VIETNAM


INTRODUCTION

The sugar industry of the Socialist Republic of Viet Nam is currently in transformation as growth in sugar consumption has outpaced domestic production, with the shortfall being met by increased imports. In the longer-term, the Government is implementing a series of projects aimed at attaining self-sufficiency and later achieving a net exporter status. In its development plan, the Government is taking into consideration all stages in the production process; from growing the cane to processing the sugar. Key elements of the plan include: expansion in area planted to sugarcane to increase potential production capabilities, introduction of methods to improve current yields and of new higher yielding varieties, and a major investment initiative to expand the capacity of the domestic processing sector. The Government has set targets of 12.7 million tonnes of sugarcane production and 1.0 to 1.2 million tonnes of sugar production by the year 2000.

 

PRODUCTION

Viet Nam’s domestic sugar industry is primarily based on sugarcane. The regions in the south account for 80 percent of the nation’s cane production. Cane is generally grown in the drier regions of the Mekong Delta area in the south without irrigation, and of the Red River Delta area in the north. The area planted to sugarcane has been gradually expanding in recent years, from about 140 000 ha in the early nineties, to around 225 000 ha in 1995.

The Government aims to expand cane area to 250 000 ha by the year 2000, with 170 000 ha in the south and 80 000 ha in the north. This would represent an almost 100 000 ha expansion from the previous decade. Recent land use studies by the Government indicate that an additional 450 000 ha are potentially suited to sugarcane production.

Cane yields have averaged between 42 and 45 tonnes per ha in the past few years, with a 10.5 to 11.5 percent sugar content. The Government is working towards increasing yields of both sugarcane (to 60 tonnes per ha) and, sugar (to 5-6 tonnes per ha) by improving cane quality. Research is also focusing on developing early maturing varieties with high sucrose and good ratooning properties, along with a programme to introduce new varieties from Taiwan Province of China for new plantings.

Production of sugarcane averaged around 6.0 million tonnes in the early nineties, with the lowest level being in 1990 at 5.4 million tonnes and highest in 1994 at 7.5 million tonnes. The majority of farms are small-holder units, from 0.3 ha up to 1.0 ha, although there are a few larger holdings that are between 10.0 ha and 15.0 ha. It is important to note that although Government officially owns all the land in Viet Nam under their "doi moi" (reform) programme, the 1988 Land Lease Law does provide for long-term land use rights. For certain crops, mainly industrial, this can be up to 50 years. The lease law was designed to encourage farmers to invest in long-term improvements on the land and to foster and maintain future productivity, and it has recently been an encouraging factor in promoting increased foreign agricultural investment.

The recent expansion in area under cane production may be partially reflect the fact that sugarcane is becoming more competitive with other crops. For example, in the southern province of Long An, the area under sugarcane has expanded to over 11 000 ha in recent years, in direct competition with rice, groundnuts, and pineapples. And in the north-central province of Thanh Hoa, increases in sugarcane areas were taken from land formerly used for pineapples and coffee.

Vietnamese growers generally perform manually most sugarcane production operations, including harvesting. The harvest takes place between November to May. The potential for increased mechanization is another option being explored by the Government, as with expanded areas the availability of labour, especially at harvest, may become a constraint.

According to official FAO statistics, sugar output in the early nineties averaged around 411 000 tonnes and in 1995, an estimated 10.7 million tonnes of sugarcane was grown and around 517 000 tonnes of sugar was produced.

 

PROCESSING

Currently, the commercial milling capacity is around 13 500 tonnes per day, from 12 mills ranging in capacities from 500 to 2 000 tonnes per day. The Government is strongly promoting expansion in the sugar processing sector, as part of a nation-wide effort to expand overall food processing capacity. Sugar self-sufficiency by the year 2000 is one of the national objectives, but the larger goal is to provide growth opportunities for rural development to increase employment and enhance incomes.

