Analysis of the Food Sector in Vietnam Opportunities for Victorian Exporters

8/3/2019 Analysis of the Food Sector in Vietnam Opportunities for Victorian Exporters

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FUTURE FARMING

Analysis o the Food Sector in Vietnam -Opportunities or Victorian ExportersJune 2009


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Industries. June 2009

Also published on www.dpi.vic.gov.au/agribusiness

The State o Victoria Department o Primary Industries 2009

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Cover picture: Binh Thanh Market. Ho Chi Minh City

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contact the DPI Customer Service Centre 136 186.

Produced by: Agribusiness Group

Department o Primary Industries

1 Spring Street

PO Box 4440

Melbourne

Victoria 3001

Author: Bryan Balmer

Manager Market Development Thailand & Indo

China, International Market Development

DPI Agribusiness Group

Editors: Kate Linden, John Naughtin, Fiona Culley,

Clare Balmer


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The growth in the Vietnamese ood sector and the increase intrade liberalisation provides a signifcant market opportunity orAustralian ood companies.

Vietnam has enjoyed strong growth in its economy, has anincreasing demand or imported oods and is a major touristdestination. In addition, its own ood manuacturing sectoris growing and becoming a signifcant user o imported

ood ingredients. There are more auent consumers withdisposable income and a cultural predisposition to spend iton ood in the large urban centers o Ho Chi Minh City, Hanoi,Danang, Hai Phong and Can Tho. Such expenditure is madeeither by dining out or by purchasing rom supermarkets andother retail outlets.

In November 2006, Vietnam became a member o the WorldTrade Organisation (WTO), which required the country toreduce its trade and investment barriers including, taris,subsidies, non-tari barriers (NTBs), investment restrictionsand improve recognition o intellectual property rights (IPR).This has established a very strong ramework or countries totrade with Vietnam.

The Vietnamese ood retail sector continues to grow

rapidly. Local companies such as Saigon Co-op, Citimartand Maximart have pioneered modern retail, howeverthe entrance o Metro and Casino have introduced retailexpertise that is dramatically modernizing ood retailing.Close neighbor, Thailand, experienced a similar awakeningin 1997 when, during the South East Asian fnancial crisis,large European retailers such as Casino, Royal Ahold, Tescoand Carreour entered the market and rapidly expanded themodern retail sector.

There are over 300,000 Vietnamese (Viet kieu) in Australia,many who moved as reugees or amily reunion programs.There are a sizable number o these people now returningto the main cities o Vietnam and, using their entrepreneurialskills, are keen to build businesses that use Australian

products.The number o tari reductions and other market reorms inmost o the sectors o importance to Australia have increasedin the last fve years. However within the next fve years theywill become even more signifcant and have the potential todrive strong increases in trade.

Australia has a number o strategic and logistical advantagesover its closest Western competitors; the United States oAmerica (USA) and Europe. Shipping times are much shorterrom Australia, which reduces transport costs and allowsaccess to the resh chilled markets or products such as ruit,meat and seaood.

Executive Summary

O all the Australian states, Victoria is the largestagriood exporter to Vietnam and this trade is dominatedby commodities to be used in the Vietnamese ood-manuacturing sector. Dairy products such as skim milk

powder is reconstituted into drinking milk, wheat is milledinto our or the bakery industry and malt barley is usedin the brewing industry. There is however, an increasingdemand or higher value chilled, rozen and grocery products.For example, the Vietnamese enjoy red meats and hencebee meat and oal fnd a ready market; whilst Australianwine is well represented in the market there is a signifcantopportunity to expand this sector.

However, like any emerging market, one o the keychallenges is managing the supply chain, understandingthe import requirements and ensuring the product can bedelivered to the customer and/or consumer. Vietnam is nodierent to many other parts o the developing world in havinga ragmented, non-transparent and oten corrupt supply

chain, which presents signifcant risks to exporters. Much othis risk can be avoided by the appointment o a reputableimporter/agent who becomes a partner in the transactionsthat take place.


