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International SEPT Program, University of Leipzig

Upgrading in the global value chain: An analysis of


Vietnams Coconut products value chain

Name of Student: HO HUONG GIANG


Email of Student: giangho.ftu@gmail.com
SEPT ID Number: HC03-11
Matriculation Number: 3748396
Module Number: Module 103 New Approaches of SME promotion
Supervisor: Prof. Dr. Md. Noor Un Nabi
Date of Submission: 30 March 2015

TABLE OF CONTENTS
List of Abbreviations .......................................................................................................... 3
List of Figures ..................................................................................................................... 3
List of Tables ...................................................................................................................... 3
List of Charts....................................................................................................................... 4
ABSTRACT ....................................................................................................................... 5
1. INTRODUCTION ........................................................................................................ 5
1.1. General introduction to the issue addressed in essay ............................................... 5
1.2. Rationale .................................................................................................................. 7
1.3. Central question and objectives ............................................................................... 7
1.4. Scope of the essay .................................................................................................... 8
2. LITERATURE REVIEW ............................................................................................ 8
2.1. Introduction to Upgrading in GVC .......................................................................... 8
2.2. Types of upgrading ................................................................................................ 10
2.3. Trajectories of upgrading ....................................................................................... 11
2.4. GVCs for agricultural products .............................................................................. 12
3. CURRENT SITUATION OF VIETNAM COCONUT PRODUCTS GVC .......... 14
3.1. Overview about the Vietnamese Coconut and Coconut Based Products Industry 14
3.1.1. Exporting and exporting value ........................................................................ 14
3.1.2. Main export coconut products ........................................................................ 16
3.1.3. Main market of Exported coconuts ................................................................. 17
3.2. GVC analysis of coconut products ........................................................................ 18
3.2.1. GVC map ........................................................................................................ 18
3.2.2. Key players ..................................................................................................... 19
3.2.3. Linkages in GVC ............................................................................................ 22
3.3. Opportunities of Upgrading in GVC of coconut product industry ........................ 22
3.3.1. Improvement in Regional planning of and processing (Process upgrading) .. 22
3.3.2. Improvement in quality standard (Product upgrading) ................................... 23
3.3.3. Improvement in human resources management (Functional upgrading) ....... 23
3.3.4. Linkages and reposition .................................................................................. 24
3.3.5. Market Research ............................................................................................. 25
3.3.6. Diversification in ranges of products .............................................................. 25
4. CONCLUSION ........................................................................................................... 26
BIBLIOGRAPHY ........................................................................................................... 27

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List of Abbreviations
-

AFTA

: ASEAN Free Trade Area

ASEAN

: Association of South East Asia Nations

EEC

: European Economic Community

FAO

: Food and Agriculture Organization

FAOSTAT

: Food and Agriculture Organizations Statistics

GDP

: Gross Domestic Product

GMP

: Good Manufacturing Practice

GVC

: Global Value Chain

HACCP

: Hazard Analysis and Critical Control Points

JSC

: Joint Stock Company

ISO

: International Organization for Standardization

MARD

: Ministry of Agriculture and Rural Development

NGO

: Non-governmental Organization

SMEs

: Small and Medium- sized Enterprises

UNIDO

: United Nations Industrial Development Organization

USD

: US Dollar

WTO

: World Trade Organization

List of Figures
Figure 1: Michael Porters Value Chain
Figure 2: A typical high-value agricultural value chain
Figure 3: Vietnam coconut products value chain

List of Tables
Table 1: Upgrading trajectory
Table 2: Example of Upgrading Trajectories in High-value Agricultural Value Chains
Table 3: Exporting value of Vietnamese coconut products by types of exported products
from 2007 2011

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Table 4: Exporting value of Vietnamese coconut products by imported markets


from 2007 2011
Table 5: Expected acreage of coconut plantation for improvement and new cultivation

List of Charts
Chart 1: The production of Vietnamese Coconut products Industry from 2007 - 2011
Chart 2: Exporting Value of Vietnamese Coconut products from 2007 - 2011
Chart 3: The number of harvested coconut acreage and coconut productivity in Vietnam from
2007 - 2011

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ABSTRACT
The study examined the GVCs of coconut product industry in Vietnam and opportunities for
upgrading on the basis of natural resources of production, linkages between actors and
economic trend in the concept of globalization. Global value chain (GVC) theory from
previous academic research of Gary Gereffi, Karina Fernandez-Stark, John Humphrey, Carto
Pietrobelli, Robertta Rabellotti, etc. has been used in order to analyze the structure, key
players as well as the types of upgrading of Vietnams coconut product producing industry.
The findings of the research indicated that opportunities for upgrading in GVC can be
conducted through improvements in cultivation methods, quality control by international
certification, technology improvements, human resources training and the like. Due to this,
both SMEs and the whole value chain might increase the productivity and competitiveness in
coconut product sector and ensure the access the international markets.
Key words: global value chain, upgrading, coconut product industry, opportunities for
upgrading, Vietnam

