SD: Institutions : Toward a New Cooperative System in Viet Nam

Posted May 1996

Toward a New Cooperative System in Viet Nam

by Bernd Harms
FAO Cooperatives Development Consultant

1. Introduction

In 1986, the Government of Viet Nam initiated a reform process to move from a centrally planned economy to a market-oriented one, with elements of state regulation. This ongoing process requires institutional reform in agriculture, as individual farm households are now considered the sector's basic economic units. Thus, the crucial importance of farm household participation in agricultural and rural development has been recognised. This has led to a much stronger emphasis on mutual self-help and reliance on farm household resources, and reduced expectation that Government will intervene to assist them.

Under the centrally planned economic system, emphasis was laid on creating very large co-operative units, as these were believed the motor of progress, development, and greater socialisation. Thus, many co-operatives in the Northern and former Fourth Zone Provinces - which were initially established as village co-operatives - had to merge with other smaller co-operatives to create inter-village or communal co-operatives. In the South this process started after national liberation in 1975, with the initial creation of village and inter-village co-operatives.

Farm households were members of all these kinds of co-operatives. As the means of production, including land, was collectivised, membership was obligatory if one wanted to profit from services provided by the co-operatives. Children born in member farm households were automatically registered as members when they reached 16 years. When they married, the new family was considered as a new member farm household. The co-operatives also provided a number of services for the farm households, including social welfare activities, schools, kindergartens and health care centres.

2. The impact of restructuring

Under the reform policy, former agricultural co-operatives have to completely restructure their organisation and business activities in order to survive in a liberalised market economy. It has been discovered that transforming huge former co-operatives is a difficult undertaking. Many former agricultural co-operatives and production groups - especially in the North Mountain Region - were dissolved after land had been allotted to the former members. Most had operated under marginal conditions, with a inadequate resources and lack of capital. Between 1988 and 1994, more than 2,950 co-operatives (i.e. 17.4 % of the total number of former co-operatives) and 33,800 production groups (i.e. 93% of the total number of production groups) were dissolved by their members.

By the end of 1994, a total of 16,243 former agricultural co-operatives and 2,548 production groups existed throughout the country, covering about 64% of all farm households. However, the agricultural co-operatives show great differences in operational performance. An estimated 15.5 % of the agricultural co-operatives that had recorded good performance in the past ("good" cooperatives) were still able to provide necessary services to member farm households.

Many have become part of the "middle" performing agricultural co-operatives, which now count for 40.4 % of the total number of former co-operatives. These co-operatives are mainly engaged in providing irrigation facilities and services. The high costs involved, however, in running the co-operatives do not cover the increased expenses. The co-operatives do not have sufficient capital and funds to cope with this situation. Attempts to increase levies on paddy rice harvested have alienated many members, who are now trying to obtain the necessary services elsewhere. Thus, many co-operatives have become dormant and exist only on paper.

These non-operational ("bad") co-operatives account for 43.3 % of the total number of former agricultural co-operatives. Although the leadership of these co-operatives remains in place, they neither have economical activities nor provide any services to the former members. The management costs are mainly paid out of debt recovered from the members, from selling co-operative assets, or from mobilisation of contributions from the members. In many regions, however, members refuse to provide any additional funds. As a result, the number of "bad" co-operatives is increasing, thus becoming an obstacle not only to the economical development of farm households but also to the economy of the country as a whole.

It has been found that smaller co-operatives are more able to respond to the new conditions, as their range of service provision is smaller and their collaboration with the member farm households more intense. One could argue that more active participation of the members will facilitate the reform process. In general, survey results back this argument - 46.6 % of all village co-operatives are considered as well-renovated, whereas only a third of inter-village co-operatives and only 28.4 % of the communal co-operatives meet the same standards.

3. The emergence of voluntary groups

The situation of the former agricultural co-operatives, described above, has led many farm households in the regions to voluntarily group together with others in different types of groupings mainly for income-generating activities. Their common criterion is voluntary membership and the pursuit of members' economic and social interests.

