Agribusiness to Vietnam

Trends and opportunities

The market

The agricultural industry plays a significant role in Vietnam’s socio-economic environment, contributing 17 per cent to total growth domestic product (GDP) in 2016, with total agricultural production reaching US $37.7 billion – a slight decrease of 2.3 per cent compared to 2016. The industry is forecast to grow 6.2 per cent annually on average between 2017-2021 (Source: BMI, Vietnam Agribusiness Report , Q4 2017) .

• Vietnam is a leading exporter of rice, coffee, rubber, pepper and cashews. In more recent years, aquaculture and fruit production have also increased and become more export-oriented.
• Coffee production is expected to increase 8.3 per cent from 2017 to 2021, sugar production 23 per cent and milk production 62.4 per cent.

Vietnam’s agricultural producers are facing many issues including inefficient infrastructure (technology, seeds, machinery, equipment, insurance, banks, and transport), poor knowledge of good farming practices, limited capital, poor food safety standards, and poor supply chain management. In order to maintain its position as a leading exporter of agricultural products, Vietnam needs to enhance agricultural product quality and yield growth by advanced cultivation technology, farming management system, modern machinery, as well as higher food safety and hygiene standards.

Opportunities

Vietnamese consumers perceive Australian products to be of high quality, allowing them to be positioned as premium products. With its geographical proximity, Australian suppliers are able to respond to market needs quicker than suppliers from Europe and the United States. This factor is specifically advantageous for commodities such as wheat, dairy or fresh fruit, given many small to medium-sized Vietnamese food processors prefer to buy in small amounts by the container load.

Livestock sector

Vietnam is in the top six fastest-growing meat consumers globally. Meanwhile, total meat supply is estimated to grow at only 1 to 3 per cent per year and therefore not able to meet the demand, especially beef and poultry (Source: BMI, Vietnam Agribusiness Report , Q4 2017). Reasons for shortage include limited areas for grazing and grasslands, inadequate attention to animal feeds and breeders, and practices of small or family-sized grazing resulting in unstable production and quality. In 2010, Vietnamese importers and consumers welcomed the entry of Australian live cattle. Increased live cattle export from Australia helped alleviate the supply shortage.

According to the Ministry of Agriculture and Rural Development of Vietnam, animal breeders and genetics systems are not sufficiently organised and managed, which leads to exposure to complicated diseases and bio-security and bio-safe grazing issues. The Vietnamese Government has developed research centers for genetics and embryos, however, they fail to function efficiently due to synchronization problems between the labs and actual production.

In its development direction towards 2020, Vietnam aims to grow over 11 per cent yearly to reach 500,000 head of dairy cattle, and 4.8 per cent on average to reach 12.5 million head for beef cattle (Decision no. 10/2008/QD- TTg by Prime Minister, Strategy to develop animal grazing towards 2020, 16 January 2008). Since January 2013, imports of Australian cattle to Vietnam have increased rapidly with 68,347 head in 2013 and more than 360,000 head in 2015, accounting for 12.8 per cent of the total Australian live cattle exports. Exports of Australian feeder and slaughter cattle are supported by the Exporter Supply Chain Assurance System (ESCAS).

Horticulture

Vietnam has seen a rise in demand for imported fruits and vegetables from its younger population as this demographic is prepared to pay more for imported goods as their income levels increases. Horticultural products account for a large portion of total food imports in Vietnam with US$925 million on imported fruit and vegetable in 2016, increasing 48.7 per cent in compared to 2015 (Source: Vietnam Import-Export Report 2016, Ministry of Industry and Trade ).

According to the Vietnam’s Ministry of Agriculture and Rural Development (MARD), in the first eight months of 2017, the country spent US$1.02 billion importing vegetables and fruits, of which import value of vegetable is US$200 million and fruits is over US$800 million, presenting over 92 per cent increase over the same period in 2016. Apples, pears, table grapes and cherries have become increasingly popular in recent years. However, issues with the supply chain infrastructure hinders greater sales.

Thailand is the largest export market for Vietnam with value of US$ 617.81 million, accounting for 60.7 per cent of the country’s total imports, followed on by China at US$160.07 million (15.7 per cent), the US at US$59.56 million (5.9 per cent) and Australia at US$40.85 million (4 per cent).

