Production shift in global value chain: Which opportunities for Vietnamese agricultural products?

In the context of globalization, market economy has spread throughout the world, large corporations is currently has market penetration strategy of shifting production strongly to take advantages of tax incentives, labor cost, temporary import and re-export, processing….in third countries.

Large corporations have various options to enhance their competitiveness in global supply chain, which create opportunities for numerous products from countries deeply involved in product value chain. Meanwhile, many Vietnamese agricultural products is stepping behind in the market.

Products with global value chain

Shifting production is inevitable trend worldwide. The toughest question here is how to add more value to the global value chain besides labor advantage.

The multinational corporations usually seek for materials supply in host country for cost-effective purpose. In selecting suppliers, processing partners, they set strict criteria to ensure each product meet international standards. Therefore, one product could have many suppliers from materials to packaging from various countries as long as they meet strict requirements of producers. For instance, Suntory Pepsico Vietnam and Suntory Japan use materials from suppliers of different countries include China to produce O Long Tea Plus product.

Soya bean production 

“Choice” story in market economy

The fact that Suntory Pepsico Vietnam imported materials from China for tea production has placed a huge question for medicinal herbs planting in Vietnam. According to Traditional Medicine Institute, Vietnam has approximately 4000 species of medicinal plants, some has capability of large-scale production, including international-recognized species such as Ngoc Linh ginseng, cinnamon, anise, mushrooms...However, although possessing high potential, the medicinal herbs planting has supplied only 15.600 tons per annum, around 30% market demand domestically. The rest 70% materials for producers is from Singapore, China.

Similarly, materials supplied for animal feed production is quite bleak. According to Vietnam Animal Feed Association, there are 230 animal-feed processing factories. Of these, 61 enterprises are foreign-invested (account for 25.7%), 138 enterprises are domestic one with small capacity, under 50.000 tons per year. The revenue of Vietnam animal feed market is up to 6 billion USD and the demand increases 13 – 15% per year, in 2020, the expected demand is 25-26 million tons. With that situation, farmers raised animal could be better off but it is different because Vietnam animal feed price is 20% higher than in other ASEAN countries. Each year, Vietnam import 2 million USD agricultural materials for animal feed production such as corn, soybean residue and other ingredients while Vietnam is an agricultural production country.

The root cause come from the fact that we do not have agriculture with industrial-scale production so the price is higher than imported ones. Therefore, the animal feed producers has to choose what is more cost-effective, which makes animal feed price become higher with tax and fee. Therefore, the livestock products such as chicken, beef cannot compete with imported ones from USA, Australia...

Participating in the global value chain need high specialization in market economy but how to be deeply involved in creating product value chain is not easy. Perhaps it is time Vietnam agriculture needs a more specialized path to integrate with globalization.

Dung Nguyen

Source: congan.com.vn