Q4 2014 www.businessmonitor.com VIETNAM AGRIBUSINESS REPORT ISSN 1759-1740 Published by:Business Monitor International Vietnam Agribusiness Report Q4 2014 Published by: Business Monitor International Copy deadline: Business Monitor International 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@businessmonitor.com Web: http://www.businessmonitor.com © 2014 Business Monitor International All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International, 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 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 makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Agribusiness Report Q4 2014 Published by: Business Monitor International Copy deadline: Business Monitor International 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@businessmonitor.com Web: http://www.businessmonitor.com © 2014 Business Monitor International All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International, 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 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 makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Agribusiness Report Q4 2014 CONTENTS BMI Industry View SWOT Agribusiness Business Environment 11 Industry Forecast 12 Dairy Outlook 12 Table: Butter Consumption (Vietnam 2013-2018) 13 Table: Cheese Consumption (Vietnam 2013-2018) 13 Table: Milk Production & Consumption (Vietnam 2013-2018) 13 Table: Whole Milk Powder Consumption (Vietnam 2013-2018) 14 Table: Butter Consumption (Vietnam 2008-2013) 19 Table: Cheese Consumption (Vietnam 2008-2013) 19 Table: Milk Production & Consumption (Vietnam 2008-2013) 19 Table: Whole Milk Powder Consumption (Vietnam 2008-2013) 19 Livestock Outlook 21 Table: Beef Production & Consumption (Vietnam 2013-2018) 22 Table: Pork Production & Consumption (Vietnam 2013-2018) 22 Table: Poultry Production & Consumption (Vietnam 2013-2018) 22 Table: Beef Production & Consumption (Vietnam 2008-2013) 27 Table: Pork Production & Consumption (Vietnam 2008-2013) 27 Table: Poultry Production & Consumption (Vietnam 2008-2013) 28 Coffee Outlook 29 Table: Coffee Production & Consumption (Vietnam 2013-2018) 30 Table: Coffee Production & Consumption (Vietnam 2008-2013) 36 Rice Outlook 37 Table: Rice Production & Consumption (Vietnam 2012-2018) 38 Table: Rice Production & Consumption (Vietnam 2008-2013) 41 Grains Outlook 42 Table: Corn Production & Consumption (Vietnam 2013-2018) 43 Table: Corn Production & Consumption (Vietnam 2008-2013) 47 Featured Analysis 48 Vietnam's Uncompetitive Sugar Sector At Risk From ASEAN Integration 48 Table: VIETNAM SUGAR PRODUCTION & CONSUMPTION, 2013-2018 53 Commodities Price Analysis 54 Monthly Softs Strategy 54 Table: Select Commodities - Performance & BMI Forecasts 62 Monthly Grains Strategy 63 Table: Select Commodities - Performance & BMI Forecasts 72 Upstream Analysis 73 © Business Monitor International Page Vietnam Agribusiness Report Q4 2014 Asia GM Outlook 73 Table: Select Countries - GM Crops Use 79 Asia Fertiliser Outlook 80 Table: India - Fertiliser Subsidies, INR/kg 84 Asia Machinery Outlook 86 Table: China Grain Public Production Support Programme (CNYbn) 86 Table: Selected Countries - Average Size Of Farms, Hectares 90 Downstream Analysis 94 Food 94 Food Consumption 94 Table: Food Consumption Indicators - Historical Data & Forecasts (Vietnam 2011-2018) 96 Canned Food 96 Table: Food Consumption Indicators - Historical Data & Forecasts (Vietnam 2011-2018) 97 Confectionery 98 Table: Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2011-2018) 102 Pasta 104 Table: Pasta Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2013-2018) 104 Dairy 104 Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2013-2018) 105 Drink 106 Alcoholic Drinks 106 Table: Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2013-2018) 108 Hot Drinks 109 Table: Hot Drink Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2013-2018) 110 Soft Drinks 111 Table: Soft Drinks Sales, Production & Trade (Vietnam 2013-2018) 112 Mass Grocery Retail 114 Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts (Vietnam 2013-2018) 118 Table: Grocery