SHRIMP AND DEVELOPMENT IN THE MEKONG DELTA

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 001575

SIPDIS

SENSITIVE

DEPARTMENT PASS USTR - ELENA BRYAN

E.O. 12958: N/A
TAGS: ETRD ECON EINV PGOV EINV VM
SUBJECT: SHRIMP AND DEVELOPMENT IN THE MEKONG DELTA

REF: A) HCMC 1128
B) 03 HCMC 1019
C) HCMC 1554

SUMMARY


1. (SBU) Summary: The southern Mekong Delta is one of the
fastest growing regions in Vietnam, driven by its expanding
aquaculture industry. With USDOC's recent announcement of lowered
U.S. dumping duties on shrimp, a barrier to growth has been
lowered. However, increased resources are needed to ensure that
shrimp farming is sustainable. In order to realize shrimp's
export potential, provinces must expand investment in
infrastructure improvement and examine ways to strengthen the
banking sector. End Summary.


2. (SBU) The Consul General traveled to the southern Mekong Delta
December 1-7 to visit the provinces of Ca Mau, Bac Lieu, and Soc
Trang as well as Can Tho City. These provinces are part of the
Mekong rice bowl that produces USD 2.5 billion in annual exports
and are the nation's main aquaculture producers, according to the
Southwest Development Committee. While shrimp has always been a
Mekong product, major efforts to transform unproductive salinated
rice land into shrimp farms started roughly five years ago. Now
shrimp is one of the region's most important exports. Although
aquaculture exports to the U.S. slowed in 2004 due to preliminary
dumping duties of 12 to 93 percent stemming from the dumping suit
against shrimp exporters in Vietnam and elsewhere, the final
decision on duties has already prompted a renewed increase in
shrimp exports and producer earnings, says Ho Quoc Luc, Chairman
of the Vietnam Association of Seafood Exporters and Producers.
All the provincial leaders we met welcomed the decision, although
all maintained Vietnamese companies did not dump their shrimp in
the U.S. market and should shoulder no duties at all.

MEKONG SHRIMP PRODUCTION - "NATURAL" AND INDUSTRIAL


3. (SBU) There are two primary types of shrimp farming: natural
and industrial. Provincial officials say that "natural" shrimp
farming uses a low density of shrimp in the ponds, and that since
farmers do not use chemicals, environmental degradation is
limited. In industrial shrimp farming, 20-30 shrimp are packed
into each square meter of pond, and companies use vitamins and
ventilators intensively, with a much higher incidence of sickness
in the product. The Duyen Hai Bac Lieu Aquaculture Production and
Service Company, Vietnam's largest 100-percent foreign owned
aquaculture company, has a semi-industrial farming process massing
only 6 shrimp per square meter of pond and requiring less day-to-
day care with vitamins and ventilators. Although provincial
officials maintained that "natural" shrimp farming was almost
completely organic and had little environmental impact, a small-
scale shrimp farmer in Ca Mau's mangrove protection zone said he
used industrial feed like larger-scale companies and that he was
learning to use vitamins. In Ca Mau, only 2.5 percent of the
200,000 hectares of shrimp ponds use industrial farming processes,
but in Soc Trang and Bac Lieu, respectively, 30 percent and 50
percent of ponds are industrial shrimp farms. In Bac Lieu,
industrial farming produces only 30 percent of shrimp output due
to the high incidence of illness.

CONSERVATIVE PROVINCES HAVE NOT SLOWED GROWTH


4. (SBU) Growth rates in these provinces has reached or surpassed
10 percent in recent years, due primarily to the development of
aquaculture and food processing. Although the conservatism of
provincial leaders has not slowed growth to date, it could prove
problematic in the future. A typical comment by Vice-Chairmen in
Ca Mau and Can Tho was that "to achieve development, provincial
governments need to abide by central government laws." The
Southwest Development Committee, which has nominal responsibility
for driving growth in the Mekong Delta, serves only as the eyes
and ears of the government in Hanoi and does little to actually
facilitate development. While officials recognize the value of
advancing the aquaculture and foodstuff industries, it seems
unlikely that they would proactively encourage development
independent of the central government.


5. (SBU) Other provincial officials proved more dynamic and open
to furthering sustainable development. Le Khai Phong, President
of Ca Mau's Union of Friendship Organizations, the agency involved
in managing government and NGO funded projects, appears to have a
clear and compelling vision for Ca Mau development. He discussed
Ca Mau's difficulty in attracting support for social issues such
as poverty alleviation and infrastructure improvement. Phong
noted that Ca Mau had only 15 kilometers of asphalt road. Like
their counterparts in Ca Mau and Can Tho, the People's Committees
in Bac Lieu and Soc Trang alluded to national unity but were more
focused on attracting investment for sustainable development (ref
C). Bac Lieu People's Committee Vice Chairman Nguyen Thanh De
discussed the current GVN policy to encourage greater
competitiveness at the provincial level, promoting the concept
that uncompetitive companies will die. He also said the province
was studying the examples of Thailand and Taiwan in order to
develop a sustainable aquaculture industry and avoid the shrimp
illnesses encountered in these countries. Increasing educational
extensions for aquaculture was a topic all leaders in these
provinces addressed.

INFRASTRUCTURE STILL SUB-PAR


6. (SBU) The lack of infrastructure for shrimp processing and
export is another barrier to further development of the shrimp
industry. None of the four provinces visited have any direct
outlet to overseas markets and must transport the shrimp over the
2-lane National Highway 1 to Ho Chi Minh City (HCMC). Can Tho is
170 km and a 4-hour drive south of HCMC; the main shrimp producing
and processing provinces we visited lie even further south. The
narrow Highway 1, the only artery for the region, is traversed by
every type of vehicle. The Ministry of Transportation is
upgrading and widening the 234 km stretch of highway from Ca Mau
to Can Tho using World Bank funds -- a project whose planned
completion by the beginning of 2006 should help alleviate some
regional transportation woes.


7. (SBU) However, Highway 1 from Can Tho to HCMC remains over-
crowded and dangerous. All vehicles must use a ferry to traverse
the Mekong between Can Tho and HCMC; the bridge on this stretch
remains a work in progress, with an estimated finish date of 2008.
Other construction projects to make Can Tho City into a viable
"Capital of the Mekong Delta" are similarly stalled (ref A).
Although upgrading Cai Ciu Port in Can Tho would allow Mekong
exports to ship directly to overseas destinations and reduce
shipping costs by $5 per ton of cargo, developers have finished
only the first phase of the project, with no estimate of when they
will finish or at of ultimate costs.

IMMATURE BANKING SYSTEM


8. (SBU) The lack of widespread financing for the shrimp industry
may also slow growth and hinder expansion for smaller farmers.
The banking system is still relatively new and has yet to earn
public trust. Thus, Bac Lieu leaders note, many in the Delta have
plowed their new wealth into real estate, prompting an annual 20
percent increase in housing prices. Numerous construction
projects can be seen along National Highway 1 and within all the
towns we visited. The lack of a financing system to reinvest
earnings productively could be a long-term limiting factor for the
shrimp industry.

COMMENT


9. (SBU) As the aquaculture industry continues to expand in the
Mekong Delta, provinces need to concentrate on creating a
sustainable industry. While some provinces are aware of the need
to increase education and investment to address issues such as
shrimp illness and wastewater treatment, there is also a tendency
to look for the easy path to quick development and ignore longer-
term problems. The environmental impact of shrimp farms, both
industrial and natural, remains unclear. Development of
infrastructure and the financial sector are vital to building a
sustainable aquaculture industry in the Delta. End comment.

CHERN