Q2 2015 www.bmiresearch.com VIETNAM AGRIBUSINESS REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 1759-1740 Published by:BMI Research Vietnam Agribusiness Report Q2 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: March 2015 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Agribusiness Report Q2 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: March 2015 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Agribusiness Report Q2 2015 CONTENTS BMI Industry View SWOT 10 Agribusiness 10 Operational Risk 12 Industry Forecast 14 Grains Outlook 14 Table: Corn Production & Consumption (Vietnam 2014-2019) 15 Table: Corn Production & Consumption (Vietnam 2009-2014) 19 Rice Outlook 20 Table: Rice Production & Consumption (Vietnam 2013-2019) 21 Table: Rice Production & Consumption (Vietnam 2009-2014) 24 Dairy Outlook 25 Table: Butter Production & Consumption (Vietnam 2014-2019) 26 Table: Cheese Production & Consumption (Vietnam 2014-2019) 26 Table: Milk Production & Consumption (Vietnam 2014-2019) 26 Table: Whole Milk Powder Production & Consumption (Vietnam 2014-2019) 27 Table: Vietnam - Planned Investment In Milk Production Capacity 27 Table: Butter Production & Consumption (Vietnam 2009-2014) 32 Table: Cheese Production & Consumption (Vietnam 2009-2014) 32 Table: Milk Production & Consumption (Vietnam 2009-2014) 32 Table: Whole Milk Powder Production & Consumption (Vietnam 2009-2014) 33 Livestock Outlook 34 Table: Beef Production & Consumption (Vietnam 2014-2019) 35 Table: Pork Production & Consumption (Vietnam 2014-2019) 35 Table: Poultry Production & Consumption (Vietnam 2014-2019) 35 Table: Beef Production & Consumption (Vietnam 2009-2014) 41 Table: Pork Production & Consumption (Vietnam 2009-2014) 41 Table: Poultry Production & Consumption (Vietnam 2009-2014) 41 Coffee Outlook 43 Table: Coffee Production & Consumption (Vietnam 2014-2019) 44 Table: Coffee Production & Consumption (Vietnam 2009-2014) 50 Featured Analysis 51 Industry Trend Analysis 51 Table: Select Countries - Textile Manufacturing: Key Political, Economic and Operational Risk Ratings 55 Vietnam's Uncompetitive Sugar Sector At Risk From ASEAN Integration 57 Table: VIETNAM SUGAR PRODUCTION & CONSUMPTION, 2013-2018 62 Commodities Price Analysis 63 Monthly Softs Update 63 Table: Select Commodities - Performance & BMI Forecasts 70 Monthly Grains Update 71 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q2 2015 Table: Select Commodities - Performance & BMI Forecasts 79 Upstream Analysis 80 Asia Machinery Outlook 80 Table: China Grain Public Production Support Programme (CNYbn) 82 Table: Select Countries - Average Size Of Farms, Hectares 86 Asia GM Outlook 89 Table: Selected Countries - GM Crops Use 93 Asia Fertiliser Outlook 94 Table: India - Fertiliser Subsidies, INR/kg 98 Downstream Analysis 100 Mass Grocery Retail 100 Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts (Vietnam 2013-2018) 103 Table: Grocery Retail Sales By Format (%) 103 Drink 104 Alcoholic Drinks 104 Table: Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2013-2018) 106 Hot Drinks 108 Table: Hot Drink Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2013-2018) 109 Soft Drinks 110 Table: Soft Drinks Sales, Production & Trade (Vietnam 2013-2018) 111 Food 113 Food Consumption 113 Table: Food Consumption Indicators - Historical Data & Forecasts (Vietnam 2011-2018) 114 Canned Food 114 Confectionery 115 Table: Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2011-2018) 118 Pasta 119 Table: Pasta Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2013-2018) 119 Dairy 120 Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2013-2018) 120 Regional Overview 121 Table: China - Ongoing And Future Agricultural Policy Reforms 123 Competitive Landscape 126 Table: Major Agribusiness Companies (USDmn) 126 Demographic Forecast 127 Table: Population Headline Indicators (Vietnam 1990-2025) 128 Table: Key Population Ratios (Vietnam 1990-2025) 128 Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 129 Table: Population By Age Group (Vietnam 1990-2025) 129 Table: Population By Age Group % (Vietnam 1990-2025) 130 Methodology 132 Industry Forecast Methodology 132 Sector-Specific Methodology 133 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q2 2015 BMI Industry View BMI View: Recent developments in the country's Agribusiness Market Value economic and business environment outlooks add further weight to our positive view on Vietnam's BMI