Agribusiness to Vietnam

(Last updated: 19 Jul 2007)

Trends and opportunities

The market

Vietnam agricultural production has made great progress - many concentrated commodity areas have been established, including:

• Rice areas in Mekong River Delta and Red River Delta
• Coffee areas in Central Highlands and North East South
• Tea areas in North East and North West
• Rubber areas in North East South
• Fruit areas in North East South and Mekong River Delta

Vietnam's growing agricultural sector accounts for over 27 per cent of the country's combined GDP, and employs over 70 per cent of its workforce. With its favourable climate and rich soil, Vietnam is a major exporter of a variety of agricultural produce, including rice, coffee, rubber, tea, vegetables, fruits, coconuts, sugar can, cashew nuts, soybeans, groundnuts, cassava and pepper. Levels of cultivation, livestock, and aquaculture have been upgraded through the application of intensive farming, and advanced technologies; further improving the quality of agricultural products.

The Vietnamese Government has an agricultural development plan for the next 10 years that includes:

• Maintaining the average annual agricultural growth rate at 4–4.5 per cent.
• Increasing livestock ratios in total agricultural production value to 25 per cent from the current 18 per cent.
• Increasing total paddy output to 40 million tonnes from the current 35.6 million tonnes.
• Increasing total export value from this sector to US$10 billion from the current US$3.2 billion.

While there is a range of demand characteristics for each category of imported foods, four distinct segments exist:

• Raw materials and inputs for further processing which includes non-substitutable, high volume products in the grain, dairy, and other food categories for the food processing industry, cotton for the textile industry and hides and leather for the footwear industry. As the food processing industry develops, more agricultural imports will be in the form of raw materials.
• Consumer goods, such as dairy items, fresh fruit and beverages for the emerging middle class in urban areas. Demand is expected to gravitate towards the high quality end, as consumers become more sophisticated and industrial buyers gain better understanding of foreign suppliers. The emergence of supermarkets in the distribution chain will also increase the potential of exporting higher-priced packaged consumer goods to Vietnam.
• Value-added products - Vietnam produces both saltwater and freshwater fish products. The export strategy anticipates a growth in fishery exports to US$3.5 billion by 2010. Currently, seafood is the third largest export commodity in terms of value and accounts for about 12 per cent of the country’s total export. As a result, veterinary products feed additives have become highly prospective market sectors. 
• Top-end products that include specialty high-end food items in meat, seafood and beverages for the expatriate community and tourism industry.

The market for imported agricultural products is growing strongly in line with:

• Export development policy from government
• Increases in disposable income
• The emergence of a local middle class
• Growing consumerism and changing patterns of consumption
• Improvement in port infrastructure to receive bulk shipment from Australia

Opportunities

Rapid development in Vietnam's agricultural sector has led to a high demand for agriculture related products as raw materials to fuel the fast growing agriculture and food processing industry. The country either does not grow these products (eg. wheat), or does not produce them in sufficient quantities (eg. corn or milk).

Products that require regular shipments throughout the year such as grain or dairy goods, and products such as fruit and feed grains on a seasonal basis to supplement local production provide opportunities for Australian suppliers in this sector.

Demand ranges from raw materials for further processing to products ready for consumption, including:

• Grains – wheat and wheat flour, malt and malt flour, cereal preparations for instant noodles, bakeries and confectionery manufacturers
• Animal feed – feed grains, feed additives and other materials for feed mills, from December to March (coinciding with the grain harvesting season in Australia as Vietnam’s corn harvesting season is April-May)
• Veterinary products – for fish and shrimp farming
• Fertiliser – demand for fertilisers in Vietnam has corresponded with the growth in agricultural production, although some fertilisers such as NPK and urea are now being produced locally, the majority of fertilisers continue to be imported
• Dairy goods – milk, cream, butter, cheese and powdered milk
• Beverages – wine, fruit juice, malt and yeast for beer producers
• Other food products – margarine and vegetable oil for further processing
• Horticulture – fresh apples, pears and grapes for direct consumption
• Beef and dairy cattle – including livestock breeding materials, live beef and dairy cattle
• Aquaculture and fishery – there is currently demand in the fishing industry for upgrading its storage facilities, freezers and sanitary ware
• Meat and seafood – premium products for high-end restaurants and hotels
• Cotton and wool – inputs for the textile industry, which considered as an important industry that brings in hard currency from export
• Hides and leather – inputs for the footwear industry

Other related opportunities include supplying equipment and vocational training for the food processing industry, biotechnology products applied in agriculture and healthcare and consultancy for donor projects.

