INSTITUTE OF POLICY AND STRATEGY FOR AGRICULTURE AND RURAL DEVELOPMENT

CENTER FOR AGRICULTURAL POLICY

----------------------------------------------

CARD Project 030/06 VIE: Developing a strategy for enhancing the

competitiveness of rural small and medium enterprises in the agro-food
chain: the case of animal feed

SMALL-MEDIUM ENTERPRISES IN THE

LIVESTOCK FEED SECTOR IN VIETNAM
VOLUME I: Livestock feed production
Pham Thi Lien Phuong1, Nguyen Thi Thinh1, Donna Brennan2, Sally Marsh2, Bui
Hai Nguyen1
1
Center for Agricultural Policy, Institute of Policy and Strategy for Agriculture and Rural
Development, Hanoi
2
School of Agricultural and Resource Economics, University of Western Australia

Hanoi, April 2010

EXECUTIVE SUMMARY
The origin of this study goes back to previous research on the livestock feed sector in
Vietnam that has shown high costs and low productivity in the overall sector. However,
no previous study has looked at the differences between mills of different production
scale, mills by region and ownership types. Therefore, previous solutions to enhance the
competitiveness of feed mills, especially small and medium enterprises, are usually
generalised rather then specified for each type of mill. This study has focused on specific
mill types in the Vietnamese livestock feed sector with a particular focus on small and
medium enterprises (SMEs) in different regions.
This report provides a current overview of the Vietnamese livestock feed production
sector. Besides outlining the environment and infrastructure within which feed mills are
working, an important part of the report was to provide information on how feed mills
operate along their supply chain, describing relationships with their material suppliers and
output customers. Data was collected during mid-2008 using a survey of 62 feed mills
situated throughout the country. Information collected included that concerning the
production and business activities of the different sized feed mills, their distribution
channels, and their technology levels.
The focus of this report is on comparing SMEs and large enterprises with regards to the
production and business activities of enterprises such as material input use, storage,
product types, quality control, and type of customer. These activities give indications of
how SMEs compete with larger feed mill enterprises. The mills have been categorised in
the following way in the analyses: small mills are those producing less than 10,000 tonnes
per annum; medium mills are those producing from 10,000 to less than 60,000 tonnes per
annum, and large mills are those producing 60,000 or more tonnes per annum.
In this study we have explored aspects of competitiveness in the feed mill sector.
Competitiveness in the sector is likely to involve more than cost efficiencies as a result of
economies of scale. Competitiveness in the sector is also associated with quality aspects
of feed (and perceptions of quality), services provided along with the sale of feed, and
procurement and distribution channels used by the mills.
We found statistical evidence in this study that cost of production was inversely related to
scale, with small enterprises having significantly higher costs of production per kg of
output than medium enterprises which had higher costs of production than large
enterprises. This alone is not necessarily an indicator of greater inefficiency of SMEs. For
example, we found that SMEs were more focused on production of concentrate than
larger mills. Concentrate production has higher raw material input costs per kg of output,
so cost of production per kg of total output would necessarily be higher for those
producing more concentrate.
We found no statistical evidence to indicate that small enterprises paid more for the key
raw material inputs used in production of feed. Analyses of prices paid by location also
indicated that there were no significant differences between the northern and the southern
regions of Vietnam. Our findings indicated that raw material costs made up about 80% of
the total cost of production in feedmills. An analysis of costs other than raw material costs
showed that large mills had significantly lower unit costs than small mills. We also found
other indicators, outlined in detail in the report, to suggest that the lower cost of
production experienced by large feedmills may reflect greater efficiency.

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Our data indicate that small mills (producing less than 10,000 tonnes per annum) are
likely to struggle to remain competitive. The data indicate that they face significantly
higher costs, and sell some feeds at significantly lower prices, resulting on average in a
significantly lower profit. Anecdotally, this is supported by reports of small mills ceasing
business, and our observations when conducting the survey of many previously listed
small mills no longer in business. However, our results support the idea that medium-size
mills (producing between 10,000 and 60,000 tonnes per annum) are remaining
competitive, and have costs and product mix and prices similar to large mills.
Our results show that the supply/distribution chains operating for SMEs and large firms in
the livestock feed sector are quite different. SMEs source their raw materials and
distribute their products differently to large feedmills. They deal more with small
householders and traders both for the procurement of raw materials and in the distribution
of their products. Large mills are more dependent on imports (e.g. maize) to meet their
raw material requirements, whereas SMEs are more likely to be able to source sufficient
domestic supplies. It is likely that small-medium feedmills do provide more direct support
to other small-medium enterprises operating in the livestock sector.
Quality control operates at a lower level in domestic mills compared to foreign-owned
mills and mills operated by joint venture partners, although protein content (as nominated
on the feed label) was not statistically lower in feeds produced by domestic mills
compared to foreign mills. However, the fact that advanced international standards for
quality control such as ISO and HACCP are only applied by foreign-owned and joint
venture companies, indicates better quality control processes for both raw materials and
output products from foreign/large companies. These mills are also more likely than
domestic enterprises to have a quality control laboratory, to have separate production
lines, to own automatic cleaning systems and to use least-cost feed ration software.
Based on the findings of this study we make the following policy recommendations for
policy makers:
• Focus is needed on quality control. If long term food safety and export potential is
to be reached, the Government of Vietnam needs to address quality control issues
associated with the production of livestock feed products.
• Restrictions on the movement of goods due to irregular police conduct need to be
addressed.
• Invest in domestic production of raw materials used in feed production.
• Credit support for SMEs in the sector should be expanded.
• Support and expand the role of the Vietnamese Animal Feed Association (VAFA).
• Investigate the possible ways the government may provide price support for raw
materials and livestock feed outputs.
We suggest the following recommendations for SMEs operating in the sector:
• Small mills need to increase their scale of operation.
• Quality control standards need to be raised.
• Continue to explore and exploit niche market opportunities.
• Consider advantages from diversification and/or a cooperative structure.
• Support a strong role for the VAFA.

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ACKNOWLEDGEMENTS

The authors gratefully acknowledge funding for this research work from AusAID’s
CARD Program for Project 030/06 VIE: Developing a strategy for enhancing the
competitiveness of rural small and medium enterprises in the agro-food chain: the case of
animal feed.
The authors acknowledge contributions made to the research work from CAP staff other
than the listed authors, including: Pham Tuyet Mai, Tran Cong Thang, Nguyen Ngoc
Que, Nguyen Do Anh Tuan, Nguyen Anh Phong and Nguyen Le Hoa.
The authors also acknowledge helpful discussions with Mr Le Van Lich (VAFA), Mr
Tran Cong Xuan (VPA), Ms Bui Thi Oanh (MARD) and Mr La Van Kinh (South VAAS)
as well as participants in the two stakeholder workshops held in December 2009 in Hanoi
and January 2010 in HCMC. Advice on technical issues was received from the
Vietnamese experts mentioned above, and also from Dr. Johanna Pluske (livestock
economics consultant) and Professor John Pluske (animal nutritionist from Murdoch
University in Western Australia.)
Feedback on draft versions of this report was provided by Dr Johanna Pluske and we
highly appreciate her useful and critical comments.
Finally, we acknowledge and thank feed mill survey participants for their willingness to
support the survey work and give details associated with their businesses.

LIST OF ABBREVIATIONS
ANOVA Analysis of Variance
ASEAN Association of South East Asian Nations
CAP Center for Agricultural Policy
CARD Collaboration for Agriculture and Rural Development
CP Charoen Pokphand
DLP Department of Livestock Production
FAO Food and Agriculture Organization
GDP Gross Domestic Product
GMP Good Management Practice
HACCP Hazard Analysis Critical Control Points
ISO International Organization for Standardization
MARD Ministry of Agriculture and Rural Development
MCP Mono Calcium Phosphate
NSD No Significant Difference
SD Standard Deviation
SME Small Medium Enterprise
SOE State Owned Enterprise
VAFA Vietnamese Animal Feed Association
VAT Value Added Tax
VBARD Vietnamese Bank for Agriculture and Rural Development
VND Vietnamese Dong

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 TABLE OF CONTENTS

EXECUTIVE SUMMARY ..................................................................................................i

LIST OF FIGURES
......................................................................................................................vi
LIST OF TABLES
......................................................................................................................vii
1 INTRODUCTION .......................................................................................................9
1.1 Background ........................................................................................................9
1.1.1 The livestock sector in Vietnam ..................................................................9
1.1.2 Small medium enterprises (SMEs) in Vietnam ..........................................9
1.1.3 SMEs in the livestock feed sector in Vietnam ...........................................10
1.2 Objectives.........................................................................................................10
1.3 Research questions ........................................................................................11
1.4 Methodology.....................................................................................................11
1.4.1 Background research.................................................................................11
1.4.2 Survey design and sites..............................................................................12
1.4.3 Sampling design.........................................................................................12
1.4.4 Data collection and processing ..................................................................13
1.5 Limitations and structure of the report .........................................................15
1.5.1 Limitations .................................................................................................15
1.5.2 Structure.....................................................................................................15
2 RECENT CHANGES IN THE VIETNAMESE FEED INDUSTRY .......................16
3 BACKGROUND INFORMATION ON FEED ENTERPRISES IN VIETNAM.....21
3.1 General characteristics...................................................................................21
3.2 Labor use and wages .....................................................................................22
3.3 Infrastructure ....................................................................................................25
4 COST STRUCTURE AND RAW MATERIAL USE...............................................28
4.1 Cost structure of feed enterprises ................................................................28
4.2 Procurement of raw materials .......................................................................29
4.2.1 Prices paid for raw materials and percentage of raw material from different
sources ....................................................................................................................29
4.2.2 Providers of raw materials .........................................................................33
4.2.3 Payment method for input purchase ..........................................................34
5 FACTORY OUTPUT ................................................................................................36
5.1 Output types.....................................................................................................36
5.2 Profit ..................................................................................................................39
5.3 Market share and competition.......................................................................40
5.4 Nutrient content and additives use ...............................................................40
6 SUPPLY CHAIN .......................................................................................................42
6.1 Distribution channels – transportation distances .......................................42
6.2 Distribution channels - type of customer .....................................................42
6.3 Overview of input supply and output distribution channels for different
scale enterprises .........................................................................................................45
6.3.1 Supply sources and distribution channels for large feed mills ..................45
6.3.2 Supply sources and distribution channels for medium feed mills .............46
6.3.3 Supply sources and distribution channels for small feed mills..................47
6.3.4 Summary of input supply and distribution channels..................................47
6.4 Payment methods ...........................................................................................48
6.4.1 Payment methods for complete feed..........................................................48
6.4.2 Payment methods for concentrate feed ......................................................49
6.5 Services ............................................................................................................50

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 6.5.1 Services to agents.......................................................................................50
6.5.2 Service to livestock producers ...................................................................51
6.6 Determination of livestock feed prices .........................................................52
6.6.1 Setting of feed prices .................................................................................52
6.6.2 Commission rates.......................................................................................53
6.6.3 Selling price changes made by enterprises during 2007............................54
6.7 Product quality control ....................................................................................56
6.7.1 Certification and testing.............................................................................56
6.7.2 Processing method .....................................................................................58
6.7.3 Product formulation ...................................................................................59
6.7.4 Post-production and storage.......................................................................59
6.8 Location, information sources and restrictions on the movement of
goods ............................................................................................................................62
6.8.1 Location of firms........................................................................................62
6.8.2 Restrictions faced by mills on the movement of goods .............................63
6.8.3 Sources of information for feed mill enterprises .......................................64
7 OTHER ISSUES........................................................................................................66
7.1 Credit.................................................................................................................66
7.2 Profitability and investment............................................................................67
7.3 Issues, opportunities and constraints...........................................................69
8 SUMMARY OF KEY FINDINGS AND IMPLICATIONS FOR POLICY.............72
8.1 Main findings ....................................................................................................72
8.1.1 Costs of production ....................................................................................72
8.1.2 Revenue and production activities .............................................................73
8.1.3 Profitability ................................................................................................74
8.1.4 Procurement (and storage) of raw material inputs.....................................74
8.1.5 Distribution of livestock feed products......................................................75
8.1.6 Quality control ...........................................................................................75
8.1.7 Services to clients ......................................................................................76
8.1.8 Constraints on production ..........................................................................76
8.1.9 Opportunities..............................................................................................77
8.2 Evidence of returns to scale ..........................................................................77
8.3 Strategies currently being used by SMEs to compete in the livestock
feed sector....................................................................................................................78
8.3.1 Location .....................................................................................................78
8.3.2 Product mix................................................................................................78
8.3.3 Commission rate on concentrate feed ........................................................79
8.3.4 Discounted prices.......................................................................................79
8.3.5 Supply chain differences............................................................................79
8.3.6 Payment in advance for inputs and provision of credit for output sales....79
8.3.7 Services provided to agents and farm households .....................................80
8.4 Role played by SMEs in the livestock feed sector .....................................80
8.5 Policy recommendations ................................................................................80
8.5.1 For policy makers ......................................................................................80
8.5.2 For SMEs ...................................................................................................82
APPENDIX........................................................................................................................84
REFERENCES ..................................................................................................................88

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 LIST OF FIGURES
Figure 1. Number of feed enterprises, total industrial feed production (plus premix) vs.
capacity by region in 2006.........................................................................................17
Figure 2. Vietnam’s import value of animal feed and inputs for feed processing, 2001 -
2008............................................................................................................................19
Figure 3. Prices of some raw feed inputs in Vietnam during 2007-2008 ..........................20
Figure 4. Prices of raw materials and pig complete feed for Proconco company in 2007 20
Figure 5. Distribution of feed enterprises by production scale in north and south Vietnam
(%)..............................................................................................................................21
Figure 6. Labor size of feed enterprises by foreign and domestic ownership ...................23
Figure 7. Labor size of feed enterprises by production scale ............................................24
Figure 8. Average salary for labor of feed enterprises by production scale ......................24
Figure 9. Raw material purchase costs per ton of output, by ownership type and
production scale .........................................................................................................29
Figure 10. Composition of energy rich ingredients as percentage of total energy inputs
used ............................................................................................................................30
Figure 11. Composition of protein rich ingredients as a percentage of total protein inputs
used ............................................................................................................................30
Figure 12. Inputs used to produce one tonne of feed output by production scale .............33
Figure 13. Payment methods used for raw material purchases, by production scale ........35
Figure 14. Percentage of firms paying VAT for raw material inputs, by production scale
....................................................................................................................................35
Figure 15. Percentage of firms producing complete and concentrate feed........................37
Figure 16. Supply sources and distribution channels for large feedmills in Vietnam .......45
Figure 17. Supply sources and distribution channels for medium feedmills in Vietnam ..46
Figure 18. Supply sources and distribution channels for small feedmills in Vietnam ......47
Figure 19. Percentage of feed mills and retail agents fixing the selling price, by
production scale .........................................................................................................53
Figure 20. Commission on factory gate prices obtained by agents (wholesale and retail
agents combined), for product from small, medium and large mills .........................54
Figure 21. Percentage change in the factory gate price of the main product during the
quarters 2, 3 and 4 and the total change in 2006/2007, by production scale .............55
Figure 22. Laboratories used for testing raw materials and products by foreign and
domestic mills and by large, medium and small mills...............................................57
Figure 23. Methods used by mills for cleaning between product batches .........................59
Figure 24. Total days and percentage of the storage time of the main product by mills,
agents and others by production scale .......................................................................61
Figure 25. Percentage of main product reaching expiry date ............................................61
Figure 26. Percentage of feed enterprises by production size nominating various
characteristics about factory location.........................................................................62
Figure 27. Percentage of feed enterprises indicating the most important restrictions
affecting the movement of goods...............................................................................63
Figure 28. Reasons given by firms for not being able to obtain more funds.....................66
Figure 29. Feed sectors expected by feed mill enterprises to experience the greatest future
growth, by scale of enterprise ....................................................................................69
Figure 30. Percentage of feed mill enterprises that said that government should provide
support in the following areas, by enterprise scale ....................................................71

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 LIST OF TABLES
Table 1. The number of enterprises listed as available for the survey, the number of
enterprises surveyed in the project and the percentage of enterprises in each province
surveyed with respect to the project total ..................................................................13
Table 2. For each ownership category: the total number of mills in the original sample;
the number in each classification and total number providing consistent information
for data analysis; and the percentage of the original sample that provided consistent
information.................................................................................................................14
Table 3 . Industrial feed production in Vietnam during the period 2000 – 2008 ..............16
Table 4. Domestic production of the main inputs for feed production and estimated
demand for feed input (1000 tonnes) .........................................................................18
Table 5. Quantity of imported feed inputs to Vietnam in 2006 (‘000t).............................18
Table 6. Actual and designed output of feed mills, and percent utilization of designed
output in 2007, by scale and region ...........................................................................22
Table 7. Average revenue from activities of feed enterprises in 2007 ..............................22
Table 8. Land area owned/leased and percentage of land being used by the feed
enterprises, by scale and region .................................................................................25
Table 9. Distribution of enterprises owning or renting land and location (percent)..........26
Table 10. Percentage of enterprises having storage equipment, by scale and region ........26
Table 11. Average capacity (tonnes) of storage facilities..................................................26
Table 12. Period, volume and place of material storage of feed enterprises by region and
scale............................................................................................................................27
Table 13. Cost of production (‘000 VND per kg output) and share of total cost % ..........28
Table 14. Comparison of raw material input prices by scale, source and location............31
Table 15. Percentage of raw material purchases from different sources by production
scale............................................................................................................................32
Table 16. Percentage of raw material inputs purchased from different suppliers for each
production scale of feed enterprises...........................................................................34
Table 17. Percentage of firms producing each type of animal feed, by production scale
and region...................................................................................................................36
Table 18. Percentage of firms producing complete and concentrate feed for livestock
types ...........................................................................................................................38
Table 19. ANOVA analysis of pig and chicken feed prices (‘000VND per kg): mean,
standard deviation and price difference by region and production scale...................38
Table 20. Profit (million VND) by production scale .........................................................39
Table 21. Cost and profit for firms grouped according to relative importance of
concentrate production...............................................................................................40
Table 22. Protein content of main products and share of firms using additives, by
ownership type ...........................................................................................................41
Table 23. Average transportation distances by region and production scale.....................43
Table 24. Amount and share of complete feed sold to different customer types by small,
medium and large feed mill enterprises .....................................................................43
Table 25. Amount and share of concentrate feed sold to different customer types by small,
medium and large feed mill enterprises .....................................................................44
Table 26. Payment methods used by purchasers of complete feed from enterprises by
different scale.............................................................................................................49
Table 27. Payment methods used by purchasers of concentrate feed from enterprises by
different scale.............................................................................................................50
Table 28. Percentage of feedmill companies providing different service to agents ..........51

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Table 29. Percentage of feedmill companies providing different services to livestock
producers....................................................................................................................52
Table 30. Percentage of feed enterprises fixing the selling price for wholesale agents/
traders, by production scale .......................................................................................52
Table 31. Main reasons for price change of feed products (percentage of foreign,
domestic and total mills)............................................................................................55
Table 32. Percentage of firms having formal certification status ......................................56
Table 33. Percentage of mills with quality control laboratories and percentage of testing
done in those laboratories ..........................................................................................57
Table 34. Percentage of firms that complete various tests of raw feed materials and
products......................................................................................................................58
Table 35. Expiry period (days) nominated by mills for products, by region.....................60
Table 36. Mean rating of importance of location characteristics.......................................63
Table 37. Most important information sources for feed enterprises, by scale...................65
Table 38. Credit information of enterprises by scale.........................................................66
Table 39. Percentage of all loans by sources, average loan amount and length of loan, by
scale of enterprise ......................................................................................................67
Table 40. Percentage of loans for feed/raw materials, buildings/equipment and other
purposes from various loan sources, by scale of enterprise.......................................68
Table 41. Main reasons nominated by feed mills for change in profit in 2007 and 2005 .68
Table 42. Expectations of feed mill enterprises of the domestic supply for raw material in
the future, by enterprise scale ....................................................................................70

viii
1 INTRODUCTION
1.1 Background

1.1.1 The livestock sector in Vietnam

Global livestock feed prices have generally been rising and this trend seems likely to
continue into the future. This increase is due to two main reasons: firstly, a higher demand
for livestock feed results from a higher demand for meat and related products; and
secondly, an increasing demand for maize and other raw materials for making biofuel
products competes with the use of these raw materials for livestock feed (Pluske, 2007).
In Vietnam, the livestock industry has played an increasing role in total agricultural GDP,
with its share ranging from 22.6 to 25.5% annually during the period 2001 to 2007, and
estimated to increase to between 25 and 26% in 2008 (Livestock Department, 2008). The
livestock industry has grown quickly and spontaneously, and a lack of regulation has led
to a number of problems: there are many small and dispersed producers who have
problems of low yield, exacerbated by disease outbreaks; and a rapidly growing
commercial scale sector with little environmental oversight. Further, feed costs contribute
to about 75% of the total production costs of livestock-producing households.
In recent times, one of the hottest issues facing the livestock industry has been the
increasing trend of feed prices. The large dependence on imports of raw material
ingredients such as soybean and maize, high import taxes, and low domestic yield of
these inputs have been considered as the causes of the high livestock feed prices.
Industrial feed prices in Vietnam are around 10-15% higher than other countries in the
region, such as Thailand and China. It is estimated that Vietnam imports about 20-30% by
volume of raw materials used for livestock feed production, which accounts for 45% of
the total value of raw ingredients (www.mard.gov.vn). High livestock feed prices directly
affect producers as they result in higher production costs, especially when the prices of
livestock products can not increase sufficiently to cover the increased costs.

