Collaboration for Agriculture and Rural Development
(CARD)
Program
262
ENHANCING THE
COMPETITIVENESS OF RURAL SMALL AND MEDIUM
ENTERPRISES IN THE AGRO
-
FOOD CHAIN: THE CASE OF VIETNAM’S
ANIMAL FEED INDUSTRY
Project title:
Developing a strategy for enhancing the competitiveness of rural small and
medium enterprises in the agro
-
food ch
ain: the case of animal feed
Project code
: CARD
030/06 VIE
Authors:
Dr
Nguyen Do Anh Tuan
1
, Pham Thi Lien Phuong
1
, Nguyen Thi Thinh
1
,
Sally
Marsh
2

use of mixed feed
–
particularly for pig production. Another noticeable result is that few surveyed
producers were found to be using domestic brands of industrial feeds. Foreign brands were clearly
prefe
rred by both pig and chicken producers. The main reason given for this choice by producers was
that foreign brands were considered to be of higher quality and give better productivity. This once
again mentions about issues related to quality control of SME
s.
Based on the main findings of the study, some policy recommendations focusing on investment, scale
increase, quality control are given to policy makers and SMEs as well.
1.
Introduction
In Vietnam’s agriculture sector, livestock plays
a very important
role with its share ranging
from 22.6 to 25.5% annually and is considered
as one of the important pillars of a sustainable
development strategy. Over the last years, due
to the effects of the urbanization process and
CARD
030/06
–
Enhancing rural SME competitiveness in animal feed sector
263
income growth, the demand for meat has
increased substantially. This leads to a shift in
the production structure of agriculture from
cultivation to livestock and services. However,
in livestock production, high cost and poor

and will lead to policies that enhance the
competitiveness of the sector.
2.
Objectives
and
M
ethod
ologies
2.1.
Objectives

Unders
tanding the role and performance
of SMEs in the animal feed sector in other
countries, draw lessons from their
experiences and apply for conditions of
Vietnam;

Providing a quantitative assessment of the
factors affecting the competitiveness of
the animal f
eed industry in Vietnam; and

Providing policy recommendations to the
government with regard to the efficiency
of firms operating in the livestock feed
sector, and provide advice to SMEs
competing in the livestock feed sector
.
2.2.

annum. Only data from 44 mills we
re able to
be used in analyses by production scale
because of data unreliability.
2.2. Producer survey
A survey in six provinces of 300 pig and
chicken livestock producers of mixed
production scale was conducted aiming at
investigating feed use by producer
s. Producers
were classified as small, medium or large
based on their per head production in 2008.
For pig producers, small producers were
classified as those raising less than 50 heads
per year, medium producers are those
producing from 50 to 120 heads p
er year, and
large more than 120 heads per year. The
classification of chicken producers was
different for layer and broiler production. For
layer production, small producers were
classified as those producing less than 1000
heads per year, medium produce
rs are those
producing from 1000 to 4000 heads per year
and large as those producing more than 4000
heads per year. For broiler production, small
producers were classified as those producing
less than 500 heads per year, medium are those
producing from 50

were 8420 VND, 6340 VND and 5380 VND
for small, medium and large firms
respectively. This alone is not necessarily an
indicator of greater efficiency of larger
enterprises. For example, small
-
medium
ent
erprises were found to produce a higher
share of concentrate as percentage of total
production than large enterprises. On average,
small mills made 37% of their revenue from
concentrate production, compared to 18% for
medium mills and only 11% for large mi
lls.
Over 80% of revenue for medium and large
mills was made from sale of complete feed.
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 firms p
roducing
more concentrate. Raw material costs made up
about 80% of the total cost of production in
feed mills.
Small firms used 19 labor units for one unit of
output, compared to around 11 labor units used
by both medium and large firms, and this
differen
ce was significant. This may indicate

-
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 domesti
c
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 i
ssues for domestic mills.
3.1.4
Constraints on production
Small mills tend to have some disadvantages in
terms of accessing loans from different
sources. They are less able to access enough
funds through loans compared to medium and
large mills. 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.
Access to land was also the second most
common issue (after access to credit)

SMEs are more likely to be located in rural
rather than urban areas, and medium
-
size mills
in particular tend to supply customers further
from their produc
tion site, and this customer is
more likely to be a smallholder. This indicates
that some SMEs are focused on supplying
smallholders in areas further from major cities.
SMEs also used a higher percentage of
domestically sourced raw materials for
productio
n. Location in rural areas may assist
SMEs to source these domestic supplies of raw
material inputs, including raw materials used
less often, such as broken rice, groundnut, and
cottonseed meal.
b.
Supply chain differences
The research showed that the
supp
ly/distribution chains operating for SMEs
and large firms in the livestock feed sector are
quite different, indicating that they are
sourcing materials from and targeting
distribution to different market segments.
Unlike large mills, SMEs source some input
s
and distribute products directly from/to small

(compared to both medium and lar
ge mills).
SMEs are also more likely than large mills to
offer credit/delayed payment option to agents.
3.
2
Livestock feed use
3.2.1
Industrial feed is more often used by
large producers, and more commonly
in early production stages
In general, it was fou
nd that industrial feed
was used more by larger producer groups, and
in the early production stage rather than later
stages. These differences by scale were also
true for the amount of industrial feed used: that
is, larger producers used more industrial fe
ed
(
i.e.
quantity fed per head). Industrial feed
produced by foreign companies was generally
more favored than that produced by domestic
companies, with more than 90% of the
surveyed households choosing both complete
and concentrate feed with a foreign com
pany
brand. The main reason given by producers for
this choice was that foreign brand feeds were

-
weight
produced
-
decrease as production scale increases. The
FCR is much lower in households using
complete only rather than mixed feed, possibly
due to better nutrition from complete feed in
the former case, compared to the mixture of
Nguyen Do Anh Tuan, Pham Thi Lien Phuong
,
Nguyen Thi Thinh
,
Sally Marsh
,
Donna Brennan
& John Pluske
266
raw feed types included i
n the latter. The FCR
is also significantly lower in households using
foreign complete feed than those using
domestic brands in the case of chicken (2.94
versus 4.18).
FCRs for pig production using complete feed
were significantly lower for small scale
pr
oducers (2.08) compared to large scale
producers (2.92). The FCR was also
significantly lower for complete feed diets

their feed cost by about 3,
400 VND per kg
live
-
weight gain overall.
4.
Conclusions and recommendation
s
4.1
Conclusions
The results support the idea that medium
-
size
mills (i.e. those producing between 10,000 and
60,000 tons per annum) are remaining
competitive; with costs, product
mix and prices
similar to large mills. They have a sales
strategy that targets a different customer base
to large mills (i.e. retail agents rather than
wholesale agents). Small
-
sized mills
(producing less than 10,000 tons per annum)
appear to be under pre
ssure to survive, and
many will need to increase their scale of
operation and improve quality control to
remain in business. Besides, SMEs are more
likely to be located in rural areas and to use


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 f
rom diversification
and/or a cooperative structure.

Support a strong role for the VAFA.
CARD
030/06

-
Medium Enterprises in the Livestock Feed
Production Sector in Vietnam
6.
Polic
y Brief 4: Use of Industrial and Mixed
Feed by Livestock Producers in Vietnam