Competitive environment

Australian suppliers have some advantages in supplying to Vietnam. Major agricultural export nations to Vietnam include low cost countries such as China and India and higher quality product suppliers such as Australia, New Zealand, France, and the USA. Vietnamese consumers perceive Australian products to be high quality; therefore Australian suppliers do not have to compete with goods from China and India on the low-end, low price segment.

Australian suppliers can be much more responsive to market needs than suppliers from France and USA due to the closer transport distances for both container trade and bulk trade. This factor is an advantage for commodities such as wheat or dairy goods given the many small to medium size Vietnamese food processing operators who prefer to buy in small amounts by the container load.

Tariffs, regulations and customs

Import tariffs vary for each product line and generally tend to favour products that can’t be produced in Vietnam, such as wheat or dairy products. In these cases, the import tariffs are low to encourage domestic value-added processing. A close relationship with importers will help, as import tariffs and VAT are key cost items in a producer’s cost structure and price is the deciding factor in food industry sales in Vietnam.

Customs also uses an itemised Minimum Taxable Price (MTP) list for imported goods to counter tax evasion problems whereby companies tend to report a lower price (rather than the true market price) to evade import duty. Tariffs on imported goods are calculated on whichever is the higher of the invoice price or the MTP. Higher prices apply for goods from G7 countries, with Australian goods currently classified under the G7 group category.

As Vietnam is on track to fully implement its international commitments to liberalise trade, the list of import quotas is now limited to certain imports that have great impact on the economy such as petrol.

There are two entities responsible for carrying out inspections at customs points:

• Directorate for Standards and Quality (STAMEQ) carries out inspection and clearances related to quality control, health and sanitation. Imported product samples must be inspected by the Quality Assurance and Testing Centre (QA&TC) under STAMEQ at the customs warehouse. If the consignment meets the requirements according to the quality national standards, then QA&TC will grant the quality certificate for the export-import enterprise to clear customs formalities within three days.
• The General Department of Customs checks imports to evaluate and collect import duties, and assess import quotas and product bans on behalf of the Ministry of Trade and the Ministry of Finance. Cargo, especially perishables, may be inspected in certified bonded warehouses, rather than directly at the port, if the receiving party submits a Certificate of Inspection to customs authorities, available from local customs officials.

Customs, health inspectors and other bodies may require samples of every item in the shipment, as well as extra samples for reference against future shipments of the same item. You should consult with your importer and freight forwarder prior to shipment regarding samples and proof of inspection documentation.

Experienced importers usually register their product samples with STAMEQ in advance of any shipment to get the standard certification to facilitate import procedures. Local importers also use foreign quality control and inspection companies such as SGS Vietnam.

Vietnam is an official member of ASEAN and has joined the Common Effective Tariffs scheme. Vietnam will reduce tariffs on all imports from other ASEAN countries to between zero and five per cent by 2006. The key requirement for products to be included in the scheme is a 40 per cent value-add in the product price in the exporting country. Suppliers of raw materials will not be affected by the scheme, while suppliers of consumer goods will face heavy competition from these low cost producing countries.

Industry standards

The primary body in charge of publishing quality standards in Vietnam is STAMEQ under the Ministry of Science and Technology. STAMEQ is responsible for the standardisation or formulation of Vietnam national standards, metrology and quality management.

Other ministries such as the Ministry of Health and the Ministry of Agriculture and Rural Development also oversee the import of specific goods in their respective sectors; issuing standards in their sectors, know as branch standards.

Regulations for labelling require (with the exception of the trademark) the labels of domestically distributed products be in Vietnamese:

• Name of product
• Name and address of producer or trader liable for the product
• Quantity
• Composition
• Quality standards
• Production date
• Manufacturing and expiration dates
• Instructions for use and preservation
• Country of origin

Exporters are advised to continually monitor legal requirements as Vietnam’s commercial codes are still being developed, with different interpretations and inconsistent implementation. Vietnamese importing companies can provide specific standards and requirements for the imported products in their sectors.

Marketing your products and services

Market entry

Entry strategies vary for industrial sales and consumer goods. Australian suppliers can:

• Approach buyers directly
• Use international trading firms
• Sell through the local trading companies

In industrial sales for products with high volume and regular shipments, such as wheat and powdered milk, Australian suppliers can sell directly to the food processing companies, bypassing the middle layer. The buyer can either sign a contract directly with the Australian supplier or use one provided by the consignee importer, who may offer bridging finance services for a fee.

