Formerly the world's fastest growing agribusiness market, Vietnam's economy -and feed production -have taken a two year pause. After growing at a 7% to 9% annual rate for most of the 1990s and 2000s, Vietnam has had several years of economic crisis, banking sector problems. The economy grew by 5.0 and 5.3% in 2012 and 2013 respectively, its slowest pace since 1990. With income growth stalling, so has the growth of most livestock lines and with it, feed output.

 

After growing at an 8.8% annual rate from 2001 to 2009, Vietnam's pork production (which accounts for 66% of meat consumption) did not grow at all in 2010. Thereafter, it increased by only 2% annually from 2010 to 2013, and the USDA expects it to rise a mere 1.8% this year. Similarly, beef production (which accounts for 11.8% of meat consumption) rose at 7.4% annual rate from 2001 to 2010 but has stayed flat at 400 tonnes ever since, and is projected to do so again this year.

 

Only broiler production which grew at 8.1% annual rate from 2001 to 2010, thereafter expanded at a fast (but slowed down) 6.5% annual rate from 2010 to 2013, and is expected to increase another 5.9% this year. But with red meat making up approximately 78% of 2013 meat consumption, rising broiler output  on its own was not enough to keep feed demand growing at the 8%+ pace it has been growing at for two decades.

 

Those 8%+ growth rates for pork and broiler consumption kept feed demand growing at a supersonic rate during the 2000s. To keep pace with both rising livestock production plus the substitution of professionally produced feed in place of traditional backyard farm scrap materials, Vietnam's feed output increased at an annual rate in excess of 13% from 2005 to 2012. From 5.2 million tonnes in 2006, Vietnamese feed production touched 12 million tonnes. Thereafter, with meat production topping out, it surprised everyone by staying at that level, unchanged in 2013.

 

Although Vietnam's economy is recovering from its nearly three years of crisis, 2014 will probably see feed output rise about 5%, to 12.6 million tonnes. Thereafter, even if Vietnam's incomes grow more slowly and feed production rises only 5% annually instead of the more than 10% of the previous decade, by 2020, its feed output will total approximately 17 million tonnes.

 

But the road has been getting bumpier, particularly on the question of sourcing feed inputs. Formerly self-sufficient, Vietnamese corn imports tripled from 0.5 million tonnes in 2008 to 1.5 million tonnes in 2009. The government responded with an ambitious plan to boost cultivated area and yields, projecting the corn harvest size to rise from 4.4 million tonnes in 2008 to 5.28 million by 2010, 6.0 million tonnes by 2012 and 6.4 million tonnes this year.

 

But unlike the 1990s, Vietnam's arable land was fully cultivated and with little room for further expansion, production levelled off -and since 2004, yields have stayed flat in the 65bushels/acre range, which is about 40% of US yield levels: With corn competing against rice and other crops, 2013's corn output of 4.9 million tonnes is just 10.6% above 2008's 4.43 million tonnes.

 

For 2014, given the drought that prevailed in the first quarter of 2014, Vietnam will probably have to content itself with very little change in its harvest size for yet another year. Hence, while corn harvests are only rising by 2% annually, feed production can be expected to resume growing by at least 5% per annum, if not more.

 

Despite the disappointing corn production numbers, for the the last five years, Vietnam's feed corn shortfall was kept in check by substituting imported feed wheat, which cost less than corn for most of 2011 and 2012. Available from many more countries than corn, Vietnam's wheat imports rose from 0.2 million tonnes in 2008 to 1.1 million tonnes in 2011, allowing corn imports to fall back to 1.1 million tonnes in 2011.

 

Unfortunately for Vietnam, 2012 saw wheat resume its traditional price premium over corn. As a result, feed wheat imports fell back to 0.35 million tonnes in 2012 and 0.30 million in 2013. Although feed demand growth has levelled off, more corn is needed to take the place of expensive wheat. Hence, corn imports climbed back up to 1.5 million tonnes in 2012 and 1.7 million tonnes 2013. With Vietnam importing 580,000 tonnes of corn in January alone and Southeast Asia's drought showing no sign of breaking (at the time of publication), it is reasonable to expect 2014 corn imports to total 2.0 million tonnes.

 

But Vietnam is becoming dependent on more than just corn: Out of the US$4 billion Vietnam spent on imported feed inputs in 2013, only US$1 billion of it was on corn, soy or fishmeal: The other US$3 billion was spent on imports of feed itself. There are several implications to this.

 

First, much like feed wheat, imports of feed hide Vietnam's growing feed grain dependence. Were it not for such a massive amount of processed feed imported, corn import volumes could be 50% higher than they are today. While it is more not to import any feed materials at all, if a choice must be made, importing raw feed materials like corn or fishmeal is far desirable than importing the finished, value added product.

 

Second, the foreign domination of Vietnam's feed sector extends to more than just imported inputs: Out of Vietnam's 194 feed companies, only 15 are either foreign owned or joint ventures with large foreign companies. , but they produce 65% of the country's feed output by volume.

 

Third, it is more important for Vietnam to lessen its dependence on foreign feed inputs than it is to have a domestically owned feed sector, as foreign investors at least bring in technology and boost productivity. In an interview with the English language Viet Nam News newspaper, Vietnam Feed Association chairman Le Ba Lich, stated that the 1.1 million acres of land currently under corn cultivation could be boosted to 1.7 million acres.

 

And Lich's sentiments are shared by the country's policymakers. Pham Dong Quang, deputy head of Vietnam's Crop Production Department, said his department plans to offer incentives to increase corn's planted acreage area under maize from 1.1 million hectares to 1.5 million hectares under the development plan for the sector for the period through 2020.

 

If that could be done and yields increased a mere 5%, Vietnam's corn output could rise from today's 4.9 million tonnes to 7 million tonnes, keeping it nearly self-sufficient in corn at the turn of the decade. To accomplish such a change, farmers in in areas with low rice yields in north-central Vietnam, the Mekong delta and southeastern regions would have to be persuaded to start growing corn in its place.

 

As this issue is getting increasing attention in Vietnam's policy circles and business media, we would not be surprised to see a bold new corn growing policy in the latter half of this year. Do however, keep this in mind: Everyone from Indonesia to the Philippines to Vietnam itself has unveiled bold new corn growing policies, and watched them flop. So all things being equal, unless Vietnam accomplishes a second green revolution, you can expect it to be giving South Korea and Japan competition in the volume of corn and soy it imports by the turn of the decade.