1. FUTURE FARMINGAnalysis of the Food Sector in Vietnam -Opportunities for Victorian ExportersJune 2009
2. If you would like to receive this publication in an accessible format(such as large print or audio) please call the Customer Service Centreon: 136 186.Published by the Victorian Government, Department of PrimaryIndustries. June 2009Also published on www.dpi.vic.gov.au/agribusiness© The State of Victoria Department of Primary Industries 2009This publication is copyright. No part may be reproduced by anyprocess except in accordance with the provisions of the CopyrightAct 1968.Authorised by the Victorian Government, 1 Spring Street,Melbourne, Victoria 3000, AustraliaISBN 978-1-74217-551-5 (print)ISBN 978-1-74217-552-2 (online)DisclaimerThis publication may be of assistance to you but the State of Victoriaand its employees do not guarantee that the publication is without flawof any kind or is wholly appropriate for your particular purposes andtherefore disclaims all liability for any error, loss or other consequencewhich may arise from you relying on any information in this publication.For more information about DPI visit www.dpi.vic.gov.au or call theCustomer Service Centre on 136 186Cover picture: Binh Thanh Market. Ho Chi Minh CityFor more information visit the website at www.dpi.vic.gov.au orcontact the DPI Customer Service Centre 136 186.Produced by: Agribusiness Group Department of Primary Industries 1 Spring Street PO Box 4440 Melbourne Victoria 3001Author: Bryan Balmer Manager Market Development Thailand & Indo China, International Market Development DPI Agribusiness GroupEditors: Kate Linden, John Naughtin, Fiona Culley, Clare Balmer
3. Executive Summary 1The growth in the Vietnamese food sector and the increase intrade liberalisation provides a significant market opportunity forAustralian food companies.Vietnam has enjoyed strong growth in its economy, has an Of all the Australian states, Victoria is the largestincreasing demand for imported foods and is a major tourist agrifood exporter to Vietnam and this trade is dominateddestination. In addition, its own food manufacturing sector by commodities to be used in the Vietnamese food-is growing and becoming a significant user of imported manufacturing sector. Dairy products such as skim milkfood ingredients. There are more affluent consumers with powder is reconstituted into drinking milk, wheat is milleddisposable income and a cultural predisposition to spend it into flour for the bakery industry and malt barley is usedon food in the large urban centers of Ho Chi Minh City, Hanoi, in the brewing industry. There is however, an increasingDanang, Hai Phong and Can Tho. Such expenditure is made demand for higher value chilled, frozen and grocery products.either by dining out or by purchasing from supermarkets and For example, the Vietnamese enjoy red meats and henceother retail outlets. beef meat and offal find a ready market; whilst Australian wine is well represented in the market there is a significantIn November 2006, Vietnam became a member of the World opportunity to expand this sector.Trade Organisation (WTO), which required the country toreduce its trade and investment barriers including, tariffs, However, like any emerging market, one of the keysubsidies, non-tariff barriers (NTB’s), investment restrictions challenges is managing the supply chain, understandingand improve recognition of intellectual property rights (IPR). the import requirements and ensuring the product can beThis has established a very strong framework for countries to delivered to the customer and/or consumer. Vietnam is notrade with Vietnam. different to many other parts of the developing world in having a fragmented, non-transparent and often corrupt supplyThe Vietnamese food retail sector continues to grow chain, which presents significant risks to exporters. Much ofrapidly. Local companies such as Saigon Co-op, Citimart this risk can be avoided by the appointment of a reputableand Maximart have pioneered modern retail, however importer/agent who becomes a partner in the transactionsthe entrance of Metro and Casino have introduced retail that take place.expertise that is dramatically modernizing food retailing.Close neighbor, Thailand, experienced a similar awakeningin 1997 when, during the South East Asian financial crisis,large European retailers such as Casino, Royal Ahold, Tescoand Carrefour entered the market and rapidly expanded themodern retail sector.There are over 300,000 Vietnamese (Viet kieu) in Australia,many who moved as refugees or family reunion programs.There are a sizable number of these people now returningto the main cities of Vietnam and, using their entrepreneurialskills, are keen to build businesses that use Australianproducts.The number of tariff reductions and other market reforms inmost of the sectors of importance to Australia have increasedin the last five years. However within the next five years theywill become even more significant and have the potential todrive strong increases in trade.Australia has a number of strategic and logistical advantagesover its closest Western competitors; the United States ofAmerica (USA) and Europe. Shipping times are much shorterfrom Australia, which reduces transport costs and allowsaccess to the fresh chilled markets for products such as fruit,meat and seafood.
