25 June 2021 – Vietnam’s animal nutrition market recently witnessed a wave of merger and acquisition (M&A) activity. Domestic and international players are seeing a positive evolution in the Vietnamese market right now and are pinning their hopes on its resilience. Vietnam’s animal nutrition sector is forecast to continue growing while becoming a more integrated, mature, and competitive market.
Last year, Malaysia’s Leong Hup International Berhad, one of the largest fully integrated producers of poultry, egg, and livestock feed in Southeast Asia, took over a Vietnamese aqua feed factory for approximately $15.8 million. The asset has the capacity to produce nearly 119,000 tonnes/year.
In March 2021, aqua feed company BioMar acquired a majority stake in Viet-Uc, one of Vietnam’s leading seafood groups. BioMar said that the partnership paves the way for the company to enter the Vietnamese market, one of the world’s leading shrimp producing countries with a production close to 500,000 tonnes of shrimp.
In April this year, ADM Animal Nutrition announced that it was expanding its range of Wisium premix offerings in Vietnam with the acquisition of Golden Farm Production & Commerce Co., Ltd. Following the deal, Wisium will serve customers in Vietnam with a premix facility in the southern province of Dong Nai.
In addition to foreign companies, local players are also seeing big potential for their animal nutrition businesses; the most noteworthy example being Vietnamese conglomerate Masan considering an initial public offering to raise as much as $1 billion for its animal feed business which it may spin off.
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In an interview with Feedinfo, Phong Quach, head of consulting at Ipsos Strategy3 Vietnam, highlighted three key fundamentals which will influence the Vietnamese feed market in the next five years. Of course, there is the ongoing impact of COVID-19 (An Ipsos survey shows that 90% of consumers saw an impact of the pandemic on their purchasing power) and African Swine Fever (ASF). According to Ipsos data, Vietnam’s pig numbers hit a low in October 2020 due to ASF, which has been present in the country for a few years and has forced small farms to shut down. However, pig farming is recovering now and Ipsos is forecasting a steady increase at least until April 2022. Demand for pig feed will follow. |
Phong QuachThere is also the continuing issue of antibiotic growth promoters (AGPs) in farming, as Vietnam committed to ban the preventive use of antibiotics in feed by the end of 2020 and that veterinary drugs containing antibiotics are being gradually phased out in the next few years.
However, it is a third dynamic - the consolidation of the farming and feed sector – which has a timelier aspect.
Phong Quach explained why the sector is ripe for investment at this moment in time.
The consultant has observed a change of the farming structure in Vietnam in the past five years or so; one which has been precipitated by the damages caused by ASF in the previous three years.
Farmers with small herds and less financial robustness than their larger rivals have been progressively disappearing. This in turn has had an impact on Vietnamese feed millers who have had to not only adapt to a market requiring less volumes but also adjust their offers to cater to the more specific demands of the larger, more industrialised farms with different needs in terms of pig feed products.
“The total [feed] market is growing but it does not mean that you can just sell to the customer as before. In the past you might just have relied on a network of distributors to reach your smaller customers. But there are fewer of those and if you want to sell to large commercial farms, they have needs for different products and service,” he commented.
As a result, the small and medium feed millers have been encountering financial difficulties, some of which were accentuated in the last couple of years by the COVID-19 pandemic and its consequences for animal protein consumption and overall logistics capabilities for the feed sector.
According to Phong Quach, the ongoing difficulties have pushed domestic farms and animal nutrition companies to seek support in recent months, making them more open to deals. From the investors’ perspective, they too are observing the end of the low cycle and the long-term potential of a recovery.
He commented: “There will be fewer players in the market. It means that either the smaller ones will exit, or they will be acquired by the larger ones … And when you are an investor and you are looking at this cycle, you expect at least five or six years of growth. That is why there is a lot of investment in the sector right now. And we can expect new investments this year, next year and beyond.”
“Companies prefer to invest in a growing market rather than being the number one in a declining market,” he added. “When we look at the swine market, there is no way that it will not grow in the next five or six years because his it is already past the bottom line. So, if you invest now, you are going to have a comfortable five-six-year future.”
Asked how domestic and foreign players may shape the market moving forward, Phong Quach said foreign investors will mainly seek to acquire medium or large-sized firms as investors tend to have a minimum size requirement to make the investment worthwhile. They do not tend to invest in small players because it will require a lot of resources to turn the company into more of a medium player and they will lose a few precious years of the recovery cycle. Domestic players, however, are more likely to consider small and medium sized companies.
“But it depends on each player,” he said. “Players have different sets of standards and different views on product quality and so on. For example, players may be only looking at sustainability. Best sustainability practices are something relatively new in Vietnam. Investors also will want to acquire a player that has certain alignment with their values in terms of product quality, processes and science, if they are to build further together.”
Competition among feed millers is becoming more intensive between those who have farms and those who have not. There is a clear divide between the integrated players like CP Vietnam and CJ Vina Agri and the pure feed millers. The pure feed millers are forced to consider other strategies to be able to compete with those who can perform internal sales of their feed to their farms.
“Integrators account for approximately 38% of the sow market, 40% of the piglet market. They decide whether they want to sell piglets to other farms or whether they want to grow the piglets themselves. And of course, if they grow piglets themselves, they kind of control the number of piglets in the market and also prioritise the use of their own feed. With this strategy, they limit the purchasing channels for other players,” Phong Quoch said.
In the consultant’s view, this scenario can force non-integrated players to develop new products and new services, and even consider diversifying to other farm animals.
“I think the biggest influencing factor right now is how the market is growing for these integrators,” he added. “The more the integrator grows, the more power they have in the market.”
