Q3 2012 www.businessmonitor.com VietnaM agribusiness Report INCLUDES BMI'S FORECASTS ISSN 1759-1740 Published by Business Monitor International Ltd VIETNAM AGRIBUSINESS REPORT Q3 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI's Industry Report & Forecasts Series Published by: Business Monitor International Production Date: June 2012 Business Monitor International 85 Queen Victoria Street London EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2012 Business Monitor International All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Agribusiness Report Q3 2012 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q3 2012 CONTENTS Executive Summary SWOT Analysis Vietnam Agriculture Swot Vietnam Business Environment SWOT Supply Demand Analysis Vietnam Dairy Outlook Table: Vietnam Milk Production & Consumption 10 Table: Vietnam Butter Consumption 10 Table: Vietnam Cheese Consumption 10 Table: Vietnam Whole Milk Powder Consumption 10 Table: Vietnam Milk Production & Consumption 11 Table: Vietnam Butter Consumption 11 Table: Vietnam Cheese Consumption 11 Table: Vietnam Whole Milk Powder Consumption 11 Vietnam Livestock Outlook 12 Table: Vietnam Poultry Production & Consumption 13 Table: Vietnam Pork Production & Consumption 13 Table: Vietnam Beef & Veal Production & Consumption 13 Table: Vietnam Poultry Production & Consumption 15 Table: Vietnam Pork Production & Consumption 16 Table: Vietnam Beef & Veal Production & Consumption 16 Vietnam Coffee Outlook 17 Table: Vietnam Coffee Production & Consumption & Trade 18 Table: Vietnam Coffee Production, Consumption & Trade 20 Vietnam Grains Outlook 21 Table: Vietnam Corn Production & Consumption 22 Table: Vietnam Corn Production & Consumption 23 Vietnam Rice Outlook 24 Table: Vietnam Rice Production & Consumption 25 Table: Vietnam Rice Production & Consumption 28 Commodity Price Analysis 29 Monthly Softs Update 29 Cocoa: Signs Of Life 30 Coffee: Holding Key Support 32 Palm Oil: Uptrend Intact 34 Sugar: Watching Brazilian Yields 35 Cotton: Downside Risks 37 Table: Select Commodities - Performance & BMI Forecasts 38 Monthly Grains Update 39 Wheat: Upside Risks Materialising 40 Corn: Moderation In Place 42 Soybean: Looking Weak 44 Rice: Temporary Strength 46 Table: Commodity Performance 46 Upstream Analysis 47 Tractor Growth In Asia Will Be Led By South Asian Countries 47 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q3 2012 Asia Fertiliser: Reduced Government Subsidies & Fertiliser 'Rebalancing' 50 Table: Asia Fertiliser production & consumption 54 GM Seeds & Asia: Private-Public Partnerships The Way Forward 54 Downstream Analysis 60 Food 60 Table: Food Consumption Indicators -Historical Data & Forecasts 64 Table: Canned Food Value/Volume Sales-Historical Data & Forecasts 65 Table : Confectionery 66 Drink 67 Table: Alcoholic Drinks Value/Volume Sales - Historical Data & Forecasts 68 Table: Hot Drinks Volume Sales - Historical Data & Forecasts 69 Table: Soft Drinks Value/Volume Sales - Historical Data & Forecasts 71 Table: Carbonates 72 Mass Grocery Retail 73 Table: Mass Grocery Retail Indicators Value Sales By Format -Historical Data & Forecasts 75 Table: Trade Indicators -Historical Data & Forecasts 76 Country Snapshot: Vietnam Demographic Data 77 Table: Vietnam's Population By Age Group, 1990-2020 ('000) 78 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 79 Table: Vietnam's Key Population Ratios, 1990-2020 80 Table: Vietnam's Rural And Urban Population, 1990-2020 80 BMI Forecast Modelling 81 How We Generate Our Industry Forecasts 81 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q3 2012 Executive Summary BMI View: The Vietnamese government is increasing its efforts towards developing more public-private partnerships in order to encourage organic farming and sustainable farming practises, especially for more export-orientated agriculture products such as rice and coffee As global demand for sustainably produced goods grows alongside environmental consciousness, Vietnam is likely to benefit Key Forecasts ƒ Milk consumption growth to 2016: 41.4% to 247,000 tonnes Urbanisation, increased ownership of Western goods and the ongoing spread of modern, organised retail will prove supportive of strong dairy consumption growth, even if higher global dairy prices limit the growth outlook to some extent ƒ Coffee production growth to 2015/16: 36.1% to 25.5mn bags Work on replacing trees, many of which are more than 20 years old, will improve disease resistance and thus yields in the long term Another growth driver will be export opportunities, given that Vietnam is the world's largest exporter of robusta coffee ƒ Pork production growth to 2015/16: 13.1% to 2.2mn Consumption will outpace production, and the country will therefore remain reliant on pork imports to satisfy demand ƒ 2012 real GDP growth: 5.2% (down from 6.7% in 2011; predicted to average 6.7% over 20112016) ƒ 2012 consumer price index: 8.8% year-on-year (y-o-y) (lower than 18.6% in 