1. INTRODUCTION
1.1. General introduction to the issue addressed in essay
A disputable fact that the agriculture has been increasingly played an important role in
developing dynamic economy generally and gaining higher position of Vietnam in the world
particularly. Due to the reformation called Doi Moi (means change and renewal) in 1986 and
the participation in any regional, bilateral and multilateral trade organizations during the
process of economic integration with global markets such as European Economic
Community (EEC) in 1992, Association of South East Asia Nations (ASEAN), ASEAN Free
Trade Area (AFTA) in 1995, World Trade Organization (WTO) in 2007, etc. Vietnam has
significantly achieved the tremendous growth, especially in agriculture industry. According
to the report of Ministry of Agriculture and Rural Development in 2014, agriculture
accounted for 18.12% of GDP, increasing 2.6% in comparison to 2013. A great deal of
Vietnamese agricultural products have become market leading not only domestically but also
internationally, including rice, coffee, tea leaves, cashew nuts, and the like. Additionally, the
Coconut products have been seemed to be the potentially profitable commodity in the
economic development strategies to 2020 owing to their export value and global market

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demand.
In fact, Coconut fruit has such a wide range of benefits for peoples utilization that there has
been a variety of goods made from it. Furthermore, in terms of biological characteristics and
adaptability in natural environments, it is easily suitable for different types of soil, especially
in tropical climates. In accordance with the annual report of Dong Go Coconut Center in
2011, there are approximately 150,00 hectares of coconut plantation, and Ben Tre province
accounted for 35% in area and over 45% in coconut quantity nationwide. Therefore, Ben Tre
is considered as the largest export place with the most modern industry of manufacturing
coconuts in Vietnam. Actually, Vietnam has formed a value chain for coconut and coconut
based product industry with different stages including cultivation, processor, production,
marketing and export, which is identified as buyer-driven where the importers have
considerable influence on determining the standard of products. Nevertheless, MARD stated
that more than 85% of rural households have participated in the GVC of coconut product
sector until 2007, which leads to the enormous difficulties in control the inputs quality for
the next stages.
In addition, there is a lack of strong linkages between both actors and stages in the value
chain of coconut product industry, not only vertical linkages but also horizontal linkages.
Thus, Vietnamese coconut products have become less competitive than the others exported
from Philippines, Indonesia and India, etc. in global markets during the process of
international integration. In short, the whole GVC needs other coordination forms, pressuring
local producers to conform to certain regulations and meet the changes in customer behavior.
Ingrid Fromm (2007) describe that these SMEs in developing countries are forced to upgrade
under competitive pressures in the markets, otherwise their participation in value chains
cannot be ensured. A variety of research and study of Humphrey 2003; Humphrey and
Schmitz 2000; Pietrobelli and Rabellotti 2004; Gibbon 2003 and the like in many territories
and industries; present evidence of the importance of upgrading to SMEs in GVCs,
particularly in the agro-food industry. Therefore, in order to increase the productivity and
competitiveness for both SMEs and the whole value chain by taking advantage of potential
resources in Vietnam as well as market opportunities given by globalization, upgrading in
Vietnamese coconut and coconut product sector is significantly essential and important.

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1.2. Rationale
As mentioned above, the global markets have become more and more competitive during the
integration through changes in customer behavior and standard system. Moreover, despite of
the importance of agriculture in Vietnams economy, development process in this sector is
quite slow without clear strategy planning. Economic strategies of MARD and Vietnam
Coconut Association until 2020 state that local, regional and national authorities and trading
agents will fully support for development of coconut trees in both quality and quantity.
Therefore, it is extremely important and essential to examine GVCs, and more precisely
opportunities of upgrading in GVC of coconut product industry. This might become a
workable example of shifting the GVC of one individual industry (coconut product industry)
to higher activities with higher income in the whole picture of Vietnams agriculture sector.
Thanks to this, that typical model of upgrading in GVC can be provided for other industries
having the same patterns and conditions with coconut product industry, which is not only
beneficial for improvements in individual GVC of products but also for the long-term and
sustainable developments in agriculture sector.
1.3. Central question and objectives
The paper is conducted in order to answer the set of research questions is as follows:
What is the current situation of coconut and coconut product industry?
Who are key players in the GVC of Vietnams coconut product?
How are the linkages (vertical linkages and horizontal linkages) between all actors at
different stages of the value chain GVC?
How is the value added geographically distributed between Finland and other
countries?
A global value chain framework using identifies relevant participants and frame key
questions, and the objectives of this paper are:
Explanation the current situation of coconut and coconut based product industry.
The structure of coconut product value chain is analyzed based on the GVC theories.
Identification of opportunities of upgrading together with explanation of
disadvantages of actors in different stages of coconut product value chain.

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1.4. Scope of the essay


The paper is structured as follows: the first part explains the theories on value chains, global
value chain, upgrading and a trajectory of upgrading, global value chain of high value agrofood. The second part illustrates the case study on GVC of coconut product industry in
Vietnam. Specifically, the possible opportunities for upgrading on the basis of the nature of
resources and support agents are addressed.
This study mainly focuses on the GVC analysis of coconut product industry in the whole
agriculture sector. All data and statistics using in this study indicate the current situation of
exported fresh coconut fruit and coconut products as well as opportunities for upgrading in
GVC during the period time from 2007 2011 and 2012 2020, respectively due to trade
policies of MARD and Vietnam Coconut Association. Furthermore, the paper principally
analyze the most important actors in the coconut product value chain, including coconut
farmers, collectors/wholesalers, processors, exporters, importers.