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Contents

Country Overview 4

Brie recent history 5

Country Details 5

The Vietnamese Business Environment 7

Vietnams Signifcant Trade Agreements 7

Food Trade between Vietnam and Australia 7

Market Access and Regulatory Framework 8

Competition or Australia in the Vietnamese Market 8

Food Retailing 9

Food Retailing Structure 9

Major Food Retailers 9

Food Service 10

Food Manuacturing 10

Australian & Victorian Food Exports to Vietnam 11

Overall Perormance 11

Commodity Perormance 11

Supply Chain and Logistics 12

Capturing Future Opportunities 14

Reerences 15

Useul Websites 15

Abbreviations 16

List o fgures and tables

Figure 1. Map o Vietnam 4

Figure 2. Vietnams Retail Market Share Grocery Distribution 2008 9

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

Figure 4. Supply Chain Channels 12


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Country Overview

Figure 1. Map o Vietnam Source: CIA

Vietnam is the most eastern country in the region reerred toas Indo China. Other countries include Thailand, Cambodia,Laos and Myanmar. Vietnam is an important part o theMekong Region. It has a total area o 327,000 sq km, makingVietnam slightly larger than Italy. Vietnam has 3,000 km ocoastline and 4,000 km o land borders 2,000 km sharedwith Laos, 1,000 km with China and 1,000 km with Cambodia.

The Mekong River that ows rom China then through Laos,Thailand, Cambodia and Vietnam dominates the geographyand the economy o the whole region.

Vietnams two signifcant cities Hanoi and Ho Chi Minh City(HCMC), are each located on a major r iver delta in the northand south o the country. In the north, the political capitalHanoi is on the Red River and in the south, the commercialcapital HCMC is on the Mekong River. Both rivers support theagricultural production o the country.

Between these two cities is the long Vietnamese coastlinewhere local and international tourists visit to enjoy thespectacular scenery o the islands and beaches on the SouthChina Sea. These locations are quickly gaining popularityand the associated ood service industry is experiencingincreased demand.

Vietnams population o 83.8 million is the largest in theregion. The people are predominately Buddhist but there is

a signifcant percentage o Catholics (8% to 10%), which isunusual in Asia.

Australia is building a strong presence in Vietnam. Over thepast 10 years companies such Telstra, Toll, Royal MelbourneInstitute o Technology (RMIT), ANZ Bank, Bluescope andLeightons have commenced operations in Vietnam. TheAustralian Government contributed AU$90 million to theconstruction o the My Thuan Bridge located in the MekongDelta, which was opened in 2000.

Many connections between Vietnam and Australia, andVietnam and the United States o America (USA), arebased on amily history. There are over 300,000 overseasVietnamese (Viet kieu) in Australia many who came asreugees or on amily reunion programs. There are a sizable

number o these people now returning to the main cities andusing their entrepreneurial skills to build businesses that useAustralian products.


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Brie recent historyVietnam has a very rich and interesting history. This historyhas had a proound eect on the Vietnamese way o lie andbusiness practices.

The Vietnam war is well known to most people but or 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 o France.

1950 and 60s - Civil war between North and South

Vietnam. South Vietnam had signifcant support rom theUSA and Australia.

1970s North Vietnam was successul in their aim toreuniy under a communist government. This victoryended over 120 years o oreign rule. Many SouthVietnamese exited the country as reugees to Australiaand the USA.

1980s The Vietnamese government continued tomaintain strong central marketing controls, howeverin December 1986 there was a signifcant change inbusiness when the government allowed limited privateenterprise. This policy was reerred to as the doi moipolicy (renovation the Vietnamese version o theRussian perestroika). Family business became popular

and the skilled entrepreneurs o the South began totransorm Vietnam rom a central government controlentity to a ree market economy.

1990s Vietnam became part o the Asian economicboom. The change rom an agricultural economy to anindustrial economy commenced. Service and tertiaryindustries employed more people. Vietnam was aectedby the Asian crash o the late 1990s and Vietnam joinedthe Association o South East Asian Nations (ASEAN) in1995.

2000s October 2001 Vietnam and the USA signed abilateral trade agreement and gained lower taris onits goods (average decline o 40% to 4%) and the USAgained access to various sectors previously under State

control. In November 2006, Vietnam became a membero the World Trade Organisation (WTO) and this requiredthe country to reduce its trade and investment barriersincluding, taris, subsidies, non-tari barriers (NTBs),investment restrictions and improve recognition ointellectual property rights.

