작성일자: 2013.11.14

작성자: 하노이 무역관 Ms Do Minh Thu(dm.thu@kotra-hanoi.org.vn)

 

 

1. Overview of Vietnam Agricultural Business

 

□ Key trends

 

 ○ Agriculture (in a broad sense, including forestry and fishery) plays a very important role in economic development and political and social stability for Vietnam. By the year 2011, with nearly 70% of population live in the rural areas and 50% of rural labor forces are agricultural laborers, thus, agricultural development is both a goal, motivation and the most effective tool and solution of the Party and Government in poverty reduction and living improvement of the rural people, environmental protection and implementation of Millennium Development Goals.

  - In terms of economic units, there are 10.37 million households operating in agricultural field (in a broad sense) as of 1 July 2011, according to the Census results, accounting for 44.8% in the total households nationwide. And based on Results of the 2011 Enterprise Survey, as of 1 January 2011, there are 2536 enterprises, 6302 AFF cooperatives.

  - In terms of land, agriculture, forestry and fishery use 26.23 million hectares of agricultural area, accounting for nearly 75% of total natural area of the whole country, according to data source from Ministry of Natural Resources and Environment.

  - In terms of employment, according to the census results, as of July 1, 2011 number of AFF workable employment in working age is 20.5 million people, making up 45% of total workable employment of the whole country.

  - In terms of business and production results, in 2011, according to GSO Statistical Yearbook, in 2011, the AFF industry creates an added value of 558.3 trillion VND by current price (of which, 79.1% for agriculture, 3.1% for forestry and 17.8% for fishery) or equivalent to 94.2 trillion VND by 1994 constant price. In the structure of GDP, the AFF sector accounts for 22%; contributing to 0.66 point of increasing level of 5.89% of Vietnam GDP in 2011. The important products in 2011 are increased significantly compared to the year 2001: i.e. 42.3 million tonnes of rice output, increasing 10.2 million tonnes (+31.8%); 3.1 million tonnes of living weight of pigs, an increase of 103% compared to the year 2001; 4.7 cubic meters of production of wood, up by 95.8%; 5.43 million tonnes of fishery production, increasing by 122.5%, etc.

 

 

 ○ In the implementation of the Party policies and resolutions on agricultural and rural industrialization and modernization, AFF production in the period 2001- 2011 has been developed comprehensively and this sector has played a vital role in the national economy and strived for the agriculture with merchandized characteristics, advanced technique, multi-sector economical structure and stable growth.

 

 ○ Following is main results on AFF production of Viet Nam in 2011 from the Rural, Agriculture and Fishery Census and conjunction with official information disseminated by the authorized agency.

 

 ○ Agriculture land

 

 

  - According to data from Situation of using land as of January 1st, 2011 of Ministry of Natural Resources and Environment, the total agricultural land is nearly 26.21 million ㏊, accounting for nearly 75% of total natural land area nationwide, dividing: agricultural production land with nearly 10.13 million ㏊ (38.64%); forestry land with nearly 15.37 million ㏊ (58.63%); aquaculture land with nearly 690 thousand ㏊ (2.63%) and other agricultural land with 26.1 thousand ㏊ (0.1%).

  - In 2011, the total agricultural production land area nationwide is 10.1 million ㏊, distributing for 6 regions as follows: the Red River Delta (RRD) with 5.4%; the Northern Midlands and Mountainous Areas (NMMA) with 27.7%, the North Central and Central Coastal Areas (NCCCA) with 28.3%, the Central Highlands (CH) with 18.4%, the South East (SE) with 7.3% and the Mekong River Delta (MRD) with 13.0%. In comparison with the year 2006, the whole country is increased nearly 714 thousand ㏊ (+7.6%) in comparison with the year 2006. The CH has the highest increase of 356 thousand ㏊ (+22.3%) in comparison with the year 2006. The RRD has nearly 780 thousand ㏊, a decrease of 36 thousand ㏊ (-4.3%) compared to the year 2006. It is one of reasons leading to free emigration from other regions to the CH in recent years and ongoing years. The RRD with narrow land and crowded people is reduced by 4.3% in comparison with the year 2006.

 

 ○ Output value

  - According to Figure No. 3, it is clearly seen that output value of Vietnam agricultural industry keeps increasing stably with annual growth rate reaching almost 25 percent, though Vietnam agriculture suffered a lot from natural calamity and epidemic diseases every year. Production value of Agro-Forestry-Fishery in 2012 reaches approximately 750,000 VND Billion (US$35,710 Million), almost doubled in comparison with the value of 2008. Cultivation, livestock and service output value in 2012 reaches 534,284.8; 200,849.2 and 14,191.4 VND billion respectively, which accounts for 71.3%; 26.8% and 1.89% respectively.

