better poultry value chain development through microfinance in vietnam · · 2014-11-26better...

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BETTER POULTRY VALUE CHAIN DEVELOPMENT

THROUGH MICROFINANCE IN VIETNAM

Student: Ngoc Anh NGUYEN Supervisor: Johan BASTIAENSEN European Microfinance Program 2009-2010

Brussels, September 2010

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TABLE OF CONTENTS

ACKNOWLEDGEMENT .................................... .............................................................................. 4 ABSTRACT........................................... ........................................................................................... 5 INTRODUCTION.............................................................................................................................. 6

Background .................................................................................................................................. 6 Research question ....................................................................................................................... 6 Scope of work............................................................................................................................... 7 Methodology................................................................................................................................. 7 Report outline ............................................................................................................................. 11

CHAPTER I .................................................................................................................................... 12 Literature review.................................. ......................................................................................... 12

I.1. What is value chain? ............................................................................................................ 12 I.3. Value chain microfinance..................................................................................................... 13

CHAPTER II ................................................................................................................................... 17 Current situation of poultry value chain in Vietnam ................................................................ 17

II.1. Analysis of poultry value chain in Vietnam ......................................................................... 17 II.1.1. Poultry production: Facts and Figures......................................................................... 17 II.1.2. Poultry production system............................................................................................ 18 II.1.3. Popular model of poultry value chains in Vietnam ...................................................... 19 II.1.4. Policies for poultry value chain development .............................................................. 26

II.2. Micro-financing poultry value chain in Vietnam .................................................................. 27 II.2.1. Microfinance clients ..................................................................................................... 27 II.2.2. Microfinance suppliers ................................................................................................. 27 II.2.3. Microfinance products and services ............................................................................ 30

CHAPTER III .................................................................................................................................. 33 Analysis of the microfinance in poultry value chain in Vietnam ........................................ .... 33

III.1. Micro-financing poultry value chain in Vietnam ................................................................. 33 III.1.1. Microfinance actors for poultry stakeholders .............................................................. 33 III.1.2. Poultry stakeholders with access to microfinance products and services ................. 37

III.2. Microfinance products and services for poultry value chain in Vietnam............................ 38 III.2.1. Financial services........................................................................................................ 38 III.2.2. Non- financial services................................................................................................ 43

III.3. Methodology providing microfinance services................................................................... 44 III.3.1. Group lending.............................................................................................................. 44 III.3.2. Individual lending ........................................................................................................ 49

III.4. Microfinance and the link with poultry value chain ............................................................ 50 III.5. Case study ......................................................................................................................... 51

III.5.1. Presentation of ATK Dinh Hoa chicken and egg value chain- Phuong Tien commune, Dinh Hoa district, Thai Nguyen province ............................................................................... 51 III.5.2. Financial flows to and in the value chain .................................................................... 54 III.5.3. Microfinance plus supplied to poultry stakeholders.................................................... 57 III.5.4. How financial and non-financial services address the demand of poultry stakeholders................................................................................................................................................ 60

CONCLUSION ............................................................................................................................... 67 Findings ...................................................................................................................................... 67 Recommendations ..................................................................................................................... 69

BIBLIOGRAPHY....................................... ..................................................................................... 70 APPENDICES ................................................................................................................................ 72

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TABLE OF FIGURES

Table 1: Sample scale of the survey ................................................................................................ 9 Table 2: Scale and moment of poultry smuggling from China to Lang Son and Quang Ninh provinces ........................................................................................................................................ 21 Table 3: Quantity and value of chicken meat imported to Vietnam over years ............................. 22 Table 4: Financial source for poultry breeders............................................................................... 30 Table 5: Percentage of borrowers as poultry breeding households and average loan size according to loan term.................................................................................................................... 31 Table 6: Loans for poultry stakeholders offered by formal and semi-formal microfinance actors. 39 Table 7: Credit offered by informal financial actors........................................................................ 42 Table 8: Microfinance plus in poultry value chain .......................................................................... 43 Table 9: Application of group lending model in the Vietnam Bank for Social Policy ..................... 45 Table 10: Comparison of procedure of group lending offered by Vietnam Bank for Social Table 11: Economic data of chicken stakeholders in chicken value chain in Dinh Hoa district- Thai Nguyen province............................................................................................................................. 64 Table 12: Difference in the price of STOP Avian Influenza products and other similar products in the market....................................................................................................................................... 64

TABLE OF DIAGRAMS

Diagram 1: Flow of microfinance services within value chain........................................................ 14 Diagram 2: Popular poultry value chains in Vietnam ..................................................................... 19 Diagram 3: Overview of financial sources for poultry value chain in Vietnam............................... 29 Diagram 4: Main financial sources accessed by poultry stakeholders .......................................... 33 Diagram 5: Individual lending to small and medium poultry stakeholders in Vietnam .................. 49 Diagram 6: Chick, chicken meat and egg channels of STOP AI project in Phuong Tien commune, Dinh Hoa district, Thai Nguyen province........................................................................................ 53 Diagram 7: Model of micro-financing chicken producers in STOP Avian Influenza project .......... 56 Diagram 8: Internal financial flow in ATK Dinh Hoa chicken value chain ...................................... 57

TABLE OF CHARTS

Chart 1: Poultry heads in Vietnam from the period of 2001 and 2007........................................... 17 Chart 2: Weight of poultry meat and eggs produced in Vietnam over the period of 2001-2007 ... 18 Chart 3: Service quality of microfinance sources for poultry value chain in Vietnam.................... 36 Chart 4: Poultry stakeholders with access to microfinance services............................................. 37 Chart 5: Demand of borrowers towards financial services of formal and semi-formal financial actors in poultry value chain........................................................................................................... 41 Chart 6: Demand of borrowers towards non-financial services of financial actors in poultry value chain ............................................................................................................................................... 44 Chart 7: Poultry stakeholders in Dinh Hoa district, Thai Nguyen province with times of loan access to credit of the STOP Avian Influenza project.................................................................... 55

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ACKNOWLEDGEMENT

First and foremost, I would like to express my sincerest gratitude to my supervisor, Professor Johan Bastiaensen for his valuable guidance and advice. His enthusiasts and carefulness in making comments as well as his continuous encouragement inspired me much to complete the thesis and to make tremendous contribution to the STOP Avian Influenza project that I did the internship.

In addition, my great thanks is sent to Mr. Patrice Gautier- Director of the Company of Asian Veterinary and Livestock Services (ASVELIS) in Hanoi for offering me the internship and giving me opportunity to work with Vietnamese and international experts in poultry value chain. Also, it is my privilege to express my warm regards to the equip of STOP Avian Influenza project, including the ASVELIS staffs, the Women Union of Dinh Hoa district- Thai Nguyen province, Lua Vang cooperative in Yen Dung district- Bac Giang province, Go Cong chicken cooperative in Go Cong town- Tien Giang province, Huong Que chicken cooperative in Phu Giao district- Binh Duong province and all poultry stakeholders taking part in the project for their precious support.

I would like to take this opportunity to thank to all the staffs of the Rural Development Center- Institute of Policy and Strategy for Agriculture and Rural Development and local authorities in Quang Tri, Hung Yen, and Hanoi provinces for helping me with data collection while implementing the project entitled “Pandemic Influenza: Preparedness and Response”.

Last but not least, an honorable mention goes to my families and friends for their understanding and supports. Without helps of the particular mentioned above, I would face many difficulties while doing this thesis.

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ABSTRACT

Value chain approach has been widely used in agriculture to identify necessary intervention for a better situation of agriculture and rural development in Vietnam. However, there are not many researches studying the micro-financing of agricultural value chains in this country. The thesis takes this opportunity to apply value chain method to analyze the situation of micro-financing in poultry commodity towards the development of poultry value chain.

The data of desk study shows that poultry value chain in Vietnam is dominated by small and medium scale production system. It is now in difficult condition when facing with so many problems associated with avian influenza, uncontrolled import of poultry products, and food safety. However, it also has many opportunities to develop when poultry production has not satisfied domestic demand and pork value chain, which dominates domestic meat consumption, has been in the trouble of the porcine reproductive and respiratory syndrome. Among financial actors operating in Vietnam, the Vietnam Bank and Social Policy, together with the Vietnam Bank for Agriculture and Rural Development and such informal lenders as relatives, friends and neighbors are main actors providing financial services to poultry breeders. And the credit offered to poultry stakeholders is usually in short term (≤1 year) and medium term (1-5 years) with small amount of under VND 30 million.

The data of field study once again raises the importance of the Vietnam Bank and Social Policy, Vietnam bank for Agriculture and Rural Development, and relatives, friends, and neighbors as principal microfinance actors for poultry value chain of small and medium scales. Although these actors is rather weak in providing microfinance plus for poultry stakeholders, national and international programs and projects appear to be very active in this aspect. Their strengths are dug in more detail with case study of ATK Dinh Hoa chicken and egg value chain in Phuong Tien commune- Dinh Hoa district- Thai Nguyen province within the frame of the STOP Avian Influenza project., funded by the United States Agency for International Development. Of various kinds of non-financial products, small and medium poultry stakeholders are most in need of technical assistance and risk support. For financial products, they would like to access bigger loans, and at favorable interest rate due to current difficulty of poultry value chain.

In addition, lending methods and credit issues are synthesized and analyzes to understand its operation and how microfinance address the demand of small and medium scale poultry stakeholders. While individual loans are usually offered to medium and big poultry stakeholders, group loans are for those of small scale, vulnerable, living in difficult condition with very weak voice in the value chain. Due to real situation of poultry value chain in Vietnam with small and medium production and current risk of poultry, the loans taken by poultry stakeholders are quite small, compared with other value chains, for instance pig, tea, coffee, etc.

In general, the quality of microfinance services in Vietnam is accessed to be good, but the borrowers really wants microfinance actors integrate in their value chain to understand their situation to create better products fitting their needs and simplify lending procedure as much as they can. Group loan is a little bit more preferable to individual loan, probably because most of poultry stakeholders are of small scale, and still excluded from formal financial market with collateral requirements. Nevertheless, individual loan remains important to those who would like bigger loan size and motivate their independence and privacy.

Apart from analysis of how the STOP Avian Influenza project microfinance poultry stakeholders of small and medium scale regarding financial and non-financial products, brokerage lending model, the case study with ATK Dinh Hoa chicken and egg value chain attempts to identify changes of these stakeholders before and after the access to this credit with data on their economic performance and social aspect.

In conclusion, it is recommended that financial actors should employ value chain method to better serve the financial and non-financial demand of their customers so that it is profitable for both the borrowers in terms of conducting good business and the lenders in terms of ensuring loan repayment, generating more benefit while reducing transaction cost. Collaboration with technical agencies or projects and programs on poultry value chain is also an ideal solution for financial actors to address clients’ need and mitigate their risk.

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INTRODUCTION

Background

In the country, where agriculture is the backbone with 80% of the people living on agriculture, poultry breeding in general and chicken raising in particular plays the second role in the total production value of Vietnamese livestock (after pig breeding). As indicated the Vietnam Household Living Standard Survey 2008, 85% of the breeders in Vietnam involve in poultry breeding. In fact, it is always regarded as the traditional activity of rural people in Vietnam.

Before the outbreak of avian influenza in 2003, the development growth of poultry head was 9.02%, but it then reduced 6.67% from 2003 to 2005, the period seriously affected by avian influenza. Since then, the number of poultry head increase slowly, from 0.9 to 2.74%. Chicken always makes up 72-73% of the total poultry head every year.

Throughout Vietnam, poultry breeding develops the most in the Red river delta, Mekong river delta and North West of Vietnam, accounting for 60% of the total chicken. Following is South West and North of centre area (26%). Meanwhile in the North East and Tay Nguyen, it occupies only 4-5% of total national poultry head.

Poultry breeding in Vietnam follow three main kinds of breeding: (i) manual and small-scale breeding; (ii) semi-industrial and medium-scale breeding; (iii) industrial and big-scale breeding, in which small and medium scale breeding (under 1000 chickens) dominates. However, breeding households of small and medium scale in poultry commodity in general and chicken in particular face with many challenges, for instance poor breeding and slaughtering techniques; low productivity; disease; limited investment source of poultry breeding (finance and land); high price feed; small scale breeder suppliers; high competitive market, so on so forth. Therefore, the government, together with international and local organizations in Vietnam cooperate to assist the development of poultry value chain in general, and chicken value chain in particular, with the purposes of (i) improve competitiveness of poultry value chains so that they can access to new and higher quality markets (restaurant, supermarket, hotels, instead of normal market selling live-weight chicken); (ii) increase value added for small-scale poultry breeding households; (iii) enhance cooperation and relationship among actors of the chain, especially for small-scale producers so that the risk and benefit can be shared more equally.

Among approaches applied in poultry related projects and programs, micro-financing poultry value chain appears to be one of the efficient methods allowing all actors of the chains to perform smoothly and acquire necessary input and technology for their activities (production, business or trading); providing them with necessary financial source for initial investments, or working capital to start or upgrade their production and business; increasing the voice of each actors of the chain, especially the small ones, as well as of the poultry value chain as a whole. It is paid much attention to, not only by the local and national projects, but also by the international ones.

Research question

Within this study, I would like to analyze the microfinance of poultry value chain, with particular focus on chicken and credit services (financial and non-financial ones). The poultry value chain here includes the production of meat (carcass and live-weight) and eggs for own consumption, for local markets (right at the place of the producers) and for urban markets (restaurants, hotels, selling points in big cities, etc), as well as the production of chicks, or duckling, etc; following the whole value chain, from the hatchery, nursery, broiler, layer farms to collectors, slaughterers, and retailers. However, the poultry producers of interest in this study only involve those of small and medium scale, meaning fewer than 1000 chicken heads. It is conducted in 5 provinces in Vietnam, with representatives from the Northern, and Central provinces. Therefore, the study aims at finding the answer for the following research question:

• What is the situation of poultry value chain in Vietnam? What are problems that poultry stakeholders have to deal with?

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• Who are main microfinance actors in poultry value chain in Vietnam? What kinds of credit services that they provide (both financial and non-financial ones) for poultry stakeholders and by what ways?

• To what extend do these services address the demand of small and medium poultry stakeholders to develop their activities and towards a poultry value chain of quality?

• What are advantages, constraint and challenges of microfinance services to satisfy the demand of poultry value chain stakeholders and towards the development of poultry value chain in Vietnam?

Scope of work

Above all, it should be noted the scope of the study as the followings:

Area of the study

The study is supposed to be conducted in 5 provinces, which are considered as representatives for different ecological zones in Vietnam, and represent poultry production of different scales (big, medium and small).

The provinces involve in the survey of this study include Hanoi and Hung Yen (representatives for the Red River Delta), Bac Giang and Thai Nguyen (representatives of the North East of Vietnam), and Quang Tri (representative for the Center of Vietnam) in which Bac Giang and Hung Yen are regarded as biggest suppliers of poultry products for domestic market (more than 15,000 ton of meat/year/province and from 80- 120 million eggs/year/province). Meanwhile, Hanoi and Thai Nguyen are those of average poultry production scale with 70-80 thousand ton of meat/year/province and 70-80 million eggs/year/province. Quang Tri in the Central Coast of Vietnam produce poultry meat and eggs at small scale (about 1500 ton of meat and 10 million eggs/year), yet it is reported to be seriously affected by the avian influenza. At this moment, together with Hanoi it is among 10 provinces coping with complicated situation of avian influenza (10 provinces include Quang Ninh, Hai Duong, Nam Dinh, Tuyen Quang, Ninh Binh, Vinh Long, Phu Tho, Ha Nam, Hanoi and Quang Tri).

Object of the study

Poultry commodity is the topic of interest. Therefore, the survey, taken in 5 provinces in Vietnam, deals with actors of the poultry commodity, including chicken, duck, goose, bird, etc. However, with the in-depth study, it only focuses on chicken value chain, rather than other types of poultry because chicken production makes up the largest quantity, compared with others. As well, chicken and chicken eggs are the most popular products for Vietnamese people. Within the chicken commodity, the study takes into account such main products as chicks, live-weight chicken, carcass, and eggs

Poultry stakeholders involving in the study include hatchery, nursery, broiler, and layer farms, collectors, slaughterers and traders. However, the focus of the study are those of small and medium scales (under 1000 poultry heads for breeders and under 500 chickens slaughtered per day for slaughterhouses, under 500 chickens per day for collectors and traders), especially those of low income.

Methodology

In order to conduct the research, both desk-study and field-study are applied to collect secondary data on microfinance and poultry value chain policies; on poultry value chain, and on microfinance services provided for poultry stakeholders in the chosen areas as well as empirical information from poultry stakeholders by survey with qualitative and quantitative approaches, including semi-structure questionnaire, interview, direct and indirect observation, and participatory rural appraisal.

Desk study

This study starts with a desk study collecting secondary data to have a general overview of current situation of poultry value chain in Vietnam, policies for the development of poultry commodity and the micro-financing of this commodity. This is predominantly a collection of documentary data

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such as reports, public records, books, scientific articles, statistic, etc. from on-line database, libraries, and from direct contact with development and research organizations in Vietnam to extract relevant information of the concerning issue, for example the Institute of Policy and Strategy for Agriculture and Rural Development/ Ministry of Agriculture and Rural Development, the Department of Animal Health/ Ministry of Agriculture and Rural Development, the Department of Husbandry/ Ministry of Agriculture and Rural Development, the Food and Agriculture Organization/ United Nations, as well as from on-going projects on poultry for instance STOP Avian Influenza, Avian and Pandemic Influenza: Preparedness and Response in Vietnam. Accordingly, the tasks at this stage consist of:

• Gather data and analysis to describe poultry commodity in Vietnam with problems and opportunities, especially the study focus on chicken since it dominates the poultry production in Vietnam

• Synthesize policies for the purpose of developing poultry value chain in Vietnam

• Depict the micro-financing of poultry value chain in Vietnam, with main suppliers and clients as well as microfinance products and services for poultry stakeholders. Yet, this study focuses much on micro-credit other than other kinds of financial products. Similarly, it put an emphasis on micro-plus that specially and efficiently serve the poultry value chain for consideration and analysis.

In addition, during the desk study, provinces supposed to conduct survey are identified and a case study for in-depth study is chosen. The provinces involving in the survey of this study include Hanoi, Hung Yen, Bac Giang, Thai Nguyen, and Quang Tri while the area for in-depth study consists of a case study in Dinh Hoa district- Thai Nguyen province.

The desk-study also encompasses the design of methodology that will be employed during the field work stage, for instance Participatory rural appraisal, semi-structure questionnaire, direct interview with poultry stakeholders and observation.

In fact, the desk-study is regarded as the theoretical background for the field study. It provides solid background on the topic of microfinance and poultry value chain but also well-prepared methodology to collect data in reality serving the purpose of analyzing current situation of poultry value chain financing with strengths, drawbacks, challenges, and perspectives after that.

Field study

Field study includes the survey with qualitative and quantitative questionnaire and PRA to collect general information of poultry value chain and the microfinance services for this chain, as well as case study with direct and semi-structure interview and observation for in-depth study.

The survey is conducted in 5 provinces throughout Vietnam, as indicated in the above section: Hanoi (Soc Son, Dong Anh, Thanh Oai districts), Hung Yen (Tien Lu, Yen My, Kim Dong districts), Bac Giang (Yen Dung district), Thai Nguyen (Dinh Hoa district), and Quang Tri (Trieu Phong, Gio Linh and Hai Lang districts) with particular focus on small and medium poultry stakeholders (including hatchery, nursery, broiler and layer farms, slaughterhouses, collectors, traders and concerning all kinds of poultry production) and for the following purposes:

• Gather data on microfinance services (financial and non-financial services), methodology, and main microfinance actors for the poultry value chain, provided in selected locations. At the same time, the availability of microfinance services offered by others actors (for instance the inter-linked credit arrangement, projects or programs, etc.) to stimulate poultry value chain activities of the selected areas will be examined.

• Analyze and map out the principal microfinance services provided in line with poultry value chain in selected areas

• Report on people’s perceived needs, satisfaction, priorities and expectations towards microfinance services to develop poultry value chain

In fact, the survey was carried out thanks to the support of the Rural Development Center- Institute of Policy and Strategy for Agriculture and Rural Development within the frame of their activity in Avian Influenza Risk Assessment, which belongs to the Avian and Pandemic Influenza Initiative project and the assistance of the company named Asian Veterinary and Livestock Services (ASVELIS) under the STOP Avian Influenza project. However, due to limited resources, the number

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of poultry stakeholders involving in the survey is not so big, ranging from 20 to 30 households each province.

Table 1: Sample scale of the survey

Province Hatchery household

Breeder

(Nursery, layer,

fattener)

Collector/

Trader

Slaughter-house

Retailer Total Note

Hung Yen 4 20 3 - 4 31 Retailers

and also

slaughterer

Bac Giang - 18 1 1 2 22 Retailers

and also

slaughterer

Thai Nguyen - 16 1 1 3 21 Retailers

and also

slaughterer

Quang Tri 2 19 2 3 4 30 Retailers

and also

slaughterer

Hanoi - 16 3 - 5 24 Retailers

and also

slaughterer

Total 6 89 10 5 18 128

Furthermore, two participatory rural appraisals are taken place, one with the poultry breeders, slaughterers, collectors and traders in Yen My district/ Hung Yen province, and the other with some leaders of poultry value chains in Thai Nguyen, Bac Giang, Soc Son, Tien Giang and Binh Duong provinces to have different points of view towards the economic situation and micro-financing of poultry value chain in Vietnam and to clarify some issues that has not mentioned in detail in the survey questionnaire, for example the procedure of lending, applied by different microfinance service suppliers, advantages and disadvantages of some microfinance services, their needs towards financial and non-financial services,etc.

After that, based on the result of the survey, a case study with chicken value chains are conducted in Phuong Tien commun- Dinh Hoa district-Thai Nguyen province for in-depth study. The reason is that in this area, chicken production plays an important role for the local people, especially the low-income one. The microfinance serving chicken stakeholders is evaluated to be best facilitating low income poultry stakeholders to generate income and to develop quality chicken products. It is also due to the availability and potentiality of microfinance products for local poultry value chain and the willingness of local authority and people to take part in the study as well as social embeddedness of microfinance in the local poultry value chain. The case study aims at:

• Collect data related to production, processing, markets and prices of selected chicken of quality in selected provinces before and after certain offers of microfinance services for comparative purposes.

• Report on the differences and changes of local livelihood and product quality in chicken value chain in selected area before and after the access to microfinance services in view of provincial and more importantly of gender differences.

All databases of case study will be maintained for the purpose of organizing, documenting, and analyzing collected data. It is also considered as evidences of the research.

The field study includes several techniques to extract data and information on microfinance and poultry value chain efficiently, namely questionnaire, Participatory rural appraisal (PRA) and interview. Each methodology is demonstrated in detail as below:

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- Questionnaire

Questionnaire with a series of questions concerning microfinance and poultry value chain is designed for different types of actors to collect information from them. It is regarded as an efficient research instrument that required less efforts, time and financial budget to gather data. In this research, the questionnaire will be simplified and comprehensive since it deals with poultry commodity, where the participants of the chain (producers, processors, traders…) are not so well educated.

- Interview

The actors of poultry value chain like producers (hatchery, nursery, broiler and layer farms) slaughterers, and traders, local authorities and microfinance actors are key persons that will all provide valuable information and opinions towards the research topic. Therefore, it is essential to conduct interviews with these actors. Semi-structure interviews aim at following the needed line of inquiry while still keeping the interview open and going, a suitable method of case study (Yin, 2003). In this research, semi-structured interviews are designed for both individual and group to maximize the information and ideas of the stakeholders.

Besides, the interview in this research is very crucial when it is not practical for some demographic groups conducting a survey by questionnaire

- Observation

The technique of observation here consists of both direct and indirect observation. With the direct observation, it is collected from personal observation when visiting the field, from group meetings of poultry value chain actors or microfinance practitioners, farming and production practices, or project meeting. In terms of indirect observation, it is in fact the indirect evaluation of microfinance and poultry value chain. To clarify, the researcher observes participants of poultry value chain microfinance to check the validity of the information provided, to understand their opinion towards the issues questioned to them, as well as to identify the limitation of the research itself with the field study to draw out experience.

