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CARD Project 030/06 VIE: Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed Policy Brief May 2010 Use of Industrial and Mixed Feed by Livestock Producers in Vietnam For Information of the Minister of Agriculture, and relevant Departments of the Ministry of Agriculture and Rural Development and Provincial Departments of Agriculture and Rural Development. Purpose • To report on research findings relating to the use of livestock feeds by pig and chicken producers in Vietnam, and • To suggest implications from the research relating to the current and future use of industrial and mixed feeds by livestock producers. Background A survey in six provinces of 300 pig and chicken livestock producers of mixed production scale was conducted by the Center for Agricultural Policy in 2009. One of the aims of the survey was to investigate feed use by large and small scale livestock enterprises. Producers were classified as small, medium or large based on their per head production in 2008. For pig producers, small producers were classified as those raising less than 50 head per year, and large more than 120 head per year. The classification of chicken producers was different for layer and broiler production. For layer production, small firms were classified as those producing less than 1000 head per year, and large as those producing more than 4000 head per year. For broiler production, small firms were classified as those producing less than 500 head per year, and large as those producing more than 3000 head per year. The cost of animal feed is known to be the largest percentage of total production costs of livestock producers, and in this survey it was found on average that feed costs accounted for 79% of total production costs for chicken producers and 83% of total production costs for pig producers. It is this high share of feed costs in total production costs that makes efficient feed use important in livestock production. In this Policy Brief results from the research related to feed use and feed use efficiency in livestock production are discussed. Use of feed by livestock producers Industrial feed is more often used by large producers, and more commonly in early production stages In general, it was found that industrial feed was used more by larger producer groups, and in the early production stage rather than later stages. These differences by scale were also true for 2 the amount of industrial feed used: that is, larger producers used more industrial feed (i.e quantity fed per head). Industrial feed produced by foreign companies was generally more favored than that produced by domestic companies, with more than 90% of the surveyed households choosing both complete and concentrate feed with a foreign company brand. The main reason given by producers for this choice was that foreign brand feeds were of better quality and gave greater productivity. For chicken production: Most surveyed households used complete feed for chicken production in all three production stages 1 : however, the proportion commonly tends to decrease from stage 1 to stage 3 (90%, 63% and 52% for broiler and 82%, 80% and 74% for layer). Overall, the larger the production scale, the more likely that households used complete feed, and this was generally true for all production stages. For medium and large groups, the proportion of broiler households using complete feed was high for all production stages (over 60%), while only about 26% and 43% of small households used complete feed in the second and third production stages respectively. Households with exotic/cross breeds were more likely to use complete feed than those with local chicken, and households raising free-range chickens also tended to use less complete feed. For pig production: More households used complete feed for raising porkers compared to sow production. For raising sows, the percentage of households using complete feed was generally highest in the lactating period at 65%. For porker production, more households used 1 A chicken batch normally has 3 feeding production stages. For broilers, stage 1 lasts on average for about 29 days, stage 2 is the next 48 days and stage 3 is the last 40 days. For layers, the respective length of the 3 stages is 94 days, 172 days and 250 days. complete feed in the piglet stage (85%) than in the later stages 2 . Similar to chicken production, many more large scale producers fed their pigs using complete feed compared to small scale producers, and this was generally true for all different stages of porker and sow production. Use of mixed raw feed only diets is no longer prevalent; instead more complete only and diets using mixed industrial and raw feeds are used Except for a few households that fed only mixed feed to their chickens (9% for broiler and 18% for layer), a large percentage of both pig and chicken producers used complete feed only: 53% for broiler and 64% for layer; and 43% for sow, 77% for piglet and 45% for porker production. The remainder used both complete and mixed feed in the daily diet for livestock. The ratio of concentrate feed in the total mixed feed was found to be about 27% overall for chicken producers, and 17% for porker produecion. Mixed feed was used much more than complete feed by pig households for all production stages. Efficiency of industrial versus mixed feeds Using the survey data for the on-farm feed use and liveweight gain, Feed Conversion Ratios (FCRs) were calculated for similar farm outputs: broilers and porkers. For broiler production it was found that on-farm FCRs – the kg of feed fed per kg of bird produced - decreased as production scale increased. The FCRs for broiler production on all farms decreased from local to cross to exotic breed (3.94, 