Vietnam agribusiness report q2 2016

Q2 2016
www.bmiresearch.com

VIETNAM
AGRIBUSINESS REPORT
INCLUDES 5-YEAR FORECASTS TO 2020

Published by:BMI Research


Vietnam Agribusiness Report Q2 2016
INCLUDES 5-YEAR FORECASTS TO 2020

Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: March 2016
ISSN: 1759-1740

BMI Research
Senator House
85 Queen Victoria Street
London
EC4V 4AB
United Kingdom
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:

© 2016 Business Monitor International Ltd
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copyrighted in the name of Business Monitor
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DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.


Vietnam Agribusiness Report Q2 2016
INCLUDES 5-YEAR FORECASTS TO 2020

Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: March 2016
ISSN: 1759-1740

BMI Research
Senator House
85 Queen Victoria Street

London
EC4V 4AB
United Kingdom
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:

© 2016 Business Monitor International Ltd
All rights reserved.
All information contained in this publication is
copyrighted in the name of Business Monitor
International Ltd, and as such no part of this
publication may be reproduced, repackaged,
redistributed, resold in whole or in any part, or used
in any form or by any means graphic, electronic or
mechanical, including photocopying, recording,
taping, or by information storage or retrieval, or by
any other means, without the express written consent
of the publisher.

DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.

Vietnam Agribusiness Report Q2 2016

CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................. 10
Agribusiness ........................................................................................................................................... 10

Industry Forecast .............................................................................................................. 12
Grains Outlook ....................................................................................................................................... 12
Table: Vietnam - Grains Production And Consumption Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table: Vietnam - Risks To Grains Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table: Corn Production & Consumption (Vietnam 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Rice Outlook ........................................................................................................................................... 17
Table: Vietnam - Rice Production And Consumption Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table: Vietnam - Risks To Rice Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table: Rice Production & Consumption (Vietnam 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Dairy Outlook ......................................................................................................................................... 22
Table: Vietnam - Dairy Production And Consumption Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Table: Vietnam - Risks To Dairy Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Table: Vietnam - Planned Investment In Milk Production Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Table: Dairy Production & Consumption (Vietnam 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Livestock Outlook .................................................................................................................................... 29
Table: Vietnam - Livestock Production And Consumption Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Table: Vietnam - Risks To Livestock Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Table: Livestock Production & Consumption (Vietnam 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Coffee Outlook ........................................................................................................................................ 35

Table: Vietnam - Coffee Production And Consumption Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Table: Vietnam - Risks To Coffee Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Table: Coffee Production & Consumption (Vietnam 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Commodities Price Analysis ............................................................................................. 42
Global - Global Commodities Strategy ......................................................................................................... 42
Table: Select Commodities - Performance And BMI Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Upstream Analysis ............................................................................................................ 44
Asia GM Outlook ..................................................................................................................................... 44
Table: Selected Countries - GM Crops Use (mn hectares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Asia Machinery Outlook ........................................................................................................................... 49
Table: Select Countries - Average Size Of Farms, Hectares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Asia Fertiliser Outlook ............................................................................................................................. 55

Downstream Analysis ....................................................................................................... 60
Food ..................................................................................................................................................... 60
Canned Food ........................................................................................................................................ 61
Confectionery ........................................................................................................................................ 62

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Vietnam Agribusiness Report Q2 2016
Pasta ................................................................................................................................................... 62
Dairy ................................................................................................................................................... 63

Regional Overview ............................................................................................................ 64
Table: Impact Of El Niño On Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Competitive Landscape .................................................................................................... 69
Table: Major Agribusiness Companies (USDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Demographic Forecast ..................................................................................................... 70
Table: Population Headline Indicators (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Table: Key Population Ratios (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Table: Population By Age Group (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Table: Population By Age Group % (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Methodology ...................................................................................................................... 75
Industry Forecast Methodology ................................................................................................................ 75
Sector-Specific Methodology .................................................................................................................... 76

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Vietnam Agribusiness Report Q2 2016

BMI Industry View
BMI View: Recent developments in the country's economic and business environments 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, 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 (2005-2020)
50

40

30

20

10

0
2005

2007
2006

2009
2008

2011
2010

2013e
2015e
2017f
2019f
2012
2014e
2016f
2018f
2020f

Grains market value, % of total
Livestock market value, % of total

Sugar market value, % of total
Milk market value, % of total

BMI Calculation/FAO

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Vietnam Agribusiness Report Q2 2016

Key Forecasts
■

Sugar consumption growth to 2020: 23.0% to 2.4mn tonnes. Rising income, population and growing

consumption of manufactured food products will help sugar consumption grow quickly in the coming
years. Domestic production growth will not be able to keep up with consumption expansion.

