Q2 2016 www.bmiresearch.com VIETNAM AGRIBUSINESS REPORT INCLUDES 5-YEAR FORECASTS TO 2020 Published by:BMI Research Vietnam Agribusiness Report Q2 2016 INCLUDES 5-YEAR FORECASTS TO 2020 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: March 2016 ISSN: 1759-1740 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 © 2016 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 2016 INCLUDES 5-YEAR FORECASTS TO 2020 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: March 2016 ISSN: 1759-1740 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 © 2016 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 2016 CONTENTS BMI Industry View SWOT 10 Agribusiness 10 Industry Forecast 12 Grains Outlook 12 Table: Vietnam - Grains Production And Consumption Outlook 13 Table: Vietnam - Risks To Grains Outlook 13 Table: Corn Production & Consumption (Vietnam 2013-2020) 16 Rice Outlook 17 Table: Vietnam - Rice Production And Consumption Outlook 18 Table: Vietnam - Risks To Rice Outlook 18 Table: Rice Production & Consumption (Vietnam 2013-2020) 21 Dairy Outlook 22 Table: Vietnam - Dairy Production And Consumption Outlook 23 Table: Vietnam - Risks To Dairy Outlook 23 Table: Vietnam - Planned Investment In Milk Production Capacity 25 Table: Dairy Production & Consumption (Vietnam 2013-2020) 28 Livestock Outlook 29 Table: Vietnam - Livestock Production And Consumption Outlook 29 Table: Vietnam - Risks To Livestock Outlook 30 Table: Livestock Production & Consumption (Vietnam 2013-2020) 34 Coffee Outlook 35 Table: Vietnam - Coffee Production And Consumption Outlook 36 Table: Vietnam - Risks To Coffee Outlook 36 Table: Coffee Production & Consumption (Vietnam 2013-2020) 41 Commodities Price Analysis 42 Global - Global Commodities Strategy 42 Table: Select Commodities - Performance And BMI Forecasts 42 Upstream Analysis 44 Asia GM Outlook 44 Table: Selected Countries - GM Crops Use (mn hectares) 47 Asia Machinery Outlook 49 Table: Select Countries - Average Size Of Farms, Hectares 52 Asia Fertiliser Outlook 55 Downstream Analysis 60 Food 60 Canned Food 61 Confectionery 62 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q2 2016 Pasta 62 Dairy 63 Regional Overview 64 Table: Impact Of El Niño On Crops 64 Competitive Landscape 69 Table: Major Agribusiness Companies (USDmn) 69 Demographic Forecast 70 Table: Population Headline Indicators (Vietnam 1990-2025) 71 Table: Key Population Ratios (Vietnam 1990-2025) 71 Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 72 Table: Population By Age Group (Vietnam 1990-2025) 72 Table: Population By Age Group % (Vietnam 1990-2025) 73 Methodology 75 Industry Forecast Methodology 75 Sector-Specific Methodology 76 © Business Monitor International Ltd Page Vietnam Agribusiness Report Q2 2016 BMI Industry View BMI View: Recent developments in the country's economic and business environments add further weight to our positive view on Vietnam's agribusiness sector The industry holds strong growth opportunities in terms of production, exports and retail sales, particularly with regard to the rice, coffee, livestock and dairy sectors Moreover, economic and financial integration in 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 and improves both product quality and supply chain efficiency Vietnam will have to significantly ramp up investments on crop productivity in order to not 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 Agribusiness Market Value BMI Market Value By Commodity (2005-2020) 50 40 30 20 10 2005 2007 2006 2009 2008 2011 2010 2013e 2015e 2017f 2019f 2012 2014e 2016f 2018f 2020f Grains market value, % of total Livestock market value, % of total Sugar market value, % of total Milk market value, % of total BMI Calculation/FAO © Business Monitor International Ltd Page Vietnam Agribusiness Report Q2 2016 Key Forecasts ■ Sugar consumption growth to 2020: 23.0% to 2.4mn tonnes Rising income, population and