Challenges of benefit sharing in Vietnam: equality vs. equity

When I first heard about the Forest and Farm Facility (FFF), a partnership between FAO, IIED, and IUCN to strengthen forest and farm producer organizations (FFPOs), one question arose in my mind: Will history repeat itself?  

Dr. Phan Thanh Hai and Mrs. Hoang Thi Hau, Director of Thanh Xuan Organic Vegetable Cooperative shared experience in cooperative management at the training

From 1958 to 1980, the Vietnamese government established thousands of agriculture cooperatives with the intention of increasing food production and raising farmer incomes.

However, when the farmland ownership was changed from household owned to collectively owned, rice productivity collapsed from 3 kg/person/day in 1965 to 0.8 kg/person/day in 1980. Since then, despite many attempts, including the Law on Cooperatives in 1996, which was revised in 2003 and again in 2012, collective economic organizations of different kinds account for a very modest share of GDP: only 5% in 2013 according to the General Statistics Office of Vietnam.

A report of the Cooperative Alliance in 2013 shows that of 10,339 cooperatives in Vietnam, only 1,000 (9.6%) functioned efficiently. I have asked many people the reasons for the high failure rate of cooperatives and the first thing they say is: “Cha chung không ai khóc” (Everybody’s business is nobody’s business).

Benefit sharing, including dividends and ownership of assets, plays a fundamental role in making a collective organization viable. In March 2016, the Vietnam Farmers Union (VNFU), the FFF implementing agency in Vietnam, ran a 5-day training course on organizational development in Hanoi for six newly established FFPOs in Yen Bai and Bac Kan Provinces.

During the training, FFF local facilitators and farmer leaders learned how to allocate tasks to members based on their skills and personality, how to prepare monthly workplans, how to mainstream participation in group management, and how to design an appropriate profit sharing mechanism.

While many FFPOs assumed that all of their profits would be shared equally among their members, the lead trainer, Dr. Phan Thanh Hai, former Rector of the North Vietnam College of Agriculture and Rural Development, said that “The more equally benefit is shared, the less fair it is”. The equal share rule has been shown to diminish incentives to work hard for the benefit of the group as a whole, leading to the “free-rider” problem. To counter this, Dr. Hai advised groups when designing a benefit sharing regulation to consider factors such as the proportion of the members' initial investment, the complexity of their task, and the number of days they work.

Nevertheless, there's a concern that poorer households could benefit little from cooperatives and be excluded from the decision making process.

Cooperatives are meant to play a key role in poverty eradication but it should not be misinterpreted that cooperatives are a social rather than an economic arrangement. A recent study by Hans Groeneveld, Directorate Cooperative and Sustainable Business of Radobank, a Dutch cooperative of 129 banks that was founded in 1864, concludes that socially motivated income transfers among members within a cooperative can lead to its rapid failure and collapse. Business principles, including the proportionality principle of fair sharing and fair contributions, should be applied in allocating revenues, costs, and members’ rights and duties.

The study quoted Dr. Jack Muncker who in a recent article for the Journal of Social Science wrote: “The question is not how cooperatives can help the poor and disadvantaged, but how the poor and disadvantaged can help themselves, by forming or joining cooperatives.”

After the FFF training, participants appeared to have increased their ability to manage their group efficiently. They were happy to provide constructive comments to each other on group statutes, enterprise development, and technology such as forest product processing.

The teachers equipped me with skills I needed to become a leader. It is the first time I have heard about participatory management and I realized that if consensus on benefit sharing is not reached and documented in writing at the beginning of group establishment, the group can be easily dissolved at any time”, said Nguyen Tri Tue, leader of a cinnamon farming collective group in Dao Thinh Commune, Tran Yen District, Yen Bai Province.

VNFU will continue to train FFPOs, focusing on financial management, marketing and communications, policy advocacy skills and support groups. This training is vital to help these FFPOs implement and improve their enterprise development plans and increase group membership.

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