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    THE   DAIRY   INDUSTRY   REPORT   1   0.001,000.002,000.003,000.004,000.005,000.006,000.00S ữ a   b ộ t   g ầ y S ữ a b ộ t nguyên b ơ In recent years, dairy has become one of the fastest growing sectors in the food industry of Vietnam. The average growth rate during 2005-2009 reached 18% (EMI, 2009). For a developing country with fast pace of urbanization and population expansion like Vietnam, dairy demand will continue to increase in the coming years. It is necessary to have an overview of the world dairy industry to understand Vietnam dairy industry as 70% of the sector’s input is imported. World dairy industry Table 1: World dairy market 20082009P2010F 2010/09 Total production output (million tons) 691.7700.9713.6 1.8% Total trade volume (million tons) 40.538.640.6 5.2% Demand of developing countries (kg/ person/year) 65.665.767.2 2.2% Demand of developed countries (kg/ person/year) 246248247.6 -0.2% (Source: FAO 2009 ) Total production output of the world in 2009 was estimated at 701 million tons, up by 1% over the previous year. The production growth rate is higher at developing countries than that at developed country. The gap is becoming wider in 2010 with the forecast that the rate will be 4% for developing countries while it remains largely the same for developed nations. Total production output of 2010 will increase by around 2% to 714 million tons (Table 1). Total trade volume declined by 4.6% in 2009 against 2008, mainly due to the economic crisis. However, it is forecast that in 2010, the volume may reach the level of 2008 of around 40.6 million (Table 1). The rapidly increasing demand of dairy products in developing countries is the key driver for the growth of world trade volume in the coming year as the demand in developed countries has saturated. Supply – demand and price of milk powder Inputs of the milk processing industry are fresh milk and milk powder with the latter accounts for the major percentage in cross-country trade volume. Material powder milk includes skim and whole cream powder which have been wildly fluctuating since 2007 (Graph 1).  Graph 1: Price of material milk exported from Australia since 2007 Unit: FOB (USD/ton) (Source: FAO 2010) Though initially regarded as short-term, the recovery of world milk price was confirmed as milk price has well remained at above USD 3,000/ton FOB (ex Australian ports) since mid-2009. The upward trend in powder milk price is forecast to continue in 2010 for rising demand while GDP growth rates of developed countries and developing countries is expected to reach 1.7% and 5.5% in 2010, respectively. GDP of the main importer, China may grow at 9.3%. Supply for export is foreseen to be limited.  Apart from higher demand of milk materials in the recovering global economy, export supplies are forecasted to be limited as the domestic milk outputs of the US and Europe may fall in 2010. Meanwhile, the figure of Australia’s output is yet a clear one (USDA, 2009). Therefore, milk price in 2010 will be higher than in 2009. As forecasted by USDA, the average price of milk products in 2010 is around 3,600-3,700 USD/ ton, a growth rate of around 20% over the figure of 2009 (Dairyvietnam, 2010).    THE   DAIRY   INDUSTRY   REPORT   2   Milk FormulaDrinking Milk Other Milk Products:  Yoghurt, Condensed Milk…Liquid MilkOther Powder Milk (*)Soya Milk 9,084   10,549   11,176   14,101   16,214   18,503   02,0004,0006,0008,00010,00012,00014,00016,00018,00020,0002004 2005 2006 2007 2008 2009 Dairy firms 2004 2005 2006 2007 2008  Abbott Vietnam Co.Ltd 23.1 23.8 23.4 23 23.1Vinamilk 11.2 14.4 15.6 16.4 17Mead Johnson Nutrition 14.3 13.9 14.9 15.1 14.7Dutch Lady Vietnam 10.8 12 12.4 13.2 13.8Nestlé Vietnam 8.9 10.1 9.3 8.6 8.5Meiji Dairies Corp. 2.9 2.1 1.8 1.6 1.5Others 28.8 23.7 22.6 22.1 21.4 Totoal 100 100 100 100 100 Brand Firm Price/box (VND) Dielac Alpha step 2 Vinamilk72,100Dutch Lady step 2Friesland70,500Gain Kid IQ Abbott154,700Enfagrow A+ Mead Johnson160,000Dupro Gold step 2 Royal Numico NV164,000 VIETNAM DAIRY INDUSTRY Graph 2: Vietnam’s dairy revenue Unit: billion VND (Source: EMI 2009) Along with the common trend of developing countries, Vietnam’s dairy demand as a crucial supplementary nutrition source is increasing.  The trend is reflected in rising dairy revenue of Vietnamese producers at a steady growth rate over the years. Total revenue reached VND 18,500 billion VND In 2009, up by over 14% over 2008 (Graph 2). Evidently, the recent economic crisis had no effect on dairy consumption in Vietnam. Currently, consumption of dairy products is mostly in large cities, as 10% of the national population in Hanoi and HCM city consumes 78% of milk products (Somers, 2009). The average annual consumption is 9 liter/person/year, lower than other countries in the region such as Thailand (23 liter//person/year) or China (25 liter//person/year). Consequently, Vietnam’s consumption will increase along with GDP growth, following the trend in regional countries (VINAMILK, 2010). With higher demand, many domestic and foreign dairy producers are participating in the dairy market of Vietnam, inducing a variety of products. 