5. Contents 3Country Overview 4Brief recent history 5Country Details 5The Vietnamese Business Environment 7Vietnam’s Significant Trade Agreements 7Food Trade between Vietnam and Australia 7Market Access and Regulatory Framework 8Competition for Australia in the Vietnamese Market 8Food Retailing 9Food Retailing Structure 9Major Food Retailers 9Food Service 10Food Manufacturing 10Australian & Victorian Food Exports to Vietnam 11Overall Performance 11Commodity Performance 11Supply Chain and Logistics 12Capturing Future Opportunities 14References 15Useful Websites 15Abbreviations 16List of figures and tablesFigure 1. Map of Vietnam 4Figure 2. Vietnam’s Retail Market Share – Grocery Distribution 2008 9Figure 3. Victorian Food Exports to Vietnam by Industry, 2004-2008 11Figure 4. Supply Chain Channels 12
6. Country Overview4 Vietnam is the most eastern country in the region referred to as Indo China. Other countries include Thailand, Cambodia, Laos and Myanmar. Vietnam is an important part of the Mekong Region. It has a total area of 327,000 sq km, making Vietnam slightly larger than Italy. Vietnam has 3,000 km of coastline and 4,000 km of land borders – 2,000 km shared with Laos, 1,000 km with China and 1,000 km with Cambodia. The Mekong River that flows from China then through Laos, Thailand, Cambodia and Vietnam dominates the geography and the economy of the whole region. Vietnam’s two significant cities – Hanoi and Ho Chi Minh City (HCMC), are each located on a major river delta in the north and south of the country. In the north, the political capital Hanoi is on the Red River and in the south, the commercial capital HCMC is on the Mekong River. Both rivers support the agricultural production of the country. Between these two cities is the long Vietnamese coastline where local and international tourists visit to enjoy the spectacular scenery of the islands and beaches on the South China Sea. These locations are quickly gaining popularity and the associated food service industry is experiencing increased demand. Vietnam’s population of 83.8 million is the largest in the region. The people are predominately Buddhist but there is a significant percentage of Catholics (8% to 10%), which is unusual in Asia. Australia is building a strong presence in Vietnam. Over the past 10 years companies such Telstra, Toll, Royal Melbourne Institute of Technology (RMIT), ANZ Bank, Bluescope and Leightons have commenced operations in Vietnam. The Australian Government contributed AU$90 million to the construction of the My Thuan Bridge located in the Mekong Delta, which was opened in 2000. Many connections between Vietnam and Australia, and Vietnam and the United States of America (USA), are based on family history. There are over 300,000 overseas Vietnamese (Viet kieu) in Australia many who came as refugees or on family reunion programs. There are a sizable number of these people now returning to the main cities and using their entrepreneurial skills to build businesses that use Australian products. Figure 1. Map of Vietnam Source: CIA
7. 5Brief recent historyVietnam has a very rich and interesting history. This historyhas had a profound effect on the Vietnamese way of life andbusiness practices.The Vietnam war is well known to most people but for athousand years prior to that event the country had beencolonized by the Chinese, the Khmers and the Mongols.• From 1847 until 1954 Vietnam was a colony of France.• 1950 and 60s - Civil war between North and South Vietnam. South Vietnam had significant support from the USA and Australia.• 1970s North Vietnam was successful in their aim to reunify under a communist government. This victory ended over 120 years of foreign rule. Many South Vietnamese exited the country as refugees to Australia and the USA.• 1980s – The Vietnamese government continued to maintain strong central marketing controls, however in December 1986 there was a significant change in business when the government allowed limited private Country Details enterprise. This policy was referred to as the “doi moi” Natural Resources policy (‘renovation’ – the Vietnamese version of the Minerals: coal, iron, aluminum, tin and oil. Russian ‘perestroika’). Family business became popular and the skilled entrepreneurs of the South began to transform Vietnam from a central government control Agricultural and forestry products entity to a free market economy. Rice, maize, sweet potatoes, peanuts, soya beans, rubber,• 1990s – Vietnam became part of the Asian economic lacquer, coffee, tea, tobacco, cotton, coconut, sugar cane, boom. The change from an agricultural economy to an jute and tropical and subtropical fruits are all produced, many industrial economy commenced. Service and tertiary of which are exported. industries employed more people. Vietnam was affected • Vietnam is the third largest rice exporter in the world and by the Asian crash of the late 1990s and Vietnam joined most of this production occurs in the Mekong River Delta the Association of South East Asian Nations (ASEAN) in in the south and some in the Red River Delta in the north. 1995. • Coffee, rubber and tea plantations occur in the Central• 2000s – October 2001 Vietnam and the USA signed a Highlands and North East and fruit production occurs in bilateral trade agreement and gained lower tariffs on the North East and Mekong River Delta. its goods (average decline of 40% to 4%) and the USA Agriculture is declining as a percentage of GDP, as in all gained access to various sectors previously under State developing economies, but still employs over 80% of the control. In November 2006, Vietnam became a member population. of the World Trade Organisation (WTO) and this required the country to reduce its trade and investment barriers including, tariffs, subsidies, non-tariff barriers (NTB’s), investment restrictions and improve recognition of intellectual property rights.