• Coffee production growth to 2019/20: 13.2% to 31.6mn 60kg bags. After more than a decade of strong
output growth, coffee production expansion will slow down in the coming years. Low coffee prices and
the attractiveness of alternative crops such as pepper will lead to a slowdown in new planted area growth.
• Milk production growth to 2019/20: 61.9% to 876,000 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.
• 2016 BMI universe agribusiness market value: USD44.1bn (up from USD43.4bn in 2015; growth
expected to average 3.3% annually between 2016 and 2019).
• 2016 real GDP growth: 6.6% (down from 6.7% expected in 2015; predicted to average 6.4% over
2015-2020).
• 2016 consumer price index: 2.1% y-o-y (up from 0.8% expected in 2015; predicted to average 4.3%
over 2015-2020).

Key Developments

Along with other Asian and African countries, Vietnam's agricultural sector is being affected by the return
of El Niño in 2015/16. Meteorologists believe that the phenomenon - which emerged in May 2015 - is
currently in its decreasing phase and should dissipate in Q316. However, El Niño has had a strong impact
on precipitation levels in South and South East Asia so far this season. In fact, after a period of dry weather
recorded in August-October 2015, Vietnam and its neighbours have had to face another dry episode since
January 2016, located around the Mekong river area. According to Vietnam's Ministry of Agriculture, in
March 2016 the water level of the Mekong River - the country's rice and fruit basket - was down to its
lowest level since 1926 during planting season for the key winter/spring rice crop.

Dry weather and the lack of water for irrigation, coupled with the ongoing government plan to switch
acreage from rice to corn production will make rice production decline for the first time since 2010/11 in

2015/16.

Looking at coffee production in the 2016/17 season, for which the harvest will start in September 2016, we
believe production growth will again be weak relative to the strong growth recorded until 2014. Apart from
the dry weather, farmers have to battle with low robusta prices. Some farmers with old coffee trees (which

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Vietnam Agribusiness Report Q2 2016

make up to a third of total acreage) are not replanting their land with coffee trees, switching instead to other
more profitable crops (especially pepper and fruits).

Improvement in Vietnam's economic activity in 2016 will help consumer spending increase after weak
demand in 2014 weighed on demand for value-added agricultural products, including dairy.

The stronger economic outlook, coupled with some reforms regarding foreign investment and State Owned
Enterprises are attracting a growing amount of domestic and foreign investors and reaffirm our bullish view
on the agribusiness sector. Vietnam is seeing a wave of private investment in its upstream (farming) and
downstream (dairy product manufacturing and distribution) dairy sector. The feed sector is also attracting
investors, with Cargill announcing in Q415 it will build two new feed mills in Vietnam, adding to the 10
the company already owns in the country.

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Vietnam Agribusiness Report Q2 2016

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.

■

There is little land available for further expansion, meaning future production growth
will mainly rely on yield growth.

■

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.

■

The improvement in trade openness (Trans-Pacific Partnership, ASEAN Economic
Community, EU-Vietnam free trade agreement, etc.) will help Vietnam's exports
increase in the coming years.

■

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 Q2 2016

SWOT Analysis - Continued
■

Vietnam's fast-growing population of more than 80mn and our forecast
for Vietnamese GDP per capita to grow rapidly will both offer a large and growing
market for agro-food products.

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
labour costs and competition for land use, threatening competitiveness and curtailing

further 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 Q2 2016

Industry Forecast
Grains Outlook
BMI View: Corn is one of Vietnam's most important food crops, along with rice. Production growth will
accelerate in the coming years, due to the ongoing government push to make rice farmers shift to the
cultivation of other grains, which they hope will help avoid paddy overproduction and develop local feed
output. However, the sector is encountering many challenges, including high production costs and high
post-harvest losses, and we believe Vietnam will continue to record a large deficit and growing corn
imports.

