Vietnam Food Sector Flourishes Despite Need for Capital Investment

Domestic consumption and healthy exports are driving demand in Vietnam’s food processing industry, but fierce competition is obliging the sector to continually invest to improve efficiency and meet global food safety standards.

The food processing industry is thriving in Vietnam, at least according to attendees at the recent Vietnam Printpack and Vietnam Foodtech Exhibition in Ho Chi Minh City. Growing demand is being driven by increasingly affluent domestic consumers, as well as a booming trade in exports.

Competition, though, is fierce, with the food processing business continually obliged to innovate and invest in new plant and equipment. This has been driven by a need to improve efficiency, while also looking meet the food safety standards of a number of international customers. At present, overseas-sourced processing equipment dominates in Vietnam, with many equipment suppliers now coming under pressure to improve after-sales service and support.

According to the event organisers, the majority of this year’s machine and equipment exhibitors were overseas-based. Overall, the packaging and labelling industry accounted for around 70% of all machines and equipment on display. In the case of the Vietnamese exhibitors, these tended to be importers, distributors or representatives of foreign manufacturers.

Throughout the period 2012-2015, the food processing and packaging sector was the second largest employer in Vietnam. Inevitably, this saw the country become a prime target for processing, packaging and labelling machinery makers.

Addressing delegates at the Ho Chi Minh City International Food and Beverages Exhibition in September of last year, Ho Thi Kim Thoa, Vietnam’s Deputy Minister of Trade and Industry, emphasised that the country’s food industry remained promising and was developing strongly, despite the difficult conditions in the wider economy. In line with this, his department forecast a 5.1% growth in food consumption in Vietnam for 2016, estimating the domestic market to be worth US$29.5 billion, representing an average per capita annual spend of around $315.

With regard to the domestic print market, Nguyen Van Dong, President of the Vietnam Printing Association, is confident that the domestic print market is growing fast. He is particularly optimistic about the prospects in the food sector, forecasting 2016 growth of around 10%-12% in the areas of labelling, packaging, food processing and food imports-exports.

While the food sector may be in robust health, the highly competitive nature of the Vietnamese market requires both keen pricing and substantial investments in equipment upgrades. Highlighting this, Tran Vien Luan, the Assistant Director of the Vietnam Chuan Li Can Manufacturing Company, a printing equipment distributor, said: “Over the last few years, this industry has become very competitive. There are innumerable competitors within a five kilometre radius of my company. To survive in the market, we need to maintain our reputation with our customers, even if we sometimes have to accept a break-even price just to keep customers loyal.”

Photo: The Taiwan Pavilion at Foodtech.
The Taiwan Pavilion at Foodtech.
Photo: Hong Kong business on show at Printpack.
Hong Kong business on show at Printpack.

By international standards, the Vietnamese food processing and packaging sector is still, pretty much, in its infancy. It is, however, growing fast, largely thanks to a hefty investment in new plant and technology. Jacob Barners, a US economist who has made a study of the sector, said: “Vietnam is the new guy in the group of developing countries. It is developing fast, though, and in a number of positive ways. It has made good use of both imported technology and overseas know-how.

“Vietnam is blessed with abundant fresh food resources. Producing food for domestic and overseas consumption has been one of the major contributors to economic growth. In order to meet market needs, most import-export companies now have to innovate, while introducing high-tech solutions in order to ensure product quality. This is especially true in terms of logistics and the need to comply with overseas food safety requirements.”

According to the V1000 List – a league table of the 1,000 Vietnamese businesses that contribute the most in terms of tax – the food and beverage industry had the second highest Return on Equity (ROE) and Return on Assets (ROA) of any business sector. Overall, only the telecommunications sector performs better. Collectively, the food and drinks industries were also the fifth biggest tax contributors overall, behind the financial, telecommunications, petroleum and real estate sectors.

While already huge, it is expected that the food production sector will only continue to grow in the coming years. Domestically, the population is still expanding, while eating habits are also undergoing a noticeable change. Raised incomes have led to an increased demand for high quality, hygienic pre-processed food. This trend has led many food processing equipment companies to see Vietnam as a prime market, especially given its sole reliance on imported equipment.

Acknowledging this rising demand, Luan said: “We get a lot of orders every day. There is virtually no low season. Typically, it takes us three to five days to process an order, with our customers mainly from Taiwan and the mainland.

“Most of our machines have been imported from China. As a result of the highly competitive nature of the industry, we are continually having to upgrade our equipment. This is in addition to the high levels of maintenance required to avoid production delays.”

While food producers are certainly under increased pressure, food processing machinery suppliers are also being pushed harder. Ho Chi Minh City’s Trung My A Company is one of Vietnam’s leading machinery distributors in the paper packaging and post-printing processes sector.

Outlining the challenges the business faces, Nguyen Van Quoc, a Senior Manager with the company, said: “We specialise in renewing and improving used machinery, then selling it on. Our products are mainly sourced from Jiangsu and Shanghai. The goods are shipped from China to Vietnam within two weeks. After that, we need one to two days to check the shipment and another three to four days to assemble it on site for our client.

“In line with other companies that provide machinery and equipment, we understand that we also need to focus on after-sales services and accessories, rather than just selling a product. That is our priority right now.”

Photo: Stacked high: Vietnam invests in food export technology.
Stacked high: Vietnam invests in food export technology.

The Vietnam Printpack and Vietnam Foodtech Exhibition 2015 was held at the Saigon Exhibition and Convention Center from 30 September to 3 October. It attracted more than 14,000 visitors, as well as 230 exhibitors from 12 different countries.

Source:HKTDC Research. Date: 4 May 2016