Country DetailsNatural ResourcesMinerals: coal, iron, aluminum, tin and oil.

Agricultural and orestry productsRice, maize, sweet potatoes, peanuts, soya beans, rubber,lacquer, coee, tea, tobacco, cotton, coconut, sugar cane,jute and tropical and subtropical ruits are all produced, manyo which are exported.

Vietnam is the third largest rice exporter in the world andmost o this production occurs in the Mekong River Deltain the south and some in the Red River Delta in the north.

Coee, rubber and tea plantations occur in the CentralHighlands and North East and ruit production occurs inthe North East and Mekong River Delta.

Agriculture is declining as a percentage o GDP, as in all

developing economies, but still employs over 80% o thepopulation.


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ClimateVietnam is essentially a tropical country with a humidmonsoon climate. The average annual temperature is over20C throughout the country.

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

South Vietnam has two seasons: cool and dry rom Novemberto April and hot and rainy rom May to October with seasonalvariations in temperature averaging just 3C. North Vietnamhas our distinct seasons similar to that o temperate climates.

PopulationVietnams population in 2007 was 85.6 million, the largest inthe South East Asian region. At the end o the Vietnam Warthe population grew so quickly the government issued atwo-child-only directive. This stabilised the growth or adecade but ater the directive was lited the population grewby 6% between 2004 and 2005 and the government nowexpects the population to reach 100 million by 2024.

Ethnic groupsThere are 54 ethnic groups living in Vietnam. The Viet or Kinh

people account or 88% o the population and are mostlyconcentrated in the lowlands. In contrast, most o the 5.5million ethnic minority peoples live in the mountainous areas.

ReligionsMajor spiritual inuences in Vietnam include Buddhism,Conucianism, and Ancestor Worship. Christianity arrived inthe late 18th century and is now the second major religionollowing Buddhism. Other religions practiced include Islamand Cao Dai with concentrations in the South.

Vietnamese languages and scriptsMore than 80% o the population speaks Vietnamese or Kinh/Viet, the national language.

European missionaries in the 17th century developedQuoc Ngu, the Romanized transcription o the Vietnameselanguage. This orm is still used.

Economic developmentVietnams strong economic growth is attracting a lot oattention in the region. In 2004, exports increased by 30%and imports grew by 25%. Tourism is growing at about30% per annum. The countrys strengths are its skilled andyouthul work orce (34% o the population is below 15 yearsold) and its entrepreneurial ocus.

Foreign Direct Investment (FDI) increased by 37% in 2006,largest o these investors were rom Singapore, Taiwan,Japan and Hong Kong. Most o this FDI is in industry

development and construction, in par ticular hotels, tourism,ofces and apartment buildings.

However, economic development has not been equallyshared across the country. HCMC (population 7 million) hasgrowth in excess o 11% delivering a Gross Domestic Product(GDP) per person o US$1,500 against the national averageo US$540. The majority o the Vietnamese population is stillrurally based and in many cases are subsistence armers.

LiteracyVietnam has a literacy rate o 94%, which is very high or adeveloping country.


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The Vietnamese Business Environment

Following the example set by the Union o Soviet SocialistRepublics (USSR) in 1986 the Vietnamese governmentmoved rom a centrally controlled economy to a more outwardmarket ocus (Doi Moi, economic restructuring or reorm)and in November 2006 Vietnam became a member o theWTO. To enable its entry to the WTO, Vietnam was requiredto reduce its trade and investment barriers including, taris,subsidies, non-tari barriers (NTBs), investment restrictionsand intellectual property rights (IPR). Whilst this improved thetrading environment and increased demand or imports, theimport procedures remain complex and this inhibits trade.

Vietnam has experienced increasing pressure rom its tradingpartners to urther ease restrictions and they have signedtrading agreements with countries including the USA, ASEANand Australia, demonstrating their willingness to lit tarisand non tari barriers including quotas, special licensing andproduct restrictions. In June 2004 Vietnam agreed to reducetaris on the importation o Australian wine and spirits inline with tari reductions given to wines and spirits rom theEuropean Union (EU).