 

                              Source: Vietnam General Statistics Office

 

  - Agriculture is the main source of raw materials for the processing industries and a major contributor to exports. Permanent cultivation covers large areas of the country’s lowlands and smaller portions of the highlands. The primary agricultural areas are the Red River delta, the Mekong River delta, and the southern terrace region. The central coastal land, which is subject to destructive typhoons, is a region of low productivity. The central highlands area, traditionally one of low productivity, has been intensively cultivated but with mixed results.

 

 ○ Export value

  - Not only reached a record US$27.5 billion, exports of agricultural, forestry and fisheries in 2012 have witnessed the promotion of many agricultural commodities on the world market. As can be seen from the table below, all of the main exported agricultural products have seen rapid growth in both value and volume in the period 2009-2012. In 2012, Vietnam has exported 1.73 million tons of coffee, worth US$3.67 million, which is an increase of 40.3% in volume and 36% in value over last year. With this output, Vietnamese coffee exports rose to the top of the world after many years ranked second. When it comes to rice exports, Vietnam is expected to overtake Thailand as the No. 1 rice exporter in the world in 2012. However, at the end of 2012, rice exports reached 8.0 million tons in volume, valued at US$3.67 billion; which is still behind India (8.7 million tons).

  - Fishery products appear to lead the export market of agriculture, with the export value reaching US$6.0 billion in 2012; followed by coffee and rice with the value standing at US$3.672 and US$3.673 billion respectively. It is clear that Vietnam agriculture industry depends much on these three products, which account for approximately 70 percent of the whole export market.

 

Some main agricultural products for exportation

     Source: Vietnam General Statistics Office

 

□ Rice production

 

 ○ Distribution of rice area

 

 

  - Vietnam primarily has a rice-based agricultural economy. Rice is cultivated on 82% of the arable land and provides 80% of carbohydrate, and 40% of the protein intake of the average Vietnamese. Most of the rice grown in Vietnam is in two rich deltas of the north and south - Red River and Mekong, respectively. About 52% of Vietnam’s rice is produced in the Mekong River Delta and another 18% in the Red River Delta.

 

 ○ Production volume

  - Vietnam is a key grower and world provider of rice. Production is growing fast, boosted by higher yielding rice varieties and better culture management. Output grew by more than 25% between 2000 and 2012. After a record year in 2010/11, Vietnamese rice production stagnated in 2011/12. We have revised up slightly our 2012/13 rice production forecast for Vietnam owing to favorable weather conditions during planting, which has allowed for the expansion of crops in the Mekong River Delta region for spring and autumn crops.

  - Area harvested grew by 1.0% y-o-y to 7.82mn hectares (㏊), and yields by 1.1% to 5.66 tonnes/㏊, up 0.9% y-o-y in 2012/13. For the 2013/14 season that started in January, we see production growth slowing slightly as area under cultivation is likely to stagnate around 7.8mn ㏊. We forecast production of 27.7mn tonnes, up 0.8% y-o-y.

  - Good production and strong 2012/13 ending stocks - estimated at 2.1mn tonnes by the US Department of Agriculture (USDA) and at 3.3mn tonnes by the UN Food and Agriculture Organization - will support the country's export capacity as well as the continuous discount Vietnamese rice prices enjoy compared with global prices. We forecast the country's rice production balance in 2013/14 - at 7.3mn tonnes - to be 11.5% higher than the five-year average, which would take exports to 7.7mn-7.8mn tonnes. Stable Vietnamese output, combined with a pickup in Thai exports and strong Indian shipments, will keep the global market well supplied in 2013 and 2014.

  - Compared with many of its agricultural sub-sectors, Vietnamese rice is very competitive relative to many of its regional peers and is well positioned to benefit from both regional and global demand growth. Another advantage of Vietnamese rice is its relatively higher yields. The government is looking to increase by 50% the area planted with hybrid rice varieties, and this bolsters our bullish outlook for the country's rice production capabilities over the long term. Over our five-year forecast period to 2016/17, we expect rice output to grow by 12.3% to 30.2mn tonnes.

 

Rice production and consumption in Vietnam

                                                                                                                  (Unit: 1000 tons)

                              Source: USA Department of Agriculture

 

 

2. Vietnam market of agricultural machinery

 

□ Key trends

 

 ○ In recent years, agricultural mechanization in Vietnam has received much more attention and the variety of product categories has been much more plentiful, namely combine harvesters, tractors, water pumps, spraying machines, etc. Currently, the market of agricultural machinery in Vietnam can be divided into 3 main areas, which are domestic products, Chinese products and imported products from some other countries such as Japan and Korea. Most of local agricultural machinery in the market is manufactured by member companies of Vietnam Engine and Agricultural Machinery Corporation (VEAM), while products originated from China are imported into Vietnam through 2 different ways: legal and illegal.