Retail Sales By Format (%) 118 Regional Overview 119 Table: Indonesia & Malaysia Palm Oil Refining Capacity & Utilisation Rate 121 Table: Selected Countries - Biofuel Blending Mandates & Programmes 125 Competitive Landscape 127 Table: Major Agribusiness Companies (USDmn) 127 Demographic Forecast 128 Table: Vietnam's Population By Age Group, 1990-2020 ('000) 129 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 130 Table: Vietnam's Key Population Ratios, 1990-2020 131 Table: Vietnam's Rural And Urban Population, 1990-2020 131 Methodology 132 Industry Forecast Methodology 132 Sector-Specific Methodology 133 © Business Monitor International Page Vietnam Agribusiness Report Q4 2014 BMI Industry View BMI View: Recent adjustments in our outlook for Agribusiness Market Value Vietnam's economy and business environment add further weight to our positive view on the country's BMI Market Value By Commodity (2005-2018) agribusiness sector The industry holds strong 60 growth opportunities in terms of production, exports 40 and retail sales, particularly with regard to the rice, coffee, livestock and dairy sectors However, 20 Vietnam is facing growing competition in its key markets, and the fulfilment of its promising potential supply chain efficiency Vietnam will have to significantly ramp up investment in crop 2018f 2017f 2016f 2015f 2014f 2013e 2012 2011 2010 2008 2009 2007 2006 competitiveness and improves product quality and -20 2005 will only be achieved if the country steps up its Grains market value, % of total Sugar market value, % of total Livestock market value, % of total productivity in order to avoid being left behind, and if it wants to succeed in producing more value-added e/f = estimate/forecast Source: FAO, BMI crops and maintaining its status as an export spearhead Key Forecasts ■ Rice consumption growth to 2018: 5.1% to 22.1mn 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 2017/18: 32.9% to 6.4mn 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 2017/18: 21.9% to 484,700 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 • BMI universe agribusiness market value: USD27.7bn in 2015 (down from USD27.9bn expected in 2014); growth expected to average 2.8% annually between 2015 and 2018 • 2015 real GDP growth: 6.4% (up from 5.7% expected in 2014; predicted to average 6.5% over 2015-2018) © Business Monitor International Page Vietnam Agribusiness Report Q4 2014 • 2015 consumer price index: 5.3% year-on-year (y-o-y) (down from 5.8% expected in 2014; predicted to average 5.0% over 2015-2018) • 2015 central bank policy rate: 6.00% (down from 6.50% expected in 2014; predicted to average 6.00% over 2015-2018) Key Revisions To Forecasts ■ 2014/15 coffee production forecast revised down, to 28.1mn 60kg bags (compared with a previous expectation for 28.4mn bags) Some parts of Daklak, the largest coffee-producing region, have recorded drier-than-usual weather over recent months Key Developments 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 reduce slightly the area under rice cultivation in the coming years As a result, we expect most of the rice production growth will come from yield improvements We believe the recent collapse in Thai rice prices will limit Vietnam's share of global exports in 2013/14 and 2014/15 but expect Vietnam's market share to rebound over the long term Stocks in Thailand reached a record 18.0mn tonnes during 2013/14, and the government has only recently started to sell inventories at a loss These dynamics will give a competitive advantage to Thai rice supplies in the near term and prevent significant growth in Vietnam's share of the global rice market We not expect the Thai government to continue supporting rice farmers through similar mechanisms We therefore believe Vietnam will make further competitiveness gains in the coming years, further undercutting Thailand's market share in the long term The ongoing restructuring of Vietnam's largest coffee export company, Vinacafe, is clear evidence of the difficulties of the country's coffee export industry Moreover, it highlights the government's push to restructure ailing state-owned