Báo cáo khoa học nông nghiệp " Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed - Milestone 4 " ppt

1 Ministry of Agriculture & Rural Development Collaboration for Agriculture & Rural Development Project 030/06VIE Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed Milestone 4 A. Report on the key issues identified from consultation with major industry stakeholders B. Detailed questionnaires developed for data collection from firms in the livestock feed sector May 2008 2 A. Key issues identified from consultation with major industry stakeholders The key issues identified in this report have been collected from a number of sources including workshops and interviews, as well as stakeholder and field visits over the period August 2007 to February 2008. They have been used to inform and direct the questionnaire development, as well as other research work now underway for the final report: e.g. spatial organization of production and consumption of livestock feed. Further issues were identified from the desktop review, and these were summarized in a report for Milestone 3. 1. Key issues identified at the Inception Workshop – August 2007 Key background information: Animal feed is a major cost for animal production industries (60-80%). The livestock sector is growing at 8-9% per year globally, and the growth in the domestic animal feed sector is 15% per year. Vietnam needs to import a lot of the raw material inputs for animal feed and in 2006 40% of raw material product was imported (mostly soybean and peanut, also corn). Major issues identified at this workshop included: • High cost of animal feed in Vietnam – 10 to15% higher than overseas. What is causing this? Some think that it is mainly because of the high cost of material inputs. • Poor quality (and perception of poor quality) of feed produced in Vietnam – particular that from SMEs. Linked to this is poor capacity for feed quality control within both smaller feed companies and MARD (DLD). Strategy to improve capacity for feed quality control is needed (laboratory capacity, standards, regulations, testing procedures, enforcement). • SMEs are currently in difficulties, and there are concerns about the future of SMEs given the dominance of the foreign-owned companies operating in this sector. Are there policies that could be implemented to improve the competitiveness of SMEs in the animal feed sector? Domestic companies are perceived as weaker than foreign ones in terms of three factors which decide competitiveness: management of quality and technology, after sale service and material purchasing strategy. • The high level of material inputs that are imported raise animal feed production costs. Should material inputs be liberalized? For example, import materials are subject to 3 kinds of tax (import, VAT and revenue income tax). There is a need to understand exactly what taxes are paid by the livestock feed sector on inputs and outputs. • Linked to the issue of imports, should there be a local materials policy? For example, how can agricultural and industrial by-products be better used? It was suggested that if by-products could be used, about 4-5 million more cattle could be fed, and problems of environment pollution and job opportunities for rural people addressed. • Both foreign and domestic mills do not operate to capacity because of unstable livestock production. More research on producers’ incomes and production strategies is needed. The strategy of developing networks of producers and small animal feed mills need to be investigated. 3 • Land for livestock, and credit for both feed production and livestock production are limiting. • There are issues with data. It was argued that GSO data underestimates production from the livestock feed sector, and livestock production from the household sector because the GSO gets reports on numbers of animals at Aug 1 st , so they have no idea on how numbers change during the year. Real data is 2 ½ times higher than GSO data for animals (and milled feed?). • Corn production in Vietnam needs to be increased – there was concern that this required irrigation investment. What potential is there to increase corn area and yields? • What risk analysis strategies are in place in the sector – can hedging be used to minimize input market risk. Risk analysis associated with food safety issues should be considered. • High transport costs – and large costs associated with dealing with a bagged product – are affecting the sector. • Need to think about the optimal scale for Vietnam animal feed industry – there could be a trade off between importing raw materials for livestock feed and importing livestock meat products. 2. Key issues identified from consultation with various industry experts Many of the issues raised by the industry experts were similar to those raised at the inception workshop. Additional issues raised included: • Low feed quality associated with products from small feed mills – and associated with this, corruption within the DLD responsible for testing, and poor enforcement of penalties for breaches of the feed regulations. • What is a low quality feed?: protein content too low, inaccurate labeling, high mycotoxins, feed stored in areas with high contamination risk. • MARD experts said that the quality of feed analysis from laboratories in Vietnam is not good, especially for food safety contaminants. Results differ between laboratories. There is a concern that big feed companies sometimes use growth stimulants in their product. Protein levels are also an issue and often lower than stated. • There is no Division of Animal Feed at the provincial level (unlike, for example, Plant Protection). This contributes to inadequate regulation of feed quality. • There are 145 feed businesses producing less