Vietnam s Market for Imported Meat and Poultry

Transcription

1 Vietnam s Market for Imported Meat and Poultry A Guide for Canadian Exporters *Abbreviated Prepared for: The Embassy of Canada in Vietnam & Office of Southeast Asia Regional Agri Food Trade Commissioner Agriculture and Agri Food Canada Prepared by: Stanton, Emms & Sia 80 Raffles Place, Level UOB Plaza 1, Singapore Tel: Fax: [email protected] Website: March 2010 This report contains market information collected by Stanton, Emms & Sia. The Government of Canada assumes no liability for the accuracy and reliability of the market information and intelligence provided herein. *For the complete report, Canadians are invited to contact Ms. Dang Anh Thu at the Embassy of Canada in Vietnam : dang [email protected]

2 1. Introduction This guide for Canadian exporters is prepared by Stanton, Emms & Sia for the Embassy of Canada in Vietnam and the ASEAN Agri Food Trade Commissioner, Agriculture and Agri Food Canada. It covers the Vietnamese markets for: fresh/chilled beef; frozen beef; frozen pork; frozen pigs offal; and frozen chicken parts and offal. It has been researched and prepared to provide Canada s ASEAN based Agri Food Team of Trade Commissioners and Canadian producers and exporters with an up to date understanding of the target market and opportunities in Vietnam for Canadian meat and poultry. The main focus of the study is on the size and development trends of the markets for the selected products mentioned above, the basis of demand, the competitors and the basis of competition, and future prospects and opportunities for Canadian exporters. It should be noted that: at the time of the research, there was no data available on meat and poultry imports for the whole of Vietnam s system of recording imports of meat and poultry is still very weak and that its import data is highly inaccurate. For this reason, the official export data published by the key meat and poultry exporting nations was used and referred to in the performance of this study. Vietnam is applying the OIE Terrestrial Animal Health Code for all countries that export cattle and beef products on a case by case basis for BSE affected countries. It has accepted the OIE's definition of Canada as a controlled BSE risk country, along with some of its competitors, e.g. the USA, but to date has only permitted entry of Canadian and U.S. bone in beef, boneless beef, and specified offal (heart, liver and kidney) derived from animals aged less than 30 months. 1

3 2. Market size, nature of supply and development trends 2.1 Overview of domestic meat and poultry supplies Vietnam currently produces the following quantities of the meats and poultry covered by this study. beef, from cattle only 206,000 tonnes; pork 2.55 million tonnes; and chicken 359,000 tonnes. Domestic production of meat and poultry has also been in a growth mode over the past 5 years (see Table below). Meat and Poultry Meat Production in Vietnam 2003 to 2007 Product type Tonnes Tonnes Tonnes Tonnes Tonnes Buffalo meat * 96, , , , ,650 Cattle meat ** 107, , , , ,145 Total Bovine 204, , , , ,795 Pork ** 1,795,442 2,012,021 2,288,315 2,505,100 2,553,000 Chicken meat ** 372, , , , ,800 Total 2,372,503 2,549,319 2,855,568 3,112,163 3,227,595 % annual growth 7.5% 12.0% 8.9% 3.7% Notes: *: All figures in this line are estimates. **: Also includes offal. Only rough estimates are available for No data is available on 2009 production. Source: Government of Vietnam It should be noted that Vietnam has several data sets, including official estimates, on meat and poultry production. One official estimate indicates that meat and poultry production was around 3.8 million tonnes in

4 It should also be noted that the decline in production of chicken meat in some years is directly related to the impact of Avian Flu outbreaks. Local fresh meats and poultry are very strong competition for imported products, so imports tend to be specific products that are in short supply from local producers. 2.2 The current scenario in Vietnam s livestock industry Officially, Vietnam had about 17,600 livestock farms in The industry is highly fragmented. The number of small farms has also been increasing over the past 3 to 5 years. The chicken industry has the most industrial farming operations. While this is the case, between 55% and 60% of all chicken meat is produced by backyard farms, which are operated by about 8.3 million households today. Only 12% of chicken meat is produced by larger industrial farms. The balance of supply is produced by medium sized farms. The pig industry is also highly fragmented, with about 7 million households producing pigs today. The livestock industry is very important to the Vietnamese rural area economy. It accounts for 27% of agriculture s contribution to national GDP. Agriculture accounts for about 6% of total GDP today. Livestock is a major source of food and a means to save and accumulate capital for Vietnam s rural communities. It also provides draught power and transport (still a very important factor in the cattle/buffalo sector), organic fertilizer and cash incomes. According to the government, the increase in the number of farms and expansion of smallholder livestock production has been a major contributor to increasing farm incomes and reducing rural poverty in Vietnam over the past 10 years. Trade and government sources comment that the livestock industry is mainly linked to highly localised distribution channels that service traditional markets, most of which do not comply with any basic form of modern sanitary and hygienic standards or best practices. Trade sources also comment that more than 95% of Vietnam s consumers buy their meat and poultry from local meat markets. These meat markets are supplied by the backyard and local small scale slaughter houses, which also operate under poor hygiene conditions and a general absence of regulatory oversight. 3

5 There are considered to be challenges developing for the industry because Vietnam s wealthier citizens are now developing demand for better quality and safer meat and poultry. The government fears that this trend could stimulate demand for even higher imports than at present. One trade respondent commented that a consumer study performed in Hanoi, after U.S. frozen poultry entered the market, confirmed that most middle income shoppers preferred the safer U.S. products to the local products, which they knew were produced and prepared in unsanitary conditions. In view of this, the government s above mentioned fear could now already be a reality in some segments of the market. This situation is also one reason why Vietnam has difficulty developing sizeable export trade in meat and poultry with the neighbouring ASEAN countries, e.g. Singapore, even though there may be demand for its products. In addition to these challenges arising from production quality, the industry has also been under quite significant stress from a number of other factors over the past 3 years: the soaring price of animal feed because of global commodity price rises and a reliance on imported feed inputs, at a time when the Dong (local currency) was weakening; the impact of various disease outbreaks in a sizeable number of Vietnam s provinces, e.g. Avian Flu and Foot and Mouth Disease, on meat and poultry pricing. The higher prices that arose from these events caused demand to collapse for the products of farmers in provinces that were not affected by disease outbreaks; and new competition from imports that were permitted by the government to stabilise the market and ensure that there was sufficient supplies of meat and poultry in Vietnam. 2.3 The government s latest development plans for the livestock industry The Government s Livestock Development Strategy targets production of 5.5 million tonnes of meat and poultry in 2020, up from the estimate of around 3.8 million tonnes in It also envisages per capita consumption increasing to 57 kilograms in 2020, up from around 40 kilograms today. The strategy also foresees that meat and poultry will also become significantly more important within Vietnamese agriculture, with its output rising from about 30% of total agricultural output today, to 38% in 2015 and 42% by

