Vietnam agribusiness report q3 2015

Q3 2015
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VIETNAM
AGRIBUSINESS REPORT
INCLUDES 5-YEAR FORECASTS TO 2019

ISSN 1759-1740
Published by:BMI Research


Vietnam Agribusiness Report Q3 2015
INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: June 2015

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Vietnam Agribusiness Report Q3 2015

CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................. 10
Agribusiness ........................................................................................................................................... 10
Operational Risk ..................................................................................................................................... 12

Industry Forecast .............................................................................................................. 14
Grains Outlook ....................................................................................................................................... 14

Table: Corn Production & Consumption (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table: Corn Production & Consumption (Vietnam 2009-2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Rice Outlook ........................................................................................................................................... 20
Table: Rice Production & Consumption (Vietnam 2013-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table: Rice Production & Consumption (Vietnam 2009-2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Dairy Outlook ......................................................................................................................................... 25
Table: Butter Production & Consumption (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Table: Cheese Production & Consumption (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Table: Milk Production & Consumption (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Table: Whole Milk Powder Production & Consumption (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Table: Vietnam - Planned Investment In Milk Production Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Table: Butter Production & Consumption (Vietnam 2009-2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Table: Cheese Production & Consumption (Vietnam 2009-2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Table: Milk Production & Consumption (Vietnam 2009-2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Table: Whole Milk Powder Production & Consumption (Vietnam 2009-2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Livestock Outlook .................................................................................................................................... 35
Table: Beef Production & Consumption (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Table: Pork Production & Consumption (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Table: Poultry Production & Consumption (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Table: Beef Production & Consumption (Vietnam 2009-2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Table: Pork Production & Consumption (Vietnam 2009-2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Table: Poultry Production & Consumption (Vietnam 2009-2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Coffee Outlook ........................................................................................................................................ 44
Table: Coffee Production & Consumption (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Table: Coffee Production & Consumption (Vietnam 2009-2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Commodities Price Analysis ............................................................................................. 51
Commodity Strategy ................................................................................................................................. 51
Table: Impact Of El Niño On Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Upstream Analysis ............................................................................................................ 56
Asia GM Outlook ..................................................................................................................................... 56
Table: Selected Countries - GM Crops Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Asia Machinery Outlook ........................................................................................................................... 59
Table: Select Countries - Average Size Of Farms, Hectares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Asia Fertiliser Outlook ............................................................................................................................. 66

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Vietnam Agribusiness Report Q3 2015

Downstream Analysis ....................................................................................................... 71
Mass Grocery Retail ................................................................................................................................ 71
Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Table: Grocery Retail Sales By Format (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Drink .................................................................................................................................................... 76
Alcoholic Drinks .................................................................................................................................... 76
Table: Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Hot Drinks ............................................................................................................................................ 79

Table: Hot Drink Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Soft Drinks ............................................................................................................................................ 81
Table: Soft Drinks Sales, Production & Trade (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Food ..................................................................................................................................................... 84
Food Consumption ................................................................................................................................ 84
Table: Food Consumption Indicators - Historical Data & Forecasts (Vietnam 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Canned Food ........................................................................................................................................ 85
Confectionery ........................................................................................................................................ 86
Table: Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Pasta ................................................................................................................................................... 89
Table: Pasta Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Dairy ................................................................................................................................................... 90
Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Regional Overview ............................................................................................................ 92
Competitive Landscape .................................................................................................... 98
Table: Major Agribusiness Companies (USDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Demographic Forecast ..................................................................................................... 99
Table: Population Headline Indicators (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Table: Key Population Ratios (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Table: Population By Age Group (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Table: Population By Age Group % (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Methodology .................................................................................................................... 104
Industry Forecast Methodology .............................................................................................................. 104
Sector-Specific Methodology .................................................................................................................. 105

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Vietnam Agribusiness Report Q3 2015

BMI Industry View
BMI View: Recent developments in the country's economic and business environment outlooks add further
weight to our positive view on Vietnam's agribusiness sector. The industry holds strong growth
opportunities in terms of production, exports and retail sales, particularly with regard to the rice, coffee,
livestock and dairy sectors. Moreover, the upcoming economic and financial integration in South East Asia
will benefit Vietnam's exports of rice, dairy and coffee. However, Vietnam is facing growing competition in
its key markets. The fulfilment of its promising potential will only be achieved if the country steps up its
competitiveness and improves both product quality and supply chain efficiency. Vietnam will have to
significantly ramp up investments on crop productivity in order to not be left behind and, if it does, it will be
able to produce more value-added crops and maintain its status as an export spearhead.

