Dynamic development of dairy cow enterprise in Vietnam

Hoang Vu Quang

Institute of Policy and Strategy for Agriculture and Rural Development, No. 16, Tay Ho, Ha Noi, Vietnam
hoangvuquang@hotmail.com

Abstract

This paper reviews the development of the dairy cow industry in Vietnam in the last two decades. In the period 2001-2017, fresh milk production grew annually 14.7%. The households now have the tendency to raise more than 10 cow. Processing companies invested much in dairy cow enterprise with total number of cow in company farms representing about one third. Processors buy milk directly from households or through their cooperative. The contributions to the rapid growth of dairy cow enterprise in Vietnam are increased need of fresh milk, improved income of households, increased urban population and total population, very high profit of dairy cow enterprise, improved technique and high technology, support of public services and policy.

Keywords: fresh milk, processing company, supply chain

Abbreviations: HH: household; GDP: Gross Domestic Product; GNI: Gross National Income; VHLSS: Vietnam Household Living Standard Survey; GSO: General Statistical Office; VND: Vietnam Dong; Mil.: Million

Introduction

The dairy cow enterprise has been introduced to Vietnam from 1920s. Before 2001, the dairy cow enterprise in Vietnam was at a very small scale and low development level. The dairy cow enterprise began growing vigorously from 2001 thanks to promoting policy of Vietnamese Government. The fast increase of the income of Vietnamese people and the positive awareness of consumers create favorable condition for milk industry of Vietnam to fast develop in the last two decades. Thanks to that, the dairy cow enterprise also grows rapidly, resulting in positive transformations in direction of the enlargement of cow production scale and enhanced performance of the sector.

This paper reviews the development of the dairy cow enterprise sector of Vietnam, in particular in the last 10 years. Concretely, the paper presents the development of the cow herd, milk production, productivity, model of production, dairy cow enterprise at small household, the coordination in value chains and factors affecting this development. The review is based on existing documents and analysis from secondary data.

Number of dairy cows and milk production

The dairy cow enterprise  in Vietnam registered a rapid growth since 1990s. The number of dairy cows and milk production has been continually increasing. In 1990, total dairy cow population of Vietnam was only about 11 thousand increasing in 2017 to 302 thousand. In the period 1990-2000, the cow herd increased every year by about 2000 heads (annual growth rate 11.6%), the equivalent numbers in period 20010-2012 are 9114 cows (9.8%), and for period 2013-2017 are 28580 cows (11.8%). The fast-increasing number of cows in the period 2013-2017 come from the increase of cow raised by big companies as TH True Milk and Vinamilk.

In 2017, the fresh milk production of Vietnam achieved 881.3 thousands of tons, compared to 36.0 thousands of tons in 1990 and 55.1 thousands of tons in 2000 respectively. In the period 2001-2017, annual growth rate of domestic fresh milk production is 14.7%. The increase of domestic milk production has made the contribution of increased number of cows and increased milk productivity.

The increase of milk yield happens both in household farming and in big farms of companies. The data from Ho Chi Minh city, a big area of dairy cow enterprise, indicated the increase of milk productivity of a cow increased from 3.1 tons per milking cycle to 5.5 tons in 2013. However, milk productivity of companies is much higher because they use pure exotic breed while household mainly use cross breed of F1, F2, even F3.

Figure 1. Evolution of dairy cows and milk production of Vietnam (Source: GSO, 2019)

Distribution of dairy herd

In 2001, dairy cow enterprise was registered only in 12 provinces, in 2005, dairy cow enterprise was expanded in 33 provinces and stable until now. However, cow herd is concentrated in some provinces. From 2010 to 2017, 10 provinces always represent more 90% of total cow herd of the whole country. In 2017, 2 provinces have the biggest cow herd are Ho Chi Minh (28.0%) and Nghe An (21.4%). Some provinces have the sharp increase of cow herd thanks to investment of big companies in dairy cow enterprise. For example, the number of cows increased spectacularly in Nghe An province in last years because of number of cows raised by two big companies as TH True Milk and Vinamilk. Only TH True Milk reported its cow herd of 45000 and Vinamilk has just invested a mega farm of cows. Generally, the provinces having high number of dairy cows have climate condition favorable to dairy cow enterprise. The distribution of cow herd by region and by province is presented in Figure 2 and Figure 3.

