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Inclusive Asia

Inclusive Agribusiness Roundtable in Southeast Asia

Cong Binh

in Long An Province
(Vietnam)
Developed by

Dr Vo Thi Thanh Loc

Mekong Development Ins tute, Can Tho University


v loc@ctu.edu.vn

1. Company background

1.1. Young company

1.2. Rapid growth

ong Binh is a private company specializing in


the produc on, processing and expor ng of
various types of rice, especially so cooked
rice and aroma c rice. The company was established
in June 19, 2006 with the support of Planning and
Investment Department of Long An province and
with an ini al investment of over VND100 billion.
Besides rice products, the company has other byproducts of rice industry such as broken rice, bran
and husk blocks (to be used a firewood). In the last
5 years, Cong Binh received 21 domes c and interna onal awards and quality cer fica ons.

Ini ally, Cong Binh was just a producer of rice for


domes c consump on. Its business has been significantly expanding since 2009 when Cong Binh has
modernized its technology to produce higher quality
products, especially rice for export to take advantage of Government Act 109/2010/N-CP signed
4/11/2010 rela ng to The Rice Expor ng Business
directly (not depending on Vietnam Food Associa on
VFA). Cong Binh currently exports so cooked rice
and aroma c rice to many Asian countries and other
countries around the world:

Its current annual revenue exceeds VND1,000 billion


and working capital is more than VND500 billion;
Cong Binh operates on a manufacturing area of
approximately 40,000 m with a number of 200 sta
(not farmers). Its assets include a modern system of
technology which can perform a produc on chain of
rice from drying, milling, polishing, color separa on,
packaging, storing and expor ng.

UNITED KINGDOM

Annual export volume

CHINA

~100,000
tons

HONG KONG
TAIWAN

6070%
of total rice sold

Cong Binh gains its compe ve advantage by being


able to produce consistently and uniformly high quality
products. In addi on, its business process related to
trade and service are very eec ve and operate at
a reasonable cost. The company is very proac ve of
input-output processes, has an excellent reputa on
and business ethics. It takes care of its customers for
the long term and invests in the development of new
markets.

SINGAPORE

MALAYSIA

INDONESIA
AUSTRALIA

Growth rates of Cong Binh are 50% annually in terms


of turnover and 30% annually in terms of profit. The
company has opportuni es to expand its market
share through its interna onal strategic partners.
However, it s ll lacks the needed investment capital,
and has limited produc on capacity to be able to
accept larger deals proposed by those partners. In
general, a lack of access to credits and loan is the most
dicult factor for Cong Binh to expand its scale of
business opera on.

2. Working with farmers


Although the company was formed in June 19, 2006,
Cong Binh has started establishing linkages with
farmers only in 2014 due to the high market demand
for high quality products and the opportunity arising
from decree No. 109/2010/N-CP, dated in Nov 4,
2010 related to rice export directly without help from
Vietnam Food Associa on (VFA) and other agencies.

companys oce in Vietnam). Its facili es can perform,


a er harvested rice, all the required steps including
drying, milling, polishing, color separa on, packaging,
and storing for its final products. Furthermore, a
long-term goal of expor ng a high quality of specialty rice, Cong Binh has been very proac ve in the
analysis of the overseas rice market (sta are recruited
from universi es and then retrained carefully from
Ho Chi Minh city and at the company also) and therefore the company has much valuable informa on and
knowledge to share with linked farmers about what
need to produce in terms of quality and quan ty.
They are the core of the value chain produc on and
distribu on with linkage models to develop it for a
long-term stable and sustainable business.

Since 2014, Cong Binh has invested in developing


areas to produce types of rice, in terms of quan ty
and quality that meets the requirements of export
markets. Currently, Cong Binh has investments for
linkages with farmers to produce rice at provinces
of Long An, Soc Trang, and Hau Giang. The scale for
linkages is more than 3,000 farm households with
total area exceeding 3,000 ha.

At present, total revenue and income of the company


increases annually, its total costs are s ll increasing
(but the growth rate of revenue is higher than that
of costs) because there is currently an investment in
modern produc on lines from Japan, costs of searching
for new markets abroad, label cost, and rice seed
from research ins tutes of rice in the Mekong Delta.
Cong Binh is, however, aiming for a rice specialty
with higher quality due to current market demands,
new customers and modern technology to produce it.
These costs will be decreased when the company has
stable markets (the market is developing now), which
would bring more profit in the future.