8. 6 Climate Economic development Vietnam is essentially a tropical country with a humid Vietnam’s strong economic growth is attracting a lot of monsoon climate. The average annual temperature is over attention in the region. In 2004, exports increased by 30% 20°C throughout the country. and imports grew by 25%. Tourism is growing at about 30% per annum. The country’s strengths are its skilled and Lowland areas receive around 1,500mm of rain per year, youthful work force (34% of the population is below 15 years while mountainous areas receive up to 3,000mm with old) and its entrepreneurial focus. humidity reaching up to 90% in the rainy season. Foreign Direct Investment (FDI) increased by 37% in 2006, South Vietnam has two seasons: cool and dry from November largest of these investors were from Singapore, Taiwan, to April and hot and rainy from May to October with seasonal Japan and Hong Kong. Most of this FDI is in industry variations in temperature averaging just 3°C. North Vietnam development and construction, in particular hotels, tourism, has four distinct seasons similar to that of temperate climates. offices and apartment buildings. Population However, economic development has not been equally shared across the country. HCMC (population 7 million) has Vietnam’s population in 2007 was 85.6 million, the largest in growth in excess of 11% delivering a Gross Domestic Product the South East Asian region. At the end of the Vietnam War (GDP) per person of US$1,500 against the national average the population grew so quickly the government issued a of US$540. The majority of the Vietnamese population is still two-child-only directive. This stabilised the growth for a rurally based and in many cases are subsistence farmers. decade but after the directive was lifted the population grew by 6% between 2004 and 2005 and the government now expects the population to reach 100 million by 2024. Literacy Vietnam has a literacy rate of 94%, which is very high for a Ethnic groups developing country. There are 54 ethnic groups living in Vietnam. The Viet or Kinh people account for 88% of the population and are mostly concentrated in the lowlands. In contrast, most of the 5.5 million ethnic minority peoples live in the mountainous areas. Religions Major spiritual influences in Vietnam include Buddhism, Confucianism, and Ancestor Worship. Christianity arrived in the late 18th century and is now the second major religion following Buddhism. Other religions practiced include Islam and Cao Dai with concentrations in the South. Vietnamese languages and scripts More than 80% of the population speaks Vietnamese or Kinh/ Viet, the national language. European missionaries in the 17th century developed Quoc Ngu, the Romanized transcription of the Vietnamese language. This form is still used.
