November 01, 1994
by Teresa Acklin
A new market for wheat?
Booming economy, privatization and history point to potential growth in milling, wheat demand in Vietnam.
With a population of 70 million and a rapidly growing economy, Vietnam has the potential to become a major growth market for wheat exporters.
Vietnam's annual per capita wheat consumption is about 5 to 10 kilograms, low in comparison with other countries in the region. For this reason, some observers think Vietnamese consumption of wheat-based foods could increase sharply, as has occurred in other countries in Southeast Asia, such as Thailand.
Even with its low consumption rate, Vietnam in recent years has been among the top wheat flour importers. In 1992-93, the country imported 368,000 tonnes of flour, wheat equivalent, according to the International Wheat Council. That total made Vietnam the sixth-largest import flour market, trailing only the former Soviet Union and four Middle Eastern nations.
The I.W.C. has projected Vietnam's flour imports for 1994-95 at around 300,000 tonnes, again placing it among the top importers.
In 1992-93, the European Union supplied 131,000 tonnes of flour, wheat equivalent, to Vietnam, compared with 58,000 from Japan, 21,000 from Canada, 18,000 from Australia and 141,000 from other countries, primarily Singapore.
Vietnam's flour imports far exceed its wheat imports, as the country's milling capacity currently is limited. Australia, with its transportation edge, has been the primary supplier of bulk wheat.
The Australian Wheat Board exported 30,200 tonnes of wheat to Vietnam in the period from Oct. 1, 1993, through Feb. 28, 1994. In 1992-93, the A.W.B. shipped 37,742 tonnes of wheat to Vietnam, down from 49,305 tonnes in 1991-92 and 47,649 tonnes in 1990-91, according to the A.W.B.
The United States was shut out of the Vietnamese wheat and flour import market until early 1994, when President Bill Clinton lifted the nearly 20-year-old U.S. trade embargo imposed at the end of the U.S. war in Vietnam. But for the 20 years before that, the U.S. had been the major supplier of both wheat and flour to what was then known as South Vietnam.
French influence on bread consumption
U.S. shipments of flour began in earnest in 1954, after the French colonial regime collapsed and Vietnam was divided along the 17th parallel, with the northern part remaining the communist-led Democratic Republic of Vietnam and the southern part becoming the U.S.-supported Republic of Vietnam.
Charles Bowden, vice-president, grain, Fisher Mills, Inc., Seattle, Washington, U.S., began his career in milling during the early 1950s as an area sales manager for the Far East with The Pillsbury Co. in Portland, Oregon, U.S. Mr. Bowden's responsibilities included sales of flour to Vietnam.
The South Vietnamese imported 8% protein, 46- or 48-ash soft wheat flour and 11% protein hard wheat flour, Mr. Bowden said. Flour had to be specially packed in 50-kilogram (110-lb) cotton inner bags that were enclosed by four-ply paper bags, the ends of which were sealed with wax to guard against insect infestation.
Mr. Bowden indicated that although rice was the staple grain, a thriving baking industry existed in Vietnam. The French influence in the south was very strong, and French-style bread and pastries were popular, as they are today. Bakeries were mostly small and privately owned. He recalled that some of the bread products were of very high quality.
U.S. exports of wheat and flour peaked in 1970-71, at 303,000 tonnes, wheat equivalent. It was in that year that bulk wheat began to be an increasingly important component in total sales, as Vietnamese flour milling units began to come on stream.
The Soviet Union began shipments of flour to the Democratic Republic of Vietnam in 1970-71. In the last year of the war, the Soviet Union shipped 606,000 tonnes of flour to the D.R.V.
After 1975, but before the collapse of Stalinism in the Soviet Union in 1989, the Soviet Union was responsible for providing the unified Socialist Republic of Vietnam with much of its flour and milling wheat requirements. The bulk wheat mostly originated in Australia and Canada, and a portion of the flour was shipped from the E.U., having been purchased by the Soviet Union on behalf of Vietnam. In some years, feed wheat also was imported by Vietnam in relatively large quantities.
