Following the footsteps of Vietnam
(Part 2)
People who help transform society and specific sectors of society are usually classified as thinkers (the theorists) and doers (the implementors). Those of us who joined the agribusiness road show to Vietnam on June 24 to 27 were fortunate to have as one of our speakers someone who is both a thinker and very much a doer. Christian Eyde Moeller is someone who walks his talks. He is a professional who not only meticulously prepares a strategic plan and a playbook but also shows the way to those who work for him the actual steps needed to reach his goals.
In his presentation on Vietnam’s agricultural performance, he first outlined the “Four Pillars of Vietnam’s Success.”
The first pillar had to do with bold policy reforms implemented by the Socialist government from 1988 to 1997: in 1988, Resolution 101 involving land-use rights; in 1993, the Land Transfer Law that enabled transfers of land; and in 1997, the rice export quota was removed.
The second pillar was the encouragement of private investments within a market economy. This resulted in $3.31 billion in foreign direct investments (FDI) in agriculture in 1990. In 2022, there was an additional $68 million in FDI in agriculture, with Bayer and the TH group in joint ventures.
The third pillar was the heavy investments in countryside infrastructure — some 595,000 kilometers of roads, coupled with universal electrification which brought electricity costs to $0.073/kilowatt-hour (kWh) compared to $0.15/kWh in the Philippines.
The fourth pillar was the focus on worker productivity that reached $6,500 per worker, 70% mechanization, and an average monthly wage of $150. Today the average monthly wage in Vietnam is $697 compared to $790 in the Philippines.
The data provides the answer to why the factories leaving China are flocking to Vietnam and hardly come to the Philippines: it has better infrastructure, lower energy costs, and lower wages. Hopefully, the Luzon Economic Corridor being planned by the US and Japan to significantly improve the infrastructure connecting Batangas to Manila to Bataan can shift some of the factory relocation from China to the Philippines away from Vietnam.
AGRICULTURAL SUCCESS
The success of Vietnam (as compared to the Philippines’ performance) is especially pronounced in agriculture. Mr. Moeller lists Vietnam’s winning crops (as of 2024) as coffee ($5.2 billion), durian ($3.2 billion), shrimp ($4 billion), and rice ($5.7 billion). The more worrying development is the so-called “coconut threat” posed by Vietnam. We have to keep in mind that there are some 3.6 million hectares planted to coconuts in the Philippines. At the moment, our coconut exports still outpace those of Vietnam: $2.4 billion vs. $1.1 billion. The annual growth of Vietnam’s coconut exports is, however, 13.6% compared to our 9.5%. Even more worrying is the much higher productivity of coconut farming in Vietnam which is 7.85 metric tons per hectare (MT/ha) compared to the Philippines’ 4.53 MT/ha.
At the micro level, Mr. Moeller can speak from personal experiences about how the Philippine Government suffers when compared to the socialist state of Vietnam. There is what he calls the “government support gap” in the Philippines. Vietnam adopted a policy in building comprehensive rural infrastructure while the Philippines’ local governments lack funding for critical farm-to-market roads. Vietnam achieved 51,000 kilometers of rural networks with universal electrification as compared with the Philippines’ patchy 36% road quality and 70% electrification rate. Constitutional land ownership limits deter foreign direct investment in the Philippines while Vietnam’s more flexible land-use policies attract international partnerships. The Philippines faces an average of $1 billion in typhoon damage annually while Vietnam has invested in climate-smart, resilient systems.
LESSONS TO LEARN
In summary, he listed lessons that the Philippines can learn from the agribusiness success story of Vietnam:
• Centralize infrastructure building. The Department of Agriculture (DA) must lead in the provision of farm-to-market roads to the small farmers. Mindanao should be linked to ports all over the country. There can be ADB partnership for rural connectivity. There needs to be climate-resilient bridge and port design.
