04/12/2019 – Health / Trends / Whole Foods / US
Opportunities abound for F&B players eager to gain a foothold and add value in one of East Asia’s most dynamic emerging markets.
Vietnam’s shift over the past three decades from a centrally-planned to a market economy has transformed it from one of the world’s poorest nations into a lower middle-income country. Today home to 94 million people, Vietnam’s economic progress – especially over the past decade, having maintained a 6-7-per-cent annual GDP growth – has cultivated a vibrant domestic consumer market that continues to expand in line with national development ambitions. Indeed, while GDP per capita stood at US$2,400 in 2017, the country aspires to reach US$10,000 – to become an upper-middle income economy – by 2035. Such aspirations point towards a highly prospective market for food and beverage businesses that show the alacrity to grasp emerging opportunities across an array of segments.
Vietnam is today a leading producer and exporter of a variety of agricultural products, including rice, various fruits and vegetables, catfish, cashews, coffee, and pepper. And food processing volumes have been growing steadily – at an annual rate of seven per cent over the past five years – with food consumption rising by 9.4 per cent and beverage uptake growing by an annual average 6.7 per cent over that time. A young population, improving incomes, the increasing popularity of purchasing processed foods, and an abundance of raw material supplies are expected to edge Vietnam into the ranks as one of Asia’s most prospective developing F&B markets in the years ahead.
Dramatic dairy developments
Valued at US$4.1 billion alone, Vietnam’s dairy sector has experienced particularly strong growth in recent times, registering a CAGR of 16.6 per cent over the past five years. Key drivers for such impressive growth include increasing urbanisation, rising incomes and change in consumer eating habits. Average annual consumption today stands at 26 litres per capita, which is still low when compared with that of Thailand or Singapore, thus indicating continued good prospects for the sector’s development going forward.
Around 90 per cent of Vietnam’s diary market share currently resides with a handful of large national and international companies, including Vinamilk, Nestle Vietnam, Friesland Campina, Nutifood Binh Duong, Quang Ngai sugar company, and IDP.
With Vietnamese consumers increasingly focused on health, hygiene and food safety, this is translating into increased sales for safe and environmentally friendly produce. In response, local dairy giant Vinamilk launched the country’s first organic milk product line in 2016, with TH milk and Friesland Campina following suit with their own organic brands for the Vietnamese market.
According to Vinamilk, local supply can only meet 30 per cent of raw milk material requirements for dairy product processing, while the remainder has to be imported.
On average over the past eight years, Vietnam has annually spent more than US$800 million on importing milk products. New Zealand, South East Asia and the EU (Germany, Netherlands, France, Poland, Spain, Belgium, Denmark) are key exporters, with increase import value recently observed from the USA and Singapore too.
Alongside such activity, Vietnam’s dairy product exports (predominantly yogurt) racked up a value of more than US$300 million in 2017.
Meat sector: Porcine peril
In terms of sales volumes, pork accounts for the largest portion of the meat sector in Vietnam, and overwhelmingly so – 2.64 million tons, in contrast to the next most popular meat, poultry (one million tons), while beef and veal account for 321,000 tons, and lamb and goat sales volumes weigh in at just 25,000 tons.
Detected in Vietnam in early 2019, African Swine Fever (ASF) has severely impacted Vietnam’s pork industry, which engages around 2.4 million household farms and roughly 10,000 industrial farms. By August, all but one of the country’s 63 provinces had confirmed the outbreak, resulting in the culling of more than three million pigs (around 12 per cent of the country’s total heads).
Poultry is registering the highest growth performance across the meat industry – rising seven per cent annually – and this trend is likely to have been strengthened following the ASF outbreak. Meanwhile, the import of pork (often at lower prices) is another strengthening trend in light of ASF.
Fish – net exports
Fish processing is today widely viewed as one of the pillars of economic development in Vietnam, and with good reason: The segment generated an export value of US$9 billion last year, making it the fourth biggest export earner after garment, footwear and crude oil.