About 30 percent of the sugarcane crop is normally processed by the commercial/industrial cane mills. The remaining 70 percent is processed by numerous small cottage industry plants, with capacities often under 100 tonnes per day. They are often highly inefficient, incur major losses of sucrose, and produce a lower quality of sugar. However, these mills serve a very important function in the processing industry, as they are often centrally located in the key production areas and can be easily reached by the local growers. On the contrary, large movements of cane by growers to the bigger commercial mills can be difficult and costly. In 1993/94, of the estimated 7.5 million tonnes of sugarcane harvested and 326 000 tonnes of sugar produced, these cottage industry or "handicraft" mills processed 70 percent of the total. Towards the year 2000, with the national goal of increasing sugarcane production to up to 12.0 million tonnes and sugar production up to 1.0 million tonnes, the objective is to increase the share of the commercial mills in the processing of the additional supplies, to more than 65 percent.

The Government’s sugar processing expansion strategy is characterized by three broad areas: (A) expansion existing capacity, (B) construction of new large scale operations, and (C) increase in the number of small scale operations.

The first area concentrates on mill modernization and expansion of capacity at several existing mills. By the year 2000, the objective is to raise total capacity by 11 percent to 15 000 tonnes and the average mill size to 1 250 tonnes . Currently, the Government owns and operates these mills. The Union of Agricultural-Industrial Enterprises of Sugarcane (VINASUGAR), an agency of the Ministry of Agriculture and Rural Development (MARD), is the administrating agency. In the south, VINASUGAR No. II operates 5 sugarcane mills and 2 sugar refineries. And, in the north, VINASUGAR No. I operates 7 sugarcane mills and 1 sugar refinery.

The second area is to expand production through the construction of new commercial processing operations, with capacities ranging from 4 000 to 8 000 tonnes per day and at a potential cost of US $11 million. This effort involves a number of joint venture projects (between Vietnamese and foreign investors) and one project funded by 100 percent foreign investment capital. The projects include:

From Europe, France’s Sociétés de Bourbon (SB) is building a US $95 million sugar mill near Ho Chi Minh City, in partnership with local sugar producers (Union Des Sucreries de Tay Ninh (TANISUGAR) and VINASUGAR No. II). The new mill will be the largest in Viet Nam and is anticipated to begin production in 1997/98. In addition, the United Kingdom based Tate and Lyle Company is expected to construct a new plant in the north-central region at a cost of US $72 million.

From Asia, a number of large-scale mill projects are being undertaken by the Philippines, India, and Taiwan Province of China. A joint Vietnamese- Taiwan Province of China venture is underway in the north-central region for a plant with a daily capacity of 6 000 tonnes, and contracts have already been negotiated with local farmers for supplies. Another primarily Asian based joint venture involves Viet Nam and the Philippines, and is to be located in the north-coastal region. The mill will have an initial capacity of 4 000 tonnes per day and is expected to begin operations in 1997/98.

In a somewhat different development, an Indian based company is constructing the first wholly foreign-owned sugar plant. The mill is scheduled to begin operations in 1996/97, and will have a daily cane crushing capacity of 3 500 tonnes, which it is planned to double by the year 2000.

The third strategy area involves the building of a large number of small scale operations, with capacities in the range of 500 to 3 000 tonnes per day. This will also involve the co-operation of foreign partners and capital in supplying equipment, machinery, and the transfer of technology. There are 34 mill projects under consideration. If all the projects are undertaken, they could generate an additional 35 000 tonnes of daily mill capacity. A typical project is the new mill in the northern mountain province of Tuyen Quang. The plant began operations in early 1996 and was designed to process 750 tonnes of sugar per day and provide employment for more than 100 workers.

CONSUMPTION

Sugar consumption has been increasing in recent years and is expected to reach a record 695 000 tonnes in 1995. Consumption has been growing faster than production and this has lead to a corresponding increase in imports.

