report - Agriculture.docx

7/25/2019 report - Agriculture.docx

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Agriculture

Overview of the Industry

Regarding animal feed market, it is growing impressively at a double-digit rate. Although

the profit ratio is not very high, this market has large scale and is very potential. Animal feed is

the most profitable segment in agriculture, which is the reason why there are a significant

number of Vietnamese large companies investing in this market such as Masan, Hung Vuong,

etc. However, because of the profitability, this market is highly competitive. As March !"#, #$

foreign-invested firms and %oint ventures dominate half of the market while "&! domestic firms

share ! percent market share, with the remainder accounted for by imported products '(an

)hi,*he +aigontimes. +ome dominant companies in the sector include /roup, argill, )ew

Hope, and /reen0eed with the annual global revenue of hundreds of billion 1+2.

About livestock market, the price is fre3uently affected by negative information such as

disease, using prohibited substances 'like +albutamol causing the an4iety among consumers.

*his market is also vulnerable and affected by the purchase of other countries, especially hina.

0or e4ample, at the beginning of May !"5, the price of pork in south-east Vietnam reached the

highest point within "$ months because of the surge in buying of hina. However, at the middle

of this month, hina suddenly stopped the importation through unofficial channel, which led to

the decrease in the pork price 'hannuoivietnam. 0urthermore, foreign-invested companies also

has a dominant position in livestock market, like sell about "#!,!!! swines, on average, per

day and almost dominates the Vietnamese meat market valuing "& billion 1+2 ')guyen 6ao 7

Hai Au, 2oanhnhansaigon.


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Hoa Phat Operation

8n March !"#, Hoa hat officially started investment in the agricultural sector by

establishing Hoa hat Animal 0eed *rading and roduction ompany 9ne Member o., (td. and

many member entities have been established and begun operating in animal feed and livestock

raising since then. Hoa hat *rading o., (td., which previously speciali:ed in trading steel

products, was restructured and shifted to research and implementation of high-tech cow raising

pro%ects in late !"#. Hoa hat Mining ;+, which previously speciali:ed in e4ploiting and

processing iron ore, was also restructured to undertake biosafe pig raising pro%ects.

uarter of !"5? the second animal feed factory, in

2ong )ai, is e4pected to be completed in >uarter @ of !"5. After completion, the ma4imum

capacity of both factories may reach a total of 5!!,!!! tons per year. As planned, these factories

will start trial operation of production lines to test their capacity and align their output with

market demand in the )orthern provinces in the immediate future. 8n !", Hoa hat has further

plans to construct its third animal feed factory to reach an animal feed target of " million tons.


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0or the livestock raising segment, Hoa hat is currently considering implementing large-

scale pig and cow raising pro%ects in many provinces across the country, such as (ang +on, 6ac

/iang, =en 6ai, Hoa 6inh, >uang binh, hu *ho, Hung =en, *hai 6inh, 2ong )ai and 2ak (ak.

'Hoa hatBs !"# annual report

urrently, Hoa hat imported #!! breeding stocks '/ from 2enmark and planned to

supply pork from !"&

8t can be seen from the plan of Hoa hat that this /roup intend to build a full circle

production process C D0 model '0arm C 0actory C 0ood, the model that large companies like ,

argill applied.


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However, the result at the beginning is not very positive. 8n 3uarter "E !"5, agriculture

sector e4perienced a loss of "@ billion V)2.

rofitRevenue

Revenue and profit of agriculture sector

1nitF billion V)2

>uarter "E !"5>uarter @E !"#>uarter DE !"#>uarter E !"#>uarter "E !"#


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Problem and Solution

Hoa hat is a new entrant in agriculture, which is dominated by very large companies

with strong financial position and long history in the market. Hoa hat may face many

challenges when penetrating in this market. 9n the other hand, this new sector also has some

similarity with the tradition industry of Hoa hat such as large scale production and output,

depending on many local factors.

Financial problem.2eveloping the D0 model re3uires a lot of capital at the beginning.

8n order to gain significant market share, Hoa hat needs to build about to & factory, which is

estimated to cost about ,!!! to ,#!! billion V)2 '6randsvietnam. Hoa hat has a strong

financial position, and the conglomerate business form can allow the /roup to use profit in the

core business 'e.g steel to support this new segment. )evertheless, the /roup may have to

borrow money from bank or other channels to finance new pro%ects. *his situation may deter the

competitive competency of the /roup since according to V8, the real interest rate in Vietnam

is still high 'G-&GEyear, compared to other countries in A+A) like *he hilippines

'.GEyear or Malaysia '."GEyear. Moreover, in Vietnam, foreign-invested enterprises are

granted promotions in terms of corporate income ta4es, tariffs, etc.

*o address this problem, the /roup should make use of its current capital and have

prudent decision in financing pro%ects to keep the debt ratio at the safe level like the current one

'!.5. 8t is very tough at the beginning. However, once the D0 model can operate fully, it can

help to substantially reduce the cost, yield more profit, which in turns will decrease the pressure

on capital and the /roupBs liability in the following periods.


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Distribution channel.0or animal feed, Hoa hat needs large and e4tensive distribution

networks like e4isting firms. 0or e4ample, in !"#, co-operated with farmers to build over

D,!!! small farms and food factories all over the country. As a result, the revenue of .

okphand o.,(td in !"# increase "."G in comparison with that in !"@. Moreover, 028

enterprises still want to increase their distribution networks. has already planned to develop

about "!,!!! dealers through franchising and the retail chain +even leven.

8t seems to be very challenged to Hoa hat. *o solve the distribution channel problem,

Hoa hat /roup may utili:e the e4isting widespread distribution network for steel to distribute

animal feed and pork. )onetheless, in the long-run, it is essential to have to the professional

channel for agriculture product because unlike steel, the channel for this product must be closer

to farmers in each village in the countryside. *o do that, Hoa hat can learn from the strategy of

e4isting competitors. *hat is to co-operate with farmers C the consumers C to help them with

techni3ues in feeding and use advertising and other campaigns to differentiate Hoa hatBs

products. 8n addition, to increase the coverage of the network, Hoa hat should deal with local

distributor and dealers to distribute their product. Hoa hat is a Vietnamese firm, so it should

take the advantage of the understanding about Vietnamese dealers when dealing with them.

Input. Another challenge for Hoa hat is the import material, like protein and other

nutrients to produce animal feed. *his make the operation of the company depends on the foreign

supplier, and so the e4change rate and other factors in the world market. *herefore, for long-run

interest, Hoa hat should have more suppliers to reduce the risk of dependency as well as enter

into long-term contract with suppliers to ensure the supply and price of input to maintain the

price of the product.


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ivestoc! mar!et problems. As mentioned before, the market of livestock is vulnerable

because of the an4iety of consumers, and the influence of the purchase of hina. *o manage this

risk, Hoa hat should apply modern technology and sanitary standard in order to try to build

reputation in the market.

Documents

report - Agriculture.docx