1.1.2 Small medium enterprises (SMEs)1 in Vietnam

Showing impressive internal strength, the number of Vietnamese enterprises has grown
by fifteen times in the past nine years (1999-2008) (Online policy dialogue of
development pathway of Vietnamese SMEs, 2010). Accounting for 97% of more than
400 thousand enterprises operating in Vietnam's economy, small and medium enterprises
are recognized as a driving force for the development of Vietnam over time.
However, SMEs have not contributed as much as expected, due to the recent economic
crisis and global recession as well as inherent shortcomings in the business environment
in Vietnam and the internal weakness of many SMEs.
Difficulties such as lack of capital, difficult access to land for business premises, outdated
technology, weak competitiveness, the level of corporate governance restrictions and
difficulties in obtaining market access have been considered as main obstacles for SMEs.
The Vietnamese Government has recently announced a series of policies on
macroeconomic stability, including capital injection and removal of administrative

1
SMEs are independent production and business establishments, which make business registration
according to the current law provisions, each with registered capital not exceeding VND 10 billion or
annual labor not exceeding 300 people. On the basis of the concrete socio-economic situation of each
branch or locality, in the course of implementing the support measures and programs, both or either of the
above-mentioned criteria on capital and labor may be applied in a flexible manner (Article 3, Government
Decree 90/2001/ND-CP, dated 23 November 2001).

9
procedures for businesses so as to create a facilitating environment for enterprises.
However it is unclear by how much Vietnamese businesses have benefited from this
support. The number of small and medium enterprises in Vietnam is still increasing,
despite some forecasts that 80% of SMEs are having difficulties, and 20% will eventually
disappear (Online policy dialogue of development pathway of Vietnamese SMEs, 2010).
In the context of global economic difficulties and international integration, assessing the
competitiveness of SMEs in terms of their position, strengths, weaknesses, opportunities
and challenges becomes increasingly urgent. These assessments will be an important
basis for further state support for the development of SMEs in the future.

1.1.3 SMEs in the livestock feed sector in Vietnam

In 2008, large feed mills including CP Group, Cargill and Proconco, made up nearly 70%
of the domestic livestock feed market in Vietnam. Vietnamese farmers nominate large
mills as the “price makers”. Large mills are also criticised as being a catalyst for the
increasing feed prices in Vietnam due to their dominant place in the feed market. There
are open questions about the role of small and medium enterprises (SMEs) in the
livestock feed sector, and whether they can compete with large enterprises given the
current market structure.
There have been different discussions on the classification of SMEs enterprises in
general, as well as livestock feed SMEs in particular. The classification in Vietnamese
feed enterprises is usually based on the design capacity of the mill, rather than the number
of employees, or shareholders’ funds or fixed assets, or capital, all of which are used in
some ASEAN countries. However, this indicator of design capacity may be used
differently by agencies such as MARD, VAFA and enterprises themselves to differentiate
between small, medium and large enterprises. This issue of classification of enterprise
size is still very much open to discussion.
As yet, there are very few studies on the economic efficiency of feed mills in Vietnam,
and their distribution channels. Recent data from the Vietnamese Animal Feed
Association (VAFA), dated to February 2009, suggested that there were around 40
domestic trading and feed-producing enterprises that were at risk of production closure or
bankruptcy due to costs incurred when import prices increased rapidly. There has been
little research on the competitiveness of the small and medium mills, compared to the
larger ones and especially in terms of their use of input materials and how these relate to
output. The aim of this study is to fill this gap by providing information on the production
and business activities of the different sized feed mills, their distribution channels, and
their technology levels. This information is important to help policymakers build suitable
policies for the livestock industry in the years to come.

1.2 Objectives
The main aim of this livestock feed mill survey is to provide a quantitative assessment of
the factors affecting the competitiveness of the animal feed industry in Vietnam. To do
that, the following objectives have been addressed:
• to give an assessment of mill characteristics and production costs, output and
prices by types of ownership, regions and size of feed mills;
• to find out the nature of information and product flow, quality control standards
and processes for livestock feed mills; and

10
 • to assess the competitiveness of SMEs compared to large feed mills.

1.3 Research questions

During the scoping activities carried out for the study, it became apparent that small mills
were often regarded as those that usually used cheap, low-protein materials (sometimes
with contaminants), lacked adequate quality control and had poor equipment, and
therefore sold their product at a relatively low price. Their main buyers were thought to
be small producers and agents, especially those living in remote areas. However, some
people argued that Vietnamese SMEs could survive and compete in niche markets, as do
similar feed mills in Thailand.
Therefore, in this study, the aim was to gain a deeper insight into feed production and
trading generally, especially for both small and large scale mills.
The research therefore focused on answering the following questions:
• Are economies of scale evident in the livestock feed sector in Vietnam?
• How different is production and trading between large feed mills and SMEs in
terms of material input use, storage, product types, quality control, types of
customers and services offered to customers?
• Are the raw material procurement and output distribution channels used by SMEs
and larger feed mills different?
• How do domestic SMEs compete in the sector against larger foreign-owned mills?
• Is there any evidence of prices for raw material imports being higher than
domestic prices for raw material inputs?
• Is there an opportunity for Vietnamese SMEs to compete in niche markets? (e.g.
smaller mills targeting more remote areas)?
• What are the constraints facing SMEs operating in the livestock feed sector in
Vietnam?

1.4 Methodology

1.4.1 Background research

Several scoping activities were conducted in the initial stages of the project to obtain
general ideas of issues facing the livestock feed sector, and these were used as the basis
for designing a survey of feed mills in Vietnam .
Pluske’s (2007) report titled “A Desktop Review of the Animal Feed Sector at a Global
Scale” was used as background material to context the survey. The report concluded that
it is possible that SMEs will have a role to play in the feed sector in developing countries,
especially for those in remote areas where it is not profitable for the larger companies to
operate. However, appropriate policies will need to be developed to ensure that the
presence of these SMEs is beneficial for society as a whole and not just one sector within
it. As a consequence policy makers will need to have adequate knowledge of the relevant
supply chains and other institutional arrangements involved in decision making in the
feed and animal sectors.

11
To gain an understanding of the current issues facing feed production enterprises and
farms, in August 2007, researchers associated with this project engaged in field tours and
visited a number of senior industry leaders. These activities reiterated the infrastructure
and output differences between the large animal feed firms and the SMEs. Further,
discussions with animal producers and industry leaders provided insight into determinants
of demand for feed.

1.4.2 Survey design and sites

The questionnaire for animal feed manufacturers was designed on the basis of all
stakeholders’ ideas, pre-tested and finalized after critical discussion. The field survey was
a face-to-face interview with a senior staff member of each feed mill. Each interview
generally took between two and three hours to complete. In some instances enumerators
needed to return to the enterprise to either complete or clarify the data collection. Feed
mills in seven provinces across the country were selected to take part in the survey, which
took place between May and June 2008.
To obtain an overview of animal feed production patterns and feed uses, a survey of pig
and chicken producers was also designed as part of this project. It was conducted during
November and December 2008 in 6 of the same 7 provinces. These data are presented and
discussed in Volume II.
To cover a broad cross-section of animal feed enterprises, the field work was undertaken
in three ecological regions, in provinces that are the biggest producers of livestock feed.
Feed mills were surveyed in Ha Noi, Ha Tay and Hung Yen provinces located in the Red
River Delta; Binh Duong and Dong Nai in the South East; and Tien Giang and Long An
in the Mekong River Delta. The three regions had previously been identified in the project
proposal, while six out of seven provinces were agreed upon by the project team and
CARD, based as being representative of their regions. Hung Yen was added because of a
lack of enterprises in Ha Noi, resulting from recent changes in this province compared to
2006 data (on which the original selection of provinces was made) and because many of
the companies listed in 2006 had gone out of business.

1.4.3 Sampling design

Based on a Department of Livestock Production list of feed enterprises current for 2006,
as well as the limitations of the project budget, we initially planned to survey a total of 70
feed mills and agents in the six provinces identified in Section 1.4.2. The sampling
strategy, to ensure a representative selection of small, medium and larger mills, was
designed as follows:
• A list of 241 feed mills operating in 2006 (including their location and capacity)
was obtained from the Department of Livestock Production.
• A stratified size classification criteria of mills was specified with mills divided
into 5 classes based on output capacity (tonnes/year): (1) <5,000; (2): >=5,000
and <10,000; (3): >=10,000 and < 20,000; (4): >=20,000 and <80,000; and (5):
>=80,000.
• Given 70 mills were required to take part in the study, the number of mills of each
size to be sampled in each province was calculated so that they were in proportion
to the actual number and size distribution of mills located in the seven survey
provinces.

12
 • In the case that one of the 5 classes was under represented in a province (for
example, the class with capacity of more than 80,000 tonnes), mills from other
province were included to make up the required number. For example, Hung Yen
province (in the Red River Delta) has similar characteristics with Ha Noi and Ha
Tay and so could be used as a substitute province.
• Mills from the list were randomly selected until the desired number was achieved.
However, many mills on the list had gone out of business and could not be replaced with
equivalent mills and hence only 62 mills were used in the study. The final sample
distribution from the seven provinces is shown in Table 1.

Table 1. The number of enterprises listed as available for the survey, the number of
enterprises surveyed in the project and the percentage of enterprises in each
province surveyed with respect to the project total

Province Region Enterprises Enterprises Percentage

available surveyed surveyed
Ha Noi Red River Delta 41 9 14.5
Ha Tay Red River Delta 11 6 9.7
Hung Yen Red River Delta 24 12 19.4
Binh Duong South East 28 19 30.7
Dong Nai South East 17 9 14.5
Long An Mekong River Delta 6 4 6.5
Tien Giang Mekong River Delta 4 3 4.8
Total 131 62 100

1.4.4 Data collection and processing

Before each survey, secondary data and information were collected to obtain an overall
background of livestock production and feed use in a particular province. During the
survey, our experienced enumerators worked under close supervision and were randomly
checked by the project team. The information provided by the respondent sometimes was
not consistent between different sections of the questionnaire because of the reluctance of
some enterprises to provide certain information. After completion of the survey, data
entry was conducted using the Microsoft Access program. The data entry template was
designed and run by the project team at the survey time. The final dataset was converted
to Stata™ format, with notes attached for specific cases so it was easier for doing data
analysis at the later stage.
As mentioned above, some data provided by companies was not very consistent. Data
checking and cleaning were done very carefully to ensure that matching sections of data
were consistent. For example, we compared the stated quantity of raw material inputs
against product output and in a few cases where they were really inconsistent and we
could not resolve why, we rejected the questionnaire from the sample. One of the other
data problems we encountered was the sensitivity over cost of production questions. In
order to deal with this we provided respondents with the opportunity to answer cost of
production in absolute or percentage terms. Then, because we had detailed information on
raw material input costs we could use the percentage cost of production data to infer total

13
costs of production in cases where they did not answer directly. In cases where they did
answer the total raw material cost we used a comparison between the stated costs of
production and the calculated raw material input cost as part of the data checking process.
Ultimately, although the total sample surveyed was 62 mills, only data from 44 mills were
accepted for analysis of scale and cost of production.
Table 2 describes the total original sample size for each ownership status. In addition, the
mills that provided consistent production data were able to be classified by size. The scale
classification used, based on the animal feed production data of mills in 2007, was as
follows: small - less than 10,000 tonnes/year; medium - from 10,000 to less than 60,000
tonnes/year, and the large group are those with production of 60,000 tonnes or more.
Preliminary data analysis indicated that this size classification provided some distinction
between the large and medium-small mills, and the number of small and medium mills
was roughly equivalent. The classification of medium and small firms highlighted the
very small mills which made up half the small-medium mills in the survey.
Around 70% of the total sample was accepted for providing consistent cost of production
and scale data while the rest was omitted (Table 2). Particularly, nearly half of those
companies in the registered private foreign group were rejected during the data cleaning
process due to either non-response or inconsistency in response on the cost of production
data. In this report all the analyses of region and ownership status was done with the total
sample of 62, but data from only 44 mills was used when analyses were based on the
scale classification.

Table 2. For each ownership category: the total number of mills in the original
sample; the number in each classification and total number providing consistent
information for data analysis; and the percentage of the original sample that
provided consistent information

Original % of original
sample By scale classificationa sample
By ownership status Small Medium Large Total
State owned company 3 1 1 1 3 100.0
Equitised 14 6 4 2 12 85.7
Registered private
foreign 13 1 4 2 7 53.9
Joint venture 4 0 2 1 3 75.0
Registered private
national 28 9 9 1 19 67.9
Total 62 17 20 7 44 71.0
a: With respect to feed output, small is <10,000t/yr; medium is 10,000 to <60,000t/yr; large is
>=60,000t/yr

14
1.5 Limitations and structure of the report

1.5.1 Limitations
One of the main limitations of this study was difficulties in approaching enterprises and
collecting some of the information. In particular, most companies were not willing to
provide detailed business information related to production and revenue. Like other
enterprise surveys, the results of this survey depended on external factors that were out of
control of the project team. Though the sampling method was logical, substantial
adjustments had to be made to the actual survey depending on the availability of current
mills, as well as respondents’ willingness to answer questions. As a result, data cleaning
and analyses were difficult and time consuming for our team, as we endeavoured to
ensure that information in different sections of the survey was consistent.
Secondly, limited enumerators and difficulties in approaching the leaders of enterprises
interrupted the survey in different provinces. This difficulty together with the dispersed
distribution of the 62 feed mills located in 7 provinces and 3 ecological regions of
Vietnam meant that survey implementation took longer than anticipated.
Another key constraint was the necessity to omit inconsistent data and observations from
the analyses. A larger sample would have produced results with greater validity and
reliability but due to the limited budget, combined with the broad content requirement of
the study, it was not possible to extend the sample size.

1.5.2 Structure
This report consists of seven additional sections. Section 2 is an overview of the most
recent changes in the Vietnamese feed industry, including a discussion of production, and
price fluctuations of different feed types and raw materials. The results of the feed mill
survey, including data on general information, production patterns, raw material use, feed
output and supply chain as well as other relevant issues (such as transportation,
communication, credit, profitability and investment, opportunities, constraints) are
presented from Section 3 to 7. A summary of the key findings and policy
recommendations for the feed industry in general and SMEs in particular are discussed in
the final section.

15
2 RECENT CHANGES IN THE VIETNAMESE FEED INDUSTRY
The livestock feed processing industry in Vietnam has developed rapidly since the 1990s
with the growth of the livestock industry. The average growth rate of total feed
production has tended to rise since the year 2000, reaching 16.6% on average from 2000
to 2008 (Table 3).

Table 3 . Industrial feed production in Vietnam during the period 2000 – 2008

Complete Concentrated Total Total (complete Growth rate

Year feed feed feed equivalent)
(‘000t) (‘000t) (‘000t) (‘000t) (%)
2000 1,700 330 2,030 2,690
2001 1,950 350 2,300 3,000 11.5
2002 2,400 340 2,740 3,420 14.0
2003 2,650 400 3,050 3,850 12.6
2004 2,700 400 3,100 3,900 1.32
2005 3,238 702 3,940 5,344 37.0
2006 4,361 747 5,118 6,600 23.5
2007 5,300 825 6,125 7,776 17.8
2008 6,882 684 7,567 8,935 14.9
Average
16.6
(%)
Sources: Strategy for Livestock Development to 2020 (Department of Livestock Production 2007), Nguyen
(2009)

Recognizing a potential profit in feed production, there has been an increasing number of
foreign and domestic companies setting up their businesses in Vietnam. Further, due to
the reform policies of the Government as well as foreign and domestic investment
encouragement, multi-national feed companies, such as Cargill, CP, Proconco and Japfa,
have commenced production in Vietnam.
Data from the Department of Livestock Production showed that there were 241 registered
feed mills3 in Vietnam in 2006, of which there were 33 foreign, 10 joint ventures and 198
domestic mills. The total feed production (complete equivalent plus premix) in 2006 was
6612.4 thousand tonnes, accounting for around 75 per cent of the design capacity of
8803.9 thousand tonnes (Figure 1). The Red River Delta, had nearly half of the total
number of Vietnamese enterprises and had the largest capacity of the 8 regions with total
industrial production being 2427.1 thousand tonnes (Figure 1). The South East region had
the largest feed production (3274.5 thousand tonnes) with mills using almost all of their
capacity (Figure 1). The third largest production region was the Mekong River Delta

2
Growth rate slowed down as animal feed for poultry reduced by 25-30% during bird flu (Department of
Livestock Production 2006)
3
The total number of registered feed mills in Vietnam in 2008 is 225, which consists of 42 foreign, 12 joint
ventures and 171 domestic ones. Red River Delta and South East region remain the two biggest feed
producing areas, accounting for 45.8% and 28.9% of the total national feed mills respectively.

16
(771.6 thousand tonnes), followed by the North Central region. The smallest feed
producing region was the Central Highlands with two small mills producing about 200
tonnes. The development of the livestock feed sector, with the existence of big feed
enterprises from abroad, has gradually changed the traditional patterns of raising livestock
and poultry in Vietnamese households. Many households no longer use home produced
raw feeds to raise their animals. Instead they have increased their use of industrial feed in
the Southern provinces, or mix industrial and raw feeds for producing livestock in the
North.

10000 300

250
8000

6612.4
200
thousand ton

6000

no.
150

4000
3274.5
100
2427.1

2000
50
771.6
36.8 22.3 67.6 13.4 0.2
0 0

l
ta
t
st

ta

ta
n

n
st
es

s
io
Ea

el
nd
l

To
De
W

gi
g

Co

D
la
Re

re
th

th

r
er

ive
l
or

st
ig
tra
or

iv

l
tra
N

Ea
H

R
N

n
n

l
Ce

g
ed

tra

h
Ce

on
ut
R

en
h

ek
So
th

ut

M
or

So
N

Industrial feed production Capacity

Region No. of enterprises

Source: Department of Livestock Production, 2006

Figure 1. Number of feed enterprises, total industrial feed production (plus premix)
vs. capacity by region in 2006
Local input availability for feed production, particularly for protein rich ingredients, is
limited compared to local demand for feed, with the deficit being met through imports.
The deficit was almost 3 million tonnes in 2006 which is almost double that of 2005
(Table 4).
It is estimated that more than 10 types of ingredients out of a total of 22 types is imported
by feed enterprises. Data from Department of Livestock Production (2007) showed that
the import quantity of materials for feed production in 2006 reached 3170.7 thousand
tonnes (Table 5) with a value of 11.8 thousand billion VND and accounted for about 40%
of the 30.4 thousand billion VND of local industrial feed production value. Import trends
for some raw materials increased markedly in the two following years, especially for

17
soyabean, soybean cake, fishmeal, premix vitamin, and over 3,000 tonnes of feed
materials has been imported in the first half of 2009. It is clear from the data in Table 5
that the Vietnamese animal feed sector depends more on imports for protein inputs than
for energy inputs. In addition, the domestic industry has not yet produced materials for
premix and additives.
Table 4. Domestic production of the main inputs for feed production and estimated
demand for feed input (1000 tonnes)

Material type 2005 2006

1. Broken rice, paddy and bran4 6084 6090
2. Maize 3401 3437
3. Cassava and potato 2421 2785
4. Soybean and soybean cake 114 127
5. Fish meal 35 112
6. Mineral and premix 68 138
Total domestic output for
feed production 12123 12975
Feed input demand 13630 15864
Deficit -1507 -2889
Source: Strategy for Livestock Development to 2020, Department of Livestock Production (2007)

Table 5. Quantity of imported feed inputs to Vietnam in 2006 (‘000t)

2006 2007 2008 First 6 months

Feed input of 2009
Maize 564.5 612.8 467.8 871.6
Extracted rice bran 190.2 488.0 199.9 259.9
Wheat bran, flour 490.6 333.6 639.5 105.9
Vegetable oil, fish oil 26.4 54.2 - -
Soybean cake 1591.8 1686.3 2161.8 1468.9
Soybean 17.6 17.7 293.3 200.9
Maize gluten 35.0 54.0 23.5 15.9
Animal nutrition 10.7 18.7 166.4 77.7
Lactose - 25.9 10.1 -
Fish meal 54.8 41.2 153.8 50.3
Animal by-products 84.2 - - -
Premix vitamin 8.3 37.5 0.7 12.8
Amino acid (Lyz, Met, Thre) 21.9 19.3 51.9 17.4
Mineral, additive 74.7 98.8 16.1 28.3
Total 3170.7 3488 4184.8 3109.6
Sources: Strategy for Livestock Development to 2020, Department of Livestock Production (2007, 2009)

4
Broken rice is 3% equivalent to rice; paddy for feed production is equal to 3% of its production and bran is
equal to 11%. The share for feed production of maize is 90%; cassava and potato 80% and soybean 33%.

