Q4 2012 www.businessmonitor.com VietnaM agribusiness Report INCLUDES BMI'S FORECASTS ISSN 1759-1740 Published by Business Monitor International Ltd VIETNAM AGRIBUSINESS REPORT Q4 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Production Date: September 2012 Business Monitor International 85 Queen Victoria Street London EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2012 Business Monitor International All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Agribusiness Report Q4 2012 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q4 2012 CONTENTS Executive Summary SWOT Analysis Vietnam Agriculture SWOT Vietnam Business Environment SWOT Supply & Demand Analysis Vietnam Dairy Outlook Table: Vietnam Milk Production & Consumption, 2011-2016 10 Table: Vietnam Butter Consumption, 2011-2016 10 Table: Vietnam Cheese Consumption, 2011-2016 10 Table: Vietnam Whole Milk Powder Consumption, 2011-2016 10 Table: Vietnam Milk Production & Consumption, 2007-2012 11 Table: Vietnam Butter Consumption, 2007-2012 11 Table: Vietnam Cheese Consumption, 2007-2012 11 Table: Vietnam Whole Milk Powder Consumption, 2007-2012 11 Vietnam Livestock Outlook 12 Table: Vietnam Poultry Production & Consumption, 2011-2016 13 Table: Vietnam Pork Production & Consumption, 2011-2016 13 Table: Vietnam Beef & Veal Production & Consumption, 2011-2016 13 Table: Vietnam Poultry Production & Consumption, 2007-2012 15 Table: Vietnam Pork Production & Consumption, 2007-2012 16 Table: Vietnam Beef & Veal Production & Consumption, 2007-2012 16 Vietnam Coffee Outlook 17 Table: Vietnam Coffee Production & Consumption, 2011-2016 18 Table: Vietnam Coffee Production & Consumption, 2007-2012 21 Vietnam Grains Outlook 22 Table: Vietnam Corn Production & Consumption, 2011-2016 23 Table: Vietnam Corn Production & Consumption, 2007-2012 24 Vietnam Rice Outlook 25 Table: Vietnam Rice Production & Consumption, 2011-2016 27 Table: Vietnam Rice Production & Consumption, 2007-2012 31 Commodity Price Analysis 32 Monthly Grains Update 32 Wheat: Little Potential For Export Restrictions 32 Corn: US Downgrades Tighten Market Further 35 Soybean: South America In The Spotlight 37 Rice: The Only Well-Supplied Grain Market 39 Table: Select Commodities: Performance & Forecasts 40 Monthly Softs Update 41 Cocoa: Looking Supported 42 Coffee: Supported In Short Term 44 Palm Oil: Heading Back To Support 46 Sugar: Searching For Support 48 Cotton: Still In A Downward Trend Channel 50 Table: Select Commodities: Performance & Forecasts 51 Upstream Analysis 52 Asia Machinery Outlook 52 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q4 2012 Asia Fertilizer Outlook 56 Asia GM Outlook 60 Table: Select Countries Growing GM Crops 63 Downstream Analysis 64 Consumer Outlook 64 Food 65 Food Consumption 65 Table: Food Consumption Indicators – Historical Data & Forecasts, 2010-2016 66 Canned Food 66 Table: Canned Food Value/Volume Sales – Historical Data & Forecasts, 2010-2016 67 Confectionery 67 Table: Confectionery Value/Volume Sales – Historical Data & Forecasts, 2010-2016 68 Drink 69 Alcoholic Drinks 69 Table: Alcoholic Drinks Value/Volume Sales – Historical Data & Forecasts, 2010-2016 70 Hot Drinks 70 Table: Hot Drinks Volume Sales – Historical Data & Forecasts, 2010-2016 71 Soft Drinks 71 Table: Soft Drinks Value/Volume Sales – Historical Data & Forecasts, 2010-2016 73 Table: Carbonates , 2009-2016 73 Mass Grocery Retail 74 Table: MGR Value Sales by Format – Historical Data & Forecasts 76 Trade 76 Table: Food & Drink Trade Indicators – Historical Data & Forecasts , 2010-2016 77 Country Snapshot 78 Table: Vietnam's Population By Age Group, 1990-2020 ('000) 79 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 80 Table: Vietnam's Key Population Ratios, 1990-2020 81 Table: Vietnam's Rural And Urban Population, 1990-2020 81 BMI Forecast Modelling 82 How We Generate Our Industry Forecasts 82 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q4 2012 Executive Summary BMI View: The agriculture industry (including forestry and aquaculture) contributes to more than 20% of Vietnam's GDP and employs almost half its population Vietnam's coffee and rice sectors face the largest risks in terms of losing competitive advantage as other Asian countries step up production We believe Vietnam will have to significantly ramp up investments on crop productivity in order to not be left behind, and if it will be able to produce more value-added crops and maintain its status as an export spearhead Key Forecasts ƒ Rice production growth to 2016: 12.8% to 29.7mn tonnes Our bullish outlook for Vietnam's rice production is based on the country's high yields and the fact that its rice is very competitive relative to many of its regional peers It also is well positioned to benefit from both regional and global demand growth ƒ Coffee consumption growth to 2015/16: 66.0% to 2.2mn bags Strong growth in domestic coffee consumption will be driven by increases in GDP and population, and as spending on food and drink items such as coffee increases Urbanisation and the spread of Western-style coffee shops are expected to add to this trend ƒ Milk production growth to 2015/16: 24.4% to 398,000 tonnes Dramatic increases in cattle numbers and increased public and private sector investment – part of the effort to reduce the country's growing import dependency – will be the main boost to growth Commercialisation will also play a key role as larger, more efficient farms come to play a greater role in milk production ƒ BMI universe agribusiness market value: US$21.3mn in 2012; growth to average 5.9% annually between 2010/11 and 2015/16 ƒ 2012 real GDP growth: 5.3% (down