Corn Production Push Insufficient To Supply Feed Demand

BMI View: After decades of active support to the rice sector, Vietnam is shifting its attention to corn and soybean production in order to address its soaring animal feed deficit. This plan is likely to take years before farmers switch away from rice and manage to improve yields for alternative grains and oilseeds. The eventual increase in domestic feed output is likely to favour the development of the livestock sector.

Vietnam's Ministry of Agriculture and Rural Development (MARD) has submitted to the prime minister a proposed programme for shifting acreage from rice to other cash crops, with a focus on corn and soybean. Over the period to 2015, MARD aims to transition 100,000-110,000 hectares (ha) of current rice cultivated area into corn and soybean fields. The winter and early autumn rice crops will be most directly affected by the proposed programme; these crops usually generate low yields due to lack of water and recurrent attacks from pests and diseases. The ministry proposes support of VND2mn/ha for input costs (seeds, fertilisers, pesticides) and about VND700,000/ha for land preparation costs for those who shift from rice to corn or soybean. This new policy is a clear change to support dynamics in Vietnam, where rice production has long been the focus. Incentivised by elevated public subsidies for rice production, farmers have planted the grain across the country, even in areas with unfavourable soil conditions. As a result, rice production has grown by a healthy 2.3% annually since 1999/00.

Booming Feed Imports
Vietnam - Corn, Soy Meal & Soybean Imports ('000 tonnes)

A Greater Need For Feed

However, Vietnam now struggles to export its large rice surpluses, as competitors export higher-quality rice (such as main rival Thailand) or rice at a lower price (such as India). The country is therefore eager to diversify its crops. The need to increase corn and soybean production is all the more salient given that imports of feed ingredients have skyrocketed in recent years in line with the development of the livestock sector. Supported by growing domestic demand for more protein, beef, poultry and pork meat production have been growing at a hefty 7.0% annually over the past 10 years.

The feed manufacturing sector has grown hand-in-hand with meat output, with many big names in the feed industry setting up plants in Vietnam. However, feed grain and oilseeds production has failed to keep up with consumption. Feed demand is 70% comprised of imports. According to the Viet Nam Feed Association, the country imported about 9mn tonnes of feed and fish powder in 2013 worth about USD4bn, while rice exports amounted to 6.6mn tonnes that year, earning USD2.9bn. With the new corn and soybean production plan, the government hopes to import less than 50% of its animal feed requirements by 2020.

The growing attention and support to corn and soybean production in Vietnam will most likely prove positive for the livestock sector, as it could help producers reduce production costs. Decreasing the reliance on imported feed ingredients could cut down on feed expenses, as it would reduce transportation costs and import taxes (5% for feed). Moreover, the increase in domestic supply of feed ingredients will help ease the pressure on Vietnamese feed companies. Domestic feed companies are facing stiff competition from their international counterparts, which have set up large manufacturing plants in the country in recent years. In 2012, for example, many domestic manufacturers closed down due to a sudden spike in international grain prices, which contributed to the credit crunch Vietnam experienced. It is estimated that 50-100 of the 243 Vietnamese animal feed producers had to close in 2012 and 2013.

Mainly Emerging Countries
Vietnam - Corn & Soybean Imports By Origin, 2012/13 (% of total imported volume)

Increase In Corn And Soybean Production To Take Years

We believe Vietnam's plan to reduce its dependence on imported feed from 70% to 50% out to 2020 will prove difficult. The country is likely to remain largely dependent on imported feed in the coming five years. Corn and soybean productivity is low in this traditional rice-producing country and will take years to see improvement. Vietnam's corn yields are lagging its neighbours, at 4.50 tonnes/ha, compared with 6.03 tonnes/ha in China and 5.35 tonnes/ha in Laos. Meanwhile, the scale of soybean production remains extremely low, at around 200,000 tonnes, compared with consumption of 1mn tonnes annually.

Adequate infrastructure for corn storage and transport is also lacking. This prevents Vietnam from having a stable supply of corn throughout the year, as farmers are obliged to sell their product quickly after the harvest. Moreover, corn growers are still spread across the least accessible territories (in the Central Highlands, for example), making it difficult for feed companies to collect and transport products. Moreover, we expect livestock production to maintain the robust growth rates recorded in recent years, which will deepen the domestic feed deficit.

Vietnam Rice Production & Consumption, 2013-2018
2013e 2014f 2015f 2016f 2017f 2018f
Rice Production, '000 tonnes 1 27,550.0 27,680.0 28,095.2 28,713.3 29,316.3 29,931.9
Rice Consumption, '000 tonnes 1 20,065.0 20,345.9 20,488.4 20,631.8 20,734.9 20,859.4
Notes: e BMI estimates. f BMI forecasts. Sources: 1 USDA.
Vietnam Corn Production & Consumption, 2013-2018
2013 2014f 2015f 2016f 2017f 2018f
Corn Production, '000 tonnes 1 4,780.0 4,880.0 5,172.8 5,483.2 5,812.2 6,160.9
Corn Consumption, '000 tonnes 1 6,300.0 6,646.5 6,998.8 7,362.7 7,752.9 8,171.6
Notes: f BMI forecasts. Sources: 1 USDA.
Vietnam Beef & Veal Production & Consumption, 2013-2018
2013 2014f 2015f 2016f 2017f 2018f
Beef & Veal Production, '000 tonnes 1 402.0 404.0 407.0 409.0 413.0 417.0
Beef & Veal Consumption, '000 tonnes 1 414.0 418.1 439.0 461.0 484.0 508.3
Notes: f BMI forecasts. Sources: 1 USDA.
Vietnam Pork Production & Consumption, 2013-2018
2013 2014f 2015f 2016f 2017f 2018f
Pork Production, '000 tonnes 1 2,220.0 2,260.0 2,327.8 2,380.2 2,432.5 2,487.3
Pork Consumption, '000 tonnes 1 2,200.0 2,255.0 2,329.4 2,410.9 2,505.0 2,612.7
Notes: f BMI forecasts. Sources: 1 USDA.
Vietnam Poultry Production & Consumption, 2013-2018
2013 2014f 2015f 2016f 2017f 2018f
Poultry Production, '000 tonnes 1 760.0 815.0 859.0 906.3 956.1 1,008.7
Poultry Consumption, '000 tonnes 1 790.0 829.5 883.4 940.8 1,008.6 1,088.3
Notes: f BMI forecasts. Sources: 1 USDA.
This article is tagged to:
Related sectors of this article: Agribusiness, Grains - Agribusiness
Geography: Vietnam

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