In relation to their largest neighbor - China, Vietnam hastaken a very cautious approach to trade liberalisation. Chinaand Vietnam have ought many battles over borders, withChina previously occupying parts o Northern Vietnam. Onthe other hand, China has won the respect o the Vietnamese

or developing a strong market economy within a countrycontrolled by the communist government.

Vietnams Signifcant TradeAgreements In 1992, Vietnam signed a trade agreement with the EU.

The Common Eective Preerential Tari (CEPT) wassigned with ASEAN countries when Vietnam joined in1995. ASEAN countries implemented a sliding scaleo taris and have agreed to enact zero tari rates onalmost all imports by 2015.

Vietnam applied or WTO membership in 1995.

In 1998, Vietnam became a member o the Asia-PacifcEconomic Co-operation (APEC).

The US-Vietnam Bilateral Trade Agreement (BTA) cameinto orce in December 2001. This substantially reducedVietnam taris on US goods.

Vietnam also joined regional integration clubs such as theASEAN-China Free Trade Area (2002)

ASEAN-Japan Comprehensive Economic Partnership(2003)

In November 2006, Vietnam became a member o theWTO.

Agreements with Australia:

May 2004 - Vietnam agreed to accord Australian winesand spirits the same tari and customs treatment thatapplies to EU wines and sprits.

December 2004 - Vietnam agreed to extend MostFavoured Nation status to Australia in relation to thereduction in taris on grapes, citrus, apples, pears, ruitjuices, cheese and a range o vegetables and oils, cerealours and meat products.

March 2006 - Australia and Vietnam signed a BilateralRelationship on Economic Trade in Goods and Services.Food products included in the agreement are dairyproducts, sugar, wheat our, conectionery and ruit.Services such as banking, education, environment andmining will provide trade opportunities or Australiancompanies.

The ASEAN Australia New Zealand FTA (AANZFTA)signed in April 2009 provides or the progressivereduction or elimination o tarris or most Australianproducts exported. Where there are existing bilateralagreements (as listed above) AANZFTA provides nodirect beneft, however in the remaining sectors long termimprovements in trade and access conditions will apply.

Food Trade between Vietnam andAustraliaVietnamese customer and consumer confdence in Westernproducts is very high and Australian products are wellreceived in Vietnam. Australia is regarded as a modern,technologically advanced and riendly country located withinVietnams immediate sphere o interest.

Vietnam has continued to grow as a market or Victorian andAustralian ood products particularly in staple oods such asmilk powders and wheat.

Vietnams retail and ood service inrastructure anddistribution is growing quickly but is still well behind most oits South East Asian (SEA) neighbours, so too is the level

o brand awareness. Thereore dierent products will acedierent opportunities and challenges. However, now isthe time or Victorian companies to enter the market whileVietnam is developing. In fve years time it will be much moredifcult.


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Market Access and RegulatoryFrameworkForeign restrictionsVietnam has historically discouraged Foreign DirectInvestment (FDI) in the ood retail sector to protect itsdomestic companies and the traditional sector. Foreigncompanies that were approved by the Vietnamesegovernment could only set up joint ventures in the country itheir holding was less than 50%. Metro Group was allowed toestablish a 100%-owned subsidiary because their businessocused on the wholesale sector. However, Metro is stilllimited by various constraints. For example, whilst Metrodeals with their suppliers directly, they do not have a licenseto import products directly and thereore need to contract athird party logistics company. In addition, oreign enterprisescannot buy land in Vietnam, but have to obtain land use rightsrom the authorities. These restrictions have hampered thedevelopment o a modern retail ood sector in Vietnam. Deniedoreign know-how and retail experience, local companies havebeen slow to adopt more modern retail methods.

However, under pressure rom its attempts to join the WTOas well as other economic agreements, such as the BilateralTrade Agreement with the USA, deregulation is now occurring.From 2004, restrictions began to disappear and joint ventures

between Vietnamese and overseas companies were allowedand in October 2005, the government lited the cap on oreignshare holdings in local companies rom 30% to 49%.

Competition or Australia in theVietnamese MarketAustralian ood companies are increasingly looking toVietnam as a market with signifcant potential to grow.Australia has some natural advantages in supplying agrioodproducts but other countries are also targeting Vietnam.Competitors to Australia include low cost countries such asChina and India and other perceived higher quality productsuppliers such as New Zealand (NZ), France, the EU and theUSA.