Although the amount of fruits and vegetables imported from Thailand increased significantly in the first eight months of 2017, according to the Department of Plan Protection (MARD), around 90 per cent of these was re-exported to the China market to meet high demand of this market.

Vietnam was Australia’s second largest export market for fruit before Vietnam suspended imports of fruits from Australia on 1 January 2015.

In August 2015, Vietnam removed table grapes, mandarins and oranges from the suspended list of 38 Australian fruits and imports resumed from Australia to Vietnam. Australian cherry also regained access to the Vietnam market in October 2017.

Vietnam relies heavily on imported seeds and seedlings to maintain its leading position in exporting agricultural products. In 2017, Vietnam exports of horticultural products reached US$2.32 billion, increasing 46.5 per cent over the same period in 2016, however, the country imports 80 to 90 per cent of seeds and seedlings. In particular, in 2016 Vietnam imported nearly 150 thousand tonnes of seeds, including rice varieties, grasses, corn, vegetables and flowers. Imported products are well-received despite higher costs compared to domestic ones because they have high production efficiency, stable quality, shorter harvest time, enhanced anti-diseases and weather-adaptation abilities.

Animal Feed

Vietnam’s animal feed industry is one of the world’s fastest growing agribusiness markets and in recent years the industry has seen an increase in foreign investment. Vietnam is listed as one of 20 biggest feed producing countries. Vietnam has also exported feed since 2013, however, the majority of feed production is for domestic consumption.

Vietnam is one of the top pork consumers in the world, currently ranking 3^rd just behind the European Union and China. Pig and poultry are the major two segments in Vietnam that account for up to 97 per cent of total feed consumption in Vietnam (with 64 per cent for pig segment).

According to the Vietnam Animal Feed Association, animal feed production reached over 23 million tonnes in 2016, of which livestock feed and poultry was accounting for 20.1 million tonnes and aquatic products was 3.1 million tonnes. Estimated number of animal feed factories in Vietnam is 218, of which 71 are foreign-owned enterprises and 147 are domestic ones. In 2016, Vietnam imported more than 19 million tonnes of raw materials, worth nearly US$5.8 billion. (Source: BDG Vietnam and STOXPLUS, Vietnam Animal Feed Market Review 2016 ).

Cotton and Wool

Vietnam is currently among the top five textile and apparel exporting countries in the world. The industry have risen sharply in recent years, by over 150 per cent between 2010 and 2016 (Source: Textile Intelligence Jun 2017). Export revenue in 2017 is expected to reach US$31.5 billion, up about 10 per cent over 2016. The latter maybe a sign that the sector is recovering especially in light of two consecutive years of declining growth rate – from 20.9 per cent in 2014 to 10.9 per cent in 2016 and to 5 per cent in 2016. The expansion of production capacities happens in 2017 both for local and FDI-invested companies. It is estimated that the number of spindles in Vietnam will grow from 6.3 million in 2015 to 7.5 million in 2017 (Source: USDA , Vietnam-Cotton and Products Update- Commodity Report 2 Nov2017).

While the textile and garment industry continues to surge, domestic production of cotton is small, meeting just 2.3 per cent of total domestic demand and consumption relies heavily on imported cotton (Source: USDA ). The country’s top five cotton suppliers are the US, India, Brazil, Australia and Cote d'Ivoire. These five countries make up 70 per cent to 80 per cent of the total cotton supply to Vietnam. It is estimated that cotton planting areas in Vietnam continues to shrink to an insignificant amount pushing the country closer to importing 100 per cent of cotton to meet growing demand. Vietnam’s MY2016/2017 cotton imports are expected to reach 1.15 million tonnes (or 5.27 million bales), up 15 per cent compared to the previous year (Source: USDA ; Marketing year from August 2016-July2017). Vietnam is likely to remain the fastest-growing cotton-consuming country because of several factors – reaping the benefits from different sources, increasing cotton yarn imports from international markets, especially from China, Turkey and South Korea, and taking advantage of the opportunities offered by a series of free trade agreements with trading partners. In other words, as Vietnam’s textile sector grows, the country will continue to import more cotton in the short to medium term.