2. LITERATURE REVIEW
2.1. Introduction to Upgrading in GVC
Actually, a value chain analyses have been carried out since 1960s in order to plan
development strategies for mineral - exporting countries at that time. According to Gereffi
(1999), Kaplinsky and Readman (2011), UNIO (2002), the activities of manufacturing the
finished goods from the inputs and selling them to the market for value added are the simply
main concentration of a value chain. However, the term of Value Chain and its approach on
the point of view of business management became popular when it was used in the book of
Competitive Advantage of Michael Porter in 1985 (Competitive Advantage: Creating and
Sustaining Superior Performance). He described that a value chain is a wide range of
operation activities of a firm in a specific industry such as design, production, marketing,
distribution, or customer care with the purpose of producing a precious product or service to
the end market. Those have been carried out in an individual firm or different firms but in
high global integration, inter-firm networks are responsible for a value chain. The extension
of both framework and concept of a value chain to different firms seems to be useful in
strategic analysis as well as supply chain and distribution network management (Michael
Porter, 1985).

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Figure 1: Michael E. Porters Value Chain

Source: Adapted from Michael E. Porter (1985)


GVC definition would be used when above mentioned activities are coordinated across the regions or
geographies. Based on the study of Gereffi and Korzeniewicz (1995), GCV analyses mainly
concentrate on four aspects including (1) the input-output structure of the chain (the process of raw
materials and finished products); (2) the territorial consideration; (3) the GVCs structure (the
management strategies of GVCs); (4) the institutional framework. From four dimensions of GVC
exploration, Gereffi (1999); Humphrey and Schmidt (2002) contributed to the development of GVC
analysis with the element referred as upgrading (which is the powerful movement when the lead firms
change their positions in the GVCs).
Gereffi (1999) stated that there are two different kinds of international economic networks, including
producer-driven and buyer-driven chains. Therefore, buyers and producers are responsible for the
duty of governance. Furthermore, while manufacturers are centralized in production network
coordination in a producer-driven commodity chain, production networks are transferred to exporting
countries, mainly in developing territories in a buyer-driven chain (Humphrey and Schmitz 2002;
Gibbon and Ponte 2005). The role of lead firms in the interaction between the value chains linkages
as well as in the upgrading activities in a particular connection, which are dominant parties in the
value chains, was mentioned in the paper of Gereffi (1999).
Governance and Upgrading are two different points of view, which are using in the GVC

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approach to analyze the international economy as top down view and bottom up view, respectively
(Gary Gereffi and Karina Fernandez-Stark, 2011, p.12). While Gary Gereffi (2005b) states that the
concept for governance in GVCs concentrates on lead firms. Economic upgrading in the GVC can be
understood as the process in which actors in the value chains, regions or countries shift in activities
for higher incomes. In other words, The upgrading process is seen as one in which firms acquires
capacities and once they have been acquired, the firms are able to find foreign buyers wishing to
acquire products embodying these capabilities (John Humphrey, 2004, p.9). Ingrid Fromm (2007)
also describes firms in the value chain might have opportunities to enhance the competitiveness
through making use of technologies and market linkages. According to Gibbon (2003), there are two
steps for analyzing opportunities of upgrading in the GVCs (especially for producers in growing
countries). Initially, the reward structure and the roles should be identified. Next step is to research
the incentives in order to fulfill these roles. The pressing issue of firms high integration into GVCs
by quasi-hierarchical relationships is the dependence. As the fact that the more firms products are
bought by strong global clients, the more dependent they are. This leads to the their specialty in one
activity (e.g. production) but marketing or design. Humphrey (2003) suggests that firms should have a
variety of markets, excellent skills in manufacturing and using knowledge.
2.2. Types of upgrading
John Humphrey (2004) and Ingrid Fromm (2007) has identified that the association of policies,
institutions, strategies, technologies and labor skills by regions, countries has impacted on upgrading
success. Process upgrading, product upgrading, functional upgrading and chain or inter-sectoral
upgrading within GVCs analysis are four categories of upgrading mentioned in this part as follows.
Process upgrading improves the efficiency of production by using modern technology or
transforming the production structure, which results in reducing production cost together with
maximizing productivity due to output increase, e.g. Guatemalan horticulture and handicrafts.
Product upgrading increases higher value added and quality standards of products. Therefore,
the product lines often become more advanced.
Functional upgrading is the entry into new, superior function or high value added level in the
value chain. In order to achieve that, actors might flow qualified information in the entire
value chain or a single lead firm can achieve more productive capacity in different stages.
Inter-sectoral upgrading is the entry into new end markets by applying the competence and
knowledge acquiring or gaining from the production of another product.
Gibbon (2003) concluded that it is difficult to classify upgrading types, even the differences between

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product and process upgrading. Actually, the occurrence of upgrading in GVCs seems popular and
possible but process and product upgrading are more common, while functional upgrading is more
rarely achieved (Carlo Pietrobelli and Roberta Rabellotti, 2004, p. 1). Furthermore, their study about
agricultural products in Latin America has shown that product and process upgrading are potential
opportunities in quasi-hierarchical chains.
Carlo Pietrobelli and Rabellotti Roberta (2004) announced that on the basis of the different structure
of input-output and the nations conventional conditions, there are different patterns of upgrading. In
industries, linear upgrading is acceptable but in countries, knowledge in a stage of the value chain
must be gained to prepare for next stages upgrading.

