Processing coffee for export at Tan An Industrial Zone in Buon Ma Thuot City. Foreign-invested companies will be banned buying agricultural products, including coffee from farmers. — VNA/VNS Photo Hong Ky

HA NOI (Biz Hub) — Foreign-invested enterprises will be banned from directly purchasing agricultural products from farmers and establishing buying networks when a new Ministry of Industry and Trade circular takes effect in June.

Circular 08/2013/TT-BCT, which goes into effect on June 7, details regulations on goods trading and directly related activities of foreign-invested enterprises in Viet Nam.

Provision 4 of Article 3 specifies that "foreign-invested enterprises already licensed to exercise the right to export can directly purchase goods from traders that have registered the trading of, or have the right to import, distribute those goods for export. They may not set up establishments for the procurement of exported goods, unless Vietnamese law or international treaty, in which Viet Nam is a member, changes the current regulation."

FDI companies have been able to dominate the market because they have more capital and human resources. The authorities have yet to find a way to equal the playing field.

According to the Minister of Agriculture and Rural Development, FDI companies have taken over 70 per cent of the animal feed industry.

In the Central Highlands, 12 FDI companies have exported 50-60 per cent of total coffee production. The Louis Dreyfus Commodities' export volume alone accounted for over 40 per cent of coffee export output in Gia Lai Province last year.

FDI companies also bought and exported 36.6 per cent of the country's pepper output last year.

Many FDI companies only bought the product and did not invest in agricultural resources, defying their investment permits' requirements, Pham Quang Dieu, chief economist of the Agricultural Market Analysis and Forecast Company, told VnEconomy.

Meanwhile, he said, domestic companies, which have supported farmers during the production process, lost out to FDI companies, which were able to pay the farmers higher prices.

The new regulations in the circular aim to prevent the domestic industry from dominating FDI firms. However, there are concerns about the fact that it could also discourage firms from investing in raw materials.

Dang Kim Son, head of the Institute of Policy and Strategy for Agriculture and Rural Development said about 30 FDI companies are collaborating with the Ministry of Agriculture and Rural Development to help the farmers achieve higher production output.

CEO of Metro Cash and Carry in Viet Nam Philippe Bacac said they were carrying out an aqua hygiene product project, under which farmers would be given support to meet EU standards, such as materials and skills training. Bacac said they would not make any profits if they followed Circular 8.

A number of experts said the relations between domestic firms and farmers were still very vague and there was a lack of mutual benefit in their relationships. Farmers earned too little, so domestic firms should work harder to collaborate with them.

"We should learn from Indonesia. Their regulations state that FDI companies are only allowed to buy from their own invested farmers and raw materials. Their permits are revoked if they don't make any investment within three years," an expert who declined to be named said. — VNS