Several strategies are used including: focusing on production of concentrate feed rather than complete feed as the large enterprises do; selecting plant locations in rural areas to use d
Trang 1ENHANCING THE COMPETITIVENESS OF RURAL SMALL AND MEDIUM ENTERPRISES IN THE AGRO-FOOD CHAIN: THE CASE OF VIETNAM’S
ANIMAL FEED INDUSTRY
Project title: Developing a strategy for enhancing the competitiveness of rural small and
medium enterprises in the agro-food chain: the case of animal feed
Project code: CARD 030/06 VIE
Authors: Dr Nguyen Do Anh Tuan1, Pham Thi Lien Phuong1, Nguyen Thi Thinh1, Sally Marsh2, Dr Donna Brennan, Prof John Pluske2
Project Implementing organisations:
1
Center for Agricultural Policy (CAP) - IPSARD
2
University of Western Australia
SUMMARY
The study provides a comprehensive picture of the animal feed sector in Vietnam (both supply and demand side) upon data collected from 2 main surveys: feed mill survey investigating the supply side and producer survey investigating the demand side The results show that, on the supply side, SMEs appear to have less competitiveness than large ones That is reflected in some aspects such as higher production costs per kg output, using more labor, limited quality control, limited access to capital and land, and many small enterprises have losses However, small and medium enterprises also have strategies to maintain their share in the market Several strategies are used including: focusing on production of concentrate feed rather than complete feed as the large enterprises do; selecting plant locations in rural areas to use domestic supplies of raw material inputs; supplying products mainly for small producers; provision of credit, delivery services.
On the demand side, larger pig and chicken producers are more likely to use a higher percentage of industrial feed in their livestock diets In term of production cost, industrial feed is shown to be a more cost-effective diet for chicken producers However, there is some evidence supporting the cost effective use of mixed feed – particularly for pig production Another noticeable result is that few surveyed producers were found to be using domestic brands of industrial feeds Foreign brands were clearly preferred by both pig and chicken producers The main reason given for this choice by producers was that foreign brands were considered to be of higher quality and give better productivity This once again mentions about issues related to quality control of SMEs.
Based on the main findings of the study, some policy recommendations focusing on investment, scale increase, quality control are given to policy makers and SMEs as well.
1 Introduction
In Vietnam’s agriculture sector, livestock plays
a very important role with its share ranging
from 22.6 to 25.5% annually and is considered
as one of the important pillars of a sustainable development strategy Over the last years, due
to the effects of the urbanization process and
Trang 2income growth, the demand for meat has
increased substantially This leads to a shift in
the production structure of agriculture from
cultivation to livestock and services However,
in livestock production, high cost and poor
quality of animal feed are big problems One
of the best solutions is to improve quality and
reduce cost production of animal feed as well
as increase income for the rural areas through
enhancing competitiveness of SMEs
Up to now, few studies have analyzed the
economic effectiveness of SMEs, and
especially no study has been done on assessing
the competitiveness of SMEs in comparison
with large, foreign-owned or joint venture
enterprises in Vietnam and other enterprises in
the world Because there has not been much
investigation of agro-industrial SMEs, there
are many unanswered questions about the level
of competitiveness, whether constraints to
competitiveness can be overcome, and whether
policy changes can encourage the development
of SMEs in this sector The study of
competitiveness will answer more general
questions about the nature of economies of
scale in the industry, factors affecting the costs
of production and marketing of animal feed,
and will lead to policies that enhance the
competitiveness of the sector
2 Objectives and Methodologies
2.1 Objectives
Understanding the role and performance
of SMEs in the animal feed sector in other
countries, draw lessons from their
experiences and apply for conditions of
Vietnam;
Providing a quantitative assessment of the
factors affecting the competitiveness of
the animal feed industry in Vietnam; and
Providing policy recommendations to the
government with regard to the efficiency
of firms operating in the livestock feed
sector, and provide advice to SMEs
competing in the livestock feed sector
2.2 Research Methodologies
There are two main surveys conducted under the study
2.2.1 Feed mills survey
This survey aims at providing a general picture
of the Vietnamese feed sector with a focus on comparing SMEs and large enterprises with regards to the production and business activities of enterprises such as material input use, storage, product types, quality control, and type of customer These activities give indications of how SMEs compete with larger feed mill enterprises Sixty two mills were surveyed in seven provinces in three regions:
Ha Noi, Ha Tay and Hung Yen provinces located in the Red River Delta; Binh Duong and Dong Nai in the South East; and Tien Giang and Long An in the Mekong River Delta The mills have been categorized in the following way in the analyses by production scale: small mills are those producing less than 10,000 tons per annum; medium mills are those producing from 10,000 to less than 60,000 tons per annum, and large mills are those producing 60,000 or more tons per annum Only data from 44 mills were able to
be used in analyses by production scale because of data unreliability
2.2 Producer survey