- Participatory rural appraisal

Two participatory rural appraisals (PRA) were done quickly and intensively with the application of a series of methods, for instance interviews, focus groups, events. It is a short-cut method of data collection, involving both local people and outsiders, in which outsiders facilitates local people in analyzing information, practicing critical self-awereness, taking responsibility and sharing their knowledge of life and conditions to plan and to act1 (Bishnu B. Bhandari: 2003, pg 10).

The first PRA was taken place at the house of the leader of the Farmer Union in Yen Hoa commune, Yen My district, Hung Yen province with participants of poultry stakeholders of small and medium scale, both taking and not taking in poultry related projects in the province (for example, the representative from Rural Department of Yen My district, and the representative of the Rural Development Center/ Institute of Policy and Strategy for Agriculture and Rural Development. It included interview, observation, and discussion to exchange information and opinions towards microfinance products and services, suppliers, etc. to dig out current situation of microfinance for poultry stakeholders, credit policy implementation, perspective and solutions.

The second PRA dealt with focus group, regrouping leaders of some poultry value chains in Soc Son district- Hanoi, Dinh Hoa district- Thai Nguyen province, Yen Dung district- Bac Giang province, Phu Giao district- Binh Duong province, Go Cong town- Tien Giang province. It is the combination of workshop, field trip, chicken tasting events, weekend market, interview, discussion and observation, in which poultry stakeholders share information, and critical comments towards the issues and process of microfinance in poultry value chain throughout Vietnam.

The objective of PRA in this study is to increase the engagement of local community concerning poultry value chain and microfinance in the research and to understand their views on the research topic. The final aim of this technique is to enable local people, like poultry producers, or processors to assess the issue of microfinance, particularly micro-credit, for poultry value chain, and articulate their own demand, satisfaction and suggestion to address it.

It is an intensive approach to community engagement, which allows obtaining precious findings on microfinance within poultry value chain for the purpose of commodity development over a short period of time.

1 Bishnu B. Bhandari (2003) Participatory Rural Appraisal (PRA) Institute for Global Environmental Strategies (IGES)

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Report outline

The report of this research starts with abstract and introduction of the research. Meanwhile, its main body includes three chapters. The first one deals with literature review of value chain, value chain approach and value chain microfinance in general. Then the second chapter brings an overview of Vietnamese poultry commodity in general and chicken in particular, policies for poultry value chain development, microfinance market with clients and suppliers for poultry stakeholders, and types of microfinance products. The third chapter describes the results of the field work, with particular focus on micro-financing for poultry value chain of small and medium scale in Vietnam, especially for chicken value chain. It consists of the sections on current actors of microfinance services in poultry value chain, types of microfinance services, methodology providing microfinance services, the link between microfinance and poultry value chain and a case study of micro-financing chicken value chain. Finally, the conclusion present the findings of the study, discusses the advantages, constraints and challenges of providing microfinance services to the actors of poultry value chain and gives some recommendations for good application of micro-financing poultry stakeholders with value chain approach for the purpose of better poultry value chain development.

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CHAPTER I

Literature review

I.1. What is value chain?

Value chain, or supply chain, commodity chain, production chain in other terminology, is defined as a range of activities conducted by individual or organizational stakeholders of the same chain to provide product or service from the very beginning conception to the end users. These stakeholders normally include input providers, producers, processors, collectors, traders, wholesalers, retailers, consumers as well as third parties providing such additional services as finance, market research and logistic to these stakeholders. These participants of the value chain have close vertical linkages with each other for the final purpose of ensuring efficient product flow to meet the demand of their target clients, developing the value chain, creating a fair competitiveness in the value chain, optimizing productivity, better the position of the products and value chain stakeholders in the market, and maximizing profit. The activities of these actors within a value chain are classified into different stages, for example production, processing, distribution, etc. in which at each stage a new value is added to the value chain.

This definition derives from the point of view of Raphael Kaplinsky and Mike Morris, who considered value chain as “the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producers services), delivery to final consumers and final disposal after use” [Kaplinsky.R & Morris.M, 2000, 4].

According to these authors, the notion of a value chain can be understood in different ways. Interpreted in a narrow fashion, the value chain is a set of activities that take place within a manufacturing unit like firm or enterprise to produce a certain product or service. These activities create a connection or linkage between producers and customers. Interpreted in broader manner, however, a value chain is an assemblage of activities carried out by different actors (namely producers, processors, collectors, wholesalers, service suppliers, retailers, etc.) in order to turn raw materials into finished products that satisfy the needs of customers.

This broad conception of value chain embraces a large number of issues related to value chains and development more generally, including organization, coordination, strategies and interaction among participants and even social problems (community relation, habits, and production standpoint, consumption attitudes, etc) and environment (land degradation, water pollution, and biographical diversification, etc.)

What is more, the definition above keeps the emphasis on the close linkage among different economic actors to improve the value chain by adding value to the chain with their own activities as indicated Mr. Golletti Francesco- Consultant of Agrifood Consulting International in the project Marking Markets Work Better for the Poor, funded by the Asian Development Bank in 2004

Nevertheless, it also highly appreciates the authors John T. Mentzer et al., who defined value chain as “a set of three or more entities (organizations or individuals) directly involved in the upstream and downstream flows of products, services, finances, and/or information from a source to a customer” in their article “Defining value chain management”, in the Journal of Business Logistic [John T. Mentzer et al., 2001, 4].

I.2. Value chain approach

From the definition of value chain, it is easier to understand the value chain approach, which has been applied into different fields, especially very common in agriculture and rural development to analyze a certain commodity for the purpose of management and development of the value chain.

In fact, value chain approach was pioneered by the economist Michael Porter in1985, who focused on how value chain analysis could help companies recognize their position in the market, and its relationships with suppliers, clients, and competitors. Based on this analysis, enterprises

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could identify their own competitive advantage to facilitate their product design, inputs, logistic, marketing, sales, after sales services, and/or resources management, etc. However, the limitation of this initiative is that it can applied optimally to develop corporate policies concerning administration and business management at enterprise level, or at higher level of highly typical branches such as industrial crops, processing materials with the involvement of all companies producing, processing, or distributing products or services, but not for all stakeholders or all rural and agricultural value chains.

Therefore, based on the “enterprise perspective” of “value chain” of the economist Michael Porter in 1985, in the “Commodity chains and global capitalism” in 1994, Gereffi brought new initiative when convincing that the value chain should be coherent, and well analyzed by studying not only organization but also individuals that play crucial role in the development and management of the value chain, not only within manufacturing system but also distribution one, and not only within domestic market but also at international market if the value chain has connection at global level.

However, the truly applied value chain approach for agriculture was described in “A Hand Book for Value Chain Research” by Raphael Kaplinsky and Mike Morris in 2000 when they proposed to analyze value chain by studying sequence of activities of different actors in the frame of a value chain, with the focus on linkage and value distribution in a vertically organized system to identify the value or the benefit acquired by each stakeholder.

Then in 2002, John Humphrey once again insisted on the importance of relationship and interaction of stakeholders with value chain approach for the purpose of defining dynamics, opportunities and constraint of markets for a certain product.

In short, value chain approach analyzes the flow of commodities and linkage among actors of a specified sub-sector and contributes to the identification of opportunities of constraints of a particular value chain for its growth. This approach has been widely applied by non-governmental organizations and research institutes in agriculture and rural development throughout the world.

I.3. Value chain microfinance

Value chain microfinance is in fact the application of value chain approach in microfinance sector to provide microfinance services, such as micro-credit, micro-savings, micro-insurance, services of money transfer, or microfinance plus (non-financial products/services which include technical assistance, training, exchange activities, etc.) to different stakeholders within a particular value chain, for example rice value chain, horticultural value chain, litchi value chain, catfish value chain, poultry value chain, pig value chain, and so on so forth.

The financial flow into a value chain can come from both internal and external sources. In case of internal value chain finance, it refers to the vertical flow from a stakeholder of the value chain to others in the same chain. In other words, it is the interlinked credit arrangement among value chain actors, or buying and selling on credit. This kind of financing is good in the sense that it reduces transaction cost since it is embedded in economic transaction among value chain stakeholders. In case of external value chain finance, it means that the financial actors provide financial services to stakeholders in the chain, based on their demand, for the purpose of running their production and business. The flow of microfinance services within the value chain can be described in the following diagram:

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Diagram 1: Flow of microfinance services within val ue chain Source: Consolidated from Woccu Value Chain Finance Implementation Manual and Value Chain Finance: Financing to and within Value Chains by Anicca Jansen, USAID

In fact, the value chain finance not only provides financial products and services, but also non-financial ones to value chain actors. Accordingly, both financial and non-financial services at micro-level can be provided through vertical linkage among actors of a particular value chain, or by external microfinance actors in the ultimate value chain. The external microfinance actors can play the role as brokers between strong and weak actors of the chain. Very frequently, the value chain stakeholders can access to both internal and external financial source of the chain. Take a nursery of chicken value chain as an example; he can normally sell chicks to broilers on credit. Or the broilers can be provided with small credit by banks or microfinance institutions. Another illustration is that the producer can buy industrial feed on credit at the agencies of animal feed manufacture. The same thing can happen for chicken collectors, slaughterhouses, processing companies, supermarkets or retailers at traditional markets.

In the development world, value chain microfinance usually focus on such stakeholders of the value chain as small scale enterprises, micro-entrepreneurs, small holders with the aim of helping them to join in the chain and integrate economically, improve their competitiveness, productivity and efficiency to be able to access to new market, ensure sustainable livelihood, and finally increase their living condition. In addition, the small-scale stakeholders are more independent, have their own voice in the chain and the market and become important and indispensable links of the chain. The reason is that these people, especially the poor, are always economically vulnerable within the chain and the market. They are dominated and managed by bigger ones. For example, the collectors and traders may force broilers and layer households to sell their chicken and eggs at cheap price. If these producers do not sell their products to these collectors/traders, they don’t know where and how to sell, except their local market, which is usually less demanded and at cheap price as well, especially when their products are not so differentiated in the market. Another illustration is the small scale slaughterhouses, it is very costly for them to get their products quarantined and certified as food safety before distributing to the market. While all the work are done manually, the infrastructure is so simple, the slaughtering technique is so weak…, it is very difficult for them to convince local authority to certify their products that meets the veterinary and hygienic standards. Therefore, their products must be sold either illegally, or at higher price in the market because of corruption for certification. This is very popular in Vietnam. Then in all cases, the small scale

Microfinance service providers

(including banks, non-bank financial institutions, credit

unions, financial cooperatives, NGOs, MFIs, Self-help groups, families,

relatives, friends, etc.)

Financial products and

services

Non-financial products and

services

Value chain

Consumers/ Market

Retailers

Traders/ Collectors

Processors

Associations of producers

Producers

Input suppliers

Wholesalers/ Exporters

Demand for financial services by commodity chain actors

Supply of financial services by microfinance service providers

15

stakeholders are the ones who suffer the most, then followed by the medium scale ones. Therefore, microfinance actors, together with their financial and non-financial products and services, are certainly useful in upgrading the situation and position of the small and medium scale actors of the value chain by (i) opening them opportunities to access to credit and become financially independent from the buyers; (ii) improving their bargaining position either by brokering contacts with other buyers that are also their clients or organizing collective actions like collective sales; (iii) enhance their knowledge, skills and technologies in their activities; (iv) assisting them to achieve standards required for poultry and poultry based products, to get certifications, and to develop their own label and trademark; or (v) to reduce the risk associated with their business. When well done, it will equip value chain stakeholders with not only financial source, but also technical skill, entrepreneurship and partnership, etc. to conduct their business confidently. What value chain microfinance is helpful is that it can take advantage of the relationship among value chain stakeholders to reduce operational cost and the risks related to credit.

Hence, following the value chain approach for the purpose of development like increasing income of small stakeholders of the value chain and those considered as economically active poor, value chain microfinance shows that all the actors of the chains need to be provided with appropriate and prompt financial services. In other words, providing access to credit for the stakeholders within the value chain is vital to guarantee a smooth product flow, and then can help to enhance the competitiveness of a value chain in the whole, and ensure successful business. As a result, lack of credit at any stage of the value chain has impact on all other actors. Similar to the example presented above, if the broilers can not buy chicks or industrial feed on credit, or do not access to any financial sources, the number of chicken supposed to provide for collectors and slaughterhouses will be certainly limited. Consequently, all the actors of that chicken value chain will suffer from this shortage. However, such financial sources are not always available and easily accessed for all stakeholders of the chain. Many of actors working in agricultural and rural development in general and in poultry value chain in particular claim for lack of financial sources while they need financial services from banks and other financial agents to keep operating and growing their businesses. Therefore, providing microfinance products and services through the value chain approach helps to identify these shortcomings and assists in finding appropriate interventions.

While Robert Fries & Banu Akin have a rather narrow point of view on “value chain finance” when he considers it as financial mechanisms and products within and among the actors of the value chain itself, the other authors show that there is evidently link between value chains and microfinance provided by outside institutions, interacting with the stakeholders in the chain.

For Robert Fries & Banu Akin, they described value chain finance with three main characteristics. The first is chain governance: interaction and relationship among series of activities in a chain as well as rule that govern these activities and linkage are critical issues since one may be a leader or a dependent player. “In order to ensure consistent, reliable and adequate supply, lead firms may be motivated not only to dictate specifications, but also to embed such services as technical assistance, training, and finance into the marketing services they provide. Finance can be an incentive for contracts that ensure supply, as well as fund the working capital a producer needs to upgrade a product to meet a buyer’s standards.” [Fries, R. & Banu. A, 2004, 6]

The second is upgrading as a central concept because a player or group of players can bring more value for the chain and/or get more value from the chain. “Value chain financing, focused more on seasonal working capital than longer term investment capital, is more likely to facilitate product upgrades than process upgrades. One exception is warehouse receipts, which can build significant efficiencies into the marketing process itself and allow a farmer access to scale efficiencies typically available only to players further up the value chain” [Fries, R. & Banu. A, 2004:18]. Bastiaensen. J et al. even clarify four types of upgrading in the Rural Microfinance & Agriculture Value Chains: Strategies and Perspectives of the Fondo de Desarrollo Local in Nicaragua, including “(1) process upgrading (increasing the efficiency of internal process within individual links in the chain and between the links in the chain); (2) product upgrading (introducing new products or improving old products); (3) functional upgrading (increasing value added by changing the mix of activities conducted within firms of moving the locus of activities to different links in the value chain); and (4) chain upgrading (moving to a new, qualitatively better value chain)” [Armendariz*, B., and Labie*, M. 2010].

The third is techniques applied to value chain analysis, which consist of: (i) mapping: showing the flow, cost, value added and importance of each stage of transformation and transactions of product/service from initial input to final sale; and (ii) participatory approach to tackle

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and pursue bottlenecks and opportunities within the value chain through the participation of stakeholders.

However, for the authors, besides the interlinked among stakeholders of the chain, value chain finance also represents “the link between chain actors and financial institutions”, which is regarded as “a means to deepen financial services for value chains” built on the established relationships in the chain and strong relationship between chain actors and financial service providers “to support the product flow”, with the aim of addressing “perceived constraints and risks by providing innovative ways of delivering financial services to rural producers and agribusinesses”. Then, the product flow in the value chain plays the role as the carrier to provide financial services. “This way of financing can spread risk among the financial institutions and chain actors and provides alternatives to traditional collateral requirements. It provides tremendous potential for unleashing capital, scaling up and sustaining chain prospects, but it needs to be managed and organized well.” Accordingly, the financial service providers need to “have a deep understanding of the realities in the chain and of the need for timely and flexible finance” while the actors of the value chain need to “understand the business realities and mentalities of banks and microfinance institutions looking at risk mitigation and cost coverage for their services.” [KIT & IIRR, 2010, xii].

In addition, another kind of link should be set up; it is the vertical linkages in the financial sector, meaning that financial actors collaborate to provide different stakeholders of the value chain with a variety of sizes ad types of financial products, for example insurance, overdrafts, factoring and leasing models, as well as investment loans, guarantees and venture capital. For example, microfinance institutions can link with producer organizations to provide small input loans to producers, while banks simultaneously provide an investment loan to a processing company in the chain. The microfinance institutions and banks need to link up to align their services in this chain for potential overdraft facilities to small traders. (KIT & IIRR: 2010. pg xiii).

In reality, financial institutions find that microfinance and the value chain converging. As indicated in the Innovation in Financing Value Chain: Using Market Agreements to Reduce Povert- WOCCU/FENACREP experience in Peru, financial institutions integrate financial products into the value chain since they, together, can helps reducing “the risk of rural and agricultural finance while maintaining an adequate financial margin and low risk of loan default”. Furthermore, it can be implemented “without the need for operating subsidies or guarantee funds”. Therefore, It is used to “design a variety of financial products, to evaluate and finance all types of value chains and adapted to other environments” [Luis J.G., 2009]

What is more, providing microfinance services through microfinance can be considered as a powerful strategy for mitigating rural finance constraints. For example it defines business as integrated units rather than one single activity of an individual borrower recognizing interactions of small scale producers and rural small and medium enterprises with each other and with larger domestic or foreign firms. Another advantage is that it is a demand-driven approach, reacts to market forces by responding the specific needs for financial products at any point in the chain.

To sum up, the application of value chain into microfinance is quite relevant. As Robert Fries & Banu Akin explained, firstly because “it starts with what is already happening in the field—the actors, relationships, rules of play, range of services (including embedded financial services), and bottlenecks to growth. This increases the likelihood that interventions and innovations will help to close the insufficiency and inefficiency gaps of rural finance, by recognizing and incorporating market realities rather than distorting them” [Fries, R. & Banu. A, 2004, 7].

Secondly, it encourages to regard “expanded financial services not as ends in themselves, but as inputs for increasing the competitiveness and earnings of particular value chains—specialty coffee, grains, horticulture, for example—and particular actors within them” [Fries, R. & Banu. A, 2004, 7].

Last but not least, “to the extent that a participatory approach is used, it incorporates the perspectives and taps the energy of critical stakeholders and champions of promising interventions, increasing the likelihood that interventions will build on existing innovations and relationships and receive the buy-in they need to be successful” [Fries, R. & Banu. A, 2004, 7]. .

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CHAPTER II

Current situation of poultry value chain in Vietnam

This section aims at presenting a general overview of poultry value chain in Vietnam by analyzing it through facts and figures of production, characteristics of poultry production system, modeling it with popular poultry value chain based on types of products, digging it in SWOT analysis, together with a summary of policies for its development with particular focus on financial issue. Also, the situation of micro-financing for poultry value chain, particularly for stakeholders of small and medium scale are presented through secondary data on service providers, borrowers, financial and non-financial products.

II.1. Analysis of poultry value chain in Vietnam

II.1.1. Poultry production: Facts and Figures

Poultry farming is popular agricultural activities in rural area in Vietnam with the participation of nearly 80% of rural households. However, most of poultry production in Vietnam is of small and medium scale, through backyard and garden raising or free-range technique. According to the Vietnam Household Living Standard Survey 2008, the poultry breeding makes up 50% of the total value of husbandry activities in Vietnam and 85.27% of husbandry breeders take part in poultry breeding. It includes the breeding of chicken, ducks, geese, birds, etc. for breeds, meat and for eggs. Together with poultry production, it is easy to find poultry slaughtering, processing and trading activities throughout 58 provinces in Vietnam.

Since 2001, poultry production in Vietnam has got much change, especially with a sharp decrease from 2003 to 2004 due to the effect of avian influenza.

Chart 1: Poultry heads in Vietnam from the period o f 2001 and 2007

The number of poultry heads in Vietnam over the yea rs

190,000,000

200,000,000

210,000,000

220,000,000

230,000,000

240,000,000

250,000,000

260,000,000

2001 2002 2003 2004 2005 2006 2007

Source: Department of Husbandry/ Ministry of Agriculture and Rural Development

Accordingly the total weight of poultry meat as well as the total eggs over the above

period fluctuates accordingly.

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Chart 2: Weight of poultry meat and eggs produced i n Vietnam over the period of 2001-2007

Poultry meat and eggs produced in Vietnam over the years

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2001 2002 2003 2004 2005 2006 2007

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Carcass

Egg

Unit: ton Unit: egg

Source: Department of Husbandry/ Ministry of Agriculture and Rural Development

In poultry commodity, chicken makes up a great part. In fact, chicken and eggs are products much more popular for the Vietnamese people than other kinds of poultry like duck, goose, birds, etc. Just take 2007 as an example (latest data on poultry), chicken heads accounted for 69.89% of total poultry heads.

Now that dealing with a more up-to-date data on poultry, the recent husbandry survey in April 2010 of the General Statistics Office of Vietnam shows that the number of poultries all over the country is 277.4 million, up 8.1% from the same period of the previous year. Then, it can be said that poultry production has recovered from serious disease of avian influenza.

II.1.2. Poultry production system Poultry breeding in Vietnam follow three main kinds of breeding: (i) Manual and small-scale breeding (under 50 chickens): very traditional and popular, with

participation of 65% of households raising chicken extensively and accounting for more than 50% of total chicken head per year2. The main characteristics include free range, letting poultries scavenging in the garden, taking advantage of by-product in agriculture (rice brand, sesame, maize, cassava…), hatching and nursing chicks by themselves. This method is very suitable with economic condition of local households, as well as with local breeds (like Ri, Mia, H’mong, Tre, Ho, Dong Tao, Tau Vang etc.), that produce poultry and eggs of quality, but low productivity and long production cycle (6-7 months to reach 1.2 to 1,5kg for chicken);

(ii) Semi-industrial breeding: with medium scale of 50-1000 poultry heads, and participation of 10-15% of poultry breeders, producing 25-30% of poultry quantity annually. This is rather modern method, using semi solid or solid shelters, semi-automatic drinker and feeder system, good productivity chicken breed (high breeds or crossed breeds) (such as Luong Phuong, Sacso, Kabir, etc.) of short production cycle (70-90 days), and industrial feed;

(iii) Industrial breeding: big scale of 2000- 30,000 poultry heads/ farm (but up to 60,000- 100,000 poultry for some), develop very fast since 2001, but makes up only 20% of the total chicken production. This kind of breeding usually use high-breed poultry (like Isa, Lormann, Ross, Hiline chickens etc.) fed with industrial feed completely, solid shelter, actively control the temperature and humidity of breeding area, short production cycle (for instance, 42-45 days to raise chicken until they weight 2.2- 2.4 kg/chicken). However, industrial chicken breeding involves only those with strong financial capacity.

The size of herd in these three kinds of production systems often increases before Tet

2 General Statistic Office

19

festival (New lunar year) and reduce in the period of June to July because of the summer heat. While the small breeding rather serves households’ own consumption, the medium and big ones are for commercial purpose. However, the majority of poultry breeding in Vietnam is of small and medium scales. Within this study, only small and medium scale poultry stakeholders, who raise poultry for commercial purpose, are concerned.

II.1.3. Popular model of poultry value chains in Vi etnam Different types of poultry products and different locations can have their own model of poultry

value chain. Nevertheless, popular models of poultry value chain in Vietnam can be illustrated as the following, based on three main products: meat, egg and day old chick.

Diagram 2: Popular poultry value chains in Vietnam Poultry meat value chain

Poultry egg value chain Day old chick value chain

It is crucial to know that the day old chick value chain is particularly rather complicated since

the eggs are usually collected regardless origin before selling to hatchery farms. For all the three value chains, although some enterprise tries to develop their trade-marks, product quality, quality controlling and traceability system to persuade customers in the market, the matter of quality and origin still challenge the authorities, entrepreneurs and customers. And despite the fact that some attempts to integrate in international market and export to some neighboring countries, the market for poultry products produced in Vietnam is mainly domestic.