Grains

According to preliminary statistics released by the General Department of Vietnam Customs, in the first six months of 2017 Vietnam imported 2.5 million tonnes of wheat, valued at $529.4 million, increasing 47.86 per cent in volume and 41.29 per cent in value over the same period in 2016.

The largest supplier of wheat to Vietnam is Australia, accounting for 42.1 per cent of total wheat imports to reach over 1 million tonnes, the 2^nd largest supplier is Canada with 485.9 thousand tonnes, accounting for 18.9 per cent and the third is Brazil with 104.6 thousand tonnes imported, accounting for 4.06 per cent.

Vietnam is one of the biggest rice producers in the world and consumers traditionally use rice-based foods for daily diets. The pace of urbanisation, rapid development of international fast food chains and westernisation in recent years have led to the change in consumption pattern. Wheat-based foods started becoming the second most important in the major cities of Vietnam after rice. The growth of baked wheat-based and noodles requires high qualify milling wheat which rely completely on imports.

The wheat used for bread/baguette has been increased to 40 to 45 per cent of total milling wheat consumption. Other baked goods and wheat-based foods have also been increased  from 15 to 25 per cent and Chinese noodles/instant noodles use dropped to 35-40 per cent (Source: USDA ).

Fertilisers

In order to support growth in agricultural production, there has been an increasing use of fertilisers in Vietnam. According to the Vietnamese Ministry of Industry and Trade, Vietnam spent US$964 million importing over 3.6 million tonnes of fertilizers between January and September 2017, posting respective year-on-year increases of 21 per cent and 17.8 per cent. The fertilizers, mostly urea, Ammonium Sulfate, Potassium, Diammonium Phosphate and Nitrogen-Phosphorous-Potassium fertilizers, were imported mainly from China, Russia, Indonesia, Canada and Japan.

Vietnam imports almost 50 to 60 per cent of its fertilisers, making it one of the largest importers in the world. (Source: VietinBankSc, Industry Report: Fertilizers manufacturing in Vietnam ).

Aquaculture

Although Vietnam’s aquaculture sector has an increasing share in agricultural GDP, the contribution of aquaculture to national GDP has remained quite stable at around 4 per cent. Vietnam exports seafood to 160 foreign markets and has become one of the largest aquaculture producers in Southeast Asia and the world.

According to the Directorate of Fisheries, the country’s fisheries production in September 2017 was at 698.8 thousand tonmes, up 5.6 per cent compared to the same period last year. Of which, fishing production reached over 303 thousand tonnes, and aquaculture yield gained 395 thousand tonnes, increasing by 5.6 per cent year on year.

According to Decision No. 1445/QD-TTg of August 16, 2013, approving the master plan on fisheries development through 2020 with a vision toward 2030, the fisheries sector will be basically industrialized by 2020 and modernized by 2030 and continue its comprehensive, effective and sustainable development and become a large commodity production sector with a rational structure and forms of organization of production and high productivity, quality, efficiency and competitiveness, firmly integrate into the international economy, step-by-step increased income and living standards of farmers and fishermen; while protecting the eco-environment and fishery resources and contributing to safeguarding national defence and security at sea and on islands.

A lack in advanced technology has greatly influenced the quality and value of exporting Vietnamese aquacultural products. Existing factories have low capacity and limited experience in the sector. Also, there was an increase in the number of shipments being rejected by importing countries due to antibiotic residues and other contaminants being detected during routine testing. There are opportunities for Australian firms to export processing equipment, technology, facilities as well as expertise in sustainable fishery management. On the other side, the Australian Center for International Agricultural Research is currently investing nearly A$100 million in more than 170 research projects in Vietnam, from livestock to policy making, food safety, fisheries and forestry, from the Minister of Ministry of Agriculture and Water Resources of Australia in September 2017.

Competitive environment

Major exporters of agricultural goods include low-cost countries such as China, India, Thailand as well as higher quality product suppliers such as Australia, New Zealand, France and the US.