A survey in six provinces of 300 pig and chicken livestock producers of mixed production scale was conducted aiming at investigating feed use by producers Producers were classified as small, medium or large based on their per head production in 2008 For pig producers, small producers were classified as those raising less than 50 heads per year, medium producers are those producing from 50 to 120 heads per year, and large more than 120 heads per year The classification of chicken producers was different for layer and broiler production For layer production, small producers were classified as those producing less than 1000 heads per year, medium producers are those producing from 1000 to 4000 heads per year and large as those producing more than 4000 heads per year For broiler production, small producers were classified as those producing less than 500 heads per year, medium are those producing from 500 to 3000 heads per year
Trang 3and large as those producing more than 3000
heads per year
3 Research results and discussions
3.1 Livestock feed production
3.1.1 Production characteristics and costs of
production
In this study, statistical evidence was found to
show that cost of production was inversely
related to scale of production, with small
enterprises having significantly higher costs of
production per kg of output than medium
enterprises, which had higher costs of
production than large enterprises During 2007,
the mean costs of production per kg of output
were 8420 VND, 6340 VND and 5380 VND
for small, medium and large firms
respectively This alone is not necessarily an
indicator of greater efficiency of larger
enterprises For example, small-medium
enterprises were found to produce a higher
share of concentrate as percentage of total
production than large enterprises On average,
small mills made 37% of their revenue from
concentrate production, compared to 18% for
medium mills and only 11% for large mills
Over 80% of revenue for medium and large
mills was made from sale of complete feed
Concentrate production has higher raw
material input costs per kg of output, so cost of
production per kg of total output would
necessarily be higher for those firms producing
more concentrate Raw material costs made up
about 80% of the total cost of production in
feed mills
Small firms used 19 labor units for one unit of
output, compared to around 11 labor units used
by both medium and large firms, and this
difference was significant This may indicate
under-utilization of labor by small firms, or
capital substitution by larger firms It does
indicate that small firms play a role in
providing employment
3.1.2 Profitability of small-medium
enterprises
For overall production, we found that small
firms made a loss of 70 VND per kg of output
while the medium and large ones made a profit
of 120 VND and 100 VND per kg output
respectively These results indicate that small mills are likely to be struggling to remain competitive The data indicate that they face significantly higher costs, and sell pig complete feed at significantly lower prices, resulting on average in a significantly lower profit
3.1.3 Quality control
The fact that advanced international standards for quality control such as ISO and HACCP are only applied by foreign-owned and joint venture companies, indicates better quality control processes for both input materials and output products from foreign/large companies These mills are more likely than domestic enterprises to have a quality control laboratory doing various tests of raw materials and feed products, to have separate production lines, to own automatic cleaning systems and to use least-cost feed ration software Clearly, there are quality control issues for domestic mills
3.1.4 Constraints on production
Small mills tend to have some disadvantages in terms of accessing loans from different sources They are less able to access enough funds through loans compared to medium and large mills Access to credit was the most common issues nominated by mills as needing support from the government: by over 50% of medium and large mills, and over 30% of small mills
Access to land was also the second most common issue (after access to credit) nominated by mills as needing support by government: by over 20% of all mill size classes
Forty two percent of firms overall reported restrictions with the movement of goods, and more large firms (61%) reported restrictions than SMEs Tolls, district and inter-provincial roadblocks and “police conduct” were reasons given for restrictions on the movement of goods Of these, “police conduct” was nominated as the most important restriction on movement of goods by 67% of small firms, 33% of medium firms and 75% of large firms
3.1.5 Strategies used by SMEs to compete for market share against larger firms
Trang 4a Location
SMEs are more likely to be located in rural
rather than urban areas, and medium-size mills
in particular tend to supply customers further
from their production site, and this customer is
more likely to be a smallholder This indicates
that some SMEs are focused on supplying
smallholders in areas further from major cities
SMEs also used a higher percentage of
domestically sourced raw materials for
production Location in rural areas may assist
SMEs to source these domestic supplies of raw
material inputs, including raw materials used
less often, such as broken rice, groundnut, and
cottonseed meal
b Supply chain differences
supply/distribution chains operating for SMEs
and large firms in the livestock feed sector are
quite different, indicating that they are
sourcing materials from and targeting
distribution to different market segments
Unlike large mills, SMEs source some inputs
and distribute products directly from/to small
households Large mills are more dependent on
imports (e.g maize) to meet their raw material
requirements, whereas SMEs are more likely
to be able to source sufficient raw materials in
the domestic market
SMEs are more likely to diversify their
business into trading activities, and in addition
they sell to a wider range of customer types
including other companies, agents and
households Small mills in particular will sell
direct to farm households, and medium mills
target mainly retail agents for their products
By contrast, large mills distribute their
products almost exclusively for on-selling by
wholesale agents and traders, and source raw
materials from private processing businesses
and state-owned enterprises
c Services to agents and farm
households
SMEs provide different services associated
with the sale of feed products to agents and
farm households Small mills are more likely
