The 3F model for high quality and safe food remains a dream for most enterprises in Vietnam's food industry.
With food consumption per capita growing annually at 4.3 per cent and now standing at $316, market researchers Business Monitor International (BMI) have forecast that Vietnam will continue to be an attractive market for domestic and foreign producers planning to invest in the food industry. Investing in food safety is also an opportunity to integrate the supply chain, from production to end consumption, and this integration is a way to control and secure both quantity and quality. The 3F formula (Feed-Farm-Food) is considered a complete clean food chain model for producers and businesses in the food industry, in the context of food safety monitoring systems being thin on the ground. As the existing government system cannot cover all activities, modern traders must invest in establishing their own quality control systems in fresh production supply chain based on common principles.
The 3F model has encouraged big names in the animal feed and processing industry to invest in the closed food chain model over recent years. Basically, this requires an enterprise to invest in all stages, from manufacturing animal feed, breeding and farming livestock, to processing and producing meat and packaged food products. The C.P. Vietnam Corporation (CPV), formerly known as the C.P. Vietnam Livestock Corporation, a large integrated livestock and aquaculture company in Vietnam, has had success with the 3F model. It integrated its livestock and aquaculture business, spanning the entire food production value chain, and defined a “feed-farm-food” strategy since establishment. The company now has eight modern animal feed plants in the country that help cut costs in its farming model, with animal feed previously accounting for 75 per cent of the retail price for pork and 80 per cent for shrimp.
More than 90 per cent of C.P.’s business in Vietnam currently derives from animal feed, farming and agriculture. Focusing more on food processing to protect its brand and enhance product quality awareness, the company has poured significant amounts of capital into expanding sales and distribution channels in the country, with a 2011 plan targeting 10,000 sales points. “Building the number of retail sales points is the final step - Food - in the value chain,” a representative from C.P. Vietnam said. The company holds 50 per cent of the egg market share in Vietnam, 30 per cent of chicken meat, and 7 per cent of pork. With financial support from its Thai-based parent, the company announced investment would reach $60 million in 2013 and $70 million in 2014.
Other big names in the food industry such as Vissan, the Masan Group, Metro Cash & Carry, Big C and Co.op Mart have also entered the clean food chain from farm to table with investments in the millions of dollars. Vissan is a typical Vietnamese enterprise striving to build the 3F model. While C.P. has strengths in animal feed production and farming - the first two Fs - Vissan has advantages in the last F, processing and distribution. To materialise the journey of “Safe Food From Farm to Table”, Vissan began construction of a food processing complex in the Mekong Delta province of Long An on 22.4 hectares area in 2011, in which it plans to invest VND2,600 billion ($150 million). Mr Van Duc Muoi, General Director of Vissan, believes the project will be the country’s largest industrial complex in the food processing sector with a closed process from purchase and slaughter to processing and packaging. It also includes a spice processing factory as well as a warehousing system, which meets domestic and international standards on food safety. “The company plans to buy large-scale farms in provinces near its existing processing plants with financial support from its parent, Satra,” said Mr Muoi. “This will complete the first and the second F in the closed chain.” Vissan only actively distributes about 20 per cent of its pork sold, with the remainder being bought by satellite farms and households and then processed at its factories.
In recent years small-and-medium-sized enterprises (SMEs) in the agricultural industry have been notably supported by large supermarkets like Big C and Co.op Mart, to ensure the management of the safety food chain process at their distribution points, in addition to collaboration with large processers. Metro Cash & Carry has implemented its project “Building a Supply of Fresh and High Quality Seafood for the Domestic Market” worth $1 million since its entry into Vietnam. However, with the participation of SMEs, the quality of the closed food chain can’t be guaranteed as there is a risk of supply shortages due to poor production planning as well as food safety issues.
According to a representative from the Anco Family Food Company (AFF), the model requires the enterprise to be active in material inputs, especially animal feed. To meet this requirement, AFF needs to own the entire system, from animal feed, farm, processing, packaging and distribution. “Large-scale enterprises are able to do this,” he said. AFF was part of a 3F chain gradually implemented by its parent, Anco, but stopped in late 2013 because, it’s believed, there was low level of corporate capacity and knowledge about the food industry.
For GreenFeed Vietnam, with registered capital of $80 million, after ten years of operations the 3F dream has not come to fruition. Recording high growth of 60 per cent per year, the company has caught the attention of foreign investors wanting to quickly join Vietnam’s food industry. With four animal feed plants and another under construction, the company has reached the second step in the 3F model while depending on distribution agents and importing breeding stock from other companies. According to Mr Tran Ngoc Chi, General Director of GreenFeed Vietnam, the company recorded initial results from researching and testing different kinds of breeding stock. “Towards 2020, the company will enhance and develop breeding stock and invest in increasing technical levels to complete the 3F model,” he said.
Discussing the challenges facing enterprises operating the 3F model, Mr Truong Vinh Thien, Director of the Vinh Thanh Dat Company, said that it is not easy to complete the closed chain because the company is unable to be active in breeding stock and feed so it is seeking common ground with breeding companies in choosing breeding stock and using different types of feed. Meanwhile, C.P. Vietnam is struggling with its expansion of distribution channels as the food industry is quite new for its parent company. The plan for 10,000 sales points is a challenge for C.P. in balancing revenue and profits, especially given the low awareness about food safety. Industry insiders say that C.P. Vietnam should cooperate with other foreign convenience store chains such as its sister company, CP All Plc, which operates 7 Eleven outlets, as a springboard to completing the 3F model. With its low capacity, GreenFeed Vietnam also needs to shake hands with CJ, a leading South Korean-based food group that is seeking a partner in Vietnam’s animal feed industry, to be the second player in the 3F model behind 7 Eleven.
Though targeting the animal feed industry, which is worth billions of dollars, Masan has defined its final goal as being an integrated model from feeding and farming to food. In 2012 the group purchased a 40 per cent stake from Proconco’s two foreign investors: Prudential Vietnam Assurance and PCA International Funds SPC. With the acquisition it will take part in all segments of the production value chain, from manufacturing to distribution, with 475 distributors in the country, and enter the protein (pork, fish and seafood) supply market, which has great potential for development.
With the participation of large-scale companies and SMEs with potential, Vietnam’s food industry is expected to grow in the future. In particular, working directly with producers will support the development of food safety awareness in the food community and at the same time secure food safety and quality.
- Masan Group
- Metro Cash & Carry
- Big C