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In the Vietnam Agribusiness Report we introduce a new Sugar Outlook. Given Vietnam's climate and agricultural fertility, the country has the potential to become a net exporter of sugar. In the second half of the 1990s, the country's sugar output grew rapidly. Production more than doubled from 1995 to 2000 as the government laid on incentives for development of the sector.
Since then however, things have not been going so well. Production peaked in 2001 at 1.21mn tonnes and has since stagnated. In 2009, we forecast output at 0.96mn tonnes. The low productivity in the sector has inhibited further increases in output. Vietnamese sugar is uncompetitive compared to other producers such as Thailand and Australia. The domestic market is protected by import tariffs, but smuggling of Thai sugar through Cambodia undercuts domestic production.
If Vietnam is going to develop a viable sugar export sector, work on improving efficiency in the country's 40 sugar mills will need to undertaken. Giving further impetus to this, under commitments made to meet terms for membership of the WTO and the ASEAN Free Trade Area (AFTA), tariffs on sugar imports have to be severely reduced by 2011.
The government has launched a new plan for the sugar sector to try and improve efficiency in both milling and cane production. The plan, launched in 2007, aims at raising annual sugar production to 1.5mn tonnes by 2010, enough to meet forecast domestic demand. While this now seems out of reach, the 2020 target of annual production of 2.1mn tonnes seems more feasible, if cane yields and sucrose content can be improved.
Elsewhere in Vietnam's agricultural sector, exports held up well in the first quarter of the year. The value of agricultural and fisheries exports for Q109 was up 3.1% year-on-year (y-o-y) at US$3.47bn, according to the Ministry of Agriculture and Rural Development (MARD). Rice exports played a large part in this.
Volume exports of the grain rose by more than 70% y-o-y in the quarter.
To ensure the sector stays in decent shape through the economic downturn, at the time of writing the government was preparing a stimulus package for the sector. Though exact details had yet to be announced, the government has said that it aims to boost productivity in the sector and improve seed quality and the skills of farm workers. The MARD has also called for the fund for building agricultural infrastructure to be doubled from its current level of VND4trn (US$226mn).
Given the poor state of the other sectors of Vietnam's economy and the rapid fall in merchandise exports, we believe that spending to boost productivity in the agricultural sector would be a shrewd move. The sector is held back by poor infrastructure, farming practice and access to modern inputs such as equipment and seeds. With agricultural exports expected to hold up relatively well, increasing production and competitiveness will improve the livelihoods of the more than half of Vietnam's labour force employed by the sector as well as helping the economy weather the current financial storm.
Vietnam Agribusiness Report Q3 2009: http://www.companiesandmarkets.com/r.ashx?id=168741EO1155655
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