In the early nineties, per caput sugar consumption averaged around 6.9 kg, about the same level as in the previous decade. However, a distinctive consumption increase occurred in recent years with per caput consumption rising from 6.8 kg in 1993 to 8.8 kg in 1994. In 1995, per caput consumption further increased to 9.4 kg, its highest level ever. However, these figures are still well below the world average of 20 kg and that of other growing regional economies such as Thailand with 28 kg, Pakistan 22 kg, Philippines 28 kg, and Malaysia 50 kg. Consumption is expected to continue to increase in both raw form and for use in the expanding food processing industry. Current macro-economic indicators indicate a potential for expansion in sugar use, as population (currently estimated at 74 million) is growing by about 2.0 percent per year and per caput income would reflect a national annual growth rate of about 6 percent.

In the manufacturing sector, expanding production of sugar-containing products is a contributing factor in the recent consumption increases. The use of sugar-containing products is expected to intensify in the coming years, as these products become more widely available. For instance, a number of new plants are being constructed to produce confectionery and ice creams. The soft drink industry is likely to be the largest industrial user of sugar, with annual average growth estimated at 25 percent over the next few years. In 1994, per caput carbonated soft drink consumption in Viet Nam was estimated at 14 eight ounce bottles (about 3.5 litres), which is much lower than other countries. Thailand for example has a per caput rate of 112 eight-ounce bottles (about 28 litres). The leading global soft drink franchisers are all planning expansion projects in the country.

.Taking into consideration the expected growth rates for sugar by industrial users (beverages, dairy products, confectionery, bakery, fruit and food processing) and direct consumption as spurred by population growth, some analysts predict that sugar use could double in the next 5 years. This would suggest that the current supply expansion programmes are likely to just keep pace with the estimated demand growth. It also seems unlikely, because of relative cost considerations, that an alternative sweetener will become readily available to act as a damper on demand.

 

TRADE

A deficit sugar producer in recent years, Viet Nam has become a sizeable sugar importer. In 1994, imports reached 141 000 tonnes. This was a 76 percent increase over the 1993 level of 76 000 tonnes. In 1995, imports increased to 184 000 tonnes.

Each year, the level of imports is determined by a Government committee through the granting of licenses. In 1995, 74 000 tonnes of raw sugar and 101 000 tonnes of refined sugar were imported, at a value of between US $45 and $50 million, with corresponding duties of 25 percent on raw and 35 per cent on refined, ad valorem.

In previous years, Viet Nam had a long standing barter arrangement with Cuba (rice for sugar), but recently Cuba has been unable to maintain a stable supply and the presence of this origin has faded from the Vietnamese market, as has the presence of the former USSR which was another regular supplier.

In recent years, the bulk of imports have been sourced from neighbouring Asian countries. In 1994, Thailand was the most important supplier, accounting for 74 percent of total imports. In 1995, sugar was sourced from Thailand and Australia, as well as a number of other Asian countries. In December 1995, Viet Nam joined the Association of South East Asian Nations (ASEAN), which has placed ASEAN members at a price advantage to supply the Vietnamese market, relative to non-ASEAN members. This could restrict trade to within the ASEAN region, as Viet Nam is committed to lowering their duty on sugar imported from the ASEAN countries to zero by the year 2003.

In the long run, if the Government plans for increased production are realized and exceed the pace of growth in demand, then Viet Nam’s import needs would naturally diminish. Recent reports for 1996 indicate that imports may total only 70 000 tonnes and could be halted in 1997 due to increased domestic capacities and a general economic policy to reduce import expenditures and improve the overall balance of trade.

 

PRICES

The National Price Commission sets an annual minimum price for sugarcane and a maximum price for sugar. For 1995/96, the official cane price was VND $200 000 (US $18.2) per tonne and refined sugar was VND $7 000 (US64 cents) per kg. The attractive cane price encouraged growers, as estimated costs of production were VND $140 000 (US $12.7) per tonne, and the cane mills provided production input support and a ready market for the cane.