6 The underlying goal within this strategy is foreseen as the opportunity to substitute as much imported meat and poultry as is possible with local products. The strategy includes policies and programs covering: modernisation of the animal husbandry and poultry sectors, and shift more production from household based farms to industrial farming; improving hygiene and food safety aspects of the meat and poultry distribution channels, including upgrading slaughterhouses and the cool chain; improving the genetic quality of herds and flocks, and breeding standards; reducing disease outbreaks to minimise the supply disruptions that have occurred on a fairly frequent basis over the past 5 years or so; and establishing more cost effective animal feed formulations, and a more efficient animal feed industry. 3. Overview of imported meat and poultry supplies 3.1 The structure of meat and poultry imports today Vietnam is now a large market for some imported products. Imports of the products covered by this study were valued at around C$ 820 million in 2008 (see Chart below). 5

7 Vietnam s Imports of Selected Meat and Poultry Items in 2008 C$ 820 million Source: Official Trade Data (FOB Pricing) As can be seen from the above, over 80% of imports involve frozen beef and frozen chicken parts and offal. Trade sources comment that these are two markets where there are now quite severe potential and actual shortages as a result of growing local demand for beef and chicken parts: producing beef is a particular problem for Vietnamese farmers because of a range of challenges and constraints in a market environment where higher incomes have created booming demand for beef for use in local cuisine; and, challenges also exist for chicken production, although these are more to do with investment in more modern farms and farming systems and disease issues, than real production problems at the level of farmers. 3.2 Review of recent trends in imports of the products covered by this study Imports of the products that are covered by this study increased significantly over the period from 2004 to 2008 (see Chart below). 6

8 Vietnam s Imports of Selected Meat and Poultry Products 2004 to 2008 Source: Official Trade Data (FOB Pricing) Trade sources comment that the dramatic increase in imports of meat and poultry was: facilitated by Vietnam s WTO market liberalisation process. The country became a member of the WTO in January While some of its tariffs on meat and poultry were reduced immediately on its accession to the WTO, other tariff reductions are being phased in over the period to 2011 or 2012; and driven by demand from the market, importantly, from state owned or government linked businesses that have been able to import high volumes of product under the new freer market conditions. They also comment that the factors underpinning the new demand from the importers have been: the importers own desire to control the new trade in such products, i.e. the profit and market share motives; shortfalls in local meat and poultry supplies due mainly to various disease outbreaks, as mentioned earlier in this report; 7

9 a booming economy and related growth in household incomes, especially in its key urban areas; and latent demand in Vietnam because of growth in: o The meat processing industry; and o The food service industry. 3.3 Imports of meat and poultry in 2009 Businesses involved in importing meat and poultry to Vietnam have very mixed opinions about the state of demand for imports in As mentioned earlier in this report, there is very little data available on Vietnam s imports to provide any quantifiable evidence of the trends that exists in that year. The following points provide some qualitative viewpoints from trade sources about demand in 2009: Positive trends: o demand in the market for better quality fresh/chilled beef from Australia and New Zealand continued to grow in 2009 because the slow down in Vietnam did not have much of an impact on the upper income groups (mainly expatriates) and high end hotels (business visitors and wealthier tourists); and o demand for frozen beef, especially boneless beef from India continued to grow in 2009 because of continued local supply shortages and sustained demand from the consumer market for beef and beef products. Negative trends: o Demand for frozen pork fell into decline in This arose because of a recovery from some animal disease problems that hit the pork industry in 2008, according to both trade and government sources. This decline did not see imports decline rapidly or stop because the pig industry is only in a recovery phase, which could take 18 months or 2 years before production is back at an optimal level (based on a government viewpoint) Imports were lower because exporters declined to ship pork to Vietnam because of concerns that incidences of non payment for pork exports in 2008 would recur in

10 The recovery in local pork production also resulted in a decline in the domestic price of pork, which reduced demand for imported pork. The decline is reported to be quite sharp because there was a reported over supply of pork shipments to Vietnam in The imports of pork were also negatively impacted upon by a tightening of the regulations on frozen meat imports, specifically Decision 46 covering maximum residue levels for meat products. o Demand for frozen pig s offal was variable, largely because of lower business and mass urban market consumer confidence and price sensitivity towards imported products from some countries in the Developed World. o Demand for frozen chicken parts and offal slowed or declined in 2009 because there was a bounce back in production after the downturn caused by Avian Flu outbreaks. According to the latest government estimates production of poultry meat surged by over 12% in 2009, up from production in Review of markets for the specific products covered by the study 4.1 Overview of trends in imports Vietnam s imports of the specific products covered by this study amounted to 419,724 tonnes in 2008, up from about 38,651 tonnes in 2004 (see Table below). Imports have been growing at very rapid rates since Vietnam joined the WTO. Overview of Trends in the Value of Imports of the Products Covered by this Study Product Tonnes Tonnes Tonnes Tonnes Tonnes Fresh/chilled beef ,182 Frozen beef 1,455 11,899 19,865 60, ,138 Frozen pork 83 1,044 29,318 17,541 22,644 Frozen pig s offal ,928 35,124 Frozen chicken parts and offal 36,702 5,339 51, , ,636 Total 38,651 19, , , ,724 Source: Official external trade statistics (Official classifications) 9

11 The growth trends in these markets are indicative of a highly immature market at the very early stages of its development. These development trends are very similar to those seen in countries, such as Malaysia and the Philippines, at the early stages of their development after market liberalisation measures came into play. Vietnam has: two very large markets, namely frozen chicken parts and offal and frozen beef, which are underpinned by high demand for these products and significant shortfalls in local supply; two medium sized markets, namely frozen pig s offal and pork that are constrained in terms of market development by competition from local products. Having stated this, demand does exist for imports because of shortfalls in the supply of products (mainly low end and inexpensive products) that are in high demand from the meat processing industry; and, a small niche market for high end airflown beef. This market is constrained by price sensitivity, the small demand base that exists today and competition on the fringes of the high end market from better quality locally produced beef. 4.2 Fresh/chilled beef Imports of fresh/chilled beef amounted to 2,182 tonnes valued at C$ 6.9 million in 2008, up from 170 tonnes valued at C$ 1.4 million in 2004 (see Table below). Vietnam s Imports of Fresh/Chilled Beef 2004 to Tonnes Tonnes Tonnes Tonnes Tonnes Boneless Bone in ,393 Carcass or half carcass N Total ,182 % change 427 (58) N: Negligible. Source: Official external trade statistics 10