enterprises, which we see as a positive development for the economy The ongoing difficulties in the coffee export sector are the result of a conjunction of factors, including the extensive use of short-term debt to fund long-term projects, high interest rates and poor management and futures trading abilities Although the extension of loan terms and decreasing interest rates will give a breath of fresh air to exporting companies, the sector's outlook remains hindered by overcapacity in the beanprocessing industry and bad management practices © Business Monitor International Page Vietnam Agribusiness Report Q4 2014 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 relatively high rice yields compared with its regional counterparts ■ Agricultural productivity has improved considerably since the opening up of the economy in 1986 Weaknesses ■ Vietnam enjoys relatively good international price competitiveness for rice and coffee ■ Much of Vietnam's agriculture is based on small-scale farms with poor yields relative to more developed international competitors ■ Transportation and production infrastructure is often poor, making getting crops to market difficult and negatively affecting quality Opportunities ■ Since the opening up of the economy in 1986, which allowed more private involvement in agriculture, yields have improved dramatically and look set to continue doing so ■ Vietnam's fast-growing population of more than 80mn provides a large market for agro-food products ■ With BMI forecasting Vietnamese GDP per capita to grow rapidly over our forecast period, consumers will have more money to spend on food, spurring growth in agricultural production ■ A move towards higher-quality products, especially in the coffee and dairy sectors, will help to improve Vietnam's product competitiveness © Business Monitor International Page Vietnam Agribusiness Report Q4 2014 Indonesia Overtaking Malaysia Selected Countries - Malaysia And Indonesia Cocoa Grindings & Grinding Capacity ('000 tonnes) Note: Grinding capacities are local associations' estimates Source: ICCO, Indonesia Cocoa Association, Malaysia Cocoa Board, BMI Lasting Profitability Woes For Palm Oil Downstream Sector The operating environment for palm oil companies in Indonesia and Malaysia will remain challenging over the rest of 2014 and in 2015, as the fundamentals for the industry remain unfavourable Profits will be limited by slowing sales growth and rising costs Although we expect global demand for palm oil to increase by 5.6% year-on-year (y-o-y) in 2014 and 5.2% in 2015, this represents a significant slowdown in consumption growth compared with recent years, which will limit sales volumes for companies Upstream companies will fare better, as stronger palm oil prices in 2014 and 2015 will boost their margins Meanwhile, 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 in the coming years, probably as a result of the uninspiring profitability in the sector for the time being © Business Monitor International Page 120 Vietnam Agribusiness Report Q4 2014 Table: Indonesia & Malaysia Palm Oil Refining Capacity & Utilisation Rate Indonesia Malaysia 2011 2012 2013 2014e Refining Capacity (mn t) 19.5 21.3 30.7 45.0 CPO Production (mn t) 23.6 26.2 28.3 30.9 Refining Capacity (mn t) 23.7 24.8 25.3 25.5 CPO Production (mn t) 18.2 18.2 19.3 19.4 Utilisation Rate (avg %) 74.0 61.9 69.9 65.0* * January-April Source: MPOB, Indonesian Vegetable Oil Industry Association, Palm Oil Refiners Association of Malaysia Asia Food Price Inflation: Reaccelerating In Q414 In line with our view, food price inflation in Asia remained moderate in H114 and the spike in food prices in India, Indonesia and Pakistan proved temporary Over the first five months of 2014, Emerging Asia's food price inflation averaged 5.0% y-o-y, compared with 5.7% y-o-y over 2013 We expect food price inflation in Emerging Asian countries to remain moderate in the coming months, as rice prices will ease slightly, while other grain prices will remain relatively low However, inflation is likely to pick up from H214, mainly owing to low base effects after the S&P GSCI grains