from 5.9% in 2011; predicted to average 6.7% over 20112016) ƒ 2012 consumer price index: 8.4% year-on-year (y-o-y) (lower than 18.7% in 2011; predicted to average 7.9% over 2011-2016) ƒ 2012 central bank policy rate: 10.00% (lower than 15.00% in 2011; predicted to average 9.30% over 2011-2016) © Business Monitor International Ltd Page Vietnam Agribusiness Report Q4 2012 Mainly For Exports Vietnam – Coffee Production & Exports ('000 60kg Bags) f = BMI forecast Source: BMI, USDA, Vicofa Key Developments Thailand's strong push to form a rice cartel along with other five Association of Southeast Asian Nations countries – including Vietnam – in order to control and boost international rice prices is unlikely to materialise, in our view Although the project can count on a strong support from Thailand and Cambodia, Vietnam, which would be one of the two pillars of the project given the volume of its exports, has shown a clear scepticism towards such a plan in past years Moreover, Vietnam has been making inroads into some markets traditionally dominated by Thailand, as Viet rice is now enjoying a US$100/tonne discount over Thai rice Participating in the rice cartel would lead to a compression of the price differentiation and could hamper Vietnamese exports Vietnam's coffee production and exports are being hampered by the country's low-quality beans The decision made by Nestlé in August 2012 to boost direct purchases of coffee from farmers by as much as five times over the next half decade is likely to significantly improve bean quality Moreover, the plan aims to improve growing techniques through training, and it is likely to shorten the supply chain, thus improving growers' income All this, coupled with tree-replanting programmes, will support yields in the coming years © Business Monitor International Ltd Page Vietnam Agribusiness Report Q4 2012 SWOT Analysis Vietnam Agriculture SWOT Strengths ƒ ƒ ƒ Weaknesses ƒ ƒ Opportunities ƒ ƒ ƒ Threats ƒ ƒ The natural fertility of Vietnam around the Red River Delta in the north and the Mekong River Delta in the south provides the country with a strong agricultural base Vietnam is the world's second largest exporter of both rice and coffee It also enjoys relatively high rice yields compared with its regional counterparts Agricultural productivity has improved considerably since the opening up of the economy in 1986 Much of Vietnam's agriculture is based on small-scale farms with poor yields in comparison to more developed international competitors Transportation and production infrastructure is often poor, making getting crops to market difficult and negatively affecting quality Since the opening up of the economy in 1986, which allowed more private involvement in agriculture, yields have improved dramatically and look set to continue doing so over our forecast period to 2013 Vietnam's fast-growing population of more than 80mn provides a large market for agro-food products With BMI forecasting Vietnamese GDP per capita to grow rapidly over our forecast period, consumers will have more money to spend on food, spurring growth in agricultural production Poor knowledge of good farming practices and hygiene standards leaves Vietnamese agriculture open to disease outbreaks of the kind that have plagued the livestock industry in recent years The rising population and increasing industrialisation of the economy will increase competition for land use, curtailing the area available for expansion of agriculture © Business Monitor International Ltd Page Vietnam Agribusiness Report Q4 2012 Vietnam Business Environment SWOT Strengths ƒ ƒ Weaknesses ƒ ƒ Opportunities ƒ ƒ Threats ƒ ƒ Vietnam has a large, skilled and low-cost workforce, that has made the country attractive to foreign investors Vietnam's location – its proximity to China and South East Asia, and its good sea links – makes it a good base for foreign companies to export to the rest of Asia, and beyond Vietnam's infrastructure is still weak Roads, railways and ports are inadequate to cope with the country's economic growth and links with the outside world Vietnam remains one of the world's most corrupt countries According to Transparency International's 2011 Corruption Perceptions Index, Vietnam ranks 112 out of 183 countries Vietnam is increasingly attracting investment from key Asian economies, such as Japan, South Korea and Taiwan This offers the possibility of the transfer of high-tech skills and know-how Vietnam is pressing ahead with the privatisation of state-owned enterprises and the liberalisation of the banking sector This should offer foreign investors new entry points Ongoing trade disputes with the US, and the general threat of American protectionism, which will remain a concern Labour unrest remains a lingering threat A failure by the authorities to boost skills levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page Vietnam Agribusiness Report Q4 2012 Supply & Demand Analysis Vietnam Dairy Outlook BMI Supply View: Since the opening up of the economy in 1986, there has been considerable change in the structure of the Vietnamese dairy industry The contribution of state farms, which were previously responsible for almost all milk production, has fallen to around just 5%, with the other 95% coming mainly from small- and medium-sized private farms We have revised upward our production forecast on the back of an update in historical data In 2011/12, we forecast milk production growth of 3.4% to 331,000 tonnes Looking at 2012/13, we expect output to grow further to 343,000 tonnes Out to 2015/16, we are forecasting Vietnamese fluid milk production growth of 24.8% on the 2010/11 level