Agribusiness Market Value
BMI Market Value By Commodity (2011-2019)
55

50

45

25

35
25

0

15
5

-25
2011

2012

2013e

2014e

2015f

2016f

2017f

2018f

2019f

Cocoa market value, % of total (LHS)

Livestock market value, % of total (LHS)
Sugar market value, % of total (LHS)
Cotton market value, % of total (RHS)
Milk market value, % of total (RHS)
Palm Oil market value, % of total (RHS)
Grains market value, % of total (RHS)

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

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Vietnam Agribusiness Report Q3 2015

Key Forecasts
■

Rice consumption growth to 2019: 10.4% to 23.6mn 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.

■

Corn production growth to 2018/19: 30.2% to 6.7mn tonnes. Although acreage is likely to remain
stagnant or diminish, current yield immaturity means significant gains are still available via this avenue,
especially as robust local corn prices provide incentives to farmers. Domestic consumption will be
another important driver.

■

Milk production growth to 2018/19: 62.2% to 795,700 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.

■

2015 BMI universe agribusiness market value: USD37.5bn (down 1.3% from USD37.9bn in 2014;
growth expected to average 2.3% annually between 2015 and 2019).

■

2015 real GDP growth: 6.4% (up from 6.0% in 2014; predicted to average 6.4% over 2015-2019).

■

2015 consumer price index: 2.1% year-on-year (y-o-y) average (up from 4.1% in 2014; predicted to
average 4.1% over 2015-2019).

■

2015 central bank policy rate: 6.00% (down from 6.50% in 2014; predicted to average 6.00% over
2015-2019).

Key Developments

Vietnam's coffee sector is undergoing some positive changes which will help the country maintain its status

as the largest exporter of robusta coffee globally in the coming years. The Ministry of Agriculture (MARD)
has unveiled a coffee plan for the 2014-2020 period, focusing mainly on a tree replanting programme and
on the development of the processing sector. However, we believe the implementation of the recently
unveiled coffee plan will be slow and the government's goal to boost value-added coffee exports will
be difficult to achieve. In particular, the replanting programme may be partly jeopardised by the low
competitiveness of coffee prices relative to other crops, including pepper.

After decades of active support to the rice sector, Vietnam is shifting its attention to corn and soybean
production in order to address its soaring animal feed deficit and to avoid rice oversupply. A year into the
new policy incentivising farmers to switch to corn and soybean production, rice output growth has actually
shown signs of slowing down, while corn production is picking up. The eventual increase in domestic
feed output is likely to favour the development of the livestock sector.

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Vietnam Agribusiness Report Q3 2015

Due to the decline in exportable supply and fiercer competition from Vietnam's traditional competitors,
Vietnamese rice exports will broadly stagnate in 2014/15 and 2015/16 compared with the five-year average.
Thailand ended its rice scheme in 2014, which resulted in a drop of Thai rice export prices. The return of
Thailand on international markets will strongly limit Vietnam's rice exports in 2015. In the longer term,
Vietnam will continue to gain competitiveness and eat into Thailand's market share. The integration of the
ASEAN countries also bodes well for Vietnam's rice exports.

Vietnam is seeing a wave of private investment in its upstream (farming) and downstream (dairy product
manufacturing and distribution) dairy sector. These investments bode well for the future of Vietnam's milk
production in the coming years. Vinamilk, Vietnam's largest dairy company, is one of the most active in

terms of investment. Vietnamese companies operating in sectors other than diary are also turning their eyes
to the milk industry, including Vinacafe Bien Hoa Company and property developer Hoang Anh Gia Lai
Group. However, the wave of private investment in Vietnam's dairy sector also has its downsides, the main
one being the rise in competition. Growth in domestic dairy prices has slowed down and margins in the
sector have been on a downtrend since 2013.