2.3. Trajectories of upgrading


In the research conducted in 2001, Kaplinsky and Readman mentioned a significant trajectory for
SMEs. Its order is process upgrading, product upgrading, functional upgrading and inter-sectorial
upgrading.
Table 1: Upgrading trajectory
The suppliers mainly focus on production on the
Assembly

basis of specifications and inputs from buyers (e.g.


cut-make-and-trim in textile and garment sector).
The suppliers expand the range of manufacturing by

Original equipment manufacture (OEM)

being dominant in inputs and logistics functions. The


responsibility of buyers is to design and marketing
(e.g. full package in textile sector).

Original design manufacture (ODM)

Apart from activities in OEM, the suppliers


cooperate with the buyers in designing products that
are embedded buyers brand.
The suppliers become extremely active in all

Original brand manufacturer (OBM)

functions form manufacturing, designing, marketing


and logistics for their own products and their own
brand as well.

Source: Adapted from Kaplinsky and Readman (2001)

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2.4. GVCs for agricultural products


Fernander-Stark & Bamber (2012) stated that Special handling like being processed one or more postharvest stages before reaching to the end market is one of requirements of high-value agro-food. In
order to prevent damage to fragile produce, more labor force is required in comparison to other
traditional agriculture (mainly based on mechanization) (Joshi et al., 2004). Because these products
must be adaptive to food safety and food security regulations, quality has increasingly become a key
role for the purpose of achieving net higher process in more profitable markets (Weignberger and
Lumpkin, 2007). A typical high-value agricultural value chain is illustrated as bellows.

Figure 2: A typical high-value agricultural value chain

Source: Adapted from Fernander-Stark & Bamber (2012)

Figure 2 has shown that traditionally, high value agricultural product sectors consist of all sizes of
producers, which joined spot market where the highest bidders were most powerful in buying
products due to the demand and supply forces (Fernander-Stark et al., 2012, p.8). In accordance with
Reardon et al., 2009; van der Mer, 2006), basically, individual farmers were responsible for selecting
crop varieties, determining quality level and production processes. However, in the upward trend of
global integration, the complex agro-food system and market linkage systems have gradually been the
replacement of the simple arrangement and traditional markets, respectively. In addition, the national,
regional and international supply chains have become more dominant than local sourcing while

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requirements of standard have to be met for the purpose of getting an entry to the GVCs. Besides, not
only large but also producers must follow the comprehensive instructions on how to cultivate, harvest,
transport, process and store agricultural products from national and global lead firms so as to access
to the markets. That is the reason why these challenges will become the barriers to access high value
agricultural product markets if they do not to upgrade in the GVCs (Lee et al. 2010).
Table 2: Example of Upgrading Trajectories in High-value Agricultural Value Chains

Source: Adapted from Fernander-Stark & Bamber (2012)


Moreover, these firms in developing nations encounter the barriers when participating in the high
value agro-food value chain, e.g. the shortage of transportation, engine and water infrastructure, the
absence of important upstream value chain actors or weak regulatory institutions, etc. (Hazell et al.
2010, Makelova et al. 2009).

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3. CURRENT SITUATION OF VIETNAM COCONUT PRODUCTS GVC


3.1. Overview about the Vietnamese Coconut and Coconut Based Products Industry
According to FAO statistics 2014, coconuts are planned in more than 90 countries all over the world
with the plantation in approximately 11.80 million hectares and the production at 61.7 million tons
annum. From 2007 to 2011, the production of coconut products increased continuously (from
1,128,500 tones in 2007 to 1,312,200 tones in 2011) despite of the dramatic reduction in agriculture
export in 2008 and 2010 in Vietnam. In comparison to the total production quantity, coconuts account
for more than 20%. This has reinforced the strategic position of Vietnam as one of eight leading
coconut exporters all over the world.

Chart 1: The production of Vietnamese Coconut products Industry


from 2007 - 2011

Production Quantity (Tonnes)

7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
Coconut products

2007
1,128,500

2008
1,162,200

2009
1,201,563

2010
1,272,700

2011
1,312,200

Agriculture products

3,908,518

3,238,262

6,191,894

5,309,902

6,555,535

Source: Adapted from FAOSTAT (2011)

3.1.1. Exporting and exporting value


The annual export value of coconut products has been increasing over the last 5 years (between 2007
and 2011), which contributed to the total export value of agriculture products by the country in
Vietnam (nearly 2%). From the Chart 2, the export value of coconut products in 2011 was more than
fourfold that in 2007 (with 48,621 thousand USD in 2011 and 13,007 thousand USD in 2007). This

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trend has reflected the global growing demand for organic food like coconut products and the rapid
expansion of market due to the integration with WTO in the year of 2007. According to Vietnam
Trade Promotion Agency (2012), the price of goods based on coconuts rose dramatically in the first
ten months in 2011, typically, the copra prices reached to 3.070 USD per ton. Furthermore, in
Philippines, the volume of exported coconuts declined nearly 46.2% as a consequence of El Nino
phenomena (Trinh, N.T.P and Thao, P.T., 2011).

