Vietnam tempts foodstuff firms

Singaporean firms are showing increasing interest in Vietnam’s agricultural market - Photo: Le Toan

Despite agricultural product supplies in Vietnam being hampered by recent severe drought, Singaporean-invested farm produce processor Olam Vietnam has still performed well thanks to an innovative business strategy.

Le Tran Anh Dung, director of the firm’s branch in the central highlands province of Dak Lak, told VIR that Olam Vietnam was focusing on improving the quality of their products and expanding their network of partners.

“Olam’s business is quite stable. Our branch’s revenue is expected to grow 20 per cent this year due to local and external rising demand,” Dung said, adding that the firm has annually raised investment in research and development.

Entering Vietnam in 2000, Olam is now the largest exporter of cashews, pepper and instant coffee in Vietnam, with an $80 million instant coffee processing facility and seven large factories across central and southern Vietnam.

A lucrative market

According to the Singapore Businesses Group in Vietnam, Olam is not alone in its successful tapping of Vietnam’s agriculture and foodstuff markets. An increased number of Singaporean firms have also recognised the potential profits in Vietnam.

One company breaking new ground is Singapore’s Wilmar International, which, in early July 2016, joined US-backed Bunge Limited in establishing a joint venture in Vietnam.

Bunge, a leading global agribusiness and food company, sold 45 per cent of the equity in its Vietnam oilseed crushing operations to Singapore Exchange-listed Wilmar, Asia’s leading agribusiness group. The move created a three-party joint venture with Bunge and Wilmar as equal 45 per cent shareholders and Quang Dung, Vietnam’s soybean meal distributor and majority owner of Green Feed, keeping its existing 10 per cent stake in the operation.

“In Vietnam, Bunge is the largest producer of soybean oil and Wilmar is a major buyer of soybean oil,” said Kuok Khoon Hong, chairman and CEO of Wilmar. “The soybean meal distribution capabilities of the joint venture also complement Wilmar’s animal feed ingredients business in Vietnam.”

Last October, Wilmar International established a $25.8 million joint venture with Vietnamese retail group Saigon Co-op. The former holds a 51 per cent stake and the latter a 49 per cent stake. This joint venture, hosting a factory in Ho Chi Minh City, makes sauces and condiments for the domestic and export markets.

While Singapore’s more adventurous companies are expected to plunge into the Vietnamese market, more surprising is the involvement of the Singaporean government. Via the Singaporean Ministry of Finance, the government also entered the Vietnamese agricultural and foodstuff sectors in March this year. They acquired more than 27.6 million shares in Vietnam’s consumer giant Masan Group Corporation to increase its stake to 5.08 per cent from 1.38 per cent.

Singaporean sovereign wealth fund, GIC, also bought 45 million shares of Masan from private Singaporean fund Orchid Capital Investments at a price of $57.65 million. GIC also bought 1.9 million shares of Vietnam’s PAN Pacific and now holds a 5.01 per cent stake in the firm.

Many other Singaporean firms have also been doing successful business in Vietnam, such as milk product maker F&N, drink makers Gold Roast and Super Coffeemix, foodstuff producers Hock Hin Foodstuffs and foodstuff additive maker ApecChem.

Low hanging fruit

Vietnam is fast becoming a hotspot for agricultural and foodstuff projects for Singaporean investors because of the country’s rising demand for high-quality agricultural and foodstuff products.

For example, Olam has expanded its two agricultural product processing plants in the central highlands province of Gia Lai. Olam Spices and Vegetable has also completed an expansion of its spice processing facility in Ho Chi Minh City.

According to London-based Business Monitor International’s (BMI) Vietnam Food and Drink Report for 2016’s first quarter, Vietnam is one of the most promising consumer markets in Asia, benefitting from favourable demographic dynamics, rapid economic growth fuelling household incomes and sustained levels of investment. Reflecting this positive view, BMI predicts the food, drink and mass grocery retail sectors will continue to grow rapidly until at least 2019.

Last year, Vietnam saw a growth rate of 18 per cent in its total food consumption. This rate is forecast to rise to 18.6 per cent annually until 2019. The country also witnessed an 8 per cent growth rate in the value of alcoholic drinks sales last year, and this rate is expected to be 10 per cent annually until 2019. The respective rates for Vietnamese soft drink sales are 5.7 and 8.4 per cent, and those for mass grocery retail sales growth are 10.7 and 11.5 per cent.