FUTURE FARMING

Analysis of the Food Sector in Vietnam - Opportunities for Victorian Exporters June 2009

If you would like to receive this publication in an accessible format (such as large print or audio) please call the Customer Service Centre on: 136 186.

Published by the Victorian Government, Department of Primary Industries. June 2009 Also published on www.dpi.vic.gov.au/agribusiness

© The State of Victoria Department of Primary Industries 2009

This publication is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968.

Authorised by the Victorian Government, 1 Spring Street, Melbourne, Victoria 3000, Australia

ISBN 978-1-74217-551-5 (print) ISBN 978-1-74217-552-2 (online)

Disclaimer This publication may be of assistance to you but the State of Victoria and its employees do not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication.

For more information about DPI visit www.dpi.vic.gov.au or call the Customer Service Centre on 136 186

Cover picture: Binh Thanh Market. Ho Chi Minh City

For more information visit the website at www.dpi.vic.gov.au or contact the DPI Customer Service Centre 136 186.

Produced by: Agribusiness GroupDepartment of Primary Industries 1 Spring Street PO Box 4440 Melbourne Victoria 3001

Author: Bryan BalmerManager Market Development Thailand & Indo China, International Market Development DPI Agribusiness Group

Editors: Kate Linden, John Naughtin, Fiona Culley, Clare Balmer

1

The growth in the Vietnamese food sector and the increase in trade liberalisation provides a significant market opportunity for Australian food companies.

Vietnam has enjoyed strong growth in its economy, has an increasing demand for imported foods and is a major tourist destination. In addition, its own food manufacturing sector is growing and becoming a significant user of imported food ingredients. There are more affluent consumers with disposable income and a cultural predisposition to spend it on food in the large urban centers of Ho Chi Minh City, Hanoi, Danang, Hai Phong and Can Tho. Such expenditure is made either by dining out or by purchasing from supermarkets and other retail outlets.

In November 2006, Vietnam became a member of the World Trade Organisation (WTO), which 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 (IPR). This has established a very strong framework for countries to trade with Vietnam.

The Vietnamese food retail sector continues to grow rapidly. Local companies such as Saigon Co-op, Citimart and Maximart have pioneered modern retail, however the entrance of Metro and Casino have introduced retail expertise that is dramatically modernizing food retailing. Close neighbor, Thailand, experienced a similar awakening in 1997 when, during the South East Asian financial crisis, large European retailers such as Casino, Royal Ahold, Tesco and Carrefour entered the market and rapidly expanded the modern 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 returning to the main cities of Vietnam and, using their entrepreneurial skills, are keen to build businesses that use Australian products.

The number of tariff reductions and other market reforms in most of the sectors of importance to Australia have increased in the last five years. However within the next five years they will become even more significant and have the potential to drive strong increases in trade.

Australia has a number of strategic and logistical advantages over its closest Western competitors; the United States of America (USA) and Europe. Shipping times are much shorter from Australia, which reduces transport costs and allows access to the fresh chilled markets for products such as fruit, meat and seafood.

Executive Summary

Of all the Australian states, Victoria is the largest agrifood exporter to Vietnam and this trade is dominated by commodities to be used in the Vietnamese food-manufacturing sector. Dairy products such as skim milk powder is reconstituted into drinking milk, wheat is milled into flour for the bakery industry and malt barley is used in the brewing industry. There is however, an increasing demand for higher value chilled, frozen and grocery products. For example, the Vietnamese enjoy red meats and hence beef meat and offal find a ready market; whilst Australian wine is well represented in the market there is a significant opportunity to expand this sector.

However, like any emerging market, one of the key challenges is managing the supply chain, understanding the import requirements and ensuring the product can be delivered to the customer and/or consumer. Vietnam is no different to many other parts of the developing world in having a fragmented, non-transparent and often corrupt supply chain, which presents significant risks to exporters. Much of this risk can be avoided by the appointment of a reputable importer/agent who becomes a partner in the transactions that take place.