12 Vietnam is importing fresh/chilled beef from up to 6 countries (see Charts below for market shares and import trends). Imports of Fresh/Chilled Beef by Key Supply Country in ,182 Tonnes Source: Official External Trade Statistics (All cuts) Trends in Imports of Fresh/Chilled Beef from Key Supply Countries 2004 to 2008 (In Tonnes) Source: Official External Trade Statistics (All cuts) 11

13 The increase in Vietnam s imports of fresh/chilled beef is linked to two factors, namely: increased demand pull for more product from the food service industry and upper income group residents of Vietnam, mainly expatriates; and, supply push by the US Meat Export Federation (USMEF) and U.S. beef exporters in an early attempt to develop a market for their products after the ban on U.S. beef imports was lifted. This is the reason for the surge in imports from the USA in As mentioned earlier in this report, the USA, like Canada, is only able to export bone in beef, boneless beef, and specified offal (heart, liver and kidney) derived from animals aged less than 30 months to Vietnam. Trade sources comment that increased demand pull continued in 2009 with more fresh/chilled beef being imported from Australia and New Zealand than in According to government sources, imports of beef from the USA in 2009 were substantially lower than the volumes in If the Customs data is correct, this indicates that U.S. performance in 2008 was more of a temporary surge in trade due to special promotional activity, rather than a sustained pattern of demand from Vietnamese customers. While this is the case, it is reported that the USA was still likely to be the market leader in As the Vietnam market is generally price sensitive, the market leader is the lowest cost supplier. The USA dominates because its current focus is on exporting beef cuts other than steaks to Vietnam, e.g. beef strips for use in traditional dishes, e.g. soup noodles (see Tables below). Vietnam Imports of Fresh/Chilled Boneless Beef: Review of Landed Cost Per Tonne and Market Share 2006 to C$ Per Tonne % Market Share C$ Per Tonne % Market Share C$ Per Tonne % Market Share USA 4, , , Australia 9, , , New Zealand 7, , , All imports 6, , , N: Negligible. Source: Derived from Official External Trade Statistics 12

14 Vietnam Imports of Fresh/Chilled Bone in Beef: Review of Landed Cost Per Tonne and Market Share 2006 to C$ Per Tonne % Market Share C$ Per Tonne % Market Share C$ Per Tonne % Market Share USA 4, Ireland 1, , , Canada 5, Australia 12, , , New Zealand 7, , , All imports 4, , , N: Negligible. Source: Derived from Official External Trade Statistics The USA has a different strategy to that of Australia and New Zealand. Its exporters are focused on exporting the lower cost cuts of beef to Vietnam for use in local cuisine. In contrast, its competitors have a focus on higher quality airflown steaks and other cuts for use by higher end restaurants. This is reflected in average export prices as detailed in the Table above. No information is available about the beef trade that is reported with Ireland. There are only limited displays of fresh/chilled beef available in the supermarkets and hypermarkets in Vietnam today, when compared to poultry and pork. The product range is broad because Vietnamese have demand for a wide range of cuts. A small sample of the premium fresh/chilled beef cuts and their retail pricing is provided in the Table below. Sample of Fresh/Chilled Beef * and Pricing in Vietnam Product Pack Size Dong Per Kilogram C$ Per Tonne Sirloin Steak Sold by Kilogram 399,000 22,600 Chuck Steak Sold by Kilogram 438,900 24,900 Top Inside Round Sold by Kilogram 142,900 8,100 *: The origin of fresh/chilled beef is not clearly stated in the supermarkets, although some retailers, e.g. Big C, claim that their products are from Australia. Source: Supermarkets (February 2010) It should be noted that some of the frozen beef products mentioned in the following section may actually have originally been fresh/chilled beef that has been frozen in Vietnam. 13

15 Market observations located some U.S., Canadian and Australia beef in supermarkets that are in quite bad condition and appear to be fresh/chilled beef that has been frozen when in Vietnam s supply chain. 4.3 Frozen beef Imports of frozen beef amounted to 137,138 tonnes valued at C$ 434 million in 2008, up from 1,455 tonnes valued at C$ 3.6 million in 2004 (see Table below). Vietnam s Imports of Frozen Beef 2004 to Tonnes Tonnes Tonnes Tonnes Tonnes Boneless 1,434 11,171 19,366 57, ,690 Bone in ,868 10,287 Carcass or half carcass Total 1,455 11,899 19,865 60, ,138 % change Source: Official external trade statistics Vietnam is importing frozen beef from up to 12 countries (see Charts below for market shares and import trends). 14

16 Imports of Frozen Beef by Key Supply Country in ,138 Tonnes Source: Official External Trade Statistics (All cuts) Trends in Imports of Frozen Beef from Key Supply Countries 2004 to 2008 (In Tonnes) Source: Official External Trade Statistics (All cuts) 15

17 Frozen beef is used by Vietnam s traditional food service sector that, amongst other menu items, supplies beef soup noodles (known as Pho), which have widespread mass market demand. Trade sources comment that Vietnam s demand is now in a long term growth trend for valuefor money beef. This trend is underpinned by two factors: higher disposable incomes on the back of good economic growth and increased usage of food service outlets. There is also increased demand from middle income households for beef; and, a shortage of appropriate beef supplies from the Vietnam beef industry. This has pulled in increasing volumes of beef from India. Trade sources comment that the USA jumped into the market to ride the upward growth trend for products for use by the mid and upper level traditional food service industry. As mentioned earlier in this report, U.S. beef imports fell back from their 2008 levels. According to the government, frozen beef imports from the USA were probably at around 50% of their 2008 levels in This is a market where price is extremely important and is the reason why India has developed into the dominant supplier over the past 5 years (see Table below). 16

18 Vietnam Imports of Frozen Boneless Beef: Review of Landed Cost Per Tonne and Market Share 2006 to C$ Per Tonne % Market Share C$ Per Tonne % Market Share C$ Per Tonne % Market Share India 1, , , USA 2, , , Paraguay 4, , , Hong Kong reexports * 2, , Brazil 2, , Australia 5, , , Canada 1, , , Argentina 5, , , New Zealand 5, , , All imports 1, , , *: Per trade sources, this is likely to be U.S. origin beef or, possibly, China origin beef. N: Negligible. Source: Derived from Official External Trade Statistics Interestingly, demand for Indian beef has continued to be very strong, even though its price has been increasing. Trade sources comment that this situation exists because buoyant economic conditions and increasing disposable incomes allow the market to accept some level of price increases. There is only a very limited range of frozen imported beef in retail channels (see Table below). Sample of Frozen Imported Beef and Pricing in Vietnam Product Pack Size Dong Per Pack C$ Per Tonne U.S. Grain Fed Chuck Short Rib 300 gm 105,000 19,800 U.S. Grain Fed Bone in Short Rib 300 gm 105,000 19,800 Canadian Grain Fed Tenderloin 300 gm 165,000 31,200 U.S. Eye Round 300 gm 118,500 22,400 Australian Tenderloin 300 gm 145,000 27,400 Canadian Eye Round 300 gm 74,000 14,000 Source: Supermarkets (February 2010) 17