18
Imports of animal feed and materials for feed processing have been on an upward trend,
especially in the last two years (Figure 2). In 2001, the import value was less than
200,000 thousand USD and it increased by 6 times in 2007. The estimated value for 2008
was over 1,700,000 thousand USD.
thousand USD

1,800,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0
2001 2002 2003 2004 2005 2006 2007 2008 Year
(estimate)

Source: MARD, 2009

Figure 2. Vietnam’s import value of animal feed and inputs for feed processing, 2001
- 2008
In the last few years there has been a sharp increase in the price of many raw materials
used in livestock feed production. Figure 3 shows the trends in prices of some raw
materials in Vietnam from 2007-2008. Prices of the two main ingredients (maize and
soybean cake) have been continuously on an upward trend. The price of domestic maize
rose with the international prices, as world demand for making ethanol is increasing.
Soybean cake accounts for 60 to 70% of the production cost of concentrate feed and 20 to
30% of the complete feed cost. It is sourced from countries such as America, Argentina
and India and generally the price has doubled from less than 5,000 VND per kg to around
10,000 VND per kg during the time period, March 2007 to September 2008. Additionally,
prices of Mono Calcium Phosphate (MCP) also steadily increased during the same period.
The price of fish meal seemed to be on a downward trend during 2007 but then started
increasing again sharply from early 2008. It should be noted that there was a relatively
large difference in the prices of imported and locally produced fish meal.
Proconco, a large livestock feed joint-venture company, provided prices for some of the
main feed inputs as well as for complete feed for pigs (Figure 4). Based on the upward
trend in their prices during the year 2007, there appears to be a tendency for feed prices to
be adjusted as input prices go up (Figure 4). Except for the price of cassava which
increased only by 10 percent, the prices of other ingredients rose considerably, especially
soybean cake which was the most expensive with an increase in price of more than 50%
compared to early 2007. The price of complete feed for pigs weighing between 30 and 60

19
kg, grew by around 30% during the 12 months. Given the higher complete feed prices, it
would seem that the changes in raw material input costs were passed on to the buyer.

20000
dong/kg

18000
16000

14000
12000

10000

8000
6000
4000
2000

0
Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08
Domestic maize Imported maize
MCP Yam
Rice bran Fish meal 60% domestic protein
Fish meal 60% import protein Argentina soybean cake

Source: Department of Livestock Production, 2008

Figure 3. Prices of some raw feed inputs in Vietnam during 2007-2008
6000
dong/kg

5000

4000

3000

2000

1000

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Maize Soybean cake Cassava Complete feed (30-60kg)

Source: Department of Livestock Production5

Figure 4. Prices of raw materials and pig complete feed for Proconco company in
2007

5
Note: Proconco’s price (2008) (VND/kg, VAT is not included)

20
3 BACKGROUND INFORMATION ON FEED ENTERPRISES IN
VIETNAM
3.1 General characteristics
Figure 5 shows the size classification of the surveyed feed mills in the north and south of
Vietnam. The size classification used here and throughout the report, unless otherwise
stated is: large size is production greater or equal to 60,000 tonnes/year (n = 7), medium
is those producing between 10,000 and less than 60,000 tonnes/year (n = 20), and those
producing less than 10,000 tonnes/year (n = 17) are classified as small enterprises. In
general, the feed production scale tends to be larger in the south than that in the north.
Half of the total mills in the north are small scale compared to around 27% in the south.
Meanwhile the share of medium and large enterprises is both higher in the south. Around
45% of southern mills are medium-sized ones compared to 27% in the north.

%
60.0

50.0

40.0

30.0

20.0

10.0

0.0
north south
Small Medium Large

Figure 5. Distribution of feed enterprises by production scale in north and south

Vietnam (%)

Table 6 shows the difference between actual output and design output in 2007 by size and
region of surveyed feed mills as well as percent utilization of design output. By region,
the actual average output of small and medium mills is lower in the north compared to
that in the north. There are more small mills in the north than in the south (see Figure 5).
Large mills in the north have relatively larger actual production than those in the south
(78,429 tonnes versus 66,225 tonnes). However, overall, the average feed output of
northern mills seems to be lower than southern ones (18,697 tonnes compared to 26,092
tonnes).
There are some similarities in the use of design capacity of mills at all size groups. In
both regions, enterprises by all size groups produce a little bit less than their design
capacity, except for the case of medium mills in the north (22,400 tonnes of actual output
versus 22,293 tonnes of designed output). A bigger gap is seen in large enterprises located
in the north where their actual output reached less than 80,000 tonnes while their designed

21
output is 110,000 tonnes. Notably, the designed output is very much larger in the northern
large mills than in the southern large ones.
The average capacity utilization is fully maximised in the northern medium mills while it
seems to be lowest in the large group (71.3%). In the south, the utilization rate increases
by production scale, ranging from 89.4% to 98.1%.

Table 6. Actual and designed output of feed mills, and percent utilization of designed
output in 2007, by scale and region
North (n=27) South (n=35)
Actual Designed Percent Actual Designed Percent
output output utilization output output utilization
(tonnes) (tonnes) (%) (tonnes) (tonnes) (%)
Small 2,543 3,255 78.1 5,325 5,955 89.4
Medium 22,400 22,293 100.5 24,818 26,691 93.0
Large 78,429 110,000 71.3 66,225 67,509 98.1
Overall 18,697 22,519 83.0 26,092 27,630 94.4

Revenue from different activities of feed mills is very diverse among the three mill
groups (Table 7). Large mills depend completely on feed production activities while small
ones tend to diversify their business by being an agent or premix producer with the share
of revenue for these activities being 7.5% and 2.5% respectively. Regarding production
activities only, production of concentrate feed is relatively more important for small mills
compared to medium and large mills, with less concentration on complete feed. The
percentage of revenue from complete feed is over 50% for small mills while it is over
80% for both medium and large ones. In terms of magnitude of revenue, large obtain 7
times and medium, 5 times more revenue for concentrate and complete feed than small
mills.

Table 7. Average revenue from activities of feed enterprises in 2007

Revenue (million VND) Share (%)

Complete Conc. Buy and Complete Conc. Buy and

Other Total Other
feed feed sell feed feed feed sell feed

Small 10,505 4,404 1,293 255 16,458 53 37 7.5 2.5

Medium 102,332 22,294 50 0 124,676 82 18 0.2 0
Large 510,100 79,294 0 0 589,394 87 11 0.0 0.0
Overall 140,203 25,644 486 91 166,424 72 24 2.7 0.9

3.2 Labor use and wages

Figure 6 shows the distribution of labor numbers in domestic and foreign-owned
feedmills6. Around two thirds of total domestic enterprises have less than 100 employees

6
Foreign-owned mills include joint-ventures

22
while this number is less than 39% for foreign enterprises. Meanwhile, about one quarter
of total foreign mills have above 300 employees7 compared to only 8.9% of domestic
ones. An analysis of labour productivity is presented in section 4.2.

Foreign
38.89 38.89 22.22
(n=17)

Domestic
66.67 24.44 8.89
(n=45)

0% 20% 40% 60% 80% 100%

Less than 100 100-300 employees More than 300 employees

Figure 6. Labor size of feed enterprises by foreign and domestic ownership

Figure 6 gives some indication of enterprise scale for the whole sample of 62 mills,
Employee numbers can be used as a proxy indication for scale (see footnote 7): with
small enterprises having less than 100 employees, medium enterprises having 100 – 300
employees, and large enterprises having more than 300 employees. Using these criteria,
then for the whole sample of 62 mills, 58.7% are small enterprises, 28.6% are medium
enterprises, and 12.7% are large enterprises. This compares with our classification of 44
mills which gave 38.6% being small enterprises (producing less than 10,000 tonnes/year),
45.5% being medium enterprises (producing between 10,000 and 60,000 tonnes/year),
and 15.9% being large enterprises (producing more than 60,000 tonnes/year). The
classification of large firms is roughly similar; our classification of medium and small
firms in this exercise was chosen to highlight the very small mills which made up half the
small-medium mills in the survey.
Figure 7 shows the number of employees for the firms in our categories of small, medium
and large. Only 14% of the large mills have more than 300 employees, perhaps reflecting
the capital intensive nature of the production. However, a high percentage of both the
small and medium categories have less than 100 employees: 88% and 70% respectively.

7
Vietnam classifies SMEs as those firms with less than 300 employees. In the following we suggest that
medium scale is more than 100 employees.

23
 Large
85.7 14.3
(n=7)

Medium
70 30.0
(n=20)

Small 87.5 12.5

(n=17)

0% 20% 40% 60% 80% 100%

Less than 100 100-300 employees More than 300 employees

Figure 7. Labor size of feed enterprises by production scale

Figure 8 shows the average salary that was paid to labourers in small, medium and large
enterprises. Office staff usually receive a higher salary than factory floor workers and the
difference is considerable, especially in large mills. Considering mills by production
scale, in large mills, the salary of office staff is nearly double and that for workers is 1.5
times higher than that in small mills. Generally, family laborers tend to have a lower
salary than hired labor.

4000

3500
000VND/person/month

3000

2500

2000

1500

1000

500

0
Total Family Hired Total Family Hired Total Family Hired

Small Medium Large

Admin/Technic/Marketing Factory workers

Figure 8. Average salary for labor of feed enterprises by production scale

24
3.3 Infrastructure
Infrastructure of feed mills can be mainly listed as land, storage facilities, processing
equipment. The average land owned or leased by feed mills in general slightly larger for
the northern mills than for the southern ones (Table 8). Also, nearly 95% of total land is
being used by northern mills compared to only 82.7% by the southern mills.
By scale of production, land area normally tends to rise with production level. The share
of land being used by feed mills is also likely to increase with production scale. This is
true for mills in both regions, except for large mills located in the south that only use
59.5% of their total land for their business compared to 100% for large mills in the north.

Table 8. Land area owned/leased and percentage of land being used by the feed
enterprises, by scale and region

North (n = 27) South (n = 35)

Land area (m2) % being used Land area (m2) % being used

Small 9,161 93.8 7,470 73.3

Medium 15,141 93.3 11,036 92.3
Large 19,250 100 18,900 59.5
Overall 12,898 94.9 11,136 82.7

Southern feed enterprises are more likely to rent land for their business than those in the
north (Table 9). Around two thirds of mills in the south have to rent land compared to
45.5% in the north. By production scale, large mills rent land more often than the other
two groups: notably, all southern large mills rent land for their business. Small and
medium mills often have their own land for their business, potentially restricting their
production expansion8.
Of the large mills in the south that rent land, only one third are located in rural areas,
while this proportion in the same group in the north is 75%. It means that those large
mills in the south have some certain disadvantages compared to northern ones in terms of
rent cost, as rents are likely to be higher in urban areas. Small and medium mills in the
two regions, that are less likely to rent land for their business, often tend to locate more in
the rural area rather than in the urban area, especially those in medium group (100% in
the north and 61.5% in the south). This indicates that small and medium mills may have
lower rental costs compared to large ones. In addition, small enterprises may have some
certain advantages in terms of locating near input supply areas and customers while they
may face some difficulties in terms of infrastructure such as road network, information
transfer, and electricity supply.

8
Vietnamese SMEs often use their own land for their business and seem to encounter difficulties when
renting land. For those who rent land, there are often obstacles in clearing spaces and receiving
compensation money (Le Xuan Ba et al. 2007).

25
Table 9. Distribution of enterprises owning or renting land and location (percent)

North (n=27) South (n=35)

Location Land ownership Location Land ownership
Urban Rural Own Rent Urban Rural Own Rent
Small 27.3 72.7 45.5 54.6 50.0 50.0 60.0 40.0
Medium 0.0 100.0 85.7 14.3 38.5 61.5 30.8 69.2
Large 25.0 75.0 25.0 75.0 66.7 33.3 0.0 100.0
Overall 18.2 81.8 54.6 45.5 45.5 54.5 33.3 66.7

Storage facilities were classified as either being open or closed facilities9. Only a
percentage of small and medium mills in the south report having open storage facilities
(Table 10). All northern mills report having only closed storage facilities, and 100% of all
mills, except for medium-sized mills in the south, report having closed storage facilities.
The percentages of firms having chilled storage facilities was low with 11% of firms in
the north and 34% of firms in the south reporting having these.

Table 10. Percentage of enterprises having storage equipment, by scale and region

North (n = 27) South (n = 35)

Open Closed Open Closed
Small 0.0 100.0 16.7 100.0
Medium 0.0 100.0 38.5 76.9
Large 0.0 100.0 0.0 100.0
Overall 0.0 100.0 27.3 86.4

In comparison to North Vietnam, enterprises in the south seem to have higher storage
capacity: combined open and closed storage being an average of 13,357 tonnes in the
south compared to 6,938 tonnes in the north (Table 11). However, small mills in the
south have a lower storage capacity then small mills in the north. As would be expected,
the capacity of storage facilities tends to rise with production size.

Table 11. Average capacity (tonnes) of storage facilities

North (n = 27) South (n = 35)

Open Closed Open Closed
Small - 4,896 50 1,903
Medium - 6,129 5,200 6,864
Large - 14,754 - 27,750
Total - 6,938 4,342 9,015

Table 12 shows some indicators regarding storage of the two main raw material inputs
which are maize (energy-rich input) and soybean cake (protein-rich input) by region and
9
Open storage facilities include sheds without walls; closed storage facilities comprise sheds with walls,
warehouses, chilled storage, houses and silos.

26
production scale. The average storage period tends to be shorter in the north compared to
the south, both for maize and soybean cake. This may be related to the fact that storage
capacity is larger in the south than the north, except for small mills (Table 11). The
number of storage days is also larger for medium and larger enterprises.

The average stored volume of raw materials is smaller in small and medium mills
compared to large mills and is also lower in the south than in the north (which can also
explain the longer storage period in the south). It is noticeable that large mills were
storing a greater volume of soybean cake relative to maize (10,150 tonnes soybean cake
versus 4,333 tonnes maize), whereas small and medium mills were storing relatively
similar quantities of maize and soybean cake. This is probably a purchasing strategy for
imported soybean cake able to be used by large mills with greater storage capacity.

Reliance on imports was calculated as the share of input quantity from import sources
(both direct and indirect) of the total quantity purchased (Table 12). Generally, mills
depend heavily on imports for soybean cake (protein input) rather than maize (energy
input) which is often locally grown. However, the import reliance for maize is relatively
higher in northern mills compared to those in the south. While small and medium mills
source most of their maize from domestic sources, large mills import over a quarter of
their total maize. We examined the source of maize inputs by class and found that there
was a significant difference between firms in the reliance on imports. For soybean cake,
medium and large mills mainly purchase imported sources, whereas only around 70% of
total purchases by small mills are imported.

Table 12. Period, volume and place of material storage of feed enterprises by region
and scale

Type of North South Small Med Large

Indicator
input (n=27) (n=35) (n=17) (n=20) (n=7)
Average storage period (days) 134 150 90 169 152
Average stored volume (tonnes) 2,406 2,134 206 2389 4333
Main place of storage (%)
Maize
1. Open structure 0.0 27.3 33.3 8.3 0.0
2. Closed structure 100.0 72.7 66.7 91.7 100.0
Reliance on imports (percent) 24.4 12.6 0 1.1 27.4
Average storage period (days) 117 159 86 166 181
Average stored volume (tonnes) 3,452 2,182 216 2307 10150
Soybean Place of storage (%)
cake 1. Open structure 0.0 26.1 21.4 11.1 0
2. Closed structure 100.0 73.9 78.6 88.9 100
Reliance on imports (percent) 97.5 99.5 71.5 95.4 100

With regards to processing equipment, more northern mills have automatic production
systems than those in the south (25% versus 7.4%). Noticeably, all large and small mills
in the south use semi-automatic processing equipment and this was also the case for
northern medium-sized mills (see Appendix, Table A1). Southern enterprises tend to use
overseas technology more than those in the north (77.8% versus 59.3%). However, all
northern large mills use foreign technology while only 37.5% of southern mills with same
size have this type of technology10 (see Appendix, Table A2).

10
This result may be due to data problems.

27
4 COST STRUCTURE AND RAW MATERIAL USE
4.1 Cost structure of feed enterprises
Production costs are shown in Table 13 to be highest for the smallest firms, and this is
significantly different at the 5% level. Raw material costs are highest for the smallest
firms although the large variance in costs means that there is no difference in mean feed
input costs between small and medium firms. Raw material costs are significantly cheaper
for the large group at the 10% level, possibly because of their more efficient technology.
Costs of labour appear to be higher for smaller firms but the means are not significantly
different according to our analysis of variance. Similarly, per tonne costs of electricity,
repairs, quality control, rent and management are not significantly different at the 10%
level. Although credit costs appear to be much larger for small firms, this mean was
largely due to one firm that had very high credit costs, and the analysis of variance
showed no significant difference in means at the 10% level. Other costs, which include
marketing and taxes, were significantly lower for the largest firms.
Per kilogram of output expenditure on inputs other than raw materials is shown in the
third row of the table. Small enterprises have costs of 2050 VND per kg of output,
whereas large firms have costs of only 970 VND per kg of output. These cost differences
are significant at the 11% level. Non-raw material costs of production were not
significantly different between medium and large scale firms.

Table 13. Cost of production (‘000 VND per kg output) and share of total cost %

Small (n=13) Med (n=20) Large (n=7)

s>m>l
Total Cost 8.42 6.34 5.38 (5%)
s,m>l
Raw material costs 6.37 76% 5.05 80% 4.41 82% (10%)
s>m,l
Non-raw material costs 2.05 24% 1.29 20% 0.97 18% (11%)
in which:
Labour 0.44 5% 0.31 5% 0.32 6% n.s.d
Electricity 0.12 1% 0.16 3% 0.09 2% n.s.d
Repairs and Maintenance 0.05 1% 0.06 1% 0.03 1% n.s.d
Quality Control 0.01 0% 0.02 0% 0.02 0% n.s.d
Rent 0.03 0% 0.03 0% 0.01 0% n.s.d
Management 0.21 2% 0.07 1% 0.16 3% n.s.d
Credit 0.44 5% 0.08 1% 0.06 1% n.s.d
Other 0.75 9% 0.55 9% 0.28 5% s,m>l

In general, there seems to be little difference between the three scales with regards to cost
structure. Raw material purchases occupy the highest percentage of the total cost, and it is
higher with larger production scale: ranging from 76% for mills in the small group to 82%
in the large one. Labour costs range from 5% to 6% of total costs but there are no
significant differences between firms. Similarly, none of the other non-raw material costs
are significantly different, except for the ‘other cost’ category. Other costs, which include
transportation, bags and taxes, are lower for large firms than for the smaller groups. Small
firms spend as much on credit as on labour (5%) but this high cost is not significantly

28
different from the larger scale producers, probably because of high variance in credit
costs for the small group.

4.2 Procurement of raw materials

The results in this section compare prices paid for raw materials from different sources,
payment methods for raw materials, patterns of purchase, and storage of main raw
materials for mills of different production scale.

4.2.1 Prices paid for raw materials and percentage of raw material from
different sources
Raw material purchase costs per tonne of output for large, medium and small enterprises
by ownership type are shown in Figure 9. Generally, input costs per unit of output tend to
decrease as production scale increases, for both foreign and domestic firms.
However, foreign firms pay more than domestic firms for their raw materials per unit of
output. More specifically, for medium scale enterprises, the cost of raw material
purchases paid by domestic companies is only 4 million VND per tonne of output while
the cost for foreign companies is nearly 6 million VND/tonne of output. This trend was
also similar for large enterprises when comparing foreign and domestic firms.

7.000

Dom es tic Foreign

6.000

5.000
000VND/ton output

4.000

3.000

2.000

1.000

0.000
Small Medium Large Total

Figure 9. Raw material purchase costs per ton of output, by ownership type and
production scale
There are many types of raw materials which are used to produce animal feed but the
share of inputs depends on whether complete or concentrated feed is made. It should be
noted that these inputs could also vary between mill size groups as a result of their
different product outputs (e.g. the ratio of concentrate to complete feed – see Table 6).
Figure 10 shows the composition of energy ingredients (maize, cassava, bran, etc.) as the
share of total energy inputs used. The share of maize tends to increase with the scale of
production (19.5% for small scale mills, 32.4% for medium ones and 39.5% for large
ones). Maize also accounts for the largest share of energy inputs used by large mills,
followed by bran (34.6%). On the contrary, for cassava, it seems to be lower in the large

29
group compared to the other two groups (20.9% versus 27.7% and 24.1%). Bran (from
rice, maize, wheat) is used the most in the small group with 39.7% out of the total energy
inputs while it is used least in the medium scale mill class (27.4%). Other inputs such as
broken rice are mixed with other main ingredients at a higher share in the small and
medium enterprises when compared to the large enterprises.
The composition of protein rich ingredients is shown in Figure 11. Soybean cake is the
most commonly used protein ingredient, and is more likely to be used by large mills.
Groundnut cake is used by small and medium mills (around 10%) but not by large mills.
The proportion of fish meal and meat meal tends to decrease by production scale, ranging
between 3.9% and 9.9% for the former and 4.4% and 10.6% for the latter.

