Vietnam agribusiness report q1 2013

Q1 2013
www.businessmonitor.com

VIETNAM
AGRIBUSINESS REPORT
INCLUDES 5-YEAR FORECASTS TO 2017

ISSN 1759-1740
Published by:Business Monitor International


Vietnam Agribusiness Report Q1
2013
INCLUDES 5-YEAR FORECASTS TO 2017

Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline:

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Vietnam Agribusiness Report Q1 2013

CONTENTS
BMI Industry View ............................................................................................................... 7
BMI Industry View ..................................................................................................................................... 7

SWOT .................................................................................................................................. 10
Agribusiness SWOT Analysis ..................................................................................................................... 10
Business Environment SWOT Analysis ......................................................................................................... 12

Industry Forecast .............................................................................................................. 13
Vietnam Dairy Outlook ............................................................................................................................. 13
Table: Vietnam Milk Production & Consumption, 2012-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table: Vietnam Butter Consumption, 2012-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table: Vietnam Cheese Consumption, 2012-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table: Vietnam Whole Milk Powder Consumption, 2012-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table: Vietnam Milk Production & Consumption, 2007-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table: Vietnam Butter Consumption, 2007-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table: Vietnam Cheese Consumption, 2007-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table: Vietnam Whole Milk Powder Consumption, 2007-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Vietnam Livestock Outlook ........................................................................................................................ 18
Table: Vietnam Poultry Production & Consumption, 2012-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table: Vietnam Pork Production & Consumption, 2012-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table: Vietnam Beef & Veal Production & Consumption, 2012-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table: Vietnam Poultry Production & Consumption, 2007-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Table: Vietnam Pork Production & Consumption, 2007-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Table: Vietnam Beef & Veal Production & Consumption, 2007-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Vietnam Coffee Outlook ............................................................................................................................ 25
Table: Vietnam Coffee Production & Consumption, 2012-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Table: Vietnam Coffee Production & Consumption, 2007-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Vietnam Rice Outlook ............................................................................................................................... 33
Table: Vietnam Rice Production & Consumption, 2012-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Table: Vietnam Rice Production & Consumption, 2007-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Vietnam Grains Outlook ........................................................................................................................... 39
Table: Vietnam Corn Production & Consumption, 2012-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Table: Vietnam Corn Production & Consumption, 2007-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Commodities Price Analysis ............................................................................................. 44
Monthly Softs Strategy .............................................................................................................................. 44
Table: BMI Commodity Price Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Table: Agricultural Commodity Performance & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Monthly Grains Strategy ........................................................................................................................... 56
Table: Agricultural Commodity Performance & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Upstream Analysis ............................................................................................................ 65
Asia Machinery Outlook ........................................................................................................................... 65
Asia Fertiliser Outlook ............................................................................................................................. 71

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Vietnam Agribusiness Report Q1 2013
Asia GM Outlook ..................................................................................................................................... 76
Table: Select Countries - GM Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Downstream Analysis ....................................................................................................... 82
Vietnam Food Outlook .............................................................................................................................. 82
Table: Food Consumption Indicators - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Table: Canned Food Value/Volume Sales - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Table: Confectionery Value/Volume Sales - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Table: Pasta Volume Sales, Production & Trade - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Vietnam Drink Outlook ............................................................................................................................. 89
Table: Alcoholic Drinks Value/Volume Sales - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Table: Hot Drinks Volume Sales - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Table: Soft Drinks Value/Volume Sales - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Table: Carbonates Volume Sales, Production & Trade - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Vietnam Mass Grocery Retail Outlook ......................................................................................................... 96
Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Table: Grocery Retail Sales By Format (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Table: Trade Indicators - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Demographic Forecast ................................................................................................... 102
Vietnam Demographic Forecast ............................................................................................................... 102
Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Methodology .................................................................................................................... 106
How We Generate Our Industry Forecasts ................................................................................................. 106

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Vietnam Agribusiness Report Q1 2013

BMI Industry View

BMI Industry View
BMI View: The agriculture industry (including forestry and aquaculture) contributes to more than 20% of
Vietnam's GDP and employs almost half its population. It holds strong growth opportunities in terms of
production, exports and retail sales, more specifically with regard to the coffee and livestock sectors.
However, some industries face large risks in terms of losing competitive advantage as other Asian countries
step up production, particularly of rice and coffee. We believe Vietnam will have to significantly ramp up
investment in crop productivity in order to not be left behind, and if it wants to be able to produce more
value-added crops and maintain its status as an export spearhead.