Chart 2: Exporting Value of Vietnamese Coconut products


from 2007 - 2011
500,000
Exported Value (1,000 USD)

450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
Eported Coconut products

2007
173,085

2008
229,674

2009
220,968

2010
228,755

2011
451,613

Source: Adapted from Report of General Department of Vietnam customs (2011)


Moreover, another reason for the growth in production was the enlargement in net acreage for
cultivating coconuts nationwide. In Vietnam, Ben Tre province is considered as ideal area for
developing coconut products industry on the basis of advantageous soil types and climate conditions.
Coconuts fields have mainly located in Ben Tre province as a result of the typically tropical climate,
which is suitable for the germination. In 2011, Ben Tre province has approximately 52,500 ha of the
surface growing coconuts and 40,118 ha area harvested (occupying more than 30% of total national
growing area) with more than 42,432 million coconut fruits (Quoc, T.V., 2012). As can be seen from
Chart 2, overall, the acreage of land for cultivating coconuts and the productivity increased during the
period of time from 2007 to 2011, except for the year of 2010 when the economic strategies was not
well-matched with to the realistic global and local demand.

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Area havested (Hectares)


Yield (Hectogram/Hectare)

Chart 3: The number of harvested coconut acreage and coconut


productivity in Vietnam from 2007 - 2011
145,000
140,000
135,000
130,000
125,000
120,000
115,000
110,000
105,000

2007

2008

2009

2010

2011

Area havested

119,300

121,100

121,500

140,300

127,017

Yield

86,748

90,429

92,881

82,837

94,599

96,000
94,000
92,000
90,000
88,000
86,000
84,000
82,000
80,000
78,000
76,000

Source: Adapted from Report of General Department of Vietnam customs (2011)


3.1.2. Main export coconut products
Table 3: Exporting value of Vietnamese coconut products by types of exported products
from 2007 2011 (Unit: USD 1,000)
Year

2007

2008

2009

2010

2011

Fresh Coconuts

44,238

68,720

57,543

47,114

91,419

Coconut Fiber

39,702

40,008

53,718

40,144

68,317

Desiccated Coconut

41,061

68,360

45,909

65,385

119,360

Coconut Candy

19,726

21,211

18,603

16,684

32,060

Coir Rope

8,379

6,685

8,515

10,152

22,591

Shell Charcoal

8,097

10,477

12,112

6,452

6,497

Coconut Jelly

2,780

4,071

2,106

3,330

50,618

Others

9,102

10,142

22,462

39,494

60,751

173,085

229,674

220,968

228,755

451,613

Total

Source: Adapted from Report of General Department of Vietnam customs (2011)

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There are various coconut products as an exported commodity with more than 30 types, from fresh
coconut fruits to manufactured items throughout the state-of-art processing systems. Overall, as can
be seen from Table 3, the exporting value of coconut products increased during the 5-year period
from 2007 to 2011. This number suffered a dramatic rise in the year of 2011 due to the increase of
global prices for coconut products. However, the proportion among the structure of products was not
equal. Fresh coconut fruits, coconut fiber, desiccated coconut and coconut candy are mainly exported,
which accounted for from 75 90% of total exporting value of coconut products in Vietnam,
especially fresh coconuts with exporting value remaining 40 million USD. It can be argued means
that technology system in coconut product manufacturing needs to be improved in order to export
high-value commodity instead of raw materials currently.

3.1.3. Main market of Exported coconuts


Table 4: Exporting value of Vietnamese coconut products by imported markets
from 2007 2011
Unit: USD 1,000
Year

2007

2008

2009

2010

2011

145,412

190,751

184,766

182,688

351,355

Europe

9,632

9,437

7,852

15,924

32,110

Africa

9,547

22,240

22,581

28,982

63,623

America

4,235

5,049

3,506

994

2,309

Australia

4,259

2,197

2,263

167

2,216

173,085

229,674

220,968

228,755

451,613

Asia

Total

Source: Adapted from Report of General Department of Vietnam customs (2011)


Vietnamese coconut products are exported to a variety of markets including Asia, Australia, Africa,
America and Europe. Among these, Asia was considered as the most potential markets for coconut
(more than 60% of the total exporting value). However, the growth rate in these markets tended to
decrease (89% in 2009 and 73% in 2010 and 77% in 2011) due to the strong competition from high
quality coconut products from Indonesia and Philippines. Furthermore, there was a steady increase in
European and African markets (with 32,110 and 63,623 thousand USD in 2011 in Europe and Africa

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respectively). This can be a good market signals for Vietnamese coconut products. In order to
maintain the exporting volume on traditional markets (Asian countries) and expand more in new ones,
the products in coconut industry should be upgraded more and more.
3.2. GVC analysis of coconut products
3.2.1. GVC map
The GVC of coconuts and coconuts based products industry has been formatted on the basis of the
linkage among actors having direct and indirect relationships besides the contribution of supporting
institutions. On the point of view of general global coconut products value chain, there are many
channels with different and diverse roles in the chain. Indeed, Internal players (national components)
will be mainly analyzed, including coconut farmers; collectors/wholesalers, processors, exporters and
importers, fertilizer, seeding and farming equipment suppliers.