to 398,000 tonnes Dramatic increases in cattle numbers and increased public and private sector investment – part of the effort to reduce the country's growing import dependency – will be the main boost to growth Commercialisation will also play a key role as larger, more efficient farms come to play a greater role in milk production A sustained period of high global milk prices on the back of rising global demand and supply sluggishness will also prove supportive of production and encourage producers to consider the long-term impact of their approach to cattle farming Finally, the sector is likely to benefit from the continued increase in yields, which have risen almost 130% over the past decade and are expected to continue to so given the new investment in the sector BMI Demand View: Vietnamese dairy consumption has expanded significantly in the last 15 years, driven by relatively large increases in domestic consumption as well as rising incomes Per capita milk consumption in Vietnam doubled between 2000 and 2009 to 12kg per person per year Despite this increase, the country remains below the regional average of 65kg Though there has been an increase in milk production over the years, the country produces neither cheese nor butter Condensed milk and yoghurt are highly popular dairy products We expect the country to be increasingly reliant on dairy imports to meet its domestic needs Vietnamese dairy consumption growth will remain strong over our forecast period to 2016 Strong economic growth will filter through into rising disposable incomes, pushing up demand for non-essential foodstuffs Through to 2016, we expect fluid milk consumption growth of 38.6% to 242,300 tonnes, while demand for butter, cheese and whole milk powder will soar 49.6%, 165.7% and 19.4% respectively, albeit from far lower bases Increased urbanisation, increased ownership of Western goods and the ongoing spread of modern, organised retail will all prove supportive of strong dairy consumption growth, even if forecast higher global dairy prices limit the growth outlook to some extent © Business Monitor International Ltd Page Vietnam Agribusiness Report Q4 2012 Vietnam's sturdy economic growth over the next few years will continue to fuel demand for higher value food and beverage products, such as coffee Vietnam's massive youth population, for whom visiting cafés and drinking coffee is a growing lifestyle choice, is another major positive As this group of young, aspirant consumers enters the workforce, the accordant rise in their level of incomes will serve to further buoy the demand for higher-value coffee products The tea sector is also set to experience strong growth over our five-year forecast period, buoyed by rising incomes and increasing domestic demand These dynamics will continue to attract the sights of multinational coffee producers, in turn imbuing the sector with greater dynamism over our forecast period As a case in point, Masan Consumer has acquired a 50.1% stake, valued at around VND1.07trn (US$51mn), in the Vietnamese coffee producer Vinacafe Bien Hoa Joint-Stock Company By acquiring a controlling stake in Vinacafe, Masan clearly wants to put itself in a strong position to leverage on the exciting demand dynamics in the Vietnamese coffee sector Reflecting Vinacafe's strength in the Vietnamese coffee sector, the coffee producer recorded impressive 30% compound annual average growth in its headline sales between 2006 and 2010 Also looking to capitalise on Vietnam's coffee potential, Nestlé plans to increase its coffee sourcing from local farmers in Vietnam and has committed to a new coffee factory in the country The US$270mn factory will be constructed in the south-east province of Dong Nai and will produceNescafé-branded products for the domestic and international markets from 2013 Meanwhile, Philippine food major Jollibee Foods Corporation is reportedly in the process of acquiring a 50% interest in SuperFoods Group, which will give it a 49% stake in SF Vung Tau Joint Stock Company in Vietnam and a 60% share in Blue Sky Holdings in Hong Kong The acquisition of a majority interest in the SuperFoods Group could expedite Jollibee's international push given the former's reach across the coffee markets of Macau, Hong Kong and Vietnam Table: Hot Drinks Volume Sales – Historical Data & Forecasts, 2010-2016 Coffee sales ('000 tonnes) Tea sales ('000 tonnes) 2010 2011e 2012f 2013f 2014f 2015f 2016f 39.81 43.63 46.65 50.78 55.15 59.70 64.47 217.33 232.68 245.92 261.07 279.28 298.83 323.79 e/f = BMI estimate/forecast Source: General Statistics Office, Company information, Trade press, BMI Soft Drinks We expect soft drink value sales to increase at a compound annual average growth rate of 14.5% between 2012 and 2016, outperforming a 6.8% compound annual average growth in volume sales © Business Monitor International Ltd Page 71 Vietnam Agribusiness Report Q4 2012 We are witnessing a rapid emergence of competition in the Vietnamese soft drinks market The opportunities provided by a rapid middle-class emergence in Vietnam are firmly within the sights of domestic drinks producers such as PepsiCo Vietnam, Tan Hiep Phat and Coca-Cola Beverages Vietnam, and the companies' aggressive initiatives in terms of product innovation, portfolio expansion and advertising will only instill greater dynamism into the sector going forward The maturation of a massive youth population, and rising consumer affluence are translating into a burgeoning appetite for soft drinks As consumers move up the income ladder over the coming years, an accelerating premiumisation momentum in the sector means that value sales are expected