PPP – Commodities Group

Hanoi, 08th Dec., 2014

Objectives, strategies • Overall objective targets :

– An increase of 30% production of corn in key regions in 3 years (2014 -2016).

– Up farmer’s profit to over 30%• This objective is achievable through 3 priority strategies

1. Seeds Conventional Hybrid Biotech Trait

2. Production Agronomic practices advancement Post harvest services improvement

3. Increase add-value in corn trading

Source: MARD

Vietnam will convert 83,000 ha of rice to corn in the Mekong Delta by 2020

TT TỉnhDiện tích ngô 2012

2013-2015Diện tích

chuyển đổi dự kiến

2016-2020Diện tích

chuyển đổi dự kiến

Tổng diện tích đến

năm 2020 (dự kiến)

1An Giang 10.7

3.0 10.0

23.7

2Đồng Tháp 4.6

7.0 6.0

17.6

3Trà Vinh 5.5

2.0 6.0

13.5

4Long An 4.0

3.0 4.0

11.0

5Sóc Trăng 3.8

1.0 6.0

10.8

6Tiền Giang 4.6

1.0 5.0

10.6

7Hậu Giang 2.2

4.0 3.0

9.2

8 Vĩnh Long 1.5 2.0 2.0 5.5

9 Cần Thơ 1.1 2.0 2.0 5.1

10 Bạc Liêu 0.1 1.0 3.0 4.1

11 Kiên Giang - 3.0 1.0 4.0

12 Bến Tre 0.9 1.0 2.0 3.9

13Cà Mau 0.5

- 3.0 3.5

 Tổng số 39.5

30.0 53.0 122.5

Note: MKD = Mekong Delta, CMB = Cambodia

Source: GSO, trader interviews

This will triple Mekong Delta corn supply to 1,062 ktons by 2020

MKD production

CMB import 2013 total 2014-2020 growth in

MKD + CMB

Add'l from 83,000ha

conversion

2020 total

108

192 300

182

581

1,062

Basis GSO data 300-800 tons/day (low-high season) pass through Khanh Binh, which is ~70% of imports

10% growth p.a. from Cambodia with better agronomy & seeds

Converting Spring-Summer crop to corn @ 7 ton/ha

Corn volumes

‘000 tons

Source: GSO, trader interviews

There are >39 feed mills in Mekong Delta & South East region that will want Mekong Delta corn (2/2)

Location(province) Feed mills Feed prdn

Tons (2013)Corn dd tons/year

Mekong Delta

Long An Cargill, Japfa, Anova, Kyodo Sojitz, ANT, Thien Bang, Phuoc Thanh, Greenfeed, MB, CJ Vina, Nong Lam & Cao Phong 1,159,921 231,984

Tiền Giang CP, Sunjin, Chan Nuoi and Binh Minh 410,847 82,169

Vĩnh Long Anco 211,539 42,308

Cần Thơ Cargill, CPP, Proconco and Phan Bon 155,091 31,018

Đồng Tháp Guyomarc'h, Vina, Viet Thang, VIC and New Hope 122,239 24,448

An Giang Afiex 26,300 5,260

Bến Tre Thanh Hung, Tan Loi and Thien An 9,320 1,864

Hậu Giang Viet Long 1,130 226

Cà Mau Giong NN 253 51

South East

Region

Bình Dương Proconco, ANT, Greenfeed, Sunjin, EH, CP, Cargill, Vina, Anco, Thanh Binh, Sao Xanh, Woosung, Gold Coin, & others 2,507,855 802,514

Đồng Nai Emivest, Guyomarc'h, Tien Dat, Thanh Loi, Thanh Dat, CP, Nutifarm, Ngoc Long, Ha An, Lai Thieu, De Heus & others 1,821,285 582,811

Source: GSO, trader interviews

Local Mekong Delta demand will only be 868 k tons by 2020…

Backyard Feedmill 2013 total 2014-2020 growth in Feedmill

2020 total

195

419 614

254

868

Basis GSO data Based on 40% corn inclusion on non-aqua feed volumes (50% of 2.1 million tons)

Conservative 7% increase in feed mill demand (vs. market projections of 8.5%)

Corn volumes

‘000 tons

Production South East - 2013: 1,313,450 MT , increase 5% per year

Feed Mill production 2013: 4.481 Mil MT - 800 MT for aqual feed - corn used 40%

Corn import from Cambodia forecast 200,000 MT in year 2013 increase 10% per year.

50% of Highland production move to South East, production 2013: 1,303,700 MT

Source: GSO, trader interviews

Binh Duong & Dong Nai can absorb this 194 kton excess by reducing imports of 455 ktons

1,016,000 tons from Highlands

455,000 tons imported

MKDdemand

MKDsupply

868

1062

194 kton excess

312,000 tons from Cambodia

* Information from July 2014

Source: GSO, trader interviews

Corn from Mekong Delta can be profitably sold to Binh Duong and Dong Nai for ~VND 6,000/kg…

Farm price Drying loss + cost

Transport to warehouse

+ fee

Transport to feedmill

Taxes, profit,

shrinkage

Feedmill price

3,800

1,232 300 180 481

5,993

Basis Price where corn can be shown to be more profitable vs. rice

VND160/kg drying cost, 22% loss

VND300/kg transport cost

5% VAT, VND200/kg margin, 0.1% shrink

VND180/kg transport cost

Corn price

VND/kg

* Information from July 2014

Source: GSO, trader interviews

This more competitive than corn from central highlands and close to parity with imported corn

Farm price Drying loss + cost

Transport to warehouse

+ fee

Transport to feedmill

Taxes, profit,

shrinkage

Feedmill price

3,800

1,232 350 350 592

6,324

$245 CNF price @ 21,200

Ins, int, tax (1%, 1%, 5%

& 5%)