100%
4.9
16.8 12.5

80%
34.6
27.4

39.7
60% Other
Bran
20.9
27.7 Cas s ava
40% Maize

24.1

20% 39.5
32.4
19.5

0%
Small Medium Large

Figure 10. Composition of energy rich ingredients as percentage of total energy

inputs used

100%
12.4
19.7
30.3 4.4
80% 3.9
10.6

9.3 9.3
Other
60% Meat meal
5.5
Fish meal
63.0 Soyabean cake
Groundnut cake
40%
48.0 Soyabeans
45.4

20%

10.3 16.3
8.4
0% 2.1 1.2
Small Medium Large

Figure 11. Composition of protein rich ingredients as a percentage of total protein

inputs used

30
Feed inputs vary between enterprise classes when comparing the substitution level
between energy inputs and protein inputs. While maize is the largest input for feed
production in the large and medium classes, bran is the predominant input used by the
small enterprises. For protein materials, soybean cake is always the most important
ingredient in all classes, although the amount used as a percentage of total protein inputs
does vary between classes. These results indicate a higher substitution level of energy
inputs (which are more likely to be sourced domestically) than protein inputs (which are
more likely to be imported).
Because input costs depend on the type of output, with concentrate costing more to
produce because of its higher protein content, it is difficult to draw a conclusion regarding
inefficiency from the average cost of raw material input referred to in Table 13. In Table
14 we look in detail at the nature of raw material purchases, in terms of prices paid for the
same input, sources of supply, and whether these are influenced by the scale of firm or
location. The number of respondents who provided details on the price paid for inputs by
source was small (Table 14). Results indicated that there were no statistical differences
between the prices paid for any of the raw material inputs by scale of firm (Table 14a).
The statistical analysis may be affected by the small sample size, but even the magnitude
of the mean reported prices was small. Analyses of prices paid by location also showed
that there was no significant difference between North and South Vietnam (Table 14b).
Generally, prices for energy rich inputs were around 3500 VND/kg, although cassava was
considerably cheaper. The price of high protein inputs, soybean cake and fishmeal, were
at least double the price of energy ingredients. The prices paid for imported versus
domestic raw materials was also analysed at the aggregate level, with both sources of
imported product pooled into one category (Table 14c). There was no significant
difference in prices paid for maize between imported and domestic sources. The mean
price of soybean cake on the domestic market appeared to be different although the
analysis of variance showed no difference, probably due to the very large variance in the
price of imported product which possibly reflects quality variation. Similarly, the mean
price of imported fishmeal appeared to be higher than for domestic sources but this
difference was not statistically significant.

Table 14. Comparison of raw material input prices by scale, source and location

a. Comparison of prices paid by scale and source for the main products and sources:
Item Mean Prices VND per kg Sample size
Small Medium Large S M L
Maize: Domestic 3,750 (647) 3,942 (667) 4,050 (386) nsd 6 12 7
Maize: All sources 3,750 (647) 3,941 (667) 3,998 (380) nsd 6 12 8
Rice: Domestic 3,750 (1156) 3,636 (447) 4,128 (667) nsd 4 5 2
Cassava: Domestic 2,450 (659) 2,753 (482) 2,472 (664) nsd 7 9 6
Wheat bran: All sources 3,503 (831) 3,687 (1241) 3,917 (1152) nsd 8 4 9
Rice bran: All sources 3,309 (784) 3,166 (411) 3,161 (879) nsd 6 7 4
Soybean cake: All 6,233 (1176) 6,901 (2292) 7,190 (2278) nsd 10 13 9
sources
Fishmeal: All sources 9,368 (3495) 11,685 (3149) 11,420 (1429) nsd 7 8 5

b. Comparison of prices paid by location and source, main products and sources:
Mean Prices VND per kg Sample
North South N S
Maize: Domestic 4,100 (283) 3,828 (688) nsd 9 16
Cassava: Domestic 2,600 (418) 2,574 (634) nsd 5 17
Soybean cake: Avg price 6,415 (1,057) 7,052 (2,473) nsd 14 18
Fishmeal: Avg price 11,250 (957) 10,697 (3,364) nsd 4 16

31
c. Comparison of prices paid by source, main imported products:
Mean Prices VND per kg Sample
Domestic Imported D I
Maize 3,926 (584) 3,827 (228) nsd 9 16
Soybean 7,650 (495) 6,482 (1,838) nsd 5 17
Fishmeal 10,429 (2,957) 13,900 (3,024) nsd 14 18

Table 15 shows the percentage of raw material inputs purchased from domestic and
imported sources. Energy-rich inputs such as maize are mostly bought from local sources
however large mills are less likely to buy from these sources compared to the two other
smaller groups. Locally produced bran is also sourced by all production scale groups, less
so by large mills, despite the price of local bran being higher than imported bran. Soybean
cake, on the contrary, is mainly imported directly by mills (100% for large mills and
58.2% for medium ones) or from an imported domestic market source (71.4% for small
scale mills).

Table 15. Percentage of raw material purchases from different sources by

production scale

Input Source Small Medium Large

Maize Domestic 100% 98.9 72.6
Maize Domestic importeda 0% 0.0 0.8
Maize Direct imported 0% 1.1 26.6
Bran Domestic 67.4 90.4 56.3
Bran Domestic imported 32.6 7.6 19.1
Bran Direct imported 0.0 2.1 24.6

Soybean cake Domestic 28.5 4.6 0.0

Soybean cake Domestic imported 71.4 37.2 0.0
Soybean cake Direct imported 0.2 58.2 100.0
Fishmeal Domestic 93.7 66.4 100.0
Fishmeal Domestic imported 6.3 12.0 0.0
Fishmeal Direct imported 0.0 21.6 0.0
a “Domestic imported” means material purchased from a domestic supplier who has imported the material.

It is known that the supply of protein rich materials locally produced in Vietnam is
insufficient to meet demand, especially for soybean cake. Small and medium mills both
source some soybean cake produced in Vietnam: 28.5% and 4.6% respectively. Fish meal
is the only main protein rich ingredient that comes largely from domestic sources.
Secondary data from the Department of Livestock Production suggested that about two
thirds of fishmeal used for feed production comes from local sources.
The analysis of raw material input prices indicated that there was little difference in the
price paid by different classes of firms. This means that there must be another reason why
the average raw material input cost is higher for small firms. Unless there is significant
wastage of materials on the part of small firms, the most likely explanation is that small
firms produce more concentrates and therefore have to pay more for inputs. The
composition of output and the profitability by scale is discussed in a later section.

32
Figure 12 shows the efficiency of using raw material and labour to produce 1 tonne of
animal feed for the different size enterprise groups. The measurement of unit labour was
shown to be statistically different between small and medium scale, with a smaller
amount of labour needed in the medium group, 11 labourers to produce 1 tonne of output,
compared to around 19 labourers for small enterprises. This may reflect under utilisation
of labour on the part of small firms due to the scale of operation, or it may also reflect a
greater reliance on more automated processes (that is, capital substitution) by large firms.
The measure of input quantity versus output quantity was found to be generally close to
one indicating that the data is consistent within the different parts of the survey (Figure
12). Variation about one may reflect addition to, or draw down from storage. However,
results indicated that there were no statistical differences between the input quantity used
by scale of firm.

tonne labour
1.4 20
Input/1 tonne ouput
1.2
labour/1 tonne ouput 16
1.0

12
0.8

0.6
8

0.4
4
0.2

0.0 0
Small Medium Large
(n=17) (n=20) (n=7)

Figure 12. Inputs used to produce one tonne of feed output by production scale

4.2.2 Providers of raw materials

In this study it was found that feed inputs in general were commonly provided by private
processing businesses, followed by traders (Table 16). Farmers and traders seemed to
have some role in providing materials to small and medium mills, but not to large ones.
State-owned companies were found to be the only provider of bran to large feed
enterprises.
Considering each category of material input:
• Maize was mainly bought from private processing business who supplied about
80.5% of the grain to large mills, and over 50% to other mill groups. Traders and
farmers also provided maize to mills in the small and medium groups, but not to large
mills.

33
• Cassava: mills in the small and medium groups depended on traders and farmers as
their main suppliers of cassava, while large firms bought 100% of their cassava
requirements from private processing businesses.

Table 16. Percentage of raw material inputs purchased from different suppliers for
each production scale of feed enterprises

Private
Input State owned
Farmer Trader processing Other
type enterprise
business
Maize 16.7 30.0 53.3 0.0 0.0
Cassava 6.0 94.0 0.0 0.0 0.0
Small Bran 0.0 0.0 100.0 0.0 0.0
Soybean
10.8 45.8 43.3 0.0 0.0
cake
Maize 12.5 30.0 57.5 0.0 0.0
Cassava 24.0 50.0 26.0 0.0 0.0
Medium Bran 0.0 0.0 100.0 0.0 0.0
Soybean
12.2 31.1 56.7 0.0 0.0
cake
Maize 0.0 0.0 80.5 0.0 19.5
Cassava 0.0 0.0 100.0 0.0 0.0
Large Bran 0.0 0.0 0.0 100.0 0.0
Soybean
0.0 0.0 68.3 12.0 19.7
cake

• Bran: the noticeable feature was that while both small and medium mills bought all of
their bran from private processing businesses, large mills purchased 100% of their
bran requirements from state owned enterprises.
• Soybean cake: Similar to maize, soybean cake was bought from three different
sources (farmers, traders and private processing businesses), but private processing
businesses dominated the market.
In conclusion, the role of traders and farmers as direct suppliers to small and medium
mills may be important in terms of supporting employment of farmers and traders. This
finding presents a significant difference in the supply chain between large and
small/medium mills.

4.2.3 Payment method for input purchase

Feed enterprises tended to indicate “pay at purchase” as their main method of payment for
raw materials, but the proportion decreased from small scale to larger scale enterprises:
73%, 55% and 50% respectively (Figure 13). “Pay on credit” was selected as the second
most common payment method ranging from 25% to over 30%. The lower proportion of
“pay at purchase” and higher “pay on credit” by larger scale enterprises may be explained
by the fact that larger mills often have a closer relationship with suppliers, and higher
prestige and possibly credit worthiness, compared to smaller enterprises.
Only medium-scale firms purchased inputs using “pay in advance”: 15% of input
purchases were paid in advance by medium-sized mills. This method helps ensure a stable
supply, especially when raw materials are scarce.

34
 %
80

70

60

50

40

30

20

10

0
Small Medium Large Overall
Pay in Pay at Pay on Other
advance purchase credit

Figure 13. Payment methods used for raw material purchases, by production scale
Figure 14 shows the percentage of firms having to pay VAT when purchasing raw
materials. The percentage of firms paying VAT increased with increasing production
scale, for both energy and protein inputs, but less so for energy inputs. Only around 70%
of small firms and 90% of medium firms paid VAT on energy inputs. However, for both
small and medium enterprises, the proportion of firms paying VAT on purchased protein
inputs was generally higher than when buying energy inputs. This is because the sources
of the former mainly come from outside Vietnam rather than locally produced sources.
All large mills have VAT receipt for 100% of their inputs, as their providers are often
state enterprises or private processing businesses rather than farmers or traders.
%
100

80

60

40

20

0
Small Medium Large

Energy Protein

Figure 14. Percentage of firms paying VAT for raw material inputs, by production
scale

35
5 FACTORY OUTPUT
5.1 Output types
Pig feed was the most commonly produced feed type, being produced by 88.2% of total
interviewed firms in the small group, and all mills in the medium and large groups (Table
17). The next most commonly produced product was chicken feed, followed by cattle
feed, with a higher percentage of larger enterprises producing these two feed types (Table
17. Noticeably, there were a considerable percentage of firms producing other feed
products such as premix, especially those mills in the large group where 71.4% of them
were involved in this activity. The proportion of mills producing fish feed was quite
modest, but more medium mills were involved than large ones (25% versus 14.3%).
Finally, it can be generally said that the larger the size of the enterprise, the more likely
they are to be involved in producing a variety of feed products.
Table 17. Percentage of firms producing each type of animal feed, by production
scale and region

Scale Region Pig Chicken Cattle Fish Other

North (n=11) 100.0 45.5 9.1 0.0 18.2
Small South (n=6) 66.7 16.7 16.7 16.7 16.7
Overall (n=17) 88.2 35.3 11.8 5.9 17.6
North (n=7) 100.0 71.4 28.6 0.0 28.6
Medium South (n=13) 100.0 69.2 15.4 38.5 38.5
Overall (n=20) 100.0 70.0 20.0 25.0 35.0
North (n=4) 100.0 75.0 50.0 0.0 75.0
Large South (n=3) 100.0 100.0 66.7 33.3 66.7
Overall (n=7) 100.0 85.7 57.1 14.3 71.4

By region, a lower percentage of small mills in the south were involved in producing pig
feed compared to those of the same size in the north (Table 17). More northern mills in
the small and medium groups were producing chicken feed, while by contrast, more large
mills located in the south tended to be involved in producing chicken feed. Except for the
medium group, southern enterprises tended to be more engaged in producing cattle feed
than those in the north. Noticeably, while fish feed was not produced by any of the
surveyed mills in the north, a considerable percentage of southern mills produced this
output, particularly the medium and large enterprises. This is probably related to the
location of intensive fish production, which is more concentrated in the south.
When feed is separated into complete and concentrated feed, regardless of specific type of
livestock, all large mills were involved in producing both complete and concentrate
(Figure 15). In this study, all firms in the medium group were engaged in the manufacture
of complete feed and almost all (95%) produced concentrate feed (Figure 15). A lower
share of small enterprises was making complete and concentrate feeds which is consistent
with data presented in Table 7 which showed that small firms tend to diversify their
business beyond production activities. However more small enterprises produce
concentrate feed than produce complete feed (82.4% versus 64.7%). This helps explain
why raw material input costs are higher for small firms.

36
 100

80

60

40

20

0
Small Medium Large

Complete feed Concentrate feed

Figure 15. Percentage of firms producing complete and concentrate feed

When feed production is separated into complete and concentrate products in a more
detailed way, generally there was a higher percentage of larger mills producing each type
of feed than for the small group (Table 18). While all large mills and almost medium ones
were involved in producing feed for pigs, only around 59% and 82% of mills in the small
group produced pig complete feed and pig concentrate feed respectively. An even bigger
production difference was seen in the case of chicken complete feed, with more or less
80% of medium and larger mills producing this output, compared to around 18% of mills
in the small mill class. The pattern of cattle feed production was similar, with more large
scale mills producing this product. Small mills are only engaged in producing complete
feed for cattle rather than concentrate feed. There were no mills in the small and large
groups producing concentrate fish feed, and also a relatively small share of these mills
were involved in producing complete fish feed, compared to those in the medium group.
Data on feed prices are summarized in the Appendix (Table A3). Pig and chicken feeds
were the most commonly produced items and therefore we have enough price data to
analyze for differences between firm types. These are reported in Table 19. In comparing
between feed types at the aggregate level we found, as expected, that complete feed prices
were significantly lower than concentrate prices, and this was significant at the 1% level.
There was no significant differences in the price of complete feed between species
(comparing pig and chicken), nor for concentrate. The premium on concentrate feed was
higher for chicken, at 3250 VND per kg compared to 2680 for pig. Comparing price data
for pig complete feed, we found that prices were significantly higher in the South, and the
price difference was 920 VND per kg, or 19% of the northern price. The price charged by
small firms was significantly lower than the price charged by medium scale firms,
although the price by the large scale firms was not significantly different from either of
these other groups. The mean price discount for small firms over medium firm prices was
1400 VND per kg.

37
Table 18. Percentage of firms producing complete and concentrate feed for livestock
types

Mill class
Small Medium Large
Complete feed:
Pig complete 58.8 100.0 100.0
Chicken complete 17.6 70.0 85.7
Cattle complete 11.8 20.0 42.9
Fish complete 5.88 25 14.3
Concentrate:
Pig concentrate 82.4 95.0 100.0
Chicken concentrate 23.5 30.0 28.6
Cattle concentrate 0 5.0 14.3
Fish concentrate 0 5.0 0

Table 19. ANOVA analysis of pig and chicken feed prices (‘000VND per kg): mean,
standard deviation and price difference by region and production scale

Mean s.d. N Difference

Overall: Pig Complete 5.39 2.08 36 a
Pig Concentrate 8.07 2.45 37 b 2.68
Chicken Complete 5.26 1.09 24 a
Chicken Concentrate 8.51 3.80 12 b 3.25
Pig complete: North 4.69 1.59 17 c
South 5.61 1.46 18 d 0.92 (19%)

Small 4.13 1.21 9 e

Medium 5.53 1.74 19 f 1.40
Large 5.49 0.92 7 n
Pig concentrate: North 8.06 1.30 18 n
South 8.58 1.66 13 n

Small 7.99 1.21 11 n

Medium 8.28 1.54 17 n
Large 8.76 1.88 4 n
Chicken complete: North 5.17 2.58 18 n
South 5.61 1.46 18 n

Small 5.06 3.16 10 n

Medium 5.53 1.74 19 n
Large 5.49 0.92 7 n
Note: Group a significantly lower than b at 1% level; group c significantly lower than group d at
10% level; group e significantly different from group f at 10% level, n group not significantly
different from others.

38
5.2 Profit
Results of the cost of production analysis indicated that small firms do have higher costs,
but it is not possible to distinguish whether this is due to inefficiency or due to difference
in product characteristics. As was noted in the last section, small firms tend to produce
more concentrate, for which inputs are more expensive. We also found that there appears
to be price discounting by small firms compared to medium sized firms for pig complete
feed, but since we cannot directly compare their costs of production at the level of feed
type, we cannot directly compare profits at this level. It is possible that small firms are
producing lower quality complete feed with lower input costs and passing on the savings
in terms of price discounts. Because of product heterogeneity, and because the only cost
of production data we have is at the firm level, the only measure of efficiency we have is
whole of operation profit. These are compared in Table 20. The mean profit of the 15
small firms was -0.07 million VND. That is, at the mean level they are making a loss,
although variance was very high, with a coefficient of variation of 4, suggesting some did
very poorly and others made a profit. Despite the high variance in profits for the smallest
group, the statistical analysis indicates that the profit of medium sized firms was
significantly larger. Whilst mean profit of the large firms was found to be similar to the
medium firms in terms of means, variance, and is not statistically different; the test of
means between small and large firms was only significant at the 23% level, due to the
small sample from large firms.

Table 20. Profit (million VND) by production scale

Mean Standard deviation N

Small -0.07 0.31 15
Medium 0.12 0.12 20
Large 0.10 0.11 7
Overall 0.05 0.22 42
ANOVA results: S < M (3%); S<L (23%); M = L

Whilst the conclusion is that small firms have lower profits than their larger competitors,
it is useful to analyze how the profitability amongst small firms is affected by their
product mix. As was noted previously, high costs of production may be due to the greater
emphasis on concentrates. In Table 21, costs and profits per kg of output are shown for 3
groups of firms, classified by the share of concentrate in their total output. Thirty one
firms had less than 20% of total output as concentrate, 6 firms produced between 20%
and 40% of output as concentrate, and 5 firms were focused largely on concentrate
production with more than 80% of output as concentrate. Analysis of variance on the data
showed that the firms specializing in concentrate production had significantly higher costs
of production per kg than the other 2 groups (which were not statistically different from
each other). However, there was no significant difference in the calculated profit per kg of
output.

39
Table 21. Cost and profit for firms grouped according to relative importance of
concentrate production
Output share that is concentrate N Cost (‘000 VND per kg) Profit(‘000 VND per kg)
Group 1: <20% concentrate 31 5.16 (1.96) 0.04 (0.26)
Group 2: 20-40% concentrate 6 4.86 (2.68) 0.15 (0.15)
Group 3: >80% concentrate 5 7.82 (1.30)* 0.05 (0.07)

*significantly higher than Group 1 at 1% level and Group 2 at 10% level.

5.3 Market share and competition

In order to gauge how firms felt about their position in the marketplace, we asked them to
nominate how many competitors they had. Domestic (and generally small) mills tend to
face high competition (see Appendix A4 for these data in detail). While only 2.3% of
domestic mills said they have few main competitors, the rest (97.7%) said they have
many competitors, compared to 58.8% (few competitors) and 41.2% (many competitors)
for the foreign group. By size of production, over a quarter of the large enterprises said
they have few main competitors, while this percentage was less than 6% for the small mill
class. If we assume that these main competitors are those in the same group, we can say
that the number of domestic/small feed mills contributes to the level of competition for
the domestic mills, whereas competition is less for the fewer foreign/large mills.
However, domestic/small mills may also think that the foreign/large mills are their
competitors.
Firms said that their market share in their main market in general was around 10%. A
much higher market share was achieved by large feed mills in their main market (23.2%),
compared to the small and medium mills.
5.4 Nutrient content and additives use
In this study, seventy one percent of foreign firms listed pig complete feed as their main
product, compared to 58.5% of domestic firms; whereas 14.6% of domestic firms listed
pig concentrate as their main product compared to 5.9% of foreign firms (Table 22). Only
domestic firms (12.2%) listed chicken complete feed as their main product. More foreign
firms listed complete fish feed (17.7%) and fish concentrate (5.9%) as their main product,
compared to domestic firms: 9.8% and 2.4% respectively (Table 22).
Of many nutrition ingredients for livestock feed, protein is considered as one of the most
important indicator of quality. Protein content tended to be lower in feeds produced by
domestic mills compared to foreign mills, with 16.1% versus 16.5% for pig complete feed
respectively (Table 22). A much bigger gap was seen in complete feed for fish: with
protein content of 20% for feed produced by domestic mills versus 36% for foreign mills.
However, ANOVA analysis showed that there was no statistically significant difference
in the protein content by ownership type.
Findings from this study suggested that feed additive use was more likely in foreign firms
than in domestic ones. Particularly, 100% of foreign enterprises used additives for
producing pig concentrate feed, compared to 50% of domestic enterprises (Table 22).