22

3

Contents

Country Overview 4

Brief recent history 5

Country Details 5

The Vietnamese Business Environment 7

Vietnam’s Significant Trade Agreements 7

Food Trade between Vietnam and Australia 7

Market Access and Regulatory Framework 8

Competition for Australia in the Vietnamese Market 8

Food Retailing 9

Food Retailing Structure 9

Major Food Retailers 9

Food Service 10

Food Manufacturing 10

Australian & Victorian Food Exports to Vietnam 11

Overall Performance 11

Commodity Performance 11

Supply Chain and Logistics 12

Capturing Future Opportunities 14

References 15

Useful Websites 15

Abbreviations 16

List of figures and tables

Figure 1. Map of Vietnam 4

Figure 2. Vietnam’s Retail Market Share – Grocery Distribution 2008 9

Figure 3. Victorian Food Exports to Vietnam by Industry, 2004-2008 11

Figure 4. Supply Chain Channels 12

4

Country Overview

Figure 1. Map of Vietnam Source: CIA

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.

5

Brief recent history Vietnam has a very rich and interesting history. This history has had a profound effect on the Vietnamese way of life and business practices.

The Vietnam war is well known to most people but for a thousand years prior to that event the country had been colonized 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 enterprise. This policy was referred to as the “doi moi” policy (‘renovation’ – the Vietnamese version of the Russian ‘perestroika’). Family business became popular and the skilled entrepreneurs of the South began to transform Vietnam from a central government control entity to a free market economy.

• 1990s – Vietnam became part of the Asian economic boom. The change from an agricultural economy to an industrial economy commenced. Service and tertiary industries employed more people. Vietnam was affected by the Asian crash of the late 1990s and Vietnam joined the Association of South East Asian Nations (ASEAN) in 1995.

• 2000s – October 2001 Vietnam and the USA signed a bilateral trade agreement and gained lower tariffs on its goods (average decline of 40% to 4%) and the USA gained access to various sectors previously under State control. In November 2006, Vietnam became a member 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.

Country DetailsNatural Resources Minerals: coal, iron, aluminum, tin and oil.

Agricultural and forestry productsRice, maize, sweet potatoes, peanuts, soya beans, rubber, lacquer, coffee, tea, tobacco, cotton, coconut, sugar cane, jute and tropical and subtropical fruits are all produced, many of which are exported.

• Vietnam is the third largest rice exporter in the world and most of this production occurs in the Mekong River Delta in the south and some in the Red River Delta in the north.

• Coffee, rubber and tea plantations occur in the Central Highlands and North East and fruit production occurs in the North East and Mekong River Delta.

Agriculture is declining as a percentage of GDP, as in all developing economies, but still employs over 80% of the population.

6ClimateVietnam is essentially a tropical country with a humid monsoon climate. The average annual temperature is over 20°C throughout the country.

Lowland areas receive around 1,500mm of rain per year, while mountainous areas receive up to 3,000mm with humidity reaching up to 90% in the rainy season.

South Vietnam has two seasons: cool and dry from November to April and hot and rainy from May to October with seasonal variations in temperature averaging just 3°C. North Vietnam has four distinct seasons similar to that of temperate climates.

PopulationVietnam’s population in 2007 was 85.6 million, the largest in the South East Asian region. At the end of the Vietnam War the population grew so quickly the government issued a two-child-only directive. This stabilised the growth for a 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.

Ethnic groupsThere 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.

ReligionsMajor 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 scriptsMore 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.

Economic developmentVietnam’s strong economic growth is attracting a lot of attention in the region. In 2004, exports increased by 30% and imports grew by 25%. Tourism is growing at about 30% per annum. The country’s strengths are its skilled and youthful work force (34% of the population is below 15 years old) and its entrepreneurial focus.