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Vietnam Agribusiness Report Q3 2015

SWOT
Agribusiness
SWOT Analysis

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

■

Vietnam enjoys relatively good international price competitiveness for rice and coffee.

■

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.

■

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.

■

A move towards higher-quality products, especially in the coffee and dairy sectors,
will help to improve Vietnam's product competitiveness.

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Vietnam Agribusiness Report Q3 2015

SWOT Analysis - Continued

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.

■

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

■

Climate change and rising sea levels will reduce arable land in the Mekong Delta and
coastal areas of the Central region unless active protection policies are implemented.
This would then weigh on production growth in two of Vietnam's main agriculturalproducing regions.

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Vietnam Agribusiness Report Q3 2015

Operational Risk

SWOT Analysis

Strengths

■

Vietnam has a high number of university graduates with skilled degrees and a high
literacy rate for its income level.

• In addition to a number of regional and international flight options, Vietnam has an
extensive inland waterway system.
• Growing levels of foreign investment encourage further trade and spin-off industries.
• Vietnam's rate of violent crime is generally low, and foreigners are unlikely to be
targeted.
Weaknesses

■

High labour costs increase overall operating costs, and difficulty in hiring foreigners
creates shortages of skilled labour.

• Underdeveloped rail capacity overburdens the road network.
• An underdeveloped banking sector decreases the options for keeping money in the
state.
• Vietnam's military forces are only a quarter the size of China's, meaning that Beijing
would probably prevail in any naval battle over maritime disputes in the South China
Sea.
Opportunities

■

Explosive growth in demand for tertiary education will increase the number of highly
skilled graduates in the medium term.

• Vietnam is easily accessible from the main shipping routes, and growth in the number
of port facilities will provide adequate capacity.
• Increased foreign participation in the banking sector will increase the availability of
funds for loans.
Threats

■

Dysfunctional labour-management relations increase the risk of disruption and strike
action.

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Vietnam Agribusiness Report Q3 2015

SWOT Analysis - Continued

• Vietnam's reliance on imported oil poses risks in the form of energy and fuel
shortages.
• Corruption and inefficiency in the legal system.
• Anti-Chinese violence, as seen in May 2014, could be a harbinger of wider political
and social unrest.

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Vietnam Agribusiness Report Q3 2015

Industry Forecast
Grains Outlook

BMI Supply View: Corn is one of Vietnam's most important food crops, along with rice. Corn output has
grown by a hefty 9.5% annually since 2000. Area harvested and yields increased by 12.5% and 23.1%
respectively between 2004/05 and 2013/14 as domestic corn consumption rose significantly on the back of
improving incomes. Indeed, as incomes have risen, consumers have been encouraged to buy more meat, of
which corn is the main feedstock. More than 80% of the country's total corn output goes towards the feed
industry.

Corn production grew for the sixth consecutive season in 2014/15, by 4.5% year-on-year (y-o-y) to 5.4mn
tonnes, following robust growth of 7.7% in 2013/14. Area harvested grew at a higher rate than in previous
years due to the government's plan to shift cultivated area from rice to corn and soybean. Yields will also
improve. Looking at the 2015/16 season, for which plantings are now complete, we believe production will
continue to grow at a strong pace, reaching 5.7mn tonnes.

The ongoing push by the government to make farmers shift from rice to corn cultivation will help corn area
harvested grow in the coming years. We now expect production to reach 6.7mn tonnes by 2018/19, up
30.2% compared with the 2013/14 level. Yields will also slowly grow, especially as robust local corn prices
provide incentives to farmers to invest more in crops (in fertilisers for example). The important growth
driver will be domestic consumption, especially from the livestock and aquaculture sectors. Despite the
potential for corn production given the robust growth of the livestock and aquaculture industries, the sector
is encountering many challenges, including high production costs and high post-harvest losses of 13-15%
according to industry sources.