II.1.4. SWOT analysis

a. Strength

Popular product

Poultry is a popular product and highly consumed by Vietnamese consumers. According to the International Egg and Poultry Review of the USDA in July 2010, poultry meat accounts for 13% of meat consumed in Vietnam (preceded by pork with 76% and followed by red meat of 9%). At this moment, the average annual meat consumption of Vietnamese people is about 40 kg/capital and estimated to reach the number of 57 kg/capita in 2020. The General Statistics Office of Vietnam also places poultry in the list of popular livestock products. Furthermore, in Vietnamese tradition, chicken is very demanded in all festivals throughout the year and usually used as special offerings.

Poultry breeding is also a popular activity in rural area in Vietnam. It is executed by all ethnics in all provinces in Vietnam, regardless delta or mountainous areas. Therefore, it is not surprised when poultry is an important source of cash income for more than 4 million households in Vietnam currently.

Product diversification

Consumer

Input supplier

Poultry breeder

Collector and trader

Processor/ Slaughter-house

Distributor/ Wholesaler

Retailer

Input supplier

Poultry breeder



Retailer

Consumer

Input supplier


Hatchery

Assembler/ chick keeper

Retailer

Consumer

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Poultry products in Vietnam are much diversified. They can be chicks, chickens or pullets. They can be ducks, geese, quail, pigeon, and thousands of others kinds of birds. They can be normal eggs or incubated eggs (usually for duck and quail). They can be imported breed like Cob 707, Ross 308, Kabir, AA, Hubbard ISA, or crossed breed (Luong Phuong x Sasso, Luong Phuong x local breeds), or local breed (Tau Vang in the South; Ri, Mia, Tre, Dong Tao, H’mong/ black bone chicken, and fighting chicken in the North). All can be cooked deliciously and believed to have many health benefits over other sources of protein. For rural dwellers, poultry is a cheap source of protein. In the market, live-weigh poultries, fresh and frozen carcass, or poultry based products (like gio, sausage…) can be all found easily. The diversification of poultry products can then satisfy different types of customers.

b. Weakness

Vulnerable to disease

The small scale breeding with less investment in housing and facilities, less vaccination coverage, and garden backyard technique, dominates poultry commodity in Vietnam and show high resistant to disease. This has been showed during the outbreak of avian influenza since 2003 (more details can be found in the threat of avian influenza). The ability of disease infection is especially high for duck production, in which the animals are gathered in rice fields during the day and brought back to their shelters at night, and they can move from one province to another.

Vulnerability to disease is not only shown in breeding technique, but also in poultry commodity management. Following the whole value chain, it is easy to find the existence of unqualified hatchery farms and slaughterhouses where quarantining and veterinary services are carelessly taken cared of; or the broiler farms with mixed poultries of different types, and ages without separate production areas, without vacuum period and sterilized entrance; or poultry traders using motorbikes to transport live-weight poultries and carcass; or retailers selling poultry and poultry based products in dirty condition. These unqualifications help increasing the possibility of disease transmission in poultry flock. While at initial stage, the quality and standard can not be controlled, how can final products be ensured with quality in the market! To make the matter worse, private hatching using unknown origin eggs was blooming out of control after the first waves of avian influenza, while hatching was limited but there is a high demand in restructuring poultry herd. At this moment, the authority can not control the origin of poultry in Vietnam with complicated poultry movements. It is even much more difficult while many eggs or chicks are transported illegally through all borders of the country.

Weak management in poultry value chain

Weak management from farms to markets

The bad management can be illustrated somehow in the previous paragraph. In addition, the place of breeding poultry is not well organized, just taking advantage of free place for breeding, close to living place, without bio-security, without vacuum period, etc. It should be added that the good production practice is not well ensured, and then it is found that many poultry has not been vaccinated. This is also a reason why the avian influenza can spread so fast in Vietnam for the last years. Furthermore, the way of slaughtering and processing poultry. Throughout Vietnam, it is easy to witness the sellers killing chicken in dirty manner, meaning that right at the point of sale, or in slaughterhouses but at dirty places (for example near the sewerage and the dust bin). Even it is prohibited by law, this still happens illegally. Even with the way of importing poultry production, it is claimed that the placement of poultry imported boxes is next to the plant protection chemicals, or the old ones next to the new ones.

The reason lies in the fact that administrative works in epidemic prevention, slaughterer control, and check ups by veterinarians care not highly appreciated. All levels of the veterinary department operate ineffectively. Slaughterhouses break veterinary ordinances, are not being licensed by the licensing authority, and run out of veterinary department control. For years, food has not been inspected and is often circulated in the market without a control stamp. In addition, the spread and frequency of disease outbreaks are proof of the poor veterinary system at the grassroots level, particularly with respect to epidemic diagnosis and detection and epidemic prevention. There is interest in daily and periodic cleaning by large-scale farmers, but not small scale producers, who also seldom use chemicals to prevent disease.

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Apart from that, vaccines and inoculations are administered mostly by large and medium-scale farmers, but not small scale producers. In addition, some farmers use different vaccines for preventing the same disease because of the various vaccines and their inability to distinguish between them. What is more, responsible agencies for quality control are limited, operate independently, and cooperate very weakly. The control system only emphasizes administrative procedures, and lacks professional tools. To make the matter worse, individual farmer have little interest in quality control. Cooperatives have attempted to address this problem, but have largely failed to encourage farmers to follow a collective production process. Processing companies and farmers have not succeeded in contractual production. In addition, slaughtering systems in rural areas as well as urban areas are not sanitary. Slaughterers are not proactive with respect to hygiene. The retail faces the same situation. Quality control system has been out of hand.

Weak management in poultry import

The import of poultry product includes two ways, legally and illegally. The following section is supposed to discuss problem of poultry smuggling into Vietnam as well as the cold poultry imported that has dramatic effect on domestic poultry market.

Poultry smuggling

The poultry smuggling is a headache for the local and national authorities and poultry breeders in Vietnam because it not only affect the domestic poultry market, competitiveness and income for poultry breeders, but also leads to the trans-boundary spread of avian influenza (this is really serious in the borders between Vietnam and China, when poultry is smuggled from Quangxi and Guangdong in China to Quang Ninh and Lang Son provinces in Vietnam). Normally, poultry products are imported illegally from China to Vietnam, not only for consumption of the border provinces, but also transported deeply to the inner provinces like Bac Giang, Bac Ninh, Hanoi, Hai Phong, Nam Dinh, Thai Binh, Hai Duong, Thanh Hoa and Nghe An provinces.

The study entitled “Cross Border Poultry Movement Analysis Between Lang Son and Quang Ninh provinces in Vietnam and Quangxi and Quangdong provinces in China” conducted by the Rural Development Center of the Institute of Policy and Strategy for Agriculture and Rural Development and the Food and Agriculture Organization in 2009 shows that poultry and poultry products smuggled into Lang Son and Quang Ninh provinces since 2005 include pullets (after their production cycle), chicks and ducklings (of 10 to 15 days old), chicken eggs (including eggs for sitting and for eating), ready-to-cook chicken and duck, chicken ovaries and duck feather.

Among these products, pullets, chicken eggs (both for daily food and for sitting) and poultry breed are 3 main and frequent products imported in Vietnam. Pullets are those used to produce eggs but excluded after being exploited. Every year, thousands of large-scale breeding farms in Quang Tay discard millions of this kind of chicken, which is then smuggled to Vietnam for consumption. The fact is that Vietnamese consumers, especially food kiosks and restaurant, are fond of them because their meat is as tough and resistant as Vietnamese ones, but the price is much lower, compared with domestic chicken. Chicken eggs include eggs for daily consumption and eggs for sitting. The quality of Chinese eggs for daily consumption is evaluated to be lower than the one of domestic eggs, some are claimed to be artificial, on contrary; their eggs for sitting have better quality. In terms of chicks and ducklings imported for breeding and producing meat, normal the one of 10-15 days old are often imported illegally.

The others like chicken ovaries, duck feather and ready-to-cook poultry are infrequent product imported (in fact smuggled) and with small quantity. To have an overview of the quantity of the main poultry products smuggles into Vietnam, please see the data collected in the borders between Vietnam and China in Lang Son and Quang Ninh provinces in the following tables:

Table 2: Scale and moment of poultry smuggling from China to Lang Son and Quang Ninh provinces

Type of product

Quantity Months with high rate of importation

To Lang Son province Pullet High peak: 10-15 ton/day

Low moment: 1-2 ton/day October- March

Chicken egg Chi Ma border gate: 30,000 eggs/day May, June, July Chick and duckling

Huu Nghi border gate: 30,000-40,000 heads/day Chi Ma border gate: 50,000 heads/day

March- July (double the quantity compared with other months)

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To Quang Ninh province Pullet High moment: more than 100 ton

Low moment: 20 ton October- March

Chicken egg High moment: more than 20,000 eggs Low moment: about 5,000 eggs

April, May and November, December

Chick High moment: more than 10,000 chicken Low moment: about 3,000 chicken

Frequent all the year round, however, sharp increase on lunar calendar festival (Tet holidays)

Source: Rural Development Center’s survey, 2009

The activities of poultry smuggling is very skillful and cover all services needed, from protection (against competent authorities), pilot (or information service), transportation and stocking. They have been successfully supply poultry products to many provinces in Vietnam. This can be seen in the transportation channel of poultry from China to Vietnam in the map below:

To prevent smuggling, authorities at different levels have established 4 control belts, with the participation of different agencies, for instance border posts, customs house, tax agencies, police, market management, veterinary branches, as well as inter-branch controlling stations and quarantine stations. Nevertheless, this system has not gotten much efficiency since only from 10-30% of poultry and poultry products smuggled from China to Vietnam has been caught. In terms of the system effectiveness, it is found that the prevention has dealt with much difficulty because of limited human resource, largely-stretched area, active and sophisticated smuggling system. To make the matter worse, supporting measures for anti-smuggling organization has not been satisfactory and measures for sanction has been so weak. Consequently, while it has expenditure the state much to destroy smuggled poultry, the local people have been damage economically. Meanwhile, due to high profit, poultry smuggling across border does not tend to reduce, but become more and more skillful and venturesome.

In addition, it also means that the poultry stakeholders in Vietnam have to deal with rather complicated procedures with many levels of controls. In case it is strictly controlled, they have to follow and it will cost them much time and effort. In case it is badly controlled, they have to face with either corruption to smooth their activities (this can lead to higher price for their products) or unfair competitiveness with those who break the rule.

This is only an example of the illegal transportation of poultry through two borders with China in the North. Nevertheless, many other provinces of Vietnam have borders with China, Laos, and Cambodia. This shows difficulties for poultry stakeholders in the countries for a fair competitiveness.

Poultry imported legally

In addition to the smuggling, it is necessary to discuss the issue of legal imported poultry, which also result from weak management of the authority. Since the year 2002, the quantity of chicken meat has a sharp increase. Although in 2005, due to the serious out-brake of avian influenza, the demand of domestic customers suddenly and dramatically decrease since they are afraid of being affected. However, as can be seen in the table below, the quantity of chicken meat imported in 2007 much augments.

Table 3: Quantity and value of chicken meat importe d to Vietnam over years Year

Item 2007 2006 2005 2004 2003 2002

Quantity of chicken meat imported (unit: ton) 156,198 37,330 5,373 36,492 1,063 1,041

Imported value (unit: 1000 $) 166,342 31,712 4,294 24,750 1,025 8,657

Source: FAOStat

To date, according to the Department of Husbandry, the quantity of meat imported (including poultry) in the first 5 months of 2010 tripled the last months of 2009. As for the Center of Animal

23

Health in zone 4, averagely the quantity of meat imported and certified for quality was about 4000 to 5000 ton/month, but this number reached 7000 ton/month in April and May 2010. However, the traders in Ho Chi Minh City indicated that every month they imported 500 containers of meat, each weights 20-30 tons. Most of the meat imported is poultry, and then followed with pork, beef and lam.

The statistic of the Department of Custom situated at Cat Lai port, Ho Chi Minh city (zone 1), which makes customs procedures for almost all meat imported for the South of Vietnam, from 15 May 2010 to 15 June 2010, shows that chicken makes up 70% of the meat imported (4233 ton). The number of meat imported during this period doubles the one in December 2009.

Just take the case of Ho Chi Minh City as an example, according to the statistic of the Department of Animal Health in Ho Chi Minh City, at the beginning of 2007, the quantity of poultry imported was about 45-50 ton/day. Meanwhile, this number doubled to 90 ton/day at the end of 2007. It continuously increased to 111 ton/day at the beginning of 2008. To date, although this number reduces slightly, it remains high, about 100 ton/day.

The above examples illustrate high increase of poultry imported legally to Vietnam. Of course it helps to stabilize the price of chicken in domestic market, when Vietnam is still suffering from avian influenza, which contributes to reduce the quantity of poultry demanded and affect domestic chicken supply. However, the careless management of poultry imported leads to the uncontrolled importation. Then, Vietnamese poultry breeders face the risk of loosing their market segment, even in domestic market.

However, the reasons explaining high quantity of poultry imported lie in the fact that blue ears disease happens in Vietnam in 2010 that increases the consumption of chicken. Another explication is the decrease in the global price for poultry, for example the price of chicken reduces from 1000 USD/ton to 800 USD/ton. However, the circular no 29 issued by the Ministry of Agriculture and Rural Development on criteria, and permitted limits on food safety for imported cold meat is supposed to come into effect on 1st July, 2010. Accordingly, the control of poultry imported will be stricter. Therefore, the import companies try to import before the validation of the circular to make benefit. This will seriously affect poultry breeding and competitiveness of domestic poultry products.

c. Opportunity

Facing with so many problems as indicated in the previous section, whether poultry value chain has any opportunities? Of course yes. The following will discuss potential market as an opportunity opening to this value chain in these days.

Vietnam itself is a potential market for chicken products and eggs. With the population of more than 80 million people, in which 70% situated in the rural area, the demand for chicken and eggs is quite high. Besides, the economic development allow people to improve their living standard and income, in which one part of the income is spent for buying food of better quality. According to the survey of IFPRI and the Vietnam Ministry of Agriculture and Rural Development on consumers in Hanoi and Ho Chi Minh city, two big cities in Vietnam, the expenditure for husbandry products (including beef, pork, poultry, eggs and milk) is rather high, 25% of the total monthly income for Hanoi people and 21% of the total monthly income for those living in Ho Chi Minh city, in which live meat accounts for 2/3 of the total quantity of meat consumer per year per capita. In Vietnam poultry is one of the main foods providing protein, and is the very favorite one for Vietnamese families. According to the Institute of Policy and Strategy for Agriculture and Rural Development, in 90s, Vietnamese people only consumed about 3.1 kg of chicken/person/year, but this number increase to 12kg in 2003 and gradually increase up to now. Meanwhile, the production of Vietnam remains small. It is necessary to mention that although the number of poultry head in Vietnam is high, but it only rank the 35 in world as for meat production and the 31 as for eggs3. Small production occupies poultry production in Vietnam as a whole. Normal distribution of poultry products is taken place right in the province of production, or the neighboring ones.

Before 2003, poultry production in Vietnam increased with the average growth of 8.6%/year. In 2004, due to avian influenza, it reduced 14% and meat production suffered from a decrease of 15%. From 2005 to now, the commodity is on the way recovering. During the period of 2001-2005, domestic poultry production can only serve 32% of the domestic demand, in which 60% comes from the breeders of small scale. Yet, according to the poultry production over the years and the

3 Source: Vietnam Department of Husbandry/ Ministry of Agriculture and Rural Development

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population and consumption growth, it can by far satisfy domestic market. As a result, Vietnam appears to be the very potential market for poultry consumption. This is really an opportunity for poultry production in Vietnam.

In addition to the high demand of domestic market, Vietnamese people are in favor of domestic chicken with yellow skin (for normal one, except special chicken like black chicken), rather than imported one with white skin because theirs have special taste and with better quality for them. The way of breeding should be mentioned as a priority of Vietnamese chicken commodity here since most of them are raised with free-range technique that can ensure solid meat to serve the taste of Vietnamese people. Due to the fact of being consumed in domestic market, the transportation cost much reduces. This increases the competitiveness of the Vietnamese ones. Furthermore, Vietnamese consumers prefer to buy live-weight chicken to the imported cold one. Hence, it can be said that the domestic market is very potential.

Moreover, according to the Department of Quality Management for Agricultural, Forestry and Fishery Products/ Ministry of Agriculture and Rural Development, the regulations for food safety is supposed to be stricter in the coming period, with supervision from origin, and according to value chains at producing countries. It applies the controlling standards and procedures of the Codex Committee on Food Additives and Contaminants, in which competent authority of export countries have to register with competent authorities in Vietnam with name of producers and traders for the purpose of examination and control. In case they satisfy all the requirements can the products be exported to Vietnam. All the lots of imported products must be along with food safety certificates issued by the competent authorities of export countries and it must be recognized and approved by competent authorities in Vietnam. This strict regulation will help to limit and better control poultry products imported to Vietnam on one hand, and on the other hand open a chance to domestic producers.

Now comparing to other kinds of meat in Vietnam, including beef, pork, buffalo, lamb, fish, birds, etc, poultry, particularly chicken is the second popular meat, after the pork. Nevertheless, with the porcine reproductive and respiratory syndrome (blue ears disease in other words) that happens in Vietnam in 2010, chicken is put in the first choice for consumer. Thus, this year and the coming period is the time for poultry value chains to increase market consumption.

d. Threat

Up to date, poultry value chain in Vietnam has to face with so many threats; however, this section only makes emphasis on the main ones, which become hot topic for development activities these days.

Avian influenza

Among the problems, avian influenza is seen as the most emerging and important one since it is a serious poultry epidemic that Vietnam has to face for years since 2003. It is continuously affecting poultry commodity every year that scare not only poultry stakeholders but the whole people. It is acknowledged that Vietnam has been one of the worst-affected countries by the current highly panthogenic avian influenza panzootic with six main waves of outbreak in poultry since late 2003, killing 52 human beings (only after Indonesia with 122 deaths) and millions of birds4. From the first outbreak of avian influenza in December 2003 to 2005, the total of poultry destroyed because of 4 outbreaks comprised 51 million, equal to a damage of about VND 10,000 billion5. Three regions most affected by this epidemic include the Red river delta (8.9% of decrease in poultry head), Mekong river delta (7.2% of decrease), South East (8.3% of decrease). This affects not only poultry breeding, but also feeding, poultry processing, tourism, services, etc.

Although the number of poultry infected tends to reduce now, the disease still exists and often breaks out in the season of flu every year, which threatens not only poultry production but also human health. Before 2003, the total households engaging in poultry breeding were 8 million, but now this number reduce to more than 4 million. And it has been the main livelihood for poor households throughout the country6. Up to now, it still involves the participation of high number of poor people for both income and food. It should be noted that the small scale commercial chicken

4 Source: Tuong Vu. (2009) The Political Economy of Avian Influenza Response and Control in Vietnam STEPS 2009 5 Source: Department of Husbandry/ Ministry of Agriculture and Rural Development 6 Source: Vietnam Partnership on Avian and Human Pandemic Influenza – OPI M&E Framework (period 2008-2010) and Vietnam Household Living Standard Survey

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producers have been the one most touched by the avian influenza, then many of them, who had borrowed money for poultry production and found themselves in debt when their birds died or were culled. Although the government claimed to compensate 50% of market value but this rate could not be reached because of late compensation, unregistered farmers, and other issues. Even when the bank loans were extended to assists those affected, the farmers were found in loss, especially those solely breeding chicken.

This can explain why the number of poultry reduces dramatically from 2003 to 2004 and slightly from 2005 to 2006 (two main outbreaks of avian influenza in late 2003 and 2005) as indicated in the above chart.

The government, together with international organizations, joins in a partnership on avian and human pandemic influenza and has made great efforts to prevent and find out solutions to cope with the outbreak of avian influenza at large scale. The main solutions to deal with this disease, which have been implemented by the government, include: (i) destroy flocks of poultry infected and doubted to be infected; (ii) provide financial support for poultry breeders whose poultry have been destroyed (up to 70% of the value of poultry destroyed); (iii) vaccinate poultry; (iv) antidotal sanitary; and (v) improve awareness of people on poultry breeding and consumption. In addition, the purchase and transportation as well as slaughtering of poultry have been more strictly controlled and focused slaughterhouses in big cities have been set up. Poultry production and distribution channels are on the way being reconstructed. Moreover, a disease extracting and surveillance system has been established at local area.

Although the disease has not broken out at large scale within the past 4 years, it has still happened at small scale in some provinces, which motivate the local authorities, together with development agencies to find out an appropriate solution and strategy to cope with it. Most recently, in June 2010, there has been an outbreak of avian influenza at Thi Thai village, Duy Thanh commune, Duy Xuyen district, Quang Nam province with the total of 9000 poultry dead and destroyed7. Hence, avian influenza is still haunting poultry stakeholders and Vietnamese people.

This is the main obstacle for poultry stakeholders to access to financial services since their activities become so risky. This happens not only between poultry stakeholders and external financial service providers, but also between stakeholders in the chain. For example, the input providers used to allow their clients to buy chicks, medicines, feed, etc. on credit, but due to avian influenza, this becomes limited. They are afraid that the breeders will be unable to repay in case their poultry flocks are affected by the epidemic. Or with some banks, which used to give loan for poultry production and trading, now they have to take poultry related activities into very careful consideration to decide whether to give loan or not. Some even claim that they can not access to financial products with commercial banks if they invest in husbandry, poultry and also pig breeding because poultry is threaten by avian influenza while pig faces the porcine reproductive and respiratory syndrome. Therefore, it can be said that avian influenza is the scare for all poultry stakeholders in the value chain.

Food safety and sanitary

As hot as the avian influenza, food safety and sanitary is another problems associated with poultry products. It becomes even hotter when in 2009, Dong Hoi commune, Dong Anh district, Hanoi province was claimed to use clohydric axit (Cl) to change the brown color of the cover of the Chinese eggs imported to white color of Vietnamese eggs. The fact is that Vietnamese eggs have been analyzed to have better quality, with bigger yolk. Therefore, Vietnamese people prefer the domestic products. Understanding this taste, the sellers use chemical substance to treat Chinese eggs that they buy at cheap price to make it like Vietnamese one to cheat their customers for the purpose of selling at higher price.

For carcass, a recent VTCNews investigation has revealed that some chicken retailers has cheated their customers by using a wood polishing chemical to dye their birds yellow to satisfy the demand of Vietnamese consumers (as they prefer poultries with yellow skin). It is very poisonous and contains many toxic metal for human’s health, which can damage the liver and kidneys, and

7 Source: Rural Times/ Ministry of Agriculture and Rural Development

26

cause cancer. It should be used to dye wood before it is polished with veneer as an industrial pigment, prohibited for food.

The second is the abuse of antibiotic in medicine and feed for poultry production that leads to the high residue of antibiotic in poultry meat and eggs. Before, the Department of Animal Health, University of Agriculture and Forestry in Ho Chi Minh city conducted a study on the use of antibiotic with 628 breeding households and found 44.96% of chicken samples with high level of antibiotic residue, 2.5 to 1,100 times higher compared with allowed rate, in which the antibiotic as chloramphenicol accounted for the highest (87.50%) (This is the one prohibited in many countries, then followed by flumequin (83.33%), chlortetracyline (62.50%), and amoxillin (60%).

Even now, this situation remains unchanged. The reason was the use of antibiotic as medicine with high quantity to prevent disease for their animal until they were sold out. As well, the breeders chose feed with high level of antibiotic to accelerate the growth of their chicken, even when they are supposed to be sold. Consequently, the antibiotic residue still remains in chicken carcass, or in eggs.

Therefore, food safety from production, processing to distribution is really a matter to cope with in poultry value chain. Nevertheless, together with problems emerge opportunities for poultry stakeholders to satisfy new demand in the increasing market.

