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Foreign feed producers further dominate local market   2012-04-11 - SGT

While local animal feed producers are struggling with a capital shortfall, technology and business strategies, foreign firms are racing to expand factories and business networks to fully exploit the potentials of the domestic market.

Advantages in production and product quality

Dang Thi Tuyet, director of Yen Bai Province-based Binh An Co. Ltd., says her company has to spend VND500-700 million buying some 60 tons of animal feed for a herd of 300 sows, 150 pigs for meat and 100 boars each month.

Tuyet admits that though she wants to purchase feed from local producers, the production capability of several local firms and their product quality are too low compared to foreign enterprises. Therefore, her company mostly buys the feed from CP Vietnam Livestock Corporation, which is majority-owned by the Hong Kong-based CP Pokphand.

There are currently 230 animal feed factories nationwide, 58 of them owned by joint-venture and foreign-invested enterprises, producing about seven million tons of mixed feed every year, accounting for a 60% market share. The remaining 172 factories are run by local companies, supplying 4.5 million tons of feed a year, according to the Vietnam Animal Feed Association.

Given the market volatility and the tough competition with foreign rivals, some 30% of the local enterprises went bust last year. On the contrary, foreign animal feed makers have been developing well in the domestic market.

The U.S.-invested Cargill Vietnam Co. Ltd., for example, has recently started up its ninth feed plant in Vietnam with the total capacity of 240,000 tons per year. In addition, Cargill Vietnam, with the current output of 750,000 tons of feed a year, has taken over Provimi Group in Dong Nai and Higashimaru Vietnam in Tien Giang.

Le Ba Lich, president of the Vietnam Animal Feed Association, expresses his concern that the modest market share of 30% of local feed producers is likely to shrink further as foreign enterprises continue to expand their operations.

Apart from Cargill, many foreign feed producers are planning to expand their businesses in Vietnam. For instance, CP Group has announced to develop six more factories in Vietnam between now and 2014, and China’s New Hope also plans to build six feed mills in the coming time.

Unequal competition

Locally-produced feeds only meet some 40% of the domestic demand. Vietnam has to import a huge amount of feed materials every year, with the import volumes rising year-after-year.

For example, to produce 11.3 million tons of animal feed, Vietnam imported up to 53.6% of the materials in 2009. The percentage then surged to 59.8% in 2010 and 60.5% in 2011.

Vietnam’s livestock industry development strategy envisions the industry will need 18-20 million tons of animal feed in 2015, and 25-26 million tons in 2020. Therefore, the domestic market is considered a fertile ground for industry players.

However, there is an unequal competition between local and foreign feed producers, says Le Ba Lich. While local firms have to bear annual interest rates of 18-24% on bank loans, foreign competitors are enjoying lending rates of 1-4% per annum.

Furthermore, the investment policy of Vietnam has inadvertently exempted foreign investors from paying value-added tax and land rents if they sign processing contracts with local livestock farms.

Experts stressed if the Government did not adopt appropriate policies to assist local animal feed makers, local firms would definitely lose more market share to foreign competitors.

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