2011; predicted to average 5.8% over 2011-2016) ƒ 2012 central bank policy rate: 11.0% y-o-y (lower than 15.0% in 2011; predicted to average 8.2% over 2011-2016) Industry Developments Sustainably produced farm produce sells - especially to developed markets and environmentally conscious customers - and the government of Vietnam knows it Through numerous public-private partnerships, the Vietnamese government has started to pursue sustainable farming practises, placing significant emphasis on the coffee sector According to statistics from Nedcoffee Vietnam, the amount of coffee produced under the UTZ Certified, 4C Association and Rainforest Alliance criteria has risen to 115,000 tonnes (or 1,916 60kg bags) of coffee beans in 2011 from close to zero a few years ago This represents a small 10% of total national coffee production; BMI therefore expects this trend to gather more traction given the government's strong support © Business Monitor International Ltd Page Vietnam Agribusiness Report Q3 2012 We expect exports from Vietnam to remain strong in the coming months, as they are likely to stay very competitive globally This is despite foreign buyers cancelling orders for more than 90,000 tonnes of the country's rice in April and May because of a short-term rise in local prices compared with India In our view, this does not reflect the fundamental picture, as the country has a sufficient rice surplus to boost exports and prices are likely to remain very competitive, even compared with India Vietnam exported 2.5mn tonnes of rice since the start of the 2011/12 season, which means it still has the capacity to export about 4.5mn tonnes of rice before December After discovering pork laced with clenbuterol and salbutamol in March, authorities have since conducted random tests of pork and pork products from numerous supermarkets in Ho Chi Minh The meat inspected has not been found to contain any illegal substances; however, authorities said supermarkets will continue to be monitored © Business Monitor International Ltd Page Vietnam Agribusiness Report Q3 2012 SWOT Analysis Vietnam Agriculture Swot Strengths ƒ ƒ ƒ Weaknesses ƒ ƒ Opportunities ƒ ƒ ƒ Threats ƒ ƒ The natural fertility of Vietnam around the Red River Delta in the north and the Mekong River Delta in the south provides the country with a strong agricultural base Vietnam is the world's second largest exporter of both rice and coffee It also enjoys relatively high rice yields compared with its regional counterparts Agricultural productivity has improved considerably since the opening up of the economy in 1986 Much of Vietnam's agriculture is based on small-scale farms with poor yields in comparison to more developed international competitors Transportation and production infrastructure is often poor, making getting crops to market difficult and negatively affecting quality Since the opening up of the economy in 1986, which allowed more private involvement in agriculture, yields have improved dramatically and look set to continue doing so over our forecast period to 2013 Vietnam's fast-growing population of more than 80mn provides a large market for agro-food products With BMI forecasting Vietnamese GDP per capita to grow rapidly over our forecast period, consumers will have more money to spend on food, spurring growth in agricultural production Poor knowledge of good farming practices and hygiene standards leaves Vietnamese agriculture open to disease outbreaks of the kind that have plagued the livestock industry in recent years The rising population and increasing industrialisation of the economy will increase competition for land use, curtailing the area available for expansion of agriculture © Business Monitor International Ltd Page Vietnam Agribusiness Report Q3 2012 Vietnam Business Environment SWOT Strengths ƒ ƒ Weaknesses ƒ ƒ Opportunities ƒ ƒ Threats ƒ ƒ Vietnam has a large, skilled and low-cost workforce, that has made the country attractive to foreign investors Vietnam's location - its proximity to China and South East Asia, and its good sea links - makes it a good base for foreign companies to export to the rest of Asia, and beyond Vietnam's infrastructure is still weak Roads, railways and ports are inadequate to cope with the country's economic growth and links with the outside world Vietnam remains one of the world's most corrupt countries According to Transparency International's 2011 Corruption Perceptions Index, Vietnam ranks 112 out of 183 countries Vietnam is increasingly attracting investment from key Asian economies, such as Japan, South Korea and Taiwan This offers the possibility of the transfer of high-tech skills and know-how Vietnam is pressing ahead with the privatisation of state-owned enterprises and the liberalisation of the banking sector This should offer foreign investors new entry points Ongoing trade disputes with the US, and the general threat of American protectionism, which will remain a concern Labour unrest remains a