Figure 2. Distribution of cow herd in regions in 2017	Figure 3. Distribution of cow herd by province in 2017

Models of dairy cow enterprise

Dairy cows enterprise in Vietnam started in 1920s by the introduction of foreigners. In this period, dairy cows only were raised in farms of foreigners in 2 cities as Ha Noi and Sai Gon (the old name of Ho Chi Minh city). The number of cows were about 300 heads and the milk productivity were very low (2-3 kg/head/day) (Cai 2009).

In the South of Vietnam, before 1975, dairy cows were mainly raised in the suburb of Saigon city and at household level with scale of 10-20 heads/household, to provide fresh milk for the restaurants and consumers.

Contrariwise, in Northern area from 1960 the Government developed State farms to enterprise dairy cows. These State farms were developed in the provinces with favorable natural condition (weather, land) as Ha Noi, Son La, Quang Ninh, Lai Chau, Lao Cai, Thanh Hoa. Dairy cow scale of State farms is less than 1000 heads, with breed of Holstein Friesian (HF). After the reunification in 1975, State farms for dairy cow enterprise were established in Lam Dong province in 1976 (Cai 2009).

In summary, in the period before 1986 when Vietnam had implemented centralized and planning economic system, dairy cow enterprises in Vietnam were mainly in the form of State farms. The dairy cow enterprise at household scale was not developed.

The “innovation process” implemented in 1986 allowed the development of household economics. Then, the dairy cow enterprise at household scale has been developed in the suburb of Ha Noi and Ho Chi Minh cities. The model of dairy cow enterprise household appeared firstly at the suburbs surrounding the big cities because of locating near the milk processing plants to save the transportation cost and avoid the quality damage caused by the inconvenient traffic and unsuitable preserved tools. In period 1986-1999, the dairy herds grew at average of 11% peryear.

Since the Government support policy was issued in 2001, the dairy cow enterprise in households has been strong developing, expanded in several provinces. In 2016, Vietnam has 32349 dairy cow enterprise households, representing 0.3% of agricultural – forestry - fishery households. While dairy cow enterprise at household level develops rapidly, the State farms operate ineffectively. Consequently, the Government had the plan to restructure State farms in 2005. State farms were either privatized or redistributed their land to households for creating joint venture companies. Then, dairy cow enterprise consists of both individual households and milk processing companies. According to data of Department of Livestock Production (DLP 2014), in 2018 the number of dairy cows owned by companies represent about one third of total herd of Vietnam. Some companies have numerous cows as TH True Milk (45000 cows), Vinamilk (27000 cows), Moc Chau (25000 cows).

Dairy cow enterprise at households

Nearly 70% of cow herd is raised in small households. In 2016, there were 32349 cow enterprise households with an average of 6.4 cows per household (GSO 2018). The number of cows per household is very different among households and among regions. The current trend of dairy cow enterprise in Vietnam shows that the cow herd sized under 5 heads is now decreasing and the one sized over 5 heads is increasing. For example, in Ho Chi Minh city in 2005, households having less than 5 cows accounted for about 56 % but this figure in 2013 was only 20%. The number of households with cow herd sized from 10-49 has sharply increased (Table 1).

The number of household with less than 10 dairy cows reduced because unit production cost per milk kg of of these households is higher than households with more than 10 cows (Table 1). Lower costs of production at household level with more than 10 cows results from the explotation of economic scale in using feed and labor (Quang and Tuong 2016). In addtion, in some cases, the trading companies would not like to buy the milk from households with less than 10 cows.