19 4.4 Frozen pork Total imports of frozen pork amounted to 22,644 tonnes valued at C$ 43.1 million in 2008, up from 83 tonnes valued at C$ 122,000 in 2004 (see Table below). Vietnam s Imports of Frozen Pork 2004 to Tonnes Tonnes Tonnes Tonnes Tonnes Boneless 58 1,044 29,318 17,052 18,541 Bone in ,862 Carcass or half carcass Total 83 1,044 29,318 17,541 22,644 % change 11,578 2,708 (40) 29 N: negligible. Source: Official external trade statistics Vietnam has a fragmented supply base for imported pork. It has been importing the product from up to 25 countries per annum over the past 3 years (see Charts below for market shares and import trends). Imports of Frozen Pork by Key Supply Country in ,644 Tonnes Source: Official External Trade Statistics (All cuts) 18

20 Trends in Imports of Frozen Pork from Key Supply Countries 2004 to 2008 (In Tonnes) Source: Official External Trade Statistics (All cuts) Shortage of variety meats, e.g. head, offcuts and trimmings (included in this HS code), in a market with growing demand has seen Vietnam s importers broaden their search for value formoney products from across the world. Vietnam Imports of Frozen Boneless Pork: Review of Landed Cost Per Tonne and Market Share 2006 to C$ Per Tonne % Market Share C$ Per Tonne % Market Share C$ Per Tonne % Market Share USA 1, , Canada 1, , Hong Kong * 1, , China, PR 1, , , Poland Cyprus 1, , Hungary 1, UK , Italy 1, , All imports 1, , , *: Actual origin not known. It could be China or North America. N: Negligible. Source: Derived from Official External Trade Statistics 19

21 According to government sources, imports of pork meat were lower in 2009 than in This situation occurred because Vietnam s post disease pig population increased by more than 3.5% and pork production increased by about 4.5% in 2009 to over 2.9 million tonnes. Trade sources have also commented that imports were lower in 2009 because exporters had declined to service orders from Vietnam due continued concerns arising from incidences of non payment by Vietnamese importers for frozen pork shipped to them in There is no frozen pork in the retail channels. At the time of writing (February 2010), the Vietnam General Statistics Office reported that the general market (selling) price of pork, which is regarded as an essential commodity in Vietnam, was as follows: Hanoi Dong 52,000 (C$ 2.95) per kilogram; and, Ho Chi Minh City Dong 60,000 (C$ 3.40) per kilogram. It should be noted that the pricing of pork in supermarkets is generally higher than the general market. The Table below provides some examples of the retail price of local fresh (warm and chilled) pork as sold in supermarkets so the reader has an indication pricing at this level in the supply chain. Retail Pork Pricing in Ho Chi Minh City Meat Cut Dong Per Kg C$ Per Tonne Lean pork leg meat 86,000 4,900 Pork tenderloin 79,000 4,500 Source: Supermarkets and hypermarkets (February 2010) Imported pork is comprised mainly of inexpensive cuts, such as bone in ham, shoulder picnic, hock, hind foot and offal (heart) for the meat processing industry and also for food catering to workers who work in Vietnam s industrial zones. 4.5 Frozen pig s offal Total imports of frozen pig s offal amounted to 35,124 tonnes valued at C$ 45.1 million in 2008, up from 241 tonnes valued at C$ 162,000 in 2004 (see Table below). 20

22 Vietnam s Imports of Frozen Pig s Offal 2004 to Tonnes Tonnes Tonnes Tonnes Tonnes Pig s offal, not liver ,899 34,407 Pig s liver Total ,928 35,124 % change (25) 10, Source: Official external trade statistics Vietnam has a fragmented supply base for imported frozen pig s offal. It has been importing the product from up to 25 countries per annum over the past 3 years (see Charts below for market shares and import trends). Imports of Frozen Pig s Offal by Key Supply Country in ,124 Tonnes Source: Official External Trade Statistics (All products) Trends in Imports of Frozen Pig s Offal from Key Supply Countries 21

23 2004 to 2008 (In Tonnes) Source: Official External Trade Statistics (All products) As mentioned earlier in this report, Vietnam s importers, mainly the meat processors, have broadened their search for value for money products from across the world. This includes offal that can be used in various types of processed meat products that have popular and growing demand in Vietnam. The surge in imports in 2008 resulted from this factor, and liberalisation of market access conditions. Animal disease outbreaks have also provided a positive demand scenario for pig s offal. Although the government reports lower pork meat imports in 2009, the trade reports that there was continued high demand for pork offal (and variety meats) for use in processed meat production in Vietnamese buyers have demand for the lowest cost best quality offal that they can get. For this reason, the lowest cost lower cost exporters tend to dominate market share (see Table below). Vietnam Imports of Frozen Pig s Offal: 22

24 Review of Landed Cost Per Tonne and Market Share 2006 to C$ Per Tonne % Market Share C$ Per Tonne % Market Share C$ Per Tonne % Market Share Hong Kong * 1, , USA 1, , , Poland , Denmark 1, , Canada 1, , Germany 1, , Netherlands 1, , Spain 1, , Cyprus 1, France 1, , UK , Japan 1, , Hungary Australia 1, , All imports 1, , , *: Actual origin not known. It could be China or North America. N: Negligible. Source: Derived from Official External Trade Statistics (Not liver) No imported frozen offal is carried in any of Vietnam s retail channels. Trade sources comment that imported offal, which also includes variety meats and pig s fat, is being imported for use mainly by the meat processing industry. The products are low cost inputs to canned, frozen and fresh/chilled processed meats, e.g. sausages (both traditional and introduced types), paté, meat loaf, luncheon meat and some ready meals in cans. 4.6 Frozen chicken parts and offal Total imports of frozen chicken parts and offal amounted to 222,636 tonnes valued at C$ million in 2008, up from 36,702 tonnes valued at C$ 28 million in 2004 (see Table below). Vietnam s Imports of Frozen Chicken Parts and Offal 2004 to

25 Tonnes Tonnes Tonnes Tonnes Tonnes Total 36,702 5,339 51, , ,636 % change (85) Source: Official external trade statistics Government and trade sources comment that imports of frozen chicken parts in 2008 were very high because of disease in Vietnam and supply shortages. It should be noted that: there was a bounce back in chicken production in Vietnam, with the industry seeing its production increasing by over 12% from production levels in 2008; early and unaudited data releases from the government for 2009 imports indicate a substantial decrease in imports in 2009; and, imports from the USA are reported to be around 15,000 tonnes lower in 2009, when compared to If correct, this represents a decline in volumes of between 20% to 25% in This also took place at a time when the landed cost of imports was between 10% and 15% lower than in 2008, which indicates the competitive power of local fresh chicken versus frozen chicken in the market. Vietnamese consumers generally have a strong preference for fresh chicken. In 2007 and 2008, the shortages in local production caused importers to search the world for low cost frozen chicken to service demand. Trade sources comment that demand for chicken has been increasing for more than 10 years on the back of improved household incomes. Imports of Frozen Chicken Parts and Offal by Key Supply Country in