growing consumption of manufactured food products will help sugar consumption grow quickly in the coming years Domestic production growth will not be able to keep up with consumption expansion • Coffee production growth to 2019/20: 13.2% to 31.6mn 60kg bags After more than a decade of strong output growth, coffee production expansion will slow down in the coming years Low coffee prices and the attractiveness of alternative crops such as pepper will lead to a slowdown in new planted area growth • Milk production growth to 2019/20: 61.9% to 876,000 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 • 2016 BMI universe agribusiness market value: USD44.1bn (up from USD43.4bn in 2015; growth expected to average 3.3% annually between 2016 and 2019) • 2016 real GDP growth: 6.6% (down from 6.7% expected in 2015; predicted to average 6.4% over 2015-2020) • 2016 consumer price index: 2.1% y-o-y (up from 0.8% expected in 2015; predicted to average 4.3% over 2015-2020) Key Developments Along with other Asian and African countries, Vietnam's agricultural sector is being affected by the return of El Niño in 2015/16 Meteorologists believe that the phenomenon - which emerged in May 2015 - is currently in its decreasing phase and should dissipate in Q316 However, El Niño has had a strong impact on precipitation levels in South and South East Asia so far this season In fact, after a period of dry weather recorded in August-October 2015, Vietnam and its neighbours have had to face another dry episode since January 2016, located around the Mekong river area According to Vietnam's Ministry of Agriculture, in March 2016 the water level of the Mekong River - the country's rice and fruit basket - was down to its lowest level since 1926 during planting season for the key winter/spring rice crop Dry weather and the lack of water for irrigation, coupled with the ongoing government plan to switch acreage from rice to corn production will make rice production decline for the first time since 2010/11 in 2015/16 Looking at coffee production in the 2016/17 season, for which the harvest will start in September 2016, we believe production growth will again be weak relative to the strong growth recorded until 2014 Apart from the dry weather, farmers have to battle with low robusta prices Some farmers with old coffee trees (which © Business Monitor International Ltd Page Vietnam Agribusiness Report Q2 2016 make up to a third of total acreage) are not replanting their land with coffee trees, switching instead to other more profitable crops (especially pepper and fruits) Improvement in Vietnam's economic activity in 2016 will help consumer spending increase after weak demand in 2014 weighed on demand for value-added agricultural products, including dairy The stronger economic outlook, coupled with some reforms regarding foreign investment and State Owned Enterprises are attracting a growing amount of domestic and foreign investors and reaffirm our bullish view on the agribusiness sector Vietnam is seeing a wave of private investment in its upstream (farming) and downstream (dairy product manufacturing and distribution) dairy sector The feed sector is also attracting investors, with Cargill announcing in Q415 it will build two new feed mills in Vietnam, adding to the 10 the company already owns in the country © Business Monitor International Ltd Page Vietnam Agribusiness Report Q2 2016 Regional Overview BMI View: Trade in agricultural products in the Asia Pacific region is set to soar in the coming years as demand grows rapidly, on the back of population and income growth and changing consumption habits Trade between Asia Pacific countries is likely to intensify, especially in the livestock, sugar, cocoa and dairy sectors The region boasts large producing countries with well-established companies that can supply countries with agricultural items for which they have a production deficit 