than 5000 T/yr (10% of total production). On the other hand, smallholder livestock production is 90% of production. • Production is not matched with mill location – there is oversupply of feed in some provinces – the spatial location of raw material production, feed production, and livestock production seems important. Some experts think there should be a strategy for organising production, others disagree. • Need to understand if the supply/value chain of the SMEs is different to larger mills. It was suggested that many small mills only produce concentrate and sell to remote locations. Is there a niche market for SMEs? Need to look at 4 comparative advantage in the whole value chains (e.g. for large and smaller mills) and consider social and environmental issues as well. • Poor and out-dated technology used in small mills. Lack of credit to make improvements. • Potential role of the feedmill association to provide feed recipes, training and laboratories to the SME sector. • Seasonality in livestock production (particularly pigs). • Aspects of feed quality that need to be considered: o Input quality and storage (links to maize harvest month) o Cleaning of equipment (rats, contamination) o Accuracy of mix/quality of pellet o Storage of feed products (antioxidants – fats go rancid and spoil the feed) o Raw materials should be tested especially if they come from lots of different locations o Mycotoxins – cause low feed intake (palatability) – use of mycotoxin binders (antifungals) • Technical issues that need to be considered: o Key technical areas are infrastructure and equipment, throughput capacity and storage (e.g. a reasonable threshold capacity for a mill would be 5,000T/yr). o Key differences between mills that will affect competitiveness are: capacity utilisation, quality control, access to raw materials, marketing channels, technology. o Location is another issue – close to port, close to infrastructure, close to raw materials, close to livestock – where are the mills located? 3. Key issues identified from field visits to feed mills • Rapidly rising prices of material inputs – at the moment overriding all other concerns. • Diversity of feedmill operations – multiple feed products, associated livestock operations (contract farming), some also operating as traders (usually in complete feed) • Differing investment by companies in technology and human development • Changing management structure of large domestic companies – e.g. from SOE to equitised company • The importance of storage capacity and its impact on buying and importing strategies. Can the GoV play a role in providing storage capacity for SMEs? • Varying quality control capability in mills – use of laboratories • Batch size and mill operations generally (throughput capacity (tonnes/hr, tonnes/day – the smaller the batch size the more the unit/energy cost), repairs and maintenance scheduling (cleaning of equipment, safety), some feeds harder to produce (chicken feed and small pigs which need smaller dye) 5 • Pricing arrangements within and outside contracts • Dealing with seasonal demand – 4 month period August – November (lead up to Tet), slow increase not large fluctuations • Selling strategies: some large companies have a selling strategy concentrated at large agents, and not much to smaller agents operating in remote areas. This avoids payment risk with farmers as the agents pay the company directly. • Large companies say that small companies can’t compete: they have no capital, can’t buy raw materials to store for 6 months, have no advanced technology, and have to employ too much labour • Small companies say that their biggest issues are availability of capital and land, increasing production costs, and the cost of credit from VBARD (1.03% mth). Often they need to mortgage private assets. • Small companies say it is difficult to compete with larger companies – especially in import procurement. Bigger companies can also give agents a bigger bonus. Some perceive that only competition from large companies is an issue – competition from other SMEs is not a problem. • Feed recipe costs are too high for small firms – should the GoV provide support, especially technical support and training, for small firms? The software for calculating least cost rations is cheap – but there is insufficient technical/ management capability to use this in small firms. • Some small feedmills are not actually mills – they are really just mixing facilities (producing concentrate) • There is a perception in large foreign-owned mills that Vietnamese farmers lack knowledge about correct feeding of livestock (from a nutritional and growth perspective). 4. Key issues identified from field visits to livestock producers • Ad hoc use of antibiotics and additives in livestock production • Odour/water pollution and noise issues for business located in close proximity to village housing and water supplies • Producers perceive price of feed to be high • Perceived (good) quality of feed is a major reason for brand choice, along with price. Producers judge feed quality on results and company reputation. • Small holder producers often use complete feed as a concentrate – mixing complete feed with home grown feed. . competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed Milestone 4 A. Report on the key issues identified from consultation with major industry stakeholders. background information: Animal feed is a major cost for animal production industries (6 0-8 0%). The livestock sector is growing at 8-9 % per year globally, and the growth in the domestic animal. animal feed sector is 15% per year. Vietnam needs to import a lot of the raw material inputs for animal feed and in 2006 40 % of raw material product was imported (mostly soybean and peanut, also