lingering threat A failure by the authorities to boost skills levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page Vietnam Agribusiness Report Q3 2012 Supply Demand Analysis Vietnam Dairy Outlook BMI Supply View: Since the opening up of the economy in 1986, there has been considerable change in the structure of the Vietnamese dairy industry The contribution of state farms, which were previously responsible for almost all milk production, has fallen to around just 5%, with the other 95% coming mainly from small- and medium-sized private farms In 2011/12 we forecast milk production growth of 2.5% to 299,000 tonnes Out to 2015/16, we are forecasting Vietnamese fluid milk production growth of 24.8% on the 2010/11 level to 364,000 tonnes Dramatic increases in cattle numbers and increased public and private sector investment - part of the effort to reduce the country's growing import dependency - will be the main boost to growth Commercialisation will also play a key role as larger, more efficient farms come to play a greater role in milk production A sustained period of high global milk prices on the back of rising global demand and supply sluggishness will also prove supportive of production and encourage producers to consider the long-term impact of their approach to cattle farming Finally, the sector is likely to benefit from the continued increase in yields, which have risen almost 130% over the past decade and are expected to continue to so given the new investment in the sector BMI Demand View: Vietnamese dairy consumption has expanded significantly in the last 15 years, driven by relatively large increases in domestic consumption as well as rising incomes Per capita milk consumption in Vietnam doubled between 2000 and 2009 to 12kg per person per year Despite this increase, the country remains below the regional average of 65kg Though there has been an increase in milk production over the years, the country produces neither cheese nor butter Condensed milk and yoghurt are also highly popular dairy products We expect the country to be increasingly reliant on dairy imports to meet its domestic needs Vietnamese dairy consumption growth will remain strong over our forecast period to 2016 Strong economic growth will filter through into rising disposable incomes, pushing up demand for non-essential foodstuffs Through to 2016, we expect fluid milk consumption growth of 41.4% to 247,200 tonnes, while demand for butter, cheese and whole milk powder will soar 40.0%, 120% and 30% respectively, albeit from a far lower base Increased urbanisation, increased ownership of Western goods and the ongoing spread of modern, organised retail will all prove supportive of strong dairy consumption growth, even if the forecast higher global dairy prices limit the growth outlook to some extent © Business Monitor International Ltd Page Vietnam Agribusiness Report Q3 2012 Soft Drinks • We expect soft drink value sales to increase at a compound annual average growth rate of 18.7% between 2011 and 2016, outperforming a 7.2% compound annual average growth in volume sales We are forecasting a compound annual growth rate of 18.7% in the Vietnamese soft drink sector, in value terms, between 2011 and 2016; over the same period, we expect volume sales to grow by 7.2% Economic growth, increasing urbanisation, external investments and rising tourist numbers will all serve to drive this growth Although Vietnamese consumers will retain an interest in healthy living as Western influences pervade consumption habits, we expect carbonated soft beverages to be the highest-growth sub-sector of the soft drinks industry to 2016, owing to their popularity among aspirational young Vietnamese consumers and their relative lower price tags when compared with energy drinks and premium fruit juices Intensified rivalry between the country's major soft drinks players PepsiCo and The Coca-Cola Company (TCCC) is another key driver behind our bullish growth forecast for the sector PepsiCo has set aside an investment war chest of US$250mn for Vietnam over the next three years and will continue to invest in projects that include upping the manufacturing capacity of its Vietnam operations, strengthening existing brands and continuing product development through innovation We believe these investments will further strengthen PepsiCo's foothold in Vietnam, where it has already invested in two new manufacturing facilities, including a beverage plant in Can Tho TCCC has invested more than US$280mn over the past decade and plans to invest an additional US$200mn in Vietnam by 2013 © Business Monitor International Ltd Page 70 Vietnam Agribusiness Report Q3 2012 Table: Soft Drinks Value/Volume Sales - Historical Data & Forecasts 2010 2011f 2012f 2013f 2014f 2015f 2016f Soft drinks sales (mn litres) 1,694.54 1,820.11 1,952.85 2,119.22 2,263.92 2,422.56 2,575.88 Carbonated soft drink sales (mn litres) 847.51 905.07 954.23 1,025.02 1,109.98 1,199.17 1,292.87 20.37 7.41 7.29 