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Logistics – a major obstacle to Vietnam’s agriculture

Friday 16, 10 2020
The rising logistics costs are having a significant impact on the value of agricultural products and the sustainable development of the agricultural sector in Vietnam.
Logistics – a major obstacle to Vietnam’s agriculture

Farm produce is one of the most exported commodities, contributing greatly to the total export turnover in Vietnam. According to the Ministry of Agriculture and Rural Development, in 2019, Vietnam's agricultural export turnover reached nearly 40.55 billion USD. In particular, there were 6 items with turnover of over 2 billion USD.

However, logistics costs are too high, accounting for about 25% of farm produce value. This is considered the main cause leading to the reduction in the competitiveness of many Vietnamese key agricultural products in potential markets.

At the seminar "Logistics costs for Vietnamese agricultural products - competition in the international market", Mr. Trieu Thanh Nam, Deputy Head of Trade Policy Department cum Head of the European Market Group, explained that logistics cost for Vietnamese agricultural products are high because it consists of several factors including seeds, materials, inputs, livestock, establishment of raw material areas, output products, purchasing chains, wholesale and retail channels, and delivery. At present, the scale of Vietnam's logistics is quite modest, mostly interrupted and manual while modern sales channels like electronic markets have not yet been developed.
Mr. Trieu Thanh Nam, Deputy Head of Trade Policy Department cum Head of the European Market Group
Production in Vietnam’s agricultural industry is disorganized and scattered, which is the biggest problem. Farmers or businesses are not able to invest large vehicles; and warehouses are used to store farm produce for only a season or a few months. On the other hand, the rate of logistics services outsource is currently very low. Many agribusinesses have their own vehicles, warehouse, or delivery service. That leads to the fact that agricultural enterprises only need logistics providers when needed.

Falling into similar situation, Ms. Nguyen Thi Diem Hang, Chairman of the Board of Directors of Viet Nam Organi Farm Joint Stock Company, also said that logistics is a very complicated problem for companies participating in the value chain of Vietnamese agricultural products. Ms. Hang's company once had to pay 700 VND for the transport of a kilogram of vegetables. 

In addition to logistics costs, agribusinesses also have to pay road toll. Moreover, upon arriving at the border gate, agricultural products are not stored in standard cold storage, but in the truck for many days before being discharged.

Solution for bumper devaluation

Regarding logistics problem for the agricultural sector, Mr. Nghia gave many startling figures. Accordingly, Vietnam has a series of logistics problems in every economic sector. Citing data from the Ministry of Transport, the market share of road transport accounts for 78%, and waterway 18%. In particular, road transportation costs are quite high.

The solution to reducing the proportion of logistics is to increase connectivity between transport modes. The efficiency of water transport is 200 times that of road transport, and the operating costs are also lower. It costs a container only 10 USD to be transported from North to South. If the share of road transportation is reduced, the logistics “picture” will be different.
Solution for bumper devaluation
In addition, in some countries where logistics costs are low, the proportion of under-5-ton trucks is just about 10-20%. In Vietnam, this vehicle accounts for 80%. This shows that even road transport in Vietnam is ineffective.

Ms. Hang also said that Vietnam is now too dependent on road transportation, while waterways and sea routes are very potential and cheap. If these channels are well developed, the logistics costs for agricultural products will be reduced, which will ease the burden of bumper devaluation for farmers and agribusinesses.

Besides, logistics costs for agricultural products are still too high. Therefore, the agricultural sector should build processing factories in key raw material areas so that transportation costs and harvest loss will be limited.

Source: theleader

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