Flour imports toppled to 89,000 tonnes in 1984-85 from 365,000 tonnes in 1983-84, as credits from the Soviet Union became more difficult to procure. With the break-up of the Soviet Union, Vietnamese wheat imports in 1988-89 plummeted to only 9,000 tonnes, according to the I.W.C., compared with 16,000 tonnes in 1987-88 and 117,000 tonnes in 1986-87.
Vietnamese flour imports hit a nadir in 1985-86, at only 50,000 tonnes, thereafter to rise, especially after the re-emerging Vietnamese private sector was allowed to import flour. Direct contacts with other suppliers, including the E.U. and Southeast Asian countries, also began to increase.
Under Vietnam's doi moi, or renovation, reforms initiated in 1986 and since expanded, private flour dealers were authorized to import flour under their own licenses or on behalf of public sector food companies that delegated their authority to import flour to a dealer or dealers. The private dealers then were allowed to sell the flour to small bread and pastry bakers.
More recently, noodle manufacturing has been a rapidly growing wheat-based food industry in Vietnam, accounting for a steadily increasing percentage of domestic flour consumption. Noodles generally are manufactured in large, privately held facilities.
Vietnamese flour milling
Only one flour milling company currently exists in Vietnam the Union of Enterprises of Bindhong Flour-Mill of Ho Chi Minh City and it operates two milling units. Originally known as Sakibomi, or the Saigon-Ky-Nghe Bot-Mi Cong Ty Flour Mill, it was established as a privately held company in 1970 and was to be the largest of Vietnam's flour milling companies, with total capacity planned at 980 tonnes per 24 hours.
At about the same time, two additional flour milling groups were started, also by private interests. These were Vinabomi, or Vietnam Bot-Mi Flour Mill; and Vitlomico, or Vietnam Flour Mill Co. The Vinabomi mill never became operational.
Buhler Ltd., Uzwil, Switzerland, and Miag Muhlenbau und Industrie G.m.b.H., Braunschweig, Germany, in the late 1960s and early 1970s planned to supply a total of eight flour milling units to the three original companies, with a total projected wheat grinding capacity of 1,830 tonnes per 24-hour day. (Miag was purchased by Buhler Brothers in 1972, and the operations of the two companies were merged as Buhler-Miag in 1973. The current corporate name is Buhler Ltd.)
But only five of the eight milling units actually were installed in Vietnam. The three uninstalled units were either partially delivered or put in storage. Some of the stored equipment was used for spare parts during the years after the unification of the country in 1975 and the nationalization of the flour milling properties by the Socialist Republic of Vietnam.
Only two of the original five units installed in the 1960s and 1970s remain in production today. The two units had a combined rated daily capacity of 450 tonnes, but many machines currently are not in use.
The Bindhong Mill is in a bad state of repair, according to several recent visitors. Buhler staff members from the company's Bangkok and Singapore offices have begun to visit the mill regularly to assist mill management and workers in keeping the lines operating.
But after years of wear and tear on the machinery with practically no maintenance, the mills are operating unsatisfactorily, and production is uneconomical, according to Buhler. To reverse this situation, improvement in the cleaning and grinding functions will be needed soon. Investment also would enable the start-up of the three milling units that originally were installed, but are not in operation, Buhler said.
A number of foreign entities recently have offered to assist the Vietnamese government in building additional flour milling capacity. Indications were that Prima Flour Mills of Singapore had offered to build a large milling complex at Da Nang, in central Vietnam. Other interested parties were said to have proposed the building of several smaller mills to be sited at Cai Lan, Da Nang and Ho Chi Minh City.
The variety and complexity of proposals have made selecting a project difficult. Essentially, the government must weigh the economies of scale inherent in erecting a single large milling complex against the transportation and distribution advantages a network of smaller mills would provide.
Wheat for the Bindhong Mill is imported by the Vietnam Central Food Corp. Zone II, or Vinafood II, Ho Chi Minh City.