Vietnamese importers and international trading firms also consolidate shipments with the local food processing companies who purchase in small quantities. International trading firms sometimes will take on the payment risk by collecting payments from the local buyers and making payments through international banks, which lessens the risk to Australian suppliers considerably.

For consumer goods ready for consumption, exporters must use local distributors, as foreign firms are not allowed to distribute externally manufactured products directly to end users in Vietnam. The generic entry strategy is to sell to a few distributors in each core urban centre in the initial market entry phase prior to selecting one exclusive distributor in the second phase for each region based on sales volume. Target markets include Ho Chi Minh City in southern Vietnam and Hanoi in northern Vietnam for products such as fruit, packaged dairy and consumer goods.

Local companies have started to contact foreign suppliers directly and are bypassing the intermediate foreign trading links. It is essential that Australian exporters begin to build strategic and long-term relationships with flour mills, beer manufacturers, and agricultural products importers as demand stabilises and Vietnamese companies begin to select their preferred suppliers based on a mutually beneficial long-term basis rather than just on price.

Australian exporters should undertake thorough market research to identify potential buyers and reliable distributors, as financial information on Vietnamese companies is generally not available.

Visit the market three to four times a year in the initial market entry phase to provide technical support to the local food processing companies or marketing support to the distributors. Local companies do not usually have access to information on suppliers or have the budget to visit Australia, so you should make frequent visits to build personal relationships with key decision makers.

Personal relationships are critical to resolve the inevitable problems that will crop up in the trading process, such as late deliveries, quality issues, and typing mistakes in documentation. These mistakes can delay the payment, or could even result in trade disputes and financial losses.

Take a long-term view once the relationship is proven by providing more flexible payment terms as the local customers also offer delayed payment terms to their distributors. Asian sellers normally offer 30-45 days delayed payment terms.

Distribution channels

The distribution chain for industrial sales includes the food processing companies and the intermediary local traders or consignee importers and international trading firms. Direct sales with frequent market visits is recommended for this market segment.

For consumer goods the distribution channel includes the importers, wholesalers, and the distribution points such as supermarkets and food retail outlets. Most companies in the distribution chain are small and regional and importers typically import a few containers at a time and redistribute them to wholesalers, who eventually sell to the retail outlets.

Since foreign companies can’t distribute externally manufactured goods directly to end users in Vietnam, Australian suppliers must use local distributors in this segment. The emergence of the supermarkets in major urban centres offer opportunities to Australian suppliers of consumer goods for direct sales to these distribution points.

Links and industry contacts

Agribusiness–related resources

UNDP in Vietnam – www.undp.org.vn/undp/fact/base.htm
FAO Search Engine – www.fao.org/waicent/search
Vietnam Trade Information Center – www.vietnam-trade.com/vinanet.htm
Vietnam Development Information Center – www.vdic.org.vn
Directorate for Standards and Quality – www.tcvn.gov.vn/en/index.php
International Logistics Management Vietnam Ltd – www.ilm-vietnam.com

Government, business and trade resources for Vietnam

Ministry of Agricultural and Rural Development – www.agroviet.gov.vn
2 Ngoc Ha Street
Hanoi, Vietnam
Tel: +84 4 823 5804
Fax: +84 4 823 0381

Ministry of Trade

31 Trang Tien Street
Hanoi, Vietnam
Tel: +84 4 824 2124
Fax: +84 4 826 4696

Ministry of Science and Technology
39 Tran Hung Dao Street
Hanoi, Vietnam
Tel: +84 4 826 3388 or 943 9731
Fax: +84 4 825 2733

Ministry of Public Health
138 Giang Vo Street
Hanoi, Vietnam
Tel: +84 4 844 3463
Fax: +84 4 846 4051

Ministry of Fisheries
10 –12 Nguyen Công Hoan Street
Hanoi, Vietnam
Tel: +84 4 835 4513
Fax: +84 4 771 6702

Ministry of Planning and Investment
2 Hoang Van Thu Street
Hanoi, Vietnam
Tel: +84 4 823 0202
Fax: +84 4 823 2494

The General Department of Customs
162 Nguyen Van Cu Street, Gia Lam District
Hanoi, Vietnam
Tel: +84 4 872 0656
Fax: +84 4 872 0656

Media

Vietnam Agriculture  – www.agroviet.gov.vn
Vietnam News – www.vietnamnews.com.vn
Saigon Times Weekly – www.saigontimesweekly.saigonnet.vn