40
 Table 22. Protein content of main products and share of firms using additives, by
ownership type

Domestic Foreign
Protein
% of firm % of firm Protein contenta
Species Type of feed content % of firm % of firm
listing as listing as the (%)
(%) using using
the main main
additives additives
product mean Sd product mean Sd
Pig Complete 58.5 16.1 1.8 41.7 70.6 16.5 2.3 58.3
Pig Concentrate 14.6 45 3 50.0 5.9 - - 100.0
Chicken Complete 12.2 16.5 1.1 20.0 - - -
Chicken Concentrate - - - 50.0 - - - 66.7
Fish Complete 9.8 20 7 - 17.7 36 8 -
Fish Concentrate 2.4 - - 100.0 5.9 - -
a. Information on protein levels and additives was only asked about main products produced by enterprises.
Missing data in this table occurs if any type of feed is not mentioned by survey respondents as the main
product.

41
6 SUPPLY CHAIN
Supply chain management in developing countries has become more important as
consumers not only require products with high quality and safety produced under strict
production management, but also because products are transferred among many
intermediaries until they come to final users. According to den Hartog (2005, cited in
Pluske 2007), supply chains are mainly affected by five basic factors: food safety, quality,
production circumstances, cost price and information. In this section, we report on the
livestock feed supply chain, quality control procedures undertaken by feed mills, and
services and information provided by feed mills.
6.1 Distribution channels – transportation distances

This section discusses transport distances, and how feed and raw materials are
transported. In northern Vietnam, use of trucks was found to be the most common form of
transport used by all categories of mills (see Appendix, Table A8) and is generally the
only means of transport to deliver local maize. In some instances, mostly for the
distribution of outputs, boats were used for transport. Around 33% of large mills also
used boats to transport locally produced cassava, and 50% used boats for the transport of
local rice.
In the south, a higher percentage of feed mills used boats/ships for transporting outputs
(complete and concentrate feed). For example, one quarter of medium-size mills and 11%
of small enterprises used this type of transport while the rest used trucks.
The distance to main source of inputs (both local as well as imported) tended to be further
with higher production scale (see Table 23). The distance to main customer (of complete
and concentrate feed) appeared to be highest in medium mills, while it was lowest for
small mills. This indicates that smaller feed enterprises often have access to nearby raw
material, and their main customers are also nearby, unlike the case for medium and large
mills.
By region, there was no consistent pattern in the distance to main sources of inputs
between northern and southern mills11. However, with regards to distance to main
customer, northern mills tend to be closer by around one third the distance for both
complete and concentrate feed compared to southern mills.

6.2 Distribution channels - type of customer

Looking at the feed mills overall, wholesalers/traders were found to be the most important
customers of feed enterprises, buying around 41% of total complete feed, followed by
retailers who purchase 26%, other companies with 16% and commercial farms (12%)
(Table 24). Small households are not the usual customers of feed mills, as they only
purchased 5% of the average amount of complete feed sold by the surveyed mills (38,011
tonnes in 2007).
By scale of production, other companies seemed to be the most important customers of
small enterprises. This is consistent to the previous findings that small enterprises tend to
diversify their activities into feed trading along with feed production. However medium

11
The average distance to the main source of local rice is high in the northern and large mills because a
large company located in the north, CP, purchase rice from the south.

42
 and large mills never sold their complete feed to other companies. Large mills sold 88%
of complete feed directly to wholesalers/traders and small households were not their
customers. Medium feed mills sold a higher share of their products to retail agents than
wholesale agents (62% versus 26%). In general, the larger the scale of production, the
higher the percentage of total complete feed that was sold to wholesalers/traders and the
lower the share to small households.
Again, these data suggest a selling strategy of small mills that is completely different to
medium and large mills. Small mills tended to diversify their customer base, selling to
agents, companies and households, whilst medium and large mills mostly sold their
output to agents. Medium-sized mills differed from large mills in that they sold more
output to retail agents, and small households to some extent (4% of output).

Table 23. Average transportation distances by region and production scale

Distance to main source/customer (km)

North South small medium large
Local rice 1000.0 182.9 . 186.0 1000.0
Local maize 265.0 309.0 137.5 287.8 300.0
Local cassava 252.4 194.5 116.7 180.0 300.0
Imported maize 170.0 60.0 . 60.0 210.0
Main locally sourced 166.0 165.7 90.0 148.0 173.3
protein rich food

Main imported protein 120.0 59.0 82.0 77.9 300.0

rich food
Main complete feed 70.0 250.0 108.0 325.0 250.0

Main concentrate feed 92.0 322.0 116.3 500.0 250.0

Table 24. Amount and share of complete feed sold to different customer types by
small, medium and large feed mill enterprises

Small Medium Large Overall

Amount Share Amount Share Amount Share Amount Share
(tonne) (%) (tonne) (%) (tonne) (%) (tonne) (%)
Other company 5,985 47 0 0 0 0 5,985 16
Wholesale agents 2,544 20 13,926 26 86,785 88 15,615 41
Retail agents 2,178 17 33,713 62 5,885 6 9,721 26
Commercial farm 167 1 4,326 8 5,991 6 4,659 12
Small household 1,828 14 2,132 4 0 0 2,031 5
Total 12,702 100 54,097 100 98,661 100 38,011 100

43
 The selling of concentrate feed seemed to be more focused, as feed mills overall sold 75%
of their concentrate produce to wholesale agents, followed by commercial farms (15%)
and retail agents (10%), while very little was sold directly to small households (0.02%)
(Table 25). The share of concentrate feed sold by large mills to wholesale agents was
higher than for other groups (91% versus 79% for both small and medium groups). One
feature is that medium-sized mills sold 21% of total concentrate feed to commercial
farms, while retail agents and small households were not their clients, indicating that their
strategy is also to focus on large farms. This strategy is quite similar to that used by Thai
SMEs. For example, findings from the study tour to Thailand indicated that the Thai Feed
Mill Company sold output directly to large and medium-sized farms; and Mualek Dairy
Cooperative sold output to a number of large farms owned by the military, a government
farm and one private farm, with in total around 800 tonnes of output sold per month to its
farm network. (Thailand Study Tour Report, 2008)
For small mills, only 7% of concentrate feed was reported as being sold to commercial
farms and 14% to retail agents, while 0.1% was sold directly to small households. It is
notable that the total amount of concentrate feed sold by large enterprises was around 20
times higher than that of the small mills.

Table 25. Amount and share of concentrate feed sold to different customer types by
small, medium and large feed mill enterprises

Small Medium Large Overall

Amount Share Amount Share Amount Share Amount Share
(tonne) (%) (tonne) (%) (tonne) (%) (tonne) (%)
Other company 0 0 0 0 0 0 0 0
Wholesale agent 436 79 3,802 79 10,097 91 2,959 75
Retail agent 77 14 0 0 693 6 385 10
Commercial farm 38 7 1,000 21 345 3 600 15
Small household 1 0.1 0 0 0 0 1 0.02
Total 552 100 4,802 100 11,135 100 3,945 100

44
6.3 Overview of input supply and output distribution channels for different
scale enterprises

6.3.1 Supply sources and distribution channels for large feed mills

Findings from this study suggested that the large mills did not source raw material
supplies from farmers or traders, but rather from private processing businesses and state-
owned enterprises (SOEs) (Figure 16). They supplied the bulk of their product to
wholesale agents/traders. Further, they did not supply output directly to small household
farms, and only supplied a small percentage of their total output to commercial farms and
retail agents (Figure 16).

Private State-Owned
Processing Enterprise
Farmer and Business Other
Traders

80% maize 100% bran

No inputs from 100% cassava 12% soybean cake
these sources 68% soybean cake
20% maize
12% soybean cake

LARGE FEEDMILL

No complete No complete
or concentrate or concentrate
products 88% complete products
91% concentrate

6% complete Other
Small 3% concentrate Companies
6% complete
Households
6% concentrate

Commercial Wholesale Retail Agents

Farms Agents/
Traders

Figure 16. Supply sources and distribution channels for large feedmills in Vietnam

45
6.3.2 Supply sources and distribution channels for medium feed mills

Unlike large feedmills, survey results indicated that medium mills sourced a considerable
amount of raw materials from farmers and traders (42% of maize, 74% of cassava and
43% of soybean cake) (Figure 17). They did not source any raw materials from SOEs.
Again in contrast to large feedmills, complete feed was distributed mainly to retail agents
(62%), followed by wholesale agents (26%). Small amounts of complete feed were
distributed directly to small households and commercial farms. Concentrate feed was only
distributed to wholesale agents (79%) and commercial farms (21%) (Figure 17).

Private
Traders Processing State-Owned
Farmers Business Enterprise
and Other
58% maize
30% maize 26% cassava
12% maize 50% cassava 100% bran
24% cassava 31% soybean cake 31% soybean cake No inputs from
12% soybean cake these sources

MEDIUM FEEDMILL

No complete
4% complete or concentrate
No concentrate 26% complete products
79% concentrate

8% complete Other
Small 21% concentrate Companies
62% complete
Households
0% concentrate

Commercial Wholesale Retail Agents

Farms Agents/
Traders

Figure 17. Supply sources and distribution channels for medium feedmills in
Vietnam

46
6.3.3 Supply sources and distribution channels for small feed mills

Small feedmills also sourced raw materials from farmers and traders, particularly so for
cassava which is only obtained from these sources (Figure 18). According to survey
results, almost half of the complete feed produced by small mills was sold to other
companies, whereas no complete feed produced by large and medium mills was sold to
other companies. Compared to medium mills, small mills sold a higher percentage of their
complete feed to small households. The bulk of concentrate feed produced was sold to
wholesale (79%) and retail (14%) agents (Figure 18).

Private
Traders Processing State-Owned
Farmers Business Enterprise
and Other
53% maize
30% maize 100% bran
17% maize 94% cassava 43% soybean cake
6% cassava 46% soybean cake No inputs from
11% soybean cake these sources

SMALL FEEDMILL

14% complete 47% complete

0.1% concentrate 20% complete No concentrate
79% concentrate

1% complete Other
Small 7% concentrate Companies
17% complete
Households
14% concentrate

Commercial Wholesale Retail Agents

Farms Agents/
Traders

Figure 18. Supply sources and distribution channels for small feedmills in Vietnam

6.3.4 Summary of input supply and distribution channels

Findings from this project showed that the different size mills source their inputs and
distribute their products differently. Unlike large mills, medium and small mills sourced
some inputs and distributed a percentage of their products directly from/to small

47
households. Large mills distributed their products almost exclusively for on-selling by
wholesale agents and traders, and sourced raw materials from private processing
businesses and state-owned enterprises. It seems likely that small-medium feedmills do
provide more support to other small-medium enterprises operating in the sector.

6.4 Payment methods

Feed enterprises of different size have different types of customers and the payment
methods are not the same for different customers.

6.4.1 Payment methods for complete feed

“Payment on purchase” in general was found to be the most usual method of payment for
complete feed made to small mills (Table 26). ”Payment on purchase” was usually made
for all sales from small mills except for sales to other companies that usually purchase
100% of their complete feed on credit. All small household farms usually paid small mills
immediately for all their purchased feed, compared to 75% of commercial farms and
more than 50% of agents. However, while commercial farms and retail agents sometimes
bought on credit, it was not the usual method of payment for wholesale agents. Instead,
32% of their purchases of complete feed from small mills were usually paid for in
advance. This could be a strategy by these agents to ensure supply.
Comparing purchase amounts of complete feed from small mills by different types of
customers, the largest amount was sold directly to other companies, followed by
wholesale and retail agents. Small mills were more likely to be suppliers to small farms
compared to commercial farms, with 87% of their product that is sold directly to farms
going to small farms.
For complete feed bought from medium size mills, “payment on purchase” was found to
be the most usual method of payment used when dealing with retail agents. Credit was
used more often for sales by medium mills of complete feed to commercial farms and
wholesale agents. Like the case of small mills, wholesale agents paid in advance for 32%
of their purchases of complete feed from medium-sized mills and they bought the largest
amount of complete feed from this source (Table 26). Medium mills did not deal with
other companies and only sparingly with commercial farms.
Unlike the two other mill classes, credit or any other type of delayed payment for
complete feed did not appear to be the usual payment method for the large mills. There
were only two usual payment methods for complete feed from large mills: wholesale
agents almost always paid in advance, whereas commercial farms and retail agents
usually paid on purchase (Table 26). Wholesale agents were the biggest customers
purchasing complete feed from large mills, while other types of customers such as other
feed mills or household farms did not purchase complete feed from this source.

48
 Table 26. Payment methods used by purchasers of complete feed from enterprises
by different scale

Pay in Pay on Credit Other Total

Customer type advance purchase
Amount Share Amount Share Amount Share Amount Share Amount
Share (%)
(‘000 t) (%) (‘000 t) (%) (‘000 t) (%) (‘000 t) (%) (‘000 t)
Small mills

Other company
6.0 100 6.0 100
Trader/wholesaler
1.7 32 3.3 63 0.2 5 5.2 100
Retailer
0 2.2 51 2.1 49 4.3 100
Commercial farm
0.2 75 0.1 25 0.3 100
Small household farm
1.8 100 1.8 100
Medium mills

Trader/wholesaler
17.9 32 13.3 24 18.3 33 6.8 12 56.2 100
Retailer 0 33.7 100 0 0 33.7 100
Commercial farm 0.6 3 1.0 5 16.1 83 1.7 9 19.3 100
Small household farm 0 0.3 8 0 3.9 92 4.3 100
Large mills

Trader/wholesaler 17,000 99.7 59.0 0.3 17,059 100

Retailer 6.6 100 6.6 100
Commercial farm 6.4 100 6.4 100

6.4.2 Payment methods for concentrate feed

All concentrate feed sold by small mills to retail agents and small household farms was
usually paid for on purchase, while 56% of concentrate feed bought by wholesale agents
was paid for on purchase (Table 27). Wholesale agents also used two other methods of
payment; pay in advance and credit which accounted for 4 and 40% respectively of their
purchased amount of concentrate feed from small mills. Commercial farms were the
customer type most commonly involved in credit payment with 93% of concentrate feed
from small mills usually bought on credit. Unlike complete feed, concentrate feed was not
sold to other mills by small feed mills.
For the medium-size mills, survey results suggested that there were only two types of
customers purchasing concentrate feed. Wholesale agents dominated the purchase of
concentrate feed from medium-size mills, purchasing 8,662 tonnes, with commercial
farms purchasing 102 tonnes (Table 27). Payment on purchase was the most usual
payment method by wholesale agents, followed by credit (30%) and payment in advance
(20%).

49
 Table 27. Payment methods used by purchasers of concentrate feed from enterprises
by different scale
Customer type Pay in Pay on Credit Other Total
advance purchase
Amount Share Amount Share Amount Share Amount Share Amount Share
(tonnes) (%) (tonnes) (%) (tonnes) (%) (tonnes) (%) (tonnes) (%)
Small mills
Trader/wholesaler 41 4 618 56 438 40 1,097 100
Retailer 77 100 0 77 100
Commercial farm 5 7 71 93 76 100
Small household
1 100 0 1 100
farm
Medium mills
Trader/wholesaler 1,770 20 3,882 45 2,601 30 409 5 8,662 100
Commercial farm 102 100 102 100
Large mills
Trader/wholesaler
20,000 75 6,796 25 26,796 100
Retailer
693 100 693 100
Commercial farm
345 100 345 100

As for complete feed, “payment in advance” dominated over “payment on purchase” for
concentrate feed from large mills to wholesale agents, and again credit or other delayed
payments were not the usual option. Wholesale agents paid in advance for 75% of their
total purchase of concentrate feed while 25% was paid for on purchase (Table 27). Other
customers (retail agents and commercial farms) used “payment on purchase” as the usual
payment method to large mills. Again, wholesale agents bought more concentrate feed
than the other two types of customers.
6.5 Services

6.5.1 Services to agents

Nutrition and veterinary advice were the main services provided to agents, by over 60%
of feed companies (Table 28). By ownership, foreign companies tended to provide these
two services more than domestic mills, but delivery/transport was not provided by foreign
mills as much as by domestic mills (11.8% vs. 22.8%). This possibly reflects their
different customer types. Extension material was provided to agents by over 40% of feed
mills.
By region, around 80% of northern companies provided veterinary and nutrition advice to
their agents compared to only 50% of southern ones (Table 28). However provision
and/or purchasing of stock for agents was not done by mills in the north, compared to this
service being offered by 11% of mills in the south. Credit/delayed payment was more
common in the south, where nearly 43% of feed mills provide these payment options to
their agents, compared to 31% of mills in the north (Table 28). Mills in the northern
region also tended to provide delivery services to agents (31%), compared to southern
companies (11%).

50
By production scale, the larger the mill production scale, the more likely it was to provide
veterinary and nutrition services and credit/delayed payment services to agents. However,
note that although these mills said that they provided credit/delayed payment options to
customers, data from the previous section indicated that credit and delayed payment were
not usual payment methods for products from large mills. Delivery services were
provided by 41% of small feed mills, but only 5% of medium mills and 29% of large
mills supported their agents in terms of delivery services. This perhaps indicates that
larger mills are selling to larger agents with their own transport vehicles. Small mills were
also less likely to provide extension material to agents than medium and large mills. It
should be noted that other services such as commission/discount to agents were provided
more by medium and large mills compared to small mills. This finding may reflect the
capital advantage of the larger mills compared with the lack of capital of small
enterprises.

Table 28. Percentage of feedmill companies providing different service to agents

Services Domestic Foreign North South Small Medium Large Overall

Delivery/transport 22.7 11.8 30.8 11.4 41.2 5.0 28.6 19.7

Extension material 45.5 41.2 50.0 40.0 29.4 50.0 42.9 44.3
Credit/delayed 36.4 41.2 30.8 42.9 23.5 45.0 57.1 37.7
payment
Animals - provision 4.6 11.8 0.0 11.4 0.0 10.0 0.0 6.6
and purchasing stock
Veterinary advice 56.8 70.6 76.9 48.6 52.9 60.0 71.4 60.7
Nutrition advice 63.6 70.6 84.6 51.4 64.7 65.0 71.4 65.6
Othera 22.7 25.0 7.7 35.3 11.8 30.0 28.6 23.3
a. Others here include commission, discount to agents

6.5.2 Service to livestock producers

Veterinary and nutrition advice were reported in the study as being the most common
services that feed mills provide to producers with a higher percentage of foreign
companies providing these services compared to local ones (Table 29). However, delivery
was not provided at all by foreign enterprises, while over 16% of domestic enterprises
support producers with this service.
While more northern mills tended to provide veterinary and nutrition advice to their
agents compared to those in the south, this was not the case for support to producers.
More than half of southern enterprises gave veterinary and nutrition advice to producers
compared to only 23% of northern mills. This can be understood in the context of a
concentrated and industrial scale of livestock and poultry production in the southern
provinces.
By scale of feed production, it is notable that there is a big difference in provision of
stock or purchasing products/finished stock from producers between mill groups. No
company from the small mill group provided this service, while over 10% of medium
mills and 43% of mills from the large group provided this service to producers (Table 29).
Large mills were also more likely to provide extension material to producers (43%), and

51
this is probably linked closely with the provision of animals to producers. Only 5% of
medium mills provided extension material to producers, compared to 18% of small mills.
This may be a consequence of the high percentage of small mills that provide feed
directly to small householders.

Table 29. Percentage of feedmill companies providing different services to livestock

producers
Service type Domestic Foreign North South Small Medium Large Overall
Delivery/ 16.3 0.0 11.5 11.8 23.5 0.0 28.6 11.7
transport
Extension 23.3 29.4 15.4 32.4 17.7 5.3 42.9 25.0
material
Credit/delayed 11.6 23.5 7.7 20.6 5.9 15.8 14.3 15.0
payment
Animals – 14.0 17.7 3.9 23.5 0.0 10.5 42.9 15.0
provision &
purchasing stock
Veterinary 37.2 58.8 23.1 58.8 29.4 31.6 57.1 43.3
advice
Nutrition advice 38.1 52.9 28.0 52.9 43.8 31.6 57.1 42.4
Other 2.4 5.9 0.0 6.1 6.3 5.6 0.0 3.5

6.6 Determination of livestock feed prices

6.6.1 Setting of feed prices

The section below discusses how feed agents’ selling prices are determined. In this study,
nearly 49% of feed mills said that they allowed their wholesale agents to decide their own
selling price for complete feed, and a similar percentage of feed mills decided the price at
which the agents can sell the product (Table 30). This finding was unexpected as
anecdotal evidence suggests that mills do generally set the on-selling price of their
products. For concentrate feed, wholesale agents tended to follow the mill’s price rather
than their own price (54% vs 46%). In general, the larger the production scale of the feed
mill, the more likely it was that the agent’s selling prices were decided by its mill. This
was found to be true for both complete and concentrate feed.

