The paradox of an agricultural country spending billions of dollars to import raw materials for animal feed

Harvesting corn for animal feed at TH Group's dairy farm

Reduce import tax, reduce anxiety

Faced with the high price of animal feed due to the price of imported feed ingredients recently time, the Finance sector has made timely solutions to accompany and support enterprises and production households to reduce difficulties.

In the process of developing tax policies, the Ministry of Finance has advised the Government to issue Decree No. 101/2021/ND-CP dated November 15, 2021 (effective from December 30, 2021), of the Government amending and supplementing a number of articles of the Government’s Decree No. 122/2016/ND-CP dated September 01, 2016, and the Government's Decree No. 57/2020/ND-CP dated May 25, 2020, amending and supplementing a number of articles of the Government’s Decree No. 122/2016/ND-CP on the Export Tariff, the Preferential Import Tariff and the list of commodity items and their specific duty rates, compound duty rates and out-of-quota import duty rates, and the Decree No. 125/2017/ND-CP dated November 16, 2017, amending and supplementing a number of articles of the Decree No. 122/2016/ND-CP.

Talking to a reporter of Customs News, Dao Thu Huong, Deputy Director of the Import-Export Tax Department (General Department of Customs), said that Government’s Decree 101/2021/ND-CP has adjusted tax rates for several raw materials for animal feed production, effective from December 30, 2021. The tax rate is prescribed on the basis of the principles of promulgating the tax schedule, the tax rate in Article 10 of the Law on Import and Export Taxes, and international commitments.

In particular, the special preferential import tax rates for raw materials for animal feed production are detailed in the decrees promulgating Vietnam's Special Preferential Tariffs to fulfill commitments in the free trade agreements (FTA). Specifically, Decree 101/2021/ND-CP has reduced corn products (1005.90.90) with the MFN tax rate of 5% to 2% and wheat products (1001.99.99) with the MFN tax rate of 3% to 0%.

“The reduction of the tax on input materials for animal feed production for corn (from 5% to 2%) and wheat (from 3% to 0%) has contributed to reducing the price of animal feed, stabilizing the livestock feed market, and reducing input costs of the livestock industry. Through this preferential policy, the Government wishes to accompany production businesses in general and feed producers in particular to overcome difficulties caused by the Covid-19 pandemic," said Huong.

Besides tax reduction, according to Nguyen Xuan Duong, Standing Vice Chairman of Vietnam Animal Feed Association, measures that can be taken immediately to reduce the pressure on animal feed prices is to decrease costs for imports and logistics costs.

“Vietnam has to import about 20 million tons of raw materials for animal feed annually. Meanwhile, Vietnam's logistics costs are about 10-15% higher than other countries in the region. The difference in logistics costs is shown clearly when comparing to China's seaport system, deep-water ports, and specialized ports. Therefore, special attention should be paid to reduce this cost, starting with the import costs to wharfs as well as domestic transportation cost. This issue is also related to the Ministry of Transport,” said Duong.

Increasing investment attraction in feed ingredients

Along with the above solutions, referring to increasing autonomy and reducing dependence on imported feed materials, many opinions emphasize how to increase investment attraction of both FDI and domestic enterprises in this field.

Recently, enterprises have been interested in the development of domestic animal feed materials. According to Nguyen Xuan Duong, typically, C.P Vietnam Livestock JSC has invested in an animal feed factory in Xuan Mai (Hanoi) to receive all domestic raw materials. Simultaneously, they invested in manual and industrial drying stations in Son La to buy raw materials in the country, but the operating efficiency is not high.

At the end of November 2021, De Heus Group (Netherlands) and Hung Nhon Group signed a memorandum of understanding with the People's Committee of Kon Tum province on cooperation in investment in the complex of hi-tech agricultural zones. In particular, the two groups have a plan to develop a raw material area to serve the system of feed factories and breeding research and training centers in the field of high-tech agriculture.

Gabor Fluit, Vice President of European Business Association in Vietnam, General Director of De Heus Asia Group, said: “Animal feed factories in Vietnam need about 20 million tons of raw materials every year. In which, 60-70% depends on import sources. Vietnam has the opportunity to develop cassava and corn material areas. In the coming time, De Heus Group will coordinate with local Departments of Agriculture and Rural Development to build a chain of links, creating input materials for the Group's factories.”

Nguyen Xuan Duong assessed that the policy to attract investment in the field of animal feed in general over the past 20 years has been good. The Government has even sacrificed all national income to reduce import tax on most of the feed ingredients to 0% for many years.

However, at the present, the policy should strengthen and encourage both FDI and domestic enterprises to invest in developing domestic feed ingredients.

“If enterprises only focus on investing in the import of raw materials and processing, it is not good as the fact that they invest in domestic production of raw materials, replacing imported materials. This encouragement and support can be through policies on land, credit, and market issues," said Duong.

Regarding the development of domestic animal feed ingredients, Nguyen Quang Hieu, Deputy General Director of De Heus Group Vietnam, said: “The Ministry of Agriculture and Rural Development coordinates with localities to build key areas to develop raw materials for animal feed. The Ministry of Agriculture and Rural Development will inform businesses about the plan to build key animal feed production areas, which areas to grow what crops, so that enterprises can actively link with localities and build long-term development plans. Enterprises are willing to cooperate to build processing plants and stockpiles of animal feed.”