Vietnam Livestock Genetics - p1

1. Introduction

The report has been prepared by Stanton, Emms & Sia for the Counsellor and Regional Agri-Food Trade Commissioner, Southeast Asia, the Embassy of Canada in Vietnam and AAFC.

Its goals are to provide Canadian exporters, their associations and export marketing organisations, and Canadian government departments and agencies, with insight into the following matters:

• the drivers and change agents that are impacting on Vietnam's livestock industry;
• the current development policy environment for the Vietnam livestock industry, and the government and related institutional support that exists for implementing the government's policies;
• an update on the state of Vietnam's livestock industry, including a performance report on developments since the last report prepared for Canada on the industry and its development prospects and strategies in the mid-1990s;
• updates on the status of the following sectors within the industry, including an update on their specific development plans:
  • pigs and pork;
  • beef cattle and beef;
  • dairy cattle and milk and dairy products;
  • goats and meat and milk; and,
  • sheep and meat.
• an update on the status of the market for imported genetic materials, including the state of the regulatory environment for such products;
• the status of Vietnam's livestock industry as an exporter of meat; and,
• a review of future strategic directions and opportunities for Vietnam's livestock industry, and of opportunities for Canadian exporters of livestock genetics and related supporting products and services over the 5 years to 2016.

The information in this report has been provided by, and obtained from, a wide variety of sources including the Ministry of Agriculture and Rural Development (MARD) and its component departments, institutions and offices, other Vietnam government departments and agencies, FAO, OIE, SIDA, ADB, GIZ, CIAT, IFAD, ILRI, Dairy Vietnam, Vinamilk, Vissan, San Miguel Corporation, Wellcome (DFI), Metro Cash & Carry, and Big C Supercenter.

It should be noted that the buffalo and poultry sectors were not within the scope of the study that supported this report. The study was undertaken between January and March of 2011.

2. Macro drivers and change agents for the livestock industry

This study was conducted at a time when the Vietnamese markets for meat and dairy products, and their supply bases, are still in an evolutionary state, which is being driven by a complex range of factors, including the following matters:

• Vietnam's population, currently about 88 million persons, is forecast by the United Nations to grow to 126 million people by 2050. Based on this scenario, the FAO advises that Vietnam's production of meat and milk will have to double over the next 40 years to meet what it believes the new local demand scenario will be in 2050;
• economic growth at rates that are amongst the highest in the world, albeit that Vietnam's GDP per capita is very low (see table below);

Source: National government, the Asian Development Bank and World Bank (Nominal basis GDP data)

While Vietnam's nominal GDP has only just passed US$ 1,000, the equivalent figure calculated by the World Bank on a PPP (purchasing power parity basis) is US$ 2,790. This reflects the fact that purchasing power in Vietnam is much higher than is perhaps evident from the basic statistical data. This has been driving imports of meat, which are now substantial.

The reality of the situation in Vietnam is that there is a large cash economy, a dollarization of the economy and also sizeable foreign currency remittances, which drive spending in the wealthier urban areas. Economic analysts comment that about 20% of the population (15 million persons) probably control 80% of the real "private sector" economy, with massive and growing income disparities existing between them and the rural poor (60 million persons);

• meat production costs in Vietnam are high, relative to other countries, because of inherent shortages in good quality indigenous feed materials and the use of imported animal feed ingredients, inputs and feed products. Trade and government sources comment that local feed production costs have substantially risen over the past 5 years, because of higher world market prices for key feed ingredients;
• meat production is continuing to increase at high rates, even in recent years (see table of latest available data below);

Source: MARD Live-weight Slaughter Survey

• exports of meat and poultry to Vietnam have been increasing rapidly over the past 5 years and peaked at 667,000 tonnes valued at US$ 1.093 Billion in 2009 (see chart below);

Vietnam's Imports of Meat and Poultry – 2005 to 2009 (In US$ '000)

Source: National Governments (Includes 2009 provisional data for Vietnam)

Trade and government sources comment that the increase in imports has arisen from a combination of factors. These include:

• the devastating impact of animal diseases (foot and mouth disease, PRRS and various Avian diseases) on the supply of local meat and poultry and the marketability of local meat. Even concerns over human H1N1 (Swine Flu) had a negative impact, and,
• the surging demand for meat and poultry, in particular, lower cost cuts of beef, poultry and offal as the middle income groups in the cities grew in size on the back of higher disposable incomes arising from rapid economic growth (see chart below).