9. The Vietnamese Business Environment 7Following the example set by the Union of Soviet Socialist Agreements with Australia:Republics (USSR) in 1986 the Vietnamese government • May 2004 - Vietnam agreed to accord Australian winesmoved from a centrally controlled economy to a more outward and spirits the same tariff and customs treatment thatmarket focus (‘Doi Moi, economic restructuring or reform) applies to EU wines and sprits.and in November 2006 Vietnam became a member of theWTO. To enable its entry to the WTO, Vietnam was required • December 2004 - Vietnam agreed to extend Mostto reduce its trade and investment barriers including, tariffs, Favoured Nation status to Australia in relation to thesubsidies, non-tariff barriers (NTB’s), investment restrictions reduction in tariffs on grapes, citrus, apples, pears, fruitand intellectual property rights (IPR). Whilst this improved the juices, cheese and a range of vegetables and oils, cerealtrading environment and increased demand for imports, the flours and meat products.import procedures remain complex and this inhibits trade. • March 2006 - Australia and Vietnam signed a BilateralVietnam has experienced increasing pressure from its trading Relationship on Economic Trade in Goods and Services.partners to further ease restrictions and they have signed Food products included in the agreement are dairytrading agreements with countries including the USA, ASEAN products, sugar, wheat flour, confectionery and fruit.and Australia, demonstrating their willingness to lift tariffs Services such as banking, education, environment andand non tariff barriers including quotas, special licensing and mining will provide trade opportunities for Australianproduct restrictions. In June 2004 Vietnam agreed to reduce companies.tariffs on the importation of Australian wine and spirits in • The ASEAN Australia New Zealand FTA (AANZFTA)line with tariff reductions given to wines and spirits from the signed in April 2009 provides for the progressiveEuropean Union (EU). reduction or elimination of tarrifs for most AustralianIn relation to their largest neighbor - China, Vietnam has products exported. Where there are existing bilateraltaken a very cautious approach to trade liberalisation. China agreements (as listed above) AANZFTA provides noand Vietnam have fought many battles over borders, with direct benefit, however in the remaining sectors long termChina previously occupying parts of Northern Vietnam. On improvements in trade and access conditions will apply.the other hand, China has won the respect of the Vietnamesefor developing a strong market economy within a countrycontrolled by the communist government. Food Trade between Vietnam and Australia Vietnamese customer and consumer confidence in WesternVietnam’s Significant Trade products is very high and Australian products are wellAgreements received in Vietnam. Australia is regarded as a modern,• In 1992, Vietnam signed a trade agreement with the EU. technologically advanced and friendly country located within Vietnam’s immediate sphere of interest.• The Common Effective Preferential Tariff (CEPT) was signed with ASEAN countries when Vietnam joined in Vietnam has continued to grow as a market for Victorian and 1995. ASEAN countries implemented a sliding scale Australian food products particularly in staple foods such as of tariffs and have agreed to enact zero tariff rates on milk powders and wheat. almost all imports by 2015. Vietnams retail and food service infrastructure and• Vietnam applied for WTO membership in 1995. distribution is growing quickly but is still well behind most of its South East Asian (SEA) neighbours, so too is the level• In 1998, Vietnam became a member of the Asia-Pacific of brand awareness. Therefore different products will face Economic Co-operation (APEC). different opportunities and challenges. However, now is• The US-Vietnam Bilateral Trade Agreement (BTA) came the time for Victorian companies to enter the market while into force in December 2001. This substantially reduced Vietnam is developing. In five years time it will be much more Vietnam tariffs on US goods. difficult.• Vietnam also joined regional integration clubs such as the ASEAN-China Free Trade Area (2002)• ASEAN-Japan Comprehensive Economic Partnership (2003)• In November 2006, Vietnam became a member of the WTO.
10. 8 Market Access and Regulatory Competition for Australia in the Framework Vietnamese Market Foreign restrictions Australian food companies are increasingly looking to Vietnam has historically discouraged Foreign Direct Vietnam as a market with significant potential to grow. Investment (FDI) in the food retail sector to protect its Australia has some natural advantages in supplying agrifood domestic companies and the traditional sector. Foreign products but other countries are also targeting Vietnam. companies that were approved by the Vietnamese Competitors to Australia include low cost countries such as government could only set up joint ventures in the country if China and India and other perceived higher quality product their holding was less than 50%. Metro Group was allowed to suppliers such as New Zealand (NZ), France, the EU and the establish a 100%-owned subsidiary because their business USA. focused on the wholesale sector. However, Metro is still Vietnamese importers perceive Australian products to be limited by various constraints. For example, whilst Metro high quality; therefore Australian suppliers do not have to deals with their suppliers directly, they do not have a license compete with goods from China and India on the low-end, to import products directly and therefore need to contract a low price segment. In addition Australian suppliers have third party logistics company. In addition, foreign enterprises the potential to be more responsive to market needs than cannot buy land in Vietnam, but have to obtain land use rights suppliers from France and USA due to the closer transport from the authorities. These restrictions have hampered the distances for both container trade and bulk trade. This factor development of a modern retail food sector in Vietnam. Denied is an advantage for commodities such as wheat or dairy foreign know-how and retail experience, local companies have goods given that many small to medium size Vietnamese been slow to adopt more modern retail methods. food processing operators prefer to buy in small amounts i.e. However, under pressure from its attempts to join the WTO by the container load. as well as other economic agreements, such as the Bilateral In the retail food market, Australian competitors are the USA, Trade Agreement with the USA, deregulation is now occurring. China, ASEAN countries and the local food industry. Most From 2004, restrictions began to disappear and joint ventures products from China and South East Asian countries enjoy between Vietnamese and overseas companies were allowed lower tariffs than Australian and USA products due to market and in October 2005, the government lifted the cap on foreign liberalization under ASEAN or specific bilateral agreements share holdings in local companies from 30% to 49%.
