July 15, 2010

 

Strong demand for dairy in Vietnam attracts investors

The demand for dairy products has been increasingly high in Vietnam, which has prompted investors to pour money into the dairy sector.

 

In 2009 and 2010, the production and trade of dairy products all around the world decreased significantly due to the global economic crisis. However, it seems the crisis has in no way influenced Vietnam, as demand for dairy products still increased sharply last year.

 

Trinh Van Tien, Head of the Research and Development Division under Agroinfo, an information provider, said the total revenue of the dairy sector in 2009 still increased by 14% over 2008, reaching VND18,500 billion (US$0.97 billion). The figure far exceeded the revenue of VND4,194 billion (US$0.22 billion) in 2000 and VND13,361.7 billion (US$0.7 billion) in 2007.

 

The sharp increase in the demand for dairy products means big opportunities for dairy producers. According to Agroinfo, dairy product consumption per capita in Vietnam increased significantly from 1997-2009. Full cream dairy products saw the highest growth rate of 28.9% during that period from 0.07 kg per capita in 1997 to 4kg per capita in 2009. The consumption of skim milk has increased by approximately 20%, while liquid dairy products have a growth rate of 10% per annum.

 

The biggest problem now is that the high grade market segment is now being controlled by foreign companies, according to Dau Tu newspaper. Milk powder has proved to have the greatest advantages. The total revenue of powder milk in 2009 in the domestic market reached VND6,590 billion (US$0.35 billion), accounting for 35.6% of total revenue, of which import products accounted for 70%.

 

Vinamilk is now the market leader in the processing and supplying of dairy products. With 11 operational plants and 130,000 retail points, Vinamilk obtained a growth rate of 29% in 2009.

 

Nguyen Quoc Khanh, Managing Director of Vinamilk, said Vietnamese people now tend to consume more dairy products thanks to better living standards. However, the average level of fresh milk consumption of Vietnamese people is still much lower than that in regional countries. A Vietnamese person consumes 14 litres of milk per annum, while the figures are 23 litres in Thailand and 25 litres in China.

 

“Vietnam is a country with [a] young population, the population increase of 1% per annum and the average income per capita increase by 6% per annum. All these factors can [affect] the consumption of milk and create golden opportunities for producers,” Khanh said.

 

In an effort to satisfy the demand for dairy products which is expected to increase sharply in the time to come, Vinamilk is upgrading operational plants and building new plants to increase output. Vinamilk is building two of the most modern plants in Southeast Asia which will make fresh milk and powder milk, which are expected to be operational by 2012. The company has also decided to spend VND8 trillion to increase its stock of milk cows to 80,000, which it expects will be able to provide 1.3 million litres of milk a day.

 

However, not every investor can make profit when investing in the dairy sector. Phan Sy Minh, Deputy General Director of IDP Company, said that though dairy products are not influenced by economic cycles, this is a sensitive production because it affects the health of people. If enterprises do not conduct thorough research, they will not be able to survive.

 

Recently, the domestic market witnessed the leave of some foreign producers, including Swiss Nestle, which sold its plant in Ba Vi to Anco. An Italian dairy brand which once set up a plant in Ho Chi Minh City also stopped operating in Vietnam.