Local livestock breeding firms are facing huge losses amid an oversupply caused by domestic over-production and growing imports.
Their situation is expected to get worse in the coming years when import taxes imposed on the products are slashed by impending free trade agreements.
Local livestock breeding firms have suffered losses of VND27 trillion (US$1.29 billion) over the past two years due to a drop in product prices, said Nguyen Dang Vang, chairman of the Vietnam Animal Husbandry Association. Due to the losses, half of poultry breeding farms in both the north and south have shut down.
“Many firms have had to sell at below production costs, mainly because of the oversupply,” he said.
Many livestock breeding firms earned large profits before 2012 thanks, in part, to infrastructure development incentives offered by the government in 2008 that were designed to foster a stable domestic livestock breeding industry.
Many firms sold products at double their production costs in 2011, he said. After hearing of huge big profits, investors began pumping money into cattle and poultry farm expansion, without conducting careful market research.
Hence, the current oversupply, he said.
Vang believes poor industry statistics issued by local authorities to be another cause of the current situation. “The numbers aren't frequently updated, which made investors assess the market incorrectly and rush into expanding production.”
As an example, Vang pointed out that Vietnam’s egg capacity, according to the General Statistics Office, is now 100-140 eggs per hen each year--just half the actual output.
According to estimates by the association, Vietnam produces some 2 million tons of poultry meat each year; but the official figure says its just 800,000 tons, Vang added.
Difficulties at local livestock breeding companies have increased due to the infiltration of imported cattle and poultry products. Beef, chicken and pork from Australia, Japan and the United States have flooded supermarkets nationwide.
According to the Ministry of Agriculture and Rural Development, Vietnam imported some 90,000 tons of beef and poultry meat last year, two thirds of which was poultry. The country also imported nearly 152,000 live cows and buffaloes for slaughter.
Pham Duc Binh, general director of animal feed producer Thanh Binh, blamed a heavy dependence on imported animal feed and remedial production technology as the cause for rising production costs at local livestock breeding firms that have left them unable to compete with cheap imports.
Spending on animal feed accounts for up to 70 percent of local breeding firms’ production costs. The poor quality of breeding cattle and poultry, small-scale production, and a shortage of advanced technology have also increased production costs, which are 15-20 percent higher than at the same enterprises in Thailand, Indonesia and Malaysia, he said.
Consumption habits have also made imported products more attractive than locally produced ones, he said. Poultry legs and wings are not loved by consumers in other countries, but they sell well in Vietnam. The products are sold at low prices in other countries, so their import costs are also low. With an import tax of 19-20 percent, the products are imported to Vietnam at the price of only VND22,000-25,000 per kilogram, much lower than the local production cost of VND28,000-30,000 per kilogram.
Meanwhile, Vietnamese beef is estimated to cost some VND60,000 per kilogram to raise as opposed to VND58,000 (import tax included) for a kilogram of Australian beef.
Vang said imported cattle and poultry meat will become even more dominant after the controversial US-led Trans Pacific Partnership pact comes into force. Vietnam is expected to become one of the agreement's signatories reducing to the pact, which will reduce the average import tax on meat to zero from the current 15 percent.
Experts have warned that the TPP is very bad news for the local animal husbandry industry, as many of its members, including the United States, Canada, Australia and New Zealand, which are big exporters of animal products, will increase shipments to Vietnam.
Binh said the risk of bankruptcy is unavoidable for local livestock breeding firms if they don’t receive more support from the government.
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