• Lower the cost of electricity. Our energy officials should target the $0.073/kWh of Vietnam. They can scale geothermal from 10% to 25% of the energy mix. There must be reforms to EPIRA (the Electric Power Industry Reform Act of 2001) to cut pass-through charges.
• Adopt Vietnam’s system of foreign land leases.
• Focus on climate-resilient design. They should adopt one-in-50-year flood standards, typhoon-proof connectivity, and solar grid networks.
• Boost processing. They should attract Tetra Pak to Davao, develop local packaging supply, and cut the 70% dependency to 30%. They should build coconut milk export capacity.
• Fix the wage-productivity gap. There should be DA-led training programs for upskilling and reskilling farm and agribusiness workers. Mechanization should be supported, with local mechanization increasing from 30% to 70%. There should be digitalization of agriculture and 5G rural deployment. And we should align with our ASEAN peers (we should learn also applicable lessons from Malaysia, Thailand, and Indonesia.)
• Market diversification. We should develop mango and avocado value chains, join the EU organic certification program, and have a China market penetration strategy. Vietnam clearly has a geographic advantage vis-à-vis the China market. (I would add other products for Philippine agribusiness diversification: bamboo, durian, cashew, pili, coffee, and cacao.)
Mr. Moeller was emphatic about the indispensable role of the Nucleus Estates model developed by the Malaysians in the palm oil and rubber industries in the last century. The ideal size of a nucleus estate (whether for coconut, palm oil, coffee, bamboo, and other plantation crops) is 20,000 hectares, planting 208 palms per hectare, and it should be surrounded by small holder farming communities.
VIETNAM PERSPECTIVE
Up to this point we have been considering what the Philippines can learn from the Vietnamese economic development success from my point of view as a Filipino economist and from a European point of view — Mr. Moeller is from Denmark. Those who participated in the road show from both the Vietnamese and Philippine sides were thankful that a leading Vietnamese economist, Dr. Pham Van Dai from the Fulbright Institute, made a presentation entitled “Is Vietnam the Next Asian Tiger?” and answered that question for us.
He started his economic briefing by enumerating the key economic zones of his country: 1. North Mountainous (agriculture predominates, infrastructure is still poor, it is rich in natural minerals and low in human capital); 2. the Red River Delta (discussing the Mega City, Hanoi, FDIs, and electronics); 3. North Central (which has heavy industry such as steel, cement, and chemicals, and ports); 4. South Central (focusing on its tourism, its beach, manufacturing, heavy industry, particularly steel, and renewable energy); 5. Highland (heavy on agriculture with perennial plants such as coffee, pepper, cashew, and durian); 6. Southeast (which has a Mega City, a concentration of FDIs especially in light industries, is a university center, and has sea ports and airport); and, 7. the Mekong Delta (with a focus on rice, seafood and food processing).
Dr. Dai presented the latest macroeconomic data on Vietnam according to the World Bank: GDP at $433.7 billion; GDP per capita at $4,324; Agriculture value added accounts for 13%, Industry for 41.8% and Services for 45.2%; External Trade is at 185.7% of GDP; population is 100.4 million; the median age is 32.4 years.
During the last four decades, Vietnam has been the second-best performing economy in the Indo-Pacific region after China. Because of the focus on countryside and agribusiness development, it has done wonders in poverty alleviation — together with Malaysia and Thailand — bringing down poverty incidence to less than 5%. In the Indo-Pacific region, Vietnam stands out with two key comparative advantages, i.e., unparalleled natural conditions for diverse and productive agriculture (a tropical monsoon climate for year-round cultivation; fertile river deltas — the Mekong and Red deltas — and high-yield crops, and a diverse topography supporting specialized agriculture) and a productive workforce (abundant, cost-effective labor supply, generational farming expertise and an adaptable, skilled rural population).
It has to be pointed out, though, that the ultimate reason for its success is that the country has had the fortune of enlightened leadership who knew how to convert these competitive advantages for the common good of the Vietnamese society. The Philippines has been less lucky.
(To be continued.)
Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.
