Vietnam’s meat industry: Challenges lie ahead

The largest meat processors were Vissan JSC, CP JSC, and San Ha Co Ltd. Photo: Vissan's sausage production

Euromonitor projects that the value of meat will be $12.5% billion in 2021. The pig market provides 49.7% of the total, followed by the beef market (23.4%) and the poultry market (21.7 percent ). Given that pork makes up 60- 65 percent of the "food basket", pork could be considered the section with the most potential. Vietnam's consumption of pork would reach 3.4 million tonnes in 2022F, moving up to No. 2 in Asia, according to the Organization for Economic Cooperation and Development (OECD), with a CAGR of 3.1% from 2022 to 2030F.

The largest meat processors were Vissan JSC, CP JSC, and San Ha Co Ltd. According to Ms. Ha Thu Hien, an analyst at VNDirect, there are now a lot of well-known players in Vietnam’s pork market, including CP Food, Vissan, Dabaco, Green Feed, Masan MeatLife, and the new player BAF.

Hog prices rose 18.6% in 1Q22 compared to 4Q21, largely as a result of a 10% year-over-year rise in meat consumption during the Lunar New Year vacation in late January to early February 2022. While supply continued to recover after the ASF, the slow recovery in demand caused the price of hogs to stabilize at the end of February 2022.

Additionally, in 1Q22, the supply of live pork remained consistent. The Ministry of Agriculture and Rural Development reports that in 1Q22, the overall number of pigs increased by roughly 4.2 percent yoy. The expected 1Q22 production of live pigs for slaughter is 1.1 million tonnes, up 4.3 percent year over year and 24 percent of the 2022 target. The total pig herd expanded by 5.5 percent yoy by the end of April 2022.

"As schools break for the summer, demand for meat in restaurants and commercial kitchens cannot increase at the same rate as in the first quarter of this year. Additionally, the Covid-19 has altered consumer behavior, making them wary of on-site dining activities. As a result, we anticipate that the average live hog price would drop by 5.8% yoy in 2022F from the VND61,600/kg recorded in 2021, mostly as a result of a high base of VND73,800/kg in 6M21”, said Ms. Ha Thu Hien.

On the other hand, due to a lack of supply as consumer demand picks up after the Covid-19, poultry prices jumped by 10.2% YoY and 7.2 percent QoQ in 1Q22. AgroMonitor estimates that Vietnam will produce roughly 700,000 tonnes of white broilers in 2021, down 18% year over year from 2020 due to the selling price falling below production expenses from July to October 2021. Because of the rising cost of animal feed, many seed eggs were sold for commercial purposes rather than being incubated. In which the production of white broiler fell by 23 percent YoY in the North and by 15 percent YoY in the South in 2021.

Due to China's "Zero covid" policy and the near-impossibility for breeders and broilers to enter Vietnam in 1Q22, poultry prices have been steadily rising recently. Ms. Ha Thu Hien anticipates a 6.0% yoy increase in poultry prices for 2022F due to a lack of supply caused by farmers abandoning their flocks in 2021, while demand will continue to increase through the end of 2022F.

In the meantime, fears over supply interruption brought on by the ongoing Russia-Ukraine conflict since February 24, 2022, have caused high price increases for grains around the world in February and March of that year. Concern about this year's harvest in Ukraine as the war rages on during the sowing season and Ukrainian ports have been blocked by a Russian blockade, leading to supply chain disruption in Ukraine, was the main cause of the jump in global grain prices.

80–85% of the price of animal feed is made up of the cost of the raw ingredients used in its manufacturing. At the moment, 65 to 70 percent of the expense of raising livestock is spent on animal feed. "We anticipate that rising global grain prices would result in a 15-20% increase in the production costs for meat producers. As a result, in 2022F, the gross margin of meat producers is probably going to face pressure. MML's pork gross margin would remain constant at 18.5 percent despite a 5.0 percent yoy fall in average selling price and a 22.5 percent yoy increase in sales volume”, Ms. Ha Thu Hien predicted.