The increased production in 1995 and 1996, combined with relatively large government stocks, has acted to put downward pressure on prices this spring. In the major cane growing provinces (such as Tay Ninh and Song Be) prices ranged from VND $150 000 (US $13.6) to VND $220 000 (US$ 20.0) per tonne, but in other provinces prices fell below VND $100 000 (US $9) per tonne. Faced with relatively low prices, some farmers in the south were reportedly considering alternative crops.

Market analysts and industry experts believe the current market problems are of a short run nature due to sugarcane cultivation capacity outpacing growth in processing capacity. The Government’s programme to expand processing capacity is a long term solution to this situation. In the short term in order to eliminate price distortions, the Ministry of Agriculture and Rural Development (MARD) has proposed several measures, including input subsidies of VND $21 billion (roughly US $1.9 million) to cane growers and low interest credit to refineries and processing plants.

At the retail level, prices have been fluctuating. In March 1995 prices in Ho Chi Minh City and Hanoi were VND $7 000 (US $0.64) and VND $7 200 (US $0.66) per kg, respectively. By March 1996 prices had fallen to VND $6 100 (US $0.46) and VND $6 500 (US $0.55) per kg. Currently, the domestic sugar prices are lower than the world price. However, the prices of sugar containing products are generally comparable with the prices in other countries. For instance, a single scoop of ice cream was VND $18 000 (US $1.65), and a 12-ounce soft drink cost between US $0.50 and 0.80. When compared to average income levels (approximately US $200 a year) these prices seem very high, but continued income growth is acting to sustain product demand.

 

FUTURE PROSPECTS

The sugar industry is currently undergoing a fundamental change, fostered by the Government’s programme of expansion and self-sufficiency. The Government’s targets plus the main strategies to be employed can be summarized as follows;

Goal:

Production of 1 to 1.2 million tonnes of sugar by year 2 000 (as compared to 450 000 tonnes in mid-nineties).

Main Measures:

  1. area expansion: increase land in sugarcane to 250 000 ha (as compared to around 200 000 ha in the mid-nineties)
  2. increase yields: raise yields to 60 tonnes of cane per ha (as compared to around 45 tonnes in recent years)
  3. enlarge cane production volumes for processing to 11 to 12 million tonnes (as compared to around 7 to 10 million tonnes in the mid-nineties)
  4. build new sugar mills and expand existing mills.

As Viet Nam pursues its sugar industry goals several issues are likely to emerge:

  1. Post-harvest losses of sucrose in the cane is high, especially in areas where transportation from the fields to the mills is limited. While movement of cane by water can help to minimize this issue, especially in the Mekong River Delta, deficiencies in the rural road system continue to be a major constraint on the efficiency of the sugar industry in particular and the agricultural sector in general.
  2. In several areas where sugar production is targeted for expansion, the issue of availability of rural labour for sugarcane production and harvest may act as a future constraint. Mill managers and government researchers are currently exploring prospects for encouraging increased levels of mechanization, particularly in harvesting.
  3. In some areas, increased competition for cane between the "handicraft" mills and commercial mills or between the commercial mills themselves may emerge. This could cause some mills to operate below levels of optimal efficiency, and is a reflection of the process of transition from a high level of dependence on "handicraft" mills to an increased reliance on commercial facilities.
  4. The role of trade will become increasingly complex, including the level and composition of imports and their origins. For instance, the impact on Viet Nam’s tariff structure from its joining of ASEAN could affect access to its market from non-ASEAN countries.
  5. The role of government in setting price policies will be extremely important to the achievement of its targets. The annual setting of cane prices relative to other commodities may influence planting intentions and affect planned area expansions.
  6. With consumption of sugar expected to increase as the population and economy expands, the need for improvement in sugar quality will increase. This is particularly important for the food processing and soft drink industries.