Vietnamese importers perceive Australian products to behigh quality; thereore Australian suppliers do not have tocompete with goods rom China and India on the low-end,low price segment. In addition Australian suppliers havethe potential to be more responsive to market needs thansuppliers rom France and USA due to the closer transportdistances or both container trade and bulk trade. This actoris an advantage or commodities such as wheat or dairygoods given that many small to medium size Vietnameseood processing operators preer to buy in small amounts i.e.by the container load.

In the retail ood market, Australian competitors are the USA,China, ASEAN countries and the local ood industry. Mostproducts rom China and South East Asian countries enjoy

lower taris than Australian and USA products due to marketliberalization under ASEAN or specifc bilateral agreements


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Modern ood retailing in Vietnam is in a very early stage odevelopment. Only 25% o Vietnams population is classifedas urban and there are only two cities with a populationo over one million; Ho Chi Minh City (HCMC) and Hanoi.However, the urban population is expected to increase byaround one million every year or the next 20 years.

The grocery retail sector in Vietnam is still in its inancy. Retailsales indicators are very positive and grew by 19% in 2006,however the sector is highly ragmented and there are ewmajor retailers. Traditional Mom and Pop provision (small

grocery) stores and wet markets are still the major sourceo ood or most Vietnamese. The frst modern supermarketsopened in the 1990s and were generally located in the moreurbanised centers o HCMC and Hanoi.

Foreign retailers such as the Metro Group and Casino areleading the change rom traditional to modern retailing.Although wholly oreign owned subsidiaries are notauthorised in the retail sector under the Law on ForeignInvestment signifcant liberalisation since 2004 hasencouraged more international retailers to identiy Vietnam asa uture location or expansion.

Saigon Co-op, a local operation also operates a chain osuperstores. Saigon Co-op is a State owned company witharound 40 stores. The company was very progressive inintroducing modern grocery retailing ormats into Vietnam,and its stores are still amongst the most modern in thecountry.

SupermarketsCitimart is the main supermarket operator, with a 20 outlets.Citimart is expanding, but gave management o a number

o its HCMC stores to the Dairy Farm company in mid-2006.These stores will be rebranded to Dairy Farms Wellcomebanner. Intimex is one o the largest chains in North Vietnam.Fivimart, with 20 outlets, is ocused on HCMC.

Convenience StoresGiven the large numbers and important role small Momand Pop stores play in the market there is huge potential orthe development o a ranchised convenience store chain.However, there is still a reticence rom the Vietnameseconsumer to use convenience stores and there are alreadya ew major chains o note. Those that are present in themarket tend to be located only in the major cities.

Department StoresParkson opened its frst department store in the SaigonTourist Trading Center in downtown HCMC in June 2005, withnine more to ollow by 2010. The stores are intended to targetmiddle and upper class customers.

Cash & Carry StoresGermanys Metro Group is present in the Cash & Carrysector and has plans to open more stores in Vietnam inthe coming years. Although the Metro Group is one o theew oreign retailers allowed to currently trade in Vietnam,under current regulations it is not allowed to directly importcommodities, thereore Metro needs to work with many local,and usually small, importers.

Major Food Retailers

Food Retailing

Figure 2. Vietnams Retail Market Share GroceryDistribution 2008 Data source: Planet Retail (2008)

Food Retailing StructureHypermarkets and SuperstoresHypermarkets are expected to take some time to becomepopular with Vietnamese consumers. Low rates o carownership, limited use o rerigerators and reezers,combined with the emphasis on resh produce, mean thatthe Vietnamese tend to avour the local wet markets andMom and Pop stores which they can visit easily every day.Assuming Vietnam ollows the trend in other Asian countries,hypermarkets will become more important in the uture. Thedevelopment will depend on oreign entrants and it is likelyonly to be in the major cities o HCMC and Hanoi.

Superstores or small hypermarkets operate in HCMC and

Hanoi. The Casino group operates 20 Cora outlets in thecountry under ranchise, with the stores owned in jointventures with a local partner.

MetroGroup

8%SaigonCo-op

4%Casino

1% Maximark

1%

Citimart1%

Traditional trade85%


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Food Service

The ood service sector in Vietnam includes hotels,restaurants, ast ood outlets, airline catering and institutionalcatering such as hospitals and schools.