A survey conducted in 31 collective groups showed that without exception these groups were formed after 1988, the beginning of the renovation process. The main objectives and activities of the collective groups are to provide support services to strengthen their members' economy in order to increase their income. Their size allows the groups to work and produce in a more flexible manner than huge co-operatives. Although the groups perform a variety of activities, following main forms can be distinguished:

joint irrigation groups composed of farm households who do farming in the same field. They jointly dig canals to improve irrigation and the drainage of these fields and very often jointly prepare the land, plant the same crop, harvest at the same time and market their products together.
joint liability groups, formed in order to gain access to bank credit. The individual farm households very often have no collateral. Group members jointly guarantee repayment.
professional groups, made up of farm households exercising the same profession: gardeners' associations, shrimps rearing groups, sugar cane plantation groups, hybrid maize groups etc. These groups are formed to guide and to help each other, to try new technologies and experiences, process and market the products together, avoid the stress with private traders while negotiating prices and quality, assist in setting up and developing specialised production areas.
marketing groups bringing together input suppliers, producers and traders to ensure steady and timely delivery of produce in the field of poultry raising, milk production (dairy cows) etc. Groups have also been formed for off-farm activities such as tailoring.
production groups, voluntarily formed by members who contribute labour and capital. Examples are rice milling groups, tractor groups for land preparation, fishing groups, animal rearing groups, afforestation groups, shops for input supply run on a group basis, artisans and handicraft groups for repair work, agricultural products marketing, etc. In general, these joint production groups operate as small-scale enterprises and play an important role in employment creation and income generation for members.

On average, collective groups are made up of 18 members with the highest figure of 86 members and the lowest of three members. As in the co-operatives, most of the members are farm households. Group leadership normally consists of one to two persons in the bigger groups, but only one person in small groups.

In general, local authorities have supported the establishment and operation of the collective groups. They encourage and legally recognise the establishment and operation of the collective groups, provide guidelines on production activities, facilitate groups' access to input provision to be distributed to the individual members, and accept groups signing contracts for the exploitation of land and water for production. They also assist groups in credit application procedures and guarantee the safety and security of business activities, production sites and areas, provision of rooms for group activities. In some regions local authorities and social organisations even provided financial support to the collective groups.

4. The role of government and external assistance

As the economic responsibility for decisions moves from the Government planners to independent economic actors, such as farm households and co-operative and group leaders, legal rights and obligations must be created to give effect to these new economic roles. Farm households and their organisations have relied on government agencies for the overall management of their economic transactions; now they need to be able now to rely instead on the rules and resources provided by an independent legal system. A specific government policy on co-operatives and collective groups, to guide action in the current situation, needs to be adopted.

The Government should act as facilitator in the process of renewal. In addition to creating a generally enabling environment, the provision of funding for training, technical assistance and investments is essential. This must, however, be done in such a way that co-operative or group autonomy, self-financing and self-reliance is strengthened and not undermined. Government policy needs explicitly recognise this and implement the necessary supportive approaches.

The medium- to long-term orientation of the Government to co-operative or group support activities should be their transfer to a co-operative movement itself once the integration process has taken place. Ultimately, the government function should be confined to policy matters regarding co-operatives and groups, their registration and de-registration, and the supervision of adherence to the co-operative legislation

The development of a genuine co-operative network is a long-term process. It requires a continuous participatory dialogue within the co-operative and group movement and with external agencies, that may provide assistance supplementary to internally mobilised resources. Such external assistance can often be of value in providing for the training and education of member households in participatory and co-operative practices, as well as the training of co-operative leaders, management and staff in vocational and co-operative skills. The development of the required business and entrepreneurial skills in a competitive market economy is of particular importance in a previously state regulated economy such as Viet Nam.

All participants in the process of co-operative and collective group development need to be fully aware of the fact that genuine co-operatives and groups are owned and controlled by their members. They must, for the achievement of their objectives and their sustainability, be autonomous and independent from any undue external influence. Party and Government institutions and officials, donor agencies and others can play a valuable role in the evolution of genuine and strong co-operatives and groups. Their role, however, is temporary and they must serve as facilitators and not decision makers. Sensitisation and education of all concerned is needed to ensure that this attitude is internalised and applied in the implementation of a co-operative and group development process.