US embassy cable - 04HOCHIMINHCITY1575

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