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 El Niño 2015: Significant Impact On Asia's Agribusiness Sector El Niño, which emerged in May 2015, is turning out to be one of the strongest on record and is forecast to linger into Q116 Although agricultural prices have only been moderately affected by the re-emergence of El Niño this year, this belies a significant impact on production and on the agribusiness sector as a whole in some countries South and South East Asia has been bearing the brunt, as several countries in the region are recording dry weather and will see their agricultural production decline in 2015 Table: Impact Of El Niño On Crops Commodity Country Share of global Risk to 2015/16 production (2013/14) production Risk to 2016/17 production Palm Oil Malaysia and Indonesia 85% Downside medium Downside - high Rice Thailand, India, Vietnam, Bangladesh, Indonesia, Philippines, etc Around 55-60% Downside - high Downside - low Sugar Australia, India and Thailand 31% Downside - high Downside - low Brazil 28% Downside - low Downside - low to medium Wheat - Australia 4% Downside - high Downside - low Wheat - EU 22% (EU 28) Negligible Downside - Low India 13% Negligible Downside - medium Oilseeds India 7% Downside - high Downside - low Coffee Vietnam 19% Downside medium Downside - low Brazil 32% Upside - low Upside - medium Central America 8% Downside low to medium Downside - medium to high Grains © Business Monitor International Ltd Page 64 Vietnam Agribusiness Report Q2 2016 Impact Of El Niño On Crops - Continued Commodity Country Share of global Risk to 2015/16 production (2013/14) production Risk to 2016/17 production Cocoa Côte D'Ivoire, Ghana, Indonesia and Nigeria 76% Downside - low Downside medium Source: BMI, FAO, MPOB, ICO, ICCO India and Thailand will be among the most affected, and we expect the decrease in production and revenues to impact machinery and fertiliser sales in both countries (see 'Challenging Times For India's Agriculture', October 27 2015 and 'Drought, Unstable Policies Undermining Thailand's Agribusiness', November 2015) In Indonesia, the dry weather has exacerbated forest fires caused by planters' slash-and-burn method, which has led to a diplomatic 'haze crisis' between Malaysia and Singapore The haze will also have a longlasting impact on the palm oil sector, as it will probably lead to the adoption of more stringent environmental laws and a decrease in Europe's palm oil demand (see 'Indonesia's Haze Crisis: Industries Hold Their Breath', November 12 2015) Adverse weather could endure in 2016 and 2017, as El Niño may give way to La Niña South East Asia's Feed Sector Boom To Continue Undeterred As demand for feed in South East Asia continues to grow undeterred, driven by the dynamic livestock sector, interest and investment in the region's feed sector remain buoyant In line with slower demand growth in more mature markets such as Thailand, local companies are heavily investing in countries where the feed sector is underdeveloped, including Cambodia, Laos and Myanmar However, this strong growth in production capacity may eventually lead to overcapacity problems Local feed markets in South East Asia will remain dominated by foreign and Thai players in the coming years, but local companies are trying to gain market share by acquiring smaller players The market is attracting Chinese livestock companies in search of new sources of growth amid the ongoing downturn in their domestic market © Business Monitor International Ltd Page 65 Vietnam Agribusiness Report Q2 2016 Strongest Growth In South East Asia Select Asian Countries - Average Annual Poultry Production Growth, 2014/15-2018/19f (y-o-y) f = BMI forecast Source: BMI China, Indonesia To Drive Asia's Widening Corn Deficit Asia will see its dependence on imported corn grow over the coming years, despite some countries' ambition to maintain or reach self-sufficiency in