In this webinar, Dr Jayant Menon, Dr Pham Minh Thai and Dr Punpreecha Bhuthong shared their research findings on the agriculture value chain in Mekong countries, and how China has affected them.
REGIONAL ECONOMIC STUDIES PROGRAMME
Wednesday, 14 December 2022 – Dr Jayant Menon (Senior Fellow at the ISEAS – Yusof Ishak Institute), Dr Pham Minh Thai (Principal researcher at the Centre for Analysis and Forecasting under the Vietnam Academy of Social Sciences), Dr Punpreecha Bhuthong (Senior Researcher in the International Economics and Development Policy Program at Thailand Development Research Institute) spoke in a webinar titled “Challenges Facing Agricultural Trade Between The Mekong Countries And China: Value Chain Analyses Focusing On Non-tariff Measures” held by ISEAS. They were joined by Dr Maria Monica Wihardja (Visiting Fellow at ISEAS – Yusof Ishak Institute) and Dr Elyssa Kaur Ludher (Visiting Fellow with Climate Change for Southeast Asia, ISEAS – Yusof Ishak Institute) as the discussants. Moderated by Dr Cassey Lee (Senior Fellow and Co-Coordinator of the Regional Economic Studies Programme, ISEAS – Yusof Ishak Institute), the invited speakers presented their findings on the agriculture value chain in their respective countries.
Dr Menon began his presentation by highlighting the importance of agriculture to the Greater Mekong Subregion (GMS) countries. Employment in agriculture consists of a minimum of 30% of the total employment in these countries, with Laos having the highest percentage at 67.7%. Furthermore, he opined that there are still many opportunities for the agriculture sector in the GMS countries to further develop, and its role remains critical for growth and poverty reduction. Next, he discussed the importance of China to GMS countries, and the challenges agriculture value chains (AVC) faced in GMS countries. China has seen a rapidly rising middle class, rising incomes, growing urbanisation and shifts in dietary structure. These factors further support their increasing demand for agricultural products from the Mekong region. With the growing demand for agricultural products in China, China’s domestic supply is not able to catch up with it. This provides a strong basis for GMS countries to form a mutually beneficial trade between them and China. AVCs have contributed to the export of agricultural products by providing domestic producers with access to support and farm assistance. However, the impact of AVCs on inclusive and sustainable growth may be limited due to the lack of requisite skills amongst local workers, the limited absorptive capacity preventing local enterprises from participating or progressing in it, and the dependence on a single market i.e. China.
Dr Menon further elaborated on non-tariff measures (NTM) on Agriculture exports to China and its challenges. NTMs include technical barriers to trade, sanitary and phytosanitary (SPS) requirements, and export-related administrative requirements, amongst others. The main impacts of NTM are that they make trade procedures to be more complex, and may even cause border delays – which poses a significant problem for perishable products like agriculture exports. Some of the challenges of NTMs are the lack of publicly available information on relevant NTMs, arbitrary enforcement of regulations and a lack of supporting professional organisations, amongst others.
Dr Pham started his presentation by discussing the coffee value chain in Vietnam, tracing from the input supply stage to consumer consumption. About 90% of the farm’s products are handled by agents such as traders and pre-processing companies before being exported or sold to the local market. However, the majority of coffee are exported in its raw form. This creates a bottleneck in exporting coffee to China due to the preference for instant coffee in the Chinese coffee market. Next, he discussed the dragon fruit value chain in Vietnam. About 85% of the dragon fruit grown is exported, with 75% being exported to China.
From his research, he found that (1) farmers are the most vulnerable in the value chain as they are the price takers in both production input and output, and are heavily dependent on traders; (2) coffee prices depend on the world market while dragon fruit prices depend entirely on exporters and the Chinese market; (3) the strict regulations that China imposes have hindered the export of dragon fruit. To improve these, he suggested that the government should establish a manager-business-producer cooperation mechanism to ensure safety in the whole supply chain and provide training to improve enterprises’ legal and technical capacities. Farmers should improve their products’ quality and farming practices so as to meet regulatory requirements. Furthermore, farmers should be provided with market information and the state should implement policies to continue the development of the agricultural cooperative model.
Dr Punpreecha began by sharing the scale of cassava production in Thailand. Thailand is the third largest producer of cassava in 2017 but remains the world’s largest exporter of cassava products. There has been a notable shift in Thai cassava export destinations. The EU used to be the main export destination for cassava from Thailand. However, with the EU’s Common Agricultural Policy (CAP) reform, the main export destination has shifted to China. With the growing demand for cassava products, especially from China, 73% of cassava harvested is exported. Some of the key challenges the cassava value chain face are the lack of well-managed farmer associations, financial issues whereby farmers are caught in debt cycles, the risk of the market being over-dependent on China and China’s new regulations.
Next, he discussed the shift in the durian value chain structure due to increased demand from the Chinese market. Previously, 71.85% of durian produced was consumed locally, but this value has decreased to 27.3% after the Chinese entered the market. Similar to cassava, the durian value chain has its challenges such as inadequate working capital, labour shortage, and the entry of Chinese entrepreneurs. To mitigate these issues, he suggested collaboration among the farmers, adopting new production technologies, and finding alternative markets to lower the risk of over-reliance on the Chinese market.
The discussants raised alternative perspectives that they believe the agriculture sector should focus on. Dr Monica raised the point that sustainability has become a new form of competitiveness, and hence there is a need to shift to sustainable farming in the long term as more countries and consumers shift their preference to sustainable products. Dr Elyssa focused on the impact of climate change on agriculture. She raised concerns over countries that are at risk of climate change such as Myanmar, Thailand, Cambodia and Vietnam and hence, the vulnerability of their agriculture sector. Additionally, she also highlighted agriculture’s role in contributing to climate change, whereby it emits one-third of the global carbon emissions. She brought up further issues to be considered such as the impacts of carbon tax on trade and the role of climate insurance.
The panel then further discussed a range of topics during the Question-and-Answer segment which included topics such as how recent major shocks such as the Covid-19 pandemic and the Russian-Ukrainian war have impacted the AVCs, whether carbon mitigation efforts have affected global food security, how crop diversification and exporting via AVCs can help small countries with low economies of scale, and how China’s non-tariff measures and barriers will affect exports.