Market Value By Commodity (2011-2019) agribusiness sector The industry holds strong growth opportunities in terms of production, exports and retail sales, particularly with regard to the rice, 55 50 45 25 35 coffee, livestock and dairy sectors Moreover, the 25 upcoming economic and financial integration in 15 South East Asia will benefit Vietnam's exports of rice, dairy and coffee However, Vietnam is facing growing competition in its key markets The fulfilment of its promising potential will only be achieved if the country steps up its competitiveness -25 2011 2012 2013e 2014e 2015f 2016f 2017f 2018f 2019f Cocoa market value, % of total (LHS) Livestock market value, % of total (LHS) Sugar market value, % of total (LHS) Cotton market value, % of total (RHS) Milk market value, % of total (RHS) Palm Oil market value, % of total (RHS) Grains market value, % of total (RHS) and improves both product quality and supply chain efficiency Vietnam will have to significantly ramp up investments on crop productivity in order to not e/f = BMI estimate/forecast Source: FAO, BMI be left behind and, if it does, it will be able to produce more value-added crops and maintain its status as an export spearhead © Business Monitor International Ltd Page Vietnam Agribusiness Report Q2 2015 Key Forecasts ■ Rice consumption growth to 2019: 10.4% to 23.6mn tonnes Rice remains the major food staple in Vietnam and we not see this changing over our forecast period However, rising interest in other foods such as wheat-based goods - supported by growing affluence - will restrict demand for rice and, over the forecast period, we expect production growth to significantly outpace that of consumption ■ Corn production growth to 2018/19: 30.2% to 6.7mn tonnes Although acreage is likely to remain stagnant or diminish, current yield immaturity means significant gains are still available via this avenue, especially as robust local corn prices provide incentives to farmers Domestic consumption will be another important driver ■ Milk production growth to 2018/19: 62.2% to 796,000 tonnes Dramatic increases in cattle numbers and increased public and private sector investment - part of the effort to reduce the country's growing import dependency - will be the main boost to growth Commercialisation will also play a key role as larger, more efficient farms come to play a greater role in milk production ■ 2015 BMI universe agribusiness market value: USD37.7bn (down from USD37.9bn in 2014; growth expected to average 2.5% annually between 2015 and 2019) ■ 2015 real GDP growth: 6.4% (up from 5.7% in 2014; predicted to average 6.4% over 2015-2019) ■ 2015 consumer price index: 5.3% year-on-year (y-o-y) (up from 4.0% in 2014; predicted to average 5.0% over 2015-2019) ■ 2015 central bank policy rate: 6.00% average (down from 6.50% in 2014; predicted to average 6.00% over 2015-2019) Key Developments Vietnam's coffee exporting sector has stabilised, after a drop in robusta prices in 2012 and 2013, as well as the structural weakness of Vietnamese coffee companies which led to a wave of bankruptcies in the industry Robusta prices rebounded in 2014, helping earnings, while companies benefited from government help to restructure their debts The extension of loan terms gave exporters a bit of breathing space and will help them repay at least part of their debt In spite of these improvements, Vietnam's coffee manufacturing and exporting sector will continue to be held back by poor management After decades of active support to the rice sector, Vietnam is shifting its attention to corn and soybean production in order to address its soaring animal feed deficit and to avoid rice oversupply This plan is likely to take years before farmers switch away from rice and manage to improve yields for alternative grains and oilseeds The eventual increase in domestic feed output is likely to favour the development of the livestock sector This policy will slightly reduce the area under rice cultivation in the coming years As a result, we expect most rice production growth will come from yield improvements © Business Monitor International Ltd Page Vietnam Agribusiness Report Q2 2015 Due to the decline in exportable supply and to fiercer competition from Vietnam's traditional competitors, Viet rice exports will broadly stagnate in 2014/15 Thailand ended its rice scheme in 2014, which resulted in a drop of Thai rice export prices The return of Thailand on international markets