 

 ○ Presently, most types of agricultural machinery that are being used in Vietnam are products of China or other countries. Statistics show that Chinese products accounts for about 60 percent of all agricultural machinery and equipment items being used in Vietnam, Vietnamese-manufactured products account for about 30 percent, and the remaining were used products imported from foreign countries such as Japan and the Republic of Korea.

 

 ○ As an agriculture-based country, Vietnam has relatively high demand for mechanical products used in agricultural industry. Every year, there are approximately 550,000 agricultural machinery items in use, which include mostly diesel engines, power generators and combine harvesters.

 

 ○ There are around 1,300 companies which are specialized in manufacturing and trading in tractors and many other kinds of agricultural machinery and equipment. In addition, there are also about more than 1,200 facilities specializing in repairing and maintaining services for machinery and equipment.

 

 ○ In recent years, Vietnamese Government has implemented certain policies in order to support the mechanization and modernization in agriculture. However, local players seem to not pay enough attention to this potential market and let the chances be given to overseas manufacturers as well as unknown-origin imported products. In fact, demand of agricultural machinery among Vietnamese consumers is growing rapidly recently, but they have a tendency to choose used products or low-price and poor quality products due to the budget limit. Currently, it is estimated that around 70 percent of Vietnamese farmers cannot afford modern and high quality products despite a lot of support from VEAM and the Government. Thus, that reason can explain the domination of Chinese products in Vietnam market, which clearly show that it is not easy for foreign manufacturers to enter and compete in this market.

 

□ Market size

 

 

 ○ The following table shows the number of some major types of agricultural machinery in Vietnam market in 2011, which is the result of an annual survey carried by Vietnam General Statistics Office. As can be seen from the table below, water pumps, tractors of all kinds and insecticide sprayers are the most popular products in the market. When it comes to tractors, there are around 533,269 items of 3 kinds of tractors which are in use in 2011, of which small and middle-weight tractors seem to gain more favor among Vietnamese consumers due to the convenience and appropriate price range. The value of tractor market in Vietnam is estimated to be around 5,500 VND billion (US$270 million) in 2011, accounting for approximately 10.6 percent of the whole market.

 

 ○ Rice mowing machine and milling machine occupy almost the same size in Vietnam market of agricultural machinery, which the number in use in 2011 is 266,371 and 249,058 respectively. On the other hand, the amount of combine harvesters purchased and used in Vietnam is pretty small, only reaching 14,701 pieces in 2011 and accounting for 0.3 percent of the total market.

 

Number of major machines by unit in Vietnam market

                                                                                                                                                    (Unit: Piece)

     Source: Vietnam General Statistics Office

 

Share of agricultural machinery in Vietnam

 

 ○ The following table shows the number of machinery which is occupied by agricultural enterprises, cooperative and household per 100 units. It is easily seen that this figure can be considered quite low for an agriculture-based country like Vietnam.

 

 ○ Regarding tractors of all kinds, there are only 1.6 tractors being used among 100 households on average. Small ploughs and tractor (12 CV and less) is the favourite type of tractor in Vietnam, mainly due to the fact that cultivation scale and investment budget on rice production in Vietnam is not considerable at the moment. Rice mowing machine and milling machine seem to gain more awareness among Vietnamese consumers with the average number of products in use currently is 2.2 and 2.0 per 100 enterprises, cooperatives and households respectively. Combine harvester is the least favorite among many kinds of agricultural machinery with the average number in use stands at 0.1 per 100 units.

 

 ○ The following figures have clearly stated that Vietnam is quite in short of agricultural machinery of all kinds at the moment and the market still remains potential for both local and foreign manufacturers. In fact, due to the lack of manufacturing capacities of certain agricultural machinery at home, Vietnam agriculture seems to still be heavily dependent on imports in the next few years.

 

Number of major machines occupied by agricultural, forestry and fishery units per 100 units

 

□ Demand trend

 

 ○ Mechanization Rate

  - In fact, agricultural mechanization in Vietnam at the moment clearly fails to meet the demand and requirements of production nationwide, which leads to the decrease in quality and competitiveness of Vietnamese agricultural products when being exported. Currently, the level of equipped agricultural machinery in Vietnam is less than one third of Thailand, a quarter of South Korea and approximately one sixth of China.