Target objects for the companys linkages include


coopera ves (Cs), coopera ve groups (CGs), and individual farmers (F) in the selected geographical area with
natural condi ons suitable for growing the company's
rice varie es. This op mizes the compe ve advantage
of material regions to produce higher quality rice at a
lower cost compared to other regions.

2.1. Incen ves to become


more inclusive
Market development

2.2. Value chain content

As men oned above, Cong Binh's business has significantly expanded since 2009 a er the decree
No. 109/2010/N-CP, dated in Nov 4, 2010 of the
government on Rice export business. The decree
has provided opportuni es for private companies as
Cong Binh to export rice directly. Cong Binh took
that challenge and invested in an assembly line produc on technology to produce rice (the technology
comes from Japan, the companys sta were trained,
and service available within 24 hours by the Japanese

Cong Binh par cipates in RVT rice value chain as a


key actor for both providing input materials in kind
and cash, and buying all paddy produced by farmers.
However, Cong Binh is working in both rice linkage
and non-linkage models.

Map of Rice Value chain without linkage model with Cong Binh in 2015
In this map of value chain, Cong Binh is one of the export companies who buys rice in the value chain (not model
linkage); the amount of rice from each company depends on its demand. Suppliers are seed companies and local input
wholesalers that the farmers buy for their produc on. Cong Binh and other export companies can buy both paddy
and rice from collectors and millers along the chain. Normally, export companies including Cong Binh, have their own
collectors and millers to supply.

INPUT
Supplier
Seed
Agri.
materials

PRODUCTION
Farmer
CGs

COLLECTION

MILLING

TRADING

Collectors

CONSUMPTION

Wholesaler
Milling

Cong
Binh Co.

Retailer

Domestic
user
Export

Institute/university,
Extension center, input Co.
Banks
Local governments at all levels

Map of RVT rice Value chain with Cong Binhs linkage in 2015
In this case, Cong Binh plays a role of both input supplier and rice buyer in the value chain (concentrated model).
The dierences of two above models are below.

INPUT

PRODUCTION

Cong Binhs
Supplier
Seed
Agri.
materials in
cash

MILLING TRADING

RVT Rice
Farmers in
Cs/CGs

Cong Binh Co.

Extension center,
Input Co. & processing Co.
Bank

CONSUMPTION

Export

Comparison of dierences with/without linkages


with Cong Binh

As men oned above, Cong Binh buys rice and paddy


through two channels:
1. from farmers from its own linkage model
2. from collectors, traders and non-linkage farmers.

The following table show benefits of linkage model


compared to the non-linkage one. Without middle
actors, benefits are higher profit/kg of rice for farmer
and be er rice quality.

Without farmers linkage

With farmers linkage (RVT rice)

Cong Binh supplies nothing to the farmer, even


link to input suppliers

Cong Binh provides RVT seed and guarantee quality


to farmers along with input materials in cash

Rice value Chain has 6 func ons and 8 actors

Rice value Chain has only 4 func ons and 4 actors;


farmers sell 100% of their rice produc on to
Cong Binh directly

Cong Binh has no decision making involvement in


any produc on ma ers of farmers

Farmers produce rice according to quality procedures developed by Cong Binh

Farmers receive no input capital from Cong Binh

Farmers receive support in terms of quality rice


seeds and advanced funds as well as selling all
their paddy to Cong Binh

Cong Binh sells many varie es of rice, in which


rice export volume is between 60 and 65%, the
remain percentage is for domes c users.

RVT rice export volume is 100%

Share of profit/kg to farmer is 30%, other actors


in the value chain receive 70%

Profit share to farmer and Cong Binh is 5050%;


there is nobody else in the rice chain. In this case,
other actors are not related; they do their job with
other varie es of rice

Farmers need loans for buying their input materials that cause high produc on costs due to bank
interest

Cong Binh provides rice seed and cash in advance


for farmers and that is deducted a er harves ng
without interest

(they are close suppliers of Cong Binh for a long


me as men oned above).
Output partners of Cong Binh are restaurants/
hotels, industrial zones, wholesalers/retailers
(domes c consump on), and many rice importers
located in dierent countries.
Local government is the third partner for model
linkage development of the company as well as
technical support.
Research ins tutes help to produce and develop
rice seed.