index collapsed throughout 2013 It is also noteworthy that we expect the majority of soft commodities to pick up as well in 2015, including sugar and palm oil Altogether, this will also help food price inflation to increase next year © Business Monitor International Page 121 Vietnam Agribusiness Report Q4 2014 Picking Up As We Turn To 2015 S&P GSCI Grains & Livestock Indexes, Front-Month CBOT Rough Rice (LHS) & EM Asia Food CPI (RHS), % chg y-o-y Note: The EM Asia Food CPI is a simple average of the constituent countries' food CPI It includes China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Sri Lanka, Taiwan, Thailand, Bangladesh and Vietnam Source: Bloomberg, BMI Asia's Dairy Supply Deficit: Attractive Opportunities Asia will remain a large importer of dairy products in the coming years, as production expansion does not keep up with robust consumption growth We see attractive opportunities to fill the continent's growing dairy products deficit As domestic and foreign interest in China's dairy industry has swollen in recent years and led to large investments in capacity and efforts to tap the import market, all eyes are now turning to the next driver of dairy consumption growth: South East Asia This region is home to some of the most interesting trends, as consumption recently started to bloom, while production growth has limited room to grow Milk powder will remain the largest imported product, but we see other products gaining ground © Business Monitor International Page 122 Vietnam Agribusiness Report Q4 2014 Import Growth Across The Board Selected Countries - Dairy Imports, 2009 & 2013 ('000 tonnes) Source: International Trade Centre, BMI © Business Monitor International Page 123 Vietnam Agribusiness Report Q4 2014 China Imports: Dawn Of An Agricultural Import Spree Although China will remain fairly self-sufficient in most agricultural commodities owing to active official support for agriculture production, the country's share of international trade will continue to climb for selected commodities such as soybean, corn, sugar and meat We expect China to record growing imbalances between production and consumption of selected commodities, as urbanisation and rising purchasing power are leading to a dietary pattern change from traditional food grain products to more meat and sugar Rising Income China - GDP Per Capita (USD, LHS) & Real GDP Growth, GDP Per Capita Growth (% y-o-y, RHS) f = BMI forecasts Source: National Bureau of Statistics, BMI © Business Monitor International Page 124 Vietnam Agribusiness Report Q4 2014 Asia's Up-And-Coming Ethanol Sector Asia is one of the most dynamic continents in terms of production and use of ethanol Buoyed by supportive government policies and strict mandates, Thailand and the Philippines are at the forefront of the region Meanwhile, India and other South and South East Asian countries have faced mandate and logistics issues Problems such as feedstock, production under-capacity, lack of investment in operations, and the political environment hinder progress towards fulfilling these mandates In North Asia, overall reluctance to use food-based ethanol and limited production is likely to cap consumption growth in the medium term China is the largest consumer of ethanol in the region and relatively self-sufficient, but severe constraints to production growth are threatening the sector's medium-term outlook Japan would need to ramp up imports should it implement an ambitious fuel ethanol consumption plan Table: Selected Countries - Biofuel Blending Mandates & Programmes Official Ethanol Blending Mandate Ethanol Actual Blend Biodiesel Mandate Biodiesel Actual Ethanol Mandate, Goal Blend Australia E6 in New South Wales 2.50% B5 in New South Wales 3-4% E5 mandate nationally has recently been presented to the Australian Federal Parliament China E10 in 10 provinces* 8-12% none none E15 by 2020 India E5 2-3% none none Moving to E10 as soon as production is in place, and ultimately has set a goal of E20 by 2017 Indonesia E3 (depending on industries) 0% B10 (depending on industries) 4-5% E15 and B20 by 2025 Japan na 0.10% na 0% Replacing