Are foreign companies price gouging in animal feed market?
Are foreign companies price gouging in animal feed market?
Vietnam’s animal feed industry is likely to achieve stable production in 2015 but transnational companies are driving domestic producers out of the business, leaving many industry leaders to call for tighter regulations by the government.
Over the past 15 years, many transnational companies and groups have entered the animal food market – most notably CP based in Thailand, Uni President and Asian Nutrition out of Taiwan and Cargill from the US.
Foreign companies growing
In contrast to the wildly fluctuating up and down swings of prices on the livestock and aquatic markets, animal feed market prices have been steady and continually inching their way up.According to the Vietnam Animal Food Association (VAFA), transnational companies currently hold an 80% market share in the industry.
In particular, companies like Uni-President, CP and Tombo have dominated the market for shrimp food while Cargill, Green Feed and Proconco have had a commanding presence in the tra food markets.
Officials from Uni-President reported that for 2104 gross revenues and profits increased heftily by 30% on-year and the company predicts they will expand another 20% in the current year.
Vietnam businesses used to be the major suppliers of food for tra fish, however, at present only a handful of domestic brand names – Viet Thang, Vinh Hoa, Hung Vuong and Co May - have survived.
Co May for example operates two processing plants for shrimp feed in the Mekong Delta region that have a combined annual production capacity of 420,000 tonnes.
The company’s general director Pham Van Ben said the company has to compete fiercely with many rivals including foreigners who are much stronger in terms of experience, technology, management and market strategy.
The company has only managed to gain a foothold on the market as a result of a lot of hard work at gaining consumers’ trust thanks to our quality products and reasonable prices, Ben stressed.
Need for appropriate policy mechanisms
Nguyen Trong Huy, CEO of Tomking Company said many transnational companies have cornered the animal food market and outmanoeuvred their domestic counterparts on the back of their superior 40-year experience.
Domestic companies have also lacked sufficient funds for investment in plant, machinery and equipment as well as research and development, which has put them at a severe disadvantage, Huy underscored.
Truong Dinh Hoe, secretary general of the Vietnam Association of Seafood Exporters and Producers (VASEP), in turn said transnational companies control nearly the entire shrimp food market.
Currently the profit margins for transnational companies are running 20-30%, much higher than that of domestic companies, which operate on a significantly less margin, Hoe stressed.
However due to limited access to capital for investment in plant and equipment the domestic firms lack the wherewithal to effectively compete with the transitional company’s who have ready access to plenty of foreign investment.
The higher profit margins have led some industry leaders to call for more government oversight to insure that transnational companies are not gouging domestic shrimp producers.
There have also been many suggestions by industry leaders that the higher prices charged for shrimp feed are the result of collusion among the transnational companies to keep the cost of feed artificially high.
To stabilize the animal food market and quell these concerns needs the strong involvement of the State. If businesses violate laws or the distribution network has many intermediate agents they must be fined, they said.
Additionally, the State should devise proper policies and mechanisms to develop the sector, Hoe proposed.
Vo Hung Dung, director of the Vietnam Chamber of Commerce and Industry (VCCI) branch in Can Tho, said Vietnam has issued incentives to attract transnational companies to do business in Vietnam.
However, currently they are exploiting the domestic market and running domestic companies out of business and it is time for Vietnam to improve transparency of transnational business operations.
The government needs to get proactive in ensuring all businesses comply with applicable laws and regulations and in particular ensure they comply with Vietnam’s income tax laws and don’t engage in transfer pricing tax avoidance schemes.
