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International Sourcing: Vietnam

Fisheries officials project new species, value-added products, national brand

By Nell McShane Wulfhart
May 01, 2007

Massive changes in Vietnam's economy in the past decade have impacted its seafood industry, mostly in a positive way. The opening up of the country to foreign investment has stimulated improvements across the board in Vietnamese life, including standards of living. The U.S. embargo on Vietnamese products was lifted in 1995, and the countries established normal diplomatic and trade relations the next year. Since then, privately owned enterprises have exploded and the poverty rate has dropped dramatically. Additionally, Vietnam joined the World Trade Organization in January, which is viewed by many as the final hurdle on the country's road to modernization.

Vietnam's seafood exports rose exponentially in the last decade, from 206 metric tons in 1997 worth $760 million to 739 metric tons in the first 11 months of 2006, worth nearly $3.1 billion. Fourth in Vietnam's list of exports behind crude oil, textiles and footwear, seafood exports account for about 9 percent of total exports, and this number is rising. Worldwide, Vietnam ranks seventh in seafood exports and sixth in aquaculture production.

The foundation of this success rests on two species that dominate the export market, shrimp and basa ( pangasius bocourti ).

"Anyone can raise shrimp, but Vietnam's climate and farming conditions are perfect for large-scale basa farming. Our basa has a nice texture and sweet flavor; it's a good, plain whitefish," says Tran Vu Khanh of Hiep Quang Co. in Ho Chi Minh City, which raises basa in the Mekong Delta and imports and distributes agriculture materials for fish farming.

Basa are raised in pens on the Mekong River, where the fast-moving current plays a large role in their fast growth. Cephalopods (octopus, squid and cuttlefish), grouper and tuna make up the bulk of the remaining Vietnamese seafood exports to the U.S. market.

Truong Dinh Hoe, vice secretary general of the Vietnam Association of Seafood Exporters and Producers (VASEP), attributes the sector's rapid development to several factors.

"More open government policies, improved export conditions, changing demands in the world market, the development of aquaculture and the transfer of seafood companies from near-total state ownership to private ownership have all played a part in the extreme development of the seafood industry," says Truong.

VASEP's 210 members comprise around 70 percent of Vietnam's total seafood exports. These seafood companies are mainly located in the Mekong Delta, the heart of Vietnam's seafood processing sector.

Matthew Fass, president of Maritime Products International in Newport News, Va., agrees with Truong.

"Steady growth in overall [seafood export] quantity has been evident. I think this is simply a reflection of the steady growth of seafood popularity around the world, along with continued business development in Vietnam, which is due to some generally favorable conditions - a history with seafood experience, some good natural conditions for industry development and a hard-working labor force," says Fass.

High profits in the fisheries sector, says Tran, led many farmers to "trade the rice farm for the fish farm. Even those employed in the cities moved to the countryside and began digging ponds."

Aside from fish farming, fisheries officials have a lot in store for the country's seafood sector: ramped up value-added product development, new species and a national brand are projected for the near future.

 

Aquaculture developments

Although Vietnam has about 1,440 miles of coastline, and small fishing boats can be seen everywhere near the water, harvests have been on the decline. Bowie Leung, director and country manager of exporting company Siam Canadian (Vietnam) Ltd., says this is due to "the decline in wild catch items, the high price of raw materials and the instability of the supply."

The government has tried subsidies to improve harvest statistics, but the commercial fishing sector doesn't support harvesting far from shore. In addition, regulations and government protections are few, and resources have been depleted. Harvests are only done on a small scale and this seems unlikely to change in the near future. Vietnam's wild harvest measured 1.4 million metric tons in 2003. The Ministry of Fisheries does plan to increase fishing incentives for harvesting species like tuna.

Aquaculture is where most of the seafood industry's energy is aimed, and it seems to be paying off. By 2010, tra and basa 
farming in the Mekong Delta region is expected to generate revenues of approximately $750 million annually, and an export turnover of $600 million, according to Vietfish International , a VASEP publication.