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Input supply

Coconut Farmers
(Small scale to large scale)

Production

Wholesale agents/
Trading firms

Small and Middle


collectors

Domestic
markets

Collection

Seeding & farming


equipment suppliers

Processors
(Small to large)

Exporters
(Small to large)

EU importers

European
markets

Australian
importers

importers

African

Australian
markets

African
markets

American
importers

American
markets

Branding,
Retailing &
Buying

Asian
markets

Fertilizer & pesticide


suppliers

Import &
Distribution

Asian importers

Processing &
Export

Governmental policies on manufacturing, processing and exporting, national institutions,


Vietnam Coconut Association, Research and Development Centers

Figure 3: Vietnam coconut products value chain

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3.2.2. Key players


Coconut farmers
According to the market survey of Ben Tre Coconut Association in 2010, most of the farmers who
grow coconuts in Vietnam are small scale as economic size of households, and the number of
agronomists joining in coconut cooperatives achieves only 14.4%. Their main activities are to buy
seeds or saplings, grow, harvest, and sell fresh coconut fruits. Thanks to the easily adaptive
characteristics of coconuts, the caring process for coconut trees looks simpler than the other
agricultural plants. However, the minority of Vietnam coconut fields adapts the international standard
certification during the cultivation process as a consequence of the limitation on farmers awareness
of global quality standard, cultivation techniques and technological support as well.
Overall, there are difficulties of coconut farmers facing as follows:
- Lack of detailed market information associated with commodity prices, market trends, market
demand, etc. in spite of
- The productivity, profits, quality of products and yields are quite low productivity as a result of
small-scale plantations, high cost, significant loss from latent diseases for plants and traditional
agricultural methods.
- The popularity of trading based on long-term relationship and habits rather than economic criteria
between growers and collectors or wholesalers (about 86%). This leads to the limitation of officially
commercial contracts like off-take agreements.

Collectors/ Wholesalers
The intermediaries are divided into two groups including household (small) collectors and wholesale
agents/trading firms. Small-scale dealers often purchase fresh coconut fruits from growers directly
and then resell to large-scale ones, processors or domestic market. These actors have played a
significant role in transportation of raw materials (fresh coconut fruits) from coconut fields to next
stage in the value chain. Although there are two ways of selling coconuts including direct sales (with
small collectors) and off-taken contracts (with trading firms), most Vietnamese coconut farmers
prefer doing business with household dealers due to business customs based on long-term
relationship. Admittedly, this might lead to financial loss of growers when they do not have enough
market information and drive a hard bargain price. Furthermore, excessive handling through
collection by intermediaries can cause inconsistent product quality and source of latent quality defects

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that may not be apparent until arrival at port of destination (Thao et al., 2006). More to the point,
there is not any cooperation or connection between domestic dealers when they operate individually
and separately. Consequently, in recent years, the business expansion of Chinese dealers results in the
intense competitiveness and lack of inputs for domestic processors.

Processors/ Manufacturers
There are thousands of processors of coconut products in Vietnam, mainly in small and medium size.
They often purchase 90% of total number extremely fresh coconut fruits and 10% of peeled coconuts
(preliminarily processed coconuts) from regional intermediates. However, due to rudimentary
manufacturing methods and the majority of manual labors for cutting cost, the classification of
coconuts by quality is made on the basis of sentiment rather than the standard quality control system.
Thanh Vinh Ltd, Mekong Ltd, and Luong Quoi JSC have been leading manufacturers in coconut
industry with the productivity of more than 15,000 tons per year. In order to meet the requirements
and broaden business opportunities in foreign markets, various international standard certificates
consist of ISO 22000, HACCP, GMP, and HALAL, KOSHER & ORGANIC are adopted.
Nevertheless, the process of monitoring and improving the goods quality from the stage of coconut
growers and small dealers are still the pressing issue for producers.

Exporters and Importers


Ben Tre Import Export JSC (BETRIMEX), Thanh Long coconut candies Ltd, Tan Phuoc Hung JSC,
Ben Tre coconut charcoal Co., are well-experienced in producing and exporting coconut products to
Asia, Europe, America and Africa for many years. There have been more than 30 types of
Vietnamese commodity based on coconuts in over 65 countries and territories but the export
operation at some companies depends on export brokers as a consequence of market information
shortage and low brand prestige.
Vietnamese coconut products have been exported to Asian, European, American, African and
Australian markets. Among them, China, India and Syria seem to be the dominant partners
(accounted for 60.4% of the total export value with 11.8 million USD in 2009). Importantly, China
has remained the highest import value of Vietnamese coconut products (approximately 8 million USD
in 2009) thanks to the advantage of geographic distance and convenient transportation. America and
Europe might be the targeted destinations of economic strategies for market expansion in the future.

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3.2.3. Linkages in GVC


3.2.3.1. Horizontal linkage
In fact, there is not a strong horizontal connection among the same-level firms in GVC of Vietnamese
coconut industry. Ideally, the effective cooperation of many lead firms (e.g. a producer association)
might be beneficial for the groups economic of scale promotion and individual members, especially
micro and small manufacturers by reducing per unit cost of production (costs of raw materials,
transportation cost, etc.) and opening markets with better prices. By contrast, as a disputable fact is
that the operation of Coconut Associations by provinces such as Ben Tre Coconut Association lacks
of productivity and regularity while there are around 183 coconut farmers groups with 4,941 members
(constitutes under 26%), which are the majority of larger firms instead of small ones.