11. Food Retailing 9Modern food retailing in Vietnam is in a very early stage of Saigon Co-op, a local operation also operates a chain ofdevelopment. Only 25% of Vietnam’s population is classified superstores. Saigon Co-op is a State owned company withas urban and there are only two cities with a population around 40 stores. The company was very progressive inof over one million; Ho Chi Minh City (HCMC) and Hanoi. introducing modern grocery retailing formats into Vietnam,However, the urban population is expected to increase by and its stores are still amongst the most modern in thearound one million every year for the next 20 years. country.The grocery retail sector in Vietnam is still in its infancy. Retailsales indicators are very positive and grew by 19% in 2006, Supermarketshowever the sector is highly fragmented and there are few Citimart is the main supermarket operator, with a 20 outlets.major retailers. Traditional ‘Mom and Pop’ provision (small Citimart is expanding, but gave management of a numbergrocery) stores and wet markets are still the major source of its HCMC stores to the Dairy Farm company in mid-2006.of food for most Vietnamese. The first modern supermarkets These stores will be rebranded to Dairy Farm’s Wellcomeopened in the 1990s and were generally located in the more banner. Intimex is one of the largest chains in North Vietnam.urbanised centers of HCMC and Hanoi. Fivimart, with 20 outlets, is focused on HCMC.Foreign retailers such as the Metro Group and Casino areleading the change from traditional to modern retailing. Convenience StoresAlthough wholly foreign owned subsidiaries are not Given the large numbers and important role small ’Momauthorised in the retail sector under the Law on Foreign and Pop’ stores play in the market there is huge potential forInvestment significant liberalisation since 2004 has the development of a franchised convenience store chain.encouraged more international retailers to identify Vietnam as However, there is still a reticence from the Vietnamesea future location for expansion. consumer to use convenience stores and there are already a few major chains of note. Those that are present in the market tend to be located only in the major cities. Department Stores Parkson opened its first department store in the Saigon Tourist Trading Center in downtown HCMC in June 2005, with nine more to follow by 2010. The stores are intended to target middle and upper class customers. Cash & Carry Stores Germany’s Metro Group is present in the Cash & Carry sector and has plans to open more stores in Vietnam in the coming years. Although the Metro Group is one of the few foreign retailers allowed to currently trade in Vietnam, under current regulations it is not allowed to directly import commodities, therefore Metro needs to work with many local, and usually small, importers.Food Retailing Structure Major Food RetailersHypermarkets and Superstores Traditional tradeHypermarkets are expected to take some time to become 85%popular with Vietnamese consumers. Low rates of carownership, limited use of refrigerators and freezers,combined with the emphasis on fresh produce, mean thatthe Vietnamese tend to favour the local wet markets and‘Mom and Pop’ stores which they can visit easily every day.Assuming Vietnam follows the trend in other Asian countries,hypermarkets will become more important in the future. The Metrodevelopment will depend on foreign entrants and it is likely Group Saigon Citimartonly to be in the major cities of HCMC and Hanoi. 8% Co-op Casino 1% 4% 1%Superstores or small hypermarkets operate in HCMC and Maximark 1%Hanoi. The Casino group operates 20 Cora outlets in thecountry under franchise, with the stores owned in joint Figure 2. Vietnam’s Retail Market Share – Groceryventures with a local partner. Distribution 2008 Data source: Planet Retail (2008)
12. Food Service Food Manufacturing10 The food service sector in Vietnam includes hotels, restaurants, fast food outlets, airline catering and institutional catering such as hospitals and schools. Vietnam, like many other Asian countries, has a strong culture of eating out and consuming food with family and friends. Most business relationships also have a strong component of dining out and almost all business negotiations and meetings would involve hospitality around a meal. The vast majority of the restaurant sector is based on Vietnamese cuisine and the ingredients are sourced locally, but as the economy grows the opportunity for imported goods is also growing. The large numbers of Vietnamese war refugees returning home after extended stays in Canada, USA and Australia have developed more western style eating habits and are keen to dine out in western style restaurants. As a result there are a range of French, Italian, British and US style restaurants being established. At present western style fast food outlets are restricted to Kentucky Fried Chicken (KFC), but as the economy grows and barriers to entry are lifted it is likely other large multi- national fast food companies will target Vietnam. Companies such as McDonalds, Burger King and Starbucks have extensive experience in building businesses from scratch in developing counties such as China and India either by direct ownership, partnerships or franchising. This will introduce more western foods to the Vietnamese cuisine. Vietnam is also growing as a tourist destination both from travelers within Asia but increasingly from the West. Vietnam attracted 3.1 