Even with these numbers, only half of the area suitable for aquaculture in Vietnam is being used; nearly 2 million acres can be developed for aquaculture use, according to the U.S. Vietnam Trade Office in Washington, D.C.

In addition, companies like FAQUIMEX (Ben Tre Forestry Aqua-Product Import Export Co.) are working toward sustainable aquaculture development. FAQUIMEX recently formed a Sustainable Shrimp Production Union, which is designed to ensure quality control compliance with international standards, restrict disease outbreaks, limit environmental damage and increase productivity. Its model is being applied to basa farming 
as well.

 

Antidumping penalties

The biggest change in Vietnam's seafood exports to the U.S. market has been the antidumping duty placed on Vietnamese basa in 2003. The Department of Commerce enforced antidumping duties of up to 64 percent on basa and tra and 26 percent on frozen shrimp from Vietnam, a move protested by many. U.S. importers are now paying nearly triple for basa than before the antidumping duty was established.

Vietnamese exporters, like Bowie Leung of Siam Canadian, lament its effects.

"Business in the United States was growing until the antidumping tax came into effect, now exports to the United States are dropping and dropping. I just hope these problems can be resolved soon," says Bowie.

Others are more optimistic. Tran says the tariff forced 
Vietnam to look to other markets, which are now developing at a higher rate.

"Due to the antidumping crisis, basa is more important in markets other than the United States. Spain is now the biggest market for Vietnamese catfish, and it is more popular in the European Union countries, in general. The [U.S.] antidumping laws actually did us a favor," says Tran.

Although some U.S. companies are still importing from Vietnam, the basa tariffs have significantly decreased exports to the U.S. market.

"In my opinion, the pangasius case is a very poor example of the worst of special-interest trade issues that do far more overall harm than good," says Fass of MPI. "It is not impossible to envision some scenarios where some product or overall growth happens so fast from Vietnam that other 'interests' in the United States take steps to push things back - especially depending on how the economy may be going here and the mood and political makeup of our elected leaders both at a local and federal level."

 

Buyers go direct

Most of Vietnam's seafood exports to the U.S. market are going to the West Coast for logistical and market-demand purposes.

For the most part, U.S. buyers are sourcing directly from Vietnam. According to VASEP, many Vietnamese companies are processing and packing locally, then shipping the product to buyers in the states where it is distributed. Product is often re-packed and then distributed to end users. U.S. companies often use an on-site agent to do their buying, says Bowie, whose company, does quality-control work in several Vietnamese provinces.

The current instability of exports to the American market makes it difficult to accurately predict the future of Vietnam's seafood exports to the United States. However, according to Fass, Vietnam should be commended for its efforts in the face of enormous setbacks.

"We have seen the industry as a whole always keep an open ear to things that need to be done to continuously make improvements. In some ways, I think Vietnam deserves some extra praise for this because they really suffered under the unique circumstance of being hit with a major antidumping case with pangasius very soon after export markets opened to the United States. This case was 
accompanied by some extremely harsh (and incorrect) rhetoric that attempted to paint a misleading picture in many ways," says Fass.

"Yet, rather than take a confrontational attitude, I think Vietnam continued to ask what it could do better in every reasonable way (even if this just meant better and more open communication) and has continuously been very open to suggestions - including good transparency with key buyers and even government officials (such as Food and Drug Administration representatives or politicians) when anybody has wanted to visit things on site. Quality has not taken a back seat to other issues in Vietnam and this has been a wise course."

 

P rocessing practices updated

Truong suggests that improvements in both "software" (hygiene management and quality inspection) and "hardware" (facilities) have contributed to Vietnam's increased seafood exports to the European and Asian markets.

"Both of these had to improve very fast in order to meet the high and varied standards of different markets. However, more and more importers have confidence in Vietnam because of the improved conditions in both of these areas," Truong adds.

Seafood sector businesses, especially large ones like Minh Phu, Camimex, Jostoco and Agifish, have invested in modern technologies to raise production capacity and diversify export items.