corn and restrict imports Consumption will grow at a robust pace, buoyed by the livestock sector, while production expansion remains constrained by structural deficiencies ■ The existing and traditional large importers in the region, including Japan, South Korea and Malaysia, will see their imports grow slowly ■ In South East Asia, we forecast production growth to accelerate over the coming years, as yields and production generally come from a lower base Therefore, some countries will be able to broadly maintain their fragile self-sufficiency in corn, including the Philippines and Thailand ■ Indonesia will be a notable exception in South East Asia, as its corn production deficit will grow The country is slowly becoming one of the world's largest importers of corn China will also see an increase in its imports ■ India will be the only country in the region to record a positive and increasing production surplus © Business Monitor International Ltd Page 66 Vietnam Agribusiness Report Q2 2016 Growing Deficits Select Countries - Corn Production Balance ('000 tonnes) 20,000 10,000 China India Indonesia Malaysia Philippines 2019f 2018f 2017f 2016f 2015f 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 -10,000 Thailand f = BMI forecast Source: USDA, national sources, BMI ASEAN Palm Oil: Lacklustre Outlook To Persist The challenging operating environment for palm oil companies will persist in the coming quarters The reemergence of El Niño in May 2015 seriously dented rainfall levels over the August-October 2015 period in some parts of South East Asia, which will decrease palm oil tree yields in the 2015/16 season and make production slow down significantly This bodes ill for the performance of the upstream segment (plantations and mills) in FY16 Although the tightening of the global palm oil market will help prices average higher in 2016, this will only partially offset disappointing production levels, as the upside for prices will be limited Moreover, palm oil refining operations will continue to be hurt by lingering overcapacity and weak demand in 2016 However, the outlook for the biodiesel sector will improve slightly in 2016, after having recorded a tough year in 2015 © Business Monitor International Ltd Page 67 Vietnam Agribusiness Report Q2 2016 No Sign Of A Pick Up Select Palm Oil Companies - Revenue (% chg y-o-y, LHC) & Operating Margins (%, RHC) Note: Includes the top 12 producing palm oil companies Figures are four-quarter moving averages Source: Company reports, BMI Thailand, Australia To Benefit From Asia's Ballooning Sugar Deficit Sugar supply in the Asia Pacific region is in a structural and widening deficit Almost all Asian countries will see their consumption of sugar accelerate over the medium term, led by Indonesia, Thailand, China, Pakistan and Vietnam Meanwhile, production will struggle to keep up with demand, as sugar mills shift their investments towards power and ethanol production amidst profitability challenges in the sugar sector This diversification is likely to help the sector compensate for volatility in the sugar business, facilitating an increase in earnings in the coming years Thailand and Australia will be the main beneficiaries of these trends and will be able to ramp up exports to the rest of Asia © Business Monitor International Ltd Page 68 Vietnam Agribusiness Report Q2 2016 Competitive Landscape Table: Major Agribusiness Companies (USDmn) Three Year Average Revenue revenue (USDmn) growth (%) Operating Margins (%) Sub-Sector Market Capitalisation Fiscal Y/E Dairy 7,050.15 12/2015 1,830 14.7 21.9 Food Manufacturing (confectionery & snacks) 225.0 12/2015 143 -7.2 -1.3 Coffee & Food Manufacturing 178.8 12/2015 137 13.0 9.6 Seafood 114.0 12/2014 703 25.7 2.9 Sugar & Real Estate 221.6 06/2015 97 na 6.0 Edible Oils & Fats 34.9 12/2015 164 -3.4 2.3 Sugar & Alcohol 27.9 12/2014 82 -5.0 7.1 Seafood na 12/2014 713 29.5 7.7 Southern