Steel group Hoa Phat has announced plans to establish a company specializing in livestock breeding and animal feed production.
With a chartered capital of VND300 billion ($13.6 million), the company, to be located in Hung Yen Province, is expected to launch its first products in the market in the first half of this year and achieve a turnover of VND3 trillion within three years.
Before Hoa Phat, which belongs to the country's third richest tycoon, Tran Duc Long, enters the market, a series of other private giants would have expanded their investment in the agriculture sector, sinking hundreds of millions of dollars in cattle breeding and growing sugarcane and maize.
Finding that the real estate sector, despite its big profit potential, poses many risks, the country’s second richest person and owner of property conglomerate Hoang Anh Gia Lai, Doan Nguyen Duc, decided to invest in growing rubber, sugarcane and maize and breeding cattle in Laos and Cambodia and Vietnam.
Investment of the tycoons is just the beginning of an investment trend in agriculture in the coming time. A cow farm of Hoang Anh Gia Lai group (Photo: Hoang Anh Gia Lai).
His group recently announced that it is divesting from one of the biggest property projects in Myanmar to focus on agriculture.
Vo Truong Son, a spokesperson for Hoang Anh Gia Lai, said the company would invest part of the $275 million to be realized from it in its dairy farms. The company plans to raise its current herd of 30,000 cows to over 200,000.
Another part will be used to repay debts and invest in palm oil projects.
The company has transformed from a real estate company to the country’s largest owner of agricultural land in just a few years. Hoang Anh Gia Lai said it has 100,000 hectares under cultivation.
Its financial statements show that sugarcane was its biggest earner last year, contributing around 34 percent of its total revenue of VND3 trillion.
Property development only accounted for 25 percent.
Last September real estate group Duc Long Gia Lai also announced a dairy project worth VND11 trillion.
In collaboration with local milk producer Vinamilk and Sweden’s leading producer of dairy and farming machinery, Delaval Corporation, the company plans to raise 80,000 cows for milk and 45,000 for meat, and build infrastructure, meadows, and barns.
One tycoon who has achieved great success in agriculture is Thai Huong, vice chairwoman and CEO of BacA Bank, an important source of funding for her ventures in the sector. Huong has been recognized by Forbes as among the top 50 powerful businesswomen in Asia in 2015.
She entered the sector by establishing milk producer TH in 2009. TH Group has invested $450 million to import and raise cows to produce fresh milk products.
With over 40,000 dairy cows, TH estimates its 2014 revenue exceeded $200 million and it had a one-third share of the fresh-milk market.
Talking about the reason for investing in agriculture, Đức said it requires less capital, poses fewer risks and consistently brings profits compared to property, especially in the current situation.
Nguyen Do Anh Tuan, deputy head of the Institute of Policy and Strategy for Agriculture and Rural Development, said investment in agriculture is aimed at grabbing opportunities created by the Trans-Pacific Partnership Agreement and free trade agreements with the EU and other partners expected to be signed this year. The tariffs imposed on agricultural products will be cut for each other by members.
The investments in agriculture are just the beginning of a trend, Tuan forecast.
Vietnam’s largest property developer Vingroup, which belongs to the country's richest person, Pham Nhat Vuong, has also expressed a desire to invest in growing vegetables and fruits in Quang Ninh Province.
But despite all this, investment in the agricultural sector remains modest.
According to the Ministry of Agriculture and Development, the country has only around 3,500 companies operating in the agriculture, forestry and fisheries sector, most of them small and medium-sized ones.
Economist Nguyen Minh Phong said one of the biggest barriers is that companies find it hard to identify large areas for agricultural production since regulations related to land compensation, taxes, and investment incentives are unclear.
To attract more investment into agriculture, the government should upgrade infrastructure, improve training for workers in the sector, and zone large areas for certain crops, he said.
“If the issues are resolved, the sector will be attractive not only to local enterprises, but also foreign ones.”
Foreign investment in the sector accounts for only 1.46 percent of total FDI, down from 8 percent in 2011, most of it in animal husbandry, animal feed production, afforestation, and growing timber, according to the agriculture ministry.
Last year the agricultural sector saw growth of 3.31 percent, and export revenues of $30.86 billion.
Vietnam’s agricultural exports consist mainly of woodwork items, coffee, and pepper, the ministry said.