8.52 6.83 7.01 6.33 Soft drinks sales (VNDmn) 48,430,76 1.46 58,936,20 3.33 76,751,09 5.45 87,466,75 0.81 104,160,1 40.68 120,397,9 22.96 138,884,8 81.35 Carbonated soft drink sales (VNDmn) 7,549,650 61 9,013,674 97 11,204,39 9.08 12,529,12 5.82 14,381,57 8.81 16,314,10 0.25 18,468,23 2.81 21.76 21.69 30.23 13.96 19.09 15.59 15.35 2,531.14 2,853.60 3,766.92 4,417.51 5,410.92 6,353.45 7,367.90 Soft drink sales growth, litres (% chg y-o-y) Soft drink sales growth, VND (% chg y-o-y) Soft drinks sales (US$mn) f = BMI forecast.Source: Company information, Trade press, BMI © Business Monitor International Ltd Page 71 Vietnam Agribusiness Report Q3 2012 Table: Carbonates 2010 2011f 2012f 2013f 2014f 2015f 2016f 871.07 931.37 982.45 1,055.15 1,142.17 1,233.62 1,329.74 8.66 6.92 5.48 7.40 8.25 8.01 7.79 Carbonated soft drink sales, litres mn 847.51 905.07 954.23 1,025.02 1,109.98 1,199.17 1,292.87 Carbonated soft drink sales, litres mn, % change y-o-y 8.40 6.79 5.43 7.42 8.29 8.04 7.81 Carbonated soft drink sales, litres per capita 9.65 10.19 10.63 11.31 12.12 12.97 13.86 Carbonated soft drink exports, litres mn 37.71 41.08 43.37 45.62 48.05 50.68 53.51 Carbonated soft drink exports, litres mn, % change y-o-y 13.42 8.93 5.59 5.19 5.32 5.46 5.59 Carbonated soft drink imports, litres mn 14.15 14.78 15.15 15.50 15.85 16.23 16.63 Carbonated soft drink imports, litres mn, % change y-o-y 5.59 4.44 2.56 2.29 2.28 2.38 2.47 Carbonated soft drink balance, litres mn 23.56 26.30 28.22 30.12 32.20 34.44 36.88 Carbonated soft drink balance, litres mn, % change y-o-y 18.71 11.63 7.30 6.74 6.89 6.98 7.06 Carbonated soft drink production, litres mn Carbonated soft drink production, litres mn, % change y-o-y f = BMI forecast Source: Company information, Trade press, BMI © Business Monitor International Ltd Page 72 Vietnam Agribusiness Report Q3 2012 Mass Grocery Retail ƒ Overall mass grocery retail (MGR) sales are forecast to increase at a compound annual average growth rate of 12.9% over the five years to 2016 ƒ The hypermarket sector is expected to witness the strongest growth among the MGR sub-sectors, recording a compound annual average growth rate of 13.7% between 2011 and 2016 Vietnam continues to be one of the most promising markets for MGR in the Asia Pacific region, and we are continuing to forecast very strong growth rates in what is considered one of the region's brightest new prospects Over 2011 to 2016, BMI is forecasting that value sales through modern retail outlets in Vietnam will increase by 12.9% on a compound annual average growth basis, with all modern formats present in the country - supermarkets, hypermarkets and convenience stores - contributing to this growth There are two primary drivers of this growth forecast One is Vietnam's economic development The country has proved successful at attracting multinational investment in spite of its often-restrictive foreign investment policies and underdeveloped infrastructure This investment has led to job creation, which in turn has led to the emergence of a new consumer class in the country - in major urban centres at least which has an interest in and can afford to participate in modern consumption methods such as mass grocery retailing With Vietnam increasingly becoming one of South East Asia's top attractions, the country's increasing tourism levels will also assist the emergence of modern retail, particularly in the convenience sector Rapid inflows of sector investment are also likely to bolster growth in domestic retail sales Japanese retailer AEON is planning to build seven shopping centres in the country, with construction on its first shopping mall due to start in 2012 and be completed by early 2014, while E-Mart recently inked an agreement with U&I Investment Corporation to establish a joint venture in Vietnam with an aim of setting up retail stores in the country AEON's announcement comes closely after the Vietnamese government gave its regulatory nod for it to establish a local subsidiary in the country Under the regulatory permit, AEON will be able to establish its own-branded supermarkets, shopping malls, department stores and specialised stores These investments clearly underline the massive potential on offer in the Vietnamese retail sector It should also be noted that while multinationals pose a serious threat to local enterprises operating in the attractive urban centres of Hanoi and Ho Chi Minh City, secondary and tertiary towns and cities in outlying provinces could reap considerable benefits from multinational investment In our view, multinational sector involvement will eventually lead to rapid crowding in Vietnam's major urban centres, forcing retailers to turn to unexplored regions in search of growth Sales through the convenience store format are forecast to experience the slowest growth rate, at 10.1% on compound annual average growth terms to 2016 The main reason behind this relatively modest © Business Monitor International Ltd Page 73 