  - According to the statistics published by the Institute of Agricultural Engineering and Technology (belongs to the Ministry of Agriculture and Rural Development), national average of power equipped level is about 1.16 HP per ㏊ of cultivated land. This figure of Mekong River Delta is the highest all over the country, but only reaches 1.85 HP per ㏊. The agricultural mechanization rate of Vietnam is still too low in comparison with other countries such as Thailand (4HP/㏊), or China (6.06HP/㏊).

 

Mechanization Rate of Agricultural Production Activities

                                                                                                                                Unit: Percent

                         Source: Institute of Agricultural Engineering and Post-harvest Technology (VIAEP)

 

  - In addition, the application of mechanization is concentrated in only some operation steps such as milling, irrigation and threshing, while the level of mechanization in some other steps such as transport, drying and harvesting is still quite low. Vietnam agriculture still depends largely on manual labor on these kinds of activities.

  - In Vietnam, the mechanization level in rice production is the highest, reaching around 72 percent, while the upland crops (sugarcane, pineapple, maize, beans, and groundnuts) have the rate of about 65 percent. Regarding rice production only, the machinery utilization rate is 95 percent for milling, 85 percent for irrigation, 84 percent for threshing, and some other operations namely transport, drying and harvesting have the rate of 66, 38.7 and 15 percent respectively.

  - Also, Mekong River Delta has the largest rice cultivation area in Vietnam, but the mechanization rate in harvesting of MRD only reaches around 20 percent, letting a considerable amount of rice get lost due to the poor proficiency of the labor and the loss rate of rice harvesting goes up to 2.9 percent in Mekong River Delta in 2011. The drying step in rice production mainly depends on natural solar energy, which leads to the poor quality of products and the high rate of gradation in this stage (about 3.3-3.9%).

  - In conclusion, Vietnam agriculture industry is absolutely in need of modernization and mechanization in order to improve the effectiveness in production process. The market demand remains huge and tends to continue to increase rapidly in the next few years.

 

 ○ Other factors

  - Low mechanization rate mentioned above has shown the considerable amount of agricultural machinery that is needed in Vietnam’s agriculture industry. However, there are still many reasons explaining why this demand is failed to meet in Vietnamese market.

  - It is easily understood that price is the most important factor that affects consumers’ choices of agricultural machinery in Vietnam. The majority of households and individuals working in agriculture has limited budget used for investing in technology and machinery. Despite the desire to improve the effectiveness and quality of agricultural production, Vietnamese farmers still cannot afford expensive equipment currently sold in the market, both manufactured by local and foreign enterprises.

  - In recent years, Vietnamese Government has implemented certain steps to support farmers in purchasing agricultural machinery produced locally in order to improve the market share of local manufacturers in this market. Thus, foreign players may face tough competition in the next few years.

  - Vietnamese consumers seem to prefer the small and middle-weight agricultural machinery (for example: tractor, power tiller). This is because of the small and unorganized area of cultivated land used for agricultural production. This is also a notable feature of Vietnam’s agricultural machinery market that foreign players should pay attention to.

 

□ Supply trend

 

 ○ Local production

  - Although the Government has implemented a lot of policies to promote the development of manufacturing agricultural machinery locally, the number of Vietnamese enterprises who are willing to invest in this field remains quite low and not operating effectively as well. In terms of competition situation among domestic manufacturers which have localization rate of more than 60 percent, VEAM (Vietnam Engine and Agricultural Machinery Corporation) remains the leader of the market for the last decade. Currently, local production in Vietnam only accounts for around 25 percent of the total market share, of which 20 percent belongs to VEAM and its member companies.

 

                                          Source: KOTRA’s Survey

 

 ○ Import size and trend

  - As can be seen from the chart, the import value of tractor into Vietnam in the period 2007-2012 fluctuates considerably. The market has seen an upward trend of importing tractors from 2007 to 2009, from US$124.2 million in 2007 to US$211.0 million in 2009, increasing almost 70 percent. This trend can be explained by the shortage of agricultural machinery in Vietnam when the economy as well as agricultural industry had been growing rapidly and the local production could not meet the market demand.

  - However, the period from 2010 to 2012 has witnessed a considerable decrease of import value, although the general trend in this period is still upward. The import value of tractor in 2010 was around 76.5 USD million and gradually increased in the next two years to 125.7 USD million. This notable drop in import value can be explained by the economic downturn in 2010 which affects badly most of industry sectors in Vietnam.

 

 

  - On the other hand, the import value of combine harvesters into Vietnam has seen a relatively stable upward trend during the period 2007-2012. Starting at 5.8 USD million in 2007, the import value of combine harvesters notably reached its peak at 82.3 USD million in 2012. The average growth rate of imported value of combine harvesters in this period is 79.8 percent.