to increase more dynamically over our forecast period An intensifying influx of sector investments will provide another major impetus to drive industry growth In particular, we expect domestic soft drinks manufacturers to ramp up their initiatives in terms of product innovation, portfolio expansion and marketing In the regard of portfolio expansion, local soft drink manufacturers are gradually calibrating their portfolio towards healthier and functional beverages such as fruit juices and ready-to-drink teas as they look to tap into a growing health awareness trend in the country Reflecting a shift of consumer preferences towards healthier beverages, PepsiCo Vietnam and Coca-Cola Beverages Vietnam have been losing market shares in recent years due to declining sales of carbonates, according to anecdotal reports However, with the health awareness trend remaining wellentrenched over the coming years, we expect more domestic soft drinks manufacturers such as PepsiCo Vietnam and Coca-Cola Beverages Vietnam to expand their non-carbonates offerings going forward As a case in point, Big C recently introduced its private label fruit juice range Casino Bio to cater to the burgeoning domestic demand for health and functional beverages As competition intensifies in the Vietnamese soft drinks market, domestic producers are also looking to differentiate themselves through branding and marketing initiatives The likes of Coca-Cola Beverages Vietnam and Tan Hiep Phat have executed some of the biggest advertising campaigns in Vietnam through various formats such as print advertisements, television and the internet These initiatives have not only bolstered consumer awareness of the different soft drinks brands but also encouraged greater soft drinks consumption in the country Moreover, domestic soft drinks manufacturers will continue to engage in product innovation by offering different bottle formats and sizes in an attempt to cater to the varying consumer tastes and preferences For instance, Coca-Cola Beverages Vietnam and PepsiCo Vietnam produce their soft drinks in varying sizes, and this has facilitated their reach to the end-consumer market As more companies hop on the product innovation bandwagon going forward, this will bring about greater dynamism in the sector and further fuel sales growth © Business Monitor International Ltd Page 72 Vietnam Agribusiness Report Q4 2012 Table: Soft Drinks Value/Volume Sales – Historical Data & Forecasts, 2010-2016 2010 2011e 2012f 2013f 2014f 2015f 2016f Soft drinks sales (mn litres) 1,694.54 1,820.11 1,937.14 2,087.87 2,228.40 2,385.08 2,524.58 Carbonated soft drink sales (mn litres) 847.51 916.15 958.84 1,029.74 1,113.92 1,202.87 1,297.46 Soft drink sales growth, litres (% chg y-o-y) 20.37 7.41 6.43 7.78 6.73 7.03 5.85 Soft drinks sales (VNDmn) Carbonated soft drink sales (VNDmn) 48,430,761.46 58,936,203.33 70,192,835.62 79,400,573.14 90,458,402.32 7,116,787.00 Soft drink sales growth, VND (% chg y-o-y) Soft drinks sales (US$mn) 9,124,101.85 10,364,503.89 11,698,617.92 13,351,021.10 102,590,736.30 116,065,458.91 15,137,913.21 17,144,729.02 21.76 21.69 19.10 13.12 13.93 13.41 13.13 2,531.14 2,853.60 3,336.95 3,817.34 4,398.66 5,046.27 5,774.40 e/f = BMI estimate/forecast Source: Company information, Trade press, BMI Table: Carbonates , 2009-2016 2009 2010 2011e 2012f 2013f 2014f 2015f 2016f 801.68 871.07 931.37 982.45 1,055.15 1,142.17 1,233.62 1,329.74 8.62 8.66 6.92 5.48 7.40 8.25 8.01 7.79 781.83 847.51 905.07 954.23 1,025.02 1,109.98 1,199.17 1,292.87 Carbonated soft drink sales, litres mn, % change y-o-y 9.26 8.40 6.79 5.43 7.42 8.29 8.04 7.81 Carbonated soft drink sales, litres per capita 9.00 9.65 10.19 10.63 11.31 12.12 12.97 13.86 Carbonated soft drink exports, litres mn 33.25 37.71 41.08 43.37 45.62 48.05 50.68 53.51 Carbonated soft drink exports, litres mn, % change y-o-y -8.71 13.42 8.93 5.59 5.19 5.32 5.46 5.59 Carbonated soft drink imports, litres mn 13.40 14.15 14.78 15.15 15.50 15.85 16.23 16.63 Carbonated soft drink imports, litres mn, % change y-o-y -3.85 5.59 4.44 2.56 2.29 2.28 2.38 2.47 Carbonated soft drink balance, litres mn 19.85 23.56 26.30 28.22 30.12 32.20 34.44 36.88 -11.73 18.71 11.63 7.30 6.74 6.89 6.98 7.06 Carbonated soft drink production, litres mn Carbonated soft drink production, litres mn, % change y-o-y Carbonated soft drink sales, litres mn Carbonated soft drink balance, litres mn, % change y-o-y e/f = BMI estimate/forecast Source: Company information, Trade press, BMI © Business Monitor International Ltd Page 73 Vietnam Agribusiness Report Q4 2012 Mass Grocery Retail ƒ Overall mass grocery retail (MGR) sales are forecast to increase at a compound annual average growth rate of 12.3% over the five years to 2016 ƒ The supermarket sector is expected to witness the strongest growth among the MGR sub-sectors, recording a compound annual average growth rate of 13.0% between 2012 and 2016 We forecast growth of 12.6% in Vietnam's mass grocery retail (MGR) sales in 2012, down from 14.0% in 2011 The Vietnamese consumer came under pressure in 2011 as elevated inflation and tight credit conditions dampen consumer purchasing power However, with inflationary pressure continuing to wane and the State Bank of Vietnam loosening its monetary policy stance, this should provide some reprieve to domestic demand Nonetheless, retail activity in 2012 is likely to witness some moderation as the global headwinds of a potential hard landing in China, economic uncertainties in the US and sovereign debt concerns in the eurozone weigh on consumer confidence Underpinning this view, we observed that retail sales growth in Vietnam is