2.45 and 2.24 respectively). The FCR was much lower in households using complete feed only rather than mixed 2 A porker batch consists of two main feeding stages: stage 1 (piglet production) lasts for 60 days and stage 2 (grower plus finisher stage) is 98 days. 3 feed, and also significantly lower in households using foreign brand complete feed than those using domestic brands in the case of chicken (2.94 versus 4.18). FCRs for pig production using complete feed were significantly lower for small scale producers (2.08) compared to large scale producers (2.92). The FCR was also significantly lower for complete feed diets (2.65) compared to mixed feed (4.06), but FCR for pig producers using foreign brand complete feed, however, was not significantly different from those using domestic brands. FCRs may be used as a standard measure of feed use efficiency. However if a more productive feed costs more per kg, it may be worthwhile for farmers to use the cheaper feed with the higher FCR if the net cost per kg of liveweight gain is lower. The results of this research show some interesting differences between chicken and pig households using different feed types, indicating there may need to be different policy recommendations for each product type and system. For chicken production: Overall, although the mean cost per day for complete feed only was statistically higher from that for mixed feed, the overall feed cost per kg of liveweight gain between households using complete only and mixed feed was statistically lower for complete feed only diets (22,686 VND versus 27,888 VND) (Table 1). This result supports the use of industrial feed for cost efficient production. Note that cost efficient production should also consider the sale price of the product, which might reflect product differences in taste and quality affected by livestock diets, however this has not been taken into consideration in the analysis. Differences in costs by feed type were not significant for the small and medium scale farms, but for the large scale farms the cost of the complete only diet per day was significantly lower than for mixed feed. The effect of brand type on the cost of feed per kg of liveweight gain was also tested but there was no significant difference in the means. Thus, while FCR was lower for the foreign brand feeds, the higher price of this feed balanced out the economic benefits compared to the domestic feed, such that the cost per kg of liveweight gain was no worse than for foreign feed. The mean values were 22,900 VND for foreign feed and 25,300 VND for domestic feed but the differences were not statistically significant. For pig production: In this case there are significant differences in cost per day between complete only and mixed feed overall (19,230 VND versus 14,370 VND), and for all three production scales (Table 2). Similarly, it was also found that the feed cost per kg of liveweight gain was significantly higher for households using complete feed only compared to those using mixed feed overall (23,580 VND versus 20,150 VND), and those located in the north. These results for pig production support mixed feed use (often using local residual feeds) as households can reduce their feed cost by about 3,400 VND per kg liveweight gain overall. As before, possible differences in sale prices associated with stock raised on different diets have not been considered. Implications for feed use by livestock producers • Generally, larger pig and chicken producers are more likely to use a higher percentage of industrial feed in their livestock diets. As the livestock production sector develops and trends towards larger production units, the demand for industrial feed will increase. • Industrial feed is shown by the results to be a more cost-effective 4 diet for chicken producers. However, there is some evidence supporting the cost effective use of mixed feed – particularly for pig production. Mixed feeds are more widely used by small-medium producer enterprises, and the results support the idea that this feed use strategy can be cost- effective. Mixed feeds may also be associated with produce that has a price premium for taste and/or quality, e.g. local chicken. • SME livestock feed producers tend to supply small producers directly, and domestic feed brands were shown in these results to be as cost- effective for liveweight gain as foreign brands. Higher FCRs were offset by the lower price of domestic brand feeds. The feasibility of establishing a cluster of animal livestock production and livestock feed producers in rural areas by linking smallholder farmers and SMEs could be investigated. Further reading Center for Agricultural Policy, 2010. Small- Medium Enterprises in the Livestock Feed Sector in Vietnam: Vol 1. Livestock feed production. Report for CARD Project 030/06 VIE, Section 6.3. Center for Agricultural Policy, 2010. Small- Medium Enterprises in the Livestock Feed Sector in Vietnam: Vol II. Feed use by pig and chicken livestock producers. Report for CARD Project 030/06 VIE, Chapter 5. 