Imports of Meat, Poultry, Offal and Fat to Vietnam in 2009 - 667,000 Tonnes

Source: Official External Trade Statistics Data

• short term measures, i.e. tariff rate increases, being applied in an attempt to control an explosion in meat imports. These actions are reactive, and highly confusing for importers and the broader market, because imports have dealt with local shortages, and so generally kept the market in balance and local meat market prices reasonable.

These protectionist measures are even more confusing because they have been taking place when Vietnam is phasing in tariff reductions under its commitments to the WTO, the ASEAN Free Trade Area (0%), ASEAN-Australia-New Zealand FTA (phased tariff rate reductions) and ASEAN-China FTA (0%);

Overall, there is a high degree of trade policy chaos in Vietnam at the time of writing (March 2011), largely because too many government departments and agencies are involved, and most do not understand the WTO or FTA commitments and protocols that Vietnam now has to work within. The core focus at present continues to be tactical protectionism and dealing with balance of trade issues, rather than moving forward in a strategic and transparent manner with a focus on implementing its existing trade policy commitments; and,

• there is dynamic change in the meat and poultry distribution channels, which is now speeding up, and change is also starting to develop in the demands of the most lucrative urban area consumers.

According to retail trade sources in Vietnam, the past 5 years has seen a rapid adoption of supermarket shopping by younger Vietnamese in areas where there are supermarkets.

Younger Vietnamese will also be the key factor in future changes in the distribution channels, because they are, and will be, a very large section of the modern consumer market as it develops. It should be noted that about 30% of the population (28 million persons) are below the age of 18 years and that Unilever is now forecasting that its core target market in Vietnam will be 20 million younger persons by 2020.

There is now a rush of new investments into Vietnam's supermarket, hypermarket and cash & carry wholesale outlets by existing players and new entrants. It is important to note that the new operations that are being planned are nationwide in urban areas outside the two key cities of Ho Chi Minh City and Hanoi. While the share of modern trade (supermarkets) in the urban area meat and poultry market is currently very low at around 5%, these new investments will change this as more younger shoppers adopt supermarkets as "their place to shop" over the next 5 to 10 years.

The existing modern trade retailers, e.g. Wellcome (DFI), Big C and Saigon Coop, already operate with modern meat distribution channels. These include:

• deli-style counters operated by a meat brand-owner, e.g. Vissan (several retailers) or Hormel Monterey Pork Shop (Wellcome Supermarket). Big C tends to work with preferred farming companies; and,
• chilled meat display cabinets, some of which display branded meat or poultry from a specific supplier or farm.

Trade sources comment that this strategy has been adopted because it is very difficult for a retailer to control all aspects of its meat supply chain on an internal basis because of the significant bio-security weaknesses that exist in Vietnam's meat and poultry supply chain.

It should be noted that Metro Cash & Carry has a different system. Under this system, it is actively training Vietnamese meat farmers to comply with Good Agricultural Practice so they can become the company's suppliers. This is being done under a project that is partly funded by the German government.

3. Vietnam's livestock industry had a tough period in 2009-10

The Department of Livestock Production, MARD, has acknowledged that 2009-10 was one of the toughest periods in the development of Vietnam's livestock industry. Although some previous years were problematic, the industry was hit by what some officials and trade sources have described as "close to the perfect storm", which included:

• widespread outbreaks of animal diseases, in particular PRRS (Blue Ear pig disease), FMD and HPA1 bird flu,
• the necessary culling of standing inventories of breeding animals, immature and animals close to ready for processing and marketing;
• increases in farm input costs, which MARD estimate averaged at 15% over the first 9 months of 2010;
• an unstable end market, because of user and consumer fears over disease-infected meats;
• the impact of shortages and related inflationary pressures on wholesale and retail prices, and,
• much higher competition from imports, with MARD estimating 80,000 tonnes of pork and offal were imported in the first 9 months of 2010. These imports were entering Vietnam at a time when its FTA commitments were starting to take shape in terms of easier access for some of its trading partners. For example, China, which now has 0% market access for pork, beef and offal and a preferential 10% import duty (WTO Bound: 20% or 40%, depending on product type) on chicken meat.

4. The development policy environment for the livestock industry

4.1 Vietnam's 2020 livestock industry development strategy

In 2008, the Ministry of Agriculture and Rural Development (MARD) adopted a new development strategy for Vietnam's livestock and meat industries with a timeframe of 2010 to 2020. The broad objectives of this strategy are to:

• reorganise and industrialise livestock production and processing in Vietnam. The goal is an industry that:
  • is more integrated, intensive and geared towards the use of modern production and processing capabilities and facilities, including modern slaughterhouses; and,
  • uses better quality manufactured animal feeds made in Vietnam; and,
• create higher productivity, improve product quality, and develop an industry that can meet safe food requirements, as demanded by:
  • the export markets, e.g. in Hong Kong SAR and Singapore; and,
  • the more health and safety conscious domestic consumers in future.

