Case Study on Inclusive Agribusiness (Vietnam)_Cong Binh.compressed

8/19/2019 Case Study on Inclusive Agribusiness (Vietnam)_Cong Binh.compressed

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Inclusive Agribusiness Roundtable in Southeast Asia

Cong Binhin Long An Province

(Vietnam)

Developed by

Dr Vo Thi Thanh LocMekong Development Instute, Can Tho University

[email protected]

AsiaInclusive


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1.1. Young company

Cong Binh is a private company specializing inthe producon, processing and exporng ofvarious types of rice, especially so cooked

rice and aromac rice. The company was establishedin June 19, 2006 with the support of Planning andInvestment Department of Long An province andwith an inial investment of over VND100 billion.Besides rice products, the company has other by-products of rice industry such as broken rice, branand husk blocks (to be used a firewood). In the last5 years, Cong Binh received 21 domesc and inter-naonal awards and quality cerficaons.

Its current annual revenue exceeds VND1,000 billionand working capital is more than VND500 billion;Cong Binh operates on a manufacturing area ofapproximately 40,000 m² with a number of 200 staff (not farmers). Its assets include a modern system oftechnology which can perform a producon chain ofrice from drying, milling, polishing, color separaon,packaging, storing and exporng.

Cong Binh gains its compeve advantage by beingable to produce consistently and uniformly high qualityproducts. In addion, its business process related totrade and service are very effecve and operate ata reasonable cost. The company is very proacve ofinput-output processes, has an excellent reputaonand business ethics. It takes care of its customers forthe long term and invests in the development of new

markets.

1. Company background

1.2. Rapid growth

Inially, Cong Binh was just a producer of rice for

domesc consumpon. Its business has been signifi-

cantly expanding since 2009 when Cong Binh has

modernized its technology to produce higher qualityproducts, especially rice for export to take advan-

tage of Government Act 109/2010/NĐ-CP signed

4/11/2010 relang to ‘The Rice Exporng Business’

directly (not depending on Vietnam Food Associaon

– VFA). Cong Binh currently exports so cooked rice

and aromac rice to many Asian countries and other

countries around the world:

Growth rates of Cong Binh are 50% annually in terms

of turnover and 30% annually in terms of profit. Thecompany has opportunies to expand its market

share through its internaonal strategic partners.

However, it sll lacks the needed investment capital,

and has limited producon capacity to be able to

accept larger deals proposed by those partners. In

general, a lack of access to credits and loan is the most

diffi cult factor for Cong Binh to expand its scale of

business operaon.

HONG KONG

MALAYSIA SINGAPORE

INDONESIA

AUSTRALIA

TAIWAN

CHINA

UNITED KINGDOM Annual export volume

~100,000 tons

60–70%of total rice sold


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2. Working with farmers

Although the company was formed in June 19, 2006,

Cong Binh has started establishing linkages with

farmers only in 2014 due to the high market demand

for high quality products and the opportunity arising

from decree No. 109/2010/NĐ-CP, dated in Nov 4,

2010 related to rice export directly without help from

Vietnam Food Associaon (VFA) and other agencies.

Since 2014, Cong Binh has invested in developing

areas to produce types of rice, in terms of quanty

and quality that meets the requirements of export

markets. Currently, Cong Binh has investments for

linkages with farmers to produce rice at provinces

of Long An, Soc Trang, and Hau Giang. The scale for

linkages is more than 3,000 farm households with

total area exceeding 3,000 ha.

Target objects for the company’s linkages include

cooperaves (Cs), cooperave groups (CGs), and indi-

vidual farmers (F) in the selected geographical area with

natural condions suitable for growing the company's

rice variees. This opmizes the compeve advantage

of material regions to produce higher quality rice at a

lower cost compared to other regions.

2.1. Incenves to becomemore inclusive

Market development

As menoned above, Cong Binh's business has sig-nificantly expanded since 2009 aer the decree

No. 109/2010/NĐ-CP, dated in Nov 4, 2010 of the

government on ‘Rice export business’. The decree

has provided opportunies for private companies as

Cong Binh to export rice directly. Cong Binh took

that challenge and invested in an assembly line pro-

ducon technology to produce rice (the technology

comes from Japan, the company’s staff were trained,

and service available within 24 hours by the Japanese

company’s offi ce in Vietnam). Its facilies can perform,

aer harvested rice, all the required steps including

drying, milling, polishing, color separaon, packaging,

and storing for its final products. Furthermore, a

long-term goal of exporng a high quality of spe-

cialty rice, Cong Binh has been very proacve in the

analysis of the overseas rice market (staff are recruitedfrom universies and then retrained carefully from

Ho Chi Minh city and at the company also) and there-

fore the company has much valuable informaon and

knowledge to share with linked farmers about what

need to produce in terms of quality and quanty.

