21:33 (GMT +7) - Wednesday 07/12/2016

Business

Watching & waiting

Released at: 08:17, 11/05/2015 Agriculture Invesment

Watching & waiting

Many foreign investors have an eye on Vietnam's agriculture sector but remain cautious.

by Nguyen Quynh

When she first came to Vietnam the fertile paddy fields of the Mekong Delta made Dr. Mayua Aizawa, an agriculture engineer at Tsuno Food Industrial Co., Ltd, one of the leading Japanese companies in rice bran oil production, believe it was an ideal destination for her company’s production expansion. With annual rice production at over 35 million tons, rice bran sources from Vietnam would provide a stable supply for the long-term operations of the plant. Tsuno will therefore establish a rice bran oil plant in Vietnam within the next two years. She told VET that the Vietnamese Government is making efforts to support enterprises that contribute to the development of the agriculture processing industry, as part of the country’s industrialization strategy. “Therefore, Tsuno wants to contribute to the development of Vietnam’s agriculture, to help improve the incomes of farmers by effectively utilizing rice bran,” she said. Dr. Mayua’s views are shared by many other foreign investors who are interested in Vietnam’s agriculture sector.

Together with domestic enterprises, many foreign enterprises from Japan, South Korea and Thailand have become keen on the country’s agriculture sector and have identified investment opportunities. Although the number of foreign enterprises is not high, it is a positive sign given the recent tendency for FDI in agriculture to be declining.

Positive signs

Most recently, the Nestle Group selected Vietnam as the location for a coffee bean treatment plant, with total investment of $2 billion, which will produce raw coffee beans for supply to Nestle plants all over the world. Mr. Paul Bulcke, Vice Chairman of Nestle in Asia, Oceania and Africa, said that the plant also expresses its deep belief in Vietnam, where Nestle has successfully operated for more than 20 years.

The Lotte Group, which has ambitions to become a giant in the food industry, also intends to invest in a coffee project in the central highlands’ Dak Lak province. The South Korean giant wants to become involved from cultivation to processing, with total investment capital of $250 million. It therefore wishes to be granted an area of 4,000-5,000 hectares to build the plant and coffee growing areas. Lotte has inherent strengths in the food market, while Vietnam is the second-largest country in the world in the supply of raw coffee beans. As a result, its investment in Vietnam is considered to be a combination that will bring many opportunities to the group.

Prior to Lotte, the Yanmar Group, one of the leading corporations in Japan in the field of agricultural machinery, invested VND294 billion ($13.6 million) in establishing the Yanmar Agricultural Machinery Co., Ltd in Vietnam. According to Mr. Naoki Kobayashi, CEO of Agriculture Machinery & Equipment at the Yanmar Group, rice production accounts for nearly 50 per cent of Vietnam’s agriculture sector, helping the county become one of the world’s top five countries in rice production. “The government has also introduced many policies with the aim of increasing mechanization and improving output quality to help raise farmers’ incomes,” he said. “Our company, therefore, decided to invest in Vietnam.”

It’s clear that these represent positive signs for the agriculture sector attracting FDI. According to Mr. Vo Tri Thanh, Vice Director of the Central Institute for Economic Management (CIEM), awareness about the agriculture sector has changed in recent years. It was previously considered a sector in which it was difficult to earn profits, not to mention the risks from disasters that could see investors lose everything. Agriculture growth is only 3 to 4 per cent, while industrial growth is 7 to 8 per cent and 9 to 10 per cent in the service sector. “Investors therefore invest in sectors where it is easy to earn a profit,” he said.

In recent times, however, food prices have soared and numerous foreign fast food chains have arrived in Vietnam. Many investors have become interested in agricultural production chains, from seeds, planting, and processing to distribution in the market. “With this new awareness, agricultural products can create high value and be a lucrative sector that is not inferior to other sectors,” said Mr. Thanh.

Prudent steps

Although the potential of Vietnam’s agriculture sector is obvious, investors must still give careful consideration as to where their funds should go. An agricultural supply chain consists of four stages: cultivation, collection, processing, and distribution. The most favored options of foreign investors are raw processing or the supply chain as a whole.

A recent study by the Vietnam Chamber of Commerce and Industry (VCCI) shows that the fisheries sector has attracted 70 FDI projects with total investment capital of nearly $310 million. Most projects, however, focus on food production or processing, while fishing and aquaculture remains the domain of fishermen and farmers. Similarly, in the livestock sector, FDI is also concentrated in processing. The study showed that the market share of foreign-invested enterprises (FIEs) in this stage is 68.8 per cent while domestic enterprises have just 31.2 per cent.

According to Mr. Nguyen Van Toan, Vice Chairman of the Vietnam Association of Foreign Invested Enterprises, foreign businesses clearly prefer investing in processing. With Vietnam’s agriculture and forestry production being small and dispersed, finding a large plot of land for an investor to develop material areas can be quite difficult. The government, therefore, should encourage investors to invest in processing. “Most of Vietnam’s agricultural products are raw,” he said. “In order to create products that are able to take part in global value chains the government needs to attract more investment into processing.”

Conversely, Mr. Vu Tien Loc, Chairman of VCCI, believes that the government should encourage FIEs to invest in the entire supply chain. “Close relationships need to be established between enterprises and farmers,” he said. “Enterprises need to support farmers with lending as well as in ensuring input and output. Such links are important for bolstering Vietnam’s agriculture sector.”

Mr. Loc’s view also reflects the investment trend of many foreign enterprises to invest in the entire chain. Late last year Lac Duong, a village in the central highlands province of Lam Dong with arid and rocky land, suddenly turned into a “magic village” with immense green vegetable fields. Mr. Hironosi Tsuchiya, Chairman of the An Phu Lacue Co., invested in modern technology and machinery and worked with farmers to grow organic lettuce. After 70 days more than 3,000 heads of lettuce were harvested and sold at supermarkets in Ho Chi Minh City and exported to Japan in large quantities.

  • TAGS
  • Foreign investors

User comment (0)

Send comment