MARD set the following targets in formulating its 2020 strategy:

• expanding the share of livestock production, when compared to total agricultural production to 42% in 2020. Currently, the share is between 26% and 28%;
• increasing meat and poultry production to 5.5 million tonnes by 2020, when per capita consumption will have reached 56 kilograms, with commercially produced meat accounting for 40% of production in 2020;
• establishing standing inventories of 12.5 million beef cattle and 35 million pigs by 2020;
• increasing production of raw liquid milk to 1 million tonnes by 2020, when per capita consumption will have reached 10 litres of local milk;
• establishing a standing dairy cattle inventory of 500,000 dairy cattle by 2020; and,
• poultry production increasing to 306 million head by 2020.

While the targets for pigs and poultry may be attainable, those for the cattle industries are likely to be challenging. The main issue in meeting the targets lies in the level of investment that is available and the willingness of the private sector to invest in the cattle industries.

In the other ASEAN countries, there has always been private sector funds available for integrated chicken and duck production, more limited funds available for large scale pig farms (in Thailand and the Philippines), but very little in the way of funds available for cattle farms, especially dairy farms, which are high risk at the level of climate and disease environments in ASEAN. To this extent, the goals set in the 2020 plan for cattle may be more "wish list items" than attainable targets.

Activating the 2020 strategy includes the establishment of 7 new modern slaughtering and processing centres in strategic locations across Vietnam and incentives for the private sector to invest in upgrading their existing meat processing operations and new modern meat processing plants.

This is an area in which the private sector has been very reluctant to invest over the past 10 years because of concerns that returns on investment would be very poor. The main threats to such investments are weak food health and safety laws and weak enforcement of such laws by the government, combined with the risks of SME / wet market linked slaughtering practices.

At the time of writing (March 2011), Vissan Co Ltd, which is part of the SATRA group owned by the Ho Chi Minh City government, is in the process of building Vietnam's largest integrated meat processing complex in Long An Province in southern Vietnam. According to Vissan's senior management, this facility will cost the company around Dong 700 Billion (about C$ 33 Million). It will have an annual capacity of 40,000 tonnes of pork, 5,000 tonnes of beef and 9,000 tonnes of poultry meat per annum. Aside from these meats, its main processed output will be hot dog sausages, Chinese-style dried sausages, canned meats and pâté. The plant is expected to be commissioned for operation in late 2012 or early 2013.

Overall, Vietnam's 2020 livestock industry development strategy has one major weakness, namely bio-security, which is highlighted very clearly in the export market scenarios for Vietnam.

Discussions with the Agri-Food and Veterinary Authority of Singapore highlight that, while Vietnam is attempting to develop new livestock-meat businesses that operate in bio-secure environments, these will also operate in the broader based national (or regional) environment that is not at all bio-secure, namely the production environment in which the much needed smallholder farmers operate. From the practical standpoint, this makes the market scenario for "Vietnamese meat" highly problematic because of supply chain risks, both actual and perceived, e.g. contamination and transmission cases.

These supply chain risks, and the known prevalence of animal diseases, will make it very difficult for Vietnam to develop and sustain demand for its higher quality meats in the following markets under conditions where there is a major outbreak of diseases that are known to be/or become a danger to human health (as has happened on occasions over the past 10 years or so):

• the export markets, e.g. ong SSingapore and Hong Kong SAR; and,
• potentially, the domestic modern trade (major supermarket chain controlled) and food service "quality meat" segments involving middle income consumers that are "food health and safety conscious".

High profile examples of these problems and their impact on farmers and their businesses exist in China as a result of a number of different high profile food health and safety scandals, scares and incidents involving meats and milk products.

The following sections of this report provide more details on some of Vietnam's industry specific development plans.

4.2 Institution, academic and research support functions for the Vietnam livestock industry

Vietnam has a solid institutional base to support the development of its livestock industry. This comprises local institutions that operate under the auspices and control of MARD, an extension services system, and active input from international organisations such as the World Bank, Asian Development Bank (ADB), SIDA (Sweden), CIDA (Canada) and GIZ (Germany), etc.