Seed Crop Seeds 34.8 12/2015 24 6.0 11.3 Viet Thang Feed JSC Animal Feed na 12/2014 209 15.8 4.3 Company Viet Nam Dairy Products JSC (Vinamilk) Kinh Do Corp Vinacafe Bien Hoa JSC Hung Vuong Societe De Bourbon Tay Ninh Tuong An Vegetable Oil JSC Lam Son Sugar Minh Phu Seafood Source: BMI, Bloomberg © Business Monitor International Ltd Page 69 Vietnam Agribusiness Report Q2 2016 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 70 Vietnam Agribusiness Report Q2 2016 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 68,209 80,285 84,203 88,357 93,447 98,156 102,092 na 1.1 0.9 1.0 1.1 0.9 0.7 Population, total, male, '000 33,583 39,551 41,469 43,626 46,224 48,590 50,510 Population, total, female, '000 34,625 40,734 42,734 44,730 47,223 49,566 51,581 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 38,808 49,712 55,795 61,655 65,572 67,775 69,459 56.9 61.9 66.3 69.8 70.2 69.0 68.0 29,401 30,573 28,408 26,702 27,875 30,381 32,633 75.8 61.5 50.9 43.3 42.5 44.8 47.0 Page 71 Vietnam Agribusiness Report Q2 2016 Key Population Ratios (Vietnam 1990-2025) - Continued Youth population, total, '000 1990 2000 2005 2010 2015f 2020f 2025f 25,494 25,416 22,866 20,919 21,576 22,487 22,335 65.7 51.1 41.0 33.9 32.9 33.2 32.2 3,907 5,157 5,542 5,783 6,298 7,893 10,298 10.1 10.4 9.9 9.4 9.6 11.6 14.8 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 13,815.9 19,568.8 22,971.6 26,853.7 31,391.9 36,120.7 40,780.9 Urban population, % of total Rural population, '000 2000 20.3 24.4 2005 27.3 2010 30.4 2015f 33.6 36.8 39.9 54,393.7 60,716.8 61,232.2 61,504.1 62,055.7 62,036.0 61,311.7 Rural population, % of total 79.7 75.6 72.7 69.6 66.4 63.2 60.1 Life expectancy at birth, male, years 66.0 68.4 69.3 70.2 71.2 72.1 73.1 Life expectancy at birth, female, years 75.1 78.1 79.2 80.0 80.6 81.1 81.6 Life expectancy at birth, average, years 70.5 73.3 74.3 75.1 75.9 76.7 77.4 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 9,211 7,244 6,751 7,265 7,740 7,601 7,108 Population, 5-9 yrs, total, '000 8,512 9,119 7,130 6,648 7,221 7,698 7,562 Population, 10-14 yrs, total, '000 7,769 9,052 8,983 7,005 6,614 7,187 7,664 Population, 15-19 yrs, total, '000 7,277 8,401 8,941 8,877 6,972 6,583 7,156 Population, 20-24 yrs, total, '000 6,570 7,610 8,242 8,764 8,803 6,908 6,522 Population, 25-29 yrs, total, '000 5,938 7,019 7,408 8,022 8,664 8,705 6,823 Population, 30-34 yrs, total, '000 5,079 6,300 6,863 7,223 7,932 8,572 8,616 Population, 35-39 yrs, total, '000 3,842 5,746 6,190 6,718 7,146 7,850 8,488 Population, 40-44 yrs, total, '000 2,447 4,938 5,663 6,096 6,640 7,065 7,766 Population, 45-49 yrs, total, '000 2,003 3,710 4,880 5,592 6,004 6,543 6,968 © Business Monitor International Ltd Page 72 Vietnam Agribusiness Report Q2 2016 Population By Age Group (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 1,956 2,331 3,658 4,801 5,467 5,875 6,410 Population, 55-59 yrs, total, '000 2,033 1,873 2,223 3,501 4,625 5,275 5,681 Population, 60-64 yrs, total, '000 1,658 1,779 1,723 2,055 3,314 4,392 5,023 Population, 65-69 yrs, total, '000 1,402 1,759 1,599 1,551 1,894 3,066 4,081 Population, 70-74 yrs, total, '000 1,021 1,313 1,520 1,390 1,369 1,682 2,739 Population, 75-79 yrs, total, '000 747 977 1,073 1,254 1,158 1,150 1,424 Population, 80-84 yrs, total, '000 426 593 726 809 957 893 895 Population, 85-89 yrs, total, '000 221 334 382 479 541 649 613 Population, 90-94 yrs, total, '000 70 131 176 208 265 305 370 Population, 95-99 yrs, total, '000 15 40 52 73 88 114 133 Population, 100+ yrs, total, '000 11 16 23 30 39 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 13.50 9.02 8.02 8.22 8.28 7.74 6.96 Population, 5-9 yrs, % total 12.48 11.36 8.47 7.52 7.73 7.84 7.41 Population, 10-14 yrs, % total 11.39 11.28 10.67 7.93 7.08 7.32 7.51 Population, 15-19 yrs, % total 10.67 10.46 10.62 10.05 7.46 6.71 7.01 Population, 20-24 yrs, % total 9.63 9.48 9.79 9.92 9.42 7.04 6.39 Population, 