II.1.4. Policies for poultry value chain developmen t

Poultry value chain is established and developed based on a process from production, processing, distribution to consumption. Recently, policies for rural commodity development in Vietnam have not only focused on individual links of the commodity chain, such as production or processing, but also on the entire chain. The policies for poultry value chain can be summarized in three groups of policies: for production/farming; for processing; and for market (please see annex for detail). Among these ones, financial issue is considered as a focus to give poultry stakeholders more chances to access to credit (with the resolution 03/2000/NQ-CP) or allow them to take loan with preferential interest rate to transform to intensive and commercial breeding model (Decision no 394/QĐ-TTg) and at the same time receiving technical training, health protection and marketing extension services. Following these policies, some provinces have been very active in providing credit support for farmers willing to transfer their poultry production from manual and traditional extension technique to intensive and commercial one, or even in contracting arrangements between semi-industrial and industrial poultry farmers with large domestic and foreign enterprises, for instance Hai Phong, Ha Tay, Binh Duong, Vinh Long, etc. This helps reorganizing and industrializing livestock production and processing in Vietnam.

Also, the State uses national budget to support the development of infrastructure like road, electricity system, water system, sewerage system, and so on so forth leading to concentrated breeding farms. Or they borrow international organizations and countries as official development aid to develop poultry breeding and processing and marketing. The Department of Husbandry/ Ministry of Agriculture and Rural Development even propose the government to issue a decree supplementing the decree no 106/2004/NĐ-CP dated 01/04/2004 of the government on development credit, which allow poultry breeding and processing to access to credit of the Development Aid Fund to invest and innovate poultry breeding, slaughtering and processing.

Apart from the policies above, some policies concerning financial support to prevent and deal with disease on poultry should be referred to as they played a very important role in helping poultry value chain actors, particularly the producers to protect their poultry from serious disease. They encompass (i) the Decision no 309/2005/QD-TTg dated 26 November 2005 on the financial support for preventing and coping with avian influenza; (ii) Decision no 719/QD-TTg dated 5 June 2008 on preventing and protecting animal from disease (which is considered as the synthesis for three serious disease in animal, including avian influenza, mouth and foot disease, and porcine reproductive and respiratory syndrome).

In addition, Vietnamese government has implement many policies to deal with global financial crisis in 2008; to adjust the inflation; to facilitate the operation of enterprises (medium and small enterprises in particular), as well as to provide support for ethnic and poor households in difficulty, which involve also poultry value chain and the issue of microfinance.

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However, the policies for poultry value chain development in Vietnam are still lack of the following important issues: (i) Policies that will facilitate the creation of breeding insurance programs; (ii) Policies on imported feed in order to reduce costs, and improve the competitive advantage of products.

II.2. Micro-financing poultry value chain in Vietna m

II.2.1. Microfinance clients

According to the Vietnam Household Living Standard Survey 2008, 49.75% of the poultry breeders can access to financial services. These include hatchery, broiler and layer farms of different scales, from small to big ones. However, as presented above, the study focus on micro-credit, therefore, this section will deal with the clients of micro-credit in poultry value chain in Vietnam. Similar to other rural microfinance activities, poverty standard is widely used by formal and semi-formal microfinance actors to define their rural clients. Then based on their poverty levels, the micro finance institutions classify them into groups and design appropriate products and services. Within poultry value chain, these clients can be laborer, wager, or entrepreneurs. This section benefits from the study conducted and presented in the international conference of best practices of rural finance by Mr. Manfred Zeller- Professor and Director of the Institute of Rural Development, Georg- August-University Gottingen, Germany to classify rural micro-credit clients in general, and those of poultry value chain in particular into three main groups as the following8:

(i) Group of vulnerable households near or below poverty line: Why they are regarded as vulnerable? Because according to the poverty standard, they are assessed to live at or under the poverty line. That means poor and extremely poor. This type of clients comprises of wage laborers, tenants, smallholders, retailer and small producers or processors of poultry products, and so on so forth. This group of households in poultry value chain usually gets credit for the purpose of buying input, for instance chicks for breeding. Loan for working capital may be provided, but normally at very favorable interest rate since they are in the list of poverty in locality. Therefore, they get much support from not only the Vietnamese government but also the support from other projects or programs of non-governmental organizations, international organizations. Then, following the loan cycle, they often receive such support as technique, marketing, managerial skills, etc. to ensure the success of their business as well as loan repayment.

(ii) Group of households living above the poverty line and not vulnerable: This encompasses those who usually have pieces of land or real estates that can be served as collateral but it costs them a very high transaction in accessing commercial banks. It also consists of traders or owners of small enterprises, who actually run their small business. It may involve permanent employees as well, but these employees often have low income. In poultry value chain, the credit provided for this group of households is rather diversified because they can receive both credit for input or working capital

(iii) Groups of households conducting larger agribusiness and other firms or group of farm owners: these clients often have real estate and formal book-keeping records that facilitate their access to formal financial institutions. However, some still find it difficult to access and from the viewpoint of microfinance institutions, this kind of clients should be served to diversify their client portfolio.

II.2.2. Microfinance suppliers

Poultry value chain in Vietnam receives many kinds of financial sources, which can be categorized into external and internal ones. While the external finance regroups regulated microfinance institutions like banks or credit institutions, semi-formal actors such as socio-political organizations and projects or programs, and informal actors who are relatives, friends, neighbors, money lenders, rotating saving credit associations, the internal finance is in fact the inter-link credit arrangement among various actors of the chain.

With external financial providers, they include: 8 This was also discussed in the lead theme paper in the international conference of best practices of rural finance, Manfred Zeller-

Professor and Director of the Institute of Rural Development, Georg- August-University Gottingen, Germany

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(i) Formal financial actors: this deals with banking system, microfinance institution or credit cooperatives that professionally provide financial services in general and credit services in particularly. The banking system here encompasses not only commercial banks like conventional banks, rural joint stock banks, but also other kinds of banks such as development banks or non-profit banks. Credit cooperatives and People Credit Fund are also members of formal financial actors in Vietnam since these institutions are very actives in providing micro-credit. For poultry stakeholders in Vietnam, they normally have access to credit provided by the Bank of Agriculture and Rural Development, the Bank for Social Policy, some local banks, cooperatives and People Credit Fund.

(ii) Semi-formal financial actors: this kind of actors involves development programs or schemes that can be initiated by the government or international organizations and non-governmental organizations. These programs and schemes can focus only on credit, or target other activities like agriculture, tourism, aquaculture, forestry, technical assistance marketing support, etc, but at the same time consist of the component of credit activities. Normally, in order to provide credit services, there is participation of the local authorities, mass organizations (like farmer’s union, women’s union, youth’s union, producer association…), or technical agencies. Moreover, some other kinds of cooperatives can act as credit providers, but they are not as professional as the credit cooperatives. The actors in poultry value chain in Vietnam normally get credit or financial subsidy to develop their poultry production, slaughtering or trading from such mass organization as the Women’s Union, NGO’s projects and technical agencies.

(iii) Informal actors: they are moneylenders, relatives or friends, rotating saving credit associations and other suppliers of similar services. Like other activities, poultry stakeholders can of course access to credit offered by this informal financial system, but it is very difficult to detect the information related to this system in Vietnam due to high social pressure and culture. However, another kind of informal financial channels that should be mentioned in poultry value chain is the interlinked credit arrangements: this is in fact the selling or buying on credit between stakeholders taking in the value chain, which can be offered free of charge or with interest rate. For example a chicken producer can buy chicken feed on credit, or may sell their chicken on credit to slaughter houses. In terms of informal financial system, it is the financial flow among stakeholders within poultry

value chain such as input provider, breeder, collector, slaughterer, wholesaler, and retailer. These stakeholders can allow the selling and buying on credit, or give each other chances to access to a their source of credit for the purpose of win-win situation, meaning that they borrowers benefit from financial services whereas the lenders benefit from the borrowers either in their commodity relationship or in interest payment. This is summarized in the below diagram.

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Diagram 3: Overview of financial sources for poultr y value chain in Vietnam

Retailer

Internal financial sources

Input provider

Collector/ Trader

Slaughterhouse


Producer/ Breeder

(1) Vietnam Bank for Agriculture and Rural Development, Bank for Investment and Development, Vietnam Commercial Bank, Rural Joint Stock Commercial Bank…

(2) Vietnam Banks for Social Policies

(3) Farmers’ Union, Women’s Union, Youth Union, War

Veterans Association,…

(4) People Committees

Non- profit banks2

Commercial banks1

Formal actors (Well-

organized institutions)

Banks

Credit cooperatives

Development Banks

People Credit Fund

Other kinds of cooperatives

Technical agencies

External financial sources

Semi- formal actors (Well-

organized institutions)

Development programs &

schemes

National ones

Foreign/NGO ones

Local authorities4

Mass organizations3

Mass organizations

Informal actors (Non-

organized entities)

Moneylenders

Relatives, neighbors & friends

Rotating Saving Credit Associations

Similar services providers

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Due to the fact that this research particularly focuses on micro-credit for poultry value chain, the table below brings a general view of market share of different financial actors in rural area in Vietnam for poultry breeding. This data is extracted from the Vietnam Household Living Standard Survey conducted by the General Statistic Office in 2008. However, it should be noted that these financial services serve all kinds of poultry breeders: small, medium and big scales.

Table 4: Financial source for poultry breeders

Microfinance actors Percent of poultry breeders

accessing to credit Formal 77.47 Vietnam Bank for Social Policy 36.63 Vietnam Bank of Agriculture and Rural Development 35.68 Other banks 1.49 Credit institutions 3.67 Semiformal 6.55 Capital Aid Fund for Employment of the Poor 0.89 Socio-political organizations 5.66 Informal 36.92 Money lenders 6.5 Relatives and friends 27.54 Other services 2.88

Source: Vietnam Household Living Standard Survey 2008. General Statistic Office

From the above table, it is clear that the most frequent financial actors for poultry commodity in Vietnam consist of the Vietnam Bank for Agriculture and Rural Development, Vietnam Bank for Social Policy, the Socio Political Organizations and Relatives or Friends. Among these actors, the formal and semiformal financial actors offers a diversity of credit services to the rural people, not only giving them loan, but also other kinds of services such as training, technical assistance, or capacity building through campaign and events. This kind of services is referred as microfinance plus. However, the entire services provided help these actors fulfill both their financial and social missions in rural area of Vietnam.

The entire picture of microfinance actors in rural area is demonstrated in the following diagram.

II.2.3. Microfinance products and services

a. Financial products

Consistent with the focus on micro-credit, financial products are divided into different types according to the terms of loan: short term, average term or long term. The figure of loans provided to households involving in poultry breeding by several sorts of financial suppliers in the following table aims at describing average loan size of each type of loan, as well as number of poultry breeding households borrowing the credit in line with different loan terms.

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Table 5: Percentage of borrowers as poultry breedin g households and average loan size according to loan term

Percentage of borrowers as poultry breeding households (*)

Average loan size/household

Criteria

Financial suppliers Short term

Average term

Long term Short term Average

term Long term

% % % Million VND/

household

Million VND/

household

Million VND/

household

Vietnam Bank for Social Policy 4.10 31.83 0.54 9.4 8.2 8.5 Vietnam Bank for Agriculture and Rural Development 16.61 19.08 0.2 28.9 22.6 20.5

Other banks 0.79 0.74 0 25.9 43.7 0 Capital Aid Fund for Employment of the Poor 0.20 0.69 0 6.3 12.8 0

Credit Institutions 2.08 1.63 0 21 14.1 0

Socio-political organizations 1.38 4.15 0 4.7 7 0

Money lenders 3.95 2.13 0.05 16.3 12.4 12

Friends, relatives 11.72 11.37 0.3 10.1 17.5 18.4

Others 1.53 0.89 0 10.1 12.2 0

Note: Short term:<=12 months; Medium term: <=60 months; Long term: > 60 months

(*) Calculated based on the number of borrowers as poultry breeding households according to loan term/ total poultry breeding households with

access to credit

Poultry breeding households include those producing chicken for meat, eggs, and chicks

Source: Vietnam Household Living Standard Survey 2008. General Statistic Office

Then, it is seen that most of poultry breeding households access to short term and average term loans, but not the long term one. Whereas loan size is quite small, from about VND 1 million to VND 32 million, equivalent to ≈ 50 USD- 1700 USD. These loans are mainly offered by two dominating microfinance actors: the Vietnam Bank for Agriculture and Rural Development and the Vietnam Bank for Social Policy. Yet, relatives and friends as well as socio-political organizations are also important financial source for poultry breeders.

However, this study also deals with other actors of the poultry value chain, such as slaughterhouses and traders while the data concern only those involve in poultry breeding, but not processing and trading. So this table does not present the loan taken by poultry slaughterers and traders. Therefore, the types of microfinance products in general and micro-credit in particular for poultry value chain are supposed to be dug in more detail in the next chapter to bring concrete illustrations of micro-credit for poultry value chain in studied provinces in Vietnam.

b. Non-financial products

The non-financial products, known as microfinance plus, also contributes to the development of poultry value chain in direct manner. As stated the Grameen Foundation “The local microfinance institutions might also offer microfinance plus activities such as entrepreneurial and life skills training, and advice on topics such as health and nutrition, sanitation, improving living conditions, and the importance of educating children." Accordingly, microfinance institutions have satisfied four main social needs of their clients, namely (i) healthcare support; (ii) education and training (improvement of illiteracy level, professional skill and technique…); (iii)

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empowerment programs (like governance, gender equity…); and (iv) relief services (in case of natural disaster or serious disease).

Within the poultry value chain, it is found that the common non-financial products include (i) Technical assistance (mainly Good husbandry practice with design of poultry shelter; system of feeder and drinker, the use of feed; density of breeding; way of caring; record keeping; bio-security procedure; veterinary supervision; sanitary and quality control, etc ., and good slaughtering practices consulting the use of slaughtering appliances and techniques; safe, self-control and self-managed slaughtering model; quality control, sanitary, food safety, etc.; (ii) Marketing support (finding market for output; develop label and quality standard; develop communication strategies); (iii) Empowerment: training on entrepreneur and management skills; (iv) Health care support (applying bio-security technique to protect human and poultry health, as well as surrounding environment in general, techniques to prevent and to deal with poultry disease, or the outspread of disease in case infected) and risk support in case poultry stakeholders have to deal with such risk as disease, natural disasters (storm, flood, etc.)

However, the well-regulated microfinance institutions in Vietnam are very weak in providing non-financial products, probably because they are financially oriented. The types of microfinance plus mentioned above is rather supplied by projects/programs in the manner of technical assistance in line with credit support, or by poultry stakeholders themselves. For example the Women Union can provide training on management skill for women poultry stakeholders in case they borrow credit from their source (-> empowerment); a chick supplier can compensate the breeders in case their poultries, which are bought from their farm and die because of avian influenza (-> a kind of risk support); a feed supplier provide the breeders with training on the optimal use of feed to generate high income to promote them buying their animal feed, or a medicine supplier provide some veterinary services for free for their clients (-> health care support), or a wholesaler can provide training on good husbandry practice for the breeders and find market to ensure quality input for the breeders to collect quality poultry products in return (-> technical assistance and marketing support). All of these non-financial products are supposed to be discussed and analyzed in concrete case study in the next section.

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CHAPTER III

Analysis of the microfinance in poultry value chain in Vietnam

This section is synthesized from the general survey and Participatory rural appraisal of the commercially-oriented and mechanized poultry stakeholders of small and medium scale (under 1000 poultry heads) in Hanoi, Hung Yen, Bac Giang, Thai Nguyen, Quang Tri, and Tien Giang provinces with special support of the STOP Avian Influenza project and the Avian and Pandemic Influenza Preparedness and Response in Vietnam. It then focuses on microcredit for chicken stakeholders of small and medium scales in ATK Dinh Hoa value chain s in Thai Nguyen provinces as case study.

III.1. Micro-financing poultry value chain in Vietn am

III.1.1. Microfinance actors for poultry stakehold ers

At this moment, the main credit suppliers for poultry stakeholders in Vietnam include the Vietnam Banks for Social Policy, Vietnam Bank for Agriculture and Rural Development, the Women Union, the Farmer Union, projects or programs, their relatives and friends, and of course the poultry stakeholders in the value chain, which is known as inter-linked credit arrangement. The below chart introduces sources of credit, to which poultry stakeholders can access, with concrete percentage of customers who use the service of these financial actors.

Diagram 4: Main financial sources accessed by poult ry stakeholders

Note that a poultry stakeholder can access to different credit at the same time. For example one can take the loan from the Vietnam Bank for Social Policies, and at the same time borrowing money from their relatives, take part in the on-credit purchase and selling, etc. Then it is seen that the poultry stakeholders of small and medium scales get the most access to financial source of formal actors, which makes of 50% of customers.

Non- profit banks (Vietnam Banks for Social

Policies) 28.57%

Commercial banks (Bank for Agriculture and

Rural Development) 21.43%

Formal actors 50%

Informal actors 13.51%

External financial flow

Relatives, neighbors & friends 13.49%

Small and medium scale poultry e ntrepreneurs (Individuals, households , cooperatives and enterprises) in rural area

Semi- formal actors 8.11%

Interlinked credit

arrangements 33.33%

Mass organizations

8.73%

Internal financial flow

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Inter-link credit arrangement

Among all microfinance actors, the most popular types of microfinance for poultry stakeholders is the interlinked credit arrangements when up to 33.33% of the poultry stakeholders taking part in the survey indicate to frequently join in this kind of microfinance service. It is, in fact, the advancement of products between the buyers and the sellers, and sometimes, it is even in the triangle models, meaning that when the feed suppliers sell feed on credit to the broilers, they may get the payment from the collectors, who purchase chicken from broilers. So, for poultry stakeholders, this financial source mainly satisfies their current lack of finance for production cost.

The interest rate applied inter-link credit arrangements are quite flexible, depending on the relationship between the sellers and the buyers. In case the poultry stakeholder is an organization (cooperative, association, or enteprise…), the interest rate employed is based on the rule of that institution. For example, for some broilers, a feed agency can charge interest rate after 1 month of purchasing while some are allowed to make payment without any interest rate. However, according to my survey, it can range from 1.5-4%/month. This happen popularly through vertical linkage of the value chain, from input providers, producers, collectors, slaughterhouses, traders, distributors, to retailers and vice versa.

However, it should be noted that the inter-link credit arrangements can be in cash or in kind. The manner of in cash has been described above, meanwhile the in kind can be the way the broilers help the slaughterhouse to slaughter their chicken free of charge so that the slaughterhouse can sell their chicken after that. Or a veterinary and medical agency can provide poultry breeders with veterinary service free of charge, in return, they should buy medicine at this agency.

The advantage of the inter-link credit arrangements is that: (i) it can help actors of the chain dealing with the shortage of credit for some moments of their production or business cycle; (ii) better understanding the demand and supply within the chain, which facilitate them making relevant business or production plan, ensuring the output for their products; and (iii) enhancing the relationship among actors.

Different value chain has its own characteristics in terms of inter-link credit arrangements. Therefore, this will be described more vividly in case-studies in the following section.

Vietnam Bank for Social Policy

Another source, which is also very active, is the Vietnam Bank for Social Policies. This accounts for 28.57% of the customer in poultry value chain. Up to now, the VBSP become the leading in financing rural households in general and small and medium stakeholders of poultry value chain in particular as a well-regulated financial institution.

Almost of stakeholders who can access to the VBSP are those whether poor or have just lift up from poverty, or living in difficult areas. They often take the loan through the network of the Women Union and the Farmer Union, with the amount of maximum 10 million VND during 1 to 3 years, and with interest rate of 0.65%-0.9%/month, which is applied according to different programs and based on poverty level of households. In addition, when borrowing from this bank, it is not necessary to show any collateral because very often, mass organizations play the role as guarantors for the borrowers. The survey shows that loans offered by this bank are usually used for infrastructure, appliance and production costs.

As a non-profit bank, Vietnam Bank for Social Policy attempts to provide as much support for rural households as possible to reduce poverty in Vietnam. Therefore, beside financial products, the bank would like to satisfy their clients’ needs towards non-financial services as well. However, this has not got much success. The non-financial services of this bank will be discussed later.

Vietnam Bank for Agriculture and Rural Development

The Bank for Agriculture and Rural Development follows at the 3rd rank to become an important source of external funding for the stakeholders of the poultry value chain, after the Vietnam Bank for Social Policy when 21.43% of poultry stakeholders in the survey confirm to

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have already get loans from it. This bank has the largest operation network on the field. It can be found with thousands of branches in all provinces and at communal levels.

The loans of this bank facilitate production and trading activities for poultry stakeholders when the borrowers invest the loan in infrastructure, appliance and production cost. However, those who can access to this source are usually those who have assets, such as land (and having land own certificate, or red book in other terms), which are used as collateral to be eligible to borrow.

Mass organizations

Two main mass organizations involving in the financing of poultry value chain include the Women’s Union and the Farmer’s Union. Although the mass organizations play a very crucial role in microfinance, their roles are rather facilitator and monitor than providing financial source. The fact is that they cooperate with banks or projects and programs to facilitate its members to borrow, but their own source to give loan is limited. That is why only 8.11% of the poultry stakeholders can access to its source

Vietnam Women’s Union

The Vietnam Women’ Union operates strongly in Vietnam with its density network from central to commune levels. Due to its special function related to women, it gets much support from the local people throughout the countries. In case it is the facilitator for the banks, the interest rate is set up by the bank (for example preferential interest rate of 0.65%/month for poor people and 0.9%/month for non poor one with the Vietnam Bank for Social Policies), or normal market interest rate but without collateral requirement as loans are secured by this organization. In case it serves the projects or programs, it applies the interest rate defined by the projects (which usually range from 0.9 to 1.2%/month- flat rate). If it provides loan with its own source, the normal interest rate is 1%/month. The same applies with loan terms, loan amount and eligible condition. Nevertheless, it is undeniable that this mass organization is very important in rural areas in Vietnam.

As the voice of Vietnamese women, lending programs or projects that this mass organization is in charge of are usually in the linkage with empowerment activities like training on management skill and entrepreneurship, technical assistance or movement of good women entrepreneurship and at the same time good family women, etc.

Vietnam Farmers’ Union

Like the Vietnam Women’s Union, the Farmers’ Union has a nation- wide network, including central office of the Union and its branches at 64 provinces in Vietnam (from provincial to district and commune levels).

The Farmer’s Union has collaboration with the banks and many other projects or programs to provide credit to its farmers. In this sense, it has the same role as the Women’s Union as the intermediary between its members and the banks, or project, facilitates its members to access to credit and monitor the loan, provide brokerage service guaranteeing the repayment of its members. However, in order to avoid the overlapping of providing micro-credit of same source, like the source of the Vietnam Bank for Social Policy, to same customers, depending on the locality, the Farmers’ Union can be in charge of some village, while the Women is in charge of the others. The loan terms, amount, interest rate and eligible condition, offered by the system of the Farmer’s Union also depend on the financial providers. So similar to the Women’s Union, it is only the facilitator, or intermediary in the microfinance system between banks, projects, programs and poultry stakeholders/customers.

Representing the voice of the farmers, this institution often links itself with livelihood of the area, whether rice cultivation, husbandry, aquaculture, or forestry. So, microfinance plus offered under the control of this organization is very diversified in terms of technical issue.

Relatives, neighbors and friends

In Vietnam, the role of informal microfinance actors is undeniable. The followings are the most popular informal microfinance actors in Vietnam, particularly in rural areas:

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moneylenders, relatives and friends, rotating saving credit associations (ROSCA) and other similar service providers. Yet, the number access to this source is not so big, only 13.49%. For those involving in producing and trading of poultry, they prefer to borrow money from only relatives, neighbors and friends. No one confirm to join in ROSCA or other similar services. No one take loans from money lenders. Poultry stakeholders using this financial source explain that due to small investment, they prefer to take loan from their relatives, neighbors and friends rather than from regulated banks with complicated procedure (for them) or from money lenders with high interest rate. Furthermore, most of them borrow at the interest rate of 1% or equal to the one of the bank. Only some confirm to take loan at higher interest rate, meaning 2 to 3%/month. Nevertheless, they indicate that it is easier, faster, comfortable and unnecessary to have collateral. Some even insist that it should be better to drop money to the pocket of their relatives, neighbors and friends, rather than banks or outsiders.

