The market is there for clean agricultural products and a broad range of investors have taken note.
The family of Ms. Pham Thanh Lan, a 36-year-old-housewife in Hanoi’s Dong Da district, recently made use of a Styrofoam box to plant vegetables on their balcony rather than buy them at the market because of concerns over quality and safety. Many other families in Hanoi have done likewise and for similar reasons. Given the suspicions and increasing demand for clean products, a number of companies see clean food as a field of some potential, even real estate enterprises and electronics retailers.
According to a study by the Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD), vegetable consumption in Hanoi is about 2,600 tons per day, or 950,000 tons a year. But the amount supplied to the capital is only 600,000 tons per year, meeting just 60 per cent of demand.
Entering the fray
VinEco, a food supply company under Vietnam’s leading real estate investor Vingroup, sold its first fresh vegetables on October 1, six months after Vingroup announced it would invest in the agricultural sector on a large scale and production got underway. VinEco is expected to supply a total of about 30 tons of 14 different types of fresh vegetables each day, grown under GlobalGAP and VietGAP standards at farms in Tam Dao in northern Vinh Phuc province, Cu Chi in Ho Chi Minh City, and Long Thanh in southern Dong Nai province using modern technology and automation from Japan, the world’s leading country in agricultural development.
Previously, in August, VinEco built a 24.5 ha greenhouse in Vinh Phuc costing VND1 trillion ($44.2 million). The greenhouse uses Israeli technology and is the largest in Vietnam. It now supplies 3,500 tons of hygienic fresh vegetables each year that meet VietGAP hygiene standards and other global standards. This is VinEco’s second greenhouse, after its first in Ho Chi Minh City’s Cu Chi district.
A leader of the company said its cooperation with leading partners in the agricultural sector in the world, such as Israeli and Japanese companies, expresses VinEco’s determination to invest on a large scale with sustainability.
“Incomes have improved in Vietnam so the demand for safe food is also higher. This is a good opportunity to develop clean agriculture markets.”
Ms. La Thi Thu Hien, Deputy Sales Manager at Tay Bac Agricultural Products Co.,
Many other businesses are also moving into producing clean agricultural products. According to Reuters these include a steel enterprise turning to producing animal feed, real estate businesses raising cows, and an electronic retail giant growing vegetables.
Before VinEco introduced its first batch of fresh vegetables, Mobile World (MWG), also known as thegioididong, a giant in retail electronics in Vietnam, announced it would step into fresh food and fast-moving consumer goods (FMCG).
Speaking with the media about the decision to invest in fresh food, Mr. Nguyen Duc Tai, CEO of MWG, said that existing demand for fresh food as well as clean agricultural products is high and supply fails to meet demand.
Meanwhile, a subsidiary of the Hoa Phat Group specializing in minerals has shifted into the livestock sector, building a new plant with an annual capacity of 300,000 tons of animal feed. By 2020 the company expects to record output of 1 million tons of feed and raise 1 million pigs each year. Investing in animal feed and pig raising permits Hoa Phat to build a chain of clean agricultural production.
Ms. La Thi Thu Hien, Deputy Sales Manager at the Tay Bac Agricultural Products Co., agrees that consumption demand and the development of clean agricultural products are on the increase. “Incomes have improved in Vietnam so the demand for safe food is also higher,” Ms. Hien said. “This is a good opportunity to develop clean agriculture markets.”
No easy task
Despite the huge demand for clean agriculture products, investing in the field is no straightforward matter. According to Mr. Nguyen Nhu Tiep, Head of the National Agro-Forestry-Fisheries Quality Assurance Department, to have a clean supply of agricultural products enterprises must invest in the entire chain, from farming to manufacturing and supply. Food safety chains in Vietnam remain quite small, however, despite receiving support from the State budget.
A report from the Vietnam Chamber of Commerce and Industry (VCCI) showed that the number of enterprises investing in agriculture is quite low, accounting for just 1 per cent of all enterprises in the country. Additionally, 95 per cent of agricultural investors are small enterprises, while large enterprises account for only 3.7 per cent and medium-sized enterprises only 1.32 per cent.
According to Ms. Hien, small and medium-sized enterprises (SMEs) in clean agricultural production often struggle to obtain capital. “Producing clean agricultural products requires capital and low interest rates to complete the entire process from farming to manufacturing,” she said. It’s difficult, though, to access loans because of a lack of collateral. “We must therefore borrow at high interest rates, which results in our products not being able to compete with conventional agricultural products,” she said. It also takes longer to produce clean agricultural products.
Another challenge is that it is not easy to gain the trust of customers. Some suppliers have sold products with dishonest information on the packaging, casting suspicion over all clean agricultural products. In order to have agricultural products that truly are clean, many families such as Ms. Lan’s have taken to growing their own. “I would only believe they are truly clean if I saw the processes used,” Ms. Lan said.
Many housewives say that they are willing to pay a higher price for products that are truly “clean” but few agricultural products have been able to fully convince consumers. This creates an absurd paradox, where US and Japanese consumers can easily purchase specialty fruit labeled “Made in Vietnam” with details on origin and hygiene clearly stated, while in Hanoi and Ho Chi Minh City consumers can’t determine where products are grown or what quality control they have undergone.
As Vietnam becomes party to free trade agreements (FTAs) and the TPP there will be large numbers of foreign agricultural products entering the local market. This will present a challenge for domestic enterprises if they fail to invest methodically. “Agricultural production in Vietnam will be greatly affected,” Ms. Hien said. “But I believe that domestic products still have a certain value. If capital support is forthcoming the agricultural sector will have the capacity to compete with imported products.”