Table 30. Percentage of feed enterprises fixing the selling price for wholesale agents/
traders, by production scale

Complete feed Concentrate feed

Small Medium Large Overall Small Medium Large Overall
35.7 52.6 66.7 48.7 42.9 58.8 66.7 54.1

The results were found to be very different for retail agents, where pricing arrangements
are very diverse and complicated. In the case of small mills, their retail agents mostly
decided their own selling price for complete feed (over 85%), and for concentrate feed
100% of agents decided their own price (Figure 19). However, all agents for the large
mills had a selling price that was fixed by the mill, for both complete and concentrate
feed. For medium size mills the price was mostly set by the agent for complete feed (over

52
80%), and always set by the agent for concentrate feed. It is clear that a completely
different pricing arrangement with agents was used by large mills, compared to small and
medium mills.

100%

80%

60%
Other
Agent
Feedmill
40%

20%

0%
Small Medium Large Overall Small Medium Large Overall

Complete feed Concentrate feed

Figure 19. Percentage of feed mills and retail agents fixing the selling price, by
production scale

6.6.2 Commission rates

We calculated average commission rates obtained by agents as it was difficult to
differentiate wholesale (level 1) from retail (level 2) agents because of different
definitions of these agents by the feedmills. Overall, there was a slightly higher average
commission rate12 for concentrate feed compared to complete feed (Figure 20). By scale,
average commission rate for sale of complete feed tends to increase by scale, while it
decreases for concentrate feed. This may be one strategy of SMEs (who tend to focus
more on concentrate production): they are offering agents a higher commission on sale of
concentrate than larger mills.

12
The commission is calculated as a percentage of the factory gate price.

53
 %
5

0
Sm all Medium Large Overall

Complete feed Concentrate feed

Figure 20. Commission on factory gate prices obtained by agents (wholesale and
retail agents combined), for product from small, medium and large mills

6.6.3 Selling price changes made by enterprises during 2007

Figure 21 shows the price increases during 2007 for mills with different scales of
production. From the figure, it is clear that the larger the scale of production, the higher
the increase in the factory gate price of the main feed product during 2007 compared to
the previous year: ranging from around 20% for small mills to around 25% for large ones.
This finding was also true when looking at the price changes made by mills of different
production scale during each quarter. The growth rate in prices increased from quarter to
quarter for small and medium groups, but decreased for large mills, though generally,
there was a bigger increase in the quarterly prices for mills with higher production scale.
Interestingly, large mills had a larger price increase early in the year compared to medium
and small mills, whereas small mills had a large increase in the price of complete feed in
the final quarter. Large mills experienced a higher rate of increase in prices of the main
concentrate feed compared to that of complete feed in 2007 versus 2006, although this
growth was lower for concentrate than for complete feed from quarter to quarter13.

13
The increase in price by a quarter is calculated by comparison of the two consecutive quarters, where by
year is equal to the price in December 2007 divided by the price at the same time in 2006.

54
 %
30

25

20

15

10

0
Q.2

Q.3

Q.4

Q.2

Q.3

Q.4

Q.2

Q.3

Q.4
2007/2006

2007/2006

2007/2006
Small Medium Large
Main complete feed Main concentrate feed

Figure 21. Percentage change in the factory gate price of the main product during
the quarters 2, 3 and 4 and the total change in 2006/2007, by production scale

Eighty seven percent of mills considered increases in raw material prices as the most
important reason for price change in their products (Table 31). It is perhaps unfortunate
that this survey was conducted at a time when raw materials had gone through a period of
unprecedented price increases. “Not making enough money” was not mentioned as a
reason for increasing their product price by any foreign mills, whereas nearly 27% of
domestic mills considered it as the second most important reason for making price
increases. This indicates that foreign mills are in a more powerful position in terms of
adequate capital for business compared to domestic mills. The fact that domestic firms
were more likely to report ‘other suppliers change their price’ indicates that foreign
enterprises are more likely to be the price leaders.

Table 31. Main reasons for price change of feed products (percentage of foreign,
domestic and total mills)
Domestic (n = 45) Foreign (n = 17) Overall (n = 62)
Reason Most Next Most Next Most Next
important important important important important important
Other suppliers 14.0 19.2 5.9 27.3 11.7 21.6
change their
product price
Increase in raw 83.7 23.1 94.1 9.1 86.7 18.9
material price
Not making enough 2.3 26.9 0.0 0.0 1.7 18.9
money
Other 30.8 63.6 40.5
Total 100.0 100.0 100.0 100.0 100.0 100.0

55
6.7 Product quality control

6.7.1 Certification and testing

Quality control currently is considered one of the most serious weaknesses of the
Vietnamese feed industry. Generally, advanced international standards for quality control
are only applied by foreign-owned and joint venture companies.
According to the survey results, it seemed that around three quarters of the total mill
sample had one type of formal certification, and there was not a large gap between
domestic and foreign enterprises: 70% and 82%, respectively, had some sort of formal
certification status (Table 32). However, this was not the case for international standards.
While 7% of foreign mills applied HACCP14, which is mandatory in four areas for food
for human consumption (fish and seafood, juice processing, poultry and meat), no
domestic mill had HACCP certification. For ISO15 certification, half of the foreign mills
had this status, compared to less than a quarter of domestic enterprises.

Table 32. Percentage of firms having formal certification status

Domestic Foreign Overall

Percentage of firms having
70.5 82.4 73.8
formal certification
Of which:
HACCP 0.0 7.1 2.2
ISO 22.6 50.0 31.1
Vietnamese standards 71.0 21.4 55.6
Other* (2 cases GMP) 6.5 21.4 11.1

Most of the foreign mills had their own quality control laboratory (94.1%), while less
than half of the local mills had this facility (Table 33). There were no big differences
between domestic and foreign firms, in the percentage of mills with laboratories that do
all of their testing in their own laboratory.
Figure 22 shows the different laboratories that are used by mills for testing of raw
materials and their products. Quality control centres were the most common places for
testing, with around 40% of the total sample selecting these testing facilities, followed by
MARD institutes (30%). There was not much difference between the domestic and
foreign mills regarding the use of these facilities. Government and private enterprises
were not always favored by foreign mills which sometimes sent their inputs and products
abroad for testing16 (to countries such as Singapore, the Netherlands, France).

14
Hazard Analysis Critical Control Points (HACCP) is introduced as a system to control safety as the
product is manufactured, rather than trying to detect problems by testing the finished product. This system
is based on assessing the inherent hazards or risks in a particular product or process and designing a system
to control them. Specific points where the hazards can be controlled in the process are identified.
15
ISO certification refers to standards developed by the International Organization for Standardization
(ISO). ISO standards are designed to make the development, manufacturing and supply of products and
services more efficient, safer and cleaner. See www.iso.org/iso/home.htm
16
This option is included as the “other” category in Figure 22.

56
Table 33. Percentage of mills with quality control laboratories and percentage of
testing done in those laboratories

Domestic Foreign Overall

Share of mills having quality control
45.5 94.1 59.0
laboratory (%)
Share of mills with all testing done in
their own laboratory (% of those with 35.0 43.8 38.9
laboratories)

100%

80%

60%

40%

20%

0%
m
l
n
tic

al

ll
ra
ig

rg
iu
Sm
es

re

ve
ed

La
om

Fo

O
M
D

MARD institutes Standards Quality Control Center

Government Owned Enterprise Private Enterprise
University Other

Figure 22. Laboratories used for testing raw materials and products by foreign and
domestic mills and by large, medium and small mills

The percentage of firms undertaking various tests of their raw materials and outputs is
shown in Table 34. With regard to the testing of raw materials, all medium and large mills
indicated in the survey that they participate in this activity, except in the case of mills in
the medium class where only 70% tested the aflotoxin level in the energy inputs. Some
specific product tests, such as those for crude protein, crude fiber, calcium and
phosphorus were also done by all large mills while this percentage was a little lower for
the medium mill class and much lower for the small mill class. Over all classes, over 97%
of all mills tested their products for crude protein content, which is considered one of the
most important indicators of product quality.
Generally, feed enterprises usually test by batch of product, input purchase, by purchase
order or randomly check if a suspect sample is found.

57
Table 34. Percentage of firms that complete various tests of raw feed materials and
products

Test type for feed Small Medium Large Overall

inputs and outputs
Raw materials
Energy inputs:
1. Moisture content 82.4 100.0 100.0 93.2
2. Aflotoxins 64.7 70.0 100.0 72.7
Protein inputs:
3. Moisture content 88.2 100.0 100.0 95.5
4. Protein content 94.1 100.0 100.0 97.7
Products
5. Crude protein 88.2 95.0 100.0 93.2
6. Crude fiber 64.7 75.0 100.0 75.0
7. Crude fat 64.7 75.0 85.7 72.7
8. Calcium 64.7 80.0 100.0 77.3
9. Phosphorus 64.7 75.0 100.0 75.0
10. Salt content 64.7 80.0 85.7 75.0
11. Vitamin content 58.8 30.0 57.1 45.5
12. Amino acid analysis 47.1 25.0 57.1 38.6
13. Aflotoxins 41.2 40.0 57.1 43.2
14. Other 11.8 5.0 6.8

6.7.2 Processing method

Over one quarter of the total mills had separate production lines for different types of feed
(pig/chicken/others) (see Appendix, Table A5 for the detailed data). By ownership type,
more than 35% of foreign mills had separate lines for different feed types, compared to
around 23% for the domestic group. This percentage was found to be higher in southern
feed mills than in the north. However, by scale, only 14% of large mills had separate
lines, considerably lower than 29% for the small and 22% for the medium mill group.
This may be because large mills tend to produce a larger range of products than smaller
mills.

Cleaning between product batches is important to reduce the chance of feed

contamination when mills don’t have separate production lines for different feed types.
For mills that do not have separate production lines, which are around 68% of the total
enterprises, labor use is the most common method for cleaning, followed by automatic
cleaning (Figure 23). This was found to be true for all mills, except for foreign ones.
Nearly 91% of foreign mills had automatic cleaning systems compared to only around
20% for the domestic group.

58
 100

80

60
Automatic
Labour
40 Discarding
Other

20

0
Domestic Foreign North South Overall

Figure 23. Methods used by mills for cleaning between product batches

6.7.3 Product formulation

By ownership type, 75% of foreign mills employed a nutritionist compared to 59% of the
domestic group. However there was not a big difference in the likelihood of a nutritionist
being employed when mills were assessed by region and scale classification. (see
Appendix Table A6 for the detailed data).
If mills did not have a nutritionist, they usually hired technical staff and/or took recipes
from the parent company or in other cases used their own existing knowledge. Foreign
mills often used recipes from their parent company (75%) and only 25% of foreign mills
hired technical staff. When looked at by region, northern mills tended to hire technical
staff more than southern ones (89% versus 17%).
There is an interesting difference in the use of least-cost feed ration software between
mills by scale of production. The software is used by all large mills, and by almost all
medium ones, while only 65% of small mills used this software for product formulation.
This indicates a higher efficiency in the use of raw materials by the large and medium
mills, especially when prices of raw materials are changing rapidly.

6.7.4 Post-production and storage

Mills were asked to nominate the expiry period for their main product and findings are
shown in Table 35. The expiry period for the main product nominated by the surveyed
mills was longer in the south than in the north (86 days versus 71 days). More
interestingly, the nominated expiry period tended to decrease by increasing scale of
enterprises. Small enterprises said their products could be kept for a longer time period

59
(more than 92 days) than that suggested by medium enterprises (72 days), while large
enterprises nominated an expiry period of only 60 days. This is an indication that large
mills are more likely than small and medium mills to acknowledge product deterioration
over time, and are more able to do so because of their larger production and turnover.

Table 35. Expiry period (days) nominated by mills for products, by region

Small Medium Large Overall

By location:
North 79 66 50 71
South 116 75 70 86
Total 92 72 60 79
Northern mills:
Pig – all complete feed 68 68 60 67
Pig - complete- grower feed - 60 45 50
Fish/seafood - complete feed - - -
Southern mills:
Pig – all complete feed - 60 60
Pig - complete- grower feed 70 80 60 72
Fish/seafood - complete food - 83 90 84
All mills:
Pig – all complete feed 68 66 60 66
Pig - complete- grower feed 70 73 50 64
Fish/seafood - complete food - 83 90 84

Mills were also asked about how long and where their products were stored (Figure 24).
For the main product, large mills had the longest average storage period (over 64 days),
and medium mills the shortest (less than 55 days). Overall, storage of the product by
agents accounted for more than half of the total average stored time. Length of storage
time by agents was highest for mills in the small group (over 61%), compared to mills in
the medium and large groups. Meanwhile the percentage of time in own storage was
higher for large mills (more than 25%) compared to medium and small mills.
Generally, mills said that only a tiny proportion of the main product reaches its expiry
date: less than 0.15% in their own warehouse and 0.35% in other places (Figure 25).
There was not much difference in the percentage of product that expired in other places
by scale of production, but it was different for product kept in the mills’ own warehouses.
In this case, there was a higher share of main product reaching expiry date in large mills
(more than 0.2%), followed by medium and small mills. This finding may be because
larger mills have lower (and possibly more realistic) expiry periods for their products.
Moisture and grain quality were nominated by around one third of total mills as the two
principal feed quality constraints. No mills mentioned contamination and lab system
failure as being of concern (see Appendix Table A7 for detailed data).

60
 % days
70 66

60 64

62
50

60
40
58
30
56

20
54

10 52

0 50
Small Medium Large Overall
% time in own storage % time in agent storage
% time in other storage Total time days (days)

Figure 24. Total days and percentage of the storage time of the main product by
mills, agents and others by production scale

0.4

0.35

0.3

0.25
%

0.2

0.15

0.1

0.05

0
Small Medium Large Overall
In own warehouse In other place

Figure 25. Percentage of main product reaching expiry date

61
6.8 Location, information sources and restrictions on the movement of
goods

6.8.1 Location of firms

Mills were asked about their factory location and these data are shown in Figure 26. More
than 60% of firms in all categories said they are located close to a good road network and
electricity supply. However, less than 20% of small mills were located close to a port
compared to around 30% of medium and 37% of large mills. Medium mills seemed to be
less constrained for land than both small and large mills. Over 40% of mills in all
categories said they are located close to end-users (livestock producers), but a higher
percentage of large mills said they are located close to maize supplies: over 70% of large
mills, compared to 60% of medium mills and less than 20% of small mills. Therefore, it
can be said that mills with higher production seem to have more advantages in terms of
accessing input materials (both imported and locally produced).

Close to port
100

80
Adequate amount of land
Other 60 available
40

20

Close to producers Good electricity supply

small
Close to maize supply Good road network medium
large

Figure 26. Percentage of feed enterprises by production size nominating various

characteristics about factory location

Table 36 shows the mean score of how important firms considered the different
characteristics of their location situation. The two most important location characteristics
were rated differently by scale of enterprise: small mills rated close to maize supply (1.7)
and good road network (2.0) as most important; medium mills rated close to producers
(1.5) and good road network (2.0) as most important; and large mills rated good
electricity (1.2) and adequate land (2.0) as most important. Note that only 20% of small
mills said they were located close to maize supplies (Figure 26).

62
Table 36. Mean rating of importance of location characteristics

Adequate Close
Rating Good Good
Close amount to Close to
(mean electricity road Other
to port of land maize producers
score)17 supply network
available supply
small 2.3 2.2 2.1 2.0 1.7 2.1 2.0
medium 2.2 2.5 2.4 2.0 3.0 1.5 2.5
large 4.7 2.0 1.2 2.2 2.2 2.3 .

6.8.2 Restrictions faced by mills on the movement of goods

Overall, 42% of firms said that they faced restrictions on the movement of goods (see
Appendix Table A9). This appeared to be an obstacle for a higher percentage of large
enterprises compared to smaller ones. Sixty percent of large firms had restrictions on the
movement of goods compared to 43% of small firms and only 35% of medium
enterprises.
Firms were asked to nominate the most important restriction they face on the movement
of goods, and the results are shown in Figure 27. Sixty seven percent of small firms, 33%
of medium firms and 75% of large firms believed that “police conduct” was the most
important factor that negatively affects the movement of goods. This indicates that the
activities of police are perceived as a considerable hindrance to the movement of goods
by feed enterprises, and the question arises as to the appropriateness of the police
activities.

% of sm all enterprises chosing the % of m edium enterprises chosing % of large enterprises chosing the
restrictions for m ost im portant the restrictions for m ost im portant restrictions for m ost im portant

17
25
33 33

17
0
0 67
0 75
17 17
Police conduct
Inter_district blocks
Inter_province blocks
Tolls
other

Figure 27. Percentage of feed enterprises indicating the most important restrictions
affecting the movement of goods

The study found that 17% of small mills had to pay tolls that are considered to affect their
transport operations, whilst the other groups did not say tolls affected their transport

17
Rating score decreases by order of number: 1: most important; to 5: least important

63
operations. Inter-district blocks and the inter-provincial blocks were equally the biggest
obstacles to 17% of medium firms. However, food company regulations, Ministry of
Trade regulations and health inspections did not affect enterprises’ movement of goods.

6.8.3 Sources of information for feed mill enterprises

The internet was selected by 35% of small and 40% of medium-size feed mills as the
most important source of price information of raw materials, whilst more than half of
large mills considered agents/traders as the most important source (Table 37). With
respect to prices and markets for products, for around half of mills of all sizes
agents/traders were noted as the most important source, followed by other feed mills.
Regarding information on regulations, most mills considered government departments as
the most important source, especially the large mills. The press seemed to be more
important to small enterprises than to large mills.
There was found to be a common agreement by mills of all size about the role of banks as
the most important source for credit information, with 100% in the small group and 85%
in other groups nominating this as most important (Table 37). The Internet was thought
by all mills in the small and large groups to be the second most important source for
credit information.
In terms of quality control issues, government departments were considered equally by
14% of small and large mills and 39% of medium ones to be the most important source of
information. Overall, government departments were not perceived by many feed
enterprises to be an important source of information about quality control. Twenty per
cent of small firms believed agents/traders and personal contacts were the most important
source of quality control information, however medium and large firms did not list this
information source. A wide range of other sources, including using their own knowledge
or consulting external experts, seemed to play a more important role for quality control
information.
Personal contacts appeared to be the most important source of information about
recipes/feed mixes; however more small mills relied on this source than larger mills
(26.7%, 21.1% and 14.3% respectively). The Vietnamese Animal Feed Association was
nominated as the most important source of information about recipes/feed mixes by 14%
of large firms, and as the second most important source by 33% of small firms. A large
proportion of feed mills mentioned their most important information source for recipes/
feed mixes as their parent company, hiring experts or using their own knowledge.

64
Table 37. Most important information sources for feed enterprises, by scale

Source Most important (%)

small medium large
Price information – raw materials
Internet 35.3 40.0 14.3
Agents/traders 29.4 30.0 57.1
Personal contacts 5.9 20.0 0.0
Feed mills 17.7 0.0 0.0
Other 11.8 10.0 28.6
Price and market - products
Press 0.0 0.0 0.0
Agents/traders 56.3 45.0 57.1
Personal contacts 6.3 5.0 0.0
Feed mills 25.0 20.0 28.6
Other 12.5 30.0 14.3
Regulation
Press 29.4 5.3 0.0
Internet 0.0 15.8 14.3
Govt departments 58.8 63.2 71.4
Radio/TV 0.0 5.3 0.0
Other 11.8 10.5 14.3
Credit
Internet 0.0 0.0 0.0
Banks 100.0 85.0 85.7
Other 0.0 25.0 14.3
Quality control
Extension agents 6.7 5.6 14.3
Press 6.7 5.6 0.0
Agents/traders 20.0 0.0 0.0
Govt departments 13.3 38.9 14.3
Personal contacts 20.0 5.6 0.0
Feed mills 0.0 0.0 0.0
Other 33.3 44.4 71.4
Recipes/feed mixes
Internet 0.0 10.5 0.0
Personal contacts 26.7 21.1 14.3
Feed mills 0.0 5.3 0.0
Feed mill association 0.0 0.0 14.3
Other 73.3 63.2 71.4

65
7 OTHER ISSUES
7.1 Credit
From the results shown in Table 38, nearly 70% of feed mills surveyed had a loan but
only 55.6% of them could obtain as many funds as they wanted. The percentage of mills
having a loan increased with production scale: with 58.8%, 73.7% and 85.7% of small,
medium and large mills, respectively, having loans. However, less small firms were able
to acquire loans with sufficient funds compared with medium and large enterprises (40%,
63.6% and 66.7% respectively).

Table 38. Credit information of enterprises by scale

Small Medium Large Overall

Percent of firms having a loan 58.8 73.7 85.7 69.8

Percent of firms with loans who 40 63.6 66.7 55.6

get enough funds

Having no collateral was selected by all large mills and two thirds of small enterprises as
the most important reason for not having enough funds (see Figure 28). Half of the mills
in the medium-size group mentioned high interest rates as the most important reason, and
the rest were divided equally between having no collateral and lack of the right
connections. It seems that feed mills do not suffer any difficulties in dealing with banks in
Vietnam, indicating that procedures may now be less complicated than before.