While this is regarded as a solid base, Vietnam's large physical size, the highly fragmented nature of the livestock industry and weak financial standing of most farmers, means there is insufficient funding to cover all needs and coverage requirements.

The key local institutions involved in supporting development of the livestock industry are as follows:

• National Institute for Animal Sciences (NIAS), formerly the National Institute of Animal Husbandry (NIAH);
• Vietnam Agricultural Science Institute;
• National Institute of Veterinary Research;
• National Center for Inspection of Drugs and Bio-products;
• Institute of Policy and Strategy for Agriculture and Rural Development; and,
• Institute of Agricultural Science of Southern Vietnam.

Within these organisations there are also sector-specific service providers and R&D organisations, e.g. in goat farming activities, and related processing activities. This sector is supported by a dedicated entity known as the Goat and Rabbit Research Centre, which is part of the NIAS and is headquartered at Son Tay in Hatay Province.

Trade sources comment that most of the above organisations now have strategies that are seeking the opportunity to become more involved in commercial activities because of the limited funding that they receive from the central government. There are also comments that these organisations tend to be more academic than practical in their activities, because their low funding:

• reduces the quality of their services and facilities; and,
• minimises their involvement in on-farm activities, e.g. R&D trials, model farms and other research dissemination activities.

This lack of funding is a key reason why there is high demand (and competition) for international aid funds from MARD and the above listed institutions.

Vietnam's livestock development projects also involve some universities, e.g. Tay Nguyen University and Hue University, which have been involved in high profile livestock development projects in Vietnam. Other universities that have also been involved in projects are reported to include the Thu Doc University of Agriculture and Forestry, Hanoi Agricultural University, and Angiang University.

Vietnam's extension services system operates through the National Agricultural Extension Centre of MARD at central government level and provincial and district level extension centres.

4.3 Foreign country involvement in livestock industry development programs in Vietnam

The past 20 years has seen significant foreign involvement in Vietnam's livestock industry development programs. Aside from Canada's involvement, some examples of other countries and their involvement are as follows:

Australian involvement in its Vietnam cattle industry development programs was spearheaded by its tropical beef resources and capabilities in Queensland and has focused on crossbreeding with Red Brahmin, Belmont Red and Droughtmaster.

A number of internationally structured NGOs also have projects in the sector, e.g. Heifer International.
 

5. The livestock industry and its development in overview

5.1 Performance report on longer term growth trends in the livestock industry

The livestock industry has been in a long term growth trend over the past 25 years. According to the Ministry of Agriculture and Rural Development (MARD), growth has been taking place at around 5.7% per annum since the mid 1980s. This is much faster than the growth rate of about 4.3% per annum for the whole of agriculture over this period.

As can be seen from the data in the table below, livestock production has made massive leaps forward since the mid 1980s. No long term data is readily available on the sheep farming sector.

NA: Not applicable. E: Estimate.
Source: Ministry of Agriculture and Rural Development

There are some differences in the growth scenarios for different sectors:

• buffalo is a mature and declining sector, which is not receiving any significant growth push from the industry or government;
• the beef cattle and pig sectors, in contrast, have been growing at relatively high growth rates in a reasonably consistent manner; and,
• the goat sector is immature and has seen variable growth rates as it moves from near zero base on the back of stimulus by the government, aid agencies, other donors/funding agencies and, also, some private sector involvement.

It should be noted that the buffalo sector is not within the scope of this report. According to the most recent MARD survey, Vietnam's livestock inventory is continuing to restructure with annual declines in the number of draught buffaloes and draught oxen kept by 4.7% and 15.6%, respectively, in 2009.

As can be seen from the growth trend in standing pig population highlighted in the chart below, Vietnam's pig population surged from around 12 million pigs in 1990 to 27 million in 2005. Thereafter development trends hit a plateau, mainly because of a number of disease crises, with some commentators also considering the industry has matured in its current state and has "gone as far as it can under the old development strategy and industry structure".

Long Term Development of Vietnam's Standing Pig Population – 1989 to 2009

Source: Vietnam Government and FAO

The cattle and goat populations have also seen successful growth performances up until 2006-07, when disease outbreaks caused the populations to shrink and plateau out. The cattle population doubled in size between 1990 and 2006 (see chart below).
 

Long Term Development of Vietnam's Standing Cattle and Goat Population – 1989 to 2009

Source: Vietnam Government and FAO

Overall, growth in the livestock population has been very positive over the past 20 years, and has provided Vietnam with a basis for keeping up with rapid growth in demand for pork, beef and raw liquid milk at a time when the economy was booming and there was significant population growth (see charts below).
 