5 Table 1 Feed cost per day and per kg liveweight gain for broiler production: by region, scale and by diet (Source: CARD producer survey 2009) Feed cost per broiler per day (thousand VND) Feed cost per kg meat gain (thousand VND) Complete only Mixed - complete Complete only Mixed - complete ANOVA # (cost/kg vs feed type) Overall a 0.64 0.54 22.69 27.89 10% By region b North 0.90 0.57 18.67 27.09 12% South 0.59 0.47 23.69 30.30 2% By broiler scale c Small 0.34 0.52 25.43 25.36 nsd # Medium 0.64 0.50 24.69 26.13 nsd Large 0.72 0.82 20.90 . * 1% a. Cost per day between feed types at the aggregate level is significant at 10% b. Complete only feed cost per day is significantly higher in the north, nsd for mixed feed; cost per kg liveweight gain significantly higher in south for mixed feed but nsd for complete only c. Cost per day nsd between scale for either feed types, cost per kg gain nsd by scale for complete only feed, mean cost per kg for mixed feed significantly higher for large farms * Only two producers in large group use mixed feed so the result is not shown here. # ANOVA is Analysis of Variance, nsd is No Significant Difference. Table 2 Feed cost per day and per kg porker liveweight gain, by region, scale and diet type (Source: CARD producer survey 2009) Feed cost per day (thousand VND) Feed cost per kg meat gain (thousand VND) Complete only Mixed - Complete Anova (cost/day vs feed type) Complete only Mixed - Complete ANOVA (cost/kg vs feed type) Overall 19.23 14.37 1% 23.58 20.15 5% By region: North 16.99 13.83 nsd 26.62 20.38 10% South 19.44 15.08 1% 23.28 19.84 nsd # By scale: Small 18.11 12.84 1% 18.72 18.44 nsd Medium 19.75 15.60 5% 24.96 21.70 nsd Large 19.41 14.92 5% 24.92 20.66 nsd # ANOVA is Analysis of Variance, nsd is No Significant Difference CARD Project 030/06 VIE: Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed Policy Brief May 2010 Constraints Facing Small-Medium Enterprises in the Livestock Feed Production Sector in Vietnam For Information of the Minister of Agriculture, and relevant Departments of the Ministry of Agriculture and Rural Development and provincial Departments of Agriculture and Rural Development, Vietnam Association of Small and Medium Enterprises. Purpose • To inform you of major constraints facing small-medium enterprises (SMEs) operating in the livestock feed sector in Vietnam, and • To suggest policy initiatives needed to address these constraints. Background Large enterprises dominate the market in the livestock feed manufacturing sector, but there are many small-medium size firms also operating in the sector. There is pressure on these smaller domestic companies to remain competitive, however there has been little research on the competitiveness of the small and medium mills, compared to the larger ones, and constraints facing their operations. In this Policy Brief we report on a number of constraints facing SMEs in the sector. Recent research has found that credit assistance currently provided by the government to SMEs is not effective as it mainly targets SMEs located in the two largest cities, HCMC and Hanoi (Thanh, 2010). Since many livestock feed SMEs are located in rural areas, the Credit Assistance Fund will be ineffective in reaching these SMEs. Furthermore, it was found that 75% of SMEs accessed loans from informal sources (Thanh, 2010). Data come from a survey of 62 feed mill enterprises conducted in 2008 by the Center for Agricultural Policy. In the analyses, the mills have been categorized in the following way: small mills are those producing less than 10,000 tonnes per annum; medium mills are those producing from 10,000 to less than 60,000 tonnes per annum, and large mills are those producing 60,000 or more tonnes per annum. In this Policy Brief, SMEs refer to mills producing at both the small and medium scale, although some results are reported separately for small scale and medium scale mills. Constraints facing SMEs operating in the sector Restricted access to adequate credit The research results show that small mills have some disadvantages in accessing loans from formal credit sources. Fewer small mills were able to access enough funds compared to 2 medium and large mills. Nearly 70% of feed mills surveyed in the CARD project had a loan but only 56% of them could obtain as many funds as they wanted. Less small firms were able to acquire loans with sufficient funds compared with medium and large enterprises (40%, 64% and 67% respectively). Compared to large firms, SMEs tend to have loans from commercial banks (over 60%) rather than VBARD where they can obtain lower interest rates. This means that they have to pay higher costs for loans which increases their costs of production. In the survey, having no collateral was selected by all large mills and two thirds of small enterprises as the most important reason for not having enough funds. Half of the mills in the medium- size group mentioned high interest rates as the most important reason for not being able to access sufficient funds, and the rest were divided equally between having no collateral and lacking the right connections. Many of the mills stated that the Government should give more support to enterprises to access credit. This was the most important role for government identified by the surveyed mills. This finding reflects the difficulties faced by enterprises, especially SMEs, when borrowing (e.g. high interest rates, official procedures, lack of collateral, and loan limits), and the high priority that these firms put on the need for policy to address credit constraints Procurement and storage of raw materials There was no statistical evidence to indicate that small enterprises paid more for the key raw material inputs used in production of feed. It should be noted that these data did not take account of the quality of purchased feed. However, it is clear from the survey data that small and medium enterprises rely more heavily than large mills on domestic sources of raw materials, particularly fish meal. Small and medium enterprises have less storage capacity, and are able to store for a shorter period than large mills. This means they must make material input purchases at more frequent intervals. This makes them particularly vulnerable to changing input prices. Under unstable raw material market conditions, larger storage capacity and ability to store for a longer period helps to ensure that mills can effectively plan and budget ahead. Access to adequate land for business purposes Both small and