2.3. Extent of inclusiveness


regarding linked farmers
The extent of inclusiveness has been evaluated by
using the LINK methodology (CIAT, h ps://cgspace.
cgiar.org/handle/10568/49606)
Chain-wide collabora on
In business opera ons, Cong Binh has received
support from various sources, including many
Decisions, Decrees and regula ons rela ng to
business development, expor ng, and market
informa on from Chamber of Commerce and
Industry of Vietnam (VCCI), Ministry of Trade and
Industry, Ministry of Agriculture and Rural Development (MARD), the Center of Trade Promo on,
trade counselor, the Department of Agriculture
and Rural Development, Department of Trade and
Industry, Department of Planning and Investment,
Department of Natural Resources Environment,
program for business partners, program of agricultural restructure and linkage program between
farmer and company, coopera ve organiza ons
and produc on informa on. For instance, VCCI
organizes training courses or workshops related
to free trade agreements, foreign CEO business
experience, even receives feedback from businessmen to propose new policies to MARD.
Cong Binh realizes that local governments play a
very important role in developing a successful
business in linkage between Cong Binh and farmers,
coopera ves, and group coopera ves. Without
local governments, these important linkages would
not be possible because local governments help
by choosing suitable land for rice produc on, CGs
organiza on and technical support. Local governments provide support in terms of crop metable,
integrated pest management (IPM), Cs and CGs
establishment, three-side contract making, monitoring, and managing produc on and environmental
protec on procedures without payment from the
company except some money for technicians to
work more for the companys model.
Cong Binh also receives support from the Vietnamese embassies for introducing partners abroad
and market informa on.
Cong Binh is a member of VCCI and follow the VCCI
rules (see website: www.vcci.com), so it receives
benefits of business training and market informaon for both domes c and interna onal segments.
Input partners of Cong Binh include suppliers of
rice seeds and other materials, farmers, cooperaves, group coopera ves, traders and rice millers

New market linkages


Cong Binh is currently linking farmers to produce
4 dierent varie es of rice: RVT, Nang Hoa,
OM4900, and OM5451 for the demand of the
export market. Of those varie es, RVT is the most
significant one. RVT accounts for 40% of rice areas
and 30% of the total turnover of Cong Binh. The
company is currently is in a monopoly posi on
regarding export of RVT rice. The reasons for extra
support (training, seed and cash) to the farmers
are to help farmers reduce produc on costs (if not
farmers must pay interest to the bank to buy input
materials) and to increase awareness regarding
market requirements to help Cong Binh have stable
rice regions with high quality.
Fair and transparent governance
The company buys all paddy produced by the
farmers at VND200 per kilogram, which is higher
than the market price at harvest me that farmers
outside the linkage model can achieve. At this
price, the benefit would provide an even split of
profit/kg, 5050% between the farmer and Cong
Binh. Without the linkage, Cong Binh has to buy
paddy and rice through other actors in the chain
(collector, traders); in this case, Cong Binh s ll
receive a profit/kg percentage of 50% (remain 20%
to collectors) but would not be able to guarantee
product quality because paddy or rice from collectors is mixed many other varie es of rice.
The linkage brings to the farmer higher and stable
income significantly, especially for poor farmers
who do not normally possess enough financial resources to acquire input materials to grow the rice
crop. Without linkage, the farmer has to acquire
loans from banks and pay interest as well as
paying interest to input suppliers a er harves ng.
Feedback from many CGs leaders indicates that
linked farmers are extremely happy with this kind
of linkage of Cong Binh. The farmers are sa sfied
with the stability and quality of input supply, the
technical guidance received and the guaranteed
sale of rice through Cong Binh.

Process to ensure transparency

Equitable access to services

Step 1
A er iden fying a poten al and suitable growing
area for RVT rice, Cong Binh works with the local
governments to ini ate the linkage setup. Specifically,
Long An DARD facilitates the forma on of farmer
CGs and helps them to vote and choose a Group
Leader and Vice-Leader. Long An extension centre
from DARD help farmers to follow the technical
processes required by Cong Binh, besides a salary
from the government, technicians are paid by the
company to monitor large fields of the company.
At present, all local governments strongly encourage
and support this kind of linkage between companies
and local farmers.

Cong Binh has linkages with suppliers to ensure


that farmers can receive input materials with
quality standards at stable prices.
Farmers belonging Cong Binh linkage model do
not need take out loans from third party as
Cong Binh company provides input materials in advance including rice seed and cash (VND 5 million).
So far, nobody has Cong Binh gone into compeon with such investment of rice material areas.
Farmers outside the linkage model need to take
out loans from Agri. Bank for buying their input
materials seed, fer lizer and pes cides). They
can rela vely easily access loans easily with their
land cer fica on.