Long Term Trends in Pork Production in Vietnam – 1989 to 2009

Source: Vietnam Government and FAO
 

Long Term Trends in Beef Production from Cattle in Vietnam – 1989 to 2009

Source: Vietnam Government and FAO

Long Term Trends in Raw Cow's Milk Production in Vietnam – 1989 to 2009

Source: Vietnam Government and FAO

Another positive factor has been the increase in yields due to the use of improved breeds and feeding systems. According to FAO long term data:

• cattle carcasses in 2008 were an average of about 13% larger than in 1989;
• pig carcasses in 2008 were an average of about 12% larger than in 1989; and,
• raw liquid milk yields in 2008 were an average of about 150% higher than in 1989.

Overall, Vietnam, as a lower income developing country, has been very successful in shifting its industry from the underdeveloped status in 1989 to where it is today.

5.2 The industry today and local market scenarios for livestock products

According to the Ministry of Agriculture and Rural Development (MARD), the livestock industry now accounts for between 26% and 28% of total agricultural production.

According government statistics, Vietnam has millions of smallholder farms that are involved in livestock production. While up-to-date accurate data is not readily available on this sector, firm government estimates indicate that about 4 million "household" farms are producing pigs. The number of commercial livestock farms is much smaller.

According to a government survey, Vietnam has about 21,000 registered commercial farms that are involved in livestock production today. These farms are located all over the country, although the bulk of them are reported to be in the north of the country (see chart below).

Location of Livestock Farms in Vietnam in 2009 – 20,809 Operations

Source: General Statistics Office of Vietnam

According to MARD, about 54% of all of these farms are involved in pig farming activities.

Meat industry and retail trade sources forecast that meat and poultry demand in Vietnam will grow at between 8% and 10% per annum over the 5 years to 2016. There is a possibility that dairy product demand could exceed 10% per annum over this period because Vietnam has a very large number of people below the age of 25 years of age, and dairy products are in high demand from these consumers.

This demand scenario will see the current mismatches in supply versus demand become even larger because of the "natural" constraints in rapidly expanding local production of meat and milk. Realistically, local production is likely to grow at much slower rates of between 3% and 5% per annum.

The biggest risk in Vietnam today is food price inflation, which will impact on meat consumption and could spin off into some political problems for the government. For this reason, although the government wants to constrain imports, it is more likely that its future policies will be oriented around:

• continued aggressive development of the local livestock industry, and heavy investment in animal disease prevention programs; and,
• increased imports to balance out supply mismatches and deal with the growing shortages that will almost certainly lead to inflation because of the way in which the market operates in Vietnam.

5.3 Vietnam's animal disease profile

Vietnam still has a long list of diseases that are reported by the OIE (World Organisation for Animal Health) as having "clinical disease" status, or as "being suspected but not confirmed". Aside from the Avian diseases that have had major impacts of poultry production in Vietnam, which includes H5N1, the diseases affecting other livestock include:

• notifiable diseases:
  • multiple species diseases: Anthrax (limited to certain areas), Aujeszky's Disease (Suspected but not confirmed), Leptospirosis (clinical disease), and Rabies (limited to certain areas); and,
  • pig specific diseases: Classical Swine Fever (clinical disease); and,
• other diseases:
  • multiple species diseases, either with a clinical disease status or listed by the OIE as "suspected, but not confirmed": Brucellosis (Brucella abortus), Foot and Mouth Disease (FMD), Heartwater, Paratuberculosis, Surra (Trypanosoma evansi) and Trichinellosis; and,
  • species-specific diseases, either with a clinical disease status or listed by the OIE as "suspected, but not confirmed":
    • for pigs: Porcine Cysticercosis (limited to certain areas) and Porcine Reproductive and Respiratory Syndrome (PRRS or Blue Ear Disease);
    • for cattle: Bovine Anaplasmosis, Bovine Babesiosis, Bovine Genital Campylobacteriosis, Bovine Tuberculosis, Enzootic Bovine Leukosis, Haemorrhagic Septicaemia, Infectious Bovine Rhinotracheitis / Infectious Pustular Vulvovaginitis, Lumpky Skin Disease, Theileriosis, Trichomonosis and Trypanosomosis; and,
    • for sheep and goats: Salmonellosis (S. abortusovis) and Sheep Pox and Goat Pox.

According to MARD, FMD and PRRS (Blue Pig Ear) disease often co-exist in Vietnam and have created huge problems for the pig and pork industry in the recent past. This has resulted in more imports of pork and pig's offal with a resulting negative impact on Vietnam's trade balance.

