Vietnam’s food processing industry an appetizing option for investors

In Ho Chi Minh City, Vietnam's biggest city, the food processing industry grew by 8.7% and the beverage production sector grew by 4.6% in the first ten months of this year, according to the municipal trade department.

The industry’s products are sold at 2,280 convenience stores in the city, up 507 stores over 2017, it said.

In the past five years, Vietnam’s annual consumption of processed food and beverages has grown at an average of 9.68% and 6.66% respectively, says data compiled by the Ministry of Industry and Trade.

In 2013-2017, the industrial production index grew by an average 6.8% per year for processed food and 9.7% for drinks, Deputy Minister of Industry and Trade Do Thang Hai said at a recent seminar in Ho Chi Minh City.

The country’s annual food consumption value is estimated to make up 15% of its gross domestic product, he said, adding that the figure is about to grow bigger thanks to higher annual incomes and the increasing trend of consuming ready-to-eat food, especially organic ones.

In the first nine months this year, the consumption index grew by 8% and 10.2% against the same period last year for processed food and drinks, respectively, according to the Vietnam Report Joint Stock Company, a Hanoi-based market research and business assessment firm.

The Business Monitor International (BMI) projected earlier this year that Vietnam's food industry will grow by 10.9% each year between 2015 and 2020.

Tran Kim Oanh, director of the Investment Promotion Center for Industry under the Vietnam Trade Promotion Agency, said that in the 2010-2016 period, the number of companies operating in the sector made up two percent of the total, but their total revenue accounted for 7.3%, or US$54 billion.

With more than half of a population of 95 million of working age, Vietnam’s food processing industry has a lot of room to grow, said experts.

Food and beverages currently account for the highest proportion of monthly consumer spending in Vietnam, accounting for about 35% of the total, she said.

Opportunities

Food processing is one of the industries Vietnam is giving priority to in its growth plans until 2025 with vision until 2035.

Vu Van Chung, deputy head of the Foreign Investment Agency under the Ministry of Planning and Investment, said that so far, foreign investment in the food processing industry of Vietnam was US$11.2 billion in 717 projects, excluding those formed through merger-acquisition deals.

Most foreign investment has flowed into processing agricultural produce, seafood and producing beverages.

The food processing industry in Vietnam is considered attractive thanks to tax preferential policies including an import tax exemption for technologies to upgrade the production chain in Vietnam.

"Despite preferential policies for investors, Vietnam’s food processing industry has not been able to attract investments from markets that strong in this field, like Japan, the U.S., Australia and the EU," Chung said.

The biggest obstacle for the sector right now is that domestic material supply is unable to meet production chain demands.

For example, domestic materials supply can only meet 25% of inputs for the dairy sector, and up to 90% of materials to make cooking oil is imported, he said.

But deputy minister Hai was hopeful that things would improve when the free trade agreements that Vietnam has signed come into effect, opening a broader consumption market for investors in Vietnam in general and investors in the food processing industry in particular.