1. Milk products in Vietnam   Figure 1: Milk products in Viet Nam (*) Other powder milk: powder milk products except for milk formula (Source: EMI 2009, VINAMILK 2010) Powder milk is the most profitable segment. Competition within the milk industry is fiercest for the powder milk segment (including milk formula and others) as this segment, especially high-end products is producers’ competitive target as profit margin is very high of 40%. This is also the segment contributing the large proportion of revenue for producers. Competition is strong with the participation of both local and overseas players. 1.1. Milk formula Table 2: Market share of milk formula producers (as per revenue %) (Source: EMI 2009a) Table 3: Prices of milk for 6-12 month old children (*) (Source: VINAMILK website and agencies (*)Before 3/2010    THE   DAIRY   INDUSTRY   REPORT   3   23,628,2 28,427,826,625,0 24,823,7 23,725,28,2 8,1 7,8 7,8 7,94,0 4,2 4,7 4,9 4,93,2 3,5 3,8 4,0 4,01,7 2,2 2,6 2,7 3,10510152025302004 2005 2006 2007 2008Dutch   Lady Vinamilk Nestlé Mead   Johnson Fonterra   Brands Hanoimilk Milk formula is powder milk product for children, blended according to a particular formula to replace breast milk or to supplement certain nutrition elements for special categories of users, normally less than 3 year-old children. This is the fastest growing segments in the packaged food industry with the compound annual growth rate of 20.8% in 2004-2009. In 2009, total revenue of milk formula exceeded 6,590 billion VND, accounting for 35.6% of the dairy industry revenue with strong increases in demand and supplies of product ranges (EMI 2009). Improving socio-economic conditions and higher living standards encourage Vietnamese parents to wish for best products for their children while allow them to afford better products. Especially in large cities, as mothers have less time for taking care of the children, powder milk for children is increasingly used for the convenience and being good source of nutrition. Quality is the most important criteria for this product. Parents are becoming more vigilant of those products with possibility of melamine contamination or protein deficiency. Milk formula products are categorized according to children’s age groups, most popularly, of 0-6 months, 6-12 months, 1-2-3 years, and over 3 years. Milk formula products are also distinctively divided as high end products and lower. High-end market is largely dominated by foreign producers with imported products. Most popular brands are Gain of Abbott, Friso of FrieslandCampina - Dutch Lady Vietnam, and Enfa of Mead Johnson, etc. Prices of these brands normally double the prices of lower end products as can been seen in the example in Table 3. However, prices do not significantly affect the market shares of foreign firms who account for over 70% of the total milk formula market annually. Abbott holds the largest market share with the brand Gain despite its market share has shrunk by 0.1%-0.2% in recent years. Consumers place higher trust in foreign producers who are considered as reliable and producing higher quality thanks to stricter conditions for quality control. Lower-end market is controlled by FrieslandCampina Viet Nam - Dutch Lady (locally produced products) and VINAMILK .  These two players have competitive advantage for price which enables them to expand their markets in rural areas. Market shares of these producers have been increasing steadily over the years thanks to extensive distribution networks, advertising campaigns and promotion of brands (Table 2). VINAMILK has conducted one of large advertising campaigns in 2009 for Dielac brand in the efforts to regain its market share from foreign rivals. VINAMILK wished to send the message that Dielac was produced to particularly cater for Vietnamese children’ nutrition needs with the quality that is at least equivalent to imported products. 1.2. Drinking milk Drinking milk products include: liquid milk, other powder milk (excluding milk formula for children) and soya milk.   