will strongly limit Vietnam's rice exports in 2015 In the longer term, Vietnam will continue to gain competitiveness and eat into Thailand's market share The integration of the ASEAN countries also bodes well for Vietnam's rice exports Vietnam is seeing a wave of private investment in its upstream (farming) and downstream (dairy product manufacturing and distribution) dairy sector These investments bode well for the future of Vietnam's milk production in the coming years Vinamilk, Vietnam's largest dairy company, is one of the most active in terms of investment Vietnamese companies operating in other sectors than diary are also turning their eyes to the milk industry, including Vinacafe Bien Hoa Company and property developer Hoang Anh Gia Lai Group However, the wave of private investment in Vietnam's dairy sector also has its downsides, the main one being the rise in competition Growth in domestic dairy prices has slowed down and margins in the sector have been on a downtrend since 2013 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q2 2015 Dairy The Vietnamese dairy sector has experienced very strong growth in recent years Key drivers of this growth have been increasing urbanisation and rising incomes, supported by a shift in consumer eating habits Huge multinational companies have, in particular, managed to sway consumer preferences with their considerable advertising and promotional power At the same time, the government is pouring investment in to the dairy industry, with a view to producing 3.4bn litres of fresh milk by 2025, which would generate export revenues of some USD200mn Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2013-2018) 2013e 2014f 2015f 2016f 2017f 2018f Processed liquid milk production, tonnes 425,910.8 468,472.0 517,018.3 570,462.8 625,128.4 683,617.4 Processed liquid milk sales, tonnes 210,765.4 226,680.8 243,630.6 261,404.5 280,020.4 299,495.0 13,900.6 15,084.5 16,345.3 17,667.3 19,052.1 20,500.7 5,203.0 5,661.8 6,150.4 6,662.8 7,199.5 7,760.9 30,075.6 33,028.8 36,397.3 40,105.7 43,898.8 47,957.2 Butter sales, tonnes Cheese sales, tonnes Ice cream production, tonnes e/f = BMI estimate/forecast Source: National sources, BMI The local demand for dairy products is met by a combination of locally produced goods, which accounts for 20% of consumption, according to the US Department of Agriculture, and imports from countries including New Zealand, the US and Australia Vietnam Dairy Products Co (Vinamilk) is one of the key players in the sector Indeed, reflecting the promise of the Vietnamese dairy sector, Vinamilk aims to become one of the largest 50 dairy firms in the world The company is also expanding internationally, as Vietnam is in a geographically strong place to take advantage of the growing Asian dairy story Other prominent dairy producers include Dutch Lady, Hanoimilk and Anco © Business Monitor International Ltd Page 120 Vietnam Agribusiness Report Q2 2015 Regional Overview BMI View: Trade in agricultural products in the Asia Pacific region is set to soar in coming years as demand grows rapidly, on the back of population and income growth and changing consumption habits Trade among Asia Pacific countries is likely to intensify, especially in the livestock, sugar, cocoa and dairy markets The region boasts large producing countries with established companies that can provide countries in deficit with products Investment within the region, as well as in Africa, will also increase Food security will remain satisfactory and will improve in India if the newly elected government puts in place announced agricultural reforms Low Prices Keeping Asia's Imports On An Uptrend Asia's import demand for agricultural products will reach a new high in 2015, as low international grains and softs prices coincide with strengthening economic activity in many Asian emerging countries Integration in South East Asia, coupled with the signing of several trade agreements between Asia Pacific countries, will strengthen links in the region and help trade The region has become a large importer of grains and feed in recent years, due to the development of its dairy and livestock sectors We see this trend accelerating in 2015, especially in South East Asia Asia's imports of value-added agricultural products, including dairy, live cattle and meat, will continue to rise in 2015 © Business Monitor International Ltd Page 121 Vietnam Agribusiness Report Q2 2015 Growing Meat Imports