Date July Embassy of Denmark in Vietnam 0 / 14

Transcription

1 Date July 2015 Embassy of Denmark in Vietnam 0 / 14

2 1. KEYWORDS ABSTRACT OVERVIEW OF AGRICULTURE AND FOOD INDUSTRY IN VIETNAM MAIN SUB-SECTORS OF THE FOOD-PROCESSING INDUSTRY DEVELOPMENT OF DISTRIBUTION CHANNELS CONCLUSION Vietnam, agriculture, commodities, coffee, livestock, beverages, dairy, food This report gives an overview on the Vietnamese agriculture and food sector, highlighting some of the biggest trends and opportunities in different sub-sectors. Market overview From the late 1980 s and two decades onwards, Vietnam s economic growth rate was among the highest in the world, expanding at an average about 7% annually. Recent years have seen a slowdown in the economy with average growth rates of between 5-6%. The Government has now managed to stabilize the economy, bringing the inflation under control and showing signs of reform, e.g. in the area of privatization of the state-owned enterprises and restructuring of the banking sector. The high economic growth rates have fuelled a steady middle class emergence. This is especially noticeable in big cities. Modern retail formats and imported high quality products are catering to the growing demand for better quality products, including food products. This middle class emergence is supported by a strong demographic profile with more than half of the population of 90 million people below the age of 30. The growing domestic appetite for better and more varied food products spur growth in agricultural production; a growth that is also spurred by the export markets of Asia, Europe and the US. Vietnam has a strong agricultural base and is the world s second largest exporter of coffee and rice. The agribusiness sector holds strong growth opportunities in terms of production, exports and retail sales, Embassy of Denmark in Vietnam 1 / 14

3 especially in relation to rice, coffee, livestock and dairy sectors. However, Vietnam is facing growing competition in its key markets, and the growth potential will only be achieved, if the country steps up its competitiveness and improves both product quality and supply chain efficiency. Agricultural productivity has improved considerably in the past couple of decades; however it is a significant challenge for the competitiveness of the sector that much of Vietnam s agriculture is still based on small-holder farms. Another challenge is that most agricultural production and exports remain primary commodities, with little over all processing or value added in the agricultural sector. Vietnam is eager to attract foreign investment into the agricultural sector, and this would likely provide a much needed push towards efficiency improvement in the industry. Foreign direct investment (FDI) in agriculture is currently very modest. As of 2014, the total investment capital of the agriculture, fishery and forestry sector stood at USD mil., accounting for only 0.45% of the total investment capital. Domestic food production and consumption The natural fertility of Vietnam s soil along with increasing agricultural productivity will support a solid growth, including the rice, poultry, pork and dairy sector. Business Monitor International (BMI) forecasts an output growth in the agricultural sector by more than 10% between 2012 and The livestock sector is benefiting from ongoing industrialization in the feed industry, which provides a good quality supply of feed ingredients. Productivity in the livestock sector is generally on the rise, aided by a slow improvement in cultivation and breeding practices. Currently, income levels in Vietnam is significantly below the income levels in developed countries, and consumer purchases remain largely centered on food staples and daily necessities. However, as incomes gradually increase together with economic growth and population growth, food consumption is expected to show strong signs of growth in the coming years as reflected in table 1 below. With recent signs of recovery of the economy it is expected that Vietnam s food sector will remain one of the most attractive investment opportunities in the South East Asia region. Table 1: Food consumption indicators Historical Data & Forecasts, Year f 2016f 2017f 2018f 2019f Food consumption (US$ bn) Embassy of Denmark in Vietnam 2 / 14