large mills were more likely to report that they faced difficulties accessing adequate land to operate their business. Access to land for business purposes was the second most common issue (after access to credit) nominated by SMEs as needing support from Government (over 20% of mills). Restrictions on the movement of goods Forty two percent of firms overall reported being adversely affected by restrictions on the movement of goods, although more large firms (61%) than SMEs reported these restrictions. Tolls, inter-district and inter-provincial roadblocks and “police conduct” were reasons given for restrictions on the movement of goods. Of these, “police conduct” was nominated as the most important restriction on movement of goods by 67% of small firms, 33% of medium firms and 75% of large firms. Lack of capacity to undertake adequate quality control In the survey of 62 livestock feed mills conducted by CAP in 2008, better quality control processes for both input materials and output products were evident in foreign/joint-venture and larger firms. It was apparent that there were quality control issues for smaller, domestic firms. Few of the surveyed 3 firms nominated either quality control or technical support and training as needing support from the Government. This may be a perspective that is detrimental for SMEs in the livestock feed sector. Better quality control is needed in the sector, and it seems unlikely that this will be achieved voluntarily by the large number of domestic mills. Quality control issues are explored further in Policy Brief “Quality Control in the Livestock Feed Sector in Vietnam”. Recommendations 1. Further loan support should be provided to SMEs. Access to credit was nominated by over 50% of mills as needing Government support. Further research is needed to identify the specific operational areas in which SMEs need credit support, and how best to provide credit support. The focus of the support should be in areas where SMEs need support to be competitive with larger firms (e.g. raw material purchases, improving quality control facilities) 2. Improve standards of quality control of small domestic mills. There is currently a large difference between quality control procedures operating in domestic and foreign mills. To compete in the sector in the long term, quality control standards of domestic SMEs must improve. More detailed recommendations to improve quality control are given in the Policy Brief “Quality Control in the Livestock Feed Sector in Vietnam”. 3. Build better market linkages between SMEs and raw material suppliers. This strategy, along with improved management of the supply chain, could increase the quality and decrease costs of domestic raw materials, which would benefit SMEs operating in the livestock feed industry. The aim would be to improve quality (for example, of domestic fishmeal products) and reduce prices of these local raw material inputs. 4. Promote the role played by SMEs in rural employment. SMEs are more likely to be located in rural areas and therefore offer employment opportunities in rural areas. The location of SMEs in rural areas could be encouraged by Government through provision of land, infrastructure and subsidized credit. 5. Restrictions on the movement of goods due to irregular police conduct need to be addressed. Unnecessary restrictions and costs associated with the movement of goods add costs to the livestock feed sector in Vietnam, which result in higher production costs for smallholder and commercial agriculture. Corruption associated with police activities needs to be addressed and prevented. 6. Support a stronger role for the Vietnamese Animal Feed Association (VAFA). The VAFA could play a strong and useful role for SMEs in the sector. The Association is already used by SMEs for feed ration recipes, and advice on various aspects of production, and this role could be expanded to include assistance in providing information on domestic and world markets, raw material procurement (for example, importing of raw materials) and improving quality control procedures. Both SMEs and large feedmills should play a role in debating and developing a future role for the VAFA. Policy advocacy for the feed sector in general and SMEs in particular should be considered. Membership of the VAFA could be required for all registered feedmills, and the Association should be 4 strengthened with Government and private sector support. References and further reading Center for Agricultural Policy, 2010. Small- Medium Enterprises in the Livestock Feed Sector in Vietnam: Vol 1. Livestock feed production. Report for CARD Project 030/06 VIE, Section 7.3. Thanh, Vo Tri, 2010. Seminar on “Strategies for SMEs to Overcome the Economic Crisis”, Association of Chartered Certified Accountants and Saigon Business, HCMC, 4 th May 2010 CARD Project 030/06 VIE: Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed Policy Brief May 2010 Competitiveness of Small-Medium Enterprises in the Livestock Feed Production Sector in Vietnam For Information of the Minister of Agriculture, and relevant staff of the Ministry of Agriculture and Rural Development and provincial Departments of Agriculture and Rural Development, Vietnam Animal Feed Association, Vietnam Association of Small and Medium Enterprises, and managers of small-medium enterprises operating in the livestock feed sector. Purpose • To report on research findings relating to the competitiveness of small-medium enterprises (SMEs) operating in the livestock feed sector in Vietnam, and • To suggest implications from the results relating to the sustainable development of SMEs in the sector. Background Large enterprises dominate the market in the livestock feed manufacturing sector, but there are many small-medium size firms