fossil fuels with 500,000 kls (oil basis) of biofuels for the transportation sector by 2017 Malaysia na 0% B5 5% Moving towards B10 blend, no date given Philippines E10 6-7% B5 (from end 2013) 3-5% B20 AND E20 by 2030 South Korea na na B2-2.5 na na Thailand E10 10% B5 4-6% B7 mandate in 2014 Vietnam na na na na E5 by end 2014 Note: na = not available/applicable; 'E' refers to ethanol blending mandate and 'B' to biodiesel blending mandates; *10 Provinces in China: Heilongjiang, Jilin, Liaoning, Anhui, Henan, Guangxi, Hubei, Hebei, Shandong and Jiangsu Source: USDA, EIA, BMI © Business Monitor International Page 125 Vietnam Agribusiness Report Q4 2014 Slow And Complicated Implementation Of New Biofuel Mandates With a ballooning current account deficit that is partly due to oil imports, Indonesia is trying to accelerate its palm oil-based biodiesel programme and implement a B10 blend into gasoline Malaysia is eager to follow suit to support its palm oil sector earnings We believe these countries' efforts to boost domestic biofuel demand will have only mild positive effects for their local palm oil industries, as the enactment of ambitious mandates will prove difficult In fact, the Malaysian government is already toning down its initial ambitions, as its plan to expand its B5 mandate to require a B10 blend has been put on hold Even with palm oil prices at a three-year low when the governments announced the measures, biodiesel production is not economically viable without public financial support to the industry We think that Indonesia will be more aggressive in implementing the mandates while palm oil prices are relatively low, which will provide floor price support for palm oil prices in the coming years © Business Monitor International Page 126 Vietnam Agribusiness Report Q4 2014 Competitive Landscape Table: Major Agribusiness Companies (USDmn) Company Sub-Sector Viet Nam Dairy Products JSC (Vinamilk) Dairy Revenue Fiscal Y/E Market Capitalisation Employees 1,472.8 12/2013 5,285.4 5,790 Kinh Do Corp Food Manufacturing (confectionery & snacks) 217.0 12/2013 737.4 7,069 Vinacafe Bien Hoa JSC Coffee & Food Manufacturing 109.4 12/2013 243.3 581 Hung Vuong Seafood 525.5 12/2013 152.6 806 Societe De Bourbon Tay Ninh Sugar & Real Estate 105.6 12/2013 82.6 778 Tuong An Vegetable Oil JSC Edible Oils & Fats 204.2 12/2013 43.9 799 Lam Son Sugar Sugar & Alcohol 87.9 12/2013 24.3 890 Minh Phu Seafood Seafood 528.8 12/2013 267.0 13,509 Southern Seed Crop Seeds 28.7 12/2013 41.2 441 Viet Thang Feed JSC Animal Feed 190.3 12/2013 41.4 593 Source: BMI, Bloomberg © Business Monitor International Page 127 Vietnam Agribusiness Report Q4 2014 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 key to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail Vietnam's population pyramid for 2013, the change in the structure of the population between 2013 and 2050 and the total population between 1990 and 2050, as well as life expectancy The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split Population Pyramid 2013 (LHS) And 2013 Versus 2050 (RHS) Source: World Bank, UN, BMI © Business Monitor International Page 128 Vietnam Agribusiness Report Q4 2014 Population Indicators Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050 Source: World Bank, UN, BMI Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2013e 2015f 2020f 68,910 76,020 80,888 84,948 89,047 91,680 93,387 97,057 0-4 years 9,315 9,323 7,128 6,898 7,229 7,152 7,012 6,575 5-9 years 8,606 9,212 9,253 7,023 6,791 7,052 7,181 6,968 10-14 years 7,857 8,541 9,162 9,117 6,899 6,619 6,757 7,147 15-19 years 7,359 7,788 8,492 9,050 9,011 7,686 6,866 6,726 20-24 years 6,644 7,222 7,673 8,333 8,874 9,148 8,936 6,802 25-29 years 6,006 6,470 7,065 7,471 8,112 8,528 8,772 8,837 30-34 years 5,138 5,890 6,352 6,910 7,286 7,703 8,022 8,680 35-39 years 3,888 5,065 5,803 6,242 6,763 7,011 7,208 7,940 40-44 years 2,463 3,826 4,994 5,719 6,147 6,472 6,685 7,127 45-49 years 2,017 2,409 3,753 4,935 5,648 5,894 6,054 6,589 50-54 years 1,968 1,959 2,346 3,700 4,855 5,306 5,521 5,926 55-59 years 2,046 1,891 1,885 2,237 3,542 4,278 4,677 5,330 60-64 