100

80

60

40

20

0
small medium large Overall

No collateral Lack of right connections Interest rate too high

Figure 28. Reasons given by firms for not being able to obtain more funds

66
According to survey findings, all scales of enterprises had loans from various sources (see
Table 39) for the purchase of feed and raw materials. Generally, commercial banks were
the major lender, followed equally by the Agricultural Bank (VBARD) and
friends/relatives. Small enterprises had no access to foreign banks while just 5% of
medium and around 30% of large mills had loans from foreign banks. Some small and
medium mills had loans from friends/relatives, while this was not the case for large mills.
When comparing loan amount between mills of different sizes, small and medium-sized
mills tended to have a much smaller loan compared to large ones. However, the length of
the loan period was quite short for large mills compared to smaller mills (Table 39). Data
on interest rates were also collected, but we do not have sufficient information on the
purpose of specific loans, production capability, types of specific loan products, and
repayment experience to make a comparison of interest rates between mill size groups
meaningful.

Table 39. Percentage of all loans by sources, average loan amount and length of
loan, by scale of enterprise

Source of loan Percent of all loans Amount of loan Length of loan

(million VND) period (months)
small medium large small medium large small medium large
Friends and 17 10 0 80 4,100 - 12 12 -
relatives
Traders 0 10 0 - 2,050 - - 18 -
Foreign bank 0 5 30 - 6,400 63,500 - 12 6
Commercial bank 67 60 50 4,256 9,180 35,100 12 19 8
Agricultural bank 17 10 50 1,400 5,000 - 36 12 -
Other credit 0 0 50 - - 15,000 - - 6
institutions
Other 0 5 0 - - - - - -
Overall (average) 100 100 100 3,357 7,088 14,200 16 17 7
Note: Some mills had access to credit but did not give information on loan amount and length.

As shown in Table 40, all small firms borrowed money for buildings and equipment from
the Agricultural Bank (VBARD), and used loans from other sources (including some
funds from the Agricultural Bank) for purposes other than buildings and equipment. All
medium firms used loans from commercial banks for buildings/equipment, whereas the
large firms in the sample did not have any loans for buildings and equipment.

7.2 Profitability and investment

Feed mills were asked the reason for changes in their profit recorded during 2007, and
also two years ago (2005), and these data are shown in Table 41. The purchase price of
raw materials was nominated by large and medium mills as the most important factor
affecting profit in 2007: 50% of large mills and 21% of medium mills. Fifty percent of
large mills also nominated “competition level” as the most important reason for change in
profits during 2007, while reasons nominated by large firms as being important two years
ago were sale price (20%), competition level (40%) and purchase price of raw materials
(40%). For small and medium enterprises, the purchase price of raw materials and volume
of trade were chosen as the most important reasons for change in profits: 20% and 30% of

67
 small mills respectively, and 21% of medium mills for both reasons in 2007. Two years
ago, these percentages for purchase price of raw materials and volume of trade were 14 %
and 29% respectively for small firms, and 9% and 18% for medium firms. Interest rates
were not generally considered the most important factor for profit change, except by 10%
of small firms in 2007, down from 29% of firms two years ago. Similarly, there was a fall
in the percentage of large firms nominating interest rates as the second most important
reason for profit change.

Table 40. Percentage of loans for feed/raw materials, buildings/equipment and other
purposes from various loan sources, by scale of enterprise

Purpose
Loan
Source Feed/Raw materials (%) Buildings/ Equipment (%) Other (%)
small medium large small medium large small medium large
Friends and
11 8 0 0 0 0 0 25 0
relatives
Traders 0 8 0 0 0 0 0 25 0
Foreign
0 0 25 0 0 0 0 25 0
bank
Commercial 78 69 50 0 100 0 100 25 0
bank
Agricultural
11 15 13 100 0 0 0 0 0
bank
Other credit
0 0 13 0 0 0 0 0 0
institutions

Table 41. Main reasons nominated by feed mills for change in profit in 2007 and
2005

Reason Main reason for change in profit - 2007 Main reason for change in profit - 2005
Most important (%) Next important (%) Most important (%) Next important (%)
small medium large small medium large small medium large small medium large
Sale price 0 21 0 11 9 14 0 18 20 43 0 0
Purchase
20 21 50 33 36 0 14 9 40 14 50 25
price
Volume of
30 21 0 11 9 43 29 18 0 0 12 25
trade
Interest rate 10 0 0 0 9 14 29 0 0 0 12 25
Labor cost 0 7 0 0 0 29 0 27 0 0 0 25
Transport
10 0 0 0 18 0 14 0 0 0 13 0
costs
Competition
10 21 50 33 9 0 14 9 40 29 0 0
level
Other 20 7 0 11 9 0 0 18 0 14 13 0

68
Firms were asked which feed sector they thought would experience the most growth in
the future, and these data are shown in Figure 29. Generally, the pig feed sector was
expected to experience the greatest future growth with over 50% of firms nominating this
feed sector. The poultry feed sector was also expected to grow: with 41% of small mills,
30% of medium mills, and 38% of large mills nominating this sector for the greatest
future growth. In Vietnam’s livestock feed market, aquaculture feed production is not
well developed but notably, 50% of large firms believed that the aquaculture feed sector
would have the greatest growth in the future, compared to 30% of medium firms and only
12% of small firms. All scales of enterprises do not expect the cattle feed sector to have
the greatest growth in the future18.

% 60

50

40

30

20

10

0
Small Medium Large
Pig feed Poultry feed Cattle feed
Aquaculture feed Do not know Other

Figure 29. Feed sectors expected by feed mill enterprises to experience the greatest
future growth, by scale of enterprise

7.3 Issues, opportunities and constraints

Maize and cassava and fish meal are important raw materials inputs for the animal feed
sector, and there was a lot of feedback from enterprises when they were asked about their
expectation of domestic supply of raw materials in the future (Table 42). Twenty nine
percent of small firms, 30% of medium firms and 38% of large firms believed that the
domestic supply of maize will improve, but many, including 63% of the large firms, also
expected that it will decline. There was some degree of optimism about the supply of
dried cassava, with 50% of large firms, 25% of medium firms and 35% of small firms
expecting that domestic supply will improve. Medium and large firms were more
pessimistic about the domestic supply of fish meal, with 50% of medium firms and 75%
of large firms expecting that domestic supply of this raw material will decline in the
future.

18
This is in contrast with FAO’s expectation that there is some development potential for cattle production
and cattle feed because rising energy costs results in higher demand for animal power (Thailand Study Tour
Report, 2008)

69
 Table 42. Expectations of feed mill enterprises of the domestic supply for raw
material in the future, by enterprise scale

Type Improve Decline No change Do not know

small medium large small medium large small medium large small medium large
Maize 29.4 30 37.5 17.6 35 62.5 0 10 0 17.6 0 0
Oils 11.8 15 0 11.8 20 0 0 15 25 17.6 5 12.5
Dried 35.3 25 50 5.9 35 50 5.9 15 0 17.6 0 0
cassava
Fish 23.5 10 12.5 17.6 50 75 5.9 15 0 17.6 0 0
meal

Many mills believe that the Government should give more support to enterprises to access
credit (Figure 30). This was the most important role for government identified by the
surveyed mills. This finding reflects the difficulties faced by enterprises when borrowing:
such as high interest rates, official procedures, lack of collateral, and loan limits. Overall,
47% of mill enterprises said that Government should provide help to access adequate
credit: including 50% of large firms, 55% of medium firms, and 35% of small firms. The
next issue that was nominated by mills as needing support from government was access to
land, with 22% of firms overall nominating this as a role for government support to feed
mill enterprises. Quality control is seen by government and other commentators as one of
the most important issues for feed mills, especially domestic mills, however only 16% of
firms overall thought they needed more support from the Government for quality control,
and no large firms nominated this as a role for government support. Less than 10% of
firms overall thought that there was a need for government to provide storage facilities, or
technical support/training. Many firms (38%) nominated “other areas” they thought
needed support by government, including 63% of large firms. One “other” area
nominated as needing government support was price management of raw materials and
outputs. This perhaps reflects the difficult price circumstances that faced mills at the time
of this survey in 2008 when raw material prices increased suddenly by substantial
amounts.

70
 %
70

60

50 Credit

Storage facilities
40
Quality testing/
30 laboratoties
Technical
support/training
20 Land

10 Other

0
Small Medium Large

Figure 30. Percentage of feed mill enterprises that said that government should
provide support in the following areas, by enterprise scale

71
8 SUMMARY OF KEY FINDINGS AND IMPLICATIONS FOR
POLICY
8.1 Main findings

This report provides a general picture of the Vietnamese livestock feed sector with a
focus on comparing SMEs and large enterprises with regards to the production and
business activities of enterprises such as material input use, storage, product types, quality
control, and type of customer. These activities give indications of how SMEs compete
with larger feed mill enterprises. The mills have been categorised in the following way in
the analyses: small mills are those producing less than 10,000 tonnes per annum; medium
mills are those producing from 10,000 to less than 60,000 tonnes per annum, and large
mills are those producing 60,000 or more tonnes per annum.
In this study we have focused on exploring aspects of competitiveness in the feed mill
sector. Competitiveness in the sector is likely to involve more than cost efficiencies as a
result of economies of scale. Measures of efficiency, such as cost per unit of production
are important, and involve investigating differences in raw material use and feed mixes
used, as well as labour and capital investment. However, competitiveness in the sector is
also associated with quality aspects of feed (and perceptions of quality), services provided
along with the sale of feed, and procurement and distribution channels used by the mills.
The main findings are summarised below under the following headings:
• Costs of production
• Revenue and production activities
• Profitability
• Procurement (and storage) of raw material inputs
• Distribution channels for livestock feed products
• Quality control
• Services provided by firms
• Constraints

8.1.1 Costs of production

We found statistical evidence in this study that cost of production was inversely related to
scale, with small enterprises having significantly higher costs of production per kg of
output than medium enterprises which had higher costs of production than large
enterprises. Mean costs of production per kg of output were 8420 VND, 6340 VND and
5380 VND for small, medium and large firms respectively. This alone is not necessarily
an indicator of greater inefficiency of SMEs. For example, we found that smaller
enterprises were more focused on production of concentrate than larger enterprises, and
that SMEs tended to produce more concentrate feed as a percentage of their total output
than large enterprises. Concentrate production has higher raw material input costs per kg
of output, so cost of production per kg of total output would necessarily be higher for
those producing more concentrate. Analysis of variance on the data showed that the firms
specializing in concentrate production (i.e. more than 80% of production was concentrate)
had significantly higher costs of production per kg than firms where less than 20% of

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production was concentrate, and firms where between 20 and 40% of production was
concentrate (which were not statistically different from each other).
We found no statistical evidence to indicate that small enterprises paid more for the key
raw material inputs used in production of feed. Analyses of prices paid by location also
indicated that there were no significant differences between the northern and the southern
regions of Vietnam. These results may have been influenced by small sample size in some
cases: for example, soybean cake prices were found to be lower in the north at a
significance level of 17%.
There was evidence to suggest that small enterprises had lower labour productivity. On
average, small enterprises needed 19 labourers to produce 1 tonne of output, compared to
11 labourers for the medium enterprises. We were unable to determine whether this result
was the result of diseconomies of scale in labour use, or whether it was due to a greater
substitution of capital for labour in the case of larger enterprises. We did not have
sufficient data on the capital side to assess the relative merits of capital versus labour use
for different enterprise scales.
Our findings indicated that raw material costs made up about 80% of the total cost of
production in feedmills. An analysis of costs other than raw material costs showed that
large mills had significantly lower unit costs than small mills (970 vs 2050 VND per kg).
We also found other indicators to suggest that the lower cost of production experienced
by large feedmills may reflect greater efficiency. For example, use of least cost feed
ration software differed by scale of enterprise, with all large enterprises, most medium
enterprises and only 65% of small enterprises using the software. This indicates a higher
efficiency in the use of raw materials by the large and medium mills, especially when
prices of raw materials are changing rapidly.
We also found that the composition of energy inputs differed between firms, with large
enterprises using relatively more maize, compared to medium enterprises which
substituted more cassava, and small enterprises which used considerably more bran than
the other enterprises. It is possible that this indicates that quality of raw ingredients could
be lower for smaller mills, and/or they are better able to access domestic sources of raw
materials such as broken rice and groundnut than larger mills. The data support the idea
that there is more substitution of energy ingredients (which are more likely to be sourced
domestically) than protein inputs (which are more likely to be imported).

8.1.2 Revenue and production activities

More small enterprises seem to be more involved in concentrate than complete feed
production (82% versus 65%), whereas all medium and large mills produced complete
feed. If production differences are looked at by share of revenue, the difference between
mill classes is more apparent. On average, small mills made 37% of their revenue from
concentrate production, compared to 18% for medium mills and only 11% for large mills.
Over 80% of revenue for medium and large mills was made from complete feed. Small
mills also differ in that they made 7.5% of revenue from feed trading activities, whereas
this activity was not a large part of revenue for medium mills (0.1%), and absent for large
mills.
Generally, the larger the size of the enterprise, the more likely it is to be involved in
producing a variety of feed products for different animals. It appears that larger mills are
less likely to be specialized producers – but produce a diverse range of products to sell in
a wide range of producer markets. There may be some advantage to SMEs in being

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perceived as “specialist” producers, but we have no evidence to support this idea. Large
mills are more able to diversify their risks by producing multiple product types.

8.1.3 Profitability
An analysis of output prices for pig complete feed (the most commonly produced
product) found that small enterprises sold their product at lower prices per kg: mean
prices received were 4130 VND per kg compared to 5530 VND per kg for medium firms
and 5490 for large firms. This price discount offered by smaller firms (over medium firm
prices) was 1400 VND per kg and was statistically significant. There was no statistical
difference between the prices charged by medium and large firms. We found no evidence
of price differences for chicken feed and had insufficient data to analyze other categories
of complete feed.
We did not have sufficient data to compare profitability at the level of individual
products. However, mean profit per kg of output was -700 VND per kg for small firms,
120 VND per kg for medium firms and 100 VND per kg for large firms. The low profit
received by the small firms was statistically different from the medium and large firms,
whilst the mean profit of the large firms is similar to the medium firms in terms of means
and variance, and is not statistically different. The test of means between small and large
firms was only significant at the 23% level, due to the small sample from large firms.
These results indicate that small mills (producing less than 10,000 tonnes per annum) are
likely to be struggling to remain competitive. The data indicate that they face significantly
higher costs, and sell pig complete feed at significantly lower prices, resulting on average
in a significantly lower profit. Anecdotally, this is supported by reports of small mills
ceasing business, and our observations when conducting the survey of many previously
listed small mills no longer in business. However, our results support the idea that
medium-size mills (producing between 10,000 and 60,000 tonnes per annum) are
remaining competitive, and have costs and product mix and prices similar to large mills.

8.1.4 Procurement (and storage) of raw material inputs

Reliance on imports was calculated as the share of input quantity from import sources
(both direct and indirect) of the total quantity purchased. Generally, mills depend heavily
on imports for soybean cake (protein input) rather than maize (energy input) which is
often locally grown. However, the share of import reliance for maize is relatively higher
in northern mills compared to that in the south. While small and medium mills source
most of their maize from domestic sources, large mills import over a quarter of their total
maize. We examined the source of maize inputs by class and found that there was a
significant difference between firms in the reliance on imports. Locally produced bran is
also sourced by all production scale groups, less so by large mills, despite the price of
local bran being higher than imported bran.
Soybean cake is mainly imported directly by mills (100% for large mills and 58% for
medium ones) or from an imported domestic market source (71% for small scale mills).
The main reason for reliance on imported protein products is availability of domestic
supply, although there may also be quality differences that we were unable to investigate.
Small and medium mills both source some soybean cake produced in Vietnam: 29% and
5% respectively. Fish meal comes mainly from domestic sources for mills for all mill
scales.

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Storage capacity for raw materials increases with scale, but is generally larger in the south
than the north. Consistent with this, the average storage period was shorter in the north
compared to the south, both for maize and soybean cake.
The average stored volumes of raw materials was smaller in small and medium mills
compared to large mills and also lower in the south than in the north (which can also
explain the longer storage period in the south). Large mills were storing a greater volume
of soybean cake relative to maize (10,150 tonnes soybean cake versus 4,333 tonnes
maize), whereas small and medium mills were storing relatively similar quantities of
maize and soybean cake. This possibly reflects a purchasing strategy for imported
soybean cake used by large mills with larger storage capacity.

8.1.5 Distribution of livestock feed products

The data on distance to main customers supports the idea that medium size mills are
targeting areas far from their production region. The distance to the main customer
(complete and concentrate feed) was highest for medium mills and smallest for small
ones. While smaller feed enterprises often source inputs from a nearby material source,
they do not often reach potential customers located far away, compared to mills in the
medium and large groups.
There are clearly different product distribution chains operating in the livestock feed
sector between SMEs and large enterprises. Large mills targeted most (88%) of their
production of complete feed to traders/wholesalers. SMEs (and particularly small mills)
target a wide range of customers. Medium mills particularly target retail agents for 62%
of their complete feed. Small mills also sold complete feed to other companies (47%) and
direct to small households (14%). The sale of concentrate was more focused by all firms,
although large enterprises sold more of their production (91%) to wholesale agents.
Medium-sized firms sold a considerable amount of concentrate (21%) to commercial
farms together with 79% to their wholesale agents, indicating that their strategy was to
focus on large farms. This strategy is quite similar to that used by Thai SMEs: for
example the Thai Feed Mill Company sold output directly to large-medium sized farms;
and the Mualek Dairy Cooperative sold feed to a number of large farms owned by the
military, a government farm and one private farm (Thai Study Tour report, 2008)

8.1.6 Quality control

Protein content (as nominated on the feed label), a measurement of feed quality, was not
statistically lower in feeds produced by domestic mills compared to foreign mills.
However, the fact that advanced international standards for quality control such as ISO
and HACCP are only applied by foreign-owned and joint venture companies, indicates
better quality control processes for both input materials and output products from
foreign/large companies. These mills are more likely than domestic enterprises to have a
quality control laboratory doing various tests of raw materials and feed products, to have
separate production lines, to own automatic cleaning systems and to use least-cost feed
ration software. Clearly, there are quality control issues for domestic mills.
The nominated product expiry period tends to decrease by the scale of enterprises. Small
enterprises say their products can be kept for longer (more than 92 days) than medium
enterprises (72 days), while large enterprises nominate an expiry period of only 60 days.
This is an indication that large mills are more likely than small and medium mills to
acknowledge product deterioration over time, and are more able to do so because of their
larger production and turnover.

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Moisture and grain quality were nominated as the two principal feed quality constraints
by around one third of total mills. No mills mentioned contamination and laboratory
system failure as being of concern.

8.1.7 Services to clients

Credit or late payment options for their products, were not the usual methods of payment
taken by large firms, whereas both these options were usual methods of payment to
SMEs. Almost all sales of complete feed, and 75% of concentrate feed sales to
wholesalers by large enterprises is usually paid for in advance. Costs associated with
credit are a further cost that SMEs must carry, compared to larger enterprises, but is also a
strategy to secure sales.
There were differences in services provided to agents and farmers between foreign and
domestic mills, and between large and small mills. Veterinary and nutrition advice were
reported in the study as being the most common services that feed mills provide to
producers with a higher percentage of foreign companies providing these services
compared to local ones (Table 29). However, delivery was not provided at all by foreign
enterprises, while over 16% of domestic enterprises support producers with this service.
While more northern mills tended to provide veterinary and nutrition advice to their
agents compared to those in the south, this was not the case for support to producers.
More than half of southern enterprises gave veterinary and nutrition advice to producers
compared to only 23% of northern mills. This can be understood in the context of a
concentrated and industrial scale of livestock and poultry production in the southern
provinces.
By scale of feed production, it is notable that there is a big difference in provision of
stock or purchasing products/finished stock from producers between mill groups. No
company from the small mill group provided this service, while over 10% of medium
mills and 43% of mills from the large group provided this service to producers (Table 29).
Large mills were also more likely to provide extension material to producers (43%), and
this is probably closely linked with the provision of animals to producers. Only 5% of
medium mills provided extension material to producers, compared to 18% of small mills.
This may be a consequence of the relatively high percentage of small mills that provide
feed directly to small householders.
The larger the mill production scale, the more likely it provided veterinary, nutrition
services and credit/delayed payment services to agents. Although large mills did not
nominate credit/delayed payment as their “usual method of payment for products” it is
clear that these services are offered, particularly to agents.

8.1.8 Constraints on production

Small mills tend to have some disadvantages in terms of accessing loans from different
sources. There are a smaller percentage of small mills with a loan, and furthermore they
are less able to access enough funds through loans compared to medium and large mills.
Generally, small and medium firms take out a smaller loan amount compared to large
enterprises. Access to credit was the most common issues nominated by mills as needing
support from the government: by over 50% of medium and large mills, and over 30% of
small mills.
Infrastructure such as road networks, information, and electricity supply no longer seem
to be big constraints for feed mills, however a larger share of small enterprises still have

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disadvantages in terms of being located far away from material supply areas or ports,
which could affect their access to input material sources, both imported and locally
produced.
Access to land was, however, noted as an issue. Large mills tended to rent land, small and
medium mills were more likely to own land for their business. Small and large mills were
more likely to report that they did not have adequate land available, and large mills
ranked adequate land as the second most important location characteristic. Access to land
was also the second most common issue (after access to credit) nominated by mills as
needing support by government: by over 20% of all mill size classes.
Forty two percent of firms overall reported restrictions with the movement of goods, and
more large firms (61%) reported restrictions than SMEs. Tolls, inter-district and inter-
provincial roadblocks and “police conduct” were reasons given for restrictions on the
movement of goods. Of these, “police conduct” was nominated as the most important
restriction on movement of goods by 67% of small firms, 33% of medium firms and 75%
of large firms.