3.2.3.2. Vertical linkage


Vertical linkages, relationships between the different-level firms in the value chain, have played a key
role in supporting the upgrading capacity of the chain (Microlink). However, the vertically linked
firms in GCV of Vietnamese coconut industry remain the way thinking of win-lose rather than winwin interaction and supportive cooperation. Fragmented coconut growers operate individually without
support from the other lead firms in market information and finance. This results in the barriers for
processors and exporters in meeting foreign markets requirements on food safety and quality. Like a
domino effect, the whole value chain becomes less competitive with negative results on lead firms.

3.3. Opportunities of Upgrading in GVC of coconut product industry


3.3.1. Improvement in Regional planning of and processing (Process upgrading)
According to Asian Pacific Coconut Community, in spite of having a large plantation of coconuts in
comparison to the other countries both in ASEAN and in the world, Vietnamese coconut fields lack of
concentration in quantity and consistence in quality. Besides, the location of manufacturing zones for
coconuts and coconut products has extremely separated in different provinces nationwide instead of
centralizing in industrial zones, which results in difficulties in control and management.
Initially, the agricultural land is divided into different categories being suitable for different kinds of
coconut, e.g. areas for industrial coconuts or cooking coconuts, and the like as a result of the scientific

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research conducted by National Research and Development of Agriculture Institution. Besides that,
coconut seeds and saplings should be carefully selected in accordance with the climate conditions and
grounds characteristics such as JVA1, JVA2, PP121. Indeed, the productivity and quality of coconuts
might be consistently outstanding, which contributes to the stability of input supply for industries
based coconuts as well as increase the sustainability of GVC.
Table 5: Expected acreage of coconut plantation for improvement and new cultivation
Unit: hectare
Period

2012 2015

2015 2020

Coconut types

Improvement

New cultivation

Improvement

New cultivation

JVA1

6,300

1,512

8,400

2,381

JVA2

4,950

1,188

6,420

1,81

PP121

3,150

756

3,000

849

Others

600

144

180

54

Total

15,000

3,600

18,000

5,100

Source: Adapted from Report of General Department of Vietnam customs (2011)


3.3.2. Improvement in quality standard (Product upgrading)
The proportion of high-quality coconuts for exporting remains considerably small despite of the
diversification in structure of exported products. Additionally, the majority of firms maintain the
traditional habits of producing a single type of products. Therefore, they seem to be passive to the
changes in global demand. Furthermore, there are plenty of barriers in exporting Vietnamese coconut
products to foreign markets, especially European or American markets when many manufacturing
enterprises cannot meet international standards during the production process. Actually, in order to
gain competitive advantages, upgrade the farmers opportunities and follow the trend towards Food
Safety, formal quality control system such as GMP, HACCP and ISO 9000 should be applied in the
value chain while Philippines, Indonesia, Thailand have exported a wide range of high-end coconut
products by taking advantage of state-of-the-art production technology.

3.3.3. Improvement in human resources management (Functional upgrading)


All lead firms should formulate consistent policies on employing and training internal laborers in

Page 23

accordance with the in-depth survey of labor productivity and responsibilities of every phase in the
value chain. Moreover, it is extremely essential to organize training courses, to join international
seminars such as Annual Coconut Festivals, Coconut Products Exhibition in Philippines, Canada and
filed trips to modern factories, typical coconut plantation in the largest nations of exported coconut
products for sharing experience among skilled workers in the same enterprises or in different
companies of the same industry of manufacturing coconut products. In addition, the skilled laborers
might be able to given an appropriate length of internship to gain understandings related to the
coconut industry and the whole global value chain. More to the point, Coconut Association by the
province promotes technical and effective cooperation for the purpose of making use of competitive
advantages in each area, saving costs as well as boosting productivity nationwide.
On the basis of the strategies of Ministry of Agriculture and Rural Development, there would be more
than 250 middle and large-sized firms operating in coconut industry by 2020. This might give job
opportunities for greater than 6,000 skilled workers in rural areas with incomes increasing from 15
30%, impacting on poverty reduction effectively and positively.

3.3.4. Linkages and reposition


Large-scale manufacturing firms might cooperate with small and medium-sized coconut processors
for the operation as the form of parent companies or co-owners to expand and attract new capital
investment. Moreover, commercial agreements for collecting inputs supply should be negotiated
among manufacturers and regional wholesalers/ dealers in order to avoid conflicts during the process
of buying raw materials from coconuts growers, which would result in severing links between actors
in the value chain and even offering business opportunities for Chinese dealers in domestic markets.
Therefore, there is a need for economic and operational cooperation between lead firms in coconut
industry, for the purpose of occupying higher position for Vietnamese coconut products in global
market.
In fact, processors seem to be the most significant factor in the GVC of coconut products industry in
terms of the quality commodity as well as the hub connecting the majority of other actors. However,
in Vietnam, they are mainly dependent on wholesale agents or trading firms for fresh coconut fruits as
raw materials when these merchant intermediaries have opportunities to approach to farmers directly.
Consequently, the relationship between processors and intermediaries should be strengthened as a
result of providing financial support and sharing market information. Besides, it is really flexible and
effective for production actors to make use of imported components in the event of input shortage. In

Page 24

other words, increasing in the importance of manufacturers and of cooperation among lead firms
might be beneficial for the productiveness in the GVC of coconut industry.