6. Pigs and pork sector

6.1 Status of the sector

Pigs and pork are the dominant sector in Vietnam's livestock industry. According to MARD, the sector produces about 80% of Vietnam's local meat supplies. This is considerably higher than second placed poultry (not in the scope of this study) with a share of about 11% of meat production.

Vietnam's pig industry is a vitally important part of its rural economy. The agricultural workforce in Vietnam comprises between 65% and 70% of the total national workforce today, and a large proportion of this workforce (small farming business owners and agricultural workers) derive some of their income from pig farming.

6.2 The location of pig farming in Vietnam

Pigs are reared all over Vietnam. This situation exists because pigs are "wealth", i.e. assets that can be easily sold, if the owner needs cash. Importantly, pig rearing also provides meat for the families that are involved in it.

According to MARD:

• the pig farming sector produces income for men who are not well educated or skilled and so cannot get another form of employment, and for women who are required to, or want to, work from home; and,
• around 70% of all smallholder farms operating in Vietnam are involved in some form of pig rearing activity today.

As can be seen from the official data in the table below, the bulk of the pig population is in the northern half of the country.

Source: General Statistics Office of Vietnam

6.3 Structure of the pig farming sector

Vietnam's pig farming sector is mainly comprised of smallholder farmers and household/backyard type farms, which number more than 4 million operations today. These types of farms produce between 85% and 90% of Vietnam's pigs.

In Vietnam, commercial pig farms are defined as farms that have more than 20 sows. These farms produce the balance of the country's pigs and have a higher yield in terms of pork output (see table below).

Source: Ministry of Agriculture and Rural Development

The commercial pig farms currently number around 11,000 operations, and they include:

• large sized farms, which have about 5% of Vietnam's sow population; and
• medium sized farms, which have up to 15% of the national sow population.

Most of these pig farms (80% of operations) are located in the vicinity of Hanoi and Ho Chi Minh City.

Some key points to note about these commercial farms are as follows:

• the large sized farms usually operate with more than 500 sows in pens.

These businesses are mainly the product of a government policy that has encouraged state-owned enterprises to invest in larger sized integrated "export-oriented" operations, covering breeding, fattening, feed manufacture, slaughtering, processing and marketing and distribution. Examples of such companies include Vissan, Khatoco (original business in cigarettes) and Saigon Agriculture Inc (Sagri).

This policy is reported to be underpinned by investment incentives for the new operations, and also permission to such organisations to easily import exotic breeding pigs, genetics and veterinary supplies for use in their operations; and,

• the medium sized commercial farms operate with between 20 and 500 sows in pens.

These farms are usually owned by businesses that produce agricultural waste / food by-products that can be used as feedstuffs, e.g. rice wine producers or rice milling operators. They generally operate with high quality crossbreed pigs and, even, exotic breeds. Their biggest challenge comes in differentiating their pigs in market that is highly competitive and awash with low priced pigs from the smallholder farmers.

Large integrated pig farming operations are also owned by foreign-invested businesses, including CP Vietnam Livestock, JAPFA Comfeed Vietnam and San Miguel Purefoods Vietnam.

6.4 The pig population

The pig population is reported to be around 27 million head today. Growth in the population has been variable over the past 5 years or so because of the negative impacts of pig disease outbreaks on the sector (see table below).

Source: MARD and National Agricultural Statistics Department

6.5 Pig breeds

The pig breeds that are being used in Vietnam include:

• Imported breeds, namely Landrace, Yorkshire, Duroc, Pietrain and Hampshire, and,
• Local breeds, namely, the I-Pig, Mong Cai, Ban, and Thuoc Nhieu (an old crossbreed from the south of the country).

Trade sources comment that the smallholder pig farms in the northern areas of Vietnam, generally use local breeds of pigs, especially Mong Cai and Ban. In the south of the country, there is a different scenario because most pigs used are crossbred pigs that contain some level of exotic genes. Mong Cai crosses with exotic breeds are very popular with farmers, because they are highly productive in terms of piglets produced, which also have more rapid weight growth rates than other breeds.

6.6 Sector production output

Vietnam produced about 2.9 million tonnes of pigs for slaughter on a live weight basis in 2009, up from about 2.3 million tonnes in 2005 (see table below).

Source: General Statistics Office of Vietnam

Yields have also increased over the past 10 years. MARD advise that average yields have increased to an average of around 90 kilograms today, up from around 70 kilograms in 2000. This has been a key factor in Vietnam's pork output over this period, rather than significant increases in pigs produced.