8.1.9 Opportunities
Feed enterprises see development opportunities for the animal feed sector. A portion of
feed mills surveyed mentioned the greatest future growth will occur in the pig, poultry
and aquaculture sectors. Notably, 50% of large firms believe that the aquaculture feed
sector will have the greatest growth in the future, compared to 30% of medium firms and
only 12% of small firms. Aquaculture production in Vietnam is developing steadily and is
seen as having potential by large feed mill enterprises, more than by the small/medium
enterprises.
Twenty nine percent of small firms, 30% of medium firms and 38% of large firms believe
that the domestic supply of maize will improve, but many also expect that it will decline,
including 63% of the large firms. There was also some degree of optimism that the
domestic supply of dried cassava will improve. Medium and large firms were more
pessimistic about the domestic supply of fish meal, with 50% of medium firms and 75%
of large firms expecting that domestic supply of this raw material will decline in the
future. Growth in domestic supply of both these products would likely be beneficial for
the livestock feed sector. The survey team noted anecdotal evidence that mills considered
domestic maize to be better quality than imported maize, however domestic fish meal was
considered of lower quality than imported fish meal.

8.2 Evidence of returns to scale

We were unable to investigate returns to scale using econometric methods because our
data for firm capital was inadequate for this purpose. However, the results from this
project identified several areas where returns to scale in the livestock feed sector are
indicated:
• Costs of production per kg of output tended to decrease with production scale. We
found significantly lower costs of production per kg/output for medium firms
compared to small firms. We note that this result is difficult to interpret because small
firms tend to produce a higher proportion of concentrate in their product mix than
large firms.

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• Larger mills have larger storage capacity and are able to store a greater volume of raw
materials, and for a longer period of time. This gives them purchasing options not
available to smaller mills because of their lack of storage capacity.
• Labour numbers per tonne of output is significantly higher for small mills. Labour
versus capital substitution is likely (e.g. only 20% of domestic mills have automatic
cleaning systems compared to 91% of foreign mills), and under-utilisation of labour
because of small scale is possible.
• Larger mills are more likely to employ specialist nutritionists, use least-cost feed
software for ration formulation, and have an on-site laboratory to test their inputs and
outputs. This would enable them to alter their ration formulation in response to
changing prices, and also to more closely monitor the quality of their inputs and
outputs.
• A higher percentage of both medium and large firms are likely to produce many types
of feed products. For example, 100% of large firms produce both pig complete and
concentrate feed, compared to 59% for pig complete and 82% for pig concentrate for
small firms. A higher percentage of large and medium firms also produce chicken,
cattle and fish complete feed as well as chicken, cattle and fish concentrate. Larger
firms are able to diversify their risk by producing multiple products.
• Access to credit appears to be easier for larger firms. Around 70% of firms overall
had a current loan, with 86% of large mills having a loan but only 60% of small mills.
Furthermore, only 40% of small mills with a loan were able to obtain sufficient funds,
compared to 67% of large mills.
• Only a small proportion of medium firms offer provision and/or purchase of stock to
agents and producers, whereas 43% of large firms offer this service to producers. This
indicates that large firms are in some cases moving towards vertical integration:
supplying/purchasing livestock along with the supply of livestock feed.

8.3 Strategies currently being used by SMEs to compete in the livestock

feed sector

8.3.1 Location
SMEs are more likely to be located in the rural rather than urban areas, and medium mills
in particular tend to supply customers further from their production site, and this customer
is more likely to be a smallholder. This may indicate that some SMEs are focused on
supplying smallholders in areas further from major cities. More research is needed to
trace the supply of livestock feed in remote areas, and whether this market is a niche
opportunity for SMEs. Location in rural areas may also assist SMEs to source domestic
supplies of raw material inputs, including raw materials used less often, such as broken
rice, groundnut, and cottonseed meal.

8.3.2 Product mix

SMEs tend to produce a larger share of concentrate in their overall product mix. Overall,
large companies produce far more concentrate than SMEs, but SMEs rely on the sale of
concentrate to a greater extent than larger firms. The production of concentrate is targeted
at producers who use mixed feed, and these are more likely to be smaller producers (see
Volume II of this report).

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8.3.3 Commission rate on concentrate feed
Our data show that the commission offered by feed mills to agents purchasing concentrate
feed decreases with scale (the reverse is the case for complete feed). SMEs rely more on
concentrate production and by offering a higher commission to agents than larger mills
they are providing an incentive for agents to purchase their concentrate feed (rather then
the concentrate feed from larger mills). Conversely, larger mills offer a higher
commission to agents for the sale of complete feed, which is the main product of larger
mills.

8.3.4 Discounted prices

We found evidence that small firms sold pig complete feed at a significantly lower price
than medium-sized firms. This price discount could reflect poorer feed quality and/or a
sales strategy. There was no statistical difference between the price charged for pig
complete feed by medium and large firms. As a sales strategy, lower prices can only be a
successful strategy in the long term if they reflect lower production costs. We have no
evidence that small firms have lower production costs than medium and large firms, and
in fact, the contrary is indicated.

8.3.5 Supply chain differences

SMEs source their raw materials and distribute their products differently to large
feedmills. Unlike large mills, SMEs source some inputs and distribute products directly
from/to small households. Large mills are more dependent on imports (e.g. maize) to
meet their raw material requirements, whereas SMEs are more likely to be able to source
sufficient domestic supplies.
SMEs are more likely to diversify their business into trading activities, and in addition
they have many types of customers, including other companies, agents and households.
Small mills in particular will sell direct to farm households, and medium mills target
mainly retail agents for their products. By contrast, large mills distribute their products
almost exclusively for on-selling by wholesaler agents and traders, and source raw
materials from private processing businesses and state-owned enterprises.
It seems clear that the supply/distribution chains operating for SMEs and large firms in
the livestock feed sector are quite different.

8.3.6 Payment in advance for inputs and provision of credit for output sales
Medium-scale firms were the only group who stated that they purchased inputs using
“payment in advance” with 15% of purchase quantity being paid for in advance. This
purchasing method helps ensure a stable supply, especially when raw materials are scarce,
and could be a strategy used by SMEs to ensure raw material supply. The strategy,
however, incurs a financial cost.
For outputs sold, credit or any other type of delayed payment did not appear to be the
usual payment options offered by the large mills, whilst it was sometimes the usual
payment option used by small and medium mills for their clients. This indicates how
SMEs have to offer incentives to maintain their market share; however they incur a cost
disadvantage from using this strategy.

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8.3.7 Services provided to agents and farm households
SMEs provide different services associated with the sale of feed products to agents and
farm households. Small mills are more likely to provide delivery services to agents
(compared to both medium and large mills), and just as likely to provide delivery services
to producers as large mills. As our results indicate that large mills do not directly supply
small householders, it is only small mills that deliver to small producers. SMEs are also
more likely than large mills to offer credit/delayed payment option to agents.

SMEs are less likely to provide veterinary and nutrition advice to producers, although a
considerable percentage of SMEs do offer these services. However, SMEs are almost as
likely as large firms to offer these services to agents. SMEs are just as likely as large
firms to offer extension material to agents, but a higher percentage of large firms offer
extension material to producers.

Only a small proportion of medium firms offer provision and/or purchase of stock to
agents and producers, whereas 43% of large firms offer this service to producers.

8.4 Role played by SMEs in the livestock feed sector

• SMEs in the livestock feed sector deal more with small householders and traders both
for the procurement of raw materials and in the distribution of their products. It is
likely that small-medium feedmills do provide more direct support to other small-
medium enterprises operating in the livestock sector.
• SMEs are more likely to be located in rural areas and therefore offer employment
opportunities in rural areas. Small enterprises employ significantly more labour per
tonne of output, but large and medium firms employ more labour in total. No large
mills have less than 100 employees, whereas 70% of medium mills and 88% of small
mills had less than 100 employees. However, there are many more SMEs than large
mills. Small mills pay both their factory and office workers at a lower rate than large
mills.
• Our data support the conclusion that medium enterprises (producing between 10,000
and 60,000 tonnes per annum) are competing successfully with larger enterprises in
the livestock feed sector.

8.5 Policy recommendations

The following recommendations are based on the results of the survey reported in this
document.

8.5.1 For policy makers

Assistance is needed to improve quality control
Foreign-owned and mills owned by joint venture partners have higher standards of quality
control. Domestic feed mills need to be assisted to improve their standards of quality
control. If long term food safety and export potential is to be reached, the Government of
Vietnam needs to address quality control issues associated with the production of
livestock feed. A number of options could be considered:

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 • Investment in better equipped government testing laboratories, and trained
personnel to carry out testing procedures, is warranted.
• A review of which quality control tests can feasibly be conducted is needed.
Currently 15 tests (under Decision No. 113/QĐ/BNN dated on November 28,
2001 about the list of technical indicators for animal feed) are mandated, but the
ability to conduct these tests is limited. The Thai Department of Livestock
mandates far fewer quality control tests, but tests livestock feed products
systematically and regularly.
• A policy of government subsidisation of quality control testing should be
considered. For example, compulsory quality control testing for feedmill products
could be free of charge.
• Free training courses on Good Management Practices (GMP) and HACCP (to be
overseen by the Department of Livestock Production) might be useful for
encouraging mills to have accreditation. Large mills operating in the sector could
be asked to contribute to this training.
• A deadline for feed mills over a certain production capacity to meet at least GMP
accreditation should be considered.
• Corruption associated with non-reporting when mills fail to meet quality control
standards need to be addressed.
• Random sampling of products in the market and testing against stated product
labels could be considered.

It needs to be noted that few feed mills nominated either quality control or technical
support and training as needing support from the government. We would suggest that this
may be a perspective detrimental for the livestock feed sector. Better quality control is
needed in the sector, and it seems unlikely that this will be achieved voluntarily by the
large number of domestic mills.

Restrictions on the movement of goods due to irregular police conduct need to be

addressed
Unnecessary restrictions and costs associated with the movement of goods add costs to
the livestock feed sector in Vietnam, which result in higher production costs for
smallholder and commercial agriculture. Corruption associated with police activities
needs to be addressed and prevented.

Invest in domestic production of raw materials used in feed production

Productivity of domestic crops that are used as the main inputs for animal feed such as
maize, cassava and soyabean should be improved together with expansion of the
production area. This recommendation is consistent with the development plan for the
crop sector (see Appendix Section A10) which states there is a need to expand area,
yields and establish large-scale producing regions (for the case of maize and soyabean),
or improve yields and quality (for the case of cassava) with the aim of meeting demand
from the animal feed processing industry and reducing import dependence. To do this,
investment in irrigation facilities is needed to increase productivity (e.g. in the
development plan maize is expected to have irrigated water availability for about 85% of
the total area by 2020). For some other raw materials such as fish meal, regional planning
and collection network building should be done to reduce dependence on imported

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sources. The aim of this would be to increase quality and reduce prices of these local
inputs, which are currently mainly bought by SMEs.

Credit support for SMEs should be expanded

Loan support in terms of interest rate and amount of loan should be provided to SMEs.
This support is very important in case these enterprises want to import and store materials
during May to August to prevent scarce supply during that period. Access to credit was
nominated by over 50% of large and medium mills as needing government support.

Promote the role played by SMEs in rural employment

SMEs are more likely to be located in rural areas and therefore offer employment
opportunities in rural areas. Small enterprises employ significantly more labour per tonne
of output, compared to larger firms. The location of SMEs in rural areas could be
encouraged by government through provision of land, infrastructure and subsidised credit.

Support and expand the role of the Vietnamese Animal Feed Association (VAFA)
A role for the VAFA to be involved in the operation of an exchange center for livestock
feeds, working in a similar way to a securities exchange, has been announced. This
proposed facility would monitor and provide information about changes in prices, as well
as supply/demand of raw materials and feed outputs. However this is expected to be a
long term plan as it requires not only financial resources but also land, facilities and other
infrastructure. In the short term, a more pro-active policy role for the VAFA should be
supported and promoted. It would be beneficial for a sector delegation to look at the
activities of, and the role played by, the Thai Feedmill Association.

Investigate the possible ways in which government could provide price support for
raw materials and livestock feed outputs
Many mills nominated “price management of raw materials and outputs” as needing
government support. This perhaps reflected the difficult price circumstances that faced
mills at the time of this survey in 2007 when raw materials prices increased rapidly.
During a study tour to Thailand we observed that livestock feed prices are controlled by
the Thai Government. We do not recommend this type of market intervention as a policy,
but it may be beneficial to investigate ways in which the government could better protect
the livestock feed sector from excessive price increases. Better market information
systems and futures markets may be able to play a possible role.

8.5.2 For SMEs

Increase production size
Medium-sized mills appear to be competing quite successfully with larger firms. They do
appear to focus on a different market: retail agents rather than wholesale agents. Our data
suggest that small-sized mills (producing less than 10,000 tonnes per annum) appear to be
under pressure to survive. To be sustainable in the long term, small mills need to increase
their scale of operation.

Improve standards of quality control

There is currently a large difference between quality control procedures operating in
domestic and foreign mills. To compete in the sector in the long term, quality control
standards of domestic SMEs must improve.

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Continue to exploit and explore niche market opportunities
It seems clear that SMEs have more direct access to retailers and small households
(including those in remote areas). Location in rural areas gives SMEs opportunities to
provide livestock feed and associated services to small niche markets. A further
consideration could be the production of alternative livestock feeds aside from standard
pig and poultry feeds. Opportunities for the production of livestock feeds for duck, local
pig, and beef cattle may exist for SMEs. These niche areas are exploited by smaller mills
in Thailand, and were identified as opportunities for SMEs by participants in stakeholder
workshops.

Consider advantages to be gained from a cooperative structure and/or

diversification
SMEs should investigate possible advantages associated with a cooperative structure and
diversification, thus enabling them to act more like a larger enterprise. Some SMEs in the
feed sector in Thailand offer a diverse range of services (such as credit provision, fuel,
farm output purchases) to small farm households and/or commercial farms who are
members of a cooperative and either supply and/or buy directly to/from the feedmill. This
course of action would be an alternative to relying on retail agents which is the current
focus of SMEs. Participants in stakeholder workshops spoke of the future need for SMEs
to have their own production units for raw materials and livestock. The feasibility of such
strategies could be investigated further, in consultation with state agencies, as the setting
up of production units would be dependent on institutional facilitation.

Support a strong role for the VAFA

The VAFA could play a strong and useful role for SMEs in the sector. Already used by
SMEs for feed ration recipes, and advice on various aspects of production, this role could
be expanded to include assistance with raw material procurement (particularly imported
materials) and quality control. SMEs and large feedmills should play a role in debating
and developing a future role for the VAFA. Policy advocacy for the feed sector in general
and SMEs in particular should be considered. Membership of the VAFA should be
mandatory for all registered feedmills, and the Association should be strengthened with
government and private sector support.

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APPENDIX

Table A1. Percentage of enterprises having automatic and/or semi automatic

processing equipment

North South
Automatic Semi-auto Automatic Semi-auto
Small 25 75 0 100
Medium 0 100 11 89
Large 67 33 0 100
Overall 25 75 7 93

Table A2. Percentage of enterprises using overseas and local processing line
technology

North South
Oversea Local Oversea Local
technology technology technology technology
Small 54 46 80 20
Medium 50 50 91 9
Large 100 0 38 63
Overall 59 41 78 22

Table A3. Prices of products by feed type (‘000 VND/kg)

Mean Count SD
Pig Complete feed overall 5.39 36 2.08
-Starter feed 7.74 11 4.63
-Grower feed 5.04 13 1.51
-Sow feed 5.18 11 1.76
Concentrate overall 8.07 37 2.45
-Starter feed 8.53 3 0.41
-Grower feed 8.85 9 2.54
-Sow feed 7.26 5 1.53
Chicken Complete feed overall 5.26 24 1.09
-Starter feed 5.50 4 1.28
-Grower feed 4.90 4 1.60
-Layer feed 5.33 3 1.19
Concentrate overall 8.51 12 3.80
-Starter feed 7.16 2 1.64
Cattle Complete feed overall 4.50 4 0.68
- Dairy 3.88 4 1.06
-Other 4.12 2 2.78
Aquaculture Complete feed overall 7.54 8 4.47
Concentrate overall 15.46 3 7.16

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 Table A4. Percentage of feed enterprises having few or many main competitors &
market share in their main market

Competitors Domestic Foreign Small Medium Large Overall

- 2-5 main competitors 2.3 58.8 5.9 10 28.6 18.3
- many competitors 97.7 41.2 94.1 90 71.4 81.7
Market share 7.0 13.5 10.9 3.0 23.2 10.2

Table A5. Percentage of enterprises with separate lines for different types of feed

Domestic Foreign North South Small Medium Large Overall

23.1 35.3 19.2 33.3 29.4 22.2 14.3 26.8

Table A6. Percentage of enterprises which employ nutritionist and source of recipe

Domestic Foreign North South Small Medium Large Overall

Employ
59 75 67 60 59 67 57 63
nutritionist
Source of feed mix recipe:
Hired technical
53 25 89 17 43 33 100 48
staff
19
Other 47 75 33 67 57 33 33 52
Use least cost
feed ration 81 94 85 84 65 94 100 85
software

Table A7. Principal feed quality constraints in the last 12 months (% of firms)

Constraint Domestic Foreign North South Small Medium Large Overall

1.Moisture 33 36 54 16 47 15 43 33
2.Insects 7 4 7 7 0 0 5
3.Operator failure 9 0 13 0 10 0 7
4.Toxin 5 4 3 7 5 0 4
5.Grain quality 30 21 31 26 27 45 14 28
6.Flow supply system
2 0 3 7 0 0 2
failure
7.Commodity supply 7 36 4 23 0 15 29 12
8.Other 7 4 7 7 0 0 5

19
Others include (1) from parent company; (2) use own knowledge; (3)Nutriway

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 Table A8. Share of enterprises having different transport methods for transporting
each commodity by region and production scale

North South Small Medium Large

Type of Boat / Boat / Boat / Boat / Boat /
Truck Truck Truck Truck Truck
commodity Ship Ship Ship Ship Ship
Inputs:
Local rice 67 33 100 0 100 0 100 0 50 50

Local maize 1007 0 100 0 100 0 100 0 100 0

Local cassava 86 14 100 0 100 0 100 0 67 33
Imported maize 100 0 75 25 100 0 100 0 100 0
Main locally
sourced protein 100 0 90 10 100 0 100 0 100 0
rich food
Main imported
100 0 75 25 100 0 88 13 100 0
protein rich food
Outputs:
Main complete 100 0 93 7 83 17 100 0 100 0
feed
Main concentrate
100 0 85 15 89 11 75 25 100 0
feed

Table A9. Percentage of firms having restrictions on the movement of goods

Small Medium Large Overall

Yes (%) 42.9 35.3 60.0 41.7

No (%) 57.1 64.7 40.0 58.3

Section A10. A summary of crop sector development plan (Source: Department of

Crop Production, 2009)
Maize is considered as a medium-advantageous crop item.
• Expand maize area and establish large-scale maize producing regions. Invest in
intensive farming to meet demand from animal feed processing industry.
• In 2010 maize area is expected at 1.14 million ha; increase to 1.2 million ha in 2015
and 1.3 million ha in 2020; production estimated at 4.7 million tonnes in 2010, to rise
to 6.0 million tonnes in 2015 and 7.5 million tonnes in 2020.
Cassava and soyabean are considered as low-advantageous crop items.
Cassava:
• More focus on improving yields and quality.
• Cassava area in 2010 is expected to reach 500,000 ha, decrease to 450,000 ha in 2015
and 400,000 ha in 2020. However, production is expected to be at 8.5 million tonnes
in 2015 and rise to 9 million tonnes in 2020.
Soyabean:
• Is expected to develop in order to reduce soyabean cake imports.

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• Area in 2010 is expected to reach 220,000 ha and production is 325,000 tonnes,
increase to 300,000 ha, and 500,000 tonnes in 2015. It is estimated to be at 350,000 ha
and 650,000 tonnes in the year 2020.

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REFERENCES

Animal feed market: Instability due to lack of strategy (April 2009).

http://www.agro.gov.vn/news/newsdetail.aspx?targetid=13514
CAP (2008). Thailand Study Tour Report.
CAP (2008). Survey on the production and use of industrial animal feed.
Data on raw material imports (2008) from www.mard.gov.vn
Department of Livestock Production, Data on feed and material price change in 2008.
Department of Livestock Production (2007, 2009). Strategy for livestock development to
2020.
La, Kinh. (2008). Reasons for high prices of animal feed and some solutions to reduce
prices. Prepared after the Thai study tour.
Le, Ba et al. (2006). Vietnamese small and medium enterprises during international
economic integration. National Political Publishing House
Nguyen, Duong (2009). Thesis paper “Background and solutions for developing
industrial feed processing industry in Vietnam during period from 2009 to 2015”.
National Academy of Administrative Politics, region 1.
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SME development plan 2006-2010. http://www.business.gov.vn/
Vietnamweek in coordination with Institute of Policy and Strategy of Agriculture and
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SMEs, Jan 2010. http://www.tuanvietnam.net/2010-01-26-truc-tuyen-con-duong-phat-
trien-cua-dn-vua-va-nho-viet-nam

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