3.3.5. Market Research


Global market share of Vietnamese exported coconut products has been increasingly bigger in
comparison to that of many countries with sustainable proportion of perennial markets (Asian
nations) and growing that of new potential markets like Africa or Europe. However, the coconut
industry in Vietnam still lacks of innovation and long-term economic strategies in spite of the
markets flexibility. Accordingly, in order to forecast demands for coconut commodity as well as
market and consumption habits, market research and market-oriented strategies for different coconut
product categories in every market would have been concentrated, especially in highly profitable
markets. In addition, advances in e-commerce together with development of modern system in market
management and the effective operation of website have influenced on the export market penetration
of Vietnam.

3.3.6. Diversification in ranges of products


For the purpose of competing to other coconut products exported from largest countries like
Indonesia, Philippines, and the like, the quality of Vietnamese goods should be improved through
assembling modern production lines from advanced countries. A typical example is technology of
manufacturing cold-pressed coconut oil, one of best sellers worldwide. In Vietnam, coconut oil
(expeller-pressed coconut oil) has been made by the most common way of physical/ mechanical
refining and high heating (around 210 degree) process and old-fashioned equipment. Consequently, it
contains less than the phenolic and nourishment content compared to cold-pressed oil. This leads to
the fact that the export value of Vietnamese coconut oil remains lower than that of other countries in
spite of rising export volume year by year.

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4. CONCLUSION
Nowadays, the number of countries concentrating on coconut plantation is rising on the basis of solid
foundation for further economic development and poverty reduction such as Philippines, Indonesia
and India. As the disputable fact is that coconut is one of profitable agricultural commodities, which
has increasingly contributed partly to GDP in Vietnam due to the suitable climate and soil for
cultivation.
In accordance with the results of previous research conducted on global value chain analysis and
upgrading in GVCs, this paper identified the GVC of coconut and coconut based product industry
together with the vertical and horizontal linkages between actors and stages in the value chain. In
general, the GVC of coconut product industry in Vietnam is fulfilled with the participation of local
coconut growers, small collectors/ wholesalers, processors, exporters and international importers. The
interaction among these actors is mainly investigated in order to analyze disadvantages of the GVC as
well as poor coordination. As a consequence, the opportunities for acquiring new skills and
knowledge and upgrading in the value chain of coconut product industry will be suggested.
Vietnams coconut products global value chain can be identified as buyer-driven, where international
importers (Asian, American, Australian, and Africa markets) make decision on the standards for the
products including quality, food safety, level of pesticide and environmental standards, etc.
Additionally, coconut production is mainly dependent on household producers (coconut farmers
operate in from small to micro size of business) while the fragmented link between coconut growers
and exporters are settled by thousands of small-scale collectors and processors. Therefore, in order to
increase the productivity and competitiveness for both SMEs and the whole value chain by taking
advantage of potential resources in Vietnam as well as market opportunities given by globalization,
upgrading in Vietnamese coconut and coconut product sector is significantly essential and important
in the concept of increasing competitive pressures because upgrading entails not only improvements
in products, but also investments in people, know-how, processes, equipment and favorable work
conditions (Ingrid Fromm, 2007).
As suggested by Kaplinsky and Readman (2001), as usual this upgrading trajectory will start with
process upgrading, product upgrading, then moves to functional upgrading and chain upgrading.
Therefore, with coconut product industry, SMEs in the GVC might improve production processes,
e.g. dividing the cultivated land into different categories being suitable for different kinds of coconut
such as JVA1, JVA2, PP121 in accordance with the climate conditions and grounds characteristics.

Page 26

Indeed, the productivity and quality of coconuts might be consistently outstanding, which contributes
to the stability of input supply for industries based coconuts as well as increase the sustainability of
GVC. Similarly, coconuts should be grown and coconut products are produced under formal quality
control system such as GMP, HACCP and ISO 9000 so as to product upgrade and meet the demand
for food safety of global markets and international importers. Besides, the trust relationship and
cooperation among actors including farmers, collectors, processors and exporters are strengthened by
improvements in operation of MARD and Coconut Associations by provinces. Thanks to this,
information can be exchanged smoothly, which is useful for producers and growers quickly comply
with changes in requirements and standards of buyers. In short, upgrading in GVCs generally and in
the value chain of coconut product industry particularly is one of the best ways for SMEs to ensure
the access to global markets as well as shift to higher activities with higher incomes. In reality, the
upgrading process in GVC of coconut product industry has taken place slowly because of
underdevelopment in infrastructure, technology, labor forces, cultivation methods, and especially
awareness of farmers in the economic integration, we strongly believe that all stakeholders in both
agricultural sector and whole the GVC of coconut product industry in Vietnam will put more effort to
change traditional habits of doing business, maintain long-lasting and constant cooperation to move
toward to higher positions in international competitive markets under support from trade policies of
authorities and NGOs.

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