25-29 yrs, % total 8.71 8.74 8.80 9.08 9.27 8.87 6.68 Population, 30-34 yrs, % total 7.45 7.85 8.15 8.18 8.49 8.73 8.44 Population, 35-39 yrs, % total 5.63 7.16 7.35 7.60 7.65 8.00 8.31 Population, 40-44 yrs, % total 3.59 6.15 6.73 6.90 7.11 7.20 7.61 Population, 45-49 yrs, % total 2.94 4.62 5.80 6.33 6.43 6.67 6.83 Population, 50-54 yrs, % total 2.87 2.90 4.34 5.43 5.85 5.99 6.28 Population, 55-59 yrs, % total 2.98 2.33 2.64 3.96 4.95 5.37 5.57 Population, 60-64 yrs, % total 2.43 2.22 2.05 2.33 3.55 4.47 4.92 Population, 65-69 yrs, % total 2.06 2.19 1.90 1.76 2.03 3.12 4.00 Population, 70-74 yrs, % total 1.50 1.64 1.81 1.57 1.47 1.71 2.68 Population, 75-79 yrs, % total 1.10 1.22 1.27 1.42 1.24 1.17 1.40 Population, 80-84 yrs, % total 0.63 0.74 0.86 0.92 1.02 0.91 0.88 © Business Monitor International Ltd Page 73 Vietnam Agribusiness Report Q2 2016 Population By Age Group % (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.33 0.42 0.45 0.54 0.58 0.66 0.60 Population, 90-94 yrs, % total 0.10 0.16 0.21 0.24 0.28 0.31 0.36 Population, 95-99 yrs, % total 0.02 0.05 0.06 0.08 0.09 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 74 Vietnam Agribusiness Report Q2 2016 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 75 Vietnam Agribusiness Report Q2 2016 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: ■ Technological developments 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 76 Vietnam Agribusiness Report Q2 2016 ■ ■ ■ 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 Agribusiness Market Value The construction of the Agribusiness market value is done in two steps BMI constructs an in-house model of the agribusiness market Where for each commodity, its forecasted production value is multiplied by its commodity price This is repeated for each commodity in the BMI agribusiness universe and then aggregated to give a BMI agribusiness total market value Commodity prices reflect either market prices or production prices, this depends on the commodity in question and whether sufficient data is available BMI uses their in-house agribusiness total market value model as a benchmark model to forecast FAO's gross production value In addition analysts can also subjectively intervene into the model if necessary to take into account qualitative data © Business Monitor International Ltd Page 77 Vietnam Agribusiness Report Q2 2016 To summarise the final BMI Agribusiness market value is historical data from the FAO gross production value which is then forecasted using an in-house BMI agribusiness market value model that is objectively and subjectively estimated The model itself is priced in US dollars Conversion to local currency and euros is done directly using BMI's country risk exchange rate forecasts BMI ensures that our internal model best matches the FAO gross production value definition and construction to ensure that our internal model serves as a useful benchmark FAO Definition of Gross Production Value (USD) Value of gross production has been compiled by multiplying gross production in physical terms by output prices at farm gate Thus, value of production measures production in monetary terms at the farm-gate level Since intermediate uses within the agricultural sector (seed and feed) have not been subtracted from production data, this value of production aggregate refers to the notion of 'gross production' © Business Monitor International Ltd Page 78 [...]