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.