They are the core of the value chain producon and

distribuon with linkage models to develop it for a

long-term stable and sustainable business.

At present, total revenue and income of the company

increases annually, its total costs are sll increasing

(but the growth rate of revenue is higher than that

of costs) because there is currently an investment in

modern producon lines from Japan, costs of searching

for new markets abroad, label cost, and rice seed

from research instutes of rice in the Mekong Delta.

Cong Binh is, however, aiming for a rice specialty

with higher quality due to current market demands,

new customers and modern technology to produce it.

These costs will be decreased when the company has

stable markets (the market is developing now), which

would bring more profit in the future.

2.2. Value chain content

Cong Binh parcipates in RVT rice value chain as a

key actor for both providing input materials in kind

and cash, and buying all paddy produced by farmers.

However, Cong Binh is working in both rice linkage

and non-linkage models.


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Map of Rice Value chain without linkage model with Cong Binh in 2015

In this map of value chain, Cong Binh is one of the export companies who buys rice in the value chain (not model

linkage); the amount of rice from each company depends on its demand. Suppliers are seed companies and local input

wholesalers that the farmers buy for their producon. Cong Binh and other export companies can buy both paddy

and rice from collectors and millers along the chain. Normally, export companies including Cong Binh, have their own

collectors and millers to supply.

Map of RVT rice Value chain with Cong Binh’s linkage in 2015

In this case, Cong Binh plays a role of both input supplier and rice buyer in the value chain (concentrated model).

The diff erences of two above models are below.

INPUT

Institute/university,

Extension center, input Co.Banks

Local governments at all levels

Supplier

— Seed — Agr i.

materials

MILLING

Milling

PRODUCTION

Farmer

— CGs

TRADING

CongBinh Co.

COLLECTION

Collectors

CONSUMPTION

Whole-saler

Retailer

Domesticuser

Export

INPUT

Extension center,Input Co. & processing Co.

Bank

Cong Binh’sSupplier

— Seed — Agr i.

materials incash

MILLING – TRADINGPRODUCTION

RVT RiceFarmers inCs/CGs

Cong Binh Co.

CONSUMPTION

Export


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Comparison of differences with/without linkageswith Cong Binh

As menoned above, Cong Binh buys rice and paddy

through two channels:

1. from farmers from its own linkage model2. from collectors, traders and non-linkage farmers.

The following table show benefits of linkage model

compared to the non-linkage one. Without middle

actors, benefits are higher profit/kg of rice for farmer

and beer rice quality.

Without farmer’s linkage With farmer’s linkage (RVT rice)

Cong Binh supplies nothing to the farmer, even

link to input suppliers

Cong Binh provides RVT seed and guarantee quality

to farmers along with input materials in cash

Rice value Chain has 6 funcons and 8 actors Rice value Chain has only 4 funcons and 4 actors;farmers sell 100% of their rice producon toCong Binh directly

Cong Binh has no decision making involvement inany producon maers of farmers

Farmers produce rice according to quality proce-dures developed by Cong Binh

Farmers receive no input capital from Cong Binh Farmers receive support in terms of quality riceseeds and advanced funds as well as selling alltheir paddy to Cong Binh

Cong Binh sells many variees of rice, in whichrice export volume is between 60 and 65%, theremain percentage is for domesc users.

RVT rice export volume is 100%

Share of profit/kg to farmer is 30%, other actorsin the value chain receive 70%

Profit share to farmer and Cong Binh is 50–50%;there is nobody else in the rice chain. In this case,other actors are not related; they do their job withother variees of rice

Farmers need loans for buying their input mate-rials that cause high producon costs due to bankinterest

Cong Binh provides rice seed and cash in advancefor farmers and that is deducted aer harvesngwithout interest

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2.3. Extent of inclusivenessregarding linked farmers

The extent of inclusiveness has been evaluated by

using the LINK methodology (CIAT, hps://cgspace.cgiar.org/handle/10568/49606)

Chain-wide collaboraon

— In business operaons, Cong Binh has receivedsupport from various sources, including many

Decisions, Decrees and regulaons relang to

business development, exporng, and market

informaon from Chamber of Commerce and

Industry of Vietnam (VCCI), Ministry of Trade and

Industry, Ministry of Agriculture and Rural De-

velopment (MARD), the Center of Trade Promoon,

trade counselor, the Department of Agricultureand Rural Development, Department of Trade and