million foreign tourists in 2007, which is an increase of 15% from the previous year. This has encouraged the development of a large number of four and five star hotels with significant western menus available for travellers. This sector is expected to continue to grow and this will provide The Vietnamese food-manufacturing sector is growing rapidly significant opportunities for imported fresh, frozen and albeit off a low base. Unlike its neighbour Thailand, which grocery items including wine. has developed a large and growing food manufacturing sector based on domestic and export opportunities, it is very domestically focused in Vietnam. Relatively large volumes of dairy commodities (skim milk powder, whole milk powder, whey) are imported as ingredients for manufactured foods and/or to recombine for the production of whole milk. Similarly large volumes of wheat are imported for the production of flour for bakery and food production. Vietnam has a large brewing industry and imports malt barley for beer production. Like other parts of the food sector, food manufacturing is expected to grow in Vietnam, not only to take advantage of the opportunities in the country but also for export to other countries both within ASEAN, because of the tariff advantages, and to the rest of the world. As barriers to foreign ownership decline, multi-national food manufacturing companies will set up operations in Vietnam to take advantage of the low cost and skilled labour force and the access to other Asian markets.
13. Australian & Victorian Food Exports to Vietnam 11Overall PerformanceIn 2008 Australia’s food exports to Vietnam were valued at$370 million, an increase of 54% or $126 million from 2007.Vietnam is Australia’s 19th most valuable market for food,with the major exports in the grains and dairy sectors.Victoria is Australia’s largest State exporter of food productsto Vietnam accounting for 31% of all food exports fromAustralia.Commodity PerformanceGrain exports accounted for 47% (or $53 million) of Victoria’stotal food exports to Vietnam in 2008. Exports of un-roastedmalt accounted for 72% of grain exports, valued at $23million. Other high-value exports included ‘wheat (excludingdurum) and meslin, in containers (excluding bagged)’ valuedat $9 million.Dairy exports were the second most valuable category ofVictorian exports to Vietnam, representing 35% of totalsector exports (or $39 million) - a 49% increase from 2007.The most valuable dairy products exported from Victoria toVietnam were skim milk powder, unsweetened powdered fullcream milk, whey products and cheese.Beef, beef offal and sheep meat exports worth $7 millionwere shipped to Vietnam in 2008, an increase of 45% fromthe previous year.Fresh grapes were the only significant horticultural exportsfrom Victoria to Vietnam in 2008 with a value of $5 million.$AU million35302520151050 2004 2005 2006 2007 2008 Powdered milk and cream Malt Wheat Fresh or dried fruit Beef Other prepared meat products Whey products Sheep meatFigure 3. Victorian Food Exports to Vietnam by Industry, 2004-2008 ($AUD million) Source: GTIS (2008)
14. Supply Chain and Logistics12 A simplified view of the supply chain for products from These are all elements of the supply chain but the roles and Australia would include some or all of the following elements activities are not necessarily executed by different business or links, listed in order of progression from Victoria to entities i.e. one company may undertake a variety of roles. Vietnam; Typically, the supply chain has fewer business links than the nine steps listed above. • Grower - fruit grower, dairy farmer, beef or lamb producer There are advantages for different business combinations of • Packer/Manufacturer - abattoir, dairy factory, food the supply chain elements, depending on the variation of the manufacturer supply chain: • Exporter - fruit exporter, meat exporter, consolidator of • For instance, in the fruit industry it is common to have mixed loads companies that fulfill the roles of grower/packer/exporter • Freight forwarder and who arrange their own freight. In other cases, the • Shipping company - air or sea freight freight forwarding and shipping is combined in one company. Some companies have export operations • Importer - trading company, food manufacturer, airline in the supplying country and import operations in the caterer destination country. Often, the importing company, as well • Wholesaler - supplier to retail, food service, wet market, as sourcing the product from around the world, will also food carts act as a wholesaler. • Retailer - supermarket, hypermarket, wet market, food cart, mom-and-pop stores • Consumer - supermarket or fresh market shopper, hotel restaurant customer Supply Chain Channels Manufacturer Processor Grower Consolidator Exporter Importer Wholesaler Agent Modern Food Traditional Food retailer service retail manufacture Figure 4. Supply Chain Channels Source: DPI (2009)