Key Forecasts
■

Rice consumption growth to 2017: 7.7% to 21.3mn tonnes. Rice remains the major food staple in
Vietnam, and we do not see this changing over our forecast period. However, rising interest in other
foods such as wheat-based goods - supported by growing affluence - will restrict demand for rice, and
over the forecast period we expect production growth to significantly outpace that of consumption.

• Coffee production growth to 2016/17: 28.0% to 29.1mn bags. Strong growth in domestic coffee
production will be driven by increasing investment, leading to tree replacement programmes and
expansion of area cultivated. Consumption growth and export prospects will also favour output.
• Poultry production growth to 2016/17: 27.2% to 954,000 tonnes. Dramatic increases in herd numbers
and increased public and private sector investment - part of the effort to reduce the country's growing
import dependency - will be the main boost to growth. Rising consumption, driven by income growth,
will also play a key role.
• BMI universe agribusiness market value: US$22.9bn in 2013 (down from US$23.1bn in 2012);
growth expected to average 2.9% annually between 2012 and 2017.
• 2013 real GDP growth: 7.0% (down from 5.3% in 2012; predicted to average 6.9% over 2012-2017).
• 2013 consumer price index: 6.4% year-on-year (y-o-y) (lower than 9.2% in 2012; predicted to average
6.2% over 2012-2017).
• 2013 central bank policy rate: 9.00% (lower than 10.00% in 2012; predicted to average 7.8% over

2012-2017)

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Vietnam Agribusiness Report Q1 2013

Mainly For Exports
Vietnam - Coffee Production & Exports ('000 60kg Bags)

f = BMI forecast. Source: BMI, USDA, Vicofa

Key Developments

Thailand's strong push to form a rice cartel along with five other Association of Southeast Asian Nations
countries - including Vietnam - in order to control and boost international rice prices is unlikely to
materialise, in our view. Although the project can count on a strong support from Thailand and Cambodia,
Vietnam, which would be one of the two pillars of the project given the volume of its exports, has shown a
clear scepticism towards such a plan in past years. Moreover, Vietnam has been making inroads into some
markets traditionally dominated by Thailand, as Viet rice is now enjoying a US$100/tonne discount over
Thai rice. Participating in the rice cartel would lead to a compression of the price differentiation and could
hamper Vietnamese exports.

The animal feed industry has been receiving significant - mainly foreign - investment in recent years, given
the attractive prospects of the livestock and aquaculture industries of the country. Foreign-invested feed
companies continue to meet most of the domestic demand, such as Thailand's Charoen Pokphand

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Vietnam Agribusiness Report Q1 2013

Group and U.S.-based Cargill, according to the Ministry of Industry and Trade. Vietnam currently has 59
foreign-invested firms and joint ventures that hold 70% of the domestic animal (compound) feed market
share; 180 local firms retain the remaining 30%, according to the Vietnam Animal Feed Association. We
believe the ongoing consolidation of the sector is likely to continue, with foreign livestock and feed
companies buying local assets and increasing their exposure to the sector.

Coffee has proven to be one of main agricultural export engines of the Vietnamese economy, and the bulk
of Vietnam's coffee production is for export. Only about 6% of total production is for domestic
consumption. In 2012/13, exports are expected to be strong on the back of strong production and ending
stocks in 2011/12. Exports are projected to reach 20.5mn bags, up 5.7% y-o-y, in 2012/13. Vietnam now
accounts for 17.7% of the world's total exports and exports to more than 80 countries, with Germany, the
US, Italy and Spain as its biggest clients. Vietnam overtook Colombia as the second largest exporter of
coffee in 2000, and its impact on international markets has been steadily growing ever since.