Quality of microfinance supply

In terms of the quality of microfinance services, most of microfinance services are assessed to be good by poultry stakeholders (always with more than 50% of customers’ confirmation). Only 5% complains for bad services of formal financial actors. These 5% explains that the procedure to complete loan application, especially negotiation with loan officers related to loan amount and collateral requirements, takes so long. For some, it is 6 months, while for the others, it is nearly a year. Nevertheless, the “good” here still indicates customers’ demand on the improvement of service quality, which can by far reach the level of “very good”. Please see the chart below to find out the evaluation of poultry stakeholders with access to different microfinance sources:

Chart 3: Service quality of microfinance sources fo r poultry value chain in Vietnam

Service of formal financial actors

76,19%

7,94%

4,76%

11,11%

Bad

Rather good

Good

Very good

Service of semi-formal financial actors

63,64%

18,18%

18,18%

Service of informal financial actors

58,82%

23,53%

17,65%

Service of interlinked credit arrangement

52,38%

14,29%33,33%

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The service quality of these microfinance suppliers is accessed based on 5 main criteria (1) responsive to financial needs of poultry stakeholders (loan amount, loan terms, and interest rate); (2) loan procedure (to ask for loan, loan approval, loan disbursement and loan repayment); (3) collateral requirement; (4) easy to access in terms of transportation; and (5) lenders’ behavior towards customers. Then, it is seen that only financial matter is concerned here while microfinance plus is not. This is true because the microfinance plus has big difference among financial actors. Some actors are financial oriented while the other others are socially oriented, or both. Then it is unfair if this factor is taken into account.

However, most of customers (70%) prefer to borrow money from the Vietnam Bank for Social Policy at preferential interest rate, but this seems unfeasible since the Vietnam Bank for Social Policy offers only those of difficulty to access to loan at favorable interest rate.

III.1.2. Poultry stakeholders with access to microf inance products and services

According to my survey in five provinces in Vietnam, within the poultry value chain, 33.33% of hatchery, nursery, broiler, and layer farms, slaughterer, traders and retailers are familiar with interlinked credit arrangement while at the same time getting access to financial services of the above banks, or from the projects or programs but through mass organizations as indicated above, or from relatives and friends.

Meanwhile, 66.67% of small and medium scale poultry stakeholders access to microfinance services offered by formal, semi-formal and informal sources, in which more than 70% of them have borrowed 2 times and more. The rest do not take loan, not because they are excluded, but because they find it whether unnecessary, or whether so risky for their repayment after that. However, it is necessary to mention that microfinance seems easily to access to by poor households (with income of about VND 200,000/person/month; ≈ USD 10.58), those living in difficult, remote and mountainous area, because these people get much support from the government and international organizations.

The chart below presenting poultry stakeholders with access to credit of different kinds of microfinance actors:

Chart 4: Poultry stakeholders with access to microf inance services

Poultry stakeholders with access to microfinance se rvices

69,66%

40%

55,56%

50%

80%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Hatchery households

Breeders

Collectors/ Traders

Slaughterhouses

Retailers

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For explanation, the slaughterhouses are always in need of big loan, for example slaughtering equipment, buildings, trucks for transportation, or huge working capital, especially the ones that apply good slaughtering equipment to ensure food safety. However, their business is considered as not so profitable by financial actors, especially the banks. That is why among other poultry stakeholders, they has the lowest rate of access. On contrary, the less risky business of the collectors or traders compared with other activities in poultry value chain is the reason for their highest access to microfinance services (80%).

For hatchery and breeding households, the percentage of 50% to nearly 70% with access to loan shows that their business is rather well acknowledged by microfinance actors. Yet, it always get the favor from such government banks as Vietnam Bank for Social Policy and Vietnam Bank for Agriculture and Rural Development, and mass organizations, but not yet by other commercial banks (private, joint-venture, government banks…). This means that their business has not yet convinced these actors.

III.2. Microfinance products and services for poult ry value chain in Vietnam

III.2.1. Financial services

Most of poultry stakeholders confirmed that they usually borrow at the beginning of their production or business. Meanwhile only 13.1% have taken the loan during production or business activities and they often ask informal lenders for such kind of loan.

The loan amount taken by poultry stakeholders in Vietnam is not so big, usually from VND 1.5 million to VND 10 million (USD 80- USD 530): 61.7% of them has taken this small loan amount. In the situation of Vietnam, this loan amount is quite popular for credit distributed through the network of mass organizations under the projects of the government or non-government organizations. It is also common in informal lending because the lenders (friends, relatives and neighbors) can easily afford. Among borrowers doing activities related to poultry, this loan size is the most familiar with poultry breeders of small and medium scale, just having 50-300 poultry heads.

Meanwhile 21.43% has accessed to loan between VND 10 million to VND 20 million (≈ USD 530- USD 1060), which is considered as average loan size for poultry stakeholders. This is mainly confirmed by breeders of around 500 poultry heads and retailers.

Only 17.86% of them have had loan of more than VND 20 million (> USD 1060). However, rarely it is found that they take loan of VND 50 million ((≈ USD 1060) or VND 100 million ((≈ USD 5300). Those borrowing more than VND 20 million usually breeders of bigger scale having from 500 to 1000 poultry head, traders, and slaughterhouses.

In addition, most of these loans are with 1 to 3 years term (average term), only 6% of the loan is for over 3 years (long-term) and 10% is short-term loan of under 1 year. However, the survey also indicates that 61.9% of the borrowers expect to access to bigger and long-term loan of more than VND 20 million to VND 150 million.

The interest rates for poultry stakeholder are different according to financial actors, period of time, as well as their credit programs, but it can range from 0.65%/month to 0.9%/month with loan at favorable interest rate. This usually applies for poor households, according to Vietnamese standard of poverty, that means 200,000 VND/person/month (equivalent to 10.58USD), those living in difficult areas like mountainous and remote areas, or areas that seriously affected by such natural disaster as storm, flood, or by disease, or those of low income (under 2 USD/person/day). As well, this kind of favorable interest rate can be found at government banks, or programs and projects supporting poultry stakeholders. However, it can range from 1.35%/month to 1.77%/month as normal interest rate at commercial banks. For informal lending, which involve the money lenders, relatives, or friends and interlinked credit arrangements among poultry stakeholders, this interest rate can increase to 2-3%/month. Flat interest rate is frequently applied.

Credit with formal and semi-formal financial instit utions

Some of common financial products according to types of micro-financial providers and sorts of interest rate are presented in the following tables:

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Table 6: Loans for poultry stakeholders offered by formal and semi-formal microfinance actors Credit offered by formal financial institutions Credit offered by semi-formal financial institution s Items

Product 1 (Preferential interest rate: 0.65% -

0.9%/month)*

Product 2 (1.35- 1.77%/month

of interest rate)*

Product 1 (1%/month of interest rate)*

Product 2 (0.65%/month of interest

rate)*

Product 3 (0.9-1.2%/month of

interest rate)* Lenders Vietnam Bank for Social Policy - Vietnam Bank for

Agriculture and Rural Development - Other commercial banks

Women Union (with its own budget)

Poultry projects/ programs but through the network of local Women Union or a professional association

Projects/ program but through technical agencies

Targeted clients

- Poor or low income households throughout Vietnam

- Entrepreneurs - Extremely difficult households throughout Vietnam

- Poultry breeders - Low income households (with income under 2 USD/day)

Lending purpose

Business production, and life improvement Business production, and life improvement

Develop livelihood activities

Poultry production Develop livelihood activities

Lending condition

- Residents at location of the lender - In the list of poor households - Have business plan - Without collateral and borrowing fee ( but

must be a member of savings and credit group, and

selected by the group and named in the list propose d to get loan with certification of local people’s commi ttee .)

- Residents at location of the lender - Have business plan - Collateral required (red-book or other fixed assets)

- Residents at location of the lender - Member of the Women Union of local commune, district and town

- Being member of the Women Union/ professional association at project area - Willing to deal with chicken production - Take part in the projects/ programs

- Residents at location of the project/programs - Take part in the activities of the projects/ programs

Lending technique

- Group lending (through mass organizations, Women Union, Farmer Union or Youth Union, depending on different situation of communes or villages)

- Individual - Individual - Individual (with guarantee of the Women Union/professional association)

- in group of interest group

Loan terms - 3 years - 3 years - 1 years - depending on production cycle

- 1 years

Loan size Maximum loan amount: VND 30 million/ household (~ USD 1622)

Maximum loan amount: VND 30 million/ household (~ USD 1622)

1-3 million/ household (Depend on

the budget of Women

Union’s branches)

VND 1.5- 7 million/ household

VND 500,00- 10 million

Payment method

Monthly or quarterly payment Monthly payment Pay interest and principal at the end of the loan term

Pay interest and principal at the end of the batch

Weekly pay interest and pay principal at the end of the loan term

Note: * Flat rate

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In short, the loans offered to poultry stakeholders from formal and semi-formal are not so big. This mainly serves poultry breeders of small and medium scales, but not the collectors and slaughterhouses. During my survey, almost all owners of slaughterhouses commented about difficult access to microfinance services, as well as their demand on higher amount of loan. Let’s see some comments of the owners of slaughterhouse for their demand on credit.

Meanwhile, for the poultry breeders, some (60%) would like to access to bigger loan, but some (30%) dare not because even themselves, they find their business so risky that hardly can they make the repayment after that. Nevertheless, it is necessary to mention that the poor breeders, who have monthly income of less than 200,000 VND, equivalent to 10.75 USD, get much credit support from not only government, but also international and local projects and programs while the pro-poor do not.

Credit demand of slaughterhouse owners

1. Mr. Phan Van Tuan- manager of slaughterhouse, Chairman of Lua Vang cooperative in Bac Son commune, Yen Dung district, Bac Giang province

We have invested much on building my slaughterhouse while the STOP Avian Influenza assists me with costly slaughtering equipments as subsidy. Now we would like to ask for loan to buy a special truck to transport chicken to the retailers in urban markets that can ensure fresh products. However, this is not an easy task. While we would like to borrow 300 million VND, the Vietnam Bank for Agriculture and Rural Development can offer us only 100 million VND although we have shown them collateral required. How should we do when we have only one piece of land for collateral? In case taking the loan of this bank, we can not access to others. This takes us already half of the year to follow, but still in vain. Now we would like to become members of the Vietnamese Cooperative Alliance, so that we can access to their financial source. Hope that this will facilitate us to ask for such big loan.

2. Mrs. Nguyen Thi Tam- chicken collectors and owner of slaughterhouse in Phuong Tien commune, Dinh Hoa district, Thai Nguyen province

At this moment, I have access to the loan of 100 million VND for the purpose of building slaughterhouse and running business as collecting, slaughtering and trading poultry for three years at the interest of 1.2%/month from the Vietnam Bank for Agriculture and Rural Development. This is quite a big amount for me while the startup business is still in difficulty. I hope this loan could be longer. Now I just would like to pay back this loan first before asking for new loan. Hope that I can access to bigger loan for working capital later and it would be great if the Vietnam Bank for Social Policy could offer me loan at favorable interest rate.

3. Mr. Mai Xuan Tuong- manager of slaughterhouse, Chairman of Huong Que cooperative in Phu Giao district, Binh Duong province

We have just set up a slaughterhouse to serve broilers of pure Tau Vang breed in the district and province. Of course we need finance source to work now. However, we would like to say no with loan offered at this moment for a simple reason, our business has not yet been profitable enough to make repayment. Therefore, we try to manage ourselves.

4. Mr. Tran Quoc Kiet- manager of slaughterhouse, Chairman of Go Cong Cooperative, Go Cong town, Tien Giang province

To ask for loan at financial institutions, the most important is the collateral. With the same collateral, different financial institutions may offer different amounts of loan. However, for poultry breeding and slaughtering activities, commercial banks hesitate to give loan because they find it risky, especially at this moment. As we can see, the avian influenza, climate change that affects breeding activities (so hot and so cold), food safety, etc. Hence, last year, we only asked for loan with the purpose of selling animal feed. This year, we intend to ask for loan to buy truck to actively manage chicken transportation and distribution, we hope we can realize it soon.

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Together with demand on bigger loan is the desire of prolonging loan terms to 3 years and more. The poultry stakeholders surveyed claimed that they need time to stabilize their business and scale up activities.

In addition, most of poultry stakeholders expect that they can access to loan at favorable interest rate (below 1.2%/month), but this is impossible because each microfinance actors must offer competitive interest, which covers their operational cost and make profit. Especially in the case poultry breeding and trading activities are risky, scattered in all provinces in Vietnam, even remote and mountainous area, and of small and medium scale, the cost to offer them loan is certainly higher.

For 90% of poultry stakeholders in selected surveyed province, there is a high demand for emergency loan and loan insurance in case they suffer from natural disaster and serious poultry disease, but the loan procedure must be obviously simplified at maximum as the lender can to address their urgent need. Some really want loans lending to interest group or group of poultry stakeholders so that the lenders understand more their business activities, their need, and might give them non-financial services related to their common business (70% of confirmation).

Moreover, as can be seen in the chart below, all borrowers would like financial actors to simplify their lending procedures and shorten screening and approval processed. Some claimed that due to long processing loan application, it takes them much more time, money, and effort. More crucially, it can not satisfy their financial need and business or production cycle. The need of rapid loan disbursement is lower since the borrowers stated that once their loan applications had been approved, normally the loans were disbursed to them rather quickly.

Chart 5: Demand of borrowers towards financial serv ices of formal and semi-formal financial actors in poultry value chain

0%

20%

40%

60%

80%

100%

Simplify lending procedure &shortern screening and approval

process

Disburse loan more rapidly

Flexible in collateralCreate close relationship with

borrowers

Better understand businessactivities and demands of

borrowers

Credit with informal financial actors

For credit offered by informal financial actors, relatives, friends and neighbors often charge the borrowers at 0-2% of interest rate while money lenders apply the one of 2-4%/month. It should be noted that since the poultry related business in rural area in Vietnam at small scale is not so profitable, among those taking loan from informal sources, only 17.65% of them get access to financial service of moneylenders. However, they just borrow for short period (3 months- 1 year) but with rather big amount (VND 20- 30 million). These people explained that their financial demand was so urgent and rather big that their friends or relatives can not afford at the time they needed. Whereas the rest preferred to borrow money from their relatives, neighbors or friends, and reasoned that they would rather make profit for these people than for the bank.

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Table 7: Credit offered by informal financial actor s Credit offered by formal financial institutions Items

Product 1 (Interest rate: 0-2%/month)

Product 2 (Interest rate 2- 3%/month)

Lenders - Relatives, friends, neighbors - Money lenders Targeted clients - Entrepreneurs - Entrepreneurs Lending purpose Business production, and life

improvement Business production, and life improvement

Lending condition - Have very close relationship with the lenders

-

Lending technique

- Individual - Individual

Loan terms - flexible (according to demand of the borrowers)

- flexible (according to demand of the borrowers)

Loan size <VND 10 million > VND 10 million Payment method Principal is paid at the end of loan term Monthly or quarterly payment Characteristic Quick, friendly, unprofitable support - Easy, friendly, responsive to urgent

need, without collateral

Inter-linked credit arrangement

The inter-linked credit arrangement is very diversified according to relationship between different stakeholders in the poultry value chain. Therefore, the following section clarifies the inter-linked arrangement within the chain:

- Inter-linked credit arrangement between feed producers and feed traders (intermediary who sell feed as retailer at locality): the feed trader is allowed to buy feed on credit, however he has to pay 50% of the total value of feed purchased, and the rest will be paid at the end of the month without interest rate. This is usually applied at feed agencies. In case buying at animal feed companies, the buyers have to pay immediately.

- Inter-linked credit arrangement between feed retailers and poultry breeders: the breeders can buy the feed on credit, but a certain interest will be charged (ranging from 1.5% to 4%/month). For example, one package of 25 kg of chicken feed (mixed or concentrated) cost 250,000 VND to 350,000 VND. In case the broiler or layer buys these feed on credit, they are supposed to pay the principal and an interest of 10,000 VND/package after 1 month of purchasing.

- Inter-linked credit arrangement between chick supplier and broiler: the broiler can buy chicks for breeding on credit. There are two kinds of chicks here depending on the experience and skill of the broiler. If a broiler is skillful and experience, he can purchase chicks of 1 day old to breed from hatchery farm. Otherwise, he can buy chicks of 21-35 days old from a nursery farm that specializes in nursering chicks from 1 day old because this is the most difficult period to take care of chicks. Some find it so risky since they can lose so many chicks because of disease or carelessness. Take the chick of 21 days, Ri or Mia breed as an example; it is frequently sold at the price of 13,000- 14,000 VND/chick in case of paying immediately. Nevertheless, in case of purchasing on credit and making payment after 1 month, the price will be 15,000 VND/chick.

+ Inter-linked credit arrangement between slaughterers, who are also collectors and traders, and poultry breeders: the slaughterer can take live-weigh poultry for slaughtering and trading and pay later. The time for schedule payment can range from 1 week in case they sell to individual customers, or 1 month in case they supply hotels, shops and restaurants.

+ Inter-linked credit arrangement between poultry collectors/traders and poultry retailers (hotels, restaurant or chicken shops): these retailers can buy carcass and eggs from the traders on credit and make payment at the end of the month without any interest rate. In case of late payment, an interest rate of 1-1.5%/month is applied.

This kind of financing is embedded in economic transaction among poultry stakeholders of different value chain stakeholders, therefore, the transaction cost is quite low.

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III.2.2. Non- financial services

According to my survey, rarely the banks offer non-financial services. In case they do, like the case of the Vietnam Bank for Social Policy, they do it with the support of the Women Union, for example provide training on poultry breeding technique, or solution to cope with avian influenza. However, these activities are not frequent or follow the course of loan. Therefore, 80% of poultry stakeholders taking part in the survey indicate that they do not get any non-financial products in line with the loan taken from formal financial source and 55% of those borrowing from semi-formal financial source indicate “yes, but seldom”. The only organizations that do it well are technical agencies participating in programs or projects that provide credit support for poultry stakeholders. Nevertheless, all kinds of microfinance plus are listed below while the concrete service is discussed later on in case study.

Table 8: Microfinance plus in poultry value chain

Technical assistance

(Good animal husbandry practices, good animal slaughtering practices, internal and external control, etc.)

Empowerment activities

(Leadership, management skills, communication skills, women movements, youth movements etc)

Marketing support

(Qualified input markets, targeted market for output, marketing strategies)

Risk support

(Risk identification and proposed solutions to address; consultation towards good infrastructure and equipment; good breeding, slaughtering, transporting and trading technique; set up self-help group and risk fund, etc.)

Health care support

(Health care for poultry: design of good breeding areas, density of poultry, animal welfare, the use of feed, water, medicine

Health care for human: safe input, bio-security breeding and slaughtering technique, safe transportation of poultry products, regular inspection, food safety, disease control…)

Entrepreneurship

(How to make business plan, and run a business, management skill, communication skill, marketing skill, internal and external control, creating partnership…)

Taking into account the importance of non-financial services in line with credit service, borrowers as poultry stakeholders in Vietnam show theirs expression towards their needs of microfinance plus, nearly all of them (90%) confirmed that it would be great if they could have risk support from financial actors, for example training on risk for poultry commodity and solutions to ensure repayment, loan reschedule in case of serious disease or natural disaster, lowering interest rate in case of production and business damage, etc. Moreover, they showed their strong will to buy risk insurance for their poultry related activities.

For market support, half of them indicated that they should be responsible for finding market and developing marketing strategies for themselves, but this rate should be much more higher, especially for quality poultry value chains, or special poultry value chains targeting special customers like foreigners, Muslim people, or typical and special poultry products such as black-bone chicken, Tre chicken, etc.

Technical assistance is always in high demand to ensure the success in their production and business, especially for small and medium scale poultry stakeholders. The borrowers taking part in my survey show that technical assistance is a big deal that they would always like to get, particularly from financial actors because it helps them catch up with the most up to date techniques to satisfy the demand of the market, as the result ensure the payment for the loan taken. Some of the most demanded non-financial services are presented in the chart below.

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Chart 6: Demand of borrowers towards non-financial services of financial actors in poultry value chain

0%

20%

40%

60%

80%

100%Technical assistance

Management skills

Market support

Risk support

III.3. Methodology providing microfinance services

Lending to poultry stakeholders in Vietnam is taken in two ways, either individually (80.95% of borrowers’ confirmation) or in group (53.19% of borrowers have taken loans in group). It is seen that some can take both individual and group loans at the same time, from different financial suppliers.

While individual lending is characterized into three kinds according to types of collaterals, group lending consists of two methods: solidarity group lending and village banking. Both of the two share the same feature of joint liability, but they still have difference. All of these are about to be discussed in the sub-sections.

III.3.1. Group lending

Model of group lending to small and medium poultry stakeholders in Vietnam

In the case of group lending for poultry stakeholders in Vietnam two kinds of group lending are employed, one is solidarity group lending, which is familiar with microfinance institutions as local NGOs, and the other is village group lending, which is usually applied by banks through such mass organization as the Women Union of Vietnam.

With solidarity group lending in poultry value chain, each members can access to a loan provided by micro financial lenders in condition that he/she must belong to a group and the group members do not have family relationship. Normally the borrowers should be divided into two groups: high risk and safe ones. Of course, from the side of the lenders, they cannot define which borrower belongs to which group but the borrowers do. The reason is that they know each other quite well because they live in the same region, or have contact with each other. Hence, the one with similar situation always gather in the same group. In many cases, those with high probability of success are asked to form groups by themselves. By this way, the risk of having to reimburse for defaulter decrease while the rate of repayment increase. In other sense, it is in the interest of the borrowers to have their own selection of group members with a high probability of success for the very understandable reason that every default will increase their effective cost of borrowing. With the model of solidarity group lending in poultry value chain in Vietnam, the number of the group can range from 5 to 9, and the loan size is quite small, from VND 500,000 to VND 10 million.

Meanwhile, the village group lending is very familiar with the mass organizations like the Women Union since they formulate the group, whose members live in the same village or commune, and the number of members is bigger than the solidarity group lending. It can range

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from 20 to 60 people. Due to the fact that they live in the same area, many of them can be relatives. Furthermore, they do not choose members to form the group, so it includes both risky and safe one. However, all of them are still jointly liable with the loan offered, and they reduce the risk by offering those who are judged to be less able to reimburse with small loan while the other with bigger ones.

Through the field study with poultry stakeholders in some provinces in Vietnam, the village lending model of the Vietnam Bank for Social Policy and the solidarity group lending of Binh Minh microfinance institution- a local NGO- can be a good illustration.

Firstly, the credit products to poultry stakeholders are described in the following table:

Table 9: Application of group lending model in the Vietnam Bank for Social Policy

Financial actors

Vietnam Bank for Social Policy Binh Minh MFI

Targeted clients

- Poor households throughout Vietnam (apply Vietnamese poverty standard: VND 200,000/person/month)

- Low-income households (under 2USD/person/day) in Dong Anh district- Hanoi province, Yen Phong district- Bac Ninh province, Dong Hoi city- Quang Binh province, Tien Hai district- Thai Binh province

Lending purpose

Business production, and life improvement Business production, and life improvement

Lending condition

- Being permanent residents or having registered long-term residence at location of the lender

- Being in the list of poor households of local commune, district and town

- Feasible projects or business/production plans certified by the People’s Committee of the local commune

- Collateral not required and exempted from borrowing fee (but must be a member of savings and credit group, must be selected by the group and named in the list proposed to get loan with certification of local people’s committee)

- The owner of the households or the authorized person to deal with transaction, to sign loan agreement and to make repayment to the bank is the person representing the family, having full civil capacity.

- Each household can have more than 1 loan, according to different lending programs of the bank. (This is shown in the annex)

- Being from 18-65 years old, having legal residence at the locality mentioned above

- Have low income: about 2 USD/person/day

- Feasible projects or business/production plans

- Collateral not required

- Master of a household is the representative to take responsibility for conducting transaction in borrowing and for principal and interest repayment.

- Each household is allowed to have only one loan

Lending technique

- Group lending indirect via mass organizations (village banking) (5-50 members)

- Solidarity group lending (5-9 members)

Loan terms - 3 years - 1 year

Lending interest rate

- 7.8%/year (for loans taken before 1/5/2009)

- 3.8%/year (for loans taken from 1/5/2009 to 31/12/2011 according to Decision No 579/QD-TTg dated May 6th 2009 of the Prime Minister on supporting interest rates policy)

- 10.8- 14.4%/year

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Loan size Maximum loan amount: VND 30 million/ household (~ USD 1622)9

- VND 500,000- VND 10 million/household

Compulsory saving in line with loan

VND 100,000/year (but can be flexible in different area)

VND 20,000/month

Repayment - Quarterly repayment - Quarterly repayment

Source: Vietnam Bank for Social Policy, Ms. DINH Thi Anh Tuyet- Director of Binh Minh MFI and Mr. NGUYEN Thanh Ha- Operational Director of Binh Minh MFI

Secondly, going into detail to understand the group lending model applied, this comes up with the comparison of procedure for group to get a loan from the bank and MFI as the followings:

Table 10: Comparison of procedure of group lending offered by Vietnam Bank for Social Policy and Binh Minh MFI

Vill

age

bank

ing

lend

ing

Procedure for group to get a loan from the Vietnam Bank for Social Policy

(From the side of the borrower)

Sol

idar

ity

grou

p le

ndin

g Procedure for group to get a

loan from Binh Minh MFI

(From the side of the borrower)

Step 1: Create group Mass organizations help to set up group of 5-50 people in the village Step 2: Select a group leader Once the group is created, all the members will involve in select their group leader. Very usually the one who show his/her activeness is chosen as group leader. The leader will represent the whole group to ask for loan from the bank. Step 3: Preparing credit application form In this step, the leader of mass organization (usually Women Union and Farmer Union) is in charge of taking application forms from the Vietnam Bank for Social Policy branch at the district. He then, together with the group, fills in this application form, making business plan and submits it to the commune to get approval signature and stamp of the head of the commune as well as the chairman of the Poverty Reduction Board, which consists of the head of the commune as the superior official and the heads of the respective mass organization at commune level, and in most of the cases the head of the commune is also the chairman of the board. This plays the role as a screening process since the signature also confirms that the applicants belong to the target group. The head of the commune may decide to exclude an individual household from the credit application if he knows there is a disagreement between married couples since it relates to the credit application, or in cases of drug abuse of the applicant, or so-called social evil in the households. Step 4: Examining and approving loan application The mass organization is the one who submit the credit application form to the bank and the whole group waits for final decision. Normally credit officer of the bank will go to

Step 1: Create group First and foremost, a group of five to nine people is set up using assortative matching Step 2: Select a group leader Once the group is created, all the members will involve in select their group leader. Very usually the one who started the group formation will become the leader. Step 3: Preparing credit application form In this step, the group leader is in charge of taking application forms from the credit officer. He then, organize group meeting to diffuse necessary information to group members, and together fill in formula asking for loan with them, making feasible business plan, then represent them make an lending contract with the MFI. Step 4: Examining and approving loan application The group leader is the one who submit the credit application form to the MFI.

9 1USD~ 18500 VND

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commune to screen and examine their business plan and situation. The approval procedure of the application at the bank are the following: (i) the credit officer signs the credit application which is synonymous to his approval and (ii) the head of the bank cosigns the contract. Normally, the head of the bank follows the decision of the credit officer. This usually takes a week. Step 5: Approval of bank and local authority Once the banks decide to give loan to the group, loan booklets is given to mass organization, which summarize loan terms and indicate interest and principal payment, for his entire members. At this time, the leader of mass organization once again goes back to the commune to get another recognized stamp and signature of the head of commune and of the chairman of the Poverty Reduction Board. This helps the local authority and mass organization monitor the loan after that. Step 6: Submit loan booklets to the bank The mass organization now goes to submit these booklets to the bank. Then all the members of the group wait for the disbursement of the loans. Frequently, credit officer disburses the loans to the credit group members during a meeting in the commune or village.

The credit officer will go to each borrower’s household to screen and examine, after that indicate his decision of approval or not, then the manager of MFI at that locality screens again to give final decision. This procedure often last 7 days. Step 5: Get loan contract Once the MFI decides to give loan to the group, the leader now go to make the loan contract, which summarize loan terms and indicate interest and principal payment, for his entire members. Then all the members of the group wait for the disbursement of the loans. Frequently, credit officer disburses the loans to the credit group members during a meeting in that area.

Source: Vietnam Bank for Social Policy, Ms. DINH Thi Anh Tuyet- Director of Binh Minh MFI and Mr. NGUYEN Thanh Ha- Operational Director of Binh Minh MFI

Of course each lending procedure above has its own advantage, what should be mentioned here is that in order to access to credit of this bank with favorable interest rate, it takes entrepreneurs from 1 to 2 weeks to follow the procedure of the bank, in which most step involves the participation of the local authority and there is inequality in loan screening and approval. So, whether credit goes to true clients or not? This should be discussed in another study. In addition, during the participation rapid appraisal taken in Hung Yen province, many poultry stakeholders commented that this loan procedure can take them much longer, even 3 months. Meanwhile, the lending procedure of the non-government organization Binh Minh seems shorter and much more simplified.

Why group lending to small and medium scale poultry stakeholders in Vietnam?

There are many reasons why the model of group lending is preferred by financial institutions to serve small and medium scale poultry stakeholders in Vietnam. The first is flexible collateral since it employs group of borrowers as a sort of guarantee for lenders. This model is quite profitable for the small-scale poultry stakeholders who have been kicked off from micro-credit system as single borrowers due to not having collateral. With group lending, it opens them a chance to access to credit and improves their bargaining position.

The second is its possibility in solving information asymmetries when taking advantage of information provided by fellow members themselves. For joint liability group lending, it can enhance the capacity of the lenders in monitoring and screening the borrowers and risky projects by entrusting these tasks to jointly liable borrowers of the group. With the model of village group lending, although the members do not formulate their group, they still know quite well each other gradually due to the fact that they proximities are quite close: within the village.

The third is the dealing with moral hazard. The lenders use the ability of borrowers to monitor each other’s investment behavior during the course of the loan. Moreover, they also use the group pressure to threaten borrowers in group to make regular repayment on time and remind them of their responsibility in completing their loan reimbursement as well as facilitating fellow members in accessing future loan. Group pressure also works well in avoiding the misuse of borrowed capital. From the experience of many micro finance institutions, group lending is interesting for lenders since it has its own checks and balances that

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can go beyond the assessment of credit officers, which contribute much to reduce the possibility of figure manipulation.

Fourthly, by giving group loan, the social ties of borrowers can be enhanced. They are now not only responsible for themselves, but also for their fellow members. Accordingly, whatever they decide to do related to the loan offered in group, they need to care for its impact on their fellow members. This normally lead them do act in the right way to minimize bad effect on others and at the same time maximize their profit. This helps small and medium poultry stakeholder increase collective actions, integrated in the community and become more responsible. In addition, this group is regarded as a channel for them to exchange information and experience, and of course assist each other in case needed.

Fifthly, the micro-credit in general and those provided in group lending in particular has a very effective impact when it contribute to stimulate micro-entrepreneurship of poultry stakeholders, especially the women. In order to use the loan effectively, the borrowers need to calculate and allocate it suitably and effectively. For example, they may empower their good husbandry practice in poultry breeding for carcass or eggs, or good slaughtering practice for the slaughterers, or improve trading skills like marketing and client caring, or increase their partnership. Last but not least, group lending is employed for better living standard since its expectation is that the micro-entrepreneurs can be successful with their business, improve their livelihood and living condition.

In addition, it is indispensable to mention that lending in group can reduce transaction cost for the lenders and help them to increase their outreach throughout the country, especially difficult and remote area. Group lending could also make much contribution to the whole society, particularly rural communities, since this kind of credit group has a crucial role in stimulating micro projects in rural area in general, and those related to poultry in particular, mobilizing rural savings, which is assessed to be useful for creating investments, and leading to the acceleration of rural development.

Last but not least, it allows stakeholders of the chain to transfer precious know- how to others for the purpose of upgrading the value chain and generating jobs and income. In the mean time, it brings much social value to the whole society when creating social ties, information exchange, mutual aids, leadership and entrepreneurship to all members of the group.

However, in this kind of lending, the role of group leader is quite crucial. If he does not do his job well, he can contribute to the problem of moral hazard. To give explanation for this, at that time, due to dissatisfaction, group members will decide to quit the group, or default, leaving those who stay to carry the liabilities. In case he does his good job, but after that decide to quit (in case of solidarity group), or not nominated (in case of village group), the group may be severely impaired and weaken. Alternatively, in many case we will find that powerful group leader may misuse his position and overwhelm the group. Consequently, the lenders are those who have to suffer most.

Another disadvantage is that group screening is often not effective in avoiding over-indebtedness. Given that over-indebtedness is such an important issue in microfinance, and group screening and field agent assessment often don't work, what should be practical ways for the lenders in general and microfinance institutions in particular to ensure capacity of the borrower to repay their loans. This is really a challenge for lenders, especially in poultry value chain in Vietnam, where overlapping credit programs can be found, particularly in poor regions.

In short, like other lending technique, group lending holds both good side and bad side. Therefore, each microfinance institutions should apply it well with modification so that it can serve their local clients better and at the same time create better benefit for the institutions. However, 56.35% of the small and medium scale poultry stakeholders prefer group loan, because they find it more advantageous, for example access to credit without collateral, diversify financial sources in addition to loans offered by commercial banks, benefit from common activities of the group, like experience sharing and assistance, or make repayment easier.

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III.3.2. Individual lending

Model of individual lending to small and medium pou ltry stakeholders in Vietnam

Within the framework of the poultry value chain, the individual lending consists of three main kinds according to types of collateral.

The first one is that the small and medium poultry stakeholders borrow individually and directly from the financial actors if they have collateral like red book- book certifying the ownership of land use. Hence, a piece of land is always required and preferable to access to credit, especially with commercial banks. However, to get this red book is not easy since land policy in Vietnam is not so clear and the procedure to get it is quite complicated. This becomes constraint for many stakeholders who would like to access to loan with formal financial institutions.

The second is indirect borrowing from mass organizations. That means the Women Union, Farmer Union, Veteran Union, etc. play the role as guarantor for the borrowers to access to credit. Financial source of this kind of lending usually come from national or international programs or projects. In this case, mass organizations help financial actors manage and follow-up loan. In case of default, they are responsible to make payment. However, my survey showed that rarely this happened since the leaders of mass organizations confirmed that the borrowers always managed to make their payment on time.

In all cases, business plan is always required. Poultry stakeholders must submit loan application forms, together with their feasible business plan to ask for loan. Without this, no application is taken into account. For some cases that the borrowers do not know how to make business plan, self help group or mass organization can help them do it.

The last one is individual lending to poultry stakeholders regardless collateral. This is often applied by informal financial actors, like relatives, neighbors or friends. In fact, most of informal lenders give loan without any collateral because of social ties and close relationship. The lending and borrowing is based on mutual trust.

Diagram 5: Individual lending to small and medium p oultry stakeholders in Vietnam

The survey of micro-financing small and medium scale poultry stakeholders in Vietnam shows that, among those borrowing individually, 30.88% of them borrow from banks and use their red book (land use certification) as collateral. On the other hand, 44.12% of these borrowers profit from brokerage lending model to access to individual loans. That means thanks to the guarantee of mass organizations, like the Women Union, Farmer Union, Veteran Union, etc. The rest is borrowing from relatives, friends, neighbors. In fact, the types of collateral are no so diversified: red book (representing fixed assets), guarantee, or nothing. Therefore, as can be seen in the chart representing demand of borrowers towards financial services, many show their expectation towards the diversification, or flexibility in the use of collaterals so that they can be opened with more chance to access to credit services.

Why individual lending to small and medium poultry stakeholders in Vietnam?

Approximately 40% of poultry stakeholders surveyed said that they prefer individual loan because of the following reasons:

Individual lending

With collateral as red book certifying the ownership of land use

With guarantors (Usually mass organizations)

Regardless collateral

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(i) Faster in making loan application: With group loan, the application for loan depends on the process of the whole group, but with individual loan, the borrowers can manage their time and they believe that it takes them less time for this step.

(ii) Bigger loan amount: This is true in borrowing from regulated microfinance institutions like banks or cooperatives. However, in terms of borrowing thanks to the support of mass organizations, the individual loan is still small. This is shown in the survey when it is found that individual loan from commercial banks can range from VND 20 million to 100 million while the one from mass organization is within the limit of under VND 20 million. The borrowers think that their financial demand can be much more satisfied with individual loan.

(iii) Easier to manage repayment: Individual loan allows the borrowers to manage themselves to make repayment, not necessary to take part in group meetings, which is time and effort costly for them as well as not necessary to pay for any other defaulters.

(iv) Motivate independence and privacy: The independence and privacy here include different stages, from loan application, processing, approval, monitoring and repayment. This means that poultry stakeholders do not want anyone knowing about their financial status, especially credit activities; they feel more independent and safer to conduct their production and business activities without any interference as well as less burden in case of default since their privacy is protected against social pressure of the place where they live.

In addition, individual loans for poultry stakeholders are encouraged to integrate them in the formal credit market. In fact, there is a huge potential for financial actors to extend their credit market with individual loans, satisfying the demand of small and medium scale poultry stakeholders in Vietnam since the supply is less than the demand. That is why bank establishment appear as fast as mushroom after the rain in Vietnam with different types, whether private banks, or joint-stock banks, but in the deltas rather than highland or mountainous areas.

From the side of financial actors, they would like to increase and strengthen their loan portfolio in terms of quantity and quality, so, individual loan is the choice. Therefore, it is seen that many well-regulated financial institutions in Vietnam now try to extend their branches in every corners all over the countries while applying individual lending method to serve their clients better, diversify their client portfolio and make more profit. Poultry stakeholders are not their exception because poultry commodity plays an important role in rural economy, but maybe because of some temporary reasons, their access to credit is limited, for instance, serious poultry disease like avian influenza, unprofessional breeding practice, low education level, etc.; or because the managing and following up individual loans is so costly for financial actors, especially for the one of small amount and particularly in remote and mountainous areas.

However, the biggest constraint of individual lending for small and medium scale poultry stakeholders is the collateral requirement. Many borrowers have blamed that without a piece of land, it has been impossible for them to access to individual loan offered by well-regulated microfinance institutions for the purpose of conducting their business. In addition, it is necessary to mention that individual loan need “close” relationship with credit officers. The “close” here really works well in case asking for big loan, because there is no actual standard to fix the price of land in Vietnam.

III.4. Microfinance and the link with poultry value chain

Each microfinance actors has their own strategy to serve its customers. It is found that within the poultry value chain, the Vietnam Bank for Social Policy and mass organizations are much concerned with small scale and vulnerable stakeholders (living in difficult condition), especially poultry breeders (hatchery, nursery, broiler and layer households) when providing them with favorable interest rate. Their small loan ( VND 10- 30 million, but most frequently VND10 million) with group lending model open the chance of credit access to these stakeholders, who are usually kicked off from individual loan with commercial banks or regulated microfinance institutions. This bank usually defines production activities to finance for priority in different locations, in collaboration with local authorities and mass organizations. This helps ensure their stable production of a particular product first, and then increase their products to meet the demand of the customer gradually to develop poultry production later. By this way, the small producers can not only upgrade their products, but also their link with other stakeholders of the

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chain like the collectors and traders with their stable production and qualified products, as well as move to better value chain with more quality products and more specialized and professional operation.

Meanwhile, the Vietnam Bank for Agriculture and Rural Development prefers the segment of medium and large scale producers and traders, who would like bigger loan (> VND 30 million) and can afford to access individual loan since they are financially oriented. The link between these stakeholders and the bank is continuously maintained and improved to deepen financial services for different financial needs in the value chain of medium and big scales. With this kind of loan, many stakeholders become the leader of the chain (like the case of the slaughterhouse of Mrs. Nguyen Thi Tam in Dinh Hoa district- Thai Nguyen province, or many food processing companies throughout Vietnam), who then embed technical assistance, training and finance into the marketing services they provided for other stakeholders of the chain to smooth product flow.

However, target clients of the national and international projects and programs are usually small and medium poultry stakeholders, since they makes up from 80 to 90% of poultry production in Vietnam. Hence, development policies and intervention usually focus on this group. Financial products of these actors are usually timely and flexible, satisfying the need of seasonal working capital of the stakeholders because they understand the realities of poultry value chain that they intervene best, compared with other formal or semi-formal financial actors. Together with offering poultry stakeholders with financial products, these microfinance institutions pay much attention to non-financial services, including marketing, technical assistance, entrepreneurship, partnership, leadership, risk support, and empowerment activities so that not only the products are upgraded but also the relationship among stakeholders and the operation of the whole value chain.

With the interlinked credit arrangement, the product flow and strong relationship between chain actors is in fact the carrier to provide financial services to different stakeholders of the chain, regardless their business scale. This kind of finance is embedded in economic transaction between actors of the chain. In this case, both financial service providers and borrowers have deep understanding of the realities and constraints of the chain and business activities, which can then mitigate risk, associated with the loans, and reduce transaction cost. The interlinked credit arrangement really helps sustain a particular value chain with collective actions; improve bargaining position of the chain as a whole with qualified products and collective label and trademark; better knowledge, skills, experience and technologies of different actors of poultry value chain.

For informal lenders as relatives, friends, and neighbors, although loan amount that they provide for poultry stakeholders is not big (< VND 10 million), it responses urgent need of the borrowers. In many cases, this group of lenders not merely provides financial support; it includes non-financial ones in kinds of experience and information sharing, informal training and advice. To some extend, it contributes to improve the chain.

In brief, market segmentation allows microfinance actors in Vietnam better serve their clients and improves poultry stakeholders as a whole. With particular credits, lending methods, and non-financial supports, micro-financing obviously help develop poultry value chain in Vietnam.

III.5. Case study

III.5.1. Presentation of ATK Dinh Hoa chicken and e gg value chain- Phuong Tien commune, Dinh Hoa district, Thai Nguyen province

Thai Nguyen is a mountainous and midland province, situated in the north eastern of Vietnam. It is the economic and political center of the region, the socio-economic link between midland, mountainous area and Northern delta. It has the borders with Bac Kan province to the north, Vinh Phuc and Tuyen Quang provinces to the West, Lang Son and Bac Giang provinces to the East and Hanoi to the South. It is about 80km far from Hanoi capital. It includes Thai Nguyen city, Song Cong town, and 7 districts: Dai Tu, Dong Hy, Pho Yen, Phu Binh, Phu Luong, Vo Nhai, and Dinh Hoa.

Among these places, Dinh Hoa is a poor district, which is considered as one of the poorest district in Vietnam and where locates 80% of ethnic people, mostly Tay people, living with

52

low income of under USD2/day. In this district, forestry, rice and tea cultivation, husbandry and working as wage labor are their main livelihood activities.

For years, the inhabitants in Phuong Tien commune have been familiar with poultry breeding, some were medium scale (with 50-200 poultry heads), but most of them were small scale (under 50 poultry heads). Ri chicken is the main poultry products since this commune is famous for this special chicken of the mountainous area. This is the local breed with low productivity and mainly raised in traditional manner: back yard or garden raising without fence, the chickens scavenge in the garden of the owners or even in neighboring areas and are fed with by-products of the local’s agricultural activities like maize and rice.

Recently, the people here start to raise other kinds of chicken like Mia, or higher breed ones but hardly can trace back the product origin. Their production has been quite scattered and gone up and down because of difficulty in output market.

The STOP Avian Influenza project came to this place in 2008 for the purpose of improving their livelihood with better breeding and slaughtering practice, higher breed originated from the local Ri breed or crossed bred Mia, stable production, and help them control avian influenza, the biggest risk for them at that moment. The chicken stakeholders (breeders, slaughters, traders, collectors) were then gathered in interest group.

At the beginning, there were nine households in Dinh Hoa district, Thai Nguyen province, in which 8 households were broilers whereas one household was nursery. However, at this moment, the number of project participants has sharply increased when the total households reach the number of 21, in which 1 is nursery, 1 is layer farm, and the rest are broilers.

Nevertheless, it should be noted that these are the ones who have a least 100 chickens, number of chicken eligible to be permitted to the interest group. In reality, the number increases to 34 (including broilers and layers), however, it includes also those of small scale, ranging from 30 to 50 chickens. The interest group decides to take into account poultry breeders of at least 100 chickens for many reasons: (i) the breeders of this scale are rather commercial than self-supply; (ii) the poultry production plays an important role in their households’ income; (iii) and the interest group prefers to extend the scale of production, rather to increase the number of participants for the purpose of easy management, and breeding intensification. The project also set up a

53

slaughterhouse to serve the stakeholders of the value chain first, and then, according to the business of the slaughterer, it can be used to provide services to others. All these poultry stakeholders are organized in an interest group, which link them with collective actions in purchasing feed, vaccines, medicines, or in selling products. Meanwhile, the other small scale chicken breeders are temporarily out of project, but they still benefit and follow good animal husbandry practice and good slaughtering practice through training and experience sharing of their neighbors and Women Union activities. In fact, they play the role as participants in the waiting list, who are always ready to increase their batch scale and upgrade their activities in case the output market is extended.

The project chooses Mrs NGUYEN Thi Tam, the leader of the Women Union of Phuong Tien commune- Dinh Hoa district- Thai Nguyen province, as its project leader in the field since she has entrepreneurship, activeness, enthusiasm and good knowledge of local people, their characteristics and production. In fact, she involves in nursery, slaughtering, collecting, and trading activities. This means that she provides chicks (of 21 days) for broilers, collecting live-weight chicken to slaughter, then carcass to urban retailers, including restaurants, retailing shops, weekend markets, retailing shops in Hanoi market.

In addition, this women can totally devoted to the management of the value chain as her two sons already grow up, one gets married, and the other supposed to have wedding at the end of 2010. One of the two sons has major in veterinary service, who can help her with this issue. Meanwhile her husband, the other son and his wife, as well as the future daughter in law always give her their hands in nursery and slaughtering activities in addition to the selling of feed and medicine for poultry.

At this moment, Dinh Hoa value chain provides four main kinds of poultry products: chicks of 21 days old, carcass, live-weight chicken and eggs. Hence, there are many stakeholders that formulate Dinh Hoa chicken value chain and determine the quality of the products as well as the viability of the chain. The chicken value chains in Dinh Hoa district, Thai Nguyen province, supported by STOP AI project can be described as the followings:

Diagram 6: Chick, chicken meat and egg channels of STOP AI project in Phuong Tien commune, Dinh Hoa district, Thai Nguyen province

Chick channel Chicken meat channel

Live-weight chicken Carcass

Egg channel

Nursery farm

Broiler farms of STOP AI project

in Dinh Hoa district

Broiler farms in the district

30%

70%

Individual customer in Dinh

Hoa district

Slaughterhouse in Dinh Hoa

district

Retailer in Thai Nguyen

province

Retailer in Hanoi city

42%

58% 5%

95%

Layer farm

Individual customer in Dinh Hoa district

Retailers in Dinh Hoa district

Own consumption

40%

57%

3%

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III.5.2. Financial flows to and in the value chain

There are two financial flows for the value chain. One comes from outside, more concretely from the Vietnam Bank of Social Policy, Vietnam Bank for Agriculture and Rural Development from ASVELIS and from neighbors or relatives of the stakeholders. The other is the internal flow among participants of the chain.

External financial flow

Poultry stakeholders of ATK value chain get access to four external financial sources: Vietnam Bank for Agriculture and Rural Development, Vietnam Bank for Social Policy, STOP Avian Influenza project, and neighbors, relatives or friends.

Financial product

Neighbors, relatives, and friends

Firstly, with the financial source from neighbors, relatives or friends, the stakeholders of the value chain usually ask for loan of under 5 million VND (~ 270 USD) without loan terms or interest rate. They never take loans with interest rate because (1) their activities are not so profitable; (2) due to close relationship with the lenders, they would like to help each other rather making profit. These loan can be multi-purpose, either building a chicken shelter, or buying chicken, feed, or just for a family event. This financial source serves 24% of poultry stakeholders of all kinds in Phuong Tien commune- Dinh Hoa district- Thai Nguyen province, nursery households, layer households, broiler households, and slaughterhouse which is also collector and trader.