Graph 3: Market share of producers as per revenue of liquid milk (%) (Source: EMI 2009) Dutch Lady (Friesland Campina) and VINAMILK have been dominating the market of drinking milk in recent years. In 2004-2006 VINAMILK lost part of its market share to Dutch Lady, however, recently, the company has been able to recover its share which rose to 25.2% in 2008, compared to 26.6% of Dutch Lady. Revenue from drinking milk (nearly 8,000 billion in 2009) accounts for around 43% of total revenue of the industry (EMI, 2009). This segment grew by 15% in 2009 over 2008, mostly due to price increases across most of products. ã   Liquid milk. Liquid milk includes pure fresh milk (100% made from fresh milk) and sterilized milk (made from imported powder milk). Due to the shortage of domestic material source, sterilized milk products account for the majority of liquid milk consumption. VINAMILK and Dutch Lady are the two largest players in the sub-sector of liquid milk for children and others. Other small domestic companies such as Hanoimilk, Nutifood, Moc Chau and    THE   DAIRY   INDUSTRY   REPORT   4   Ba Vi, etc call for modest shares. In 2009, VINAMILK made an impressive growth to control 55.4% of the national market of liquid milk. ã   Other powder milk products. These products are used for different categories of users, mainly adults, for examples, Dielac Mama (VINAMILK), Enfamama (Abbott), Frisomum (Dutch Lady – imported directly from Netherland), etc – targeting pregnant women; Anlene (Fonterra Brands) or Ensure (Abbott) for people with special needs of nutrition. Specialized segments of the milk industry are normally nutrition for the elderly or nutrition according to medical needs such as Anlene of Fonterra accounting for 80% of market share for this specialized segment with the outstanding richness of calcium for aged people. ã   Soya milk. This product enjoys the highest growth rate in recent year with CAGR of 24.2% during 2004-2009 thanks to users’ increasing awareness of its benefits and producers’ advertising campaigns. Currently, Vietnam Vinasoy holds 70% of the market for carton packed soya milk with two main products of Fami soya milk and black sesame soya milk. VINAMILK fills in the remaining part of the market with V-fresh brand. The company is aiming to expand its presence in the segment. 1.3. Other milk products ã   Condensed milk.  Currently, market demand for this kind of product has been saturated, with 79% of market share belonging to VINAMILK and 21% of Dutch Lady (Somers, 2009). Consumers, especially urban ones, have begun to realize the unbeneficial effects of condensed milk on their health. Hence, this product is now more popular among rural population. ã    Yoghurt.  Vietnamese consumers are increasingly interested in this product for its health benefits. At present, most yoghurt is produced by VINAMILK, Dutch Lady, Ba Vi, Moc Chau… In 2009, total yoghurt revenue rose by 11% as compared to 2008, amounting to VND 2,000 billion. Yoghurt includes spoonable and drinking yoghurt. VINAMILK leads the market with 60% of yoghurt revenue, mainly contributed by spoonable yoghurt; followed by Dutch Lady with advantages in drinking yoghurt. Besides, home-made yoghurt is still favored by certain consumers (EMI 2009). Nevertheless, according to specialists, yoghurt products are coming to the saturation phase after 10 years of robust growth (EMI 2009). 2. Distribution channels The distribution system is one of the determinant factors in enhancing earnings of companies in the sector. At present, main distribution channels in the sector include: - From authorized agents to groceries - Through supermarkets (this channel becomes increasingly important due to changes in consuming habits) - Through nutrition and health centers, including hospitals, pharmaceutical stores, nutrition consulting centers (National Institute of Nutrition, Centre for nutrition consultation in Ho Chi Minh City…). Specialists and doctors in such centers can introduce and consult on which products to be used. Table 4: Milk formula revenue by distribution channels Distribution channels20042005200620072008 2009 Groceries 40.0 39.5 39.5 39.0 39.5 39.0 Supermarkets 14.5 15.0 15,5 16.0 16.5 17.0 Nutrition and health centers 37.0 36.5 36.0 35.5 34.0 33.0 Others 8.5 9.0 9.0 9.5 10.0 11.0 (Source: EMI 2009) In 2009, groceries and supermarkets continued to be major distribution channels of baby milk products. The advantage of groceries is the ability to cover nation-wide market, while supermarkets can supply abundant products at competitive prices. Nutrition and health centers are losing their importance due to limited coverage, mainly in big cities. However, this channel is still crucial, as urban population now consumes more than 70% of dairy products. Domestic companies. VINAMILK and Dutch Lady have built their own distribution system. VINAMILK presently has more than 135,000 retail points all over the country (VINAMILK 2010). Meanwhile, Dutch Lady is now distributing its products through 150 authorized agents and over 100,000 retail points (Dutch Lady 2009). Foreign firms. These firms need to distribute through authorized agents, who will carry out selling latter on. These agents’ tasks include quality certification and packaging according to Vietnam’s standards.
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