losing momentum in recent months Strong Retail Fundamentals Favourable demographics and robust economic growth largely underpin our optimism in the Vietnamese MGR growth story According to our estimates, Vietnam's population is roughly 89mn and is forecast to grow at a healthy clip of 0.9% per annum to 2021 More importantly, Vietnam has a youthful demographic profile, implying attractive opportunities in the mass-market Moreover, Vietnam's rapid economic development should assist the emergence of a new consumer class – in major urban centres at least – which has an interest and can afford to participate in modern consumption methods such as mass grocery retailing GDP per capita in Vietnam is forecast to more than double from an estimated level of US$1,517 in 2012 to US$4,348 by 2021 This rise in purchasing power will only trigger a swathe of consumer spending across the country's retail scene Vietnam Unlikely To Reach Full Retail Potential In Near Term Although Vietnam is equipped with the aforementioned elements that are necessary to support strong growth in mass grocery retailing, the country is unlikely to reach the full potential of its retail growth story in the near future Organised retail (ie supermarkets, hypermarkets, convenience stores and discount retail stores) accounts for only 15% of overall grocery sales in Vietnam, highlighting the prevalence of mom-and-pop shops The relative immaturity of the Vietnamese MGR sector can be partly attributed to the country's restrictive business climate Vietnam remains a risky place to business, with the lack of transparency of laws and regulations as well as restrictions on foreign investment deterring less-hardy retailers from setting up shop in the country The lack of an established transport infrastructure further complicates distribution efforts for MGR operators © Business Monitor International Ltd Page 74 Vietnam Agribusiness Report Q4 2012 Foreign Interest Picking Up Despite these challenges, foreign interest in the Vietnamese MGR sector will continue to grow steadily over the coming years given the sector's hugely untapped potential However, we believe the bulk of multinational investment in the near future is likely to come from bigger retail names such as AEON and Groupe Casino, which are eager to expand their emerging market footprint and have the financial capacity to deploy the necessary distribution infrastructure in the sector After receiving the regulatory permit from the Vietnamese government, Japanese retailer AEON plans to develop around 20 retail and trade centres nationwide by 2020, which will house both local and foreign MGR operators Interest from less-hardy foreign investors will also pick up going forward, although such investment will largely take the form of joint ventures as foreign retailers leverage on the local market expertise and financial strength of their local counterparts As a case in point, South Korean MGR player E-Mart recently inked an agreement with U&I Investment Corporation to establish a joint venture in Vietnam with an aim of setting up retail stores in the country Similarly, Singapore MGR operator NTUC Fairprice and Vietnam's Saigon Union of Trading Co-operatives are looking to establish a chain of hypermarkets in Vietnam through their local joint venture Supermarket And Hypermarket Sectors The Outperformers Reflecting the long-term potential of the Vietnamese MGR sector, we forecast 9.9% compound annual average growth in overall MGR sales between 2012 and 2016 This growth forecast marks Vietnam as one of the most attractive propositions in the Asia Pacific region Over our five-year forecast period, we see the strongest growth opportunities in the Vietnamese supermarket and hypermarket sub-sectors Due to the higher profitability per store levels of supermarkets and hypermarkets, these store formats will continue to garner the bulk of investment attention Vietnamese consumers are most familiar with the standard supermarket format and are increasingly showing a penchant for hypermarkets, owing to its popular combination of food and non-food items While the supermarket and hypermarket sub-sectors will feature most prominently on investors' radars, the convenience retail sector can be expected to attract growing interest from retailers going forward Accordingly, the demand for convenience with the pay-off of higher prices is not yet on the agenda for most consumers However, with purchasing power on the rise, this should bring the concept of convenience retailing more within reach of the average consumer If there can be a downside in the case of such an impressive retail growth forecast, it comes in the form of Vietnam's majority rural population, which drags down food consumption in the market to unattractive levels The risk for retailers is that as soon as the country's major cities start to become saturated with business opportunities, few other communities exist that can currently support modern retail development Even the low prices offered by discounters would be unlikely to attract buyers in rural communities, for whom self-sufficiency and wet markets remain the sole methods of consumption © Business Monitor International Ltd Page 75 Vietnam Agribusiness Report Q4 2012 However, this point is still a long way off Retailers will invest in Vietnam in line with their own need to expand, confident of the country's economic development and growing consumer base Table: MGR Value Sales by Format – Historical Data & Forecasts 2010 2011e 2012f 2013f Supermarkets (VNDbn) 57,059.92 65,373.55 73,643.31 82,533.32 93,795.92 106,127.63 120,248.04 Hypermarkets (VNDbn) 22,804.09 26,270.31 29,714.35 