"Workers' skills and technologies have both developed. Better freezing machines, for example, have cut the time to freeze materials from six hours to one or one-and-a-half hours," says Truong.

Another contributing factor for the growth in the country's seafood sector is the low labor cost. A fisheries worker in the Mekong Delta might make approximately $60 a month. Although the country's ascension to the WTO will probably improve worker compensation in the future, its large labor force and low salaries are currently helping to make Vietnam a serious player in the worldwide seafood processing market.

Accompanying these advantages, however, are myriad concerns about the future. Environmental anxieties around both aquaculture and wild harvests abound. Inadequate investment capital in some areas of marine farming and dependence on weather conditions are also factors. Depletion of marine resources by commercial fishermen targeting the same coastal areas repeatedly is a significant problem.

Inadequate management of tra and basa farming has led to unhealthy competition between farmers, affecting aquaculture production, while oversized farms have negatively affected aquatic agriculture. The emphasis on fish farming has taken a toll. One hectare (about 2.5 acres) of shrimp farming uses 7.5 metric tons of feed 
per crop, while fish farming needs 450 to 460 metric tons, creating an enormous volume of wastewater.

The government is beginning to address these issues through legislation, but it may be a long time before significant changes make the industry more sustainable and stable.

 

Future forecast

Despite these problems, and the still unresolved antidumping conflict, the future looks bright for Vietnam's seafood industry.

The Viet Nam News noted that "seafood exports to Europe will increase by 10 to 15 percent this year, according to the National Fisheries Quality Assurance and Veterinary Directorate (Nafiquaved), following key inspections by foreign officials."

While it may take time for exports to the U.S. market to reach former levels, the European market is steadily growing. Truong, of VASEP, confirms this, adding that "with increasing demands for sushi products, Japan is also a growing market for Vietnamese seafood." Vietnam's seafood exports to Japan have dropped from 60 percent 10 years ago to 30 percent today.

Truong continues, "Vietnam is now looking to balance market shares over the three markets of the European Union, United States and Japan."

He contends that it is difficult to predict the future of Vietnam's seafood industry - certainly, it is unlikely that exports will continue to grow at such a rate. The seafood sector has developed so quickly that Vietnam is now facing some unforeseen challenges, namely "how to compete in the world market, gain importers' confidence and maintain stable quantities and reasonable prices," says Truong. Wild harvests will only decrease, he adds.

More value-added products should appear in the U.S. market in the next few years and there is likely to be an increase in local processing, which will benefit both importers and exporters. According to Vietfish International magazine, the next four years have been designated by the Ministry of Fisheries as geared towards exportation of high-value products.

Bowie, of Siam Canadian, suggests that in the face of current trends, organic shrimp and basa are items that may become 
more popular.

Hiep Quang Co.'s Tran predicts increased production of species other than shrimp and basa, namely mahimahi and grouper, both of which are gaining in popularity in the U.S. market. Studies have demonstrated the suitability of these species for farming in Vietnam. "So far, [exports of these species] are small," says Tran, "but they have great potential."

Fass says that although his company is focused mostly on frozen products, "I have to believe the trend is up for fresh imports today - even with some of the logistical difficulties involved."

U.S. importers can likely look forward to more unified branding of Vietnamese exports. The Minister of Fisheries, Ta Quang Ngoc, told the Vietnam News Agency recently that Vietnamese aquatic products have in large part been distributed through intermediaries, and that the time had come to establish a national brand.

"I expect steady growth from Vietnam in every measurable way, such as volume, new species and product development (such as value-added products). I would also expect a constant emphasis on product quality. I think there should be a bright future for development in this market as long as the focus does stay squarely on quality and continued product development," says Fass.

The 2007 goal is an export market of $3.6 billion, according to VASEP. If the new year follows all indications, it seems Vietnam is likely to achieve it.

 

Nell McShane Wulfhart is a freelance writer in Vietnam

 

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