26 222,636 Tonnes Source: Official External Trade Statistics (All products) Trends in Imports of Frozen Chicken Parts and Offal from Key Supply Countries 2004 to 2008 (In Tonnes) Source: Official External Trade Statistics (All products) 25

27 Trade sources comment that all of the market leaders are price competitive suppliers of frozen chicken wings, drumsticks, deboned leg meat, legs, feet (claws), and offal such as livers, hearts and gizzards. Offal is used in some processed meat products, e.g. pate, meat loaf and sausages. The surge in imports in the period between 2005 and 2008 is related to two factors, namely local shortages arising from disease outbreaks and also liberalisation of market access for frozen chicken parts and offal. Vietnam Imports of Frozen Chicken Parts and Offal: Review of Landed Cost Per Tonne and Market Share 2006 to C$ Per Tonne % Market Share C$ Per Tonne % Market Share C$ Per Tonne % Market Share USA , , Turkey Hong Kong , Brazil 1, , , Thailand 1, , , Poland N Argentina 1, , , UK South Korea N 1, , Netherlands 1, , , France , , Japan , , Spain N Germany , Canada , All imports , , *: Actual origin not known. It could be U.S., South American or China origin product. N: Negligible. Source: Derived from Official External Trade Statistics There are currently no highly prominent imported frozen chicken parts or offal in retail channels. Retail trade sources comment that at the time of the last major Avian Flu outbreak, imported poultry cuts were highly evident, e.g. chicken drumsticks, thighs and legs, from the USA. 26

28 The only frozen chicken parts that are in retail channels are commodity parts from CP (Chareon Pokphand, Vietnam) fresh chicken. These products are mainly chicken legs. They are reported to be delivered fresh/chilled in retail packs which are placed in the retailer s freezer. 5. Vietnam s meat and poultry distribution channels 5.1 The retail channels As has been mentioned in an earlier section of this report, Vietnam is principally a market for fresh warm meat from freshly slaughtered animals and poultry. In view of this, many of its distribution channels are geared towards these products. In 2008, between 85% and 90% of all meat and poultry consumed or used in Vietnam was sold in a warm, not chilled or frozen, form. Although supermarkets and hypermarkets now exist all over Vietnam, they are not yet conduits for high volumes of meat and poultry. Indeed, in many of the older supermarket chains in Hanoi, e.g. Fivimart, run by Vietnamese, there is little, if any, fresh/chilled meat and poultry carried, and only limited amounts of frozen meat and poultry. Ho Chi Minh City is a bit different because its older supermarkets, e.g. Coopmart and Maximart, do sell meat from delistyle counters, chilled display cabinets and freezers. The modern retailers, e.g. Big C and Wellcome (DFI Group) and the main cash & carry wholesaler (Metro Cash & Carry) do carry both fresh/chilled and frozen meat and poultry because it is part of their business strategy to do so. Big C hypermarkets, for example, have a modern and clean wet market style operation in all of their stores to attract Vietnamese consumers to purchase fresh meat and poultry from them. The basic strategy of the supermarkets and hypermarkets that have fresh/chilled meat and poultry in their strategy is to have: deli style counters operated by a meat brand owner, e.g. Vissan (several retailers) or Hormel Monterey Pork Shop (Wellcome Supermarket). Big C tends to work with preferred farming companies; and, chilled meat display cabinets, some of which display branded meat or poultry from a specific supplier or farm. 27

29 This situation has established barriers to imported meat and poultry participating more directly on a branded basis in the retail market as is the case in markets, such as Malaysia and Singapore. Trade sources comment that this strategy has been adopted because it is very difficult for a retailer to control all aspects of its meat supply chain on an internal basis. It should be noted that Metro Cash & Carry has a different system under which it is actively training Vietnamese meat farmers to comply with Good Agricultural Practice so they can become the company s suppliers. This is being done under a project that is partly funded by the German government. There are also some Japanese and Korean style butchery shops that have demand for imported meat and poultry. These shops are specialist operations that have a focus on servicing the specific demands of the large number of Japanese and Korean expatriates that live and work in Vietnam. Trade sources believe that supermarket and hypermarket participation in the retail distribution of meat and poultry will increase significantly over the next 5 years, if the government approves the development of more supermarkets and shopping malls/hypermarket complexes over this period. 5.2 Channels to food service outlets The food service channels that are using imported meat and poultry today are reported to be: the Pho (beef noodle) shops, which use Indian beef and local beef. It should be noted that the large Pho 24 chain of outlets is now promoting a special beef noodle soup that uses U.S. tenderloin at some of its outlets across Vietnam, e.g. in central Ho Chi Minh City. The product containing U.S. beef is sold at Dong 68,000 (C$ 3.85), when compared to Dong 55,000 (S$ 3.10) for the same product using standard beef (likely to be Indian or local). At the time of the research (February 2010), this product does not seem to feature in the menus of Pho 24 s Hanoi based outlets; Japanese and Korean restaurants, which have demand for better quality beef than is readily available locally; 28

30 the fast food chains, e.g. KFC, Lotteria and Jollibee, which have demand for frozen chicken parts, and also use chicken nuggets and beef patties, some of which are reported to be made in Vietnam with imported inputs. It should be noted that there are canned burger patties being produced in Vietnam; western food and Vietnamese fusion outlets that serve better quality steaks. The number of these are growing in all cities, especially in Ho Chin Minh City; and, hotel restaurants, in particular the internationally branded 4 and 5 star hotels. At the time of this research (February 2010), Vietnam is in the midst of a nationwide hotel construction boom that will see thousands of new hotel rooms being added to the current inventory between 2010 and There are a number of distribution channels for meat and poultry to food service operators in Vietnam today: the wet markets and linked wholesalers (runners) who deliver fresh meat to key users. This channel also includes some butcher shops. Many traditional food service operators buy their daily requirements from the wet market; frozen food importers and wholesalers and their localised agents (runners) that deliver frozen meat and poultry to range of food service outlets that use it, including the fast food companies. These businesses tend to be commodity operators that handle a range of different frozen products, purely on a physical distribution basis; and, specialty food and drink importers that import fresh/chilled meats and poultry and better quality frozen products for use by high end restaurants. An example is Classic Finefoods Vietnam, which imports meat, poultry and game from the EU, Australia and New Zealand. There are a very small number of these importer distributors in Vietnam and they are involved in marketing and physical distribution of their principals products. 5.3 Channels to meat processing companies Trade sources comment that the bulk of meat processing companies that have demand for imported frozen meat, poultry and offal are importing the products direct from meat and poultry exporters. This practice has been in place for more than 20 years and developed under the state owned import export companies and state owned canned meat companies. 29