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Vietnam Agribusiness Report Q1 2013

SWOT
Agribusiness SWOT Analysis

SWOT

Strengths

■

The natural fertility of Vietnam around the Red River Delta in the north and the
Mekong River Delta in the south provides the country with a strong agricultural base.

■

Vietnam is the world's second largest exporter of rice and coffee. It also enjoys
relatively high rice yields compared with its regional counterparts.

■

Agricultural productivity has improved considerably since the opening up of the
economy in 1986.

Weaknesses

■

Much of Vietnam's agriculture is based on small-scale farms with poor yields relative
to more developed international competitors.

■

Transportation and production infrastructure is often poor, making getting crops to
market difficult and negatively affecting quality.

Opportunities

■

Since the opening up of the economy in 1986, which allowed more private
involvement in agriculture, yields have improved dramatically and look set to continue
doing so over our forecast period to 2013.

■

Vietnam's fast-growing population of more than 80mn provides a large market for
agro-food products.

■

With BMI forecasting Vietnamese GDP per capita to grow rapidly over our forecast
period, consumers will have more money to spend on food, spurring growth in
agricultural production.

Threats

■

Poor knowledge of good farming practices and hygiene standards leaves Vietnamese
agriculture open to disease outbreaks of the kind that have plagued the livestock
industry in recent years.

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Vietnam Agribusiness Report Q1 2013

SWOT - Continued
■

The rising population and increasing industrialisation of the economy will increase
competition for land use, curtailing the area available for expansion of agriculture.

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Vietnam Agribusiness Report Q1 2013

Business Environment SWOT Analysis

SWOT

Strengths

■

Vietnam has a large, skilled and low-cost workforce, which has made the country
attractive to foreign investors.

■

Vietnam's location - its proximity to China and South East Asia, and its good sea links
- makes it a good base for foreign companies to export to the rest of Asia and
beyond.

Weaknesses

■

Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.

■

Vietnam remains one of the world's most corrupt countries. According to
Transparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123rd
out of 176 countries.

Opportunities

■

Vietnam is increasingly attracting investment from key Asian economies, such as
Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech
skills and know-how.

■

Vietnam is pressing ahead with the privatisation of state-owned enterprises and the
liberalisation of the banking sector. This is likely to offer foreign investors new entry

points.

Threats

■

Ongoing trade disputes with the US, and the general threat of American
protectionism, which will remain a concern.

■

Labour unrest remains a lingering threat. A failure by the authorities to boost skills
levels could leave Vietnam a second-rate economy for an indefinite period.

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Vietnam Agribusiness Report Q1 2013

Industry Forecast
Vietnam Dairy Outlook
BMI Supply View: Since the opening up of the economy in 1986, there has been considerable change in
the structure of the Vietnamese dairy industry. The contribution of state farms, which were previously
responsible for almost all milk production, has fallen to around just 5%, with the other 95% coming mainly
from small- and medium-sized private farms.

In 2012/13, we expect fluid milk output to grow by 3.6% year-on-year (y-o-y) to 343,000 tonnes. Out to
2016/17, we are forecasting production growth of 25.7% on the 2011/12 level to 416,000 tonnes. Dramatic

increases in cattle numbers and increased public and private sector investment - part of the effort to reduce
the country's growing import dependency - will be the main boost to growth. Commercialisation will also
play a key role as larger, more efficient farms come to play a greater role in milk production. A sustained
period of high global milk prices on the back of rising global demand and supply sluggishness will also
prove supportive of production and encourage producers to consider the long-term impact of their approach
to cattle farming. Finally, the sector is likely to benefit from the continued increase in yields, which have
risen almost 130% over the past decade and are expected to continue to do so given the new investment in
the sector.

