Agriculture out in the cold for credit

08:00 | 16/04/2020
The State Bank of Vietnam has directed the banking sector to develop a VND250 trillion ($10.87 billion) credit support programme to help companies hit by the COVID-19 pandemic. Despite the noble sentiment, the funds are largely out of reach for agricultural businesses.
1487p15 agriculture out in the cold for credit
Agriculture out in the cold for credit

Huy Long An Company, a local fruit grower, processor, and exporter, was excited to learn about the credit support programme because it has massive orders and the requisite materials and needs only capital for processing. Vo Quan Huy, director of Huy Long An Company, contacted a bank to learn about the procedures for taking up a loan. However, he was warned that it is difficult for businesses, especially agricultural firms, to access this VND250 trillion package for multiple reasons.

“Although the central bank has directed 10 banks to work out the credit support programme, they will take a lot of time to appraise their support packages. Meanwhile, the branches of these banks do not dare to issue preferential packages due to the lack of guidance on disbursement. For now, the support is inaccessible for our businesses,” Huy said.

At the same time, agricultural companies’ proposal to extend debt payments to June have also run aground. “The banks advised me to reconsider my application because rescheduling loans would make the existing loans bad debt. In addition, this move will be a stain on the firms’ credit history,” Huy said.

Agricultural businesses are hard-pressed to maintain operations because in the past three months, about 48,200 tonnes of agricultural goods, worth VND410 billion ($17.83 million), were left unsold, according to statistics from the Vietnam Digital Agriculture Association (VIDA).

According to the survey, 80 per cent of businesses reported suffering damage from COVID-19. In general, in the first quarter of this year, surveyed enterprises reported an average decrease of 30-50 per cent in revenue on-year, with some putting the plunge at around 70 per cent compared to the time before the pandemic.

Furthermore, these businesses face financial pressure and find it more difficult to pay loan interests as they have to maintain production with reduced revenue. In addition, the large volume of unsold goods inflates expenses on warehousing and conservation.

With these mounting difficulties, many agricultural firms saw this package as a lifeline that would help them through the pandemic. However, most enterprises were rebutted citing a lack of guidance or authorisation by official authorities or the banks’ boards of directors. In addition, several businesses reported gentle warning by banks that if they persist with their applications for support due to the impacts of the epidemic, they will be added to the list of unsafe firms and will find it much harder to take up subsequent loans.

Huy from Huy Long An Company, feels that the VND250 trillion package was not aimed for agricultural businesses due to the compulsory requirement of collateral, which is considered an abject weakness of the businesses in this sector. Those find it more difficult to prove the value of their assets than other enterprises because the brunt of their assets are farms with fruits and processing facilities. Besides, agricultural land receives lower valuation during the mortgage process than land used to develop real estate projects.

The collateral condition will likely exclude many (if not the large majority of) agricultural businesses. In addition, these firms have been tasked with ensuring the nation’s food security, making their operations essential in the fight against the pandemic and the everyday functioning of the nation. Thus, a special mechanism would be ideal motivation for agricultural enterprises to maintain steady operations and meet the demand.

Nguyen Hoang Anh, permanent vice chairman of the VIDA said at the association’s recent online meeting with approximately 100 enterprises in attendance that the government should issue a credit package particularly for the agricultural sector with procedures and criteria tailored for their needs. “This particular support programme should combine capital assistance with insurance and tax incentives to ensure plentiful production by both farmers and firms. Once their operation and processing activities are on track, firms will be to pay their debts, tax, and even contribute to society once the pandemic is under control,” Hoang Anh said.

Another factor speaking for the proposal is the promotion of agricultural goods export. As numerous sectors in quick succession reported plunging export turnovers in the past three months due to COVID-19, agricultural goods are looking at bright prospects thanks to positive export performance.

Notably, according to statistics published by the Ministry of Agriculture and Rural Development (MARD), in the first three months of this year, this sector achieved a trade surplus of $2.9 billion, up 48.9 per cent on-year. The total export-import turnover of agricultural, forestry, and aquatic products was $15.2 billion. The figure for March alone was $3.5 billion, $1.6 billion of which came from agricultural products.

Khuat Viet Hung, director of Hoi Vu Co., Ltd. – the largest gherkins and canned food producer in Vietnam – said that the pandemic contributed to boosting its exports to Russia. Particularly, after Russia closed border gates and suspended raw agricultural product imports from China, the demand for canned food began soared.

Meanwhile, according to Huy, the demand for food which strengthens the immune system such as bananas has hiked. The export opportunities are reinforced as numerous countries have suspended imports from China. Thus, the company is waiting for the support package to implement its expansion plan to meet this demand, otherwise it would have to use its equity capital.

“Agricultural businesses are in urgent need of support, thus the specifics of any upcoming credit package should be hammered out soon, determining which enterprises can enjoy the support without cumbersome inspections,” Huy said.

Nguyen Quoc Toan, director of the MARD’s Agro Processing and Market Department forecasted that even more opportunities for agricultural exports are opening up as the Chinese market is forecasted to recover in May. In addition, the United States and European markets may recover in the third quarter of this year. This necessitates agricultural companies to prepare now, not only by planting and sowing in time but by acquiring e-commerce capabilities if they wish to seize the opportunities.

Toan added that it is an ideal time to digitise the agricultural sector. “Enterprises need to co-operate with state management agencies to control the production process as well as the traceability of goods in order to meet the market demand,” Toan said. “A support package for the sector in this country would contribute to realising these plans.”

By Oanh Nguyen

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