to provide delivery services to agents
(compared to both medium and large mills)
SMEs are also more likely than large mills to offer credit/delayed payment option to agents
3.2 Livestock feed use
3.2.1 Industrial feed is more often used by large producers, and more commonly
in early production stages
In general, it was found that industrial feed was used more by larger producer groups, and
in the early production stage rather than later stages These differences by scale were also true for the amount of industrial feed used: that
is, larger producers used more industrial feed (i.e quantity fed per head) Industrial feed produced by foreign companies was generally more favored than that produced by domestic companies, with more than 90% of the surveyed households choosing both complete and concentrate feed with a foreign company brand The main reason given by producers for this choice was that foreign brand feeds were
of better quality and gave greater productivity
3.2.2 Use of mixed raw feed only diets is no longer prevalent; instead more complete only and diets using mixed industrial and raw feeds are used
Except for a few households that fed only mixed feed to their chickens (9% for broiler and 18% for layer), a large percentage of both pig and chicken producers used complete feed only: 53% for broiler and 64% for layer; and 43% for sow, 77% for piglet and 45% for porker production The remainder used both complete and mixed feed in the daily diet for livestock The ratio of concentrate feed in the total mixed feed was found to be about 27% overall for chicken producers, and 17% for porker production Mixed feed was used much more than complete feed by pig households for all production stages
3.2.3 Efficiency of industrial versus mixed feeds
We found that feed conversion ratios – the kg
of feed fed per kg of liveweight produced -decrease as production scale increases The FCR is much lower in households using complete only rather than mixed feed, possibly due to better nutrition from complete feed in the former case, compared to the mixture of
Trang 5raw feed types included in the latter The FCR
is also significantly lower in households using
foreign complete feed than those using
domestic brands in the case of chicken (2.94
versus 4.18)
FCRs for pig production using complete feed
were significantly lower for small scale
producers (2.08) compared to large scale
producers (2.92) The FCR was also
significantly lower for complete feed diets
(2.65) compared to mixed feed (4.06)
The FCRs may be used as a standard measure
of productivity However if a more productive
feed costs more per kg, it may be worthwhile
for farmers to use the cheaper feed with the
higher FCR if the net cost per kg of gain is
lower
In the case of chicken, we found that overall
feed cost per kg of live-weight gain is
statistically different between households
using complete only and mixed feed (22,690
VND versus 27,890 VND - which may be
evidence to support the use industrial feed
On the contrary, in the case of pig production,
the feed cost per kg of live-weight gain was
significantly higher for households using
complete feed only compared to those using
mixed feed overall (23,580 VND versus
20,150 VND only) This case of pig production
seems to support mixed feed use (often using
local residual feeds) as households can reduce
their feed cost by about 3,400 VND per kg
live-weight gain overall
4 Conclusions and recommendations
4.1 Conclusions
The results support the idea that medium-size
mills (i.e those producing between 10,000 and
60,000 tons per annum) are remaining
competitive; with costs, product mix and prices
similar to large mills They have a sales
strategy that targets a different customer base
to large mills (i.e retail agents rather than
wholesale agents) Small-sized mills
(producing less than 10,000 tons per annum)
appear to be under pressure to survive, and
many will need to increase their scale of
operation and improve quality control to
remain in business Besides, SMEs are more
likely to be located in rural areas and to use domestic supplies of raw material inputs Hence, opportunities may also exist for the production of niche feed products for smaller livestock industries in rural areas (such as duck, local chicken and pig, and beef cattle) rather than competing against foreign companies to supply feed for pig and chicken production
4.2 Recommendations
Based on the findings of this project we make the following policy recommendations for policy makers:
Focus is needed on quality control If long term food safety and export potential is to
be reached, the Government of Vietnam needs to address quality control issues associated with the production of livestock feed products
Restrictions on the movement of goods due to irregular police conduct need to be addressed
Invest in domestic production of raw materials used in feed production
Credit support for SMEs in the sector should be expanded
Support and expand the role of the Vietnamese Animal Feed Association (VAFA)
Investigate the possible ways the government may provide price support for raw materials and livestock feed outputs
We suggest the following recommendations for SMEs operating in the sector:
Small mills need to increase their scale of operation
Quality control standards need to be raised
Continue to explore and exploit niche market opportunities
Consider advantages from diversification and/or a cooperative structure
Support a strong role for the VAFA
Trang 6Reference
1 Center for Agricultural Policy, 2010
Small-Medium Enterprises in the Livestock Feed
Sector in Vietnam: Vol 1 Livestock feed
production Report for CARD Project
030/06 VIE
2 Center for Agricultural Policy, 2010
Small-Medium Enterprises in the Livestock Feed
Sector in Vietnam: Vol II Feed use by pig
and chicken livestock producers Report for
CARD Project 030/06 VIE
3 Policy Brief 1: Competitiveness of Small-Medium Enterprises in the Livestock Feed Production Sector in Vietnam
4 Policy Brief 2: Quality Control in the Livestock Feed Sector in Vietnam
5 Policy Brief 3: Constraints Facing Small-Medium Enterprises in the Livestock Feed Production Sector in Vietnam
6 Policy Brief 4: Use of Industrial and Mixed Feed by Livestock Producers in Vietnam