Discharge fees &

shrinkage ($1.5 & 0.5%)

Inland transport & shrinkage

($9.5 & 0.1%)

Feedmill price

5,194

641 61 207

6,103

Central Highland

Import

Corn price

VND/kg

Source: Bunge traders

CNF prices have historically been over $245/ton, although it has fallen to ~$220/ton in August’14

Jan-

12

Feb-1

2

Apr-1

2

May

-12

Jul-1

2

Aug-1

2

Oct-1

2

Nov-1

2

Jan-

13

Feb-1

3

Apr-1

3

May

-13

Jul-1

3

Aug-1

3

Oct-1

3

Nov-1

3

Jan-

14

Feb-1

4

Apr-1

4

May

-14

200

250

300

350

India (Kharif)

Brazil (first)

US

Mekong

Oct-Nov

Mar-Aug

Aug-Nov

Nov-Jan

Source: Bunge

Mekong Delta corn can fill gaps in main US and Brazil imports

Harvest Period

Aug-Nov

Sep-Nov

Jan-Jun

Sep-Oct

Arrival in Vietnam

Source: Feed mill & trader interviews

But there is a gap between what farmers can deliver and what feed millers want

What farmers can deliverWhat feed millers want

Financial terms

Cash30 days credit

AvailabilitySupply as harvest & price (may not always sell if price not right)Sell ex-farm or delivered to local market

Consistent supply to allow them to manage production & import ordersDelivered to feed mill

QualityMoisture: > 16.5%Mold: < 3.0%Foreign matter: < 2.0%Broken & discolor: 22-30%

Moisture: < 15.5%Mold: < 1.0%Foreign matter: < 1.0%Broken & discolor: < 17%

Source: trader interviews

Bridging the gap in expectations needs both physical and socio-economic post-harvest infrastructure

Socio-economicPhysical

Payment Terms

Banks and/or traders willing to finance farmers

n/a

AvailabilityTraders that will accept uncertainty and undertake transportation and aggregation

Warehouse & storage to aggregate corn supplyTransport and logistics to deliver corn to feedmill

Qualityn/aSufficient corn dryers –

these dryers can be independent businesses or can be part of feed mills

Source: trader interviews

Vietnam does not need to reinvent the wheel – it can draw on both international and domestic

examples

Vietnam has a working rice supply chain that in many ways can be used for corn• Corn will be grown in areas currently used for rice• Rice traders perform similar functions as corn

traders (providing credit, logistics), and to some extent, rice dryers can be used for corn drying

Both Thailand and Indonesia’s feed corn market share similarities with Vietnam• Rely on both imported corn and local corn grown

by farmers all across the country• Feed mills located in just a few locations close to

population centers• Farmers farm small plots, live hand-to-mouth and

rely largely on collectors/traders to buy their corn

International

Domestic

Source: Bunge Thailand

In Thailand, collectors do much of the work – providing credit, drying and transporting

Farmer Collector Feedmill

Limited quality control, typically sell with high moisture and & broken

Rely on primary collectors who buy at farm gate, some of whom have sold them seed/inputs as loans

Operate hand-to-mouth so trade on cash basis

2 groups of collectors - primary & secondary

Primary collectors have small drying pads; secondary collectors have drying, screening equipment and can blend to quality

Primary collectors have limited logistics ability; while secondary collectors have both storage and transport capabilities

Primary collectors trade cash basis, while secondary collectors have financial ability to offer short credit

Many feedmills own driers to take advantage of high crop seasons, buying from primary collectors

All feedmill buy basis weight and quality delivered at feedmill

Buy on credit, 7-14 days

Source: Bunge Indonesia

In Indonesia, farmers and feed millers are more involved especially in drying

Farmer Collector Feedmill

Some quality control esp. in Java, where some farmers sun-dry their corn

Mostly sold to local collectors (Java) and feedmill direct (Lampung)

Operate hand-to-mouth so trade on cash basis

Have local & area collectors, and standalone dryers (mostly in Lampung where farmers harvest corn earlier / more moisture)

Local collectors have limited drying ability, while area collectors can have drying, screening equipment and can blend to quality

Collectors primary role is that of logistics provider, connecting farmer to feedmiller

Primary collectors trade cash basis, while secondary can accept credit

Many feedmills own driers both at feed mill or stand-alone close to corn growing areas

Prefer to buy delivered, using collectors or 3rd party transport

Buy on credit, 7-30 days

Source: trader interviews

Vietnam’s rice post-harvest supply chain can also be leveraged for corn

Farmer Collector Rice mill

Small scale farms that rely mostly on primary collectors who buy at farm gate

Operate hand-to-mouth so trade on cash basis

2 levels of collectors - primary & secondary

Primary collectors have small drying pads; secondary collectors have drying, screening equipment and can blend to quality

Primary collectors will have limited logistic/transport capability; while secondary collectors have storage & transport capabilities

Primary collectors trade cash basis, while secondary collectors will have financial ability to offer short credit

Rice millers do not usually have dryers and focus on milling, polishing and storage

Prefer to buy delivered, using collectors or 3rd party transport

Buy on credit as exports with LC payment terms

We recommend Vietnam takes the following steps for a successful conversion program in Mekong Delta

• Encourage rice supply chain participants to participate in corn by investing to convert existing dryers or install new ones

• Expand enterprise-directed rice farming scheme to allow feedmills to “contract” with farmers to plant corn – provide certainty of demand for farmers and certainty of supply for feedmillers

• Draw on Thailand & Indonesia’s experience to encourage feed millers to invest in corn dryers – allowing feed millers to buy corn more cheaply and expanding the number of potential buyers for farmers