  - Regarding the market share of imported tractor in Vietnam, Japan presents as the largest player in the market, accounting for 46.2 percent. China and Republic of Korea ranks second and third with the market share of 11.0 and 10.8 percent respectively. However, this figure does not count a large number of Chinese products which are imported illegally into Vietnam in recent years.

  - On the other hand, China appears to totally dominate the market of imported combine harvesters with the share reaching 94 percent in 2012. Japan and Thailand respectively holds the share of 2.4 and 2.2 percent. Also, Republic of Korea is not a notable player in this market with the share of only 0.4 percent. It is clear that overseas and local manufacturers will face a lot of difficulties in competing with Chinese enterprises when it comes to combine harvesters.

 

          

              Source: ITC calculations based on UN COMTRADE statistics

 

□ Competitive Landscape

 

 ○ Currently, the small market share and slow growth rate of local agricultural machinery and equipment has shown the weak competitiveness of domestic enterprises in this market. The amount of local products only account for almost 25 percent of the total market share, 60 percent is imported legally and illegally from China and the rest is imported from some other countries such as Japan and Korea. Regarding the price range of the same type of product, locally manufactured machinery is more expensive than Chinese products by 15-20 percent. In fact, most of Vietnamese enterprises pursue the same strategy to gain more market share, which focuses on the competitive price compared with imported products. However, due to many reasons, the competitive strategies of Vietnamese enterprises seem to not achieve remarkable success in recent years.

 

 

 ○ The leading player in Vietnam’s agricultural machinery market is VEAM with a wide product line covering all stages of agricultural production chain (but mainly for rice production). VEAM is considered a significant player in the current market who has notably competitive advantage. In terms of technological capabilities, VEAM is also regarded as the only local company which owns the best facilities and employs the most skilled workers in the field. Some member companies of VEAM are also considered strong players in the market, which can be listed as: An Giang Mechanical Engineering Joint Stock Company; SVEAM (Southern Vietnam Engine and Agricultural Machinery Co., Ltd); Co Loa Mechanical Engineering Joint Stock Company, etc.

 

 ○ There are some main factors that cause the weak competitiveness of Vietnamese manufacturers when compared with overseas players in this market as follows:

  - Lack of effective support industry: Most of components used in agricultural machinery manufacturing industry in Vietnam are imported from other countries, leading to the modest localization rate and the low value added. The high manufacturing cost is the main reason for uncompetitive price range of local products.

  - Limit of technological capacity and human resources: Except for VEAM and some other state-owned companies, the majority of enterprises in this field are small-scaled companies with limited technological capacity. In addition, the industry is also in short of high level human resources. The education and training of agricultural machinery in Vietnam is not paid enough attention at the moment and the output human resources are not qualified.

  - Fragmented cultivated land for agricultural production: The limited arable land also makes it tough to apply mechanization process widely, which partly affects the demand for large and high quality agricultural machinery and the willingness of Vietnamese enterprises to invest in this field.

 

 ○ Regarding the remaining 75 percent of the market, 60 percent of which belongs to legally and illegal imported products from China. In fact, Chinese products that are purchased in the market at the moment mostly have unknown brands and origin but have very competitive price. In recent years, Vietnamese consumers seem to less willing to purchase and use Chinese products due to the poor quality and short-term period. However, due to the short budget, Vietnamese households and individuals who work in the agricultural field still tend to choose Chinese machinery (tractor, rice miller, power tiller, etc.) because of its low price.

 

 ○ In addition to Chinese products, agricultural machinery imported from Japan has gained much awareness among Vietnamese consumers. Some most well-known brands of agricultural machinery from Japan can be listed as: KUBOTA, YANMAR, HINOMOTO, ISEKI, SHIBAURA, etc. The price of Japanese agricultural machinery is much more expensive than local or Chinese products; however, they still gain certain market share in Vietnamese market due to the high technology and quality.

 

□ Product & Pricing

 

 

 

 

□ Distribution System

 

 ○ As can be seen from the diagram below, local manufacturers in this field usually have their own wide distribution network across the countries with a number of distributors (exclusive or not).

 

 ○ In the current market, there are many importers which are usually trading companies who are specialized in agricultural machinery. These trading companies may import products from overseas manufacturers and distribute directly to the end-users or distribute through one more level. It is recommended to find an active trading company which has a wide distribution network all over the country and is capable of importing regularly with large volume. According to some experts in the field, if foreign manufacturers can take advantage of the distribution network that Vietnamese trading companies may provide, they may gain big time.

 

 

Import tariff and regulations