4 Food consumption US$ % change Food consumption per capita (US$) Food Import and Export Source: Business Monitor Food and Drink Report Q In recent years, the Vietnamese food and drink export has reached a high level, and Vietnam s comparative advantages are expected to produce a high level of increase in the exports in the future. A major driver behind the forecasted growth in exports is sustained government effort to improve the agricultural sector and the local food production. This will boost output and make more produce available for export and will also improve the quality competitiveness of exports. Domestically, rising income levels are expected to generate growing import demand for high quality food products and for technology and other inputs (e.g. raw material) for the development of the food processing industry. Besides, Vietnamese food and drink exporters are also likely to marginally benefit from Russia s ban on agricultural imports from certain countries such as the US and EU. Over a five year forecast period 1, the outlook for Vietnam s food and drink trade balance is relatively strong, as the country is forecasted a growing trade surplus. However, increasing purchasing power in Vietnam means that the imports grow with a higher pace than exports. In the forecast period the export is expected to grow by a Compound Annual Growth Rate of 10.8%, whereas the import is expected to growth by 11.2% 2. Figure 1 1 Forecast from BMI: Food and Drink Q BMI: Food and Drink Q2, 2015 Embassy of Denmark in Vietnam 3 / 14

5 Source: Business Monitor Food and Drink Report Q Vietnam s key commodities Rice and Corn Vietnam is a key grower and world provider of rice. Compared to many of its agricultural sub-sectors, Vietnamese rice is very competitive relative to many of its regional peers and is well positioned to benefit from both regional and global demand growth. Another advantage of Vietnamese rice is its relatively high yields. In the upcoming years, the rice cultivation area is likely to reduce slightly as Vietnam s Ministry of Agriculture and Rural Development (MARD) intends to make rice farmers shift to the cultivation of other grains, with a focus on corn and soybean, in order to avoid paddy overproduction, prevent downward pressure on prices and increase feed supply. Table 2: Vietnam Rice Production & Consumption, Year f 2016f 2017f 2018f 2019f Rice Production, Rice Consumption, 000 tonnes 27,510 28,150 28,121 28,262 28,827 29,404 29,992 20,800 21,380 21,807 22,243 22,688 23,142 23,605 f = BMI s forecasts. Source: BMI Agribusiness Report Q Embassy of Denmark in Vietnam 4 / 14

6 Corn is one of Vietnam s most important crops along with rice. The production of corn in Vietnam has grown with a constant rate of 9.5% annually since Corn consumption from 2005 to 2013 doubled partly thanks to the development of the livestock sector, which makes BMI forecast the consumption will continue enjoying high growth rates in the future. Concretely, between 2014 and 2019, corn consumption growth will come in at 26.9% and will reach 8.5 mil. tonnes. Vietnam will likely become increasingly reliant on corn imports to meet domestic demand, especially for the animal feed production. Currently, more than 80% of the country s total corn output goes un-processed to livestock/animal feed. According to Vietnam Feed Association, the country imported about 9 mil. tons of feed and fish powder in 2013 worth USD 4 bil. while rice exports amounted to 6.6 mil tons that year, earning USD 2.9 bil. In order to lessen the reliance on the corn imports, the Ministry of Agriculture and Rural Development (MARD) submitted to the Prime Minister a proposed program for shifting acreage from rice to other crops, with a focus on corn and soybean. With this new corn and soybean production plan, the government hopes to import less than 50% of its animal feed requirements by Table 3: Vietnam corn Production & Consumption, Year f 2016f 2017f 2018f 2019f Corn Production, 000 tonnes Corn Consumption, 5,150 5,380 5,692 6,005 6,353 6,702 6,695 6,896 7,254 7,639 8,051 8,494 f = BMI s forecasts. Source: BMI Agribusiness Report Q Coffee Vietnam is the world s biggest producer of robusta coffee, with more than 95% of its coffee output consisting of the robusta variety and only around 2-3% of production devoted to the premium Arabica variety. And up to 93% of the total production is for export. The EU, US and Japan are its biggest clients. Being aware of the growing demand for soluble coffee in Asia, Vietnamese Ministry of Agriculture and Rural Development (MARD) encourages the domestic players to diversify their exports towards higher-value processed value products, such as soluble coffee. According to the Ministry of Agriculture and Rural Development (MARD) there are about 140, ,000 hectares of aged trees needed to be replanted in the next Embassy of Denmark in Vietnam 5 / 14

