From increasing demand...
According to the Vietnam Dairy Association (VDA), milk consumption per capita in Vietnam in 2010 was 15 liters/year and will nearly double to 28 liters/year in 2020.
According to the market research group Euromonitor International (EIG), in 2014, milk sales in Vietnam reached VND 75,000 billion, up 20% compared to 2013. It is forecasted to increase to VND 92,000 billion in 2015, up 23% compared to 2014. In particular, sales growth came mainly from milk powder and liquid milk segment, this segment accounted for 74% total market value of milk and related products. However, it is mentioned that the production capacity of milk and dairy products in the country is forecast to not keep up demand, especially in the case of fresh milk. The biggest problem of Viet-nam's dairy industry is raw material shortage. Raw milk supply can only meet 30% of demand (Raw milk is milk that has not been pasteurized or homogenized). In addition, milk quality is low and unstable due to the production at small scale.
According to National Dairy Development Plan till 2020 with a vision to 2025 (NDDP), production of raw milk produced in the country will reach 660 million liters (35% of demand) by 2015 and 01 billion liters (38% of demand) by 2020 and 1.4 billion liters (40% of demand to 2025). By 2015, 70% of liquid milk produced in Vietnam is from reconstituted milk. Meanwhile, demand for pasteurized milk and pasteurized milk (fresh milk, fresh dairy product) is increasing due to changing perceptions of consumers who prefer to more nutritious products. In addition, the consumption of related products, especially yogurt also pushes higher demand for milk.
... to the running in building raw material areas
Since the potential growth of the market, more enterprises have participated in the dairy processing industry in Vietnam. Especially, the majority of enterprises are focusing in investment in developing their own material areas in various forms to solve the material shortage, which is considered as the biggest downside of dairy industry in Vietnam. In fact, raw fresh milk is produced mostly in small-scale farmers lacking of farming techniques and infrastructure, leading to low yield and higher production cost. According to the survey of Euromonitor International, the average cost of milk production in Vietnam is 1,40USD/liter, compared to $1.3/iter in New Zealand and in Philippines, $1.1 - $ 1.2/liter in Australia and China, and $ 0.90 /liter in Britain, Hungary and Brazil.
One of the most successful dairy companies in building raw material areas is TH Milk Joint Stock Company (TH True Milk). This company has milch cow breeding farm covering more than 8,000ha in Nghe An province. The entire production chain has been formed and implemented strictly under the supervision of TH Group’s professional experts and managers. This helps the company to be active in material supply, getting rapid revenue growth and growing market share in the liquid milk market.
Other businesses do not stand outside the race of developing material areas. Early May, 2015, Vinamilk - the leading dairy company in Vietnam started to build a complexes of dairy farms of high tech,valued at VND 1,600 billion in Thanh Hoa province, at the aims of becoming more active in milk processing materials and expanding manufacturing operations. Earlier, Vinamilk had invested in building a "super" liquid and powdered milk plant in Binh Duong province with the total investment of VND 2,400 billion, equaling to the total capacity of 9 existing dairies plants of Vinamilk.
The attractiveness of Viet-nam's dairy market stimulates not only domestic enterprises to expand production but foreign investors. For example, Friesland Campina Vietnam (with brand of Dutch Lady milk) is pushing material areas development in Ha Nam province through cooperation with farmers with the farm scale of 50-80 milch cows per farm, compared to the scale of 500-1000 milch cows per farm of other companies.
In late 2014, VinaCapital Vietnam Opportunity Fund (VOF) and Daiwa PI Partners (Japan) poured $5 million into International Dairy Products JSC (IDP - Ba Vi Milk brands).
Increasing investment in liquid milk is the choice of many dairy enterprises in Vietnam, where 75% of the formula dairymarket segment belongs to foreign enterprises. However, some Vietnamese enterprises have invested in the fregment of formula dairy like the case of Hanco Corporation Vietnam DFB (DFB Hanco Nutrition), this company spent VND 700 billion to build milkfactory and GABA cereals germin Dong Nai province to produce milk and nutritious powder.
The NOVA Corporation, owning the Milk Anova JSC, also joined the line of premium formula dairy through exclusive partnerships with Kerry Group (Ireland) in producing canned infant formula dairy, entirely in Europe then distributing in Vietnamese market.
Besides the segment of liquid milk and powderedmilk, other dairy products segment as yogurt, cheese, milk biscuits and candy are also vibrant with the participation of many new brands like TH True Milk or IDP (Love'in Farm yogurt brand). The companiesare actively investing in building factories and distribution system to compete with leading brands of Vinamilk.
With high growth rates, market demand has not been met, especially in the segments of yogurt and cheese,the dairy processing industry in Vietnam has good perspective with high profitability but domestic companies have to face with higher competition from foreign brands, mostly when new FTAs will be in effect in 2016.