In South East Asia Select Countries - Select Meat Imports, 2001-2015 ('000 tonnes) f = USDA forecast Source: BMI, USDA, Trade Map The New Asian Agriculture Suppliers Although Australia and New Zealand will remain among the largest agricultural suppliers in Asia and will benefit from the region's growing trade, we believe new suppliers are emerging, driven by robust production expansion for several agricultural commodities and by improved supply chains Thailand, Vietnam and to a lesser extent Malaysia and Indonesia are increasing their presence in global agricultural markets, exporting sugar, livestock and rice in the case of Thailand, and rice and coffee in the case of Vietnam India has the potential to become a large and stable exporter of agricultural products, but this will take several years and depends on the country's ability to implement much-needed reforms © Business Monitor International Ltd Page 122 Vietnam Agribusiness Report Q2 2015 Table: China - Ongoing And Future Agricultural Policy Reforms End of stockpiling policy Ongoing trend Further reform Probability For cotton and soybean, the government has switched to a new system to support production, involving direct subsidies for farmers Corn, sugar will likely follow High We believe China will have little choice but to adopt GM plantings for crops including rice and corn It has Inputs - relaxing the been clearing new varieties GM crop policy (allowing GM crops for China already grows GM crops, of GM corn and soybean but GM seeds are limited to non- from Latin America and the grains and oilseeds) consumed and peripheral crops US, suggesting growing (cotton and some fruits and acceptance of bioengineered High in the vegetables) seeds long term Fostering consolidation and industrialisation Land reform Development of financial services for agriculture Timeframe 2015-2016 2017-2018 Livestock, dairy: in order to boost production, the government is implementing tighter safety and quality regulations and is ramping up supervision for domestic production, which will ultimately lead to the creation of large and more productive companies Stricter regulations to be implemented in terms of quality and safety More controls High 2014-2018 While sticking to collective land ownership, the government is easing strict regulations on land use Farmers are allowed to transfer or mortgage their contracted land, or turn rights into shares in large-scale farming entities China will continue to relax land use and transfer policy, while making sure arable land is not lost to residential or industrial developments High 2014-2018 Creation of an insurance scheme to boost farmers' income Development of domestic commodities futures market (futures contracts) Medium-high 2014-2018 Financing reform and pricing reform, towards more market driven prices Source: BMI Agricultural Reform In Asia: Key Changes Ahead Agricultural production growth is slowing in some of the largest Asian producers, after exceptional growth in recent years Several governments seem to have acknowledged the challenge and are more reformist than ever Countries such as China, India and Japan are now on the right path to implementing key changes to their agricultural policies in 2015 and beyond In 2015 China will continue to amend its stockpiling policy and will accelerate its reforms to partially liberalise land and prices, which will enable it to maintain an elevated level of food self-sufficiency Japan is reforming its rice sector in an effort to © Business Monitor International Ltd Page 123 Vietnam Agribusiness Report Q2 2015 increase its productivity and efficiency (see 'Ongoing Reforms Improving Japan's Rice Sector Outlook', October 30 2014) Biofuel Use Is Clearly Unattractive Ratio - Front-Month ICE Brent Oil/Three-Month MDE Palm Oil And Front-Month ICE Brent Oil/FrontMonth CBOT Corn Source: Bloomberg, BMI Palm Oil: Another Challenging Year In 2015 The operating environment for palm oil companies in Indonesia and Malaysia will remain challenging as the fundamentals for the industry remain unfavourable Profits will be limited by slowing sales growth and falling margins Moreover, although palm oil prices will head higher in early 2015, they are unlikely to stage a significant rally, as the palm oil market will remain relatively well supplied and only tighten slightly in 2014/15 Upstream companies will fare better, as margins will be boosted by slightly stronger palm oil prices in 2015 