Government surveys have confirmed that the market for pork is very broad based. The last Vietnam Living Standard Survey found that 98% of households in the country consume pork. In comparison only 80% of households consumed chicken. Pork is also reported to comprise between 40% and 50% of household spending on meat and poultry.

6.7 The pig industry development plan

The Ministry of Agriculture and Rural Development (MARD) has a core strategic focus to bring the cost of pork production down in Vietnam, so:

• Vietnamese pork is more affordable to domestic consumers;
• is more competitive in the export markets; and,
• can defend itself against imported pork under new WTO and FTA scenarios, which are now in place, or will be in place in 2012.

Imported pork is viewed as a significant potential threat in some lucrative channels (food service and modern trade retail) because MARD believes that Vietnamese pork is between 30% and 40% more costly to produce than in countries that are now exporting sizeable quantities of pork to Vietnam, e.g. Canada and the USA.

Vietnam's pig industry development plan is a key part of its National Livestock and Meat Industry Development Plan 2020, which was overviewed in an earlier section of this report. The specific objectives of the plan for pigs and pork are to:

• increase the pig population to 35 million head in 2020, and provide Vietnam with a solid industry foundation to maintain a very high level of self sufficiency in pork into the long term;
• increase the scale of production by larger existing players in the pig and pork sector, many of which are still state-owned enterprises that have not been privatised; and,
• improve the quality and professionalism of the pig and pork sector so that it can supply the quality conscious markets that are now starting to develop in urban Vietnam, and already exist in viable target export markets such as Hong Kong SAR and Singapore.

Unfortunately, this plan contains a significant policy dichotomy (and potential future policy dilemma) because of its high level focus on highly efficient commercial farms, rather on than the inefficient smallholder farmers which MARD also knows needs income from their pigs as part of its broader rural economic development programs.

6.8 The government's strategic viewpoint about the pig farming industry and its future development

MARD generally considers Vietnam's smallholder farmers to be competitive as pork suppliers to the Vietnamese population. This viewpoint is almost solely based on financial considerations, i.e. a lower product cost for consumers, which is viewed as highly positive for this segment of the pig and pork sector. Unfortunately, this viewpoint is undermined by a number of negative aspects that also exist for these farmers (see table below).

Source: MARD and ILRL, ACIAR and CGIAR 2007-2009 Pig Industry Competitiveness Research Project

Overall, the government's viewpoint (as highlighted above) is very short term and tactical, and probably not appropriate, albeit that it is the reality for smallholder farmers today. Unfortunately, it does not take into account a range of issues (drivers) that will develop in the pork market, both local and export, in the medium to long term. These drivers were highlighted in an earlier section of this report.

7. Beef cattle and beef sector

7.1 Status of the sector

Traditionally, cattle, like buffalo, were not reared for their meat. In the past, cattle in Vietnam were principally draught animals, which were only culled and used as meat animals at the end of their useful working lives. Today, the beef cattle sector is the third largest sector in the livestock industry, after pigs and poultry, and so is an important contribution to the rural economy.

7.2 The location of beef cattle farming in Vietnam

Beef cattle farming is practiced all over Vietnam, with the bulk of production taking place in the northern half of the country. The south of the country is disadvantaged because of the impact of its hot tropical climate on smallholders that attempt to rear larger sized animals such as beef cattle, including larger breeds of such cattle (see table below).

Source: General Statistics Office of Vietnam

The bulk of beef cattle farming in the northern half of Vietnam is undertaken by smallholder farmers. While this is officially reported, around 75% of all commercial beef cattle breeding operations are located in the southern part of Vietnam and the central highlands.

According to MARD, Vietnam's largest and more advanced beef cattle farms, i.e. with herds in excess of 100 head, are mainly located in the south eastern provinces of Binh Phuoc, Binh Thuan and Ninh Thuan and in the Central Highlands area. These operations exist to service the strong demand for beef that exists in the Ho Chi Minh City market.