also operating in the sector. There is pressure on these smaller domestic companies to remain competitive, and perceptions that they are not competitive, but there has been little research on the competitiveness of the small and medium mills, compared to the larger ones. In this Policy Brief findings of a study on the competitiveness of SMEs in the sector are reported and discussed. Data come from a survey of 62 feed mill enterprises conducted in 2008 by the Center for Agricultural Policy. In the analyses, the mills have been categorized in the following way: small mills are those producing less than 10,000 tonnes per annum; medium mills are those producing from 10,000 to less than 60,000 tonnes per annum, and large mills are those producing 60,000 or more tonnes per annum. In this Policy Brief, SMEs refer to mills producing at both the small and medium scale, although some results are reported separately for small scale and medium scale mills. Competitiveness in the livestock feed sector is affected by more than just the relative costs of production of enterprises of different scale. The research focused on comparing SMEs and large enterprises with regards to their production and business activities, including: material input use, storage, product types, quality control, supply and distribution chains, market share, services provided and type of customer. These activities give broader indications of how SMEs compete with larger feed mill enterprises. [...]... Project 030/06 VIE 4 CARD Project 030/06 VIE: Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed Policy Brief May 2010 Quality Control in the Livestock Feed Sector in Vietnam For Information of the Minister of Agriculture and relevant staff of the Departments of Livestock Production and Animal Health, Ministry of Agriculture... CARD Project 030/06 VIE: Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agrofood chain: the case of animal feed Discussion Paper: CARD project 030/06 VIE Policy Pathways in the Livestock Sector: the role of IPSARD/CAP Hanoi, June 2010 1 Introduction Various documents and external foreign agencies have expressed concern about policy formulation in. .. and Rural Development and provincial Departments, relevant staff of the National Institutes of Animal Husbandry and Veterinary Research, Vietnam Animal Feed Association Production), and also responsibilities of the feed processing firms themselves There are a number of Government of Vietnam decisions related to the quality of livestock feeds manufactured in Vietnam These include: • Decree 15-CP (March... implementation is the sole responsibility of the Department of Agriculture and Rural Development at the provincial level Evaluation of Policy Evaluation of livestock policy is the responsibility of the: • Department of Agriculture and Rural Development, • Institute of Policy and Strategy for Agriculture and Rural Development, • National Institute of Animal Husbandry, and • National Institute of Veterinary... promulgating list of temporary technical regulations for animal feed This decision provides the minimum and maximum content of substances (Aflotoxin, Ca, P, Fe, Vitamin, etc.) in 1kg animal feed for each type of animal including poultry, pig and cattle Decision 113/2001/QĐ-BNN (28 October 2001): On promulgating list of minimum technical criteria required as standards for the production of animal feed The. .. • Planning Department, • Finance Department, • Ministry of Finance, 4 • • • Ministry of Planning and Investment, National Institute of Animal Husbandry (NIAH), and National Institute of Veterinary Research Implementation of Policy In contrast to the large number of ministries and departments who must work together to facilitate processes that will enable the adoption of livestock policy, overseeing... identifies 18 chemical substances forbidden in the manufacture of animal feeds Decision 3762/QĐ-BNN-CN (28 November 2008): On management of Melamine in animal husbandry and aquaculture The decision prohibits the import, production and use of materials and animal feed contaminated with melamine The acceptable level of melamine is less than 2.5mg/kg (≤ 2,5ppm) In addition, the decision also provides steps... inaccurate 3 3 Actively promote the adoption of international quality control standards Training in Good Management Practices and HACCP could be offered to small/ domestic firms, accompanied by a schedule for adoption of which ever standard is more appropriate for specific firms The assistance of large foreign firms in the sector and the VAFA could be sought to promote and conduct this training, but... 3, 2008 deals with levels of import tax for animal feed and some raw materials for the manufacture of animal feeds Circular No 77/2009/TT-BTC dated on 14 April 2009 regulated adjustment of the import tax rate for some materials and animal feed in privileged import tariff According to this circular, tariff rates for produce items used for producing complete feed for pig and poultry production are reduced... Vietnam, especially the “top-down” approach and lack of input from the private sector into policy (e.g Vu, 2003; Weaver, undated) IPSARD/CAP exists within the Ministry of Agriculture and Rural Development (MARD) and plays a major role as a “policy think-tank” for the Ministry As such, IPSARD/CAP plays a role in policy review, and hence the formulation of revised and/ or new policy This discussion paper . CARD Project 030/06 VIE: Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed Policy Brief May. strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed Policy Brief May 2010 Constraints Facing Small- Medium Enterprises. CARD Project 030/06 VIE: Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro- food chain: the case of animal feed Discussion Paper: