The rising number of Japanese enterprises in particular and those from elsewhere in general coming to Vietnam to conduct market research, investment, and technology transfer in the agriculture sector over recent years has come from efforts to attract more FDI, assisted by the country’s desire for innovation and commitments to streamlining procedures.

Modest contribution

“Investment in agriculture by Japanese enterprises is only a small proportion of the number of Japanese projects and investment capital in Vietnam overall,” said Mr. Hironobu Kitagawa, Chief Representative of JETRO in Hanoi. 

“We learned, however, that participants at the conference have a good grasp of the circumstances in Vietnam’s agriculture sector and are aware of the necessity to receive further information.”

FDI in the country’s agriculture sector, which represents only some 1 per cent of Vietnam’s total, is largely focused on producing animal feed and processing farm produce. “The country’s agriculture sector still holds major potential as demand for healthy food is increasing quickly,” said Mr. Mariano Berdegue, Managing Director of Cargill Feed & Nutrition Vietnam. 

“The past two years have been very challenging for local agribusinesses, as the market has experienced not one but many fluctuations, especially in pig farming. This may create some delays in FDI arriving but I would say any delay will be short term only.”

The country’s agricultural sector has been growing thanks to small farming segments and modern industrial agriculture, according to Mr. Montri Suwanposri, President of C.P. Vietnam. “There is much potential in processing agricultural products in Vietnam,” he said. 

“A lot of strong foreign players have already arrived, so there won’t be so many newcomers in the sector and FDI in the segment has been static. Nevertheless, the number of locally-processed products has grown and they are in a strong position regionally.”

Mr. Chang Bok Sang, Chairman and General Director of the CJ Group in Vietnam, agrees that FDI flowing into the agricultural sector remains low compared to other sectors. With many factors in its favor, CJ believes the sector would see stronger and faster development in the near future if it received more attention and attractive investment policies are introduced.

Similarly, Mr. David John Whitehead, Chairman of the Mavin Group, said that 1 per cent is too low a figure compared to the country’s potential. “A focus on high-tech agriculture is a necessary and important direction in boosting Vietnam’s economy,” he said.

“Vietnamese enterprises have been leading the trend, however, creating a rapid change in the sector, but foreign investors’ participation, with their experience and strong financial resources, is crucial.”

Diversified investment

Many foreign investors have come to Vietnam in recent years to engage in large-scale agricultural projects and invested increasing amounts of capital, including Cargill, CJ, C.P, and Mavin Austfeed. 

“C.P. Vietnam has invested more than $1.3 billion in Vietnam to date,” Mr. Suwanposri told VET.

“We have recently invested more in exporting processed chicken, in feed, farm, and factories,” he said. “Our factory can produce up to 1 million chickens a week. Investment in the project is around $200 million. We are also developing and investing in several other projects in Vietnam, in either aquaculture or agriculture, but the majority of our funds go to our chicken and pig businesses.”

Among the first US companies to venture into Vietnam, in 1995, Cargill was also the first US company to obtain a distribution license in the country, allowing it to distribute products directly. 

Today it has eleven feed mills and one premix/additive plant. Its latest feed mill was opened in October, in southern Binh Duong province, with total investment of $28 million and an annual capacity of 240,000 MT of high-quality pig and poultry feed. 

“At Cargill Animal Nutrition we have a deep commitment to the success of our customers and communities throughout Vietnam,” Mr. Berdegue said. 

“That’s best reflected in the more than $150 million in investment we have made in Vietnam’s livestock and aquaculture industry over the last two decades, putting Vietnam among the top countries for our investment in long-term strategic businesses.”

A leading Australian investor in Vietnam, the Mavin Group is among the top ten animal feed producers. It has invested in five feed mills nationwide using modern production technology with a total capacity of 1.2 million tons a year and has also extended its operations and created a closed “From Farm to Table” value chain. In animal breeding, Mavin has four high-tech pig breeding centers and cooperates with 100 breeding households nationwide. 

In food, it has invested in a food processing plant in northern Ha Nam province with a capacity of 10,000 tons a year. “This year we’ve expanded our business into agricultural machinery and logistics,” Mr. Whitehead told VET. 

“We’ve maintained an annual growth rate of 30 per cent on average and our total investment in Vietnam is estimated at $100 million.”

FDI in agriculture, by year

Another long-term investor, South Korea’s CJ Group also sees many opportunities in the animal feed industry in Vietnam, having so far invested about $100 million. According to Mr. Chang, about 85 per cent of livestock feed comes from individual farms and households, so sources of fresh meat supplied to the market can be unstable. 

In the future, as the scale of livestock farming expands, demand for animal feed will continue increasing. Vietnamese consumers are now especially concerned about food safety, which has been the biggest driver for agricultural businesses to promote their value chains.

Concerns & recommendations

Given the limitations in Vietnam’s agriculture sector, even long-term foreign investors must tackle a host of challenges. Mr. Chang complained that CJ Group has problems seeking suppliers and partners, as there are few large-scale agricultural cooperatives and most potential partners are individual farming households of small scale. “This is a major difficulty for foreign-invested enterprises,” he said. “The infrastructure for agriculture and related industries is also yet to be fully developed.”

He emphasized that other enterprises face the same issues. Mr. Berdegue pointed out that agriculture is among the biggest sources of revenue for Vietnam despite being highly fragmented. “In the animal feed industry, for example, we have over 2 million farming households,” he said. “Many don’t have access to information, technology, capital or know-how, so productivity is not high.” 

C.P. Vietnam, meanwhile, has seen many missing gaps in feed, farm and food plants, which it could fill with its technologies. The main difficulties it has experienced have arisen from several factors. 

“The government could review import taxes on certain materials necessary for agricultural exports,” Mr. Suwanposri said. 

“The heart of the problem is the export price at the end of processing, which must be able to compete with other countries. Two factors - quality and competitive cost - could take Vietnam to the lead in exporting quality products.”

For the Mavin Group, the biggest obstacles have been controlling material costs and the rate of return on its investment. During its 15 years in Vietnam, the company has continually invested in technological innovation, expanding its production base, and establishing a closed value chain to optimize costs and reduce product prices while ensuring quality.

From the perspective of Japanese investors, Mr. Kitagawa from JETRO believes the government and local authorities at different levels should find a way to simplify and accelerate investment licensing, to help investors quickly seize business opportunities. 

Another issue is that knowledge and techniques from foreign countries can’t always be applied in agricultural production in Vietnam due to climate and land differences.

As the results of FDI promotion in the agricultural sector have been less than expected, the government should review and re-evaluate policies so that both domestic supply and exports can develop. 

Many foreign investors hope that investment and implementation can be made easier, from breeding and farming to preservation and treatment. A strong rebound in agricultural production could in turn drive additional FDI into the sector.

VN Economic Times