Vietnam Bank for Agriculture and Rural Development vs. Vietnam Bank for Social Policy

Secondly, for the loan offered by financial institutions, while the slaughterhouse get access to big amount of credit for loan terms of 3 years (100 million VND~ 5400 USD) at the interest of 1.2%/month, the Vietnam Bank for Agriculture and Rural Development, four of the breeders benefit from favorable loan of 10 million dong (~ 540 USD) at low interest rate of 0.65%/month offered by the Vietnam Bank for Social Policy. These breeders had been in the list of poor households and they were supposed to make repayment within 3 years. Nevertheless, two of them have lifted up from poverty since 2009 and been considered as pro-poor households. With these loans, the borrowers usually use for infrastructure like building breeding facilities and slaughterhouse for their business, but due to difficulty in working capital, within the frame of this project, ASVELIS decide to provide small credit of favorable interest rate, similar to the one of the Vietnam Bank for Social Policy (0.65% of interest rate per month, loan term of 3.5 month ~ 1 batch) for the breeders and the project leader in the field is the one making decision of deliver it to those who really need based on the rules set by ASVELIS.

STOP Avian Influenza project

This final external financial source provided by ASVELIS within the STOP Avian Influenza project, can be categorized into two kinds of financial products:

For broiler actors

- Loan amount: VND 1,500,000/household (≈ 80 USD) - Loan term: 1 batch ≈ 3.5 months - Interest rate: 0.65%/month - Repayment: pay all principal and interest rate at the end of the production, after selling out products - Lending methodology: individual

For layer actors

- Loan amount: VND 7,000,000/household (≈ 380USD) - Loan term: 1 batch ≈ 13.75 months - Interest rate: 0.65%/month - Repayment: pay all principal and interest rate at the end of the production, after selling out products - Lending methodology: individual

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However, the 0.65%/month of interest rate from these loans is used for the followings purposes:

- 0.35%/month is donated to farmers’ risk fund, which is supposed to support borrowers in case of lost, for example their poultry die of disease or natural disaster, etc.

- 0.30%/month is dedicated to the Women Union for monitoring and managing loans

In order to access to loan provided by ASVELIS, the borrowers must be members of the Women Union in Dinh Hoa district, Thai Nguyen province, who join in the STOP AI project, and willing to take loan for the purpose of producing free-range chicken of good quality and safety.

For the broiler, they can have maximum 3 cycles of loan, equivalent to three batches or one year. So, those who borrow at least twice, normally they will pay all the principal and interest rate at the end of the 2nd cycle, not the 1st cycle, meaning that after selling out products of their 2nd batch. The reason is that ASVELIS would like to rotate the budget so that loan can be accessed by all borrowers who need it within the duration of the project.

Furthermore, it is necessary to mention that due to the increased number of project participants, more and more households would like to borrow money to buy their chicks. Meanwhile, the funding from ASVELIS is limited. The Women Union is very flexible to give rotated loan, meaning that providing some borrowers with maximum 3 cycles of loan, then move the turn to other borrowers, regardless they are old or new participants of the projects. At the beginning, all 9 broilers and layer farms could access to the loan. Until now, the number of broiler and layer farms profit from this fund increase to 16 households, or 94% of poultry breeders in the value chain access to credit provided by ASVELIS.

Chart 7: Poultry stakeholders in Dinh Hoa district, Thai Nguyen province with times of loan access to credit of the STOP Avian Influenza p roject

41,18%

5,88%

17,65%

35,29%

once

twice

>=3 times

0 times

Lending method

While the slaughterhouse takes individual loan from the Vietnam Bank for Agriculture and Rural Development, the chicken breeders of chicken value chain in Dinh Hoa district access to group loan offered by the Vietnam Bank for Social Policy. This joint liability group model follows village banking model, which has been presented in the above section. In the case of Phuong Tien commune, all households with credit demand in a commune make up a group and access to credit of this bank through the Women Union of the district. Meanwhile, the same credit offered by this bank is under the control of other mass organizations in their neighboring communes, the Farmers’ Union and Veterans’ Union. In this section, only the lending model of the STOP Avian Influenza is discussed.

The model of lending applied by ASVELIS- the coordinator of the STOP Avian Influenza project- is in fact the brokerage lending model, in which the Women Union guarantees for poultry stakeholders to get access to credit provided by the project. This lending model can be summarized as the followings:

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Diagram 7: Model of micro-financing chicken produce rs in STOP Avian Influenza project

This brokerage lending model satisfies specific credit demand of poultry stakeholders better because the loan coincides with the loan amount needed and follow production cycle of the borrowers, which facilitates them to make repayment in time. Furthermore, although the individual loans offered to these poultry producers are not so big, it requires them nothing in terms of collateral.

Internal financial flow

The internal financial flow within the value chain is taken between different stakeholders. For example, the nursery can sell chicks on credit to the breeders. In case making repayment after one month, an interest rate of 6.7%/month is opposed. The same happens when the breeders buy feed on credit, they need to pay an interest of 2.9 to 4%/month for their scheduled repayment. However, the collector, in this case the slaughterer, always pay the breeders for their chicken immediately so that they can reinvest in their production easily because she well acknowledge that these breeders are poor and always thirsty of working capital. Yet, the retailers can pay slaughterhouse at the end of each month, not necessary at each purchase. This not only creates a close linkage among stakeholders of the chain but also help to maintain and upgrade the value chain as a whole.

The internal financial flow is illustrated by red arrows with specifications in the below diagram:

ASVELIS Representative of

STOP Avian Influenza project

Women Union Representative of women chicken

producers

Women chicken producers

Breeding chicken for carcass or for eggs

- Sign memorandum and disburse the total loan amount to the Women Union

- Guarantee and make loan contract with women farmers participating in the project - Disburse and monitor loan - Collect repayment

- Take loan for production individually - Following the procedure of good animal husbandry practice - Make repayment

- Provide micro-finance plus (technical assistance, consultancy and other supports)

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Diagram 8: Internal financial flow in ATK Dinh Hoa chicken value chain

The interest rate applied in case of purchasing on credit between feed and chick suppliers and the consumers is rather high (normally it should be 2-3%), however, this internal financial flow helps poultry stakeholders in the value chain dealing with their shortage of money for some periods. Frequently, the buyers manage to pay back before the deadline of 1 month, only in some cases of late repayment, the interest is applied. Yet, this credit arrangement contributes to create a closer relationship among stakeholders.

III.5.3. Microfinance plus supplied to poultry stak eholders

The non-financial services provided for poultry stakeholders in Dinh Hoa district, Thai Nguyen province are much diversified. This is thanks to the support of the STOP Avian Influenza project, not other financial suppliers. While the Vietnam Bank for Agriculture and Rural Development only focus only on financial aspect and not non-financial one, the Vietnam Bank for Social Policy shows their little interest in the issue of microfinance plus when organizing training and experience sharing on good husbandry practice and risk identification related to livestock in general and poultry in particular. However, the frequency of these activities is quite low, just once or twice a year, and often intensified in case of problem, for example serious disease with animal, big damage because of storm, financial crisis, etc. Hence, this section is about to discuss the non-financial services of the STOP Avian Inluenza, which expect to encourage financial actors to have greater participation in this subject, and recommend them to provide microfinance plus more efficiently and less costly, probably in partnership with technical agencies or concrete projects.

Technical assistance

Among non-financial services, technical assistance appears to have strongly important role in poultry value chain that can ensure the success of poultry related business, and loan repayment at the end. This include the consultation of good animal husbandry practice, good animal slaughtering practice, establishment of internal and external control to ensure the respect towards regulations in husbandry and product standard and quality. In STOP Avian Influenza, these are expressed as the followings:

Layer farm

Feed supplier

Nursery farm

Medicine supplier Chicks and pullet supplier

Broiler farms

Retailer of feed Retailer of medicine

Slaughterhouse

Supply on credit 50% of the total amount, due for 1 month

Supply on credit for 1 month, apply interest of 2.9- 4%/month in case of late payment

Supply on credit for 1 month, apply interest of 2.9- 4%/month in case of late payment

Supply chicks on credit for 1 month, apply interest of 6.7%/month in case of late payment

- Supply beforehand for 1 month

- Free consultancy

- Supply beforehand for 1 month

- Free consultancy

Retailer

Supply before hand for 1 month

Supply before hand for 1 month

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Good animal husbandry practices

- Breed: The project consult slow-growth breed for meat production and pullets with good productivity for layer farms

- Infrastructure: Poultry producers are consulted with the building of poultry production area, including shelters and playing ground, design of feeder and drinker system, floor and bio-safety areas to facilitate breeding activities and protect poultry and human health, sterilizing and vacuum period of at least 2 weeks before new batches come are applied in case selling out all chickens

- Feed: Poultry breeders are consulted with types, and quantity of poultry feed that should be used in different period of chicken life cycle within a batch, as well as suitable breeding times to maximize profit. They are also recommended to connect with animal feed agencies or company that ensure feed of quality

- Vaccinations, medicines, veterinary services: The breeders are encourage to follow standard vaccination program for poultry batches, supervise animal health regularly, and use medicine and bio-safety to protect against disease

- Follow-up activities: Use batch monitoring book to record all production cost during the course of production and income at the end of the batch

- Organizing seminar, training and experience sharing on good animal husbandry practices for poultry breeders

Good animal slaughtering practice

- Support slaughterhouse with slaughtering facilities, equipments, and machines that are necessary for slaughtering techniques and can ensure food safety

- Chickens are collected and slaughtered in safe manner at concentrated slaughterhouse to ensure food hygiene and safety, after being slaughtered, carcass is reserved in cold chain until it is distributed to the customer

- Workers of slaughterhouse are trained with good slaughtering techniques

- Helping slaughterhouse to get business license and regularly supervised by veterinary agencies

- Holding seminars for slaughterers and veterinary experts to discuss effective slaughtering technique, which can reduce the cost and minimize disease contamination, as well as to share related information and experience

Internal and external control

- The internal control is encouraged and responsible firstly by project leader and then by all breeders of the chain through the way of weekly farm visit and check up.

- The external control is done by technical agencies with monthly farm visit and inspection of project technicians and local authorities. In case of slaughterhouse, this external control and inspection is done every slaughtering session by local authorities.

Entrepreneurship

- The farmers and traders are encourage to conduct poultry related business and gradually increase their scale

- Assisting poultry stakeholders to make business plan; master administrative and financial procedures, and trained with management and communication skill to conduct their own business

- Organizing field trip and seminar to diffuse good example of entrepreneurship and lesson learnt among poultry stakeholders, in which the project is the organizers while

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entrepreneurs are implementers and presenting their own result in front of the audience and visitor.

Marketing support

- Assisting poultry producers and traders with marketing schemes and techniques: The free ranged chicken and eggs have been marketed to different types of customers, especially in Hanoi city in different ways, either by articles in newspapers or magazines, flyers, videos, workshops, or through a weekend market opened every Saturday at Tay Ho district in Hanoi

- Ensuring the output market for products of quality: The project connect poultry products developed with their target clients that include not only Vietnamese people but also foreigners living in Vietnam, and not only individual customers but also such retailers as restaurants, and shop selling safe agricultural products in both rural and urban area, local market and outside province

- Helping producers and slaughterhouse making their production plan regularly, based on real demand of customers

Risk support

- Organizing workshop on risk identification, for example internal and external risks related to breeding and slaughtering practice, poultry disease, natural disaster, etc. and solution to respond and address these risks.

- A credit fund is set up to protect and assist poultry stakeholders in case of risk

- Enhancing linkage among poultry stakeholders by social ties and contracting to mitigate risks in poultry production and trading

Health care support

- For animal: It is the respect of good animal husbandry and slaughtering practices. It is also the respect of animal welfare, which is shown in: (i) the equal quantity of cocks and hens in their batch (except the case of layer farm); (ii) separate shelter and running area, and the running area often with grass and/or trees; (iii) always keep breeding area clean; (iv) stunning chicken before slaughtering (this step does not exist in traditional slaughtering activities in Vietnam so far).

- For human: together with good animal husbandry and slaughtering practices, it is the safe conservation of poultry products in cold chain and safe transportation and trading techniques. Many workshops on factors in poultry production that affect human’s health and solution to avoid and address in case of problems have been organized. Updating situation of poultry production and regular laboratory tests are done to detect problems and to find solutions to cope with.

Empowerment activities

- The empowerment activities is implemented under movement of women producing and trading safe poultry products successfully and increasing households’ income in Dinh Hoa district, Thai Nguyen province. Women entrepreneurs are encourage lifting up from poverty and becoming financially independent.

- Creating chances for women to visit sample farms and attend workshop in poultry value chain. Women’s voice is encouraged in national and international workshops on poultry production activities

- Create close linkage among women poultry stakeholders to increase their voice in society and their bargaining position in economic aspect.

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III.5.4. How financial and non-financial services a ddress the demand of poultry stakeholders

With financial products

It is seen that for stakeholders in this value chain , the loan offered by the banks and their relatives or friends are usually for the objective of built up infrastructure while the internal financial flow are for working capital. However, particularly for the loan offered by the banks, it is quite difficult for the slaughterer to make repayment after three years since her slaughtering activity is not so profitable at this moment. Yet, taking into account all her source of income, from selling feed and medicine, and nursery activity, it is possible. In terms of broiler and layer farms, who benefit from favorable loan, due to small loan, they can easily make repayment. With these financial actors, what is important is whether the borrowers is poor or not, and their businesses are feasible or profitable or not. And most of them do not care about non-financial products, which can assist poultry stakeholders as borrowers. Financial products are dominant, and credit means only money for them. This is different with the loan offered by ASVELIS, and this is discussed in further detail in the followings.

With financial support, in the frame of STOP AI project, what ASVELIS does well for the actors of poultry value chain is that, they give them individual loan (raging from 1.5 to 7 million VND) at favorable interest rate (only 0.65%/month) without collateral requirement, compared with market interest rate of for example 1.35%/month for the loan of 1 to 3 years of the Vietnam Bank for Agriculture and Rural Development, or 0.9%/month for the loan of 1 to 3 years of the Vietnam Bank for Social Policy, 1.29% for credit institutions and 1% for socio-political organization like the Women Union. And normally, to access to credit to the non-profit or commercial banks, and credit institutions, the borrowers are usually required collateral as guarantee. However, with the model of lending that ASVELIS applies, the Women Union plays the role as intermediary and guarantor for the borrowers. So none of the borrowers is required with collateral to access to the loan. The only requirement is that they take part in the project of free-range chicken, being member of the Women Union and are willing to borrow.

Due to the fact that Vietnamese people usually get much subsidy, especially those living in difficult condition in remote and mountainous areas, or the ethnic minorities. Then, in case providing them funding like the subsidy, it is difficult to know who really want to run their business in poultry commodity. The experience from other projects and programs shows that, local people prefer to join in the projects or programs at first, just because they would like to get this subsidy, not really because they are keen on of the activities conducted by the project. Hence, by giving them loan, ASVELIS can restrict the number of people who would like join for profit of initial funding, and involve only those extremely dedicated in the activities. At this time, the Women Union, once again plays the role as the filter to choose project participants who really want to join as it relates to their livelihood and life.

Although the loans given to borrowers are small and at favorable interest rate, it satisfies the initial financial need of borrowers (investing in their batch of chicken), and stimulate them to make repayments as well as to show their profit from chicken production. In fact, it is at the same interest rate offered to poor households by the Vietnam Bank for Social Policy. However, the project in Dinh Hoa district, Thai Nguyen province comprises not only poor but also pro-poor households. For poor households, they can borrow at favorable interest rate (0.65%/month), but for other households, the interest rate is higher (0.9- 1.35%/month), depending on lending programs of different banks and either they can not access to the loan or don’t want to borrow because they find there production activities are not enough profitable to reimburse. Then, taking part in the project STOP AI and access to the fund in the frame of the project is ideal for them. The good of the loan is that it is offered to those who really need it; they would like to join in the project to produce free-range chicken and eggs of food safety and they are ready to live and die with their business since they have invested so much on it.

Yet, subjectively, it is found that the loan offered by ASVELIS and STOP AI project and its interest rate is not sustainable since it can not cover the operational cost for a long term. Only 0.30% of the interest rate is now spent for operating the loan. But it should be

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noted that the leader of the Women Union in Dinh Hoa chicken value chain , who plays the role as the loan officer and operator, accepts to do it since she can benefit much from the project. For instance, she can decide to give the loan to whoever she accesses to be capable to pay it back and buy chicks from her nursery farm. She will benefit from all the initial investments in the slaughterhouse when the project finishes. Another point is that when the project stops, only the linkage between ASVELIS and local stakeholders and the benefit from this relationship can ensure whether the loan can continued to be offered at this interest rate. However, within this project, the loan is given in the manner of partly subsidy; this can explain why the interest rate is so low. Furthermore, the target clients are the poor or pro-poor, so it is at the same interest rate offered by the other financial actors in the area (like the Vietnam Bank for Social Policy). In addition, unless the loan with favorable interest rate is not provided, the project can not be carried out because the people in Dinh Hoa district, Thai Nguyen province are so poor.

Regarding the repayment, although the project has not yet ended, the leader of the Women Union confirms that the repayment rate can reach 100% because none of the borrower defaults so far while the project is supposed to stop in September 2010.

With non-financial services

In addition to the financial product, ASVELIS provide such nonfinancial support as technical and marketing support. This has very good impact on the following issues:

- Technical, business and managerial skill: Enhance capacity for local people concerning

+ Technology of good husbandry and slaughtering practice to produce free- range chicken of quality to access to urban market (restaurants, shops, market of high-quality production…): now the broiler and layer farm as well as slaughterer master well the know-how to produce chicken of safety and quality. At this moment, what the project and ASVELIS help them is only the consultancy in case needed. And ASVELIS has a hotline telephone to provide them support whenever they want. Their production now is carried automatically.

+ Internal and external control of chicken production: The chicken stakeholders in Dinh Hoa value chain can now follow up their activities correctly, professionally and regularly with book recording of poultry production and get inspection from ASVELIS and local veterinary department. All these works are conducted by the farmers themselves independently and voluntary. This reduces work force for project officers since they just come to the field once or twice per month to collect the follow-up book to update the situation.

+ Issues of food safety and products marketing with label (Naturally Vietnam): under the circumstance of so many problems concerning food safety in Vietnam, for example blue ears disease for pig, avian influenza for poultry, high level of antibiotic in husbandry products or high level of pesticide in vegetable, dirty slaughtering procedure, etc. The Dinh Hoa people are much aware of the importance of producing products of safety and quality. It is not hesitated to say that all the participants of the STOP AI project, especially Mrs. Nguyen Thi Tam, project leader at local area are now famous for producing hygienic chicken of quality. Therefore, their products are not only marketed in Hanoi by ASVELIS, but very well-known in local market and become one of the important value chain of chicken and eggs for local consumption. What is more, what makes them proud is that their products are totally of quality and food safety since it complies with national and international (OIE & CODEX) food safety standards, particularly addressing chemical residues and microbial contamination.

+ Confidence in conducting poultry production activities: For the broiler and layer farms, they are very confident to manage their breeding activities thanks to their experience and close linkage with other poultry stakeholders. For the slaughterer who play the role as the collector and trader, she is more than confident now because she occupies market segments in local market, has connection with retailers in Hanoi market.

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- Social and professional network

+ Create close linkage for groups of interest in chicken value chain s, breeding chicks at nursery stage, producing carcass or eggs, slaughtering and distributing final products to the market: Within the value chain in Dinh Hoa district, Thai Nguyen province, the broilers, layers, slaughterer and input material are in good connection with each other. This allows them to be able to purchase input material or chicken products on credit, that helps them to sometimes deal with their current lack of credit for production. Furthermore, they, together, create the fame for hygienic and safe chicken and egg value chain s.

+ Involve more in social network to boost economic activities: since the activities of the STOP AI project is in the linkage with the mass organization: Women Union. The local inhabitants in Dinh Hoa district, therefore, are more willing to take part in activities leaded by the Women Union to benefit from it. The project participants can not only acquire the know-how of producing chicken and eggs complying with national and international food safety standard, but also have chance to access to credit provided within the project, and other source of fund that the Women Union can access to help their members.

+ Link producers to the ultimate customers, which increase the reliability of products quality for customers and at the same time, make producers aware of the importance of their product control and traceability, as a result obey good husbandry and slaughtering practices to sustain their production: in addition to the local market, the project participants now can extend their market to Hanoi, a very potential market for them. Within the project, the participants have chance to come to Hanoi to connect directly with the ultimate customers here, for example those of weekend market, organized by ASVELIS every week, or restaurants, and retailing shops in Hanoi.

- Social embeddedness: Due to the fact that the local chicken breed (Ri or Mia) is not so good in terms of productivity and efficiency, the project recommends local people with crossed bred chicken (Mia lai or Ri lai) that allows them to harvest just after 90 days and still keep the traditional and native breed that for a long time suitable with the natural condition and customs of the native people. In addition the project still keeps the native custom of some local people in breeding technique. The i.e. raising chicken in pillar shelters to separate them to the ground when they are more than 40 days old. This protects them better from the wet and hot weather in Vietnam and seems cleaner because the manure will drop to the ground while the shelters remain clean. This also allow the local people just to use local material like bamboo to build shelter, not necessary to use such material as brick or cements. Then it is easier for local households to afford. Furthermore, chicken breeding can take advantage of labor wage in the family and does not take them much time, just two or three hours per day. Therefore, not only the women who stay at home, but also their children can take part in the activities. For the nursery and slaughterhouse, they can even recruit more to manage the work.

What are changes?

Thanks to the support of STOP AI project and ASVELIS, the small and medium scale poultry producers can gradually stabilize their poultry production, which contribute to the development of local livelihood. Since most of poultry breeders are women and due to the eligibility to ask for loan from the project, 100% of the borrowers are women, who now become entrepreneurs and more and more financially independent since just doing farstaying at home, they can have their own source of income. Some even can generate the work for their family members, like the layer farm or the nursery farm and slaughterer. Their work in chicken breeding and slaughtering involve all the member of their family, and even their relatives. Take the nursery and slaughterer as an example; she is the core stakeholder of the value chain. She provides not only chicks for broilers, but also feed for broilers and layer farm, as well as medicine for chicken in the area. She then collects eggs and chicken to sell to customers. Therefore, this work involves not only herself, but also her husband, and her children. Now, breeding chicks, slaughtering chicken, selling chicken feed and medicine become the main economic activities of the household. Especially with the chicken

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slaughtering, she even must recruit her relatives and neighbor to do it. Then, it is not hesitated to say that it generate employment and income for her family and local people.

Now take the layer in Dinh Hoa value chain as another illustration, this household is very poor and has 4 children. Before, poultry production made up only 10% of their households income, in addition to rice cultivation and working as wage labor. Raising chicken for eggs now can bring 70% of the household income. Her children can help her feeding chickens, collecting and selling eggs daily. The eggs are not only for sale, but also for their own consumption. This helps improve their nutrition very much, compared with before joining in this project, they are always poor and hungry. The layer indicates that currently she lifts up from poverty gradually.

In terms of the broilers, nearly 62% of them indicated that breeding chicken has brought them from 60 to 70% of the total income since participating in the project. They become very famous in the area for high quality products. One even regrets to leave a batch for building house, since it reduced much her income and makes her loose her clients because of not supplying chicken frequently. Now she decides to increase the production scale, from 100 to 160 chickens. Another broiler decides to increase the number of chicken from 100 to 200, just after a batch because they find that it brings them good profit. It should be noted that before the project, these broilers only raised under 50 chickens, mainly for household consumption and trading to retailers of the district. Poultry production accounted for 20-30% of their income. The other came from rice cultivation, pig raising (just 1-2 pigs) and working as wage labor. Their living condition was very difficult, always lack of food, and categorized in the list of poor households in the district.

All the stakeholders satisfy with the non-financial products provided, including technical and marketing assistance. This smoothes their production cycle, and ensures the market for their output. Now, all the stakeholders in Dinh Hoa poultry value chain can do their production and business independently, and confidently. All of them use batch monitoring book to record all their activities, even when the leader forget to give them. What is more, they are willing to pay for these assistances when the project ends.