Industry, Department of Planning and Investment,

Department of Natural Resources – Environment,

program for business partners, program of agri-

cultural restructure and linkage program between

farmer and company, cooperave organizaons

and producon informaon. For instance, VCCI

organizes training courses or workshops related

to free trade agreements, foreign CEO business

experience, even receives feedback from business-

men to propose new policies to MARD. — Cong Binh realizes that local governments play a

very important role in developing a successful

business in linkage between Cong Binh and farmers,

cooperaves, and group cooperaves. Without

local governments, these important linkages would

not be possible because local governments help

by choosing suitable land for rice producon, CGs’

organizaon and technical support. Local govern-

ments provide support in terms of crop metable,

integrated pest management (IPM), Cs’ and CGs’

establishment, three-side contract making, moni-

toring, and managing producon and environmental

protecon procedures without payment from the

company except some money for technicians to

work more for the company’s model.

— Cong Binh also receives support from the Viet-namese embassies for introducing partners abroad

and market informaon.

— Cong Binh is a member of VCCI and follow the VCCIrules (see website: www.vcci.com), so it receives

benefits of business training and market informa-on for both domesc and internaonal segments.

— Input partners of Cong Binh include suppliers ofrice seeds and other materials, farmers, coopera-ves, group cooperaves, traders and rice millers

(they are close suppliers of Cong Binh for a longme as menoned above).

— Output partners of Cong Binh are restaurants/hotels, industrial zones, wholesalers/retailers

(domesc consumpon), and many rice importers

located in different countries.

— Local government is the third partner for modellinkage development of the company as well as

technical support.

— Research instutes help to produce and developrice seed.

New market linkages

— Cong Binh is currently linking farmers to produce4 different variees of rice: RVT, Nang Hoa,

OM4900, and OM5451 for the demand of the

export market. Of those variees, RVT is the most

significant one. RVT accounts for 40% of rice areas

and 30% of the total turnover of Cong Binh. Thecompany is currently is in a monopoly posion

regarding export of RVT rice. The reasons for extra

support (training, seed and cash) to the farmers

are to help farmers reduce producon costs (if not

farmers must pay interest to the bank to buy input

materials) and to increase awareness regarding

market requirements to help Cong Binh have stable

rice regions with high quality.

Fair and transparent governance

— The company buys all paddy produced by thefarmers at VND200 per kilogram, which is higher

than the market price at harvest me that farmers

outside the linkage model can achieve. At this

price, the benefit would provide an even split of

profit/kg, 50–50% between the farmer and Cong

Binh. Without the linkage, Cong Binh has to buy

paddy and rice through other actors in the chain

(collector, traders); in this case, Cong Binh sll

receive a profit/kg percentage of 50% (remain 20%

to collectors) but would not be able to guarantee

product quality because paddy or rice from collec-

tors is mixed many other variees of rice.

— The linkage brings to the farmer higher and stableincome significantly, especially for poor farmers

who do not normally possess enough financial re-sources to acquire input materials to grow the rice

crop. Without linkage, the farmer has to acquire

loans from banks and pay interest as well as

paying interest to input suppliers aer harvesng.

Feedback from many CGs’ leaders indicates that

linked farmers are extremely happy with this kind

of linkage of Cong Binh. The farmers are sasfied

with the stability and quality of input supply, the

technical guidance received and the guaranteed

sale of rice through Cong Binh.


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Process to ensure transparency

Step 1

Aer idenfying a potenal and suitable growing

area for RVT rice, Cong Binh works with the local

governments to iniate the linkage setup. Specifically,

Long An DARD facilitates the formaon of farmerCGs and helps them to vote and choose a Group

Leader and Vice-Leader. Long An extension centre

from DARD help farmers to follow the technical

processes required by Cong Binh, besides a salary

from the government, technicians are paid by the

company to monitor “large fields” of the company.

At present, all local governments strongly encourage

and support this kind of linkage between companies

and local farmers.

Step 2

Cong Binh signs contracts with the CGs represented

by group leader and local government – village presi-dent (three-side contract). In the contract, Cong Binh

provides RVT seed and fund for ferlizaon. For

instance, in 2014, Cong Binh supplied VND12 million

per ha to farmer for input materials. However, in 2015

Cong Binh will supply RVT rice seed (to ensure quality

of seed to the farmer) along with VND5 million per

ha in advance to the farmer for other inputs (ferlizer,

pescides); Cong Binh’s technicians and Long An

extension centre provides guidance such as crop cal-

endar, producon, monitoring; and solving problems

happening to producon procedures when needed.