years 1,669 1,934 1,790 1,734 2,068 2,795 3,352 4,444 65-69 years 1,412 1,522 1,771 1,610 1,562 1,673 1,906 3,104 70-74 years 1,028 1,216 1,322 1,530 1,399 1,360 1,379 1,695 Total © Business Monitor International Page 129 Vietnam Agribusiness Report Q4 2014 Vietnam's Population By Age Group, 1990-2020 ('000) - Continued 1990 1995 2000 2005 2010 2013e 2015f 2020f 75-79 years 752 819 984 1,080 1,263 1,219 1,167 1,160 80-84 years 430 536 597 732 815 919 964 900 85-89 years 224 261 336 385 483 517 546 654 90-94 years 71 108 132 177 210 245 268 306 95-99 years 16 25 41 53 74 83 89 115 100+ years 12 17 21 24 30 e/f = BMI estimate/forecast Source: World Bank, UN, BMI Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2013e 2015f 2020f 0-4 years 13.52 12.26 8.81 8.12 8.12 7.80 7.51 6.77 5-9 years 12.49 12.12 11.44 8.27 7.63 7.69 7.69 7.18 10-14 years 11.40 11.23 11.33 10.73 7.75 7.22 7.24 7.36 15-19 years 10.68 10.25 10.50 10.65 10.12 8.38 7.35 6.93 20-24 years 9.64 9.50 9.49 9.81 9.97 9.98 9.57 7.01 25-29 years 8.72 8.51 8.73 8.79 9.11 9.30 9.39 9.11 30-34 years 7.46 7.75 7.85 8.13 8.18 8.40 8.59 8.94 35-39 years 5.64 6.66 7.17 7.35 7.60 7.65 7.72 8.18 40-44 years 3.57 5.03 6.17 6.73 6.90 7.06 7.16 7.34 45-49 years 2.93 3.17 4.64 5.81 6.34 6.43 6.48 6.79 50-54 years 2.86 2.58 2.90 4.36 5.45 5.79 5.91 6.11 55-59 years 2.97 2.49 2.33 2.63 3.98 4.67 5.01 5.49 60-64 years 2.42 2.54 2.21 2.04 2.32 3.05 3.59 4.58 65-69 years 2.05 2.00 2.19 1.89 1.75 1.83 2.04 3.20 70-74 years 1.49 1.60 1.63 1.80 1.57 1.48 1.48 1.75 75-79 years 1.09 1.08 1.22 1.27 1.42 1.33 1.25 1.19 80-84 years 0.62 0.70 0.74 0.86 0.91 1.00 1.03 0.93 85-89 years 0.32 0.34 0.42 0.45 0.54 0.56 0.58 0.67 90-94 years 0.10 0.14 0.16 0.21 0.24 0.27 0.29 0.32 95-99 years 0.02 0.03 0.05 0.06 0.08 0.09 0.10 0.12 © Business Monitor International Page 130 Vietnam Agribusiness Report Q4 2014 Vietnam's Population By Age Group, 1990-2020 (% of total) - Continued 100+ years 1990 1995 2000 2005 2010 2013e 2015f 2020f 0.00 0.00 0.01 0.01 0.02 0.02 0.03 0.03 e/f = BMI estimate/forecast Source: World Bank, UN, BMI Table: Vietnam's Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 1990 1995 2000 2005 2010 2013e 75.8 71.0 61.3 50.8 42.9 41.4 2015f 2020f 41.3 41.9 29,712 31,567 30,734 28,617 26,741 26,860 27,293 28,655 Active population, % of total 56.9 Active population, total, '000 58.5 62.0 66.3 70.0 70.7 70.8 70.5 39,198 44,453 50,154 56,331 62,306 64,820 66,094 68,402 Youth population, % of total working age 65.8 Youth population, total, '000 60.9 50.9 40.9 33.6 32.1 31.7 30.2 25,778 27,076 25,544 23,038 20,918 20,822 20,950 20,690 Pensionable population, % of total working age Pensionable population, total, '000 10.0 10.1 10.3 9.9 9.3 9.3 9.6 11.6 3,934 4,491 5,190 5,579 5,823 6,037 6,343 7,965 e/f = BMI estimate/forecast Source: World Bank, UN, BMI Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f Urban population, % of total 20.3 22.2 24.4 27.3 30.4 32.3 33.6 36.9 Rural population, % of total 79.7 77.8 75.6 72.7 69.6 67.7 66.4 63.1 Urban population, total, '000 13,958 16,867 19,716 23,175 27,064 29,632 31,384 35,771 Rural population, total, '000 54,952 59,153 61,172 61,773 61,983 62,048 62,003 61,286 e/f = BMI estimate/forecast Source: World Bank, UN, BMI © Business Monitor International Page 131 Vietnam Agribusiness Report Q4 2014 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 Page 132 Vietnam Agribusiness Report Q4 2014 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 Page 133 Vietnam Agribusiness Report Q4 2014 ■ ■ ■ 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 Page 134 [...]