Foreign investments in Vietnam’s livestock sector: Domestic market potentials or international trade advantages?

Meat consumption in Vietnam has been increasing about two folds in every ten years, from 1.4 million tons in 1996 to 3.3 million tons in 2006 and up to 6.3 million tons in 2016, according to FAO dataset. OECD-FAO has anticipated the number to reach 8.6 million tons in 2026. Pork has accounted for more than half of total meat consumption in Vietnam, followed by poultry meat with the proportion of a quarter and beef with that of around 18%. Pork and poultry meat consumption have been projected to grow faster than beef in the next decade in Vietnam. Pork domestic production has covered enough domestic consumption; however, imports of frozen swine meats have still enjoyed the highest growth rate of 78% in the period of 2005-2017 among all types of meats. 

The development of modern retails has contributed significantly to open more opportunities to  both domestically integrated producers and FDI enterprises. The compound average growth rate (CAGR) of sales of modern grocery retailers from 2012 to 2017 reached 14.6 percent, versus 9.5 percent for that of traditional grocery retailers. Similarly, the number of modern groceries has grown 260 percent since 2012, compared to only 5 percent for traditional grocery outlets. The modern retail food chains are conducting an expansion strategy through magnifying their distribution networks, not only in first tier cities like Hanoi and Ho Chi Minh City but also in second tier cities and provinces across Vietnam. In 2019, Vinmart+ even arrived the third tier cities, making a pioneering role in the next round of competition among modern retail chain in Vietnam. These factors seem to indicate a promising outlook for domestic market development for meats in Vietnam, notably pork and poultry. 

Meanwhile, Vietnam has been also absorbing large FDI inflows to livestock sector. Recently, CP Food have announced that the conglomerate will invest more than $200 million to create an export hub for its poultry and pork business in Vietnam, marking one of the biggest bets on Vietnam’s livestock industry. CP Foods aims to start exporting meat, as well as shrimp and fish, from its Vietnam hub, with almost all of its processed meat set to head to Japan, the Middle East, the European Union and other countries. Meanwhile, China’s top feed producer, New Hope Group, has started to build three pig farms located in Thanh Hoa, Binh Phuoc, and Binh Dinh provinces with total investment of  more than 1.1 billion yuan ($163.51 million). The construction will be completed by 2021, to produce 930,000 pigs in total every year. 
These investments have identically represented for remarkable inflows of FDI businesses into Vietnam livestock industry to exploit Vietnam’s lower labor costs and its positions in various FTAs. A Vietnamese manufacturing worker makes $227 a month on average, much lower than Thailand's $413 and China's $493, according to data from the Japan External Trade Organization. Moreover, Vietnam in November 2018 became the seventh country to ratify the TPP, which offers Vietnam advantageous trading terms with such countries as Japan and Australia, as well as Mexico and Canada. Potentially domestic market has created a valuable add-on to any plan to invest into Vietnam’s livestock industry. 

These bets from FDI enterprises have triggered severe competitions with domestic companies owning the same purposes of benefiting both from domestic market potentials and international advantages of Vietnam. It seems to be interesting to observe the races to occupy both production resources as well as market shares among players.