... ASEAN Economic Community, EU -Vietnam free trade agreement, etc.) will help Vietnam' s exports increase in the coming years ■ A move towards higher-quality products, especially in the coffee and dairy sectors, will help to improve Vietnam' s product competitiveness © Business Monitor International Ltd Page 10 Vietnam Agribusiness Report Q2 2016 SWOT Analysis - Continued ■ Vietnam' s fast-growing population... international rice markets after its 2011-2014 Rice Pledging Programme made its exports uncompetitive, Vietnam' s rice remain quite competitive China, Vietnam' s largest market, will see strong import growth in 2016 © Business Monitor International Ltd Page 17 Vietnam Agribusiness Report Q2 2016 Table: Vietnam - Rice Production And Consumption Outlook Ave growth rate 2015/16-2019/20 Drivers Rice production.. .Vietnam Agribusiness Report Q2 2016 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... would further tarnish the image of dairy products in Vietnam Source: BMI © Business Monitor International Ltd Page 23 Vietnam Agribusiness Report Q2 2016 Small Regional Importer Select Countries - Dairy Imports (USDmn) Note: The columns represent Vietnam' s imports Source: Trade Map, BMI Structural Trends Private Investment To Support Production Growth Vietnam is seeing a wave of private investment in... less than 50% of its animal feed requirements by 2020 © Business Monitor International Ltd Page 14 Vietnam Agribusiness Report Q2 2016 Booming Feed Imports Vietnam - Corn, Soy Meal & Soybean Imports ('000 tonnes) Source: BMI, USDA, ITC The growing attention and support to corn and soybean production in Vietnam will most likely prove positive for the livestock sector, as it could help producers reduce... USDA, BMI © Business Monitor International Ltd Page 16 Vietnam Agribusiness Report Q2 2016 Rice Outlook BMI View: Vietnam is and will remain a key grower and provider of rice in the world However, production growth is slowing down, due to the government's push to foster feed grain production and the country's livestock sector Recent Developments ■ Vietnam' s rice production stagnated on a y-o-y basis... region unless active protection policies are implemented This would then weigh on production growth in two of Vietnam' s main agriculturalproducing regions © Business Monitor International Ltd Page 11 Vietnam Agribusiness Report Q2 2016 Industry Forecast Grains Outlook BMI View: Corn is one of Vietnam' s most important food crops, along with rice Production growth will accelerate in the coming years, due... Page 20 Vietnam Agribusiness Report Q2 2016 Table: Rice Production & Consumption (Vietnam 2013-2020) 2013 Rice production, '000 tonnes 2019f 2020f 27,510.0 28,150.0 28,160.0 28,019.2 28,635.6 29,208.3 29,792.5 30,418.1 Rice production, % y-o-y Rice consumption, '000 tonnes 1.3 2014 24,577.1 1.8 2.4 2.2 2018f 20,800.0 21,380.0 21,765.0 22,287.4 22,822.3 23,370.0 23,954.2 2.8 -0.5 2017f 2.1 5.6 0.0 2016f... upstream capacity and are building several new dairy farms As such, Vietnam' s milk production growth will accelerate in the coming years, growing by 10% in 2016 © Business Monitor International Ltd Page 22 Vietnam Agribusiness Report Q2 2016 Table: Vietnam - Dairy Production And Consumption Outlook Ave growth rate 2015/16-2019/20 Drivers Milk production 10.1% Milk production will accelerate significantly... (seeds, fertilisers, pesticides) and © Business Monitor International Ltd Page 13 Vietnam Agribusiness Report Q2 2016 about VND700,000/ha for land preparation costs for those who shift from rice to corn or soybean This new policy is a clear change to support dynamics in Vietnam, where rice production has long been the focus Vietnam is already seeing the impact of the policy, as domestic corn production ... uncompetitive, Vietnam' s rice remain quite competitive China, Vietnam' s largest market, will see strong import growth in 2016 © Business Monitor International Ltd Page 17 Vietnam Agribusiness Report Q2 2016. .. such, Vietnam' s milk production growth will accelerate in the coming years, growing by 10% in 2016 © Business Monitor International Ltd Page 22 Vietnam Agribusiness Report Q2 2016 Table: Vietnam. .. Page Vietnam Agribusiness Report Q2 2016 BMI Industry View BMI View: Recent developments in the country's economic and business environments add further weight to our positive view on Vietnam' s agribusiness