Tariffs, regulations and customs

Import tariffs

Trade between Vietnam and Australia is directly improved by the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), which gives preferential tariffs for Australian exporters and investors in Vietnam. Some highlights of the AANZFTA to Vietnamese trade include:

• elimination of a five per cent tariff by 2017 on exports of pork
• reduction of a 30 per cent tariff to zero per cent by 2018 on exports of frozen shrimps and prawns
• binding of zero per cent tariffs on pure-bred breeding animals, oxen, buffaloes and other live bovine animals.

For more information, access the Department of Foreign Affairs and Trade’s (DFAT) Free Trade Agreement Portal.

Customs regulations

Certain imported products must be inspected before being cleared at customs stations, including:

• quality
• specifications
• quantity
• volume

The Customs Law provides a legal foundation for the operation of the customs sector and creates a favourable environment for import-export activities. Companies that import goods must submit a dossier of documents to the customs authorities. The dossier must include at least the company’s business registration certificate and import business code registration certificate.

Imported goods require the following documents:

• bill of lading
• cargo release order
• commercial invoice
• customs import declaration form
• inspection report
• packing list
• technical standard/health certificate
• terminal handling receipts

Marketing your products and services

Market entry

Seeking an appropriate local importer or distributor as a partner is very crucial for Australian exporters to achieve success in their business in Vietnam. Obtaining valuable support from this local partner in relation to setting up the business and dealing with complicated import procedures will lead to easier market access. Australian exporters should undertake thorough market research to identify potential buyers and reliable distributors, as financial information on companies is generally not available.

It is important for Australian exporters to visit the market frequently in the initial entry phase to provide technical or marketing support to their clients or distributors. Local companies usually have limited access to information on suppliers and rarely have budgets to visit Australia, so frequent visits are crucial towards building personal relationships with key decision makers. These will help to navigate potential problems such as late deliveries, quality issues or faulty documentation.

Australian exporters and investors should also be aware of Vietnam’s frequent regulatory changes. Regular updates of policy changes are advised to help exporters adjust their marketing strategies accordingly and timely.

Distribution channels

The distribution value chain for industrial sales includes food processing companies and intermediary local traders or consignee importers and international trading firms. Direct sales with frequent market visits are recommended for this market segment. For consumer goods, the distribution channel includes importers, wholesalers and distribution points such as supermarkets and food retail outlets.

The emergence of supermarkets and hypermarkets in major urban centers offers opportunities to Australian suppliers of consumer goods for direct sales.

Transport

Vietnam has 11 major seaports, including Ho Chi Minh City in the south, Hai Phong in the north and Da Nang in the centre. More container ports are planned to open and another project is ongoing to reduce traffic congestion in inner Ho Chi Minh City by relocating its eight port facilities to outlying areas by 2020. Container handling activity is focused in the two main shipping centres of Ho Chi Minh City and Hai Phong, including their respective satellite ports of Cai Mep-Thi Vai and Cai Lan. These locations make up 97 per cent of Vietnam’s total container handling volumes.

There are two Vietnamese airports that deal with cargo handling for international markets: Tan Son Nhat Airport (TSNA) in Ho Chi Minh City and Noi Bai Airport (NBA) in Hanoi. A third airport, Long Thanh Airport located approximately 40 km northeast of Ho Chi Minh City Tan Sot Nhat Airport is currently under construction and is expected to be operational by 2020. TSNA has two cargo terminals including Tan Son Nhat Cargo Services (TCS) and Saigon Cargo Service Corporation (SCSC).

The majority of Logistics Service Providers (LSPs) consider trucking costs to be higher and standard of trucking service delivery to be lower in Vietnam relative to China, India, Malaysia and Thailand. Most of the trucking companies are small and operate second-hand trucks that are subject to poor maintenance.

Links and industry contacts

Agribusiness-related resources

Asian Agribusiness
General Statistics Office (GSO)
Information Center for Agriculture and Rural Development
USDA – Foreign Agricultural Service

Government, business and trade

Department of Animal Health
Department of Livestock Production
Directorate for Standards, Meterology and Quality
General Department of Vietnam Customs
Ministry of Agricultural and Rural Development 
Ministry of Planning and Investment
Ministry of Public Health
Ministry of Science and Technology
National Agro-Forestry-Fisheries Quality Assurance Department
Plant Protection Department (PPD)
Vietnam Academy of Agricultural Science

Media

Vietnam Investment Review
Vietnam News

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