Latest Developments
■

Vietnam's Ministry of Agriculture and Rural Development (MARD) continues to incentivise rice farmers
to shift to the cultivation of other grains, including corn, in order to avoid paddy overproduction and to
develop local feed output. As such, corn plantings and production growth have been accelerating since

2014 and grew by a robust 6.0% y-o-y in 2014/15, compared with the 0.8% average growth recorded
over 2008/09-2012/13. Corn output expansion will remain strong in the ongoing 2015/16 season, growing
by 6.0% to 5.8mn tonnes.

■

We have revised up our corn consumption estimates due to the dynamism in the livestock and dairy
production sectors. We now see corn consumption reaching 9.7mn tonnes by 2020 (9.1mn tonnes
previously) compared with 7.2mn tonnes in 2015. Imports will continue to accelerate in the coming
years.

• The announcement in Q415 by Cargill that it will build a new feed mill in Vietnam confirms our positive
view on the country's feed and livestock sector and our view that local corn and soybean consumption
will grow at a robust pace in the coming years. The new USD30mn feed mill will have a total capacity of
260,000 tonnes per year and will become operational in 2017. Cargill currently has 10 animal feed mills
in Vietnam.

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Vietnam Agribusiness Report Q2 2016

Table: Vietnam - Grains Production And Consumption Outlook

Ave growth rate
2015/16-2019/20

Drivers

Corn production

5.7%

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. Yields will
also slowly grow, especially as robust local corn prices provide incentives to
farmers to invest more in crops (in fertilisers for example). As such, corn
production growth will accelerate. 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.

Corn
consumption

6.1%

Corn consumption almost doubled from 2005 to 2014 (partly due to low base
effects), and we expect demand to remain robust, with growth accelerating in
the coming years. The demand gains will mainly come from growth in the
livestock sector, as beef, veal and poultry production is expected to register
strong growth.

Trade

-

Corn production will expand at a slower pace than consumption and we see

Vietnam's corn production deficit to widen in the coming years. The country has
been importing increasing amounts of corn in recent years, with imports
averaging 2.5mn tonnes over the past three years. We forecast the deficit to
reach 2.5mn tonnes in 2020 compared with 1.7mn tonnes in 2015.

Source: BMI

Table: Vietnam - Risks To Grains Outlook

Period

Risks

Short term
(two-year
horizon)

Downside risk to production - Unseasonal weather.

Long term
(five-year
horizon)

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

Source: BMI

Structural Trends

Government's Plan To Boost Corn Production Leading To Lower Imports

Vietnam's Ministry of Agriculture and Rural Development (MARD) is implementing a programme for
shifting acreage from rice to other cash crops, with a focus on corn and soybean. The goal of the plan is to
avoid paddy overproduction, prevent downward pressure on rice prices and increase feed supply. The
ministry is supporting the change with a VND2mn/ha help for input costs (seeds, fertilisers, pesticides) and

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Vietnam Agribusiness Report Q2 2016

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.
Vietnam is already seeing the impact of the policy, as domestic corn production is accelerating. However,
consumption is expanding at a faster pace, which will keep imports on an uptrend.

A Greater Need For Feed

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. Beef,
poultry and pork meat production has been growing at a hefty 7.0% annually over the past 10 years,
supported by growing domestic demand for more protein.

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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Vietnam Agribusiness Report Q2 2016

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

Source: BMI, USDA, ITC

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.

Corn Production Push Insufficient To Supply Feed Demand

We believe that 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

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Vietnam Agribusiness Report Q2 2016

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.

Table: Corn Production & Consumption (Vietnam 2013-2020)

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

2013

2014

2015

2016f

2017f

2018f

2019f

2020f

4,780.0

5,150.0

5,460.0

5,787.6

6,105.9

6,460.1

6,815.4

7,210.7

2.8

7.7

6.0

6.0

5.5

5.8

5.5

5.8

6,450.0

6,800.0

7,200.0

7,668.0

8,128.1

8,615.8

9,132.7

9,680.7

7.5

5.4

5.9

6.5

6.0

6.0

6.0

6.0

f = BMI forecast. Source: USDA, BMI

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Vietnam Agribusiness Report Q2 2016

Rice Outlook
BMI View: Vietnam is and will remain a key grower and provider of rice in the world. However,
production growth is slowing down, due to the government's push to foster feed grain production and the
country's livestock sector.