Foreign Direct Investment (FDI) increased by 37% in 2006, largest of these investors were from Singapore, Taiwan, Japan and Hong Kong. Most of this FDI is in industry development and construction, in particular hotels, tourism, offices and apartment buildings.

However, economic development has not been equally shared across the country. HCMC (population 7 million) has growth in excess of 11% delivering a Gross Domestic Product (GDP) per person of US$1,500 against the national average of US$540. The majority of the Vietnamese population is still rurally based and in many cases are subsistence farmers.

LiteracyVietnam has a literacy rate of 94%, which is very high for a developing country.

7

The Vietnamese Business Environment

Following the example set by the Union of Soviet Socialist Republics (USSR) in 1986 the Vietnamese government moved from a centrally controlled economy to a more outward market focus (‘Doi Moi, economic restructuring or reform) and in November 2006 Vietnam became a member of the WTO. To enable its entry to the WTO, Vietnam was required to reduce its trade and investment barriers including, tariffs, subsidies, non-tariff barriers (NTB’s), investment restrictions and intellectual property rights (IPR). Whilst this improved the trading environment and increased demand for imports, the import procedures remain complex and this inhibits trade.

Vietnam has experienced increasing pressure from its trading partners to further ease restrictions and they have signed trading agreements with countries including the USA, ASEAN and Australia, demonstrating their willingness to lift tariffs and non tariff barriers including quotas, special licensing and product restrictions. In June 2004 Vietnam agreed to reduce tariffs on the importation of Australian wine and spirits in line with tariff reductions given to wines and spirits from the European Union (EU).

In relation to their largest neighbor - China, Vietnam has taken a very cautious approach to trade liberalisation. China and Vietnam have fought many battles over borders, with China previously occupying parts of Northern Vietnam. On the other hand, China has won the respect of the Vietnamese for developing a strong market economy within a country controlled by the communist government.

Vietnam’s Significant Trade Agreements • In 1992, Vietnam signed a trade agreement with the EU.

• The Common Effective Preferential Tariff (CEPT) was signed with ASEAN countries when Vietnam joined in 1995. ASEAN countries implemented a sliding scale of tariffs and have agreed to enact zero tariff rates on almost all imports by 2015.

• Vietnam applied for WTO membership in 1995.

• In 1998, Vietnam became a member of the Asia-Pacific Economic Co-operation (APEC).

• The US-Vietnam Bilateral Trade Agreement (BTA) came into force in December 2001. This substantially reduced Vietnam tariffs on US goods.

• 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.

Agreements with Australia:

• May 2004 - Vietnam agreed to accord Australian wines and spirits the same tariff and customs treatment that applies to EU wines and sprits.

• December 2004 - Vietnam agreed to extend Most Favoured Nation status to Australia in relation to the reduction in tariffs on grapes, citrus, apples, pears, fruit juices, cheese and a range of vegetables and oils, cereal flours and meat products.

• March 2006 - Australia and Vietnam signed a Bilateral Relationship on Economic Trade in Goods and Services. Food products included in the agreement are dairy products, sugar, wheat flour, confectionery and fruit. Services such as banking, education, environment and mining will provide trade opportunities for Australian companies.

• The ASEAN Australia New Zealand FTA (AANZFTA) signed in April 2009 provides for the progressive reduction or elimination of tarrifs for most Australian products exported. Where there are existing bilateral agreements (as listed above) AANZFTA provides no direct benefit, however in the remaining sectors long term improvements in trade and access conditions will apply.

Food Trade between Vietnam and AustraliaVietnamese customer and consumer confidence in Western products is very high and Australian products are well received in Vietnam. Australia is regarded as a modern, technologically advanced and friendly country located within Vietnam’s immediate sphere of interest.

Vietnam has continued to grow as a market for Victorian and Australian food products particularly in staple foods such as milk powders and wheat.

Vietnams retail and food service infrastructure and distribution is growing quickly but is still well behind most of its South East Asian (SEA) neighbours, so too is the level of brand awareness. Therefore different products will face different opportunities and challenges. However, now is the time for Victorian companies to enter the market while Vietnam is developing. In five years time it will be much more difficult.

8

Market Access and Regulatory Framework Foreign restrictionsVietnam has historically discouraged Foreign Direct Investment (FDI) in the food retail sector to protect its domestic companies and the traditional sector. Foreign companies that were approved by the Vietnamese government could only set up joint ventures in the country if their holding was less than 50%. Metro Group was allowed to establish a 100%-owned subsidiary because their business focused on the wholesale sector. However, Metro is still limited by various constraints. For example, whilst Metro deals with their suppliers directly, they do not have a license to import products directly and therefore need to contract a third party logistics company. In addition, foreign enterprises cannot buy land in Vietnam, but have to obtain land use rights from the authorities. These restrictions have hampered the development of a modern retail food sector in Vietnam. Denied foreign know-how and retail experience, local companies have been slow to adopt more modern retail methods.

However, under pressure from its attempts to join the WTO as well as other economic agreements, such as the Bilateral Trade Agreement with the USA, deregulation is now occurring. From 2004, restrictions began to disappear and joint ventures between Vietnamese and overseas companies were allowed and in October 2005, the government lifted the cap on foreign share holdings in local companies from 30% to 49%.

Competition for Australia in the Vietnamese Market Australian food companies are increasingly looking to Vietnam as a market with significant potential to grow. Australia has some natural advantages in supplying agrifood products but other countries are also targeting Vietnam. Competitors to Australia include low cost countries such as China and India and other perceived higher quality product suppliers such as New Zealand (NZ), France, the EU and the USA.

Vietnamese importers perceive Australian products to be high quality; therefore Australian suppliers do not have to compete with goods from China and India on the low-end, low price segment. In addition Australian suppliers have the potential to be more responsive to market needs than suppliers from France and USA due to the closer transport distances for both container trade and bulk trade. This factor is an advantage for commodities such as wheat or dairy goods given that many small to medium size Vietnamese food processing operators prefer to buy in small amounts i.e. by the container load.

In the retail food market, Australian competitors are the USA, China, ASEAN countries and the local food industry. Most products from China and South East Asian countries enjoy lower tariffs than Australian and USA products due to market liberalization under ASEAN or specific bilateral agreements

9Modern food retailing in Vietnam is in a very early stage of development. Only 25% of Vietnam’s population is classified as urban and there are only two cities with a population of over one million; Ho Chi Minh City (HCMC) and Hanoi. However, the urban population is expected to increase by around one million every year for the next 20 years.

The grocery retail sector in Vietnam is still in its infancy. Retail sales indicators are very positive and grew by 19% in 2006, however the sector is highly fragmented and there are few major retailers. Traditional ‘Mom and Pop’ provision (small grocery) stores and wet markets are still the major source of food for most Vietnamese. The first modern supermarkets opened in the 1990s and were generally located in the more urbanised centers of HCMC and Hanoi.

Foreign retailers such as the Metro Group and Casino are leading the change from traditional to modern retailing. Although wholly foreign owned subsidiaries are not authorised in the retail sector under the Law on Foreign Investment significant liberalisation since 2004 has encouraged more international retailers to identify Vietnam as a future location for expansion.

Saigon Co-op, a local operation also operates a chain of superstores. Saigon Co-op is a State owned company with around 40 stores. The company was very progressive in introducing modern grocery retailing formats into Vietnam, and its stores are still amongst the most modern in the country.

SupermarketsCitimart is the main supermarket operator, with a 20 outlets. Citimart is expanding, but gave management of a number of its HCMC stores to the Dairy Farm company in mid-2006. These stores will be rebranded to Dairy Farm’s Wellcome banner. Intimex is one of the largest chains in North Vietnam. Fivimart, with 20 outlets, is focused on HCMC.

Convenience StoresGiven the large numbers and important role small ’Mom and Pop’ stores play in the market there is huge potential for the development of a franchised convenience store chain. However, there is still a reticence from the Vietnamese 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 StoresParkson 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 StoresGermany’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.

Major Food Retailers

Food Retailing

Figure 2. Vietnam’s Retail Market Share – Grocery Distribution 2008 Data source: Planet Retail (2008)

Food Retailing Structure Hypermarkets and SuperstoresHypermarkets are expected to take some time to become popular with Vietnamese consumers. Low rates of car ownership, limited use of refrigerators and freezers, combined with the emphasis on fresh produce, mean that the 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 development will depend on foreign entrants and it is likely only to be in the major cities of HCMC and Hanoi.

Superstores or small hypermarkets operate in HCMC and Hanoi. The Casino group operates 20 Cora outlets in the country under franchise, with the stores owned in joint ventures with a local partner.

Metro Group

8%Saigon Co-op

4%Casino

1% Maximark 1%

Citimart 1%

Traditional trade 85%

10

Food Service

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 significant opportunities for imported fresh, frozen and grocery items including wine.

Food Manufacturing

The Vietnamese food-manufacturing sector is growing rapidly albeit off a low base. Unlike its neighbour Thailand, which 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.

11

Australian & Victorian Food Exports to Vietnam

Overall 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 products to Vietnam accounting for 31% of all food exports from Australia.

Commodity PerformanceGrain exports accounted for 47% (or $53 million) of Victoria’s total food exports to Vietnam in 2008. Exports of un-roasted malt accounted for 72% of grain exports, valued at $23 million. Other high-value exports included ‘wheat (excluding durum) and meslin, in containers (excluding bagged)’ valued at $9 million.

Dairy exports were the second most valuable category of Victorian exports to Vietnam, representing 35% of total sector exports (or $39 million) - a 49% increase from 2007. The most valuable dairy products exported from Victoria to Vietnam were skim milk powder, unsweetened powdered full cream milk, whey products and cheese.

Beef, beef offal and sheep meat exports worth $7 million were shipped to Vietnam in 2008, an increase of 45% from the previous year.

Fresh grapes were the only significant horticultural exports from Victoria to Vietnam in 2008 with a value of $5 million.

Figure 3. Victorian Food Exports to Vietnam by Industry, 2004-2008 ($AUD million) Source: GTIS (2008)

2004 2005 2006 2007 2008

35

30

25

20

15

10

5

0

$AU million

Sheep meatWhey productsOther prepared meat productsBeef

Fresh or dried fruitWheatMaltPowdered milk and cream

12

Supply Chain and Logistics

A simplified view of the supply chain for products from Australia would include some or all of the following elements or links, listed in order of progression from Victoria to Vietnam;

• Grower - fruit grower, dairy farmer, beef or lamb producer

• Packer/Manufacturer - abattoir, dairy factory, food manufacturer

• Exporter - fruit exporter, meat exporter, consolidator of mixed loads

• Freight forwarder

• Shipping company - air or sea freight

• Importer - trading company, food manufacturer, airline caterer

• Wholesaler - supplier to retail, food service, wet market, food carts

• Retailer - supermarket, hypermarket, wet market, food cart, mom-and-pop stores

• Consumer - supermarket or fresh market shopper, hotel restaurant customer

These are all elements of the supply chain but the roles and activities are not necessarily executed by different business entities i.e. one company may undertake a variety of roles. Typically, the supply chain has fewer business links than the nine steps listed above.

There are advantages for different business combinations of the supply chain elements, depending on the variation of the supply chain:

• For instance, in the fruit industry it is common to have companies that fulfill the roles of grower/packer/exporter and who arrange their own freight. In other cases, the freight forwarding and shipping is combined in one company. Some companies have export operations in the supplying country and import operations in the destination country. Often, the importing company, as well as sourcing the product from around the world, will also act as a wholesaler.

Figure 4. Supply Chain Channels Source: DPI (2009)

Supply Chain Channels

Importer

Manufacturer Processor

Grower

Consolidator Exporter

AgentWholesaler

Modern retailer

Food service

Traditional retail

Food manufacture

13• Modern retailing (‘Modern Trade’) is growing in Vietnam,

driven by emerging supermarket chains. There is increasing demand for imported products and traditionally these were sourced from wholesalers and importers. In the last few years, however, there has been an emerging trend for these modern trade retailers to source directly from the foreign-source exporters and, in some cases, growers. In buying directly from Australian growers and exporters, they feel they get better prices, more consistent quality, increased shelf life, and increased food security because they are more closely in touch with the source of supply. This also makes it easier for them to pre-order and commit to buying programs of major items such as grapes, pears, cherries, and beef.

• Although dealing directly with retailers may be an advantage for both exporter and retailer, the importer/wholesaler route provides a different range of benefits. For the Australian grower/packer/exporter/manufacturer, using a Vietnamese importer/wholesaler

creates additional opportunities. Wholesalers supply the Traditional Trade, including wet markets and mom-and-pop shops, which continue to supply 70 to 80% of Vietnam’s fresh food market. Wholesalers have a much broader range of customers who are sometimes less particular about consistency and they have more options for the placement of a broad range of product.

• For the Vietnamese supermarket, the local Importer/Wholesaler combination provides the advantage of sourcing from all over the world and therefore being able to supply for the entire year. They have a wide range of customers, including traditional trade, wet markets, mom-and-pop stores, small restaurants, and street vendors and therefore are able to source and sell a wider range of qualities. Most supply is ‘just in time’ as many claim the process is easier to manage. Finally, these operations often do pre-packing and minor processing for their customers.

14

Capturing Future Opportunities

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 grains.

Specific opportunities exist for:

Grains The export of cereals (wheat and wheat flour, malt and malt flour, and cereal preparations for instant noodles, bakeries and confectionery manufacturers) is the largest sector for trade between Vietnam and Victoria. Given the demise of the single desk in Australia and the consequent increased competition in the market there is an increased focus on Australia as a source of supply. Bakery products such as bread, cakes and pastries are an established part of urban Vietnamese diets and as the economy develops their consumption is expected to increase further.

Dairy Vietnam is already an important market for dairy ingredients. The development of supermarkets and hypermarkets will present opportunities for dairy consumer goods such as ice cream and cheese. Given the French influence in Vietnam’s history, dairy products are well received and are associated with healthy diets and longevity. Cool chain management is still a major challenge but the situation is improving.

Beverages Alcoholic beverage sales are a very fast growing sector in the Vietnam food market. Beer leads this growth due to local brewing capability (and hence the demand for Victoria’s malt barley) but whiskey is also very popular. Wine is seen primarily as a luxury good but also a healthy product and sales are increasing. Victoria and Australia are well represented in the wine category but high import tariffs impede greater growth.

Horticulture Fruit is an important part of the Vietnamese diet and consumption of fresh fruits is high. Products such as apples, pears, table grapes and cherries have become increasingly popular in recent years. However cool chain issues hinder greater sales and most of the consumption takes place in HCMC. Notwithstanding intense competition from Chile and South Africa, there is significant opportunity to expand this market for table grapes, citrus and cherries as cool chain systems develop.

Meat and seafood Meat consumption is rising in Vietnam and although the main products are pork and poultry, beef consumption is also growing. Given the local beef industry is small and declining this provides opportunities for imported product. Imports from Victoria have risen over 100% over the last four years. To date the sales of these products have been to high-end outlets such as hotels and restaurants aimed at expatriates and wealthy locals, but supermarkets are now also retailing high-end imported cuts.

Small amounts of abalone and crustaceans are exported to Vietnam, again to high-end food service outlets.

Dairy cattle Vietnam has a small dairy industry for the supply of fresh milk. There is a ready market for dairy heifers and semen to improve the genetic merit of the local cattle and to increase numbers. There are a number of access issues that need to be resolved but if this can be achieved Vietnam could become a significant market for Victorian dairy genetics. A number of Victorian exporters currently have orders for the supply of cattle and semen but are unable to fulfill them due these issues.

15

References

• US-ASEAN Business Council 2006, The ASEAN Free Trade Area and other Areas of ASEAN Economic Cooperation accessed November 14 2006 from http://www.us-asean.org/afta.asp

• Department of Primary Industries, Victorian Food and Fibre report, 2008.

• United States Department of Agriculture (USDA), Foreign Agricultural Service (2005) Vietnam Retail Food Sector 2005, GAIN Report VM5076

• Vaile, M (Deputy Prime Minister for Australia, Australian Minister for Trade, Leader of the Nationals) 2006, Exports boost as Australia Signs WTO Deal with Vietnam, media release MVT12/2006, 2 March 2006. http://www.trademinister.gov.au/releases/2006/mvt012_06.html

• Travel to Vietnam 2006, My Thuan Bridge, accessed November 2006 from http://www.traveltovietnam.com/Guide/Cantho/attractions/MyThuan%20Bridge/default.asp

• Australian Government – Department of Foreign Affairs and Trade 2006, Vietnam Economic and Trade information, accessed November 2006 from http://www.dfat.gov.au/geo/vietnam/index.html

• Australian Trade Commission Vietnam 2006, accessed November 2006 from http://www.austrade.com.vn/english/home.asp

• Ashwill, M and Thai Ngoc Diep (2006), Vietnam Today A guide to a Nation at a Crossroads, Intercultural Press USA. 2005

• Ray, N and Yanagihara, W (2006) Vietnam Lonely Planet - 8th edition, accessed November 2006 from http://www.lonelyplanet.com/worldguide/destinations/asia/vietnam

• ASEAN Economic Bulletin 2005, Vietnam’s trade liberalization and international economic integration: evolution, problems, and challenges accessed 13 August 2006 from http://www.allbusiness.com/3471137-1.html

• Planet Retail (2008) http://www.planetretail.net

Useful Websites

• American Chamber of Commerce in Vietnam: http://www.amchamhanoi.com/

• Australian Chamber of Commerce in Vietnam: http://www.auschamvn.org/index.asp

• APEC Tariff Database: http://www.apectariff.org/

• Association of South East Asian Nations: http://www.aseansec.org/

• Australian Quarantine and Inspection Service: www.aqis.gov.au

• Australian Trade Commission: www.austrade.gov.au

• Australian Trade Commission Vietnam: http://www.austrade.com.vn/english/home.asp

• Business Victoria: www.export.vic.gov.au

• Department of Foreign Affairs and Trade: www.dfat.gov.au

• Food Victoria: www.food.vic.gov.au

• Travel to Vietnam: http://www.traveltovietnam.com/Guide/Cantho/attractions/MyThuan%20Bridge/default.asp

• United States Department of Agriculture: www.usda.gov

• US Vietnam Trade Council: http://www.usvtc.org/

• Vietnam Business Forum: http://www.vietnambusinessforum.org/overview.asp

• Victorian Department of Primary Industries: www.dpi.vic.gov.au/agribusiness

• Vietnam News: http://vietnamnews.vnagency.com.vn/

16

Abbreviations

APEC Asia-Pacific Economic Co-operation

ASEAN Association of South East Asian Nations

BTA The US-Vietnam Bilateral Trade Agreement

CEPT Common Effective Preferential Tariff

EU European Union

FDI Foreign Direct Investment

HCMC Ho Chi Minh City, formally Saigon.

IPR Intellectual Property Rights

MFN Most Favoured Nation

NTB Non Tariff Barrier

SEA South East Asia

WTO World Trade Organisation