in these particular areas. Vietnam’s rice export can become one of the major sources for food during instabilities.
Government Policy The authorities also play a crucial role in influencing the nation’s competitive advantage. Regarding the supply side, Viet Nam’s Government has implemented multiple measures to boost production including decollectivism (xoa b? ch? nghia t? p th? ) transforming land and production materials to household system; agricultural R&D involving one third of the S&T government budget to support hybrid rice varieties for farmers; access to credit provided by Bank for Agriculture and Rural Development and favoured loan interest rate granted to farmers (Dang Kim Son, 2011).
The government, being aware of rice industry’s significance, has been putting huge investment and concern about this and will continue to do so In foreign trade, policy such as removing export quotas has encouraged foreign investors. Besides, control is still be made over export contract registration as well as conditions to rice export enterprises to ensure rice quality. In conclusion, the rice industry is promising due to several factors both from Porter’s model and from outside sources.
The human, natural, knowledge resources are all favourable to rice production in the first place. Not to mention other factors namely demand, supporting industries, chances and government policy, these are essentially supporting the growth of rice industry though there are plenty of efforts to be made to exploit them. It is wise to take into consideration that making rice the nation’s competitive advantage. This does not only help the Viet Nam’s economical growth but also ensures its stability in far future.