Step 2
Cong Binh signs contracts with the CGs represented
by group leader and local government village president (three-side contract). In the contract, Cong Binh
provides RVT seed and fund for fer liza on. For
instance, in 2014, Cong Binh supplied VND12 million
per ha to farmer for input materials. However, in 2015
Cong Binh will supply RVT rice seed (to ensure quality
of seed to the farmer) along with VND5 million per
ha in advance to the farmer for other inputs (fer lizer,
pes cides); Cong Binhs technicians and Long An
extension centre provides guidance such as crop calendar, produc on, monitoring; and solving problems
happening to produc on procedures when needed.
The group leader then signs a contract with Cong Binh
on the farmer's behalf. The group leader receives RVT
rice seed and the cash in advance given by Cong Binh
(both cash in advance and rice seed is 100% of input
materials for rice produc on). The group leaders then
distribute the seeds and funds to each farmer based
on the rice area commi ed by the household. The
farmer signs acknowledgments of fund and material
received.

Step

1
Step

Step 3
710 days before rice harvest, Cong Binh determines the price of the rice with the farmer. It is done
in CGs mee ng. This determined price is guaranteed
to be higher than the market price by 200 VND/kg,
and this price is updated in the contract. Cong Binh
also provides bags for free to farmers to store rice
with Cong Binh informa on on the bag (farmers are
very happy with this decision because of both the
free bags and Cong Binh brand name on the the bag).
Cong Binh pays the farmers in cash a er deduc ng all
advanced expenses.

Step

3. Lessons learnt
While there are many factors for the success of
Cong Binh, the following were emphasized by the
company itself:

From lessons of many unsuccessful linkages implemented in the Mekong Delta including those done by
Cong Binh itself for other varie es of rice, Cong Binh
has made significant improvements in the program
and implementa on of its RVT linkage with farmers.
Exceeding its targets, the RVT linkage has proved to
be very successful.

Cong Binh has a well-organized work force with


high capacity of finding overseas markets for rice
products. This is also the main reason why marke ng expense is high (about VND 3 billion per
year although demand for this ac vity is much
more, the company only uses the above amount),
along with cost of technology investment.

Rice farmers were able to increases their income and


profit. This has been more significant for poor farm
households. Farmers are obliged to sells 100% of
their paddy to Cong Binh (no side-selling is allowed).
Linkage rice meets the high quality demanded by the
market. More and more farmers desire to register to
become members of CGs belonging to Cong Binhs
linkage so that they can enjoy a higher share of profit
(50%50%), rather than the previous (30%70%).
The most significant achievement in this successful
linkage model is that Cong Binh has been able to
work hand-in-hand with farmers to communicate,
listen, and make joint decisions to iden fy solu ons
that are mutually beneficial to all par es a win-win
scenario. In addi on, Cong Binh shows that business
ethics, reputa on, willing to share its benefits with
farmers are very important factors for success. In return, Cong Binh expects the farmers to produce the
highest quality according to technical specifica ons,
and maintain a clean environment at the same me.

Cong Binh develops its market search by par cipa ng in various domes c and interna onal trade
shows and exhibi ons; from trade promo on
centre of Cong Binh company, through various
government agencies, local leaders and from Internet searches.
With the linkage model, Cong Binh understands
its partners (both the input and output partners).
Cong Binh has a reasonable and fair share of profit
with farmer; direct and united communica on
between both sides regarding linkage contract
ma ers witnessed by the local government.
Group leader and sub-leader are reputable persons
in the CGs. They are the most important links
to Cong Binh. They receive a payment between
VND80,000 and 100,000 for each ton of paddy
delivered to Cong Binh Site, in which they have to
pay transporta on cost about 50% of the above
payment. So the group leaders income for this
ac vity is about VND4050,000 per ton that
makes them be very responsible and eec ve in
their works.
Cong Binh is a very capable, enthusias c, and
ethical business.

References
1. Direct interview by structured ques onnaires with Mr. Phan Cong Binh, General Manager/Owner of
Cong Binh Company.
2. Interviews by unstructured ques onnaires with two RVT Group Coopera ves leaders:
Mr. Binh (tel. 0942089100) and Mr. Bui Van Dau (tel. 01672314407) at Tan Tru, Long An Province.
3. Government Act 109/2010/N-CP signed 4/11/2010 rela ng to The Rice Expor ng Business
4. Cong Binh website: h p://congbinhrice.com.vn/ was used to provide general informa on about the
company, its products, and awards etc.

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