The report said Hanoi needed to lift excessive controls, reduce the role of the state sector in agriculture and reassess taxes and other fees paid by farmers.

At risk would be the danger of losing gains made in poverty reduction stemming from reforms adopted a decade ago.

The report, obtained by Reuters on Wednesday, is expected to be a key topic at the annual gathering of Vietnam's donors in Paris from December 7 to 8. The meeting would also decide on fresh aid pledges to Hanoi.

"By reinvigorating rural reform...Vietnam can ride out the (regional) crisis and be well placed to thrive when it ends. Seizing such opportunities quickly is made more urgent by the Asian Financial crisis," the report said.

If current trends persisted, most of the more than one million people who enter the workforce eachyear would be squeezed into poorly paid jobs, it said. Those jobs would partly be in rural areas, where some 80 per cent of the population live.

Farms would become smaller, marginal lands would experience unsustainable cultivation, and environmental degradation would worsen, the report said.

Vietnam has an annual per capita income of $300 and the report said 50 per cent of the population were poor.

Economic reform has already boosted rural development in Vietnam, now one of the world's top rice and coffee exporters.

The report, compiled by the World Bank in collaboration with other international donors, also made a series of recommendations on meeting the challenges to rural growth in the country.

It said rural production and marketing controls should be removed and curbs on alternative uses for rice land lifted.

Concentrating irrigation systems on rice cultivation also inhibited diversification into higher valued crops such as vegetables, fruit and horticultural crops.

Removing rice exportquotes would increase National income and allow shipments to grow, the report said.

Preference given to state-owned enterprises (SOEs), especially in exporting rural goods and importing inputs, meant higher costs and lower farmgate prices for farmers.

"Global experience has shown that SOEs everywhere are typically less efficient than private businesses in carrying out these activities," the report said.

The report said production and employment growth in the rural private sector were hampered by a "hostile legal and regulatory framework" and bias favouring state firms.

It also referred to taxes and fees paid by farmers, an issue that has triggered widespread discontent across rural Vietnam. Farmers frequently complain about arbitrary taxes and compulsory contributions to local infrastructure projects.

"The wide array of taxes, fees and contributions that farmers must pay should be reassessed," the report said.

Urban residents often paid less tax than farmers, while incomes were usually much higherin cities, it said.

The report said Vietnam might have a high potential for expanding shrimp, crab and fish farming if solutions could be found to counter persistent disease and pollution.

Developing a functioning market in land-use rights was also a recommendation. The state owns all land in Vietnam but grants land-use rights for different lengths of time.

The National Assembly approved changes to the Land Law on Tuesday, although full details have not been released.