Recent Developments
■

Vietnam's rice production stagnated on a y-o-y basis at around 28.2mn tonnes in the 2014/15 season
which ended in December 2015. Vietnam's Ministry of Agriculture and Rural Development (MARD) is
in the process of making rice farmers shift to cultivating other grain crops in order to avoid paddy
overproduction, prevent downward pressure on prices and increase feed supply. This policy is limiting
plantings. Moreover, Vietnam received low levels of rain and the Mekong river waters were low in 2015
as a result of El Niño. This kept yields at around 5.8tonne/ha, same than in 2013/14.

■

The El Niño-related episodes of dry weather recorded since H115 and the lack of water for irrigation,
coupled with the ongoing government plan to switch acreage from rice to corn production, will make rice
production decline for the first time since 2010/11 in 2015/16. We have revised down our rice production
forecast and now expect output to come in at 28.0mn tonnes, down 0.5% y-o-y.

■

Exports will be broadly in line with historical averages in 2015/16, at around 6.5-7.0mn tonnes. Although
Thailand make a big come back on international rice markets after its 2011-2014 Rice Pledging
Programme made its exports uncompetitive, Vietnam's rice remain quite competitive. China, Vietnam's
largest market, will see strong import growth in 2016.

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Vietnam Agribusiness Report Q2 2016

Table: Vietnam - Rice Production And Consumption Outlook

Ave growth rate
2015/16-2019/20

Drivers

Rice production

1.6%

Production growth will slow down significantly in the coming years due
to the government's push to foster feed grain production and the
country's livestock sector. However, Vietnam will remain a very large
producer of rice. Vietnamese rice is very competitive relative to many of
its regional peers and is well positioned to benefit from both regional and
global demand growth, especially when compared to many of Vietnam's
other agricultural sub-sectors. 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%, and this bolsters our outlook
for the country's rice production capabilities over the long term in spite
of the limits to cultivated area expansion.

Rice consumption

2.5%

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. Ultimately, demand growth will be influenced by
population growth, as per capita consumption is expected to remain
roughly the same while the population continues to diversify its diet on
the back of rising incomes.

Trade

-

Vietnam will remain one of the world's top rice exporters, competing with
Thailand for markets in China, South East Asia and Africa.

Source: BMI

Table: Vietnam - Risks To Rice Outlook

Period

Risks

Short term (twoyear horizon)

Downside risk to production - Unseasonal weather.

Long term (fiveyear horizon)

Upside risk to production - The government may drop its support to corn and soybean production,
which would lead to a reacceleration in rice production.

Source: BMI

Structural Trends

Slower Production Growth On Push To Corn Output

Vietnam's goal to incentivise feed grain production at the expense of rice will limit the growth of area under
rice cultivation in the coming years. As a result, we expect most the rice production growth will come from
yield improvements. Since 2013, the government has been trying to make rice farmers switch to corn and
soybean, proposing support of VND2mn per hectare (/ha) for input costs (seeds, fertilisers, pesticides) and

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Vietnam Agribusiness Report Q2 2016

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 government 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
(eg, from main rival Thailand) or rice at a lower price (eg, from 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.

Stiff Competition
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

Emphasis On Yields

In order to support rice production via the improvement in rice yields, in 2008, the government started
encouraging farmers to implement the Large Scale Farm model (between 50-100 ha), where farmers

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Vietnam Agribusiness Report Q2 2016

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 purchase directly most of the
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.

Remaining A Key Rice Exporter

Although rice production growth is slowing down significantly, Vietnam will remain a key rice exporter in
the coming years. However, international competition is fierce, amidst the return of Thailand on the export

market after its Rice Pledging Scheme led to a drop in Thai rice competitiveness. Secondary exporters
including Myanmar and Cambodia are also seeing their exports grow.