BMI Demand View: Vietnamese dairy consumption has expanded significantly in the last 15 years, driven
by relatively large increases in domestic consumption as well as rising incomes. Per capita milk
consumption in Vietnam doubled between 2000 and 2009 to 12kg per person per year. Despite this increase,
per capita consumption in the country remains below the regional average of 65kg. Though there has been
an increase in milk production over the years, the country produces neither cheese nor butter. Condensed
milk and yoghurt are highly popular dairy products. We expect the country to be increasingly reliant on
dairy imports to meet its domestic needs.

Vietnamese dairy consumption growth will remain strong over our forecast period to 2017. Strong
economic growth will filter through into rising disposable incomes, pushing up demand for non-essential
foodstuffs. Through to 2017, we expect fluid milk consumption growth of 38.8% to 257,200 tonnes, while
demand for butter, cheese and whole milk powder will soar 46.6%, 188.3% and 18.9% respectively, albeit
from far lower bases. Increased urbanisation, increased ownership of Western goods and the ongoing spread
of modern, organised retail will all prove supportive of strong dairy consumption growth, even if forecast
higher global dairy prices limit the growth outlook to some extent.

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Vietnam Agribusiness Report Q1 2013

Table: Vietnam Milk Production & Consumption, 2012-2017

Milk Production, '000 tonnes 1,2
Liquid Milk Consumption, '000 tonnes

3

2012

2013

2014

2015

2016

2017

331.0 f

343.0 f

360.0 f

378.0 f

398.0 f

416.0 f

185.3 f

200.1 f

213.6 f

227.8 f

242.3 f

257.2 f

Notes: f BMI forecasts. 1 In all instances year indicates data for harvest year ending that calendar year i.e. 2011 =
2008-09. Sources: 2 General Statistics Office of Vietnam, BMI; 3 FAPRI, BMI.

Table: Vietnam Butter Consumption, 2012-2017

Butter Consumption, '000 tonnes

1

2012

2013

2014

2015

2016

2017

12.5 f

13.4 f

14.5 f

15.7 f

16.9 f

18.3 f

2012

2013

2014

2015

2016

2017

4.0 f

4.4 f

6.0 f

7.4 f

9.3 f

11.6 f

Notes: f BMI forecasts. Sources: 1 FAPRI, BMI.

Table: Vietnam Cheese Consumption, 2012-2017

Cheese Consumption, '000 tonnes 1

Notes: f BMI forecasts. Sources: 1 FAPRI, BMI.

Table: Vietnam Whole Milk Powder Consumption, 2012-2017

Whole Milk Powder Consumption, '000 tonnes 1

2012

2013

2014

2015

2016

2017

36.8 f

36.8 f

38.4 f

40.1 f

41.9 f

43.8 f

Notes: f BMI forecasts. Sources: 1 FAPRI.

Vinamilk Continues Expansion

The Viet Nam Dairy Products Joint Stock Company (Vinamilk) has added Thailand to its portfolio of
export markets. In February 2012, the company announced that it would begin exporting dairy products to
Thailand in Q112 through a US$10mn deal signed in late 2011. In 2011, Vinamilk exported US$140mn

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Vietnam Agribusiness Report Q1 2013

worth of products to 15 countries all over the world, a y-o-y increase of 72%. Countries that receive exports
include the US, Australia, Canada, Russia, Turkey, Iraq, South Korea and Cambodia. In the domestic
market, Vinamilk has a 30% share of the processed dairy sector.

Mostly New Zealand
Vietnam - Milk & Milk Products Imports By Country, 2010 (% of total)

Source: BMI, USDA

Thailand's Fears Over Trade Liberalisation Overplayed

Thai milk farmers and processors fear losing market share - both domestically and abroad - due to
the Association of South East Asian Nations (ASEAN) Economic Community (AEC)'s impending import
liberalisation in 2015. Vietnam's dairy sector, although still lagging being Thailand's, is developing rapidly,
with milk production increasing by 18.3% on average in the past 10 years and forecast to soar by 25.7% to
416,000 tonnes to 2016/17 compared with 2011/12 levels. Vietnam has been trying to upstage Thailand
through massive dairy cow imports and rapid expansion of milk-processing facilities and dairy
operations. Vietnam's state-owned dairy company Vinamilk now has a capacity that is three times that
of Dutch Mill, Thailand's leading milk producer. In Cambodia, where Thai milk used to dominate the
market, cheaper Vietnamese dairy products have been gaining market share.