15. 13• Modern retailing (‘Modern Trade’) is growing in Vietnam, creates additional opportunities. Wholesalers supply driven by emerging supermarket chains. There is the Traditional Trade, including wet markets and mom- increasing demand for imported products and traditionally and-pop shops, which continue to supply 70 to 80% of these were sourced from wholesalers and importers. In Vietnam’s fresh food market. Wholesalers have a much the last few years, however, there has been an emerging broader range of customers who are sometimes less trend for these modern trade retailers to source directly particular about consistency and they have more options from the foreign-source exporters and, in some cases, for the placement of a broad range of product. growers. In buying directly from Australian growers • For the Vietnamese supermarket, the local Importer/ and exporters, they feel they get better prices, more Wholesaler combination provides the advantage of consistent quality, increased shelf life, and increased food sourcing from all over the world and therefore being able security because they are more closely in touch with the to supply for the entire year. They have a wide range of source of supply. This also makes it easier for them to customers, including traditional trade, wet markets, mom- pre-order and commit to buying programs of major items and-pop stores, small restaurants, and street vendors such as grapes, pears, cherries, and beef. and therefore are able to source and sell a wider range• Although dealing directly with retailers may be an of qualities. Most supply is ‘just in time’ as many claim the advantage for both exporter and retailer, the importer/ process is easier to manage. Finally, these operations wholesaler route provides a different range of often do pre-packing and minor processing for their benefits. For the Australian grower/packer/exporter/ customers. manufacturer, using a Vietnamese importer/wholesaler
16. Capturing Future Opportunities14 Vietnam is an important export market for Australia and continues to grow in importance as the Vietnamese economy grows. Like its neighbours in South East Asia, Vietnam has seen the emergence of a local middle class with increased disposable income who are keen to try western cuisine. This, coupled with a large increase in tourist arrivals from within Asia and Western countries, has lead to a substantial increase in the demand for food ingredients and consumer goods. Currently, imported food products range from bulk commodity items (such as wheat, barley, skim milk powder and butter), to consumer products (such as meat products, fruit and grocery products), to high value-added products such as confectionary and wine. The demand for commodity items is expected to increase as the Vietnamese food-manufacturing sector continues to expand. Australia is well placed to be able to supply products not produced in the country such as milk powder and cereal Horticulture grains. Fruit is an important part of the Vietnamese diet and consumption of fresh fruits is high. Products such as apples, Specific opportunities exist for: pears, table grapes and cherries have become increasingly Grains popular in recent years. However cool chain issues hinder The export of cereals (wheat and wheat flour, malt and malt greater sales and most of the consumption takes place in flour, and cereal preparations for instant noodles, bakeries HCMC. Notwithstanding intense competition from Chile and and confectionery manufacturers) is the largest sector for South Africa, there is significant opportunity to expand this trade between Vietnam and Victoria. Given the demise of market for table grapes, citrus and cherries as cool chain the single desk in Australia and the consequent increased systems develop. competition in the market there is an increased focus on Meat and seafood Australia as a source of supply. Bakery products such as Meat consumption is rising in Vietnam and although the bread, cakes and pastries are an established part of urban main products are pork and poultry, beef consumption is also Vietnamese diets and as the economy develops their growing. Given the local beef industry is small and declining consumption is expected to increase further. this provides opportunities for imported product. Imports Dairy from Victoria have risen over 100% over the last four years. Vietnam is already an important market for dairy ingredients. To date the sales of these products have been to high-end The development of supermarkets and hypermarkets will outlets such as hotels and restaurants aimed at expatriates present opportunities for dairy consumer goods such as ice and wealthy locals, but supermarkets are now also retailing cream and cheese. Given the French influence in Vietnam’s high-end imported cuts. history, dairy products are well received and are associated Small amounts of abalone and crustaceans are exported to with healthy diets and longevity. Cool chain management is Vietnam, again to high-end food service outlets. still a major challenge but the situation is improving. Dairy cattle Beverages Vietnam has a small dairy industry for the supply of fresh Alcoholic beverage sales are a very fast growing sector milk. There is a ready market for dairy heifers and semen to in the Vietnam food market. Beer leads this growth due improve the genetic merit of the local cattle and to increase to local brewing capability (and hence the demand for numbers. There are a number of access issues that need Victoria’s malt barley) but whiskey is also very popular. to be resolved but if this can be achieved Vietnam could Wine is seen primarily as a luxury good but also a healthy become a significant market for Victorian dairy genetics. A product and sales are increasing. Victoria and Australia are number of Victorian exporters currently have orders for the well represented in the wine category but high import tariffs supply of cattle and semen but are unable to fulfill them due impede greater growth. these issues.