BMI Demand View: Corn consumption almost doubled from 2005 to 2013 and we expect this trend to
continue, although not at such a strong rate. The demand gains will partly come from growth in the
livestock sector, as beef, veal and poultry production are all expected to register strong growth.

Between 2014 and 2019, corn consumption growth will come in at 26.9% and will reach 8.5mn tonnes. As a
result, Vietnam will very likely become increasingly reliant on corn imports to meet domestic demand.
However, strong economic growth over our forecast period is likely to ensure that the impact of a rising
import bill on consumption is deemed manageable. Animal feed will remain the primary use for corn to

2019 and beyond. Indeed, we have a positive view on livestock production to 2019 owing to income growth
and the fact that the sector has been identified as a recipient of government modernisation efforts. Bullish

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Vietnam Agribusiness Report Q3 2015

projections from our Food & Drink team reinforce this; we forecast per capita food consumption to grow by
147.3% to 2019.

Table: Corn Production & Consumption (Vietnam 2014-2019)

Corn production, '000 tonnes

2014

2015f

2016f

2017f

2018f

2019f

5,150.0

5,380.0

5,692.0

6,005.1

6,353.4

6,702.8

7.7

4.5

5.8

5.5

5.8

5.5

6,695.1

6,896.0

7,254.5

7,639.0

8,051.5

8,494.4

3.8

3.0

5.2

5.3

5.4

5.5

Corn production, % y-o-y
Corn consumption, '000 tonnes
Corn consumption, % y-o-y

f = BMI forecast. Source: USDA, BMI

Government's Plan To Boost Production

The Ministry of Agriculture and Rural Development (MARD) has submitted to the prime minister a
proposed programme for shifting acreage from rice to other cash crops, with a focus on corn and soybean.
Over the period to 2015, MARD aims to transition 100,000-110,000ha of current rice-cultivated area into
corn and soybean fields. The winter and early autumn rice crops will be most directly affected by the
proposed programme; these crops usually generate low yields due to lack of water and recurrent attacks

from pests and diseases. The ministry proposes support of VND2mn/ha for input costs (seeds, fertilisers,
pesticides) and about VND700,000/ha for land preparation costs for those who shift from rice to corn or
soybean. This new policy is a clear change to support dynamics in Vietnam, where rice production has long
been the focus. Incentivised by elevated public subsidies for rice production, farmers have planted the grain
across the country, even in areas with unfavourable soil conditions. As a result, rice production has grown
by a healthy 2.3% annually since 1999/00.

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Booming Feed Imports
Vietnam - Corn, Soy Meal & Soybean Imports ('000 tonnes)

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

A Greater Need For Feed

Vietnam struggles to export its large rice surpluses, as competitors export higher-quality rice (such as main
rival Thailand) or rice at a lower price (such as India). The country is therefore eager to diversify its crops.
The need to increase corn and soybean production is all the more salient given that imports of feed
ingredients have skyrocketed in recent years in line with the development of the livestock sector. Supported
by growing domestic demand for more protein, beef, poultry and pork meat production have been growing
at a hefty 7.0% annually over the past 10 years.

The feed manufacturing sector has grown hand-in-hand with meat output, with many big names in the feed
industry setting up plants in Vietnam. However, feed grain and oilseeds production has failed to keep up

with consumption. Feed demand is 70% comprised of imports. According to the Viet Nam Feed
Association, the country imported about 9mn tonnes of feed and fish powder in 2013 worth about USD4bn,
while rice exports amounted to 6.6mn tonnes that year, earning USD2.9bn. With the new corn and soybean
production plan, the government hopes to import less than 50% of its animal feed requirements by 2020.

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The growing attention and support to corn and soybean production in Vietnam will most likely prove
positive for the livestock sector, as it could help producers reduce production costs. Decreasing the reliance
on imported feed ingredients could cut down on feed expenses, as it would reduce transportation costs and
import taxes (5% for feed). Moreover, the increase in domestic supply of feed ingredients will help ease the
pressure on Vietnamese feed companies. Domestic feed companies are facing stiff competition from their
international counterparts, which have set up large manufacturing plants in the country in recent years. In
2012, for example, many domestic manufacturers closed down due to a sudden spike in international grain
prices, which contributed to the credit crunch Vietnam experienced. It is estimated that 50-100 of the 243
Vietnamese animal feed producers had to close in 2012 and 2013.