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Vietnam Agribusiness Report Q1 2013

We believe that Thailand dairy farmers' fears regarding the trade liberalisation are relatively overplayed, as
farmers already are relatively efficient by regional standards. Vietnam still imports 75% of its dairy
products needs, while Thailand is 75% self-sufficient. Moreover, Thailand has higher dairy cow efficiency
than Vietnam and China, as dairy cows yield, per year, 3,380kg of milk per head, compared with 2,060kg/
head in China and 2,170kg/head in Vietnam.

Lower Productivity In Vietnam
Select Countries - Dairy Cow Yields (kg/head)

f = BMI forecast. Source: BMI, FAO, FAPRI

Strong Government Support

The Ministry of Agriculture and Rural Development (MARD) continues to place a high priority on
developing the country's dairy industry in an effort to keep up with the growing domestic demand for fresh
milk. We believe the MARD's goal to increase dairy cattle herd to 500,000 head by 2020 (from 145,000
head in 2011) and production of raw liquid milk to 1mn tonnes (from an expected 331,000 tonnes in 2012)
is rather challenging.

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Vietnam Agribusiness Report Q1 2013

Table: Vietnam Milk Production & Consumption, 2007-2012

2007

2008

2009

2010

2011

2012

Milk Production, '000 tonnes 1,2

234.4

262.2

278.2

306.7

320.0

331.0 f

Liquid Milk Consumption, '000 tonnes 3

127.3

158.4

175.1

167.6

174.8

185.3 f

Notes: f BMI forecasts. 1 In all instances year indicates data for harvest year ending that calendar year i.e. 2011 =
2008-09. Sources: 2 General Statistics Office of Vietnam, BMI; 3 FAPRI, BMI.

Table: Vietnam Butter Consumption, 2007-2012

2007
Butter Consumption, '000 tonnes 1

10.8

2008
10.8

2009

2010

10.8

2011

10.8

11.3

2012
12.5 f

Notes: f BMI forecasts. Sources: 1 FAPRI, BMI.

Table: Vietnam Cheese Consumption, 2007-2012

Cheese Consumption, '000 tonnes 1

2007

2008

2009

2010

2011

2012

2.9

3.1

3.8

3.5

3.5

4.0 f

2011

2012

Notes: f BMI forecasts. Sources: 1 FAPRI, BMI.

Table: Vietnam Whole Milk Powder Consumption, 2007-2012

2007
Whole Milk Powder Consumption, '000 tonnes 1

33.1

2008
33.1

2009
33.1

2010
33.1

35.1

36.8 f

Notes: f BMI forecasts. Sources: 1 FAPRI.

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Vietnam Agribusiness Report Q1 2013

Risks To Outlook

A downside production risk is that another economic slowdown on the back of fiscal and monetary
tightening weighs on our consumption growth forecasts, as it would force consumers to cut back on
discretionary spending.

The lack of a national quality control body for dairy products will continue to place downside risks to our
production and consumption forecasts, as it places the dairy industry at risk of a health scandal, which
would further tarnish the image of dairy products in Vietnam.

Vietnam Livestock Outlook

BMI Supply View: Within the Vietnamese livestock industry, pig farming is by far the most dominant
sector, with pork production comprising about two-thirds of total meat production in 2011/12. Despite
going through hard times over recent years owing to disease outbreaks, soaring input costs and competition
from cheap imports, we expect Vietnam's livestock production to grow strongly, led by the poultry segment,
over the medium term. Rising incomes will stimulate domestic meat consumption growth (owing to diet
diversification), and production will increase to keep pace. That said, we expect the country to continue to

be a net importer of livestock over our forecast period.

In 2012/13, we expect meat production to increase in spite of recent challenges due to disease outbreaks and
the increasing cost of production. The poultry sector was affected by avian influenza in March and April
2012, while the pork industry was hurt by news of use of banned substances (such as clenbuterol) to
promote lean growth in pigs. We expect poultry output to rise 4.0% year-on-year (y-o-y) to reach 780,000
tonnes in 2012/13. Pork production is expected to grow to 2.0mn tonnes, up 2.5% y-o-y, on the back of a
higher number of pigs (estimated at 26.7mn in mid-2012, up 1.5% y-o-y). Beef and veal production is
forecast to fall by 1.8% to 280,000 tonnes in 2012/13.

We see strong growth potential for the Vietnamese livestock industry on the back of rising incomes. Poultry
will record the strongest growth, and we forecast production to expand 27.2% on the 2011/12 level to
954,000 tonnes in 2016/17. Pork output is projected to rise 15.6% to 2.3mn tonnes, which will not be
enough to satisfy the country's growing demand for the meat, leaving the country reliant on imports. Beef
production will remain the least significant of Vietnam's livestock sectors and is expected to fall by 6.7% to
266,000 tonnes over the forecast period to 2016/17.

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Vietnam Agribusiness Report Q1 2013

BMI Demand View: Meat consumption in Vietnam has risen significantly over the last decade, with per
capita consumption rising by 87% from 2001 to 2011 to reach 36.7kg per year. Buoyed by strong income
growth as well as population growth, we see healthy demand growth for livestock over 2012-2017. Poultry
consumption is forecast to grow by 35.1% to 1.1mn tonnes, while pork (from a higher base) and beef
consumption will increase by 12.9% and 24.0% respectively. We forecast pork consumption to reach 2.3mn
tonnes, with beef consumption reaching 365,800 tonnes. We believe pork consumption will continue to be

the dominant meat consumed, comprising more than 60% of total meat consumption. A household survey
conducted in 2010 found that 40% of household meat expenditure was spent on pork, with preference given
to fresh pork over chilled or processed meat.

Table: Vietnam Poultry Production & Consumption, 2012-2017

Poultry Production, '000 tonnes 1
Poultry Consumption, '000 tonnes

1

2012

2013

2014

2015

2016

2017

750.0 f

780.0 f

820.0 f

863.0 f

907.0 f

954.0 f

793.5 f

837.1 f

887.4 f

940.6 f

1,001.8 f

1,071.9 f

Notes: f BMI forecasts. Sources: 1 USDA.

Table: Vietnam Pork Production & Consumption, 2012-2017

Pork Production, '000 tonnes 1
Pork Consumption, '000 tonnes

1

2012

2013

2014

2015

2016

2017

1,960.0 f

2,032.0 f

2,100.0 f

2,168.7 f

2,217.5 f

2,266.4 f

2,023.4 f

2,074.0 f

2,125.8 f

2,183.0 f

2,235.7 f

2,283.5 f

Notes: f BMI forecasts. Sources: 1 USDA.

Table: Vietnam Beef & Veal Production & Consumption, 2012-2017

Beef & Veal Production, '000 tonnes 1
Beef & Veal Consumption, '000 tonnes

1

2012

2013

2014

2015

2016

2017

285.0 f

280.0 f

275.0 f

272.0 f

269.0 f

266.0 f

295.0 f

302.4 f

316.0 f

331.8 f

348.4 f

365.8 f

Notes: f BMI forecasts. Sources: 1 USDA.

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Vietnam Agribusiness Report Q1 2013

Fragmented Domestic Feed Industry Disadvantages Local Companies

The domestic livestock industry is made up of mainly small-scale or backyard farm operations that have
poor hygiene standards and are susceptible to epidemics. The Vietnamese livestock sector is often plagued

by disease outbreaks owing to the lack of proper sanitation facilities in farms and meat production facilities.
Since 2009, the country's livestock sector has experienced multiple rounds of avian influenza, H5N1 bird
flu virus, foot-and-mouth disease and porcine reproductive respiratory syndrome, also known as blue ear
disease. In our view, disease outbreaks will constantly feature as a challenge to the industry as long as it
remains fragmented and low in technology and health standards.

The fragmented nature of the industry has thus resulted in foreign companies, with their sophisticated and
larger-scale production facilities, dominating livestock production in Vietnam. In the poultry sector, for
example, the three main companies dominating the landscape are China-based CP Vietnam Livestock
Corporation, Indonesia-based Japfa and Malaysian company Emivest; these firms supply around 6mn
chickens to the domestic market monthly, leaving hundreds of domestic firms to compete for the remaining
market share.

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Vietnam Agribusiness Report Q1 2013

Changing Meat Consumption Trends
Vietnam - Livestock Consumption (% of total meat consumption)

e/f = BMI estimate/forecast. Source: BMI

Another advantage that foreign firms enjoy in the sector is that they are not subject to the high lending costs
that local famers have to pay. Being able to rely on their parent companies also allows these foreign players
to dig into deep pockets and purchase raw materials at lower costs in foreign currencies.

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Vietnam Agribusiness Report Q1 2013

Local Feed Company Expands

The animal feed industry has been receiving significant - mainly foreign - investment in recent years as a
result of the attractive prospects of the livestock and aquaculture industries of the country. Foreign-invested
feed companies continue to meet most of the domestic demand, such as Thailand's Charoen Pokphand
Group and US-based Cargill, according to the Ministry of Industry and Trade. Vietnam currently has 59
foreign-invested firms and joint ventures that hold 70% of the domestic animal (compound) feed market
share, while 180 local firms retain the remaining 30%, according to the Vietnam Animal Feed Association.
According to reports, 30% of domestic firms have been forced out of the animal feed business as a result.
Charoen Pokphand announced in 2011 it would build six additional factories by 2014, while Chinese firm
New Hope confirmed it would construct six more feed plants in Vietnam. Local companies are also
expanding: the Hong Ha Nutrition Joint Stock Co, a privately owned Vietnamese animal feed company,
inaugurated in February 2012 an animal production line in its newly acquired 7 hectare factory in Dong Van
Industrial Zone in Duy Tien District, in the northern Ha Nam Province. The factory is expected to raise its
capacity to 400,000 tonnes annually, nearly 10 times its capacity of 48,000 tonnes seven years ago. This has
come on the back of VND150bn (US$7.1mn) invested in 2011.

We believe the ongoing consolidation of the sector is likely to continue, with foreign livestock and feed
companies buying local assets and rising their exposition to the sector.

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Vietnam Agribusiness Report Q1 2013

Imbalances To Be Maintained
Vietnam - Poultry & Pork Production & Consumption ('000 tonnes)

f = BMI forecast. Source: BMI, USDA

Livestock Industry Faces Crucial Challenges In Medium Term

The local livestock industry generally uses cassava, wheat, broken rice and corn as feed. In recent years,
rice and cassava have been more focused on export markets and fell short of supplying the domestic animal
feed industry. Feed wheat has recently been an alternative source, but its use is based on its price
competitiveness and its availability in the market. In 2012/13, the use of feed wheat for the local animal
feed industry will likely drop to about 1.1mn tonnes due to limited supply in international and domestic
market after widespread inclement weather in key growing countries led to a drop in exports.

Vietnam's commercial animal feed sector has grown at an annual rate of about 16% between 2005 and
2009, according to the Ministry of Agriculture and Rural Development. This reflects the strong growth in
livestock production in the country.

While we are largely optimistic about the growth prospects for this industry, there are salient downside risks
to this outlook. We highlight three main challenges: high interest rates, a reliance on imports (which causes
the livestock industry to be vulnerable to fluctuating input prices), and the fragmented nature of the market.

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Vietnam Agribusiness Report Q1 2013

Table: Vietnam Poultry Production & Consumption, 2007-2012

2007

2008

2009

2010

2011

2012

Poultry Production, '000 tonnes 1

359.0

417.0

467.0

616.0

708.0

750.0 f

Poultry Consumption, '000 tonnes 1

403.0

499.0

502.0

655.0

750.0

793.5 f

2008

2009

Notes: f BMI forecasts. Sources: 1 USDA.