Vinafood operates under a mandate from the Ministry of Agriculture and Foodstuff Industry. Funds and authorization for wheat purchases are provided by the Ho Chi Minh City District II People's Committee.A tiger in the making
Dynamic growth follows economic reforms.
A new frontier for global entrepreneurs has opened in Vietnam, and the rush is on. Hotels are springing up in Hanoi and Ho Chi Minh City to accommodate the swarms of businesspersons who are meeting and making deals with government officials and Vietnamese merchants, who despite years of repression, have re-emerged to help power their country's recent dynamic economic growth.
Vietnam has one of the world's most liberal foreign investment codes, allowing in some cases for 100% ownership of Vietnamese businesses by foreign companies. The world investment community is responding by scouring the countryside for investment opportunities, which include some promising state-owned companies scheduled for privatization or looking for joint venture partners.
Vietnam's “opening” commenced with the launching of its doi moi, or renovation, reforms in 1986. The evolution of these reforms, which breathed life into the country's private sector; the collapse of the Soviet Union; and international approval of Vietnam's disengagement from Cambodia provided the required signals to investors that Vietnam was prepared to re-enter the world economic community.
When Vietnam made arrangements to settle its accounts with the International Monetary Fund, there was no longer any doubt that doi moi was for real. Vietnam finished paying its arrears to the I.M.F. in September 1993.
Vietnam is seen by many as one of Asia's “tigers” in the making. The country of some 70 million experienced 8% growth in gross domestic product in 1993, continuing a recent trend. Inflation, which had plagued the economy in the late 1980s and early 1990s, is under control. The industrial sector in 1993 grew at a 10.5% annual rate.
While Vietnam is taking off from a very low base it remains one of the world's poorest nations, with annual per capita income of about U.S.$220 general expectations are that the country will continue its rapid growth, powered by exports and foreign investment.
Vietnam remains a largely rural society. Agriculture provides employment for about two-thirds of the work force and contributes about one-third of the nation's G.D.P.
Vietnam abandoned collectivized agriculture in the early 1980s and adopted a Chinese-style co-responsibility, or contract, system in which farmers are allowed to lease land from the government and freely market their products after meeting a quota obligation to the government.
The doi moi reforms officially made the rural household the primary agricultural production unit. Gradually, farmers were given ever-greater control over the land they officially leased from the state.
Farmers today can lease land for growing annual crops for up to 20 years, and for growing tree crops for up to 50 years. Also, a farmer can bequeath his lease to his children.
For state-owned industries, doi moi has meant decentralization of decision-making and ultimately the privatization of many state enterprises. The state sector currently employs only about 6% of the workforce. State workers are concentrated largely in the electrical, metallurgy, electronics, chemical and fertilizer industries. Foreign partners even are sought for some of these.
Exports and foreign investment are expected to propel Vietnam into the future. Regarding foreign investment, fully one-quarter of the U.S.$7.1 billion that had been committed by the end of 1993 was targeted at the petroleum sector. By the end of 1993, U.S.$1.5 billion of the total commitments had been disbursed. Other sectors of interest have been manufacturing, hotels and tourism, agriculture and livestock, forestry and fisheries.
Two-thirds of the investments have been garnered by southern Vietnam, with most of the remaining investments concentrated in coastal cities. Most investments are in the form of joint ventures. Taiwan is the largest investor, followed by Hong Kong, Australia, France, the Netherlands and Great Britain.
Vietnam's 1993 exports were valued at U.S.$3 billion. Major exports included crude petroleum, fishery products, rice, garments and textiles, coffee and coal.
In 1993, Vietnam's imports were valued at U.S.$3.3 billion. Leading import items were machinery, motor vehicles, fertilizers, heating and cooling equipment and telecommunications equipment.
Until 1989, trade with the Soviet Union and the East Bloc accounted for about 50% of Vietnam's total. Today, Japan and Singapore are the country's largest trading partners.