... poultry output growth outperforming the rest of the industry © Business Monitor International Page 23 Vietnam Agribusiness Report Q4 2014 On The Recovery Select Companies - Operating (LHC) & Profit (RHC) Margins (%) Source: BMI, Bloomberg © Business Monitor International Page 24 Vietnam Agribusiness Report Q4 2014 Fragmented Feed Industry Disadvantages Local Companies The domestic livestock industry is made... companies © Business Monitor International Page 25 Vietnam Agribusiness Report Q4 2014 Mainly Foreign Companies Vietnam - Feed Production By Company, 2011 (% of total) Source: BMI, Vietnam Animal Feed Association Local Feed Company Expands Vietnam' s feed industry is one of the world's fastest agribusiness markets It is estimated that approximately a third of Vietnam' s feed is prepared in backyard farms from... El Niño in 2014 has eased in recent months, the Australian Bureau of Meteorology estimates there is still a 50% chance of the weather phenomenon developing from December This weather event brings hot and dry weather to Vietnam and poses downside risks to our 2014/ 15 coffee production forecast © Business Monitor International Page 30 Vietnam Agribusiness Report Q4 2014 Declining Production Vietnam -... Consumption (Vietnam 2013-2018) e/f = estimate/forecast Source: FAPRI, BMI Table: Milk Production & Consumption (Vietnam 2013-2018) Milk production, '000 tonnes Milk production, % y-o-y Liquid milk consumption, '000 tonnes e/f = estimate/forecast Source: National sources, BMI © Business Monitor International Page 13 Vietnam Agribusiness Report Q4 2014 Table: Whole Milk Powder Consumption (Vietnam 2013-2018)... implemented This would then weigh on production growth in two of Vietnam' s main agriculturalproducing regions © Business Monitor International Page 10 Vietnam Agribusiness Report Q4 2014 Business Environment SWOT Analysis Strengths ■ Vietnam has a large, skilled and low-cost workforce, which has made the country attractive to foreign investors ■ Vietnam' s location - its proximity to China and South East... International Page 31 Vietnam Agribusiness Report Q4 2014 Slower Exports Vietnam - Coffee Exports ('000 tonnes) Source: BMI, Vicofa Crisis Brewing For Coffee Exporters The ongoing restructuring of Vietnam' s largest coffee export company, Vinacafe, is a clear evidence of the difficulties of the coffee export industry Vinacafe, a state-owned enterprise that owns more than 25 subsidiary units, is Vietnam' s largest... International Page 33 Vietnam Agribusiness Report Q4 2014 Little Change Ahead Vietnam - Coffee Area By Region, 2012 & 2020 Goal (% of total) Source: USDA, BMI Major Robusta Grower Vietnam is the world's largest producer of robusta coffee, with more than 95% of its coffee output consisting of the robusta variety and only around 2-3% of production devoted to the premium arabica variety We expect Vietnam to maintain... unrest remains a lingering threat A failure by the authorities to boost skills levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Page 11 Vietnam Agribusiness Report Q4 2014 Industry Forecast Dairy Outlook BMI Supply View: We hold a positive outlook on Vietnam' s dairy sector and expect it to maintain its strong growth momentum on the back of a growing... share © Business Monitor International Page 17 Vietnam Agribusiness Report Q4 2014 Mostly New Zealand Vietnam - Milk & Milk Product Imports By Country, 2010 (% of total) Source: BMI, USDA We believe that Thai dairy farmers' fears regarding trade liberalisation are relatively overplayed, as farmers are already relatively efficient by regional standards Vietnam still imports 75% of its dairy products... businesses in Vietnam, including feed mills, farms, processed food, ready-to-eat food and CP shops, its © Business Monitor International Page 26 Vietnam Agribusiness Report Q4 2014 distribution store A feed mill in Hai Duong province, near Hanoi, has started operations recently, with annual capacity of 720,000 tonnes CPV is also expanding in Binh Dinh, where the facility, which will be completed in 2014, will ... expected in 2014; predicted to average 6.5% over 201 5-2 018) © Business Monitor International Page Vietnam Agribusiness Report Q4 2014 • 2015 consumer price index: 5.3% year-on-year (y-o-y) (down... Page 13 Vietnam Agribusiness Report Q4 2014 Table: Whole Milk Powder Consumption (Vietnam 201 3-2 018) Whole milk powder consumption, '000 tonnes Whole milk power consumption, % y-o-y 2013e 2014f... five-year average of 22.2mn bags Exports are expected to grow by 8.1% y-o-y to 28.0mn bags © Business Monitor International Page 31 Vietnam Agribusiness Report Q4 2014 Slower Exports Vietnam -