31 More information about Vietnam s meat and poultry processing industry is provided in the next chapter of this report. 5.4 The capabilities of Vietnam s meat and poultry distributors Trade sources comment that most of Vietnam s meat and poultry distributors and some of its frozen food importers and distributors do not operate to requirements that comply with international standards and best practices today. The cool and frozen chain is weak at many levels in the supply chain, with holes occurring all along the chain from producer/port of entry to retailers and the end users. Additionally, Vietnam s hot and humid climate also adds to the challenges for handling fresh/chilled and frozen foods. This is a major risk area to the integrity of perishable foods, whether local or imported. 6. Vietnam s meat and poultry processing industry Vietnam has a large and quite fragmented meat and poultry processing industry. This industry has been in existence for many years and has its roots in the French colonial era (fresh processed meats) and the era of the state owned businesses and export trade with the former Soviet Bloc (canned processed meats). No data is readily available on the size of the industry, although trade sources comment that is one of the largest agrifood industries operating in Vietnam today. The businesses involved in the industry include state owned enterprises, Vietnamese private businesses and foreign invested businesses. Today, the industry manufactures a range of: canned meat and poultry products: o paté; o ham; o corned beef; o luncheon meat; and, o meat loaf type products. 30

32 canned ready to heat meals based on traditional Vietnamese recipes: o stewed beef; o stewed pork chops; o pork cubes in sauce; o canned chicken with sauce; and, o stewed chicken with salted plum; etc. fresh/chilled processed meats: o ham; o paté; o luncheon meat; o European style processed meats, e.g. salami, garlic sausage, etc; o European style sausages, referred to locally as grilling sausages ; and, o meat loaf type products. shelf stable processed meats, not canned: o frankfurters, i.e. pasteurised with 6 to 9 months shelf life. frozen processed meat products: o European style sausages; o beef meat balls; o burger patties; and, o chicken based products; and, traditional dried products, e.g. Chinese style sausages and jerky type products. The bulk of these products are entrenched in Vietnamese local food culture, with some being very deeply entrenched, e.g. paté, luncheon meat, ham and certain types of sausages. All of these traditional products are reported to have very large markets across Vietnam. This situation exists because Vietnamese local cuisine has significant fusion elements in it that are linked to French cuisine. The key players in the industry include: 31

33 Vissan, which is Vietnam s giant meat company; CP Vietnam (part of the Chareon Pokphand group of companies); D&N Meat Factory; San Miguel Purefoods Vietnam (Le Gourmet brand); Angst Truong Vinh; e Bon; Golden Pig Joint Stock Company; Duc Viet Foods; Viet Huong; Tuyen Ky Food; Halong Canfoco; and, Starfood (mainly seafood) Some of these businesses are canners and fresh and frozen product manufacturers, e.g. Vissan. Others are not involved in canning meats, e.g. San Miguel Purefoods Vietnam. There are also a very small number of innovative food companies working on the fringes of this industry, including Vina Acefood, which is producing branded ready meals with meat content, e.g. beef. Vietnam s processed meat industry has shifted from an industry with regional markets to a scenario where the larger businesses now have a national market for their products. Although this has happened, there are still businesses operating in both the north and south of the country that have a higher level of retail distribution prominence in their home area. With the modern retailers, e.g. Big C, and cash & carry businesses, e.g. Metro Cash & Carry, pushing to develop nationwide networks, this industry development trend looks set to continue in future. The procurement policies of the meat and poultry processing industry are oriented around a mix of using local products first, price and using value for money imported inputs, which generally means variety meats (head, feet, skin, fat, trimmings) and offal (all types). Price is very important because, at consumer level, price has to be reasonable for the Vietnamese mass market. Variety meats and offal are in very high demand in Vietnam because they are used by households, traditional food service outlets (e.g. street food providers) and processed meat manufacturers, which range from micro sized / small businesses to medium / large sized 32

34 commercial operations. This situation puts pressure on local supplies, which leads to inherent and actual demand from the larger meat processors for imported inputs. 7. Vietnam s regulatory environment for imported meat and poultry in overview On paper, Vietnam now has a relatively easy process governing its imports of animal products. While this is the case, the reality of the situation can be more complex. A key challenge in Vietnam lies in the fact that policies, regulations, practices and on the ground procedures do change from time to time, even import duties. In view of this, it is wise for exporters to work very closely with their importers to ensure that their export import transactions flow smoothly. Some key points on the regulatory environment for meat and poultry imports are as follows: the Department of Animal Health is responsible for the food health and safety aspects of Vietnam s regulations covering meat and poultry imports. This department is part of the Ministry of Agriculture and Rural Development; Vietnam s regulations do not permit the import of meat and poultry from countries where there are animal disease outbreaks, including BSE, FMD and other diseases, e.g. Avian Flu, or that might be tainted with a range of contaminants, e.g. antibiotics, other drugs, hormones, agricultural residue chemicals, and other harmful chemicals within the confines of Vietnam s maximum residue levels for meat and poultry. As mentioned earlier in this guide, at present, only bone in beef, boneless beef, and specified offal (heart, liver and kidney) derived from animals aged less than 30 months are permitted to enter the Vietnam market from Canada and the USA. imports of meat and poultry can only be undertaken by a Vietnam company that is officially approved as a trader in meat and poultry products; all imports of meat and poultry are subject to inspection at the port of entry. These inspections are undertaken by the Quarantine Regional Office of the Department of Animal Health. This office issues a quarantine clearance certificate after it has inspected the products and found them to be fit to enter Vietnam s customs territory and market; exporters also have to be approved exporters in their home country. The HACCP certificate of the producing plant or manufacturer is now required to be submitted as part of the documents to be inspected when the products have arrived in Vietnam Customs area at the 33