Vietnam Agribusiness Report Q3 2012 growth is the format's low starting point, with the concept still very much in its infancy Accordingly, the demand for convenience, with the pay-off of higher prices, is not yet on the agenda for most consumers; they are still familiarising themselves with the modern format in general Nevertheless, this sub-sector can be expected to attract growing interest from retailers, with Japanese convenience retailer FamilyMart having recently opened its first outlet in Ho Chi Minh City The retailer plans to have 300 stores in five years as it looks to capitalise on the city's young and increasingly busy population Vietnamese consumers are most familiar with the standard supermarket format, as well as with hypermarkets, owing to its popular combination of both food and non-food items Therefore, these two formats are set to witness the strongest levels of growth at 13.4% and 13.7%, on compound annual average growth terms, respectively over our forecast period to 2016 In addition, the supermarket and hypermarket formats are set to receive the most attention from new retail investors owing to their greater per-store profitability levels, which will be of vital importance in a market where foreign investment in store openings is still limited Singapore MGR operator NTUC Fairprice and Vietnam's Saigon Union of Trading Co-operatives are two recent examples of companies looking to exploit the high per-store profitability levels in the hypermarket sector The two companies have inked a joint venture agreement to establish a chain of hypermarkets in Vietnam Given Saigon's local expertise and NTUC's experience in operating hypermarket stores, this is clearly a formidable-looking partnership, and their expansionary activities are likely to place considerable upward pressure on our hypermarket growth forecast for Vietnam If there can be a downside in the case of such an impressive retail growth forecast, it comes in the form of Vietnam's majority rural population, which drags down food consumption levels in the market to unattractive levels The risk for retailers is that as soon as the country's major cities start to become saturated with business opportunities, few other communities exist that can currently support modern retail development Even the low prices offered by discounters would be unlikely to attract buyers in rural communities, for whom self-sufficiency and wet markets remain the sole methods of consumption This point is, however, still a long way off Retailers will invest in Vietnam in line with their own need to expand, confident of the country's economic development and growing consumer base © Business Monitor International Ltd Page 74 Vietnam Agribusiness Report Q3 2012 Table: Mass Grocery Retail Indicators Value Sales By Format -Historical Data & Forecasts 2010 2011f 2012f 2013f Supermarkets (VNDbn) 57,059.92 65,373.55 75,356.09 84,216.02 95,785.95 108,371.44 122,702.89 Hypermarkets (VNDbn) 22,804.09 26,270.31 31,171.80 35,013.33 39,565.93 44,490.74 50,021.82 Convenience Stores (VNDbn) 17,962.00 19,828.26 21,991.52 23,841.97 26,247.32 29,008.54 32,051.54 Total mass grocery retail sector (VNDbn) 97,826.02 111,472.12 128,519.41 143,071.33 161,599.20 181,870.72 204,776.24 Total mass grocery retail sector growth, VND, (y-o-y) 2014f 2015f 2016f 25.14 13.95 15.29 11.32 12.95 12.54 12.59 Supermarkets (US$bn) 2.98 3.17 3.70 4.25 4.98 5.72 6.51 Hypermarkets (US$bn) 1.19 1.27 1.53 1.77 2.06 2.35 2.65 Convenience Stores (US$bn) 0.94 0.96 1.08 1.20 1.36 1.53 1.70 Total mass grocery retail sector (US$bn) 5.11 5.40 6.31 7.23 8.39 9.60 10.86 f = BMIforecast Source: Company information, Trade press, BMI Trade ƒ Export growth between 2011 and 2016 is forecast at a compound annual average rate of 10.0%, stronger than import growth of 9.8% We see growing downside risks to our outlook for Vietnam's food and drink exports A sputtering economic recovery in the US, sovereign debt concerns in the eurozone and an imminent hard landing in China are placing increasing pressure on our export outlook for the Vietnamese food and drink sector On the other hand, the Vietnamese consumer looks to be in a stronger shape than its regional peers to shoulder the burden of slower economic growth As such, we are expecting import growth in 2012 to outperform that of export growth Import growth is forecast to come in at 9.6%, compared with 7.5% forecast growth in exports Over the next five years, the outlook for Vietnam's food and drink trade balance is relatively stronger, as the country is forecast to maintain a healthy and growing trade balance While exports are forecast to experience growth of 10.0% on a compound annual average growth basis between 2011 and 2016, imports are forecast to experience compound annual average growth of 9.8% over the same period © Business Monitor International Ltd Page 75 Vietnam Agribusiness Report Q3 2012 A major driver behind the growth in exports is sustained government efforts