Foreign players hold two-thirds of Vietnam's animal feed market and while they continue to expand their investments to meet growing demand the local competition isn't just sitting still.
In March the Dutch animal feed producer De Heus opened a new factory in Vietnam, in northern Vinh Phuc province. With total investment of $30 million and a production capacity of 400,000 tonnes per year, the factory is expected to follow the success of the company’s factory in northern Hai Phong city. It will greatly strengthen De Heus’s market position in the region, bringing its total production capacity in Vietnam to 850,000 tonnes a year.
March also saw De Heus open another factory in south-central Binh Dinh province, which can produce around 200,000 tonnes of animal feed for pigs, poultry, and cattle each year. At the same time it started construction of its seventh factory in Vietnam, in the Mekong Delta. This will be the first De Hues factory in the country located directly by a river, where its plans to build a port facility that will enhance its efficiency in transporting raw materials and finished products.
Foreign players dominate
As an agricultural country, Vietnam has been a promised land for foreign animal feed producers for many years. De Heus’s two new factories and one under construction reflect its investment expansion plans in Vietnam, where demand for animal feed is rising. Other foreign players have taken note, with some redoubling their efforts to secure a larger market share.
Cargill, the US animal feed producer, completed a $20 million expansion to its factory in Binh Dinh province a year ago. The expansion increased the plant’s capacity four-fold, from 60,000 tonnes a year to 240,000 tonnes. It is one of Cargill’s eight feed production facilities in Vietnam and the expansion brings its total investment in Vietnam over the last decade to $110 million. Mr. Jorge Becerra, General Manager of Cargill Feed & Nutrition Vietnam, believes the expansion of the Binh Dinh plant will allow the firm to even more effectively serve its customers around the country. Cargill is one of the leading animal feed producers in Vietnam and in 2012 committed to doubling its feed capacity to 1.5 million tonnes a year by 2015 to meet growing demand.
The Philippines’ Pilmico International Pte also established a foothold in Vietnam’s animal feed market, with the purchase of a controlling stake in the Vinh Hoan 1 Feed JSC. It will purchase 30 per cent over five years at a pre-agreed price set out in an agreement between the two companies. The value of the transaction will be approximately $28 million.
Vietnam now has more than 200 animal feed factories and while foreign companies account for a small number they hold about two-thirds of the market, according to the Ministry of Industry and Trade (MoIT). The biggest players are the CP Group, with 19.4 per cent of the market, followed by Cargill with 8.1 per cent.
Analysts said that huge demand, combined with the weaknesses of local producers, has caught the attention of foreign animal feed producers. According to the MoIT, demand for animal feed in Vietnam is now about 16 million tonnes, worth some $6 billion per year. Demand is expected to reach 25-26 million tonnes, worth $10 billion, by 2020. This is why foreign companies like Cargill and De Heus are continually expanding their investment in the market.
Increasing per capita meat consumption along with changing consumption habits are expected to be a major factor driving market growth in the future. Meat consumption in Vietnam was 40 kg per capita in 2011 and is expected to increase to 56 kg by 2020. According to the Ministry of Agriculture and Rural Development (MARD), meat consumption in Vietnam is expected to grow at 2.9 per cent by 2020, with beef seeing 11 per cent growth per capita.
MARD has also established a target to increase livestock production from 30 per cent of total agricultural output to 45 per cent by 2020; further indication of the growing meat market in the region. Of course, consumption of livestock feed is expected to provide significant opportunities to market participants.
Rise of local players
For years foreign companies have dominated the market with local rivals not putting up much of a fight. Now, though, things are changing. Local players are rapidly cementing their position in the market and may threaten the market share of foreign companies.
The Masan Group is the most active player in the field. In April it established Masan Nutri-Science and acquired 52 per cent and 70 per cent of the Vietnam French Cattle Feed JSC (Proconco) and the Agro Nutrition Company JSC (Anco), respectively. This established Masan as the largest pig feed and the second-largest animal feed player overall in Vietnam. In 2014 Proconco and Anco supplied 1.7 million tonnes of animal feed. “Masan Nutri-Science is on track to deliver $1 billion in revenues in 2015,” the Masan Group confidently announced last month after witnessing Masan Nutri-Science contribute over $150 million in net sales and approximately $10 million in net profit to its annual report in the first half of this year. Masan is also building three new factories in addition to its ten existing factories. Once operational in 2015 and 2016 the factories will increase capacity by more than 40 per cent, according to the Group.
Two other Vietnamese companies are also expanding rapidly: Hoa Phat and Hung Vuong. A private group specializing in steel manufacturing, Hoa Phat entered the market in March with the establishment of a feed production plant with a capacity of 300,000 tonnes per year. The group aims for a 10 per cent market share in animal feed within the next five years. Hung Vuong, meanwhile, has been involved in manufacturing aquaculture feed since 2007 and is deploying merger and acquisition (M&A) strategies for expansion this year. It will continue to increase its ownership in subsidiaries and affiliates specializing in feed manufacturing this year, such as Viet Thang, Agrifish, and Sao Ta. It also plans new investment in its seafood feed plant in Vinh Long province and an animal feed plant in Dong Thap province, both in the Mekong Delta, and expects to increase production capacity to 1.8 million tonnes of animal feed by 2018.
If the investment plans of local companies are successful then foreign players may well start to feel the heat.