35 port of entry. According to government sources, the submission of the HACCP certificate is waived for Canada as a result of this is being officially agreed between the Vietnam and the Canadian governments; Vietnam now requires that the product label/packaging of imported chilled and frozen meat shipments include details of the product s production date and expiry date; Vietnam now has a detailed regulation covering permitted maximum levels of biological and chemical residues in food. This will shortly be expanded by way of a new regulatory circular that specifically covers MRLs in livestock and meat products; and, procedures at the port of entry are now standard involving presentation of documents, document inspections, quarantine inspections of the products, certification for entry into Vietnam s customs territory, payment of import duties and other fees, and release of the products from the customs area, if they have passed quarantine inspection and the customs process. Vietnam s import duties are underpinned by its policies of promoting the livestock industry as a base for new rural economic development and higher disposable incomes for rural area families and individuals. As highlighted earlier in this report, these policies have been reinforced by the new Livestock Development Strategy 2020 that targets producing an additional 1.5 million tonnes of meat and poultry per annum by A key driver for this policy and its programs is import substitution. Today, Vietnam s import tariffs on meat and poultry are high, relative to the more open markets in ASEAN (see Table below). Vietnam s MFN Import Tariffs on Selected Meat and Poultry Products Meat of bovine animals, fresh or chilled. % (Ad Valorem) Carcasses and half carcasses 15 * Other cuts with bone in 15 * 15 (WTO final Boneless bound 14% in 2012) Meat of bovine animals, frozen Carcasses and half carcasses 15 * Other cuts with bone in 15 * Boneless 15 (WTO final bound 14% in 34

36 02.03 Meat of swine, fresh, chilled or frozen. Fresh or chilled: Carcasses and half carcasses Hams, shoulders and cuts thereof, with bone in Other Frozen: Carcasses and half carcasses Hams, shoulders and cuts thereof, with bone in Other 2012) 25 (WTO final bound rate) 25 (WTO final bound rate) 25 (WTO final bound rate) 25 (WTO final bound 15% in 2012) 25 (WTO final bound 15% in 2012) 25 (WTO final bound 15% in 2012) Vietnam s MFN Import Tariffs on Selected Meat and Poultry Products Meat and edible offal, of the poultry frozen. % (Ad Valorem) Cuts and offal, frozen: Wings 15 * Thighs 15 * Livers 15 * Other 15 * *: This tariff rate is already lower than the published bound rate in Vietnam s 2007 WTO commitments. It is possible based on past incidences that Vietnam could increase these rates to the final bound rate if it considered the local industry to be threatened by imports. Source: Vietnam Customs (January 2010) The lower import duties on beef and frozen chicken parts arise from a pragmatic policy under which Vietnam s government understands that importers and users in Vietnam need these products, and that shortages of them can create circumstances where retail price inflation can cause problems in the retail market. It should be noted that in the recent past, imports of essential products have been made under temporary regulations where the tariffs have been reduced to zero at times of supply instability and high local market pricing. Vietnam s tariff rate reductions under the ASEAN Australia New Zealand Free Trade Agreement that came into force in early 2010 are overviewed in the Table below. These tariff reductions 35

37 will provide longer term benefits to Australian and New Zealand exporters of beef and pork, when compared to their Canadian counterparts. Overview of Vietnam s Tariff Commitments Under the AANZFTA Product category Beef, all codes Pork, all codes % 10% 7% 5% 0% 0% 25% 20% 15% 7% 5% 0% Frozen chicken parts, not liver 20%, which is higher than the current MFN. 20% into perpetuity 20% Source: Vietnam s Commitments to the AANZFTA It is not known why Vietnam s tariffs on frozen chicken parts under the AANZFTA are higher than the current MFN duties. Trade sources comment that this situation probably exists because the Vietnamese government wishes to maintain its tariffs on frozen chicken parts at the level of its WTO commitments. In practice, this would result in Australian and New Zealand chicken parts incurring the lower of the WTO bound rate and the MFN as set by the Vietnam government from time to time in the future. Overall, in view of the Livestock Development Strategy 2020, it seems unlikely that Vietnam will initiate any further unilateral liberalisation of its MFN import tariffs in the foreseeable future. Further reductions in tariffs would also certainly only come through bilateral or multilateral FTA negotiations that cover meat and poultry as a package of products. It should be noted that the EU has announced that Vietnam will be the second ASEAN member state that it would like to start FTA negotiations with at some stage over the next 3 years. 8. Overview of the involvement of Canada and its main competitors Developing World and non OECD countries (India) are sizeable players in most markets. The USA is the dominant Developed World player because of its intense supply push marketing activities (see Table below). 36

38 Review of the Competitive Position of Canada s Direct Competitors in 2008 Product Imports Developing World Developed World * Top 3 Developed World Supply Countries and Their Market Shares ** Tonnes % Share % Share Leader *** No 2 No 3 Beef, fresh chilled 2, % USA (81%) Australia (12%) New Zealand (3%) Beef, frozen 137,138 70% 30% USA (28%) Australia (0.4%) Pork, frozen 22,644 40% 60% USA (27%) Canada (23%) Canada (0.4%) UK (2%) Pig s offal, frozen 35,124 61% 39% USA (20%) Denmark (5%) Canada (3%) Chicken parts and offal, frozen 222,636 61% 39% USA (24%) UK (3%) Netherlands (2%) *: OECD countries. **: Share of total imports. ***: Amongst the Developed World countries. Source: Official External Trade Statistics It should be noted that the trade data on the imports of some products, especially pork, may be understated because trade sources comment that there is a grey import trade in pork and poultry from its neighboring countries, e.g. China. The market profile highlighted in the Table above exists because: Vietnamese buyers tend to buy on price so Developing World suppliers, e.g. India for frozen beef, with their lower prices, are preferred; Vietnam s food health laws have an impact on the source of imports of pork, beef and poultry; and, users and consumers of fresh/chilled beef have demand for products from countries such as the USA, Australia and New Zealand. 37

39 9. Conclusion for Canada and its exporters 9.1 The structure of the market and its implications Vietnam essentially has two segments within its meat and poultry markets today: a small market for premium meats (In 2008, around 2,000 tonnes for the products covered by this study), which is niche like; and, a much larger market for commodity meats and poultry (In 2008, over 400,000 tonnes for the products covered by this study), which is segmented around the demands of two channels: o the channels to urban area middle and upper income group end consumers; and, o the mass market (lower income) type channel, which is focused specifically on the wealthier urban areas in Vietnam. It should be noted that the volumes of meat and poultry imported in 2009 was lower than the figures provided above, although at the time of writing (March 2010), there is no firm data to prove the information provided by government sources. The differing nature of these markets: provides different opportunities to Canadian exporters because some of the segments have more open market access, or less competition from local products, than others; and, requires different export strategies and action plans of Canadian exporters because of the types of demand that exist for more than just the product. There are also important demands on service and business partnering aspects to develop a viable market. 9.2 The key risk in the distribution channels When compared to other more developed countries in ASEAN, e.g. Malaysia and Singapore, there are significant challenges to be dealt with in the area of distribution quality for meats and poultry in both Ho Chi Minh City and Hanoi. 38

