Market Development and Access Strategy 2011/2012
Strong growth in the Vietnam food sector along with increased trade liberalisation, provide significant market opportunities for Victorian agri-food exporters. Vietnam has enjoyed strong growth in its economy, has an increasing demand for imported foods, is a major tourist destination, and has a domestic food manufacturing sector that is growing and becoming a significant user of imported food ingredients. Victoria’s exports of Agri-food products to Vietnam have shown strong growth over the last four fiscal years.
The Agri-Food Sector
The large urban centers such as Ho Chi Minh City, Hanoi, Danang, Hai Phong and Can Tho have affluent consumers who have disposable income and a cultural predisposition to spend it on food, either by dining out or by purchasing for home consumption.
The Vietnamese food retail sector continues to develop rapidly. Local companies such as Saigon Co-op, Citimart and Maximart have pioneered modern retail; however the entry of Metro and Casino has introduced retail expertise that is dramatically modernising food retailing.
There are over 300,000 overseas Vietnamese (Viet kieu) in Australia, many who came as refugees and on family reunion programs. A considerable number of these people are now returning to Vietnam and using their entrepreneurial skills to build food businesses that use Australian products.
Vietnams accession to the World Trade Organisation (WTO) and the resulting tariff reductions and other market reforms in areas of importance to Australia have increased in the last 5 years but within the next 5 years will become even more significant and have the potential to drive strong increases in trade.
Victoria is the largest exporter to Vietnam among the Australian states, and commodities used in the Vietnamese food manufacturing sector dominate the trade. Dairy products such as skim milk powder are used as an ingredient in food manufacture and for recombining into drinking milk, wheat is milled into flour for the bakery industry and malt barley is used in the brewing industry. There is also an increasing demand for higher value chilled frozen and grocery products.
Value of Victorian Food and Fibre Exports to Vietnam 2009/10 (A$ million)
Victorian food and fibre exports to Vietnam were valued at A$116 million in 2009-10. Key exports to Vietnam were grains (51%) and dairy products (22%).
Vietnam has emerged from a highly regulated subsistence style food industry to become a major importer of food products and ingredients. However, supply chains are highly fragmented, inefficient and are still dominated by agents, and middlemen. The opportunities for Victoria rely on identifying modern, transparent and efficient import companies who can work directly with Victorian suppliers to then supply retailers and food service operators with a range of fresh, frozen and dry products. The other substantial opportunity is in direct supply to the food manufacturing sector.
The food retail sector in Vietnam is booming. Vietnam is emerging as a retail market because of the rapidly growing purchasing power of its high-income consumers. Modern retail outlets are rapidly growing in number. Half of Vietnam’s population of 90 million people is below 30 years of age and a new emerging class of higher-income, younger and more westernized consumers is readily apparent. Food distribution patterns are also changing, with supermarkets expanding into urban areas.
Vietnam has emerged as a strong importer of food products only over the last 10 years, and as a result retailers, importers and distributors do not have a strong understanding of Victoria’s capability and the products and services that are available. There is a challenge to raise Australia’s (Victoria’s) profile in Vietnam and similarly to encourage Victorian suppliers to consider Vietnam as a viable, growing market.
Having recently joined the WTO, Vietnam is expected to comply with a range of commitments amongst which are conditions relating to import controls, tariffs and quotas and phytosanitary requirements. In 2008 the Government authorities were struggling to manage the workload and this caused delays in market access submissions. A shortage of qualified staff can make the process arbitrary and decisions are not always based on the validity of the proposal.
Vietnam is no different to many other parts of the developing world in having a fragmented and non-transparent supply chain with significant risk to exporters. The food sector is also dominated by a large number of small family businesses and it is time consuming and risky for Victorian companies to establish reputable contacts. Much of this risk can be reduced by a good knowledge of the market and by developing relationships with a reputable importer/agent who becomes a partner in the transactions. There is a strong case for government to assist in providing information and introductions.
Given the unrestrained growth in all sectors of the Vietnamese economy, inflation has become a significant problem for the economy. This will restrict imports and has made imported products more expensive in the short term.
The food service sector in Vietnam includes hotels, restaurants, fast food outlets, airline catering and institutional catering such as hospitals and schools.
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. Vietnam is also growing rapidly as a tourist destination with visitors coming from within Asia and also from the West. This has encouraged the development of a large number of 4 and 5 star hotels and restaurants offering western menu options.
The country’s processed food industry is growing rapidly. The US Foreign Agricultural Service (FAS) reported Vietnam imports of food ingredients have been growing 10% year on year for the last 6 years. Victoria’s main exports to Vietnam are grains and dairy ingredients and Victoria has additional capability in other ingredients that can be promoted to Vietnams manufacturers.
Key Activities for 2011/2012
- Manage Victorian input into market access activities in Vietnam on behalf of DPI Victoria with particular emphasis on breeding cattle (particularly dairy) phytosanitary requirements for seed and processing potatoes and red meat and co-products.
- Capture new opportunities for Victoria, focussing on temperate fruit, grains, and meat.
- Continue the development of relationships with food retailers (e.g. Metro Group) who are interested in direct shipments of products from Victoria (rather than through a fragmented chain of importers, distributors and agents).
- Coordinate inward buyer missions of key importers from Vietnam to Victoria.
Mr Peter Myers
Project Leader, Market Access & Competitiveness
Meat & Wool Services Branch, Farm Services Victoria.
Sources: GTIS, USDA, CIA Worldfact Book