7 5-10 years, and about 200,000 hectares by The Bank of Vietnam already announced that the sector will receive preferential loans to implement the replanting program. The rise in GDP and purchasing power in addition to the urbanization and the spread of Western-style coffee shops has been enhancing the domestic consumption of coffee in Vietnam. Particularly, coffee consumption grew impressively by 56.8% from 0.43 kg per capita in 2005 to 1.26 kg per capita in It is forecasted that the consumption will rise by 10% in 2015 and 12.5% in Table 4: Vietnam Coffee Production & Consumption, f 2016f 2017f 2018f 2019f Coffee production, kg bags Coffee consumption, kg bags 29,780 28,200 28,764 29,339 29,926 30,524 1,950 2,145 2,413 2,714 3,054 3,435 f = BMI s forecasts. Source: BMI Agribusiness Report Q Despite a rebound in production and a positive outlook for the sector, Vietnams coffee exports is likely to see low growth due to stagnant prices on Robusta and a growing coffee export sector crisis, due to many bad loans in the coffee export sector. Livestock industry and meat processing There is strong growth potential for the Vietnamese livestock industry due to the increased meat consumption. Meat consumption has risen significantly over the last decade with per capita consumption rising by over 100% from 2000 to 2014 to reach 39 kg per year. Within the Vietnamese livestock industry pig farming is by far the most dominant sector, with pork production comprising about two-thirds of total meat production in 2013/2014. The livestock industry has been badly affected in recent years by disease outbreaks, soaring input costs and competition from cheap imports. However, BMI predicts strong growth in the sector, led by poultry production over the medium term, where estimates of more than 5% growth in 2014/15 is predicted. Table 5 shows the 2014 consumption and forecasts up to 2019 (BMI Agribusiness Report, Q2 2015). Embassy of Denmark in Vietnam 6 / 14

8 The pork sector production appears to be levelling off, and pork output is estimated to rise 12.5% to 2.7 million tons by 2018/19. This will not be enough to fill the country s demand for meat, so Vietnam will remain reliant on pork imports for the foreseeable future. Beef production will remain the least significant of Vietnam s livestock sectors and is expected to grow by a low 11.3% on the 2013/2014 level to 416,700 tons in 2018/2019. Table 5: Vietnam Pork and Poultry Production & Consumption, Year f 2016f 2017f 2018f 2019f Pork Production, 000 tonnes Pork Consumption, Poultry Production, Poultry Consumption, 2,420 2,493 2,549 2,605 2,663 2,722 2,384 2,432 2,517 2,615 2,727 2, , ,062 1,154 f = forecasts. Source: BMI Agribusiness Report Q Competition from cheap imports is a significant threat to both Vietnamese livestock producers and meat-processors, and the ongoing negotiations on free trade agreements (including the EU-Vietnam free trade negotiations expected to be concluded in 2015) is putting pressure on the Vietnamese Government to support investments in the domestic livestock and meat processing sector. A recent study of the Vietnamese pig-sector commissioned by the Danish Embassy in Vietnam has identified some challenges and opportunities in the market which can be of relevance to Danish companies. The pig sector has developed considerably over the last decade and is increasingly moving from smallholder production to larger pig farms focused on increasing yields through more modern feed and production techniques. The Vietnamese Government has set ambitious growth targets for the development of the sector, but the implementation at provincial and local level is seriously lacking in most provinces. This is most noticeable in the slaughterhouse sector, which is still very basic and backwards with only a limited number of large scale slaughterhouses, - and most of these are operating well below capacity. Smallholder farms prefer to use the cheaper slaughtering spots located in their own villages with the lack of proper hygienic measures that normally is associated with this type of slaughtering. However, the biggest cities, such as Hanoi and Ho Chi Minh City, have begun reducing the numbers of small, unhygienic slaughterhouses, and making room for new, effective slaughterhouses. Embassy of Denmark in Vietnam 7 / 14

