Tariff slashes cause foreign foods surge

Last week, Danish Farm Concept Company signed the first contracts to supply investors in Vietnam with new turnkey pig production facilities. Representing the co-operative expertise of six Danish companies, Danish Farm Concept is the first business enterprise with the capability to deliver the complete Danish model for pig production.

The pig production facilities on the way to Vietnam will be tailored to local needs and conditions. Once in operation, they will both supply safe food to demanding consumers and deliver good returns to investors.

In another case, Thailand’s frozen seafood producer PFP Group is reportedly planning to establish a joint venture in Vietnam over the next three to five years. The group’s international marketing director Piyakarn Piyapatana said that PFP was negotiating with several seafood firms in Vietnam about the foundation of this joint venture. It is expected that PFP will hold a major stake.

The new investments in the local husbandry sector are attributed to slashed import tariffs under the ASEAN Economic Community (AEC), plus Vietnam’s great husbandry growth potential. Under the AEC, investors may concentrate production lines in a chosen ASEAN country, thus creating economies of scale, and then export the finished product tariff-free to other ASEAN countries as well as to ASEAN’s free-trade partners in the region (China, India, South Korea, Japan, Australia, and New Zealand).

Piyapatana ascribed PFP’s investment in Vietnam to the country’s higher economic growth within ASEAN, improved business climate and notably a good source of seafood. Vietnam also enjoys trade privileges that will help PFP export to the other regional markets, such as the US and Europe.

According to the Ministry of Planning and Investment’s Foreign Investment Agency study on challenges and opportunities in attracting foreign direct investment (FDI) following the AEC establishment, Vietnam will have a big advantage in luring foreign investment to the livestock sector thanks to its abundant materials and land, especially big tax incentives.

For example, a livestock project will enjoy either reduction or exemption of corporate income tax. It will also be exempt from paying tax for importing materials and equipment.

However, Vietnam’s livestock sector, home to about eight million farmers, may lose out following the establishment of liberalised trade blocs like the AEC. A Vietnam Institute for Economic and Policy Research survey on impacts of the AEC and the Trans-Pacific Partnership (TPP) on the sector stated that under the AEC and the TPP, consumers and importers would gain, while exporters and producers would lose due to competition with imported products.

Specifically, livestock exports of Vietnam to ASEAN are expected to fall mainly in pork and poultry, by 7 per cent to the Philippines, 82 per cent to Thailand and 3 per cent to Indonesia.

The survey revealed that in both AEC and TPP, tariff cuts by Vietnam in the husbandry sector negatively affect the total production value of the sector mainly due to higher competition from imported products (see table).

For example, Vietnam has been one of Australia’s fastest growing export markets for live cattle, rocketing from just 1,441 cattle four years ago to almost 310,000 cattle last year.