33,331.94 37,598.02 42,241.34 47,496.35 Convenience Stores (VNDbn) 17,962.00 19,828.26 21,664.35 23,455.86 25,775.36 28,486.93 31,475.21 Total mass grocery retail sector (VNDbn) 97,826.02 111,472.12 125,022.01 139,321.12 157,169.30 176,855.89 199,219.60 Total mass grocery retail sector growth, VND, (y-o-y) 2014f 2015f 2016f 25.14 13.95 12.16 11.44 12.81 12.53 12.65 Supermarkets (US$bn) 2.98 3.17 3.50 3.97 4.56 5.22 5.98 Hypermarkets (US$bn) 1.19 1.27 1.41 1.60 1.83 2.08 2.36 Convenience Stores (US$bn) 0.94 0.96 1.03 1.13 1.25 1.40 1.57 Total mass grocery retail sector (US$bn) 5.11 5.40 5.94 6.70 7.64 8.70 9.91 e/f = BMI estimate/forecast Source: Company information, Trade press, BMI Trade Export growth between 2012 and 2016 is forecast at a compound annual average rate of 8.8%, stronger than import growth of 7.8% We see growing downside risks to our outlook for Vietnam's food and drink exports A sputtering economic recovery in the US, sovereign debt concerns in the eurozone and an imminent hard landing in China are placing increasing pressure on our export outlook for the Vietnamese food and drink sector On the other hand, the Vietnamese consumer looks to be in a stronger shape than its regional peers to shoulder the burden of slower economic growth As such, we are expecting import growth in 2012 to outperform that of export growth Import growth is forecast to come in at 9.6%, compared with 6.4% forecast growth in exports Over the next five years, the outlook for Vietnam's food and drink trade balance is relatively stronger, as the country is forecast to maintain a healthy and growing trade balance While exports are forecast to experience growth of 8.8% on a compound annual average growth basis between 2012 and 2016, imports are forecast to experience compound annual average growth of 7.8% over the same period © Business Monitor International Ltd Page 76 Vietnam Agribusiness Report Q4 2012 A major driver behind the growth in exports is sustained government efforts to improve local food production and agricultural industries This will boost output and make more produce available for export, as well as improve the quality competitiveness of local exports Over the long term, increasing urbanisation and continued exposure to Western influences are expected to generate growing import demand, and increasingly busy lifestyles and rising interest in branded produce will lead to growth in the processed-food industry In order to meet this demand, local manufacturers will be forced to import the necessary raw ingredients Beyond 2016, the government is likely to be hopeful that its investments and efforts to attract foreign investors will pay off, and that much of this new and specific type of demand will be able to be accommodated domestically Table: Food & Drink Trade Indicators – Historical Data & Forecasts , 2010-2016 2010 2011e 2012f 2013f 2014f 2015f 2016f Exports (US$mn) 12,168.27 14,235.75 15,155.38 16,911.92 18,883.40 21,111.17 23,493.00 Imports (US$mn) 3,886.40 4,137.85 4,608.02 5,093.57 5,622.62 6,212.51 6,830.20 Balance (US$mn) 8,281.87 10,097.90 10,547.37 11,818.35 13,260.78 14,898.66 16,662.80 e/f = BMI estimate/forecast Source: UNCTAD, BMI © Business Monitor International Ltd Page 77 Vietnam Agribusiness Report Q4 2012 Country Snapshot Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail Vietnam's population pyramid for 2011, the change in the structure of the population between 2011 and 2050 and the total population between 1990 and 2050, as well as life expectancy The tables show key data points from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split Source: World Bank, UN, BMI © Business Monitor International Ltd Page 78 Vietnam Agribusiness Report Q4 2012 Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012f 2015f 2020f 67,102 74,008 78,758 83,161 87,848 89,730 92,443 96,355 0-4 years 9,340 9,212 7,002 6,776 7,186 7,186 7,026 6,529 5-9 years 8,685 9,193 9,124 6,921 6,703 6,885 7,143 6,982 10-14 years 7,504 8,604 9,142 9,038 6,844 6,539 6,668 7,104 15-19 years 7,127 7,408 8,535 9,064 8,963 8,161 6,806 6,628 20-24 years 6,492 7,003 7,305 8,420 8,954 9,115 8,892 6,745 25-29 years 5,893 6,361 6,879 7,167 8,284 8,602 8,862 8,803 30-34 years 4,884 5,779 6,250 6,765 7,058 7,475 8,202 8,779 35-39 years 3,965 4,794 5,688 6,163 6,677 6,770 6,991 8,131 40-44 years 2,420 3,884 4,710 5,614 6,086 6,304 6,609 6,925 45-49 years 2,039 2,358 3,802 4,653 5,548 5,761 6,012 6,536 50-54 years 1,933 1,968 2,287 3,739 4,580 4,936 5,449 5,914 55-59 years 1,946 1,843 1,887 2,201 3,617 4,001 4,446 5,305 60-64 years 1,544 1,822 1,737 1,767 2,076 2,573 3,455 4,268 65-69 years 1,283 1,391 1,659 1,582 1,621 1,649 1,927 3,233 70-74 years 919 1,084 1,194 1,439 1,389 1,384 1,438 1,729 1,127 1,305 1,559 1,852 2,264 2,388 2,516 2,743 Total 75+ years f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 79 Vietnam Agribusiness Report Q4 2012 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012f 2015f 2020f 0-4 years 13.92 12.45 8.89 8.15 8.18 8.01 7.60 6.78 5-9 years 12.94 12.42 11.58 8.32 7.63 7.67 7.73 7.25 10-14 years 11.18 11.63 11.61 10.87 7.79 7.29 7.21 7.37 15-19 years 10.62 10.01 10.84 10.90 10.20 9.10 7.36 6.88 20-24 years 9.68 9.46 9.27 10.13 10.19 10.16 9.62 7.00 25-29 years 8.78 8.60 8.73 8.62 9.43 9.59 9.59 9.14 30-34 years 7.28 7.81 7.94 8.14 8.03 8.33 8.87 9.11 35-39 years 5.91 6.48 7.22 7.41 7.60 7.55 7.56 8.44 40-44 years 3.61 5.25 5.98 6.75 6.93 7.03 7.15 7.19 45-49 years 3.04 3.19 4.83 5.59 6.32 6.42 6.50 6.78 50-54 years 2.88 2.66 2.90 4.50 5.21 5.50 5.89 6.14 55-59 years 2.90 2.49 2.40 2.65 4.12 4.46 4.81 5.51 60-64 years 2.30 2.46 2.21 2.12 2.36 2.87 3.74 