May 2, 2017
Vietnam: Hungry for red meat and a flexible feed input sourcing strategy
The country's rapidly growing appetite has made it into a flexible top importer of feed materials, shifting among various grain and oilseed inputs in response to market opportunities.
By ERIC J. BROOKS
An eFeedLink Hot Topic
In both Southeast Asia and the world, no large feed and livestock market is growing faster than that of Vietnam. Its feed output expanded from 2.4 million tonnes in 2000 to 10.5 million tonnes, expanding at a 12.8% annual rate over this decade.
This growth is based on very solid consumption fundamentals: Despite its very low personal income levels, Vietnamese produce more feed-intensive pork than several of their Southeast Asian neighbors combined. At 30kg, its per capita pork consumption is ahead of America's and looks headed towards Chinse levels, somewhere above 40kg.
Over the next decade, Myanmar will probably overtake Vietnam as the world's fastest growing feed and livestock market. Even so, with 1.8 times as many people as Myanmar, the volume growth in Vietnam's livestock production will exceed that of Myanmar and may even rival that of Indonesia, even though the latter contains nearly three times as many people.
Nor has there been much let up in its growth over time. Following a nasty recession at the turn of the decade, Alltech's Global Feed Survey reports that from 2011 to 2016, Vietnam's feed industry grew by 16% annually and by a whopping 26.3% in 2016 alone.
At 18.7 million tonnes, Vietnam's feed output has caught up to that of Thailand, which has far higher per capita incomes and a thirty year head start on Vietnam with regards to development. In fact, Vietnam's feed production roughly equals that of Indonesia, even though the latter has 2.8 times more people. It also mills 37% more feed than the Philippines even though the latter has a far more mature agribusiness sector and several million more people.
Moreover, these estimates of Vietnamese feed demand are, if anything, conservative. The USDA for example, views Vietnam's market as larger and more highly developed than Alltech or International Feed Industry Federation projections. It estimates Vietnam's 2015 commercial feed demand at 18.54 million tonnes, rising 5.8% to 19.6 million tonnes in 2016, the 4.6% over the next two years, totaling 20.52 million tonnes in 2017 and 21.50 million tonnes in 2018 respectfully.
It also estimates that another 25% or 7 million tonnes of feed is produced from informally by mixing farmyard scraps and ingredients such as rice bran with corn. In fact, much of the difference in Vietnamese feed production estimates comes from their different estimates of the proportion of feed that is still produced non-commercially. Even so, as was the case in China, the substitution of commercially milled feed in place of homemade inputs will keep feed demand growing in the 5% to 10% range into the 2030s.
Consuming 25% more pork per capita than the United States, Vietnam is Southeast Asia's fastest growing livestock market. No other developing country combines its mix of low income, high red meat consumption and potential for growth. Vietnam's 94 million population eats several times more red meat than all of Indonesia's 280 million people –and its protein lines are projected to keep growing at 5% to 7% for at least another decade, and probably longer
As has been the case through much of Southeast Asia, rapidly growing feed demand has outstripped its arable land capacity for growing feed. After being self-sufficient in feed grain for most of its history, corn imports jumped from almost nothing before the mid-2000s to 500,000 tonnes in 2007-08 and 1.0 to 1.5 million tonnes annually from 2009 through 2013.
At that time, with corn prices very high, Vietnam turned to alternative feed grains, boosting its wheat imports from an immaterial 30,000 tonnes in 2007-08 to over a million tonnes when corn prices hit their all-time highs in 2012-13. Imports of US DDGS also skyrocketed, from 6,000 tonnes in 2007-08 to half a million tonnes four years later.
Thereafter, 10%+ annual feed production growth coincided with very low corn prices. That resulted in feed wheat being replaced with corn, mostly purchased from Argentina, Brazil or Ukraine. This had two results. First, feed wheat imports fell from 1.1 million tonnes in 2011-12 into the 250,000 to 350,000 tonne range over the next few years.
Second, the country decided to not just stockpile cheap corn but use it fully in place of several years feed demand growth. Towards the middle of our decade, Vietnam began to not only meet its own swine sector needs but export pigs to China, which started suffering pork production shortfalls at this time.
That turned Vietnam into the world's fourth largest corn importer, with purchase volumes doubling on-year. Corn import volumes expanded from 1.5 million tonnes in 2012-13 (when feed wheat substitution was in full force) to 3.5 million tonnes in 2013-14. They totaled 5 million tonnes in 2014-15 before reaching a record 8 million tonnes the following year. In all, corn imports jumped 433% over four years.
Although Vietnam's feed sector grew at an even faster rate over the past two years than previously, the past two years has seen feed wheat first equal and later, undercut the cost of corn. Always eager to economize and diversify their feed input base, feed wheat imports rebounded. From 350,000 tonnes in 2014-15, they tripled to 1.1 million tonnes in 2015-16. With feed wheat's cost advantage growing in 2016, they skyrocketed to a USDA estimated 2.75 million tonnes in the current marketing year.
Over the longer term, total imports of corn, DDGS and feed wheat have risen nearly 11,200%, from 100,000 tonnes in 2000-01 to 2.58 million tonnes in 2010-11 and a whopping 11.27 million tonnes in 2016-17. Over the shorter term, the UDA expects the 2017-18 marketing year to see corn imports falling back to 6.5 million tonnes. That is partly due to lower feed wheat prices, and also due to the winding down of growing pigs-for-export to China, which had inflated corn demand over the last several years.
Going forward, low cost corn, particularly from Latin America, is undercutting returns on corn cultivation and constraining planted acreage, which is already close to capacity. With corn yields stuck in the low 4 to 5 tonne per hectare range, Vietnam appears destined to overtake South Korea as the world's third largest corn importer by the early 2020s.
Growing only several hundred thousand tonnes of soy but with total demand in the millions of tonnes, Vietnam has long been a mass oilseed importer too. The nature of its import needs however, has evolved over time. Prior to the late 2000s, it imported mostly soymeal, with imports growing from 430,000 tonnes in 2000 to 2.9 million tonnes by 2009.
With the opening of two new, large crushing facilities, soymeal imports initially levelled off, bottoming out in the 2.3 to 2.5 million tonne range from 2010 through 2013 inclusive. The new crushing facilities encouraged growth in raw soybean imports. They jumped from the 30,000 to 70,000 range in the years before 2006 to 924,000 tonnes by 2010 and 1.6 million tonnes in 2015.
Subsequently, feed demand took off, no new crushing facilities were built and the current plant capacities were expanded to their maximum extant. Reflecting rising crushing plant capacity, soybean imports jumped from just under a million tonnes in 2009 to 1.6 million tonnes in 2014. Since then, with no new crushing capacity being built, bean imports have stayed in the 1.6 to 1.7 million tonne range.
On the other hand, the last three years have seen soymeal import volumes jump to 3.33 million tonnes in 2013-14, 4.5 million tonnes in 2014-15 and 5.1 million tonnes last year. This had turned Vietnam into the world's soymeal importer, ahead of the 4.7 million tonnes imported by Indonesia or 3.2 million tonnes bought by Thailand.
Over the next decade, we can expect Vietnam to retain its status alongside Indonesia and Myanmar, as one of the world's three fastest growing agribusiness markets. As short of land as its Southeast Asian neighbors but hungrier for red meat, the country looks destined to become a top world market for feed grains and oilseeds.
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