7.3 Structure of the beef cattle farming sector

Vietnam's beef cattle industry involves a number of different farming systems:

• extensive calf-cow grazing systems, under which grazing in the open is practiced in the daytime and penning is used at night. The farmers operating these systems generally do not feed their cattle mixed animal feed, whether made by the farmer or purchased from a commercial supplier. The primary motivation of these farmers is generally wealth creation for their family, i.e. they have an asset, e.g. old cattle or a calf, that can be sold when they need money;
• intensive calf-cow systems, under which the cattle are in pens most of the time but may spend a few hours each day free or tethered grazing. These farmers feed cultivated grass and also some locally made concentrate to their cattle. The primary motivation of these farmers is the commercial sale of fattened cattle, weaned calves or yearlings; and,
• cattle fattening systems, under which cattle are usually kept in pens all the time. These farmers are commercially motivated, and much better funded than other cattle farmers. They buy old and young cattle from both the intensive and extensive cattle farmers for fattening up. The smallholder farmers involved in this activity usually feed their cattle with cultivated grass. Larger operations tend to use cultivated grass and some concentrates.

Trade sources in the cattle trade in Vietnam advise that the quality of cattle that are derived from these 2 systems, and the cattle fattening systems, are generally variable. The cattle from the extensive farmers are generally too thin for market, and are in many cases, old. In direct contrast, the cattle from the fattening systems can be problematic to sell at a good price because they can be too fat for end market requirements.

7.4 The beef cattle population

According to Ministry of Agriculture and Rural Development (MARD), Vietnam's beef cattle herd stood at 5.9 million head in 2010, versus a higher 6.1 million head in 2009. Beef production amounted to 278.9 million tonnes, up by 8.2% from 2009 production output.

Source: MARD and National Agricultural Statistics Department

7.5 Beef cattle breeds

Vietnam's cattle herd has a complex structure involving local breeds, Laisind (Sahiwal X Yellow cattle) and exotic breeds, which include Brahman and Droughtmaster. Some key points to note on breeds are as follows:

• farmers using extensive cattle production are more likely to have herds that include between 70% and 90% local breeds, with the balance being Laisind. These farmers rarely buy cattle and so work with the gene pool that they started operation with. If they use AI, it is more likely that the semen will not be from an exotic breed bull; and,
• farmers using intensive calf-cow systems tend to have a broader based genetic mix, which can include 60% to 70% Laisind, 20% to 30% cross breeds and 10% to 20% local breeds. These farmers do tend to buy cattle to improve their herd. If they use AI, it is more likely that the semen will be an exotic breed bull than a Laisind bull.

Vietnam's problems today are reported to lie in a long history of cross-breeding between Bos Indicus and Bos Taurus breeds, which have been largely uncoordinated, and have resulted in a focus on increasing body size with no permanent improvement for most smallholder cattle farmers. Although this is a generalisation, researchers working in the cattle industry comment that this situation underpins many of Vietnam's challenges today.

7.6 Sector production output

Vietnam produced about 258,000 tonnes of beef cattle for slaughter on a live weight basis in 2009, up from about 142,000 tonnes in 2005 (see table below).

Source: General Statistics Office of Vietnam (Not including buffalo for slaughter).

The last Vietnam Living Standard Survey found that about 40% of Vietnam's households consume beef, with less than 10% consuming buffalo meat. As mentioned earlier in this report, 98% of households consume pork, so beef has a very different market in Vietnam today. Trade sources comment that this exists because beef is a more expensive meat than pork.

According to MARD, the cattle market has become much more sophisticated over the past 10 years, and there has been quite a radical change in demand characteristics over the past 5 years in the area of carcass quality and age of the cattle at slaughter.

This has arisen because of a change in demand from the urban area markets. It has resulted in better pricing for crossbred cattle that can meet specific purchasing criteria on minimum body weight, lean meat content and animal age.

Local cattle no longer have much demand in the lucrative urban area markets, e.g., Ho Chi Minh City. The new specifications are becoming a major challenge for farmers that use the extensive calf-cow grazing system with a low grade herd because farms specialising in fattening cattle and cattle traders will no longer buy their cattle or will only pay a low price for them.

7.7 The beef cattle industry development plan

The smallholder beef cattle farming sector has recently been supported by MARD through its Livestock Husbandry and Stock Breeding Program 2006 to 2010, which is now in the process of being extended to 2020 as a high yield beef cattle development program. According to MARD, this program has been most active in the provinces of Nghe, Thanh Hoa and Binh Dinh over the period since 2006. As mentioned earlier in this report, the top-line livestock development strategy has a goal of establishing a standing inventory of 12.5 million beef cattle by 2020, up from about 5.9 million head today.

7.8 The government's strategic viewpoint about the beef cattle farming industry and its future development

MARD generally has a very good and deep understanding of the situation that exists for Vietnam's beef cattle industry and its future development. Its strategic viewpoints on the positive and negative aspects of the industry are overviewed in the table below.