4.43 65-69 years 1.91 1.88 2.11 1.90 1.85 1.84 2.08 3.36 70-74 years 1.37 1.46 1.52 1.73 1.58 1.54 1.56 1.79 75+ years 1.68 1.76 1.98 2.23 2.58 2.66 2.72 2.85 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 80 Vietnam Agribusiness Report Q4 2012 Table: Vietnam's Key Population Ratios, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f 75.5 71.2 60.5 49.7 42.1 40.9 40.6 41.6 Dependent population, total, '000 28,859 30,790 29,679 27,609 26,006 26,031 26,717 28,321 Active population, % of total 57.0 58.4 62.3 66.8 70.4 71.0 71.1 70.6 Active population, total, '000 38,243 43,218 49,079 55,552 61,842 63,699 65,725 68,034 Youth population, % of total working age 66.8 62.5 51.5 40.9 33.5 32.4 31.7 30.3 Youth population, total, '000 25,529 27,009 25,268 22,735 20,732 20,610 20,837 20,615 Pensionable population, % of total working age 8.7 8.7 9.0 8.8 8.5 8.5 8.9 11.3 Pensionable population, '000 3,330 3,780 4,411 4,874 5,274 5,421 5,881 7,706 Dependent ratio, % of total working age f = BMI forecast; 0>15 plus 65+, as % of total working age population; 0>15 plus 65+; 15-64, as % of total population; 15-64; 0>15, % of total working age population; 0>15; 65+, % of total working age population; 65+ Source: World Bank, UN, BMI Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f Urban population, % of total 20.3 22.2 24.3 26.4 28.7 29.7 31.2 33.9 Rural population, % of total 79.7 77.8 75.7 73.6 71.3 70.3 68.8 66.1 Urban population, '000 13,438.6 16,201.6 18,865.4 21,940.1 25,212.5 26,649.9 28,842.1 32,664.4 Rural population, '000 52,761.4 56,778.4 58,770.0 61,166.2 62,635.9 63,080.4 63,600.5 63,690.7 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 81 Vietnam Agribusiness Report Q4 2012 BMI Forecast Modelling How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a ‘general-to-specific’ method BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary During periods of ‘industry shock’, for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact Effective forecasting depends on appropriately-selected regression models BMI selects the best model according to various different criteria and tests, including, but not exclusive to: ƒ R2 tests explanatory power; Adjusted R2 takes degree of freedom into account ƒ Testing the directional movement and magnitude of coefficients ƒ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) ƒ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity BMI uses the selected best model to perform forecasting It must be remembered that human intervention plays a necessary and desirable role in all of BMI’s industry forecasting Experience, expertise and knowledge of industry data and trends ensures that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not Within the Agribusiness industry, this intervention might include, but is not exclusive to, technology development that might influence future output levels (for example greater use of biotechnology), dramatic changes in local production levels due to public or private sector investment, the regulatory environment and specific areas of legislation, such as import and export tariffs and farm subsidies, changes in lifestyles and general societal trends, the formation of bilateral and multilateral trading agreements and political factors The following two examples show the demand (consumption) and the supply (production) of rice Note: the explanatory variables for both of them are quite similar, but the underlying economic theory is different © Business Monitor International Ltd Page 82 Vietnam Agribusiness Report Q4 2012 Example of Rice Consumption Model: (Rice Consumption)t = β0 + β1*(Real Private Consumption per capita)t + β2*(Inflation)t + β3*(Real Lending Rate)t + β4*(Population)t + β5*(Government Expenditure)t + β6*(Food Consumption)t-1 + εt Where: ƒ β are parameters for this function ƒ Real Private Consumption per capita has a positive relationship with Rice Consumption, if rice is a normal good in a particular country If rice is an inferior good in a country, the relationship is negative So the sign of β1 is determined by a specific product within a specific country ƒ When Inflation is high, people with rational expectations will consume ‘today’ rather than wait for ‘tomorrow’s high price to come Higher rice demand in Year t due to higher inflation in that year leads to an assumed positive sign of β2 ƒ The relationship between Real Lending Rate and Rice Consumption is expected to be negative When real lending rates increase, disposable incomes, especially for those with mortgage burdens etc, will decrease So the sign of β3 is expected to be negative ƒ Of course, other things being equal, growth in rice consumption can also be caused by growth in population Consequently, positive sign of β4 is expected ƒ Government Expenditure typically causes total disposable incomes to rise So the sign of β5 is expected to be positive ƒ Human behaviour has a trend: A high level of food consumption in previous years means there is very likely to be a high level of food consumption the next year So the positive sign of β6 is expected ƒ ε is the error/residual term Example of Rice Production Model: (Rice Production)t = β0 + β1*(Real GDP per capita)t + β2*(Inflation)t + β3*(Real Lending Rate)t + β4*(Rural Population)t + β5*(Government Expenditure)t + β6*(Food Production)t-1 + εt Where: ƒ The same as above, the relationship between Real GDP per capita and rice production depends on whether rice is normal or inferior good in that country ƒ If high inflation is caused by food prices increasing, farmers will be more profitable Then they will supply more agricultural product (e.g rice) to increase their marginal (extra) profit, although this is tempered by the rising cost of other inputs in line with inflation © Business Monitor International Ltd Page 83 Vietnam Agribusiness Report Q4 2012 ƒ There is a global move towards corporate farming, away from small holdings, in order to achieve greater agricultural productivity Corporate farming means more investment in the modes of production i.e agricultural machinery Higher real lending rates discourage investment, which in turn reduce production ƒ BMI assumes only the rural population has a positive effect on agricultural product supply ƒ With supportive government policy, other things being equal, rice production is expected to go up Government Expenditure is likely to play some role in supporting agribusiness ƒ Again, previous food production positively affects this year’s prediction ƒ y affects this year’s prediction © Business Monitor International Ltd Page 84 Reproduced with permission of the copyright owner Further reproduction prohibited without permission [...]... prospects in Australia or Argentina disappoint © Business Monitor International Ltd Page 33 Vietnam Agribusiness Report Q4 2012 Cooling Off Slightly Front-Month CBOT Wheat, USc/bushel, Daily Chart & RSI (below) Source: BMI, Bloomberg © Business Monitor International Ltd Page 34 Vietnam Agribusiness Report Q4 2012 Corn: US Downgrades Tighten Market Further Front-month corn has risen slightly in August,... Ltd Page 30 Vietnam Agribusiness Report Q4 2012 Table: Vietnam Rice Production & Consumption, 2007 -2012 Rice Production, '000 tonnes 1 Rice Consumption, '000 tonnes f 1 2007 2008 2009 2010 2011 2012f 22,922.0 24,375.0 24,393.0 24,993.4 26,300.0 26,455.0 18,775.0 19,400.0 19,000.0 19,150.0 19,400.0 19,788.0 1 Notes: BMI forecasts Sources: USDA Risks To Outlook There are upside risks to our Vietnamese... Page 15 Vietnam Agribusiness Report Q4 2012 Table: Vietnam Pork Production & Consumption, 2007 -2012 Pork Production, '000 tonnes 1 Pork Consumption, '000 tonnes f 1 2007 2008 2009 2010 2011 2012 1,832.0 1,850.0 1,910.0 1,930.0 1,960.0 1,960.0 1,855.0 1,880.0 1,936.0 1,940.0 1,995.0 2,023.4 1 Notes: BMI forecasts Sources: USDA Table: Vietnam Beef & Veal Production & Consumption, 2007 -2012 Beef & Veal... International Ltd Page 10 Vietnam Agribusiness Report Q4 2012 exports include the US, Australia, Canada, Russia, Turkey, Iraq, South Korea and Cambodia In the domestic market, Vinamilk has a 30% share of the processed dairy sector Table: Vietnam Milk Production & Consumption, 2007 -2012 Milk Production, '000 tonnes 1,2 Liquid Milk Consumption, '000 tonnes f 3 2007 2008 2009 2010 2011 2012f 234.4 262.2 278.2... pose upside risks to our forecasts © Business Monitor International Ltd Page 16 Vietnam Agribusiness Report Q4 2012 Vietnam Coffee Outlook BMI Supply View: Vietnam' s coffee sector has grown significantly over the last 20 years, with yields doubling and the area planted expanding from 42,000 hectares (ha) to more than 509,000ha Vietnam is the world's biggest producer of robusta coffee, with more than 95%... Monitor International Ltd Page 19 Vietnam Agribusiness Report Q4 2012 Drop In Exports In Line with Our View We highlighted in July 2012 that coffee exports out of Vietnam have been exceptionally strong since the start of the year and well above averages We noted that they were likely to come down closer to historic averages Indeed, exports in the first six months of 2012 had reached 1mn tonnes, up 38.6%... wholesalers in accordance with WTO commitments © Business Monitor International Ltd Page 20 Vietnam Agribusiness Report Q4 2012 Vietnam Catching Up Brazil, Colombia, Indonesia & Vietnam, % Of Global Coffee Exports Source: USDA Domestic Demand Could Soar, But Poor Business Landscape Undermines Potential While the vast majority of Vietnam' s coffee will be destined for the export market, we expect domestic consumption... Thailand's Rice Throne In 2012 We believe that Vietnam will catch up with Thailand in terms of rice export volumes in 2012 This is mainly due to the impact of the Thai government's rice intervention programme, which is expected to keep Thai rice exports uncompetitive relative to other Asian exporters in the near term © Business Monitor International Ltd Page 28 Vietnam Agribusiness Report Q4 2012 A Tie Between... though Vietnam' s rice exports are set to exceed Thailand's in 2011/12, we expect Thailand to regain some ground in the coming years, mainly as most stockpiling for the country's procurement programme will be completed by the end of 2011/12, leaving a larger surplus available for export in 2012/ 13 © Business Monitor International Ltd Page 29 Vietnam Agribusiness Report Q4 2012 Slow Start To The Year Vietnam. .. International Ltd Page 11 Vietnam Agribusiness Report Q4 2012 The lack of a national quality control body for dairy products will continue to place downside risks to our production and consumption forecasts, as it places the dairy industry at risk of a health scandal, which would further tarnish the image of dairy products in Vietnam Vietnam Livestock Outlook BMI Supply View: Within the Vietnamese livestock ... Vietnam Agribusiness Report Q4 2012 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q4 2012 CONTENTS Executive Summary SWOT Analysis Vietnam. .. Consumption, 200 7-2 012 15 Table: Vietnam Pork Production & Consumption, 200 7-2 012 16 Table: Vietnam Beef & Veal Production & Consumption, 200 7-2 012 16 Vietnam. .. Page 30 Vietnam Agribusiness Report Q4 2012 Table: Vietnam Rice Production & Consumption, 200 7-2 012 Rice Production, '000 tonnes Rice Consumption, '000 tonnes f 2007 2008 2009 2010 2011 2012f 22,922.0