Table: Vietnam Pork Production & Consumption, 2007-2012

2007

2010

2011

2012

Pork Production, '000 tonnes 1

1,832.0

1,850.0

1,910.0

1,930.0

1,960.0

1,960.0 f

Pork Consumption, '000 tonnes 1

1,855.0

1,880.0

1,936.0

1,940.0

1,995.0

2,023.4 f

Notes: f BMI forecasts. Sources: 1 USDA.

Table: Vietnam Beef & Veal Production & Consumption, 2007-2012

2007

2008

2009

2010

2011

2012

Beef & Veal Production, '000 tonnes 1

316.0

320.0

300.0

295.0

290.0

285.0 f

Beef & Veal Consumption, '000 tonnes 1

321.0

331.0

306.0

303.0

298.0

295.0 f

Notes: f BMI forecasts. Sources: 1 USDA.

Risks To Outlook

Disease poses a major downside risk to our forecasts for livestock production in Vietnam. It is a particular
risk for our poultry and pork output forecasts, although it could also affect our beef outlook. BMI highlights
that there have been reports that the highly pathogenic avian influenza has been found in numerous
provinces such as Quang Tri, Thanh Hoa, Nam Dinh, Bac Ninh, Quang Nam and Quang Ninh.

A reduction in consumer spending, as a result of a return to more normal fiscal and monetary policy, could
adversely affect livestock consumption growth. Prolonged demand sluggishness would also weigh on
production growth.

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Vietnam Agribusiness Report Q1 2013

Competition from cheap imports remains a risk to Vietnamese livestock farmers. Efficiency improvements
are being made - as demonstrated by our robust production forecasts - and yet this risk might only be fully
realised beyond 2012 once government intervention is reduced.

An upside production risk is continued government investment. If the sector continues to receive investment
from the government, the ensuing efficiency increases could pose upside risks to our forecasts.

Vietnam Coffee Outlook

BMI Supply View: Vietnam's coffee sector has grown significantly over the last 20 years, with yields
doubling and the area planted expanding from 42,000 hectares (ha) to more than 509,000ha. Vietnam is the
world's biggest producer of robusta coffee, with more than 95% of its coffee output consisting of the robusta
variety and only around 2-3% of production devoted to the premium arabica variety. The Vietnamese coffee
market year runs from October to September, and harvesting takes place between November and February.

We revised up our estimation for the 2011/12 crop, as favourable weather and improved investment in trees
and inputs led to high yields. Production rose to a record high 22.7mn 60kg bags. Vietnam is undergoing a
wave of tree replanting, as the sector's yields and level of production were hampered by old trees.
According to the Vietnam Coffee & Cocoa Association (Vicofa), about 137,000ha of old and low-quality
coffee trees need to be replaced over the next five years in Vietnam's central highlands, which represent
about 25% of total current production area.

The outlook for the 2012/13 coffee season is deteriorating in Vietnam, as inclement weather during the
growing season is dragging down yields. Rainfall in Daklak, the main growing region, was 28% lower
between January and August 2012 compared with a year earlier, according to the province's meteorology
and hydrology department. Dry weather is depressing coffee production, which was already expected to be
subdued owing to factors associated with the two-year coffee bean cycle, in which output often declines
after a bumper crop (which was the case in 2011/12). Clement weather during the harvest and post-harvest

season will only partially offset this. As a result, we expect output to decrease after 2011/12 bumper crop
and to come in at 20.7mn bags, down 8.8% year-on-year (y-o-y).

Out to 2016/17, we expect production growth of 28.0% to 29.1mn bags as the Vietnamese government
endeavours to increase the replanting of coffee trees. Work on replacing trees, many of which are more than
20 years old, will improve disease resistance and thus yields in the long term. Another growth driver will be
export opportunities given that Vietnam is the world's largest exporter of robusta coffee.

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