Mainly Emerging Countries
Vietnam - Corn & Soybean Imports By Origin, 2012/13 (% of total imported volume)

Source: BMI, ITC, UNCTAD

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Consumption Driven By Feed
Vietnam - Corn (LHC) & Wheat (RHC) Consumption ('000 tonnes)

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

Corn Production Push Insufficient To Supply Feed Demand

We believe Vietnam's plan to reduce its dependence on imported feed from 70% to 50% out to 2020 will
prove difficult. The country is likely to remain largely dependent on imported feed in the coming five years.
Corn and soybean productivity is low in this traditional rice-producing country and will take years to
see improvement. Vietnam's corn yields are lagging its neighbours, at 4.50 tonnes/ha, compared with
6.03 tonnes/ha in China and 5.35 tonnes/ha in Laos. Meanwhile, the scale of soybean production remains
extremely low, at around 200,000 tonnes, compared with consumption of 1mn tonnes annually.

Adequate infrastructure for corn storage and transport is also lacking. This prevents Vietnam from having a
stable supply of corn throughout the year, as farmers are obliged to sell their product quickly after the
harvest. Moreover, corn growers are still spread across the least accessible territories (in the Central
Highlands, for example), making it difficult for feed companies to collect and transport products. Moreover,
we expect livestock production to maintain the robust growth rates recorded in recent years, which will
deepen the domestic feed deficit.

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Vietnam Agribusiness Report Q3 2015

Table: Corn Production & Consumption (Vietnam 2009-2014)

Corn production, '000 tonnes
Corn production, % y-o-y
Corn consumption, '000 tonnes
Corn consumption, % y-o-y

2009

2010

2011

2012

2013

2014

4,432.0

4,630.0

4,648.0

4,650.0

4,780.0

5,150.0

-3.7

4.5

0.4

0.0

2.8

7.7

5,400.0

6,100.0

5,900.0

6,000.0

6,450.0

6,695.1

3.8

13.0

-3.3

1.7

7.5

3.8

Source: USDA, BMI

Risks To Outlook

Corn production growth will be more than ever dependent on government's policies now that Vietnam is
ramping up its support to the sector. A decrease in public support to corn production could push back
farmers towards rice cultivation.

An important long-term downside consumption risk is that the country's dependence on imports could
impede Vietnamese demand growth should a sustained period of inflated global corn prices occur. Fiscal
and monetary tightening also pose a risk to consumption growth. Corn is not a luxury good, and thus
demand will not retrench in line with tighter spending conditions. However, corn production in the country
did dip by 3.7% y-o-y in 2008/09 on the back of tighter credit regulations throughout Vietnam during that
time.

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Vietnam Agribusiness Report Q3 2015

Rice Outlook
BMI Supply View: Vietnam is a key grower and world provider of rice. Production is growing fast,
boosted by higher yielding rice varieties and better culture management. Output grew by a strong 13%
between 2009/10 and 2013/14.

In the 2014/15 season, Vietnam's rice production will decline for the first time since 2000/01, which started
in January. Vietnam's Ministry of Agriculture and Rural Development (MARD) intends to make rice
farmers shift to the cultivation of other grains in order to avoid paddy overproduction, prevent downward
pressure on prices and increase feed supply. The government is looking to transition 100,000-110,000ha of
rice-cultivated area into corn and soybean fields per year. This policy is likely to slightly limit the area
under rice cultivation in the coming years, leaving Vietnam reliant on yield improvement for rice
production growth. Planted area is declining more than previously expected, according to local sources,
which report it has shrunk by 160,000ha in 2014/15. We have therefore revised down slightly our forecast
and expect the push to reduce rice plantings to lead to a 0.1% decrease in production, to 28.1mn tonnes in
2014/15. Area under cultivation is likely to be reduced by a lesser extent in 2015/16, which, combined with
higher yields, will help production recover by 0.5%.

