Theoretical and practical evidences show the big role of agricultural companies in the socio-economic development of Vietnam. Agricultural enterprises are considered as one of the key drivers of agricultural development, and farmer’s livelihoods improvement. However their operational and financial capacity is limited due to impact of risks in the agricultural sectors and their very small size. The number of enterprises in agriculture has increased in recent years but up to now, they account only about 1% of all enterprises in the whole country and 96.5% of them are SMEs. Using data from the Vietnam General Statistics Office (GSO) and the survey carried out in 2014, updated in 2015, this article reviews corporate performance and major difficulties of agricultural companies in Vietnam in order to identify their main problems, which is needed to find out solutions to the improvement of their performance in the near future.
Improved corporate performance but big difficulties to overcome
Most of aquacultural companies are processing and export companies with higher capital per companies, but as the number of this group is smaller, the total capital of this groups account for a small share in the total capital of the industry.
Current solvency ratio indicates whether a company's cash flow is sufficient to meet short-term and long-term liabilities. The higher solvency ratio, the higher company can deal with its liabilities. The current solvency of agricultural companies tends to improve in the years 2010-2013 in comparison with the period 2007-2009. In 2013, this ratio of agricultural companies in Vietnam is 4.9 (higher than the average level of enterprises in Vietnam, which is only 3.2).
The interest coverage ratio indicates how easily a company can pay interest on outstanding debt. The lower the ratio, the more the company is burdened by debt expense. Although interest coverage ratio of agricultural companies are always higher than the average level of all companies in Vietnam, this ratio declined sharply in the period 2009-2012, from 11.2 times to 6.6 times, before recovering to 9.5 times in 2013.
Capital turnover ratio of agricultural companies has gradually caught up and is now higher than the average level of the whole business sector. It increased from 1.3 times in 2007 up 1.5 times in 2013
The proportion of agricultural companies in loss increased strongly from 12.6% in 2007 to 35.1% in 2013, even this figure is still lower than the average for the entire economy (44.8%). The increasing proportion of unprofitable enterprises indicated that the sector was facing many difficulties.
ROA of agricultural enterprises was around 3 times higher than the average for the entire business sector (11.5% compared to 3.4% of the entire enterprise in 2013), thanks to high ROA of seafood companies. However, while ROA of seafood companies increased from 17.3% in 2007 to 19% in 2013, ROA of cultivation and livestock companies and forestry companies was low, around 5% and 3.5% respectively.
ROE of agricultural enterprises is also much higher than the average level of the entire business sector, except to the year of 2012. In 2013, ROE of agricultural companies was 14.5%, compared to 6.6% of the entire area businesses. ROE of seafood enterprises reached over 20% while only about 10% in 2007-2012 and fell 7.8% by 2013. ROE is a key indicator for investors to choose fields having higher profit margin, and with this criterion, the seafood sector is most attractive.
ROS of agricultural enterprise fell slightly from 10% in 2007 to 9.3% in 2013, but much higher than ROS of the entire business sector which decrease from 4.8% to 4% in the same period. ROS of seafood companies only was higher than cultivation and livestock enterprises in 2007-2010. Since 2011, the gap between two sub-sectors has decreased.
Difficulties to overcome
Due to their characteristics, agricultural companies in Vietnam are currently facing many difficulties and lack of sustainable development. The most intrinsic difficulty is lacking of capital and credit access while the most objective difficulty is the increase of input price.
Difficulties in accessing to credit and capital investment
A large proportion of SMEs in agriculture is currently in shortage of capital for business. This difficulty has caused huge hindrance to the business activities of SMEs in agriculture in the surveyed areas. According to our survey on 200 agricultural companies in 10 provinces in Vietnam in 2014, 74.4% of surveyed enterprises agreed that it was a factor hindering business activities of enterprises.While having small equity, the majority of businesses have difficulty in accessing bank credit for investment and business activities. Only 14.7% of companies could access easily bank credit. Therefore, many agricultural companies had to borrow money from informal loan sources at higher interest rate. Some small companies had to rely on loans from family or relatives, but it was limited and did not meet their capital demand.
Difficulties in infrastructure and land lease
Many SMEs in agricultural sector are still struggling for land for their business or their headquarters building. Our survey results shows that 33.4% of surveyed enterprises encountered difficulties in land for business and this is the major obstacle to their business operations, while 13.2% of enterprises said here is severely hampered, 7.2% rated this as very serious obstacle. This difficulty can be explained as follows: (i) Public land is not sufficient for large-scale production in localities because of policy on allocating agricultural land to farmers with limits in the past. (ii) In some localities, enterprises want to lease land from farmers in order to develop business, but it is difficult to rent land in long-term because farmers prefer to hold lands even their direct production was not profitable. On the other hand, companies are afraid of agreement interruption from farmers who have not other stable livelihood. (iii) Land rent price is increasing in many localities so that businesses have not sufficient financial capacity to lease large scale land. (iv) In case of food processing companies, the price of land rent in industrial zones is too high.
Difficulties in access qualified labor
The shortage of labor quantity and low technical qualification of employees are among factors hindering business activities of agricultural enterprises, mostly when they need to promote science and technology in production in order to improve quality, reduce costs and improve competitiveness in the market. Our survey in 2014 shows that 32.5% of agricultural companies suffer from negative impact of low quality labor. Main reasons for these difficulties include (i) The majority of companies accept to use only manual labor. They recruit workers only based on health criteria and manufacturing experience to reduce wage costs. (ii) Almost private companies pay not attention on training for qualified employees; (iii) Qualified labor does not prefer to work in agricultural sector because of low wage.
Difficulties in accessing both input and output markets
About 84.4% of surveyed companies confirmed their big difficulties in accessing both input and output markets because of different obstacles as follows: (i) lack of market information, (ii) inefficient distribution channels, (iii) low trade promotion capacity. (iv) Unstable price of input and output, (v) high technical barrier, (vi) unfair competition.
More efforts to catch oppartunities
Since the downtrend of the Vietnam economy and stock market, foods and agricultural companies have witnessed difficult conditions in both domestic and international market. To help them to deal with new challenges, in 2013 the Government approved the decree No. 210/ND-CP supporting enterprises to invest and participate in the agricultural sectors. This year (2015), the Government is preparing for the implementation of the Decree on attracting foreign investment into agriculture, ahead the TPP and other FTAs. Big incentives will be granted but companies should use it to improve corporate performance instead of relying on cash support from the Government.