Value chain financing, 'capital injection' channel reducing risks in agricultural production

On May 7, the Institute of Policy and Strategy for Agricultural and Rural Development (IPSARD), in collaboration with the International Food Policy Research Institute (IFPRI), organized the workshop "Inclusive agricultural value chain financing in Vietnam and some Southeast Asian countries."

At the workshop, IFPRI representative Dr. Alan de Brauw, Director of the Project "Agricultural Value Chain Financing," shared that the project is implemented in two phases. Phase 1 focuses on preparing reports for each country on the potential for developing relevant policies. Phase 2 will pilot the implementation of value chain financing in Vietnam and Indonesia.

Mr. Alan de Brauw said that currently, in order to produce agricultural products, especially to meet market demand and increase competitiveness, farmers, cooperatives, and businesses are in dire need of investment capital. However, existing traditional credit models, especially credit models based on collateral, are no longer suitable for farmers when conditions for owned properties are still limited.

Dr. Truong Thi Thu Trang, Deputy Director of the Institute of Policy and Strategy for Agricultural and Rural Development, emphasized that agricultural value chain credit is a trend to develop modern agriculture, thereby helping to address the financial needs of all agents participating in the chain, from production, processing, and distribution. Through chain credit, all participating agents must comply with commitments for mutual benefit to achieve the set goals.

According to Dr. Truong Thi Thu Trang, in recent times, although many credit support policies have been implemented, farmers' access to bank capital still encounters many difficulties and challenges. Credit institutions also face many risks when investing in agricultural and rural areas. In particular, small farmer households in Vietnam and developing countries are facing many limitations in production development, including difficulty accessing credit due to many different reasons.

Researching the relationship between value chain finance and sustainable agricultural development in Vietnam, Dr. Nguyen Tien Dinh, Head of the Farm and Cooperative Economics Division, Department of Cooperatives and Rural Development, emphasized that, instead of evaluating based on collateral, value chain financing is based on the payment ability of farmers and cooperatives by considering production history, production process, and transactional capabilities of objects.

The type of value chain credit represents a financial value chain triangle formed between buyers, sellers, and financial institutions—parties involved in the financial model. Thereby, agreements are made that include conditions for product information, financial information, and methods for parties to communicate and exchange information, as well as methods of operating risks.

According to Dr. Nguyen Tien Dinh, the implementation of agricultural value chain financing models will contribute to completing key programs and projects that the Ministry of Agriculture and Rural Development is implementing and successfully implementing the Government's Strategy for Sustainable Agriculture and Rural Development until 2050.

Thereby, Mr. Dinh made some recommendations and proposals to research and amend credit policies for agricultural and rural development; design a model, and submit it to the Prime Minister for early promulgation of the Credit Program for high-quality and low-emission rice products in the Mekong Delta. Implement a pilot model of value chain finance in ongoing programs and projects of the Ministry of Agriculture and Rural Development, such as mortgage loans using agricultural product production and purchasing linkage contracts between businesses, cooperatives, and farmers.

Currently, many financial institutions are providing services for agricultural production, from the bank system to all types of funds. However, the issue of credit risk still creates many obstacles. To solve the problem, Dr. Pham Thi Hoang Anh from the Banking Academy of Vietnam recommends that, in addition to designing a diverse product chain, the system of policy and commercial banks should especially develop agricultural insurance for some agricultural products in raw material areas for concentrated commodity production.