At the same time, fish imports last year came in at US$1.72 billion – an impressive 20-per-cent year-on-year rise. India is currently the biggest exporter of fish products to Vietnam (20 per cent), followed by Norway (10.4 per cent), South East Asia (8.8 per cent), China and Japan. Raw materials destined for further processing make up the lion’s share of these fish imports, with shrimp and tuna accounting for the majority (34 per cent and 20 per cent, respectively).
The latest FAO statistics show that fish consumption in Vietnam came in at 31–32kg per capita per year, although this is expected to be closer to 44kg in 2020. This forecasted rise has prompted processing companies to pay more attention to the domestic market. At the same time, many companies are investing in processing new products for high-end markets.
Under a strategy to restructure the aquatic sector by 2020, Vietnam will reduce facilities for semi-processed products while encouraging the application of modern technologies to improve quality. The country aims to increase the proportion of instant and high added value products to 60–70 per cent, as the sector strives to meet the demands of various markets.
Fruit and veg – rapid growth
Horticulture production and processing is considered the most prospective subsector of Vietnamese agriculture. Growth in fruit and vegetable exports has been highly impressive in recent years – a dramatic 32.7-per-cent CAGR rise from 2011–2016 and a 43-per-cent increase in 2017 compared with 2016 figures. Fruit exports account for over three-quarters of the haul, while fruit and veg exports combined were valued at US$3.8 billion in 2018 and reached 150 countries worldwide.
Concurrently, Vietnam imports a large amount of fruits and vegetables – predominantly from 12 main markets. Whilst China has historically been the biggest exporting market to Vietnam, Thailand recently surpassed the Asian powerhouse. Combined, Thailand and China account for around 65 per cent of the import value of fruits and veg today, while other significant (and strengthening) importers in this segment include the USA, Australia, Korea and India.
Beverages – Thirst for expansion
With a forecasted average annual growth rate of around six per cent and with consumption estimated to reach 109 billion litres in 2020, the beverage industry in Vietnam is amongst the fastest expanding FMCG industries.
In particular, Vietnam’s beer sector is considered to have immense opportunities for investment. Placing it amongst Asia’s top 10 markets, the country’s beer consumption is expected to reach 42 litres/ capita next year, despite a relatively humble CAGR of 3.5 per cent. Opportunity abounds also in both the wine and spirits and the non-alcoholic drinks sectors, which are forecasted to achieve CAGRs of 8 per cent and 6.1 per cent, respectively.
Beyond that, Vietnamese consumers are considered to be the most health-conscious in South East Asia – and that knowledge should prompt manufacturers to start rethinking their market offerings and recalibrating towards a healthier product portfolio, such as fruit juices or herbal teas.
Access all areas
Vietnam’s food industry will expand by up to 52 per cent over the next five years, according to UBM Asia estimates, offering immense opportunity for fresh market penetration and growth.
Posing high competitiveness in manufacturing, new investments in Vietnam’s agri-food sector are not only looking to tap into local markets but will also undoubtedly be keen to exploit the country’s considerable strategic advantages in terms of its favourable regional and international market alignment. This comes in no small part courtesy of a flurry of free trade agreements (FTAs). By July this year, for example, Vietnam was engaged in 26 FTAs – 12 of which had been signed and are in effect, one having been signed but inactivated, with three FTAs currently under negotiation. Compare that to Thailand – Vietnam’s top rival in the ASEAN region when it comes to exporting agri-food products – a country which, unlike Vietnam, that has yet to reach an FTA with the EU, and is currently not a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the third largest free-trade area in the world after NAFTA and the European Single Market. Such factors –together with the on-going US-China and more recent US-EU trade tensions – are clearly helping to bolster Vietnam’s standing as one of the world’s more lucrative investment spots and a strategic base from which to export agri-food products to the international market.