Is the Vietnamese live export roller-coaster ending?

08 August 2017

In 2012, few predicted that by 2015, Vietnam would have imported over 360,000 cattle/yr from Australia and that it would grow into the 2nd largest live cattle market after Indonesia.  Through a time of instability and uncertainty in Indonesia, it provided a timely alternative for Australian producers and exporters.

Skip ahead to 2017 and there has been a marked decline in the number of live cattle to Vietnam, with estimates for this year at 150,000 head with further reductions possible due to market instability and poor profitability.  This reduction contrasts with an increase in total beef consumption in Vietnam.

The traditional Vietnam market

Vietnam is a dynamic, maturing and rapidly changing market that is dependent on political and trade relationships within the region. To understand the rapid rise and recent fall in cattle numbers, it is important to understand some of the fundamentals of agriculture in Vietnam.

The backbone of the Vietnamese livestock sector is the pork industry – the 6th largest in the world – with about 3 million households raising pigs, mostly in small, backyard farms. The Vietnamese Government finds this type of farming difficult to regulate and inefficient.  While there is a push towards commercial production, it is difficult to control the growth.

And so enters the cattle industry – a sector that has historically been reliant on cattle grazing on flood plains and rice fields, with 99% kept in groups of less than 10 head.  As an immature industry dependent on freshly processed meat, cattle needed to be sourced throughout the region, as far as Myanmar and often required daily trading.

Introduction of Australian cattle

With the introduction of Australian cattle, there was a new level of convenience and reliability for traders and within a few years there was significant over-investment in feedlots.  Abattoirs and distribution systems didn’t keep pace with the rise in feedlots and the rapid growth put pressure on ESCAS compliance, presenting conflicts with the traditional trading models. The mix of well-funded Vietnamese investment; Indonesian quota issues and ships on long term charter led to the peak in imports of 2015.

While 2015 numbers were unlikely to be sustainable, the question remained if Vietnam could remain a viable secondary market for Australian cattle, particularly given that China has recently restricted 550 million kgs of pork and live pigs from Vietnam. This has created a surplus of pork and offal in Vietnam, which has resulted in a national crisis in the Vietnamese pork industry.

Pork consumption has subsequently increased due to lower price and increased availability.  While these factors are having an impact on total volume of beef consumption, a larger contributor to commercial processing viability is cheap offal.  This is a key element that ensures local cattle abattoirs remain profitable and they’ve been negatively impacted by the cheap pork offal.

The trade outlook

With the high Australia cattle price and abattoirs currently losing money due to the pork situation, it’s likely that Vietnamese cattle importers and processors will continue to struggle in the short to medium term, despite reasonable demand for locally killed fresh beef.

On the positive side, there is one segment of the livestock market that remains viable with both pigs and cattle - the traders.  Beef traders generally buy full carcases from abattoirs and then distribute these into different markets with little value adding.  For continued viability, the Vietnamese livestock sector will need to consider novel value adding and distribution options that can assist the profitability of all supply chain members, not just the traders. This includes improving consumer trust through increased product integrity.

An industry with shared wealth will ensure that Vietnam remains a key market option for Australian producers and exporters.

More information:

Michael Patching
Manager, Livestock Services – Vietnam

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