Back To Third Position
Select Countries - Rice Exports (% of total volume exported globally)

Source: USDA, BMI

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Vietnam Agribusiness Report Q2 2016

Table: Rice Production & Consumption (Vietnam 2013-2020)

2013
Rice production, '000 tonnes

2019f

2020f

27,510.0 28,150.0 28,160.0 28,019.2 28,635.6 29,208.3 29,792.5

30,418.1

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

1.3

2014

24,577.1

1.8

2.4

2.2

2018f

20,800.0 21,380.0 21,765.0 22,287.4 22,822.3 23,370.0 23,954.2
2.8

-0.5

2017f

2.1

5.6

0.0

2016f

2.0

Rice consumption, % y-o-y

2.3

2015

2.4

2.0

2.4

2.5

2.6

BMI Calculation/USDA

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Vietnam Agribusiness Report Q2 2016

Dairy Outlook
BMI View: We are positive on Vietnam's dairy sector, as we expect it to maintain high-growth momentum
due to a growing customer base, low milk consumption per capita, rising disposable income and increasing

health awareness among consumers. Milk production also has bright days ahead, amidst an investment
spree within local dairy companies to expand upstream capacity.

Latest Developments
■

Dairy companies operating in Vietnam - whether they import their products or manufacture them in
Vietnam - have been going through challenging times, amidst elevated input costs (milk powder prices),
slower domestic demand growth in 2014 for dairy, as well as stiffening domestic competition with
several new local entrants and the presence of many established international brands. Although the
situation has improved somewhat in 2015 as international milk powder prices have eased and
consumption is picking up, elevated competition and government price controls will limit profitability in
the coming quarters.

■

The ongoing improvement in Vietnam's economic activity, which started in 2015 and will continue in
2016, will help consumer spending increase this year after weak demand in 2014 weighed on dairy sales.

■

Several local companies, including Vinamilk and Hanoi Milk, are investing heavily in their upstream
capacity and are building several new dairy farms. As such, Vietnam's milk production growth will
accelerate in the coming years, growing by 10% in 2016.

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Table: Vietnam - Dairy Production And Consumption Outlook

Ave growth rate
2015/16-2019/20

Drivers

Milk production

10.1%

Milk production will accelerate significantly in the coming years, due to the
ongoing large public and private sector investments in dairy farms, which are part
of the effort to reduce the country's growing import dependency. Vietnam will see
the opening of several dairy farms in the coming years and a dramatic increase in
cattle numbers. 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, given the new investment in the sector,
expected to continue rising.

Milk
consumption

6.4%

Dairy consumption will also accelerate and exceed production growth in the
coming years, driven by rising incomes, population growth and the growth in a

modern retail supply chain. Intense competition between companies as well as
government policy will keep dairy products prices in check for now, which will
also favour demand.

Processed
products
consumption

Whole milk
powder: 5.1%

Demand for high-value dairy products will also be strong, driven by the rise of
India's young demography and growing urban middle class eager to try new
products. Butter and cheese consumption will grow at a faster rate as they come
from a low base. Controls over whole milk powder prices will support demand for
this product. Condensed milk and yoghurt are other highly popular dairy
products.

Butter: 7.4%
Cheese: 9.7%
Trade

-

Vietnam is a net importer of dairy products: it imports large quantities of milk
powder from New Zealand due to the absence of local milk production. Dairy
exports have started to pick up in recent years, along with Vinamilk's
internationalisation strategy. The company mainly exports to South East Asia and
the Middle East.

Source: BMI

Table: Vietnam - Risks To Dairy Outlook

Period

Risks

Downside risk to production - El Niño-related dry weather may limit dairy herd expansion
Short term (two-year horizon) (2015/16).
Downside risks to consumption - 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
Long term (five-year horizon) would further tarnish the image of dairy products in Vietnam.

Source: BMI

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Vietnam Agribusiness Report Q2 2016

Small Regional Importer
Select Countries - Dairy Imports (USDmn)

Note: The columns represent Vietnam's imports. Source: Trade Map, BMI

Structural Trends

Private Investment To Support Production Growth

Vietnam is seeing a wave of private investment in its upstream (farming) and downstream (dairy product
manufacturing and distribution) dairy sectors. Various domestic and international companies are developing
their brands and trying to enter the market. 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 companies in terms of investment.
After having invested heavily in downstream projects over recent years, Vinamilk is now aggressively
developing its upstream capacity and is building new dairy farms. Sourcing 60-70% of its needs from its
own farms (as Vinamilk plans to do by 2024) will help the company rely less on foreign raw materials, for
which prices are often volatile.

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