Using public-private partnerships to revamp agriculture At the core of any sustainable development and poverty reduction strategy for agriculture is the ability to attract large dollar amounts of investment capital flows, said experts at a recent forum in Hanoi. The availability of private sector foreign direct investment (FDI) in agriculture is constrained by many inherent risks and other factors that make it – for all intents and purposes – not a viable source of traditional FDI funding. Smallholder agriculture is under-funded Smallholder farmers operating in the segment primarily produce cash crops with as much as 40% of their short-term financing needs met by their value chain partners and another 12% by commercial lenders. Notably, virtually all their long-term financing needs remain unmet. The gap in long-term financing is not a consequence of farmers not being able to operate profitably as there is substantial research and support for the proposition that with the extra financial funds, the country’s farmers would be able to generate positive earnings. Rather, the gap is linked to the inherent high risks that transnational companies, private banks and other financial institutions perceive in agricultural lending— that they will lose their initial investment or not earn a reasonable rate of return on the investment. Using public finance to addressing the financing gap In line with current experience, private sector finance is and most likely will remain insufficient to meet the growing demand for finance from the country’s farmers. This means that if one wants to tackle the problem of underfunding for the agriculture segment, one needs to change the status quo. While this will require action on several fronts, one major opportunity to drastically speed up the growth of agricultural finance lies with more efficient use of public finance and transforming it into an effective means of leveraging private sector funding. The idea that public funding, rather than being used to finance an entire project can more efficiently be used to unlock private sector finance – thus achieving leverage – is certainly not new. In infrastructure, the concept of public–private partnerships (PPPs) has been developed actively from the 1990s onward and it makes particularly good sense with respect to providing investment for agriculture. Simply put, traditional private sector FDI funding was always intended to be a vehicle to attract investment by transnational companies in the manufacturing segment. It was never intended to be nor has it become a source of investment for agriculture. To talk about raising FDI from the private sector for agriculture in the traditional sense absent a PPP— is pure folly, noted speakers at the conference. PPPs can effectively be used to attract FDI because they allow for shifting of risk to the public sector while at the same time providing for a guaranteed reasonable rate of return for the private sector investor. At the conference, Minister Nguyen Xuan Cuong of the Ministry of Agriculture and Rural Development said that unless agriculture can effectively harness the use of the PPP any opportunity for the segment to raise FDI of an amount required to effectuate its revamp to raise its global competitiveness will be lost. Minister Cuong noted the benefits of PPPs include cost efficiencies, improved yields, better quality, reduced post-harvest losses and enhanced infrastructural development, among others. He added that Vietnam agriculture largely consists of smallholders as more than 90% of the farmers are small-scale operators and only about 2-3% of them sustainably operate large scale mechanized farming. To transform the 90% of smallholders into large scale modernized farms utilizing high level production technology requires substantial investment that can only be raised through the PPP model. To this end, he underscored the Government is in the process of perfecting the PPP arrangement with the end goal of significantly revamping the agriculture segment and delivering its sustainability. VOV