Overcapacity in the refining segment will continue to weaken profitability in the downstream sector Interestingly, most of the pure upstream companies not plan to diversify into the downstream sector, probably as a result of the uninspiring profitability forecast for the sector (see 'Upstream To Benefit From Modest Palm Oil Price Recovery', November 11 2014) © Business Monitor International Ltd Page 124 Vietnam Agribusiness Report Q2 2015 Little Upside In 2015 Three-Month MDE Palm Oil, MYR/Tonne (monthly chart) Source: Bloomberg, BMI Biofuel: Another Down Year In 2015 Global demand for biofuels will remain weak in 2015, mainly due to declining international crude oil prices in recent months (Brent crude oil prices halved in H214) Blending elevated levels of biofuel with gasoline will be less attractive in an era of cheap oil Moreover, low crude oil prices will also weaken governments' will to extend new blending policies or even enforce existing regulations, as the need to reduce expensive oil imports will be curtailed The palm oil based biodiesel sector will be one of hardest hit segments of the biofuel industry We have had a cautious stance on Indonesia and Malaysia's biodiesel mandates since they were extended in 2014 and the drop in crude oil adds to this view (see 'Biodiesel Mandates Creating A Floor For Palm Oil Prices', April 17 2014) © Business Monitor International Ltd Page 125 Vietnam Agribusiness Report Q2 2015 Competitive Landscape Table: Major Agribusiness Companies (USDmn) Company Sub-Sector Revenue Fiscal Year Market End Capitalisation Employees Viet Nam Dairy Products JSC (Vinamilk) Dairy 1651.157061 12/2014 5007.613 6244 Kinh Do Corp Food manufacturing (confectionery & snacks) 235.383839 12/2014 511.6983 7020 Vinacafe Bien Hoa JSC Coffee & food manufacturing 140.3957805 12/2014 268.652 746 Hung Vuong Seafood 703.5337989 12/2014 191.236 806 Societe De Bourbon Tay Ninh Sugar & real estate 105.6458378 12/2013 74.53993 495 Tuong An Vegetable Oil JSC Edible oils & fats 194.6524646 12/2014 39.43476 770 Lam Son Sugar Sugar & alcohol 82.03345783 12/2014 28.17033 771 Minh Phu Seafood Seafood 528.7882874 12/2013 336.3874 1440 Southern Seed Crop seeds 28.68189636 12/2014 39.12651 431 Viet Thang Feed JSC Animal feed 208.7702207 12/2014 65.54647 633 Source: BMI, Bloomberg © Business Monitor International Ltd Page 126 Vietnam Agribusiness Report Q2 2015 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050 The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy Population (1990-2050) 150 100 50 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 Vietnam - Population, mn f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 127 Vietnam Agribusiness Report Q2 2015 Vietnam Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 68,909 80,887 84,947 89,047 93,386 97,057 99,811 na 1.1 0.9 1.0 0.9 0.7 0.5 Population, total, male, '000 33,892 39,827 41,830 43,970 46,158 47,980 49,302 Population, total, female, '000 35,017 41,060 43,117 45,077 47,228 49,076 50,508 Population ratio, male/female 0.97 0.97 0.97 0.98 0.98 0.98 0.98 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast Source: World Bank, UN, BMI Table: Key Population Ratios (Vietnam 1990-2025) Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 1990 2000 2005 2010 2015f 2020f 2025f 39,197 50,153 56,330 62,305 66,093 68,401 70,001 56.9 62.0 66.3 70.0 70.8 70.5 70.1 29,712 30,733 28,617 26,741 27,292 28,655 29,810 75.8 61.3 50.8 42.9 41.3 41.9 42.6 Page 128 Vietnam Agribusiness Report Q2 2015 Key Population Ratios (Vietnam 1990-2025) - Continued Youth population, total, '000 1990 2000 2005 2010 2015f 2020f 2025f 25,778 25,543 23,038 20,918 20,950 20,690 19,395 65.8 50.9 40.9 33.6 31.7 30.2 27.7 3,934 5,190 5,578 5,823 6,342 7,964 10,414 10.0 10.3 9.9 9.3 9.6 11.6 14.9 Youth population, % of total working age Pensionable population, '000 Pensionable population, % of total working age f = BMI forecast Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 1990 Urban population, '000 2020f 2025f 13,957.7 19,715.6 23,174.6 27,064.2 31,383.5 35,771.3 40,027.3 Urban population, % of total Rural population, '000 2000 20.3 24.4 2005 27.3 2010 30.4 2015f 33.6 36.9 40.1 54,952.2 61,172.3 61,773.2 61,983.2 62,003.1 61,285.7 59,783.9 Rural population, % of total 79.7 75.6 72.7 69.6 66.4 63.1 59.9 Life expectancy at birth, male, years 66.1 69.0 69.9 70.7 71.7 72.7 73.7 Life expectancy at birth, female, years 75.1 78.5 79.6 80.2 80.7 81.2 81.7 Life