17. References Useful Websites 15• US-ASEAN Business Council 2006, The ASEAN Free • American Chamber of Commerce in Vietnam: Trade Area and other Areas of ASEAN Economic http://www.amchamhanoi.com/ Cooperation accessed November 14 2006 from http:// • Australian Chamber of Commerce in Vietnam: www.us-asean.org/afta.asp http://www.auschamvn.org/index.asp• Department of Primary Industries, Victorian Food and • APEC Tariff Database: Fibre report, 2008. http://www.apectariff.org/• United States Department of Agriculture (USDA), Foreign • Association of South East Asian Nations: Agricultural Service (2005) Vietnam Retail Food Sector http://www.aseansec.org/ 2005, GAIN Report VM5076 • Australian Quarantine and Inspection Service:• Vaile, M (Deputy Prime Minister for Australia, Australian www.aqis.gov.au Minister for Trade, Leader of the Nationals) 2006, Exports boost as Australia Signs WTO Deal with Vietnam, • Australian Trade Commission: media release MVT12/2006, 2 March 2006. http://www. www.austrade.gov.au trademinister.gov.au/releases/2006/mvt012_06.html • Australian Trade Commission Vietnam:• Travel to Vietnam 2006, My Thuan Bridge, accessed http://www.austrade.com.vn/english/home.asp November 2006 from http://www.traveltovietnam.com/ • Business Victoria: Guide/Cantho/attractions/MyThuan%20Bridge/default.asp www.export.vic.gov.au• Australian Government – Department of Foreign • Department of Foreign Affairs and Trade: Affairs and Trade 2006, Vietnam Economic and Trade www.dfat.gov.au information, accessed November 2006 from http://www. dfat.gov.au/geo/vietnam/index.html • Food Victoria: www.food.vic.gov.au• Australian Trade Commission Vietnam 2006, accessed November 2006 from http://www.austrade.com.vn/ • Travel to Vietnam: english/home.asp http://www.traveltovietnam.com/Guide/Cantho/attractions/ MyThuan%20Bridge/default.asp• Ashwill, M and Thai Ngoc Diep (2006), Vietnam Today A guide to a Nation at a Crossroads, Intercultural Press • United States Department of Agriculture: USA. 2005 www.usda.gov• Ray, N and Yanagihara, W (2006) Vietnam Lonely Planet • US Vietnam Trade Council: - 8th edition, accessed November 2006 from http://www. http://www.usvtc.org/ lonelyplanet.com/worldguide/destinations/asia/vietnam • Vietnam Business Forum:• ASEAN Economic Bulletin 2005, Vietnam’s trade http://www.vietnambusinessforum.org/overview.asp liberalization and international economic integration: • Victorian Department of Primary Industries: evolution, problems, and challenges accessed 13 August www.dpi.vic.gov.au/agribusiness 2006 from http://www.allbusiness.com/3471137-1.html • Vietnam News:• Planet Retail (2008) http://www.planetretail.net http://vietnamnews.vnagency.com.vn/
18. Abbreviations16 APEC Asia-Pacific Economic Co-operation HCMC Ho Chi Minh City, formally Saigon. ASEAN Association of South East Asian Nations IPR Intellectual Property Rights BTA The US-Vietnam Bilateral Trade Agreement MFN Most Favoured Nation CEPT Common Effective Preferential Tariff NTB Non Tariff Barrier EU European Union SEA South East Asia FDI Foreign Direct Investment WTO World Trade Organisation