Dairy industry poised to capitalise on trade shake-up

illustration photo (source: mcmilk.com.vn)

However, challenges are also exerting pressures on the industry. In the first half of 2020, Vietnam’s dairy enterprises have witnessed many remarkable transformations. Vinamilk – the country’s largest milk provider – now holds 75.3 per cent stake in GTNFood JSC, which controls iconic brand Moc Chau Milk with its 25,000 cows.

Despite the prolonged health crisis, the milk giant reported a stellar performance. Its consolidated second-quarter net revenue reached VND15.5 trillion ($674 million), up 6.1 per cent on-year.

The company has gained an upper hand compared to other rivals thanks to its diverse markets, from a $20 million contract to the Middle East, condensed milk to China, and soy-based nut drink and milk tea products to South Korea. Revenues of its Cambodian subsidiary, Angkor Milk, recorded a growth of over 20 per cent thanks to high demand in this market.

Vinamilk’s active role on GTN-Food’s Mangement Board has boosted the latter’s management and operational efficiency, which ultimately contributes to Vinamilk’s advantages.

“Moc Chau Milk is one of the most famous dairy brands in the north and central regions of Vietnam, ranking second behind Vinamilk. The current capacity of Moc Chau is 25 liters per cow per day,” noted analysts at MB Securities. “The factory is currently at 90 per cent of capacity, and is slated to be improved to increase capacity.”

Specifically, Moc Chau’s gross profit margin improved from 17.7 per cent in the second half of 2019 to 28.9 per cent in the first half of 2020. This result comes from the improvement in the profit margin of the fresh milk segment from 21 per cent in 2019 to 32 per cent in this year’s first half.

Besides that, Vinamilk is mulling over finding partners to set up joint ventures and distribute products in the Philippines, along with increasing its investment in a Laotian subsidiary to $66.4 million.

In July, Howard Holding PTE, which is backed by VinaCapital, sold 28 per cent stake in International Dairy Products JSC (IDP) – one of Vietnam’s home-grown dairy products companies – from VinaCapital - to decrease its ownership to 26 per cent.

Meanwhile, Blue Point and Viet Capital Securities (VCSC) completed purchase of nearly 90 per cent of IDP without public bid last month.

Other local dairy brands are also swinging into action to grab a slice of the lucrative segment. For instance, Vitadairy and Nutifood have just launched a new fresh milk line with international quality commitments.

Despite the fact that Vitadairy is not advertised widely on mass media, the company is known as a big player in the field with a passionate and dedicated team rich in experience of nutrition and health.

Last year, Vitadairy inaugurated its second factory in My Phuoc Industrial Zone in the southern province of Binh Duong with the investment of $6 million and annual capacity of up to 5,000 tonnes.

The 15-year-old brand presents a number of well-tailored products, often seen in hospitals. Calcium-fortified nutritional brands target the elderly range in the form of CaloSure, Calosure Gold, Nepro 1, Nepro 2, Gluvita, Gluvita Gold, as well as milk-based supplements like Goatlac and Goatamil BA.

Notably, Vitadairy is the sole partner of the Ministry of Health for the national immunisation programme.

Two years after taking over from Hoang Anh Gia Lai, Nutifood recently introduced NutiMilk Cow Farm, declaring it a high-quality and fresh milk source. With a wide area of over 1,000 hectares, NutiMilk dairy farm located in the Central Highlands’ province of Gia Lai province homes 7,000 cows and calves.

Partnership with foreigners and certification from the US Food and Drug Administration will go a long way towards providing competitive advantages for Nutifood. The company’s representatives recently revealed Nutifood’s ambition of not only dominating the domestic market, but also embarking on its journey to the EU.

Once the EU-Vietnam Free Trade Agreement (EVFTA) sees tariffs begin to fall, there will be huge chances for Vietnamese exporters to grow their market share. Three years after the EVFTA’s enforcement, tariffs on dairy items from EU players will fall 5-20 per cent. But some believe foreign groups pale in comparison with local providers in this race.

“Tax incentives for milk import from the EU will have negligible competitive pressure on domestic milk as higher logistics cost and limits on distribution network will offset tax incentives from the EVFTA,” said Toan Dao, analyst at KIS Securities.

Exports will be more vital to promote growth, especially to China – the second-largest market after the United States.

Tong Xuan Chinh, deputy head of the Ministry of Agriculture and Rural Development’s Department of Livestock Production, expressed his optimism in the vast potential of Vietnam’s dairy industry, since China has granted export permits to some Vietnamese companies including Vinamilk, TH True Milk, Moc Chau Milk, NutiFood, and Hanoimilk.

Data from Nielsen reveals the domestic demand for dairy products is not heavily influenced by the COVID-19 pandemic, with only a 4 per cent reduction in value compared to 7.3 per cent drop in fast-moving consumer goods consumption growth.