expectancy at birth, average, years 70.6 73.8 74.8 75.5 76.2 77.0 77.8 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 9,314 7,127 6,897 7,228 7,012 6,574 5,922 Population, 5-9 yrs, total, '000 8,606 9,253 7,023 6,790 7,180 6,968 6,535 Population, 10-14 yrs, total, '000 7,856 9,162 9,117 6,898 6,757 7,147 6,936 Population, 15-19 yrs, total, '000 7,359 8,492 9,050 9,011 6,865 6,725 7,116 Population, 20-24 yrs, total, '000 6,644 7,672 8,332 8,873 8,936 6,802 6,664 Population, 25-29 yrs, total, '000 6,005 7,065 7,470 8,111 8,772 8,837 6,717 Population, 30-34 yrs, total, '000 5,138 6,351 6,909 7,285 8,021 8,680 8,747 Population, 35-39 yrs, total, '000 3,888 5,803 6,241 6,763 7,207 7,939 8,596 Population, 40-44 yrs, total, '000 2,462 4,994 5,719 6,147 6,684 7,127 7,856 Population, 45-49 yrs, total, '000 2,016 3,753 4,935 5,647 6,054 6,588 7,031 © Business Monitor International Ltd Page 129 Vietnam Agribusiness Report Q2 2015 Population By Age Group (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 1,968 2,345 3,699 4,855 5,521 5,926 6,457 Population, 55-59 yrs, total, '000 2,045 1,885 2,237 3,541 4,677 5,330 5,733 Population, 60-64 yrs, total, '000 1,668 1,790 1,734 2,068 3,352 4,443 5,079 Population, 65-69 yrs, total, '000 1,411 1,770 1,609 1,562 1,906 3,104 4,134 Population, 70-74 yrs, total, '000 1,027 1,322 1,530 1,399 1,379 1,695 2,776 Population, 75-79 yrs, total, '000 752 984 1,080 1,263 1,166 1,159 1,437 Population, 80-84 yrs, total, '000 429 596 731 814 964 900 903 Population, 85-89 yrs, total, '000 223 336 385 482 545 653 617 Population, 90-94 yrs, total, '000 71 132 177 209 267 306 372 Population, 95-99 yrs, total, '000 15 40 52 74 89 115 133 Population, 100+ yrs, total, '000 11 16 23 30 38 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group % (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 13.52 8.81 8.12 8.12 7.51 6.77 5.93 Population, 5-9 yrs, % total 12.49 11.44 8.27 7.63 7.69 7.18 6.55 Population, 10-14 yrs, % total 11.40 11.33 10.73 7.75 7.24 7.36 6.95 Population, 15-19 yrs, % total 10.68 10.50 10.65 10.12 7.35 6.93 7.13 Population, 20-24 yrs, % total 9.64 9.49 9.81 9.97 9.57 7.01 6.68 Population, 25-29 yrs, % total 8.72 8.73 8.79 9.11 9.39 9.11 6.73 Population, 30-34 yrs, % total 7.46 7.85 8.13 8.18 8.59 8.94 8.76 Population, 35-39 yrs, % total 5.64 7.17 7.35 7.60 7.72 8.18 8.61 Population, 40-44 yrs, % total 3.57 6.17 6.73 6.90 7.16 7.34 7.87 Population, 45-49 yrs, % total 2.93 4.64 5.81 6.34 6.48 6.79 7.04 Population, 50-54 yrs, % total 2.86 2.90 4.36 5.45 5.91 6.11 6.47 Population, 55-59 yrs, % total 2.97 2.33 2.63 3.98 5.01 5.49 5.74 Population, 60-64 yrs, % total 2.42 2.21 2.04 2.32 3.59 4.58 5.09 Population, 65-69 yrs, % total 2.05 2.19 1.90 1.75 2.04 3.20 4.14 Population, 70-74 yrs, % total 1.49 1.63 1.80 1.57 1.48 1.75 2.78 Population, 75-79 yrs, % total 1.09 1.22 1.27 1.42 1.25 1.20 1.44 Population, 80-84 yrs, % total 0.62 0.74 0.86 0.92 1.03 0.93 0.91 © Business Monitor International Ltd Page 130 Vietnam Agribusiness Report Q2 2015 Population By Age Group % (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.32 0.42 0.45 0.54 0.58 0.67 0.62 Population, 90-94 yrs, % total 0.10 0.16 0.21 0.24 0.29 0.32 0.37 Population, 95-99 yrs, % total 0.02 0.05 0.06 0.08 0.10 0.12 0.13 Population, 100+ yrs, % total 0.00 0.01 0.01 0.02 0.03 0.03 0.04 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 131 Vietnam Agribusiness Report Q2 2015 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined Common to our analysis of every industry is the use of vector autoregressions Vector autoregressions allow us to forecast a variable using more than the variable's own history as explanatory information For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis Such single-variable analysis is called univariate modelling We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA) In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting BMI mainly uses ordinary least squares estimators In order to avoid relying on subjective views and encourage the use of objective views, we use a 'general-to-specific' method BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary During periods of 'industry shock', for example, if poor weather conditions impede agricultural output, dummy variables are used to determine the level of impact Effective forecasting depends on appropriately selected regression models We select the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account; ■ Testing the directional movement and magnitude of coefficients; ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); ■ All results are assessed to alleviate issues related to auto-correlation and multicollinearity; © Business Monitor International Ltd Page 132 Vietnam Agribusiness Report Q2 2015 Human intervention plays a necessary and desirable role in all or our industry forecasting Experience, expertise and knowledge of industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not Sector-Specific Methodology Within the Agribusiness industry, issues that might result in human intervention could include but are not exclusive to: ■ Technology development that might influence future output levels (for example greater use of biotechnology); ■ Dramatic changes in local production levels due to public or private sector investment; ■ The regulatory environment and specific areas of legislation, such as import and export tariffs and farm subsidies; ■ Changes in lifestyles and general societal trends; ■ The formation of bilateral and multilateral trading agreements, and political factors The following two examples show the demand (consumption) and the supply (production) of rice Note that the explanatory variables for both are quite similar, but the underlying economic theory is different Example Of Rice Consumption Model (Rice consumption)t = β0 + β1*(real private consumption per capita)t + β2*(inflation)t + β3*(real lending rate)t + β4*(population)t + β5*(government expenditure)t + β6*(food consumption)t-1 + εt Where: ■ β are parameters for this function ■ Real private consumption per capita has a positive relationship with rice consumption, if rice is a normal good in a particular country If rice is an inferior good in a country, the relationship is negative So the sign of β1 is determined by a specific product within a specific country ■ When inflation is high, people with rational expectations will consume today rather than wait for tomorrow's high price to come Higher rice demand in year t due to higher inflation in that year leads to an assumed positive sign of β2 ■ The relationship between real lending rate and rice consumption is expected to be negative When real lending rates increase, disposable incomes, especially for those with mortgage burdens, etc, will decrease So the sign of β3 is expected to be negative ■ Of course, other things being equal, growth in rice consumption can also be caused by growth in population Consequently, positive sign of β4 is expected © Business Monitor International Ltd Page 133 Vietnam Agribusiness Report Q2 2015 ■ ■ ■ Government expenditure typically causes total disposable incomes to rise So the sign of β5 is expected to be positive Human behaviour has a trend: A high level of food consumption in previous years means there is very likely to be a high level of food consumption the next year So the positive sign of β6 is expected ε is the error/residual term Example Of Rice Production Model (Rice production)t = β0 + β1*(real GDP per capita)t + β2*(inflation)t + β3*(real lending rate)t + β4*(rural population)t + β5*(government expenditure)t + β6*(food production)t-1 + εt Where: ■ The same as above: the relationship between real GDP per capita and rice production depends on whether rice is normal or inferior good in that country ■ If high inflation is caused by food prices increasing, farmers will be more profitable Then they will supply more agricultural product (eg rice) to increase their marginal (extra) profit, although this is tempered by the rising cost of other inputs in line with inflation ■ There is a global move towards corporate farming, away from small holdings, in order to achieve greater agricultural productivity Corporate farming means more investment in the modes of production, ie agricultural machinery Higher real lending rates discourage investment, which in turn reduce production ■ BMI assumes that only the rural population has a positive effect on agricultural product supply ■ With supportive government policy, other things being equal, rice production is expected to go up Government expenditure is likely to play some role in supporting agribusiness ■ Again, previous food production positively affects this year's prediction © Business Monitor International Ltd Page 134 [...].. .Vietnam Agribusiness Report Q2 2015 SWOT Agribusiness SWOT Analysis Strengths ■ The natural fertility of Vietnam around the Red River Delta in the