Compared to other agricultural sub-sectors, Vietnamese rice production is very competitive relative to many
of its regional peers and is well positioned to benefit from both regional and global demand growth.
Another advantage of Vietnamese rice is its relatively higher yields. The government is looking to increase
the area planted with hybrid rice varieties by 50%; this bolsters our outlook for the country's rice production
capabilities over the long term. Over our five-year forecast period to 2018/19, we expect rice output to grow
by 6.5% to 30.0mn tonnes.

BMI Demand View: We forecast consumption to increase by 2.0% in 2015 to 21.8mn tonnes. Over the
longer term, we expect consumption to climb by 10.4% compared to the 2014 level to 23.6mn tonnes in
2019. 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. Ultimately, demand growth will be influenced by population growth, as per
capita consumption is expected to remain roughly the same as the population continues to diversify its diet
on the back of rising incomes. As such, the country will remain one of the world's top rice exporters.

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Table: Rice Production & Consumption (Vietnam 2013-2019)

Rice production, '000 tonnes
Rice production, % y-o-y
Rice consumption, '000 tonnes
Rice consumption, % y-o-y

2013

2014

2015f

2016f

2017f

2018f

2019f

27,510.0

28,150.0

28,121.9

28,262.5

28,827.7

29,404.3

29,992.3

1.3

2.3

-0.1

0.5

2.0

2.0

2.0

20,800.0

21,380.0

21,807.6

22,243.8

22,688.6

23,142.4

23,605.2

5.6

2.8

2.0

2.0

2.0

2.0

2.0

f = BMI forecast. Source: USDA, BMI

Slower Production Growth Owing To Corn Focus

Vietnam's plan to shift acreage from rice to other cash crops is likely to slightly reduce the area under rice
cultivation in the coming years. As a result, we expect most rice production growth to come from yield
improvements. MARD has submitted to the prime minister a proposed programme for shifting acreage from
rice to other cash crops, with a focus on corn and soybean. Over 2013-2015, MARD aims to transition
100,000-110,000ha of rice cultivated area into corn and soybean fields. The ministry proposes support of
VND2mn/ha for input costs (seeds, fertilisers, pesticides) and about VND700,000/ha for land preparation
costs for those who shift from rice to corn or soybean. This new policy is a clear change to support
dynamics in Vietnam, where rice production has long been the focus. Incentivised by elevated public
subsidies for rice production, farmers have planted the grain across the country, even in areas with
unfavourable soil conditions. As a result, rice production has grown by a healthy 2.3% annually since
1999/00.

However, Vietnam now struggles to export its large rice surpluses as competitors export higher-quality rice
(such as main rival Thailand) or rice at a lower price (such as India). The country is therefore eager to
diversify its crops. The need to increase corn and soybean production is all the more salient given that
imports of feed ingredients have skyrocketed in recent years in line with the development of the livestock
sector.

In order to support rice production via an improvement in rice yields, in 2008 the government started
encouraging farmers to implement the Large Scale Farm model (between 50-100ha), where farmers
consolidate individual small farms into larger farms to lower per hectare production costs on land
preparation, irrigation, planting and harvesting costs. Most of the production input (fertiliser, pesticide,
machinery) is supported by a trading company. In return, the company will directly purchase most of the

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Vietnam Agribusiness Report Q3 2015

rice products from farmers, without going through middle men. In 2011, over 85% of paddy farming
households were cultivating rice in plots of 0.5ha or less. We believe this plan will help yields grow.
Vietnamese yields currently stand well above neighbouring countries, but still have room to reach
Australian rice yields of 9.2tonne/ha, which are the world's highest.

