December 30, 2015
Vietnam''s dairy firms explore world markets in a TPP era
The recently concluded Trans Pacific Partnership (TPP) means more foreign businesses venturing into Vietnam, but with that outcome, also spells heated competition for the country''s dairy companies.
At the benefit of the Vietnamese economy set to grow to US$200 billion in 2015, the TPP could also cause the closure of local firms, chiefly those lacking capital and expertise, and therefore struggle to be a part of supply chains as foreign competition escalates.
Crucial to expanding international interests in Vietnam is the abrogation of tariffs in 12 markets, amounting to 40% of the world''s economy and close to three-fourths of Vietnam''s dairy imports, according to a Reuters report.
Although local dairy firms are receiving higher profits as a result of strong Vietnamese demand, these organisations could only fulfill a third of milk needs in the country. It leaves a sizeable space for established corporations, such as Fonterra and Saputo, to compete with new products and - in the TPP future - lower prices.
Hence, Vietnam''s dairy companies are now looking to new markets overseas, eager to leverage on non-TPP trade deals.
Unlisted dairy company, TH Group, is in fact prepared for TPP''s impact on the market for five years, its vice president, Hoang Cong Trang, told Reuters.
TH had announced a US$2.7 billion investment in cow farms, milk plants and distribution channels in Russia which is affected by a dairy shortage and EU sanctions. The move is already in addition to the US$1.2 billion that the company pumped into projects in Vietnam.
"Vietnam has much potential, and so too Russia," Trang said.
Another company, Vinamilk, invested an initial amount of US$30 million in the US, New Zealand and Cambodia. The top listed firm also invested US$3 million in Poland which Vietnam signed a free-trade agreement (FTA) with, and hopes that the country would be a road to the EU market.
Vinamilk, which recently roused strong interest from foreign investors, had witnessed its value grew 10 times bigger to US$6.8 billion in the last 10 years. Its net profit in the last quarter increased 55% from the same period last year, to US$95 million. Overseas revenue rose 44% annually to US$264 million during the January – September period, compared to 10% at the domestic front, Reuters reported.
There are, of course, other Vietnamese firms believing that more could done to win over some, if not, the entire home turf.
Smaller companies, for example, are now considering niche areas, such as providing fresh milk to the local market through cooperatives. This strategy had seen success in the major dairy producing nation of New Zealand.
Conglomerate Hoang Anh Gia Lai demonstrated its tremendous ambition for the Vietnamese market, with a listed US$1.1 billion agribusiness unit that''s bigger than its parent entity. The group expects cows to deliver about half of its revenue for this year.
Vietnam imported US$1.1 billion of dairy products in 2014. Its dairy sector was worth US$2.8 billion in 2013, and anticipated to grow to US$4.1 billion in 2015, according to VPBANK Securities, citing Euromonitor.