The group leader then signs a contract with Cong Binh

on the farmer's behalf. The group leader receives RVT

rice seed and the cash in advance given by Cong Binh

(both cash in advance and rice seed is 100% of input

materials for rice producon). The group leaders then

distribute the seeds and funds to each farmer based

on the rice area commied by the household. The

farmer signs acknowledgments of fund and material

received.

Step 3

7–10 days before rice harvest, Cong Binh deter-

mines the price of the rice with the farmer. It is done

in CGs’ meeng. This determined price is guaranteed

to be higher than the market price by 200 VND/kg,

and this price is updated in the contract. Cong Binhalso provides bags for free to farmers to store rice

with Cong Binh informaon on the bag (farmers are

very happy with this decision because of both the

free bags and Cong Binh brand name on the the bag).

Cong Binh pays the farmers in cash aer deducng all

advanced expenses.

Equitable access to services

— Cong Binh has linkages with suppliers to ensurethat farmers can receive input materials with

quality standards at stable prices.

— Farmers belonging Cong Binh linkage model do

not need take out loans from third party asCong Binh company provides input materials in ad-

vance including rice seed and cash (VND 5 million).

So far, nobody has Cong Binh gone into compe-on with such investment of rice material areas.

Farmers outside the linkage model need to take

out loans from Agri. Bank for buying their input

materials – seed, ferlizer and pescides). They

can relavely easily access loans easily with their

land cerficaon.

Step

1

Step

2

Step

3


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3. Lessons learnt

While there are many factors for the success of

Cong Binh, the following were emphasized by the

company itself:

— Cong Binh has a well-organized work force withhigh capacity of finding overseas markets for rice

products. This is also the main reason why mar-keng expense is high (about VND 3 billion per

year although demand for this acvity is much

more, the company only uses the above amount),

along with cost of technology investment.

— Cong Binh develops its market search by parci-pang in various domesc and internaonal trade

shows and exhibions; from trade promoon

centre of Cong Binh company, through various

government agencies, local leaders and from Inter-

net searches.

— With the linkage model, Cong Binh understandsits partners (both the input and output partners).

— Cong Binh has a reasonable and fair share of profitwith farmer; direct and united communicaon

between both sides regarding linkage contract

maers witnessed by the local government.

— Group leader and sub-leader are reputable personsin the CGs. They are the most important links

to Cong Binh. They receive a payment between

VND80,000 and 100,000 for each ton of paddy

delivered to Cong Binh Site, in which they have to

pay transportaon cost about 50% of the above

payment. So the group leader’s income for thisacvity is about VND40–50,000 per ton that

makes them be very responsible and effecve in

their works.

— Cong Binh is a very capable, enthusiasc, andethical business.

From lessons of many unsuccessful linkages imple-

mented in the Mekong Delta including those done by

Cong Binh itself for other variees of rice, Cong Binh

has made significant improvements in the program

and implementaon of its RVT linkage with farmers.

Exceeding its targets, the RVT linkage has proved to

be very successful.

Rice farmers were able to increases their income and

profit. This has been more significant for poor farm

households. Farmers are obliged to sells 100% of

their paddy to Cong Binh (no side-selling is allowed).

Linkage rice meets the high quality demanded by the

market. More and more farmers desire to register to

become members of CGs belonging to Cong Binh’s

linkage so that they can enjoy a higher share of profit

(50%–50%), rather than the previous (30%–70%).

The most significant achievement in this successful

linkage model is that Cong Binh has been able to

work hand-in-hand with farmers to communicate,

listen, and make joint decisions to idenfy soluons

that are mutually beneficial to all pares – a win-win

scenario. In addion, Cong Binh shows that business

ethics, reputaon, willing to share its benefits with

farmers are very important factors for success. In re-

turn, Cong Binh expects the farmers to produce the

highest quality according to technical specificaons,

and maintain a clean environment at the same me.


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1. Direct interview by structured quesonnaires with Mr. Phan Cong Binh, General Manager/Owner ofCong Binh Company.

2. Interviews by unstructured quesonnaires with two RVT Group Cooperaves leaders:Mr. Binh (tel. 0942089100) and Mr. Bui Van Dau (tel. 01672314407) at Tan Tru, Long An Province.

3. Government Act 109/2010/NĐ-CP signed 4/11/2010 relang to ‘The Rice Exporng Business’4. Cong Binh website: hp://congbinhrice.com.vn/ was used to provide general informaon about the

company, its products, and awards etc.

References


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Case Study on Inclusive Agribusiness (Vietnam)_Cong Binh.compressed

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