A free trade agreement initialled between the European Union and Vietnam last week, is set to stimulate trade for both the European and Vietnamese processed, packaged and branded food industries. Mandy Kovacs and Lee Andendorff investigate who stands to gain and why.
The signing of a free trade agreement between the EU and Vietnam offers significant long term benefits for each region. For EU exporters, the agreement opens up Vietnam's increasingly affluent consumer base. For Vietnamese companies, it unlocks the 27-member block and increases access to a trading partner that the Vietnamese government describes as "one of the most important trade partners". The deal includes the elimination of 99% of all tariffs levied on mutual trades, over 10 years for Vietnam and seven years for the EU.
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"Vietnam’s economy grew by 6% last year and this pace of growth is set to continue," said Sarah Boumphrey, head of strategic and consumer insight at Euromonitor International. "Its exports totalled US$150bn in the same year and its imports are seeing strong growth – averaging 16.5% year-on-year since 2010. The country accounts for only a small proportion of EU exports, but nevertheless the deal is an important one for the trade bloc and Vietnam alike."
Kosona Chriv, managing director of Phnom Penh-based agro-investment consultants Smart International, told just-food that the deal will bring benefits to European brands, who will be able to enter the Vietnamese market more easily as the deal will aid the production and customisation of foods in Vietnam to suit Asian markets. "EU food companies will be able to use Vietnam as a hub for their expansion in the ASEAN [Association of Southeast Asian Nations region] and Asia Pacific," he added.
Chriv also expects that the agreement will bring changes to the Vietnamese food sector, with more Vietnamese food companies likely to apply for International Organization for Standardization (ISO) certification as a result of the agreement. Additionally, Vietnam food makers "will move from centralised decision making to more modern management practice," he predicted.
The free trade arrangement is of particular importance to the packaged and processed meat sectors in both jurisdictions. According to data from the Federation of the Food and Drink Industry in Belgium (FEVIA), prepared meat imports, including crustaceans, fish and other aquatic invertebrates, from Vietnam to the EU generated EUR251.7m (US$281.1m) in receipts during 2014, up significantly from 2013's level of EUR171.5m. The EU imported EUR2.5m worth of meat and edible meat offal from Vietnam in 2014.
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By GlobalDataLooking at EU exports, Cees Vermeeren, secretary general of the Brussels-based Association of Poultry Processors and Poultry Trade in the EU Countries (AVEC) added: "Vietnam, with over 90m inhabitants, is an interesting market for poultry…Today’s imports are estimated at about 500,000 tonnes". He said that as consumption of poultry meat increases in the country, so too will trade, as long as European businesses can stay competitive.
But removing tariffs on meat products will encourage trade, he said. According to a European Commission communiqué, under the deal, Vietnam’s beef imports will see duties removed in three years, frozen pork meat in seven, and chicken after 10. Vietnam prepared foods import duties will be removed after seven years, fully liberalising the meat trade market between the two jurisdictions.
Currently, poultry products imported to the EU from Vietnam are taxed anywhere from EUR1,024 to EUR2,765 for every 1,000 kg depending on the size and type of fowl, ham and similar cuts of swine meat attract duties of EUR156.8/100 kg, and bovine meat, including corned beef in airtight containers, are taxed 16.6%.
In terms of exports from the EU to Vietnam, FEVIA figures point out that the EU exported EUR47m worth of meat and edible meat offal to Vietnam in 2014, a number that has been growing considerably in recent years, and EUR3.9m of prepared meat imports.
The Commission's note stressed that Vietnam will "open its market for most EU food products, both primary and processed, allowing EU high quality exports to reach its growing middle class consumers."
Indeed, the Vietnamese middle class has been increasing in numbers, maybe boosting EU processed meat sales even further. According to the World Bank, GDP per capita rose to US$2,052 in Vietnam in 2014, representing year-on-year growth of 4.8% last year. In a recent survey by the Boston Consulting Group (BCG), Vietnam was found to have the fastest growing middle class in Southeast Asia. By 2020, the country is expected to have 30m middle class and rich consumers.
"Vietnam is indeed an interesting market for processed meat products as meat consumption in that region of the world is expected to grow, hand in hand, with a growing middle class," said Enrico Frabetti, deputy secretary general at the Belgium-based Liaison Centre for the Meat Processing Industry in the EU (CLITRAVI).
Frabetti added, however, that despite this increase in wealth, the country still has a large number of poor consumers and low penetration of refrigerators, with only approximately 50%-60% of the population using one.
"This means that – unless a strong improvement on both indicators – Vietnam could be more interesting for canned meat products rather than ‘fresh’ sliced pre-packaged ones. The added value (and price) of canned is indeed lower than the price for fresh meat products (such as dried ham for example)," he explained.
Dairy products will also be liberalised, with Vietnam duties removed within five years. According to the European Association of Dairy Trade’s (EUCOLAIT) legal and policy advisor Alice O’Donovan, current tariffs for dairy imports into Vietnam are between 0% for whey and lactose products, and 15% for dairy spreads. She said the Vietnam dairy market is an "offensive interest of the EU".
The deal may also be welcome for Vietnam rice growers, who saw total exports drop 9.6% in the first six months of this year, according to the Vietnam Trade Promotion Agency, in the face of increasing price competition from India, Thailand, Pakistan and Myanmar. The free trade agreement will see the EU set aside large duty-free quotas for processed, unprocessed and fragrant Vietnamese rice while products made from rice will see tariffs phased out within seven years, according to the EU-VietnamBusiness Network.
Natasha Telles D'Costa, associate director at Frost & Sullivan, said that although there were some concerns about the effects on rice production in Spain and Italy, rates for rice yield will rise. "Vietnam imports a significant percent of its agricultural input material such as fertilizers and pesticides from the EU. What this agreement will do is to allow for cost competitive inputs while providing the country with a larger end use market for its final products," she said.
While the deal was struck in early August, negotiating teams will now continue the process, settle some remaining technical issues and finalise the legal text, noted AVEC’s Vermeeren. Once finalised, the agreement will then need to be ratified by the EU Council of Ministers, the European Parliament and the Vietnamese government.