Vietnam Gaining Competitiveness
Select Countries - Rice Export Prices (USD/tonne)

Note: Thailand, Vietnam: 5% broken rice. India: 25% broken rice, US: 2.4% long grain. Source: Bloomberg, FAO, BMI

Exports Stagnating In 2014/15

Due to the decline in production in 2014/15, Vietnam will see its surplus decrease to 6.3mn tonnes,
compared with the five-year average of 6.7mn tonnes. With a decline in exportable supply, lower stocks
than in recent years and intense competition from Vietnam's traditional competitors, Vietnamese rice
exports will broadly stagnate in 2014/15 and 2015/16, compared with the five-year average. Exports could
come in around 6.0mn tonnes both years.

Competition between the top rice exporters (Vietnam, Thailand and India) is fierce, amidst large Asian
supply. Thailand started offloading its large government-held stocks at low prices in Q414 and will continue

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Vietnam Agribusiness Report Q3 2015

to do so in the coming quarters. Secondary exporters, including Mynamar and Cambodia, are also seeing
their exports grow.

Vietnam will be able to maintain its market share (around 15-16% of the global rice trade) in spite of the
increase in Thai exports. Indeed, Vietnamese export prices have eased and are now more competitive
relative to Thai prices: 5% broken rice for export was priced at around USD347/tonne in June 2015,
compared with USD385/tonne in Thailand.

Thailand will see its exports increase, mainly at the expense of India, as a part of the Thai rice stocks have
been stored in warehouses for more than a year and are subsequently of lower quality than recently
harvested Vietnamese rice. Therefore, Thailand is mainly competing with India to export rice to costsensitive regions, including African countries.

Reshuffling The Cards
Select Countries - Rice Exports (% of total volume exported globally)

Source: USDA, BMI

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Table: Rice Production & Consumption (Vietnam 2009-2014)

Rice production, '000 tonnes
Rice production, % y-o-y
Rice consumption, '000 tonnes

Rice consumption, % y-o-y

2009

2010

2011

2012

2013

2014

24,393.0

24,993.4

26,370.0

27,150.0

27,510.0

28,150.0

0.1

2.5

5.5

3.0

1.3

2.3

19,000.0

19,150.0

19,400.0

19,700.0

20,800.0

21,380.0

-2.1

0.8

1.3

1.5

5.6

2.8

Source: USDA, BMI

Risks To Outlook

In the short term, we see downside risks to our 2015/16 production forecast, due to the return of El Niño in
2015. Various meteorologist departments around the world have announced that El Niño has emerged in
2015 and forecast a moderate-to-strong event that will last through the year. Although the link between the
onset of El Niño and the actual materialisation of adverse growing weather (dryness in South and South
East Asia including in Vietnam) does not always hold, the weather phenomenon poses clear downside risks
to production in Vietnam.

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Vietnam Agribusiness Report Q3 2015

Dairy Outlook
BMI Supply View: We hold a positive outlook on Vietnam's dairy sector and expect it to maintain its
strong growth momentum on the back of a growing customer base, low milk consumption per capita, rising
disposable incomes and increasing health awareness among consumers. Distribution networks are
expanding, and dairy producers are launching aggressive advertising campaigns. Since the opening up of
the economy in 1986, there have been considerable changes 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.

Recent investment in the sector, with the development of milk farms and dairy farms, has boosted the
medium-term outlook. Production grew by 11.5% annually in the past five seasons. Production will
maintain strong growth in 2014/15, of 10.2%, reaching 540,500 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.
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. The
continued pace of investment will help production growth remain robust in the coming years: we see liquid
milk output growing by 10.2% annually between 2013/14 and 2018/19, reaching 796,000 tonnes.

BMI Demand View: Vietnamese dairy consumption has expanded significantly in the last 15 years, driven
by rising incomes, the emergence of the middle class, improving diets, high birth rates and young
populations. Per capita milk consumption in Vietnam more than doubled between 2000 and 2012 to 12kg
per person per year. Despite this increase, 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 2019. Strong
economic growth will filter through into rising disposable incomes, pushing up demand for non-essential
foodstuffs. The boom in convenience and mass retail stores in the country will also support access to dairy
products and incentivise demand. Retail sales done via mass grocery retailers remain low in Vietnam:
households still go to independent grocery shops for 85% of their retail shopping, compared with 80% in

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