40 Canadian exporters should make no assumptions about distribution capacity and capabilities in Vietnam because this is a key risk area for any committed meat business that wants to develop market share into the long term. The local channels have developed round local meats and poultry which dominate supply to the markets, and so are in competitive threat of sorts, in Vietnam. In addition to this risk area, feedback from trade sources indicates that there may be other problems to consider when dealing with Vietnam s meat and poultry importers. Such feedback indicates that there were incidences of non payment by Vietnamese importers for frozen pork shipped to them in As in countries, such as Malaysia and Singapore, in the late 1980s and early 1990s, Vietnamese importer distributors generally need assistance to develop channels that are appropriate for perishable food products. This is one aspect within the realm of service and business partnership that Canadian exporters seriously have to consider when developing their business and marketing strategy for Vietnam. 9.3 Growth forecasts and scenarios for imported meat and poultry Vietnam is forecast to be one of the fastest growing countries in the world over the next 3 to 5 years. Current forecasts indicate that the economy will likely grow at between 5% and 12% per annum, depending on whether or not the global economy will crash again. The less aggressive range of forecast growth rates are between 6% and 8% per annum, which are still high. It should be noted that there are now forecasts that put Hanoi s economy in a catch up phase with Ho Chi Minh City. This phase could see economic growth in the Greater Hanoi area (Conurbation population: Around 10 million persons and increasing) ranging from between 9% and 12% per annum over the next 3 years. These forecasts are very positive for all areas of the meat and poultry market, whether supplied by local or imported suppliers. For imported products, the demand drivers will remain: the requirement for premium meats from the top end of the market, driven by increased tourists and business visitors, more expatriates and a larger Vietnamese more discerning upper income group; 39

41 shortfalls in local supplies of beef/bovine offal, and of certain pig and chicken meat and offal products because of an inherent mismatch between demand preferences, e.g. on lower priced cuts and products, and supply capabilities; growth in the food service industry, in particular the fast food industry that requires products which are far more consistent in terms of specifications than most of Vietnam s meat and poultry industry can produce at present; and, growth in the processed meat industry, especially sausages, paté and meat loaf. Overall, although sizeable, the Vietnam market for imported meat and poultry is immature and still broadly at an introductory phase of its market development. This means that imports over the next 5 years could, in reality, be highly variable with growth coming and going on an inconsistent basis. 9.4 Opportunities for Canadian exporters Canada s opportunities in Vietnam Canada is quite a well known as a supplier of quality meat, poultry, offals and manufacturing meats today. It is not as well known as the USA and Australia. It does not have the automatic trusted go to country status that exists for the USA, Australia and India. It may be developing that status in the pork market at present. It is also known for its past BSE problem. This study has highlighted that there are quite significant demands for meat, poultry and offal in Vietnam today and that these demands will continue to exist over the next 3 to 5 years. These opportunities exist in: the high end fresh/chilled beef niche market, specifically for very well differentiated and legally compliant products that users can work with on their menus, and in their own marketing campaigns. This would include opportunities for beef from specific breeds, as well as other bovine, e.g. bison or cross bison cattle; assisting Vietnam with its shortfalls in the following products: o frozen bovine products (low end value for money meat cuts, variety meats and offal) for use by the urban mass market food service industry and meat processors; 40

42 o frozen pork meats (low end value for money cuts) for use by the urban mass market food service industry; o frozen offal for use by the meat processing industry; o frozen value for money chicken parts for use by the urban mass market food service industry, which includes the fast food industry that could boom in size over the next 5 years; and, o frozen chicken offal for use as an input by the meat processing industry The barriers and challenges for Canadian exporters A range of barriers and challenges do, however, exist for Canadian exporters that want to develop these areas of opportunity. They include: The way in which the Vietnamese pork market works and its impact on importers; The Vietnamese market for pork, whether for local or foreign products, is a highly unstable and speculative market. The instability arises from a number of factors, namely fairly frequent outbreaks of animal diseases (both pig specific and diseases impacting on other livestock), the actual impact of these diseases on the human population (actual deaths or rumours about human deaths), weak supply chains, linkages between supply and demand basis, very weak transmission of marketing signals and messages, traditional processing and retailing, other structural issues, and the unsophisticated commodity style trading nature of Vietnam's meat traders. This situation creates a very high degree of speculative activity in the urban area markets when there are apparent shortfalls in supply. It should be noted that both trade and government sources comment that these may be illusory shortfalls, or are likely only short term shortfalls. This situation exists because surplus inventories existing in other areas of the country, not affected by animal diseases, will eventually enter the urban area markets. This market scenario is very dangerous for exporters who become involved with smaller and less established importers who import pork on a speculative basis without full knowledge or insight into the potential market movements within their own target market. 41

43 Trade sources report that over the past 3 years or so there have been incidences in Vietnam where such movements had major negative impacts on importers, which resulted in their inability to make payments for the pork that they had imported. In view of this situation, it is extremely important that exporters undertake appropriate due diligence and financial background checks on their intended Vietnamese business partners and also consider using some form of export transaction insurance, e.g. as provided by Export Development Canada (EDC) the very strong links between users, and importers, of imported meat and poultry to the market leaders, e.g. Australia, India and the USA. This tends to focus importers on these supply countries to the virtual exclusion of others, unless the importer is focused on buying at a low price; price sensitivity in all areas of the market, even at the top end for steaks the commodity trading nature of certain segments, e.g. frozen chicken parts and offal; the regulatory framework and bureaucracy over imports in general, which is tied closely to rural and agricultural development policy; the developing impact of the ASEAN Australia New Zealand Free Trade Agreement (AANZFTA), which provides market access benefits into the long term for beef and pork suppliers from these two exporting nations; and, the potential for South American suppliers to become much more involved in some areas of the market than they are at present, e.g. in beef and chicken. China might also have longer term opportunities, if it has exporters that can develop with the ASEAN region s new food standards into the longer term Building the opportunities in Vietnam Over the next 3 to 5 years, Canada has the opportunity of trading products into Vietnam at a time when demand pull is likely to be significant. In the natural course of events, this should lead to increased meat and poultry exports from Canada. If Canada s exporters only take 42

44 advantage of this demand pull, then they will come into significant competition within Vietnam s commodity market, which is highly price focused and will continue to be so in future. Importers, especially the larger ones under this market scenario, will play one exporter off against another to obtain the lowest priced best quality product they can from the global market. Canadian exporters have the option to take a longer strategic view of what appears to be a market with considerable upside to work closely with their industry associations to build a stronger B2B (business to business) marketing stance in Vietnam. The potential with such a strategy is to build strong linkages to the market, trusted business relationships which are difficult for competitors to break, and so benefit from them through increased demand pull for Canadian products over the next 3 to 5 years. Strategically, if properly established and nurtured, this strategy should bring about more consistent and higher volume orders, and the potential to earn a higher margin than in the above mentioned commodity market. 43