north and the Mekong River Delta in the south provides the country with a strong agricultural base ■ Vietnam is the world's second largest exporter of rice and coffee It also enjoys... production growth in two of Vietnam' s main agriculturalproducing regions © Business Monitor International Ltd Page 11 Vietnam Agribusiness Report Q2 2015 Operational Risk SWOT Analysis Strengths ■ Vietnam has a high number of university graduates with skilled degrees and a high literacy rate for its income level • In addition to a number of regional and international flight options, Vietnam has an extensive... experienced It is estimated that 50-100 of the 243 Vietnamese animal feed producers had to close in 2012 and 2013 Mainly Emerging Countries Vietnam - Corn & Soybean Imports By Origin, 2012/13 (% of total imported volume) Source: BMI, ITC, UNCTAD © Business Monitor International Ltd Page 17 Vietnam Agribusiness Report Q2 2015 Consumption Driven By Feed Vietnam - Corn (LHC) & Wheat (RHC) Consumption ('000... credit regulations throughout Vietnam during that time © Business Monitor International Ltd Page 19 Vietnam Agribusiness Report Q2 2015 Rice Outlook BMI Supply View: Vietnam is a key grower and world provider of rice Production is growing fast, boosted by higher yielding rice varieties and better culture management Output grew by a strong 13% between 2009/10 and 2013/14 Vietnam' s rice production will... Monitor International Ltd Page 22 Vietnam Agribusiness Report Q2 2015 Vietnam will be able to maintain its market share (around 15-16% of the global rice trade) in spite of the increase in Thai exports Indeed, Vietnamese export prices have eased and are now more competitive relative to Thai prices: 5% broken rice for exports was priced at around USD375/tonne in January 2015, compared with USD420/tonne... International Ltd Page 26 Vietnam Agribusiness Report Q2 2015 Table: Whole Milk Powder Production & Consumption (Vietnam 2014-2019) Whole milk powder consumption, '000 tonnes Whole milk power consumption, % y-o-y 2014 2015f 2016f 2017f 2018f 2019f 38.4 40.1 41.9 43.8 45.8 47.8 4.2 4.5 4.5 4.5 4.5 4.5 f = BMI forecast Source: FAPRI, BMI Private Investment To Support Production Growth Vietnam is seeing a wave... Product Vietnam - Dairy Products Sales, In Volume (LHC) & Value (RHC) Source: VPBS, Bloomberg, BMI © Business Monitor International Ltd Page 29 Vietnam Agribusiness Report Q2 2015 Consumers Eyeing Value-Added Dairy Products Consumers in Vietnam and in Asian countries in general mainly consume fresh milk, produced locally However, consumers are slowly turning to more value-added products In Vietnam. .. regions • Vietnam' s reliance on imported oil poses risks in the form of energy and fuel shortages © Business Monitor International Ltd Page 12 Vietnam Agribusiness Report Q2 2015 SWOT Analysis - Continued • Corruption and inefficiency in the legal system • Anti-Chinese violence, as seen in May 2014, could be a harbinger of wider political and social unrest © Business Monitor International Ltd Page 13 Vietnam. .. recently harvested Vietnamese rice Therefore, Thailand is mainly competing with India to export rice to costsensitive regions, including African countries Reshuffling The Cards Select Countries - Rice Exports (% of total volume exported globally) Source: USDA, BMI © Business Monitor International Ltd Page 23 Vietnam Agribusiness Report Q2 2015 Table: Rice Production & Consumption (Vietnam 2009-2014)... harvested The plan aims to expand this to 1mn ha in 2015, or approximately 10% of total area harvested for rice We believe that this plan poses salient upside risks to our forecast for rice production growth © Business Monitor International Ltd Page 24 Vietnam Agribusiness Report Q2 2015 Dairy Outlook BMI Supply View: We hold a positive outlook on Vietnam' s dairy sector and expect it to maintain its ... predicted to average 6.4% over 201 5-2 019) ■ 2015 consumer price index: 5.3% year-on-year (y-o-y) (up from 4.0% in 2014; predicted to average 5.0% over 201 5-2 019) ■ 2015 central bank policy rate:... International Ltd Page 18 Vietnam Agribusiness Report Q2 2015 Table: Corn Production & Consumption (Vietnam 200 9-2 014) Corn production, '000 tonnes Corn production, % y-o-y Corn consumption, '000... International Ltd Page 20 Vietnam Agribusiness Report Q2 2015 Table: Rice Production & Consumption (Vietnam 201 3-2 019) Rice production, '000 tonnes Rice production, % y-o-y Rice consumption, '000