Vietnam, like many other Asian countries, has a strongculture o eating out and consuming ood with amily andriends. Most business relationships also have a strongcomponent o dining out and almost all business negotiationsand meetings would involve hospitality around a meal. Thevast majority o the restaurant sector is based on Vietnamesecuisine and the ingredients are sourced locally, but as the

economy grows the opportunity or imported goods is alsogrowing.

The large numbers o Vietnamese war reugees returninghome ater extended stays in Canada, USA and Australiahave developed more western style eating habits and arekeen to dine out in western style restaurants. As a resultthere are a range o French, Italian, British and US stylerestaurants being established.

At present western style ast ood outlets are restricted toKentucky Fried Chicken (KFC), but as the economy growsand barriers to entry are lited it is likely other large multi-national ast ood companies will target Vietnam. Companiessuch as McDonalds, Burger King and Starbucks haveextensive experience in building businesses rom scratch in

developing counties such as China and India either by directownership, par tnerships or ranchising. This will introducemore western oods to the Vietnamese cuisine.

Vietnam is also growing as a tourist destination both romtravelers within Asia but increasingly rom the West. Vietnamattracted 3.1 million oreign tourists in 2007, which is anincrease o 15% rom the previous year. This has encouragedthe development o a large number o our and fve star hotelswith signifcant western menus available or travellers. Thissector is expected to continue to grow and this will providesignifcant opportunities or imported resh, rozen andgrocery items including wine.

Food Manuacturing

The Vietnamese ood-manuacturing sector is growing rapidlyalbeit o a low base. Unlike its neighbour Thailand, whichhas developed a large and growing ood manuacturingsector based on domestic and export opportunities, it is verydomestically ocused in Vietnam.

Relatively large volumes o dairy commodities (skimmilk powder, whole milk powder, whey) are imported asingredients or manuactured oods and/or to recombine orthe production o whole milk. Similarly large volumes o wheatare imported or the production o our or bakery and oodproduction. Vietnam has a large brewing industry and importsmalt barley or beer production.

Like other parts o the ood sector, ood manuacturing isexpected to grow in Vietnam, not only to take advantageo the opportunities in the country but also or export toother countries both within ASEAN, because o the tariadvantages, and to the rest o the world. As barriers tooreign ownership decline, multi-national ood manuacturingcompanies will set up operations in Vietnam to takeadvantage o the low cost and skilled labour orce and the

access to other Asian markets.


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Australian & Victorian Food Exports to Vietnam

Overall PerormanceIn 2008 Australias ood exports to Vietnam were valued at$370 million, an increase o 54% or $126 million rom 2007.Vietnam is Australias 19th most valuable market or ood,with the major exports in the grains and dairy sectors.

Victoria is Australias largest State exporter o ood productsto Vietnam accounting or 31% o all ood exports romAustralia.

Commodity PerormanceGrain exports accounted or 47% (or $53 million) o Victoriastotal ood exports to Vietnam in 2008. Exports o un-roastedmalt accounted or 72% o 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 oVictorian exports to Vietnam, representing 35% o totalsector exports (or $39 million) - a 49% increase rom 2007.The most valuable dairy products exported rom Victoria toVietnam were skim milk powder, unsweetened powdered ullcream milk, whey products and cheese.

Bee, bee oal and sheep meat exports worth $7 million

were shipped to Vietnam in 2008, an increase o 45% romthe previous year.

Fresh grapes were the only signifcant horticultural exportsrom Victoria to Vietnam in 2008 with a value o $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 productsBee

Fresh or dried ruitWheatMaltPowdered milk and cream


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Supply Chain and Logistics

A simplifed view o the supply chain or products romAustralia would include some or all o the ollowing elementsor links, listed in order o progression rom Victoria toVietnam;

Grower - ruit grower, dairy armer, bee or lamb producer

Packer/Manuacturer - abattoir, dairy actory, oodmanuacturer

Exporter - ruit exporter, meat exporter, consolidator omixed loads

Freight orwarder

Shipping company - air or sea reight

Importer - trading company, ood manuacturer, airlinecaterer

Wholesaler - supplier to retail, ood service, wet market,ood carts

Retailer - supermarket, hypermarket, wet market, oodcart, mom-and-pop stores

Consumer - supermarket or resh market shopper, hotelrestaurant customer

These are all elements o the supply chain but the roles andactivities are not necessarily executed by dierent businessentities i.e. one company may undertake a variety o roles.Typically, the supply chain has ewer business links than thenine steps listed above.

There are advantages or dierent business combinations othe supply chain elements, depending on the variation o thesupply chain:

For instance, in the ruit industry it is common to havecompanies that ulfll the roles o grower/packer/exporter

and who arrange their own reight. In other cases, thereight orwarding and shipping is combined in onecompany. Some companies have export operationsin the supplying country and import operations in thedestination country. Oten, the importing company, as wellas sourcing the product rom around the world, will alsoact as a wholesaler.

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

Supply Chain Channels

Importer

ManuacturerProcessor

Grower

Consolidator Exporter

AgentWholesaler

Modernretailer

Foodservice

Traditionalretail

Foodmanuacture


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Modern retailing (Modern Trade) is growing in Vietnam,driven by emerging supermarket chains. There isincreasing demand or imported products and traditionallythese were sourced rom wholesalers and importers. Inthe last ew years, however, there has been an emergingtrend or these modern trade retailers to source directlyrom the oreign-source exporters and, in some cases,growers. In buying directly rom Australian growersand exporters, they eel they get better prices, moreconsistent quality, increased shel lie, and increased oodsecurity because they are more closely in touch with the

source o supply. This also makes it easier or them topre-order and commit to buying programs o major itemssuch as grapes, pears, cherries, and bee.

Although dealing directly with retailers may be anadvantage or both exporter and retailer, the importer/wholesaler route provides a dierent range obenefts. For the Australian grower/packer/exporter/manuacturer, using a Vietnamese importer/wholesaler

creates additional opportunities. Wholesalers supplythe Traditional Trade, including wet markets and mom-and-pop shops, which continue to supply 70 to 80% oVietnams resh ood market. Wholesalers have a muchbroader range o customers who are sometimes lessparticular about consistency and they have more optionsor the placement o a broad range o product.

For the Vietnamese supermarket, the local Importer/Wholesaler combination provides the advantage osourcing rom all over the world and thereore being able

to supply or the entire year. They have a wide range ocustomers, including traditional trade, wet markets, mom-and-pop stores, small restaurants, and street vendorsand thereore are able to source and sell a wider rangeo qualities. Most supply is just in time as many claim theprocess is easier to manage. Finally, these operationsoten do pre-packing and minor processing or theircustomers.


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Capturing Future Opportunities

Vietnam is an important export market or Australia andcontinues to grow in importance as the Vietnamese economygrows. Like its neighbours in South East Asia, Vietnam hasseen the emergence o a local middle class with increaseddisposable income who are keen to try western cuisine.This, coupled with a large increase in tourist arrivals romwithin Asia and Western countries, has lead to a substantialincrease in the demand or ood ingredients and consumergoods.

Currently, imported ood products range rom bulk commodity

items (such as wheat, barley, skim milk powder and butter),to consumer products (such as meat products, ruit andgrocery products), to high value-added products such asconectionary and wine.

The demand or commodity items is expected to increaseas the Vietnamese ood-manuacturing sector continues toexpand. Australia is well placed to be able to supply productsnot produced in the country such as milk powder and cerealgrains.

Specifc opportunities exist or:

GrainsThe export o cereals (wheat and wheat our, malt and maltour, and cereal preparations or instant noodles, bakeriesand conectionery manuacturers) is the largest sector or

trade between Vietnam and Victoria. Given the demise othe single desk in Australia and the consequent increasedcompetition in the market there is an increased ocus onAustralia as a source o supply. Bakery products such asbread, cakes and pastries are an established part o urbanVietnamese diets and as the economy develops theirconsumption is expected to increase ur ther.

