Why this is important to Wisconsin businesses: Combined with rising demand, the policy change creates strong opportunities for Wisconsin exporters of dairy products.
Vietnam is the U.S. dairy industry's eighth-largest export market, with an export value of $171 million and volume of 86,230 metric tons in 2019. Despite strong competition from New Zealand, Australia and European nations that enjoy preferential tariffs via free trade agreements with Vietnam, U.S. dairy products enjoy a strong position in the Vietnamese market.
Now Vietnam’s government has issued a new decree, taking effect July 10, 2020, which will reduce the competitive disadvantage for U.S. dairy exporters. The decree unilaterally lowers tariffs by 50% or more on key dairy products and ingredients, including skim milk powder, whole milk powder, cheese, milk albumin and protein isolate. This presents opportunities for Wisconsin companies to build up their presence and sales in this rapidly growing market.
Vietnam’s dairy industry revenue is forecast to nearly double to $8 billion in 2020 from $4.4 billion in 2017, with less than half of demand met by domestic production.
The country has more than 200 companies producing and trading dairy products. The downstream sector is dominated by big players such as Vinamilk (which controls 50% of the market), Nestle Vietnam, Nutifood, Frieslandcampina and TH Group.
The upstream sector remains fragmented, with several underdeveloped providers of raw milk. Domestic dairy production is rising, with Vietnam's Livestock Production Department aiming for the number of dairy cows in the country to reach 700,000 by 2030, up from 330,000 in 2019. Domestic fresh milk production is also projected to reach one billion liters in 2020 and go up to 1.4 billion liters by 2025.
Notwithstanding rising production, domestic fresh milk production volume only serves 30-40% of domestic demand, with imports making up the remainder. Notably, even with COVID-19, Vietnam’s imports of milk and milk products for the first 5 months of 2020 went up by 5% relative to the same period in 2019.
Aside from reliance on imported fresh milk, Vietnam also imports dairy cows, animal nutrition products and materials for animal feed production. To remain competitive, especially with the new free trade agreements in place, local companies in Vietnam are on the lookout for quality management and food security solutions, while the biggest players are investing in Industry 4.0 technologies and in research and development.
Dairy consumption per capita in Vietnam’s population of 97 million is still low, at 26 liters per person annually, indicating significant growth potential. Consumption is gradually increasing, driven by a large, young, fast-growing population and rising purchasing power of the country's middle class. Dairy firms are also seeing an increasing opportunity to serve Vietnam's elderly population, which is expected to rise from 7% to 14% of the population in about 17 years.
Additionally, with improving quality, exports are also growing rapidly. In 2019, Vietnam's exports of milk and dairy products exceeded ₫10 trillion ($428 million USD), up 13% from the 2018 figures. Products are exported to more than 40 countries. Approval from China for Vietnamese dairy imports in February 2020 is projected to potentially add $300 million to Vietnam's export sales in the near term.
In terms of product segments, powdered milk and liquid milk together make up nearly three-quarters of market value. Most of the powdered milk imported into Vietnam is processed into reconstituted milk. Within liquid milk, the preferred format is UHT milk because of its longer shelf life, especially in rural areas where cold chain facilities are underdeveloped.
The fastest-growing segment in terms of sales revenue growth in 2019 was yogurt, at nearly 18%, followed by powdered milk for adults at 11% and liquid milk at 8%. Condensed milk production is on the rise, with Vietnam poised to become the fifth-largest exporter of condensed milk to China by volume. Domestic consumption of cheese and butter remains modest, but is growing due to increasing influence of Western food culture, especially among Vietnam's younger generation in urban areas.
High-end product lines still account for only a small proportion of total milk supply in Vietnam, but demand is growing, prompting companies to diversify and offer organic milk products, A2 milk, 100% natural fresh milk products, nut milks, plant milks and other specialty products for people recovering from treatment or illnesses.
With the right business strategy, Wisconsin companies in the dairy sector can leverage the tariff reduction on U.S. dairy imports into Vietnam and capitalize on the available opportunities.