9 For Danish companies, the main opportunities in the short to medium term appear to be within the breeding/production and feed industry. There is an increasing demand for imported (foreign) breeds, particularly in the Southern part of Vietnam with a clear preference for the raising of 100% breeds. Several large foreign pig producers are already well established in the market, but the Danish presence in the market is still very small. The feed industry is very much dominated by foreign investors, including some of the strongest players globally, e.g. Cargill and CP, and competition is therefore growing. However, with the market expected to grow by more than 9% annually, there will be room for newcomers to the market. Seafood/Aquaculture product processing 2014 witnessed the development of Vietnam s aquaculture sector proven by the expansion of aquaculture area and the year-on-year increase in aquaculture products. The figures released by Vietnam Directorate of Fisheries show that as of 2014, the total output of aquaculture products was 6.3 million tons, grew by 4.4% against Vietnam is continuing to pursue its impressive growth rates and high export values in the fisheries sector. In 2014, the total exports amounted to more than USD 7.8 billion, which was a 16.35% increase against that of Shrimp exports dominate and account for 50.38% of Vietnam s total seafood exports. Pangasius comes in second place with 22.6%, according to Vietnam Directorate of Fisheries. The United States, EU and Japan are still Vietnam s leading exporting markets. As of 2014, the total export value to these markets reached USD 4.38 billion, accounting for 55.95% of the total export revenues. Table 6: Vietnam Seafood exports ( ) Seafood exports Value, US$ mil 4,251 5,034 6,118 6,1340 6,725 7,825 Source: Vietnam General Department of Custom Office Shortage of capital and unstable supply of raw material continue to be key challenges in the Vietnamese seafood industry. As a result of supply shortage, local processing companies need further imports to process for export. Additionally, Vietnam needs to take further measures to ensure high quality standards and a sustainable fishery production. Since the vast majority of Vietnam s fishery production goes to export markets, Vietnam will have to work on improving product quality and ensuring food safety. Therefore, the sector is in need of technology for fish farming and processing technology to improve quality, sustainability, processing standards etc. Denmark Embassy of Denmark in Vietnam 8 / 14

10 and Vietnam are currently working closely to build a partnership on promoting sustainable aquaculture in Vietnam; a collaboration that is aiming to link Danish companies with Vietnamese seafood producers. Dairy products The Vietnamese dairy sector has experienced very strong growth in recent years. Key drivers of this growth has been rising incomes, the emergence of middle class, high birth rates and young population supported by a shift in consumer habits, including more focus on health and nutrition as it relates to diet as well as the ongoing spread of modern, organized retailing channels. From 2000 to 2012 the Vietnamese per capita milk consumption has been more than doubled to liters per person a year. This is still low compared to other countries in the region, but industry experts predict that the growth pattern will continue and is expected to reach 28 liters/year in The Vietnamese Government has set ambitious targets to support the expansion of dairy farming in Vietnam in order to meet local demand. Currently, the volume of locally produced fresh milk only meets 30% of demand. As such the goal is to increase the dairy cattle herd from a level of 145,000 in 2011 to 500,000 head by Table 7: Consumption of some dairy products ( ) Year f 2016f 2017f 2018f 2019f Butter Consumption, Cheese Consumption, Milk Production, Liquid Milk Consumption, Source: BMI Vietnam Agriculture Report Q The sector is likely to benefit from the continuing increase in yields, which have increased almost 130% over the past decade and are expected to keep the trend on the basis of improved feeding formula, veterinary services and investment in advanced dairy farm technology. Competition in the Vietnamese dairy industry is dominated by a number of multinationals and some increasingly strong local companies, e.g. Vinamilk as the clear market leader, but also TH Milk, IDP, Hanoi Milk etc. Embassy of Denmark in Vietnam 9 / 14

11 The growth potential of the Vietnamese dairy sector presents good business opportunities for Danish companies. Opportunities exist throughout the whole production/supply chain. The move towards larger and more efficient dairy farms and processing facilities translates into a demand for advanced technology in terms of feeding, housing, climate control, food safety technology and processing technology etc. Beverages The soft drinks market is dominated by the multinationals Coca-Cola and Pepsico, jointly sharing around 88% of the market. The major focus from these companies is on the carbonated soft-drinks, and the battle stands between the small local companies to get the remaining market share. The largest local player is Saigon Beverages Joint Stock Company (Tribeco), with an approximate 6% market share. In recent years the changing focus, to products of more healthy character, has made the competition more open to the smaller players. The right products and marketing should be sufficient for local players to promote e.g. teas, juices, energy drinks to gain some market share, and recent years have seen a lot of investment going into this high growth soft drinks sector. Table 8: Soft drink sales ( ) Year f 2016f 2017f 2018f 2019f Soft drink sales, mn litres Soft drink sales, USD mn Carbonated soft drink sales, mn litres Carbonated soft drink sales, USD mn 2, , , , , , , , , , , , , , , , , , ,035.7 Source: BMI Vietnam Food & Drink Report Q Despite growing presence of multinational brands in the beer market, local firms continue dominating the market. The favorable demographic profile, growing incomes and solid economic growth imply massive scope for alcoholic drinks, with beer being the favorite in the market, set to benefit. Foreign investors are in tough competition to get a strengthened foothold in the attractive market, particularly in the premium beer category. Embassy of Denmark in Vietnam 10 / 14