DairyVietnam is already an important market or dairy ingredients.The development o supermarkets and hypermarkets willpresent opportunities or dairy consumer goods such as icecream and cheese. Given the French inuence in Vietnamshistory, dairy products are well received and are associatedwith healthy diets and longevity. Cool chain management is

still a major challenge but the situation is improving.BeveragesAlcoholic beverage sales are a very ast growing sectorin the Vietnam ood market. Beer leads this growth dueto local brewing capability (and hence the demand orVictorias malt barley) but whiskey is also very popular.Wine is seen primarily as a luxury good but also a healthyproduct and sales are increasing. Victoria and Australia arewell represented in the wine category but high import tar isimpede greater growth.

HorticultureFruit is an important part o the Vietnamese diet andconsumption o resh ruits is high. Products such as apples,pears, table grapes and cherries have become increasinglypopular in recent years. However cool chain issues hindergreater sales and most o the consumption takes place inHCMC. Notwithstanding intense competition rom Chile andSouth Arica, there is signifcant opportunity to expand this

market or table grapes, citrus and cherries as cool chainsystems develop.

Meat and seaoodMeat consumption is rising in Vietnam and although themain products are pork and poultry, bee consumption is alsogrowing. Given the local bee industry is small and decliningthis provides opportunities or imported product. Importsrom Victoria have risen over 100% over the last our years.To date the sales o these products have been to high-endoutlets such as hotels and restaurants aimed at expatriatesand wealthy locals, but supermarkets are now also retailinghigh-end imported cuts.

Small amounts o abalone and crustaceans are exported toVietnam, again to high-end ood service outlets.

Dairy cattleVietnam has a small dairy industry or the supply o reshmilk. There is a ready market or dairy heiers and semen toimprove the genetic merit o the local cattle and to increasenumbers. There are a number o access issues that needto be resolved but i this can be achieved Vietnam couldbecome a signifcant market or Victorian dairy genetics. Anumber o Victorian exporters currently have orders or thesupply o cattle and semen but are unable to ulfll them duethese issues.


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Reerences

US-ASEAN Business Council 2006, The ASEAN FreeTrade Area and other Areas of ASEAN Economic

Cooperationaccessed November 14 2006 rom http://www.us-asean.org/ata.asp

Department o Primary Industries, Victorian Food andFibre report, 2008.

United States Department o Agriculture (USDA), ForeignAgricultural Service (2005) Vietnam Retail Food Sector2005, GAIN Report VM5076

Vaile, M (Deputy Prime Minister or Australia, AustralianMinister or Trade, Leader o the Nationals) 2006, Exportsboost 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, accessedNovember 2006 rom http://www.traveltovietnam.com/Guide/Cantho/attractions/MyThuan%20Bridge/deault.asp

Australian Government Department o ForeignAairs and Trade 2006, Vietnam Economic and Tradeinformation, accessed November 2006 rom http://www.dat.gov.au/geo/vietnam/index.html

Australian Trade Commission Vietnam 2006, accessedNovember 2006 rom http://www.austrade.com.vn/

english/home.asp

Ashwill, M and Thai Ngoc Diep (2006), Vietnam TodayA guide to a Nation at a Crossroads, Intercultural PressUSA. 2005

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

ASEAN Economic Bulletin 2005, Vietnams tradeliberalization and international economic integration:

evolution, problems, and challengesaccessed 13 August2006 romhttp://www.allbusiness.com/3471137-1.html

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

Useul Websites

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

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

APEC Tari Database:http://www.apectari.org/

Association o 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 o Foreign Aairs and Trade:www.dat.gov.au

Food Victoria:www.ood.vic.gov.au

Travel to Vietnam:

http://www.traveltovietnam.com/Guide/Cantho/attractions/MyThuan%20Bridge/deault.asp

United States Department o Agriculture:www.usda.gov

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

Vietnam Business Forum:http://www.vietnambusinessorum.org/overview.asp

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

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


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Abbreviations

APEC Asia-Pacifc Economic Co-operation

ASEAN Association o South East Asian Nations

BTA The US-Vietnam Bilateral Trade Agreement

CEPT Common Eective Preerential Tari

EU European Union

FDI Foreign Direct Investment

HCMC Ho Chi Minh City, ormally Saigon.

IPR Intellectual Property Rights

MFN Most Favoured Nation

NTB Non Tari Barrier

SEA South East Asia

WTO World Trade Organisation


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Documents

Analysis of the Food Sector in Vietnam Opportunities for Victorian Exporters