to improve local food production and agricultural industries This will boost output and make more produce available for export, as well as improve the quality competitiveness of local exports Over the long term, increasing urbanisation and continued exposure to Western influences are expected to generate growing import demand, and increasingly busy lifestyles and rising interest in branded produce will lead to growth in the processed-food industry In order to meet this demand, local manufacturers will be forced to import the necessary raw ingredients Beyond 2016, the government is likely to be hopeful that its investments and efforts to attract foreign investors will pay off, and that much of this new and specific type of demand will be able to be accommodated domestically Table: Trade Indicators -Historical Data & Forecasts 2010 2011f 2012f 2013f 2014f 2015f 2016f Exports (US$mn) 12,168.27 13,098.64 14,076.12 15,549.56 17,199.82 19,048.11 21,118.20 Imports (US$mn) 3,886.40 4,137.85 4,534.33 4,974.43 5,462.93 6,005.17 6,607.06 Balance (US$mn) 8,281.87 8,960.79 9,541.79 10,575.14 11,736.89 13,042.94 14,511.14 f = BMI forecast.Source: UNCTAD, BMI © Business Monitor International Ltd Page 76 Vietnam Agribusiness Report Q3 2012 Country Snapshot: Vietnam Demographic Data Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail Vietnam's population pyramid for 2011, the change in the structure of the population between 2011 and 2050 and the total population between 1990 and 2050, as well as life expectancy The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split Source: World Bank, UN, BMI © Business Monitor International Ltd Page 77 Vietnam Agribusiness Report Q3 2012 Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012f 2015f 2020f 67,102 74,008 78,758 83,161 87,848 89,730 92,443 96,355 0-4 years 9,340 9,212 7,002 6,776 7,186 7,186 7,026 6,529 5-9 years 8,685 9,193 9,124 6,921 6,703 6,885 7,143 6,982 10-14 years 7,504 8,604 9,142 9,038 6,844 6,539 6,668 7,104 15-19 years 7,127 7,408 8,535 9,064 8,963 8,161 6,806 6,628 20-24 years 6,492 7,003 7,305 8,420 8,954 9,115 8,892 6,745 25-29 years 5,893 6,361 6,879 7,167 8,284 8,602 8,862 8,803 30-34 years 4,884 5,779 6,250 6,765 7,058 7,475 8,202 8,779 35-39 years 3,965 4,794 5,688 6,163 6,677 6,770 6,991 8,131 40-44 years 2,420 3,884 4,710 5,614 6,086 6,304 6,609 6,925 45-49 years 2,039 2,358 3,802 4,653 5,548 5,761 6,012 6,536 50-54 years 1,933 1,968 2,287 3,739 4,580 4,936 5,449 5,914 55-59 years 1,946 1,843 1,887 2,201 3,617 4,001 4,446 5,305 60-64 years 1,544 1,822 1,737 1,767 2,076 2,573 3,455 4,268 65-69 years 1,283 1,391 1,659 1,582 1,621 1,649 1,927 3,233 70-74 years 919 1,084 1,194 1,439 1,389 1,384 1,438 1,729 1,127 1,305 1,559 1,852 2,264 2,388 2,516 2,743 Total 75+ years f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 78 Vietnam Agribusiness Report Q3 2012 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012f 2015f 2020f 0-4 years 13.92 12.45 8.89 8.15 8.18 8.01 7.60 6.78 5-9 years 12.94 12.42 11.58 8.32 7.63 7.67 7.73 7.25 10-14 years 11.18 11.63 11.61 10.87 7.79 7.29 7.21 7.37 15-19 years 10.62 10.01 10.84 10.90 10.20 9.10 7.36 6.88 20-24 years 9.68 9.46 9.27 10.13 10.19 10.16 9.62 7.00 25-29 years 8.78 8.60 8.73 8.62 9.43 9.59 9.59 9.14 30-34 years 7.28 7.81 7.94 8.14 8.03 8.33 8.87 9.11 35-39 years 5.91 6.48 7.22 7.41 7.60 7.55 7.56 8.44 40-44 years 3.61 5.25 5.98 6.75 6.93 7.03 7.15 7.19 45-49 years 3.04 3.19 4.83 5.59 6.32 6.42 6.50 6.78 50-54 years 2.88 2.66 2.90 4.50 5.21 5.50 5.89 6.14 55-59 years 2.90 2.49 2.40 2.65 4.12 4.46 4.81 5.51 60-64 years 2.30 2.46 2.21 2.12 2.36 2.87 3.74 4.43 65-69 years 1.91 1.88 2.11 1.90 1.85 1.84 2.08 3.36 70-74 years 1.37 1.46 1.52 1.73 1.58 1.54 1.56 1.79 75+ years 1.68 1.76 1.98 2.23 2.58 2.66 2.72 2.85 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 79 Vietnam Agribusiness Report Q3 2012 Table: Vietnam's Key Population Ratios, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f 75.5 71.2 60.5 49.7 42.1 40.9 40.6 41.6 Dependent population, total, '000 28,859 30,790 29,679 27,609 26,006 26,031 26,717 28,321 Active population, % of total 57.0 58.4 62.3 66.8 70.4 71.0 71.1 70.6 Active population, total, '000 38,243 43,218 49,079 55,552 61,842 63,699 65,725 68,034 Youth population, % of total working age 66.8 62.5 51.5 40.9 33.5 32.4 31.7 30.3 Youth population, total, '000 25,529 27,009 25,268 22,735 20,732 20,610 20,837 20,615 Pensionable population, % of total working age 8.7 8.7 9.0 8.8 8.5 8.5 8.9 11.3 Pensionable population, '000 3,330 3,780 4,411 4,874 5,274 5,421 5,881 7,706 Dependent ratio, % of total working age f = BMI forecast; 0>15 plus 65+, as % of total working age population; 0>15 plus 65+; 15-64, as % of total population; 15-64; 0>15, % of total working age population; 0>15; 65+, % of total working age population; 65+ Source: World Bank, UN, BMI Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f Urban population, % of total 20.3 22.2 24.3 26.4 28.7 29.7 31.2 33.9 Rural