Vietnam’s food processing industry an appetizing option for investors
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With huge untapped potential and steady growth, Vietnam’s food processing industry promises much for foreign investors, officials say. In Ho Chi Minh City, Vietnam’s biggest city, the food processing industry grew by 8.7 percent and the beverage production sector grew by 4.6 percent in the first ten months of this year, according to the municipal trade department.
The industry’s products are sold at 2,280 convenience stores in the city, up 507 stores over 2017, it said.
In the past five years, Vietnam’s annual consumption of processed food and beverages has grown at an average of 9.68 percent and 6.66 percent respectively, says data compiled by the Ministry of Industry and Trade.
In 2013-2017, the industrial production index grew by an average 6.8 percent per year for processed food and 9.7 percent for drinks, Deputy Minister of Industry and Trade Do Thang Hai said at a recent seminar in HCMC.
The country’s annual food consumption value is estimated to make up 15 percent of its gross domestic product, he said, adding that the figure is about to grow bigger thanks to higher annual incomes and the increasing trend of consuming ready-to-eat food, especially organic ones.
In the first nine months this year, the consumption index grew by 8 percent and 10.2 percent against the same period last year for processed food and drinks, respectively, according to the Vietnam Report Joint Stock Company, a Hanoi-based market research and business assessment firm.
The Business Monitor International (BMI) projected earlier this year that Vietnam’s food industry will grow by 10.9 percent each year between 2015 and 2020.
Tran Kim Oanh, director of the Investment Promotion Center for Industry under the Vietnam Trade Promotion Agency, said that in the 2010-2016 period, the number of companies operating in the sector made up two percent of the total, but their total revenue accounted for 7.3 percent, or $54 billion.
With more than half of a population of 95 million of working age, Vietnam’s food processing industry has a lot of room to grow, said experts.
Food and beverages currently account for the highest proportion of monthly consumer spending in Vietnam, accounting for about 35 percent of the total, she said.
Opportunities
“The Business Monitor International (BMI) projected earlier this year that Vietnam’s food industry will grow by 10.9 percent each year between 2015 and 2020.”
Food processing is one of the industries Vietnam is giving priority to in its growth plans until 2025 with vision until 2035.
Vu Van Chung, deputy head of the Foreign Investment Agency under the Ministry of Planning and Investment, said that so far, foreign investment in the food processing industry of Vietnam was $11.2 billion in 717 projects, excluding those formed through merger-acquisition deals.
Most foreign investment has flowed into processing agricultural produce, seafood and producing beverages.
The food processing industry in Vietnam is considered attractive thanks to tax preferential policies including an import tax exemption for technologies to upgrade the production chain in Vietnam.
“Despite preferential policies for investors, Vietnam’s food processing industry has not been able to attract investments from markets that strong in this field, like Japan, the U.S., Australia and the EU,” Chung said.
The biggest obstacle for the sector right now is that domestic material supply is unable to meet production chain demands.
For example, domestic materials supply can only meet 25 percent of inputs for the dairy sector, and up to 90 percent of materials to make cooking oil is imported, he said.
But deputy minister Hai was hopeful that things would improve when the free trade agreements that Vietnam has signed come into effect, opening a broader consumption market for investors in Vietnam in general and investors in the food processing industry in particular.
Questions & Answers
Q.What is the main challenge facing Vietnam's food processing industry at present?
What is the main challenge facing Vietnam's food processing industry at present?
The primary obstacle is that domestic material supply cannot meet production demands. For instance, domestic sources only provide 25 percent of inputs for the dairy sector, and up to 90 percent of materials for cooking oil are imported.
Q.Which foreign markets have not yet significantly invested in Vietnam's food processing industry, despite preferential policies?
Which foreign markets have not yet significantly invested in Vietnam's food processing industry, despite preferential policies?
Despite preferential policies, Vietnam's food processing industry has not attracted substantial investments from markets strong in this field. These include Japan, the U.S., Australia, and the EU, according to a deputy head of the Foreign Investment Agency.
Q.What proportion of Vietnam's total annual economic output is accounted for by food consumption?
What proportion of Vietnam's total annual economic output is accounted for by food consumption?
The country's annual food consumption value is estimated to make up 15 percent of its gross domestic product. This figure is expected to grow due to higher incomes and an increasing trend towards consuming ready-to-eat foods.
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