12 Vietnam s retail food landscape is largely dominated by traditional wet markets and small independent stores ideal for small-quantity/high-frequency food purchases. With low rental and operations costs, traditional retailers benefit from offering convenience, package-size flexibility and low prices, especially for fresh food. Modern grocery retail accounts for only 15% of overall grocery sales, whereas traditional retailers account for 85% 3. However, the modern retailers channel is expected to grow constant annually (CAGR) by 11.5% until Due to the growing demands of the consumers in Vietnam, supermarkets are increasingly providing a wider variety of products and offering a larger number of higher quality products. Food products are sold alongside non-food products in supermarkets and hypermarkets. However, daily food items are still, for the most part, purchased from markets. Being aware of the sector s hugely untapped potential, many international players have been investing into the Vietnamese retailing market in recent years. Early 2014, after receiving the regulatory permit from the Vietnamese government, Japanese retailer Aeon opened two stores in Ho Chi Minh City and Binh Duong and plans to open a third outlet in Hanoi in Over the long term, Aeon intends to develop around 20 retail and trade centers nationwide by Besides, many other international retailers have reached agreement with local partners to establish a joint-venture (JV) in Vietnam with an aim of setting up retail stores in the countries such as South Korea MGR player E-Mart, or Singapore operator NTUC Fair Price, French retailer Auchan, just to name a few witnessed the transfer of the largest international retail group, Metro Cash & Carry (MCC) to the Thailand Berli Jucker Corporation (BJC), in which BJC took over the entire business operations of MCC consisting of 19 distribution centers and related real estate portfolio, at the total value of EUR 655 mil. (approximately. USD 879 mil.) Vietnam s fast growing population of more than 90 million people and strong economic growth rates provides a large market for agriculture and food products. Domestically, this has led to a growth in agricultural production and productivity increases, especially since the opening up of the economy in Much of Vietnam s agriculture is still based on small-scale farms with poor yields relative to more developed international competitors. However Vietnam s increased exports have helped to improve productivity and yields, especially so in the rice and coffee sector. The Vietnamese livestock sector is also experiencing high growth 3 BMI, Vietnam Food and Drink Report Q2, 2015 Embassy of Denmark in Vietnam 11 / 14

13 rates as a result of increased meat consumption, and the dairy sector is ramping up production. The food processing sector in Vietnam accounts for a sizeable proportion of industrial output and GDP and attracting significant foreign investment in recent years from global industry players such as Unilever, Nestlé and San Miguel. However, overall the industry remains fragmented with many small domestic players. The dairy industry is a noticeable exception. Danish companies are encouraged to look into market opportunities in different sectors of the agriculture and food industry. The livestock sector opens opportunities particularly in breeding (genetics), feed and feed technology, housing equipment, and good opportunities also exist in the dairy sector as well as fisheries/aquaculture sector. Embassy of Denmark in Vietnam 12 / 14

14 The Trade Council is a part of the Ministry of Foreign Affairs and is the official export and investment promotion agency of Denmark. The Trade Council benefits from around ninety Danish Embassies, Consulates General and Trade Commissions abroad. The Trade Council advises and assists Danish companies in their export activities and internationalisation process according to the vision: Creating Value All the Way. The work in the Trade Council follows specific procedures and quality guidelines. In this way our customers are secured the best possible quality under the varying working and market conditions at any given point of time. Ministry of Foreign Affairs of Denmark Embassy of Denmark, Vietnam 19 Dien Bien Phu Street Hanoi Tel: Fax: hanamb@um.dk