population, % of total 79.7 77.8 75.7 73.6 71.3 70.3 68.8 66.1 Urban population, '000 13,438.6 16,201.6 18,865.4 21,940.1 25,212.5 26,649.9 28,842.1 32,664.4 Rural population, '000 52,761.4 56,778.4 58,770.0 61,166.2 62,635.9 63,080.4 63,600.5 63,690.7 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 80 Vietnam Agribusiness Report Q3 2012 BMI Forecast Modelling How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a ‘general-to-specific’ method BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary During periods of ‘industry shock’, for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact Effective forecasting depends on appropriately-selected regression models BMI selects the best model according to various different criteria and tests, including, but not exclusive to: ƒ R2 tests explanatory power; Adjusted R2 takes degree of freedom into account ƒ Testing the directional movement and magnitude of coefficients ƒ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) ƒ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity BMI uses the selected best model to perform forecasting It must be remembered that human intervention plays a necessary and desirable role in all of BMI’s industry forecasting Experience, expertise and knowledge of industry data and trends ensures that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not Within the Agribusiness industry, this intervention might include, but is not exclusive to, technology development that might influence future output levels (for example greater use of biotechnology), dramatic changes in local production levels due to public or private sector investment, the regulatory environment and specific areas of legislation, such as import and export tariffs and farm subsidies, changes in lifestyles and general societal trends, the formation of bilateral and multilateral trading agreements and political factors The following two examples show the demand (consumption) and the supply (production) of rice Note: the explanatory variables for both of them are quite similar, but the underlying economic theory is different Example of Rice Consumption Model: © Business Monitor International Ltd Page 81 Vietnam Agribusiness Report Q3 2012 (Rice Consumption)t = β0 + β1*(Real Private Consumption per capita)t + β2*(Inflation)t + β3*(Real Lending Rate)t + β4*(Population)t + β5*(Government Expenditure)t + β6*(Food Consumption)t-1 + εt Where: ƒ β are parameters for this function ƒ Real Private Consumption per capita has a positive relationship with Rice Consumption, if rice is a normal good in a particular country If rice is an inferior good in a country, the relationship is negative So the sign of β1 is determined by a specific product within a specific country ƒ When Inflation is high, people with rational expectations will consume ‘today’ rather than wait for ‘tomorrow’s high price to come Higher rice demand in Year t due to higher inflation in that year leads to an assumed positive sign of β2 ƒ The relationship between Real Lending Rate and Rice Consumption is expected to be negative When real lending rates increase, disposable incomes, especially for those with mortgage burdens etc, will decrease So the sign of β3 is expected to be negative ƒ Of course, other things being equal, growth in rice consumption can also be caused by growth in population Consequently, positive sign of β4 is expected ƒ Government Expenditure typically causes total disposable incomes to rise So the sign of β5 is expected to be positive ƒ Human behaviour has a trend: A high level of food consumption in previous years means there is very likely to be a high level of food consumption the next year So the positive sign of β6 is expected ƒ ε is the error/residual term Example of Rice Production Model: (Rice Production)t = β0 + β1*(Real GDP per capita)t + β2*(Inflation)t + β3*(Real Lending Rate)t + β4*(Rural Population)t + β5*(Government Expenditure)t + β6*(Food Production)t-1 + εt Where: ƒ The same as above, the relationship between Real GDP per capita and rice production depends on whether rice is normal or inferior good in that country ƒ If high inflation is caused by food prices increasing, farmers will be more profitable Then they will supply more agricultural product (e.g rice) to increase their marginal (extra) profit, although this is tempered by the rising cost of other inputs in line with inflation ƒ There is a global move towards corporate farming, away from small holdings, in order to achieve greater agricultural productivity Corporate farming means more investment in the modes of © Business Monitor International Ltd Page 82 Vietnam Agribusiness Report Q3 2012 production i.e agricultural machinery Higher real lending rates discourage investment, which in turn reduce production ƒ BMI assumes only the rural population has a positive effect on agricultural product supply ƒ With supportive government policy, other things being equal, rice production is expected to go up Government Expenditure is likely to play some role in supporting agribusiness ƒ Again, previous food production positively affects this year’s prediction ƒ y affects this year’s prediction © Business Monitor International Ltd Page 83 Reproduced with permission of the copyright owner Further reproduction prohibited without permission [...]