However, when all would like to increase their production and business scale, new financial demand appears, of course the project can not manage. The only thing that the project can help poultry stakeholder in Dinh Hoa is that, they can borrow themselves from other source, with their business plan, experience and entrepreneurship. Within the project at this moment, the nursery and slaughterer already shows that she can access to other financial source like the Vietnam Bank for Agriculture and Rural Development. And she is confident to be able to manage the repayment. According to the survey of Dinh Hoa value chain , at this moment, all the stakeholders in the chain would like to borrow to invest in production. For the broiler and layer farms, they would like to access loans of 3 years and more, with the small loan, ranging from 10,000,000 VND to 30,000,000 VND, and at interest rate of under 0.9%/month. But for the slaughter, she would like a bigger loan with higher loan term, from 50,000,000 VND to 100,000,000 VND to invest in nursery, slaughtering, trading feed and chicken medicine. It would be great if the interest rate can be lower than 0.9%/month, but in case it is 1.2%, it is quite acceptable; however; she will take it after the repayment of first loan.

With the purpose of identifying economic advantage that the project brings to poultry stakeholders in Dinh Hoa district, Thai Nguyen province, it is necessary to have a look at the following tables on the economic performances of different chicken stakeholders and the difference in price when participating in the project. The economic performance is calculated per batch of chicken, or slaughtering session. It takes into account all the items concerning initial investment, production cost, income and profit, excluding labor cost. In addition, the data for this calculation are based on information of local stakeholders and all recording data in the batch monitoring books for different stakeholders in the chain.

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Table 11: Economic data of chicken stakeholders in chicken value chain in Dinh Hoa district- Thai Nguyen province

Unit: Vietnam dong

Items Nursery

(800 chickens/batch)

Broiler farm

(100 chickens/batch)

Layer farm

(100 pullets/batch)

Slaughterhouse

(50 chickens/session)

Initial investment 8,500,000 2,000,000 2,500.000 228,150,211

Production cost * 9,644,120 7,145,814 47,024,500 4,795,000

Income ** 11,531,200 8,930,710 66,525,000 4,966,667

Profit per batch/session

1,827,358 1,451,563 18,250,500 49,116

Profit per month *** 5,482,073 362,819 1,327,309 834,978

Compared with total household’s income

68% 40% 70% 10%

* Including: - Chicks/pullets, transportation, feed, vaccines, medicines, bio-security equipments, electricity and water cost, litter,

quality control and marketing support for nursery, broiler and layer farms

- Chickens, transportation, electricity and water, box, bag, stick, ice, labor force, quarantine, etc.

** Including selling chicken and manure for nursery and broiler farms; eggs, spent hens and manure for layer farm; and carcass

and their organ for slaughterhouse

*** 3 batches/month for nursery farm, 3 batches/year for broiler farms, 1 batches/year for layer farm, and 17 sessions/month for

slaughterhouse

Table 12: Difference in the price of STOP Avian Inf luenza products and other similar products in the market

Items Chick

(Unit::

VND/chick)

Live-weigh chicken

(Unit:: VND/kg)

Carcass

(Unit:: VND/kg)

Egg

(Unit:: VND/egg)

STOP Avian Influenza price 15,000 55,000 90,000 1,700

Market price 13,000 40,000 66,000 1,100

Difference 2,000 15,000 24,000 500

Before the project, the market for poultry products produced in Dinh Hoa district- Thai Nguyen province was only within the district, now they are distributed outside the district as well, including Thai Nguyen city and Hanoi city at this moment. Their customers include not only retailers of the district or individual customer working in agriculture or wage labor, but also five-star hotels, high quality restaurants, shop selling safe and high quality poultry products, and individual of various professions now. The difference in the market before and after the access to STOP Avian Influenza project, the difference between project and market prices, together with a smooth profit every month would like to imply that with certified quality, the products of the STOP Avian Influenza can (i) target higher income customers and diversify their market segments in the manner of bottom up; (ii) create regular income for poultry stakeholders, as a result, smooth their consumption and increase their living standard; (iii) integrate in nation wide market.

From the breeders who raised chicken traditionally at small scale, without any bio-security solution. It is found that the chicken stakeholders in Dinh Hoa value chain now follow voluntary and correctly good husbandry and slaughtering practices, regarding of the choice of slow-growth breed like local Ri, cross- bred Ri and cross- bred Mia breeds; the choice of feed (concentrate proteic, manufactured and natural feeds) as well as the way of feeding; free-range technique (combination of shelter and free-range ground for chicken); density of breeding, record keeping (batch monitoring book), bio-security procedure, veterinary supervision; safe, self-control and

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self-managed slaughtering model, cold chain, inspection, etc. This is highly respected by project technician, local authorities, and also their customers, who sometimes visit the farm to check suddenly. Although the project has not developed officially the label for chicken products of Dinh Hoa value chain, the local stakeholders already develop themselves, with the simple stick of name of supplier, telephone and address, as well as monitoring book, that together allow customers to trace back the origin of the products.

In addition to urban market found by the project (restaurants and weekend market), the local stakeholders manage to find customers both in local market and Hanoi by themselves. In fact, thanks to the support of the project, now all stakeholders taking part in the project are well-known in the area for producing chicken and eggs of safety and quality. Although there are many challenges in poultry production and trading, now the poultry stakeholders in Dinh Hoa district, Thai Nguyen province can confidently cope with it to develop their own poultry value chain.

However, the market of chicken and eggs for Dinh Hoa supply chain is quite volatile and one of the reasons is that quality control instruments in Vietnam are not so transparent enough for the customer. Meanwhile, Dinh Hoa chicken products try to persuade their customers with quality and safety. The market segment for poultry products produced in Dinh Hoa supply chain is mainly based on the relationship and trust between the supplier and the customers. To date, the supplier of Dinh Hoa poultry products do not make contract with organizational customers, some still are done through ASVELIS, more specifically through the network and market management of the project. For a long run, the local stakeholders must manage market relationship and supply themselves. This means that (i) the maintenance of product quality and fixation of competitive price after the project must be strictly done; (ii) the local stakeholder (trader in this case) must directly makes contract with customers; (iii) as well as the client relationship must be taken care so that the supply chain can be sustainable.

Together with volatile market is the difficulty in defining stable and competitive price for poultry product. This is partly due to feed cost. The price of feed keeps on increasing from 2009 to 2010, which makes them hard to offer customers products at stable price as well as develop a good marketing strategy. For instance, the price of chicken produced at Dinh Hoa district was 80,000 VND/kg of carcass in June 2010, this price increases to 90,000 VND/kg in July 2010. Then, it is very difficult to convince the customers, especially the new on. The second reason comes from the scale of breeding. If the breeding scale is bigger; for instance 500 chicken; certainly the production cost will much reduce. Due to these reason, the price of 90,000 VND/kg, many customers as restaurants comments that it is very high. Just for comparison, some retailing shops in Hanoi confirmed that they can buy Mia chicken at the price of 66,000- 70,000 VND/kg. Although the quality and origin of these chickens are uncontrollable; it is necessary for the supplier of Dinh Hoa supply chain to adjust the price so that it is accepted by customers or develop a good marketing strategy to convince their customers with product quality and safety. This is really a challenge for Dinh Hoa supply chain.

As members of the interest group, poultry stakeholders in Phuong Tien commune, Dinh Hoa district, Thai Nguyen province associate closely to sustain their value chain, with quality and safe chickens and eggs, with their entrepreneurship and activeness in poultry production and marketing, with experience in good animal husbandry and slaughtering practices as their assets to increase their bargaining position in the market. What they should do in the next step is (i) enhancing their technique to produce products of quality and safety; (ii) diversify products to access to new market and different customers with different chicken breeds, or different kinds of poultries, or the inserting of processing stage to produce chicken based products; (iii) market the name, label and trademark of the supply chain in different ways with its product variety; and (iv) establish its institutional organization, which facilitates them in the development of collective actions, for example co-purchasing feed and medicine (to be able to buy at whole-sale price), creating the same label and trademark for all products made from chicken produced by the breeders of the supply chain. It can develop in the kind of association, or cooperative, or company, in which the whole value chain can access to different financial sources, and become professional in breeding production and services. Accordingly, all administration, operation, controlling, and traceability systems can be developed systematically and involve participants of

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the supply chain in official manner. This coincides with policies for poultry value chain development in terms of production and finance set out by the government and target program .

However, financing poultry stakeholders as a project, STOP Avian Influenza could not sustain the micro-financing of poultry value chain in Vietnam, what it expects is setting up good model and example to diffuse their good experience to others actors in Vietnam, so that it will be adopted and adapted to better financing this value chain, especially towards the development of poultry value chain of quality.

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CONCLUSION

Findings

The micro-financing of poultry value chain of small and medium scale involve mainly the participation of the external financial actors such as the Vietnam Bank for Social Policy, Vietnam Bank for Agriculture and Rural Development, national and international projects, mass organizations, relatives, neighbors and friends, and interlinked credit arrangement among poultry stakeholders. Each of these microfinance actors has their own market segment, with particular group of stakeholders. However, as a whole their microfinance has made great contribution to the development of poultry value chain in Vietnam.

Although formal financial institution has shown their strength in providing poultry stakeholders with diversified financial products and offered them with much priority, national and international projects and programs through the network of mass organizations and non-governmental organizations have been very good in supporting them with non-financial products in line with credit for the purpose of livelihood improvement and making repayment.

For both formal and informal financial actors, financing poultry value chain demonstrates a very useful instrument to identify credit demand within the value chain, as well as rapidly address the gaps and satisfy the demand of stakeholders in the chain. Dealing with the informal financial providers, due to the lack of access to formal microfinance system, the interlinked arrangements (in cash or in-kind) within poultry value chain is considered as a direct value chain finance, which allows financial flow among value chain actors, helping them rapidly addressing the shortage of credit for a short time, which can not be done by formal financial actors. In terms of formal financial system, financing value chain is really ethic to determine concrete credit demand of different actors in the value chain. This assists them in extending their business in other places with similar economic activities. For instance, the lending methodology with loan term and amount for broiler and layer farms in Thai Nguyen province can also be applied in other provinces with similar situation as Thai Nguyen. In addition, all the lessons learnt in chicken value chain in STOP AI project can help the financial actors in Vietnam better satisfy clients’ need. With a very good outreach to all corners of rural area, the Vietnam Bank for Agriculture and Rural Development, and the Vietnam Bank for Social Policies can better reduce the credit shortage of credit in agriculture and rural area in Vietnam if they apply well the lending within value chain.

For the actors of the value chain, financing with value chain approach is the way creating their synergies to get access to financial resources. Take the case of the Go Cong Livestock and Aquaculture Cooperative in Tien Giang province, which provide collective action in providing animal feed, veterinary services, chicks, processing chicken, etc. the cooperation of members in this cooperative allows them to easily access to banks’ credits since they have stronger voice in the market.

Besides, it is necessary to mention that the information flow within the value chain is the best way for the value chain actors to identify and access to credit services that satisfy their need. If one actor in value chain recognizes that the application procedure and disbursement of loan of the Vietnam Bank for Agriculture and Rural Development, for instance, is better than the Vietnam Bank for Social Policy, then other actors in the chain will come to this bank to ask for credit. Hence, eventually, all financial actors, that are considered as good and potential for value chain actors in that area will be acknowledged and supported.

However, some microfinance actors may hesitate with the micro-financing poultry value chain in Vietnam due to such risk as agro-climatic risks, disease, unstable market, food safety as well as the lack of information and forecast in agriculture and rural development in Vietnam, etc. To be more precise, if they focus on a certain value chain, for instance chicken, and in case there are bad fluctuation of market price of chicken, disease, or disaster in that specific area, then it will be a lost for those financing this value chain. Take the branch of Vietnam Bank for Social Policy in Lam Dong province as an example, due to the disease of avian influenza in 2005, the bank must reschedule 65 million VND for stakeholders of poultry value in 2006, and even they had to write off after that due to the fact that some were incapable to pay back the loan. This magnifies a

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lost for the bank in this case. Nevertheless, this could be controlled if the banks involve in non-financial products in collaboration with technical agencies to help poultry producers avoid the disease right at the beginning stage.

Other factors that restrain the investment of financial institution in poultry value chain in Vietnam comprise rural constraints, such as weak infrastructure, low population density, long distance, low education of rural people, lack of modern technology and entrepreneur skill, etc. In fact, the banking technology in Vietnam only develops in urban areas with high population density, not in remote area. This reduces credit access for rural people who mainly work and live on agriculture and rural activities. This also explains why credit products and services for agriculture, aquaculture and forestry in general and for agriculture and rural value chain in particular remain very poor in Vietnam. The principal ones consist of traditional credit, and payment services while other kinds of credit which should be designed for specific agriculture and rural activities have not appeared, or there have not been such kinds of products and service in line with credit, for example agricultural insurance, insurance for agricultural loan. And at this moment, none of bank in Vietnam provides supporting services in parallel with offering agricultural and rural loan.

A part from that, as discussed above, due to the lack of insurance products in line with credit, the capacity of repayment will be seriously affected in case of big fluctuation of market, price, disease and disaster, etc. This is the reason why financial institution only offer small loan size and hesitate not to extend their business in this area.

Land owned certificate- or red book in Vietnamese- is one of the obstacle that limit value chain actors to access to credit. It is very costly in terms of time and money for Vietnamese people to have this certificate due to complicated procedure. Yet, this is required by financial institutions as collateral to apply for loan. Consequently, borrowers become harder to get access to credit, and financial institutions can not offer them loan although they understand this situation.

What is more, it should be noted that the idea of being subsidized have long time attached to Vietnamese people, especially the rural one. As a result, operational cost for financial institution increase and the people remain very dependent, which restraints rural financial market. For instance, while there are so many government program offering loan with favorable interest rate (like the program 135, program 134, program lending to poor households, etc), many of value chain stakeholders become dependent on “cheap” loan and over-indebted. This makes other financial institution hesitate in investing in poultry value chain development.

Inadequate strategy for agriculture and rural development, unclear in planning region for the development of agricultural products, lack of all-sided technical support, and policies for product consumption, and so on so forth, these lead to difficulties for the development of credit market in Vietnam, and rural area in particular. Nevertheless, the seasonability of production and income from poultry value chain is a troublesome for them.

But whether there is equal access to micro-credit within poultry value chain? For the formal financial institutions, it is easy to find out that not all actors of poultry value chain can get access to micro-credit since they are only interested in those who are considered as important actors in the value chain with potential, feasible and less risky business plan. Therefore, the notion of financing value chain as a whole does not exist, in fact, it touches only some certain parts of the value chain. It is found that private traders and small and medium enterprises hardly ever access to credit provided by the formal financial institutions like conventional banks because of complicated procedure and strict requirement in terms of collateral, which in turn rather benefit the state-owned or larger enterprises of the chain. In fact, these formal financial institutions prefer to give loan to big enterprise with demand of bigger loan size, rather than small and medium enterprise or low-income households without collateral. Meanwhile, in the circumstance of rural Vietnam, the actors of poultry value chain are in high demand of credit to conduct their own business. Therefore, it is quite potential market for microfinance institutions and informal financial actors to provide credit for such target clients as entrepreneurs, small and medium enterprises. Take the Vietnam Bank for Social Policy as an example, in order to access to credit of this bank with favorable interest rate, it takes entrepreneurs from 1 to 2 weeks to follow the procedure of the bank, in which most step involves the participation of the local authority and there is inequality in loan screening and approval. This means that whether the loan is given to correct client, it depends on local government staffs, whereas time or duration for loan procedure depends both on local authority and the bank. This does not seem relevant for those who would like to borrow

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capital for carrying their business. Consequently, rather well households decide to ask for loan in commercial banks like Vietnam Bank for Agriculture and Rural Development while average or poor ones choose to borrow money from individual or buying on credit.

Recommendations

Despite the challenges of micro-financing poultry value chain in Vietnam as mentioned above, value chain approach is still a good method for financial actors to provide microfinance services that satisfy the demand of customers in different commodities, especially poultry, and particular for small and medium stakeholders. The recommendations presented in the following attempts to facilitate the adoption and adaption of this method to micro-financing poultry stakeholders of small and medium scale in Vietnam:

(1) For authorities: This deal with authorities in poultry commodity in authorities in finance. The authorities of poultry commodity should identify clearly strategies and policies for poultry development at central level, and in concrete location to reduce the risk for both the lenders and the borrowers. For poultry production, it is proposed systematize it with risk control, for example finding alternative breeding technique for duck raising, instead of raising on rice field and letting them move from one district to other districts, one province to other provinces. For chicken value chain, traditional and manual breeding of small scale without bio-security solution should be update with industrialized and intensified methods to mitigate risk in terms of disease transmission and increase productivity for the breeders. In addition, focused slaughterhouses of small and medium scale should be set up and replace the one in market or at home. Furthermore, qualified means of transportation and selling facilities should be identify clearly and encourage the collectors and traders for safe poultry transportation and trading. Stricter control and inspection, with strong sanction are good solution for risk mitigation. Whereas the financial authorities and state banks should create a fair competitiveness to microfinance actors. This consists facilitating the set up of microfinance institutions to serve increasing demand of poultry stakeholders and reduce gradually loans at favorable interest rate to reduce the dependence of poultry stakeholders in cheap credit line, and over-indebtedness. This also stimulate the financial sustainability of microfinance institutions.

(2) For micro-financial actors: to better serve poultry stakeholders, they should follow the whole value chain in collaborate with technical agencies or poultry value chain projects to reduce all the risk related to poultry production, from the initial stage of buying input, until selling the output to the market. Financial products are good, but non-financial products are also necessary for poultry stakeholders. This helps them ensure smooth flow of the products, and repayment at the end. Adequate solutions in terms of loan size, loan terms, lending methods, lending procedure, etc. for different kinds of poultry stakeholders and value chains are ideal to fit their credit with customers’ demand, diversify their products and client portfolio. Apart from that, micro-financial actors should also cooperate with each other to define their market segment, connect credit bureau to avoid the overlapping in financing the same stakeholders or putting too much financial flow to a particular group of customers or location.

(3) For poultry stakeholders: They should improve their production towards specialization and intensification, together with the application of good husbandry practice, good slaughtering practice, and good poultry trading practice, etc. In addition to technical improvement, self equipped with managerial and communication skills, leadership, entrepreneurship are highly required so that they can make a feasible business plan to convince the lenders. As well, inter-linkage among stakeholders in a particular value chain is vital allowing them to articulate their needs better in terms of microfinance services and to have stronger economic voice in the market. This can be done with contracting, or the development of poultry stakeholders’ organizations like cooperatives, associations, private companies, etc. With these institutions, poultry stakeholders can access to different financial source.

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APPENDICES

Appendix 1: State policies for poultry value chain development

Policies for production development

Policy focus

Farm Development: (i) change the small and scattered production model to farm model, (ii) develop focused production areas, move breeding activities for goods to the midland, and allow focused production areas to receive such support as investment and environment protection; (iii) reduce the number of small breeding households in deltas with high population density; (iv) assist production organization, facilitate the land compensation, withdraw, liberation and the change of land use purpose for those invest in developing focused production farms; for example resolution 6-NQ/TW dated on the 10 November 1998 issued by the Political Bureau officially (recognizing farm organizations and issuing policies encouraging the development of farms; resolution 03/2000/NQ-CP dated 02 February 2000 and issued by the Vietnamese Government focuses on giving farm more freedom, renting land to farms for long term use as well as assisting farms with improved access to credit, supported them with science and technology, processing, marketing, and the construction of infrastructure, all of which have created good conditions for the sustainable development of farms; the Decision n o 394/QĐ-TTg dated 13/03/2006 of the Prime Minister supporting and en couraging the transformation to intensive breeding model and provide favorable tax for poultr y production, or price to rent land, support the transformation of profession, support 40% of th e interest rate for loan with the purpose of investment and the Circular no 42/2006/TT-BNN issued on 01/06/2006 of the Ministry of Agriculture and Rural Development guiding the implementation of the above decision in reality.

Science and technology: apply close breeding model (together in, together out), use modern poultry cages with automatic drinker and feeder, don’t use free breeding model, ensure bio-security, use industrial feed to increase the productivity and efficiency in breeding. For example, Instruction 63-CT/TW dated on 28 February 2001, stepped up research, science and technology application in industrialization, modernization of agriculture and rural areas.

Improving poultry breed: promoting the use and recovery of local breed, which produce quality meat and eggs, for example Tre, Ri, Ho, H’mong breed since they are resistant with local difficulties, and disease, and represent precious genes. These breeds should be crossed bred for higher productivity and efficiency, as well as to provide chicks for production.

Veterinary: (i) implement the compulsory vaccination for serious disease, especially avian influenza vaccines according to the Decision no 63/2005/QĐ-BNN issued on 13/10/2005 by the Minister of the Ministry for Agriculture and Rural Development as well as diffusing information and knowledge on bio-security solutions, antidotal and sanitary activities; (ii) capacity building for veterinarians, especially at commune level; (iii) socialize veterinary activities to mobilize labor force with professional skill to vaccinate and prevent poultry disease: (iv) supervise and control breeding facilities to ensure bio-security and food safety.

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Source: Synthesized from State’s political documents and Development Strategy for Poultry Breeding in Vietnam during 2006-2015 of the Department of Husbandry

Policies for market

Policy focus

Agro-processing development: encouraging all kinds of economic entities to invest in building slaughterhouses and processing factories to provide poultry products of sanitary, food safety and better quality, for example the Decision no 394/QĐ-TTg dated 13/03/2006 of the Prime Minister supporting the construction of concentrated slaughterhouses and processing units, providing favorable tax for poultry slaughtering and processing, or favorable price to rent land, supporting 40% of the interest rate for loan with the purpose of investment in building concentrated slaughterhouses and processing factories; and the Circular no 42/2006/TT-BNN issued on 01/06/2006 of the Ministry of Agriculture and Rural Development guiding the implementation of the above decision in reality. In addition, the State invest 42.1 million USD to plan and build focused and industrial slaughterhouses in big cities in 2007

Control poultry slaughtering: prohibiting the slaughtering of live-weight poultry in cities, town, areas with high population density, for example the Decision no 3065/QĐ-BNN-NN dated 07/11/2005 issued by the Ministry of Agriculture and Rural Development on Regulations on condition for breeding, hatching, transportation, slaughtering, and trading poultry and poultry products and the Decision 87/2005/QĐ-BNN dated 26/12/2005 on Procedure controlling animal slaughtering

Policy focus

For export market: (i) policy on export rewards (rewarding companies that were able to achieve certain levels of exports by compensating them with cash payments); (ii) export credit policy (allowing producers and exporter to access credit from State owned banks at lower interest rates in order to increase production; (iii) encouraging the export of typical poultry products with such local and special breeds as Tre, Ri, H’mong etc. breeds; (iv) export promotion policies (promoting products by providing market information, exhibition fairs, capacity building, and search of new markets).

For domestic market: (i) prohibiting the trading of live-weight poultry in cities, towns, areas with high population density for example the Decision no 3065/QĐ-BNN-NN dated 07/11/2005 issued by the Ministry of Agriculture and Rural Development on Regulations on condition for breeding, hatching, transportation, slaughtering, and trading poultry and poultry products (ii) fostering the quarantine and control of market selling poultry products, slaughterhouse, processing units to ensure food safety; (iii) product consumption policies encouraging cooperation among government- farmers- enterprises and scientists; (iv) planning and investment in the construction of clue poultry markets surrounding big cities; (v)apply Codex standards to control imported poultry products and increase import tax with certain protective tariffs for livestock products, including poultry; (vi) strictly control the cross-border poultry smuggling, destroy illegal poultry imported and apply serious sanction to smugglers.

Policies for process development

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Appendix 2: Some illustrations for loan information and follow-up activities of the Vietnam Bank for Social Policies

Loan booklet of the Vietnam Bank for Social Policy for borrowers as households

with information of borrower, loan, and responsibility

Loan with the program lending to poor households for production activities

and receipt of loan repayment

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Loan with the program lending to poor households for house building

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