... a larger surplus for 2012/ 13 On the back of this, we forecast prices to average lower at GBP1,450/tonne in 2012 and GBP1,275/tonne in 2013 © Business Monitor International Ltd Page 30 Vietnam Agribusiness Report Q3 2012 Showing Life Front-Month LIFFE Cocoa, GBP/tonne (weekly chart) Source: BMI, Bloomberg © Business Monitor International Ltd Page 31 Vietnam Agribusiness Report Q3 2012 Coffee: Holding... International Ltd Page 12 Vietnam Agribusiness Report Q3 2012 Table: Vietnam Poultry Production & Consumption Poultry Production, '000 tonnes 2012 2013f 2014f 2015f 2016f 350.0 350.0 370.0 390.0 410.0 432.1 667.0 700.0 738.5 782.8 829.8 883.7 2011 2012 2013f 2014f 2015f 2016f 1,960.0 1,960.0 2,032.0 2,100.0 2,168.7 2,217.5 1,995.0 2,035.0 2,085.9 2,138.0 2,195.5 2,248.5 2011 2012 2013f 2014f 2015f 2016f... wholesalers in accordance with WTO commitments © Business Monitor International Ltd Page 19 Vietnam Agribusiness Report Q3 2012 Vietnam Catching Up Brazil, Colombia, Indonesia & Vietnam, % Of Global Coffee Exports Source: USDA Domestic Demand Could Soar, But Poor Business Landscape Undermines Potential While the vast majority of Vietnam' s coffee will be destined for the export market, we expect domestic consumption... Vietnam 2 Coffee and Cocoa Association; USDA Risks To Outlook We are concerned that weather conditions could impact the 2012/ 13 coffee crop According to the © Business Monitor International Ltd Page 20 Vietnam Agribusiness Report Q3 2012 Vietnam Coffee & Cocoa Association, 20% of the 2012/ 13 coffee crop is at risk because of rains in the central highlands which damaged trees during the flowering stage... traditional importers to other suppliers, mainly India © Business Monitor International Ltd Page 26 Vietnam Agribusiness Report Q3 2012 Slow Start To The Year Vietnam - Rice Exports, '000 tonnes Source: General Statistics Office of Vietnam, BMI Opening Up The Market BMI believes that the impact of the Vietnamese rice market opening up to foreign traders from 2011 onwards poses a upside risk to production... Page 27 Vietnam Agribusiness Report Q3 2012 Table: Vietnam Rice Production & Consumption Rice Production, '000 tonnes 1 Rice Consumption, '000 tonnes f 1 1 2007 2008 2009 2010 2011 2012 22,922.0 24,375.0 24,393.0 24,993.4 26,300.0 26,455.0 18,775.0 19,400.0 19,000.0 19,150.0 19,400.0 19,750.0 1 Notes: BMI forecasts Sources: USDA Sources: USDA Risks To Outlook There are upside risks to our Vietnamese... pose upside risks to our forecasts © Business Monitor International Ltd Page 16 Vietnam Agribusiness Report Q3 2012 Vietnam Coffee Outlook BMI Supply View: Vietnam' s coffee sector has grown significantly over the last 20 years, with yields doubling and the area planted expanding from 42,000 hectares (ha) to more than 509,000ha Vietnam is the world's biggest producer of robusta coffee, with more than 95%... sector in which foreign firms such as Cargill and CP Foods traditionally dominate In February 2012, the Hong Ha Nutrition Joint Stock Co, a privately owned Vietnamese animal feed company, inaugurated an animal production line in its newly © Business Monitor International Ltd Page 14 Vietnam Agribusiness Report Q3 2012 acquired 7 hectare factory in Dong Van Industrial Zone in Duy Tien District, in the northern... exporters in the near term In fact, the USDA estimates that exports from the three top exporters - Thailand, Vietnam and India - will converge at 6.5mn tonnes each in 2011/12 © Business Monitor International Ltd Page 25 Vietnam Agribusiness Report Q3 2012 A Tie Between Top Three Exporters In 2012 Top Rice Exporting Countries, '000 tonnes f = BMI forecast Source: USDA, BMI Having said that, the country... International Ltd Page 15 Vietnam Agribusiness Report Q3 2012 Table: Vietnam Pork Production & Consumption Pork Production, '000 tonnes 1 Pork Consumption, '000 tonnes f 1 1 2007 2008 2009 2010 2011 2012 1,832.0 1,850.0 1,910.0 1,930.0 1,960.0 1,960.0 1,855.0 1,880.0 1,936.0 1,940.0 1,995.0 2,035.0 1 1 Notes: BMI forecasts Sources: USDA Sources: USDA Sources: USDA Table: Vietnam Beef & Veal Production ... Vietnam Agribusiness Report Q3 2012 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q3 2012 CONTENTS Executive Summary SWOT Analysis Vietnam. .. International Ltd Page 23 Vietnam Agribusiness Report Q3 2012 country did dip by 3.7% y-o-y in 2008/09 on the back of tighter credit regulations throughout Vietnam during that time Vietnam Rice Outlook... Ltd Page 37 Vietnam Agribusiness Report Q3 2012 Table: Select Commodities - Performance & BMI Forecasts Unit YTD (% chg) YTD (ave) BMI 2012 (ave) BMI 2013 (ave) Barley EUR/tonne -2 0.2 -3 8.3 256