Even increased, the milk productivity of households is much less than one of the companies. That comes from the fact that about 90% of dairy cows raised in households are crossbreed, mainly F2 and F3. Only about 10% of cows are pure exotic breed. About 50% of households rear only calves reproduced by their cows, the other 50% breed both their own calves and bought some ones outside households (Quang and Tuong 2016).

Nearly 100% of households use commercial feed, or a mixture between commercial and mixed in site (more or less 50% of farmers).

Supply chain and vertical coordination

Because of characteristics of fesh milk is quickly spolied in normal condition, fesh milk must be preserved in an adequate cool condition just after milking, so the vertical coordination in fresh milk supply chain is very high. Nearly 100% of hosueholds have presently the contract with milk processors.

Figure 4. Mapping of stakeholders involved in milk supply chains in Vietnam. (Source: Quang Hoang Vu, 2018)

Nowadays, the fresh milk supply chain in Vietnam, can be classified in 5 types, as follows:

• Supply chain 1: Household - local and small processor - local market. This supply chain represents a small proportion of producers and milk volume. For example, about 4% of fresh milk in Lam Dong province in 2017 were not signed the contract with processing companies. That comes from new producers or households violated the engagement with buyers and are out of contract as punished measure. These producers sell their milk to small processors to produce milk cake or artisanal milk processing (Quang et al 2018).
  
  
• Supply chain 2: Household - processing companies - domestic market. This is important chain in term of milk volume. For example, 84% of fresh milk produced in Lam Dong provinces are sold in this chain (Quang et al 2018). The processing companies sign contract farming directly with individual household. The milk producers normally have to meet the requirement of processors as cow scale, use of feed, hygiene and disinfection measures, antibiotic use, etc. The processing companies can support households as giving training course, support for treating diseases (Quang et al 2017). The companies usually put collecting stations nearly households to receive their milk.
  
  
• Supply chain 3: Household - cooperative - processing companies - domestic market. Some processing companies purchase fresh milk from cooperative. In this case, the cooperatives like fresh milk collecting stations for the companies. These cooperatives have the infrastructure and equipment for buying, preserving milk in cooled system. However, we registered in 2018 only some cooperatives in doing that such Evegrowth cooperative in Soc Trang and Tan Thong Hoi cooperative in Ho Chi Minh (Ba et al 2018; Quang 2018). The companies do not want to sign the contract with agricultural cooperative because of limited capacity of cooperatives.
  
  
• Supply chain 4: Household - cooperative - domestic market. One new tendency emerging from 2017 is that the cooperatives involves directly in milk processing and commercialize milk products. These 2 cooperatives have experience in preserving fresh milk and good operation. They want to involve in processing milk in aiming to ensure the market for fresh milk and have more added values for their members. This event happens in Evegrowth cooperative in Soc Trang and Tan Thong Hoi cooperative in Ho Chi Minh (Quang 2018). However, the processing scale is very limited when the cooperatives have to compete with well-known companies and to face difficulty in looking for the market for their products.
  
  
• Supply chain 5 (closed chain): big fams of processing company - processing companies - domestic market. Some milk processing companies organize dairy cow enterprise to self-supply fresh milk to their processing factories. Normally, these are mega farms with high tech application and pure exotic breed. For example, TH True Milk have mega farm of 45000 imported exotic cows and raised in housing with Israeli technology. The Vinamilk company organizes also dairy cow mega farms with exotic breeds and organic farm.

In summary, milk processors are main actors in supply chains of fresh milk when they are main buyers and producers.

Factors impacting dairy cow enterprise

Increased domestic demand of fresh milk

The results from VHLSS 2008 -2016 indicated that the proportion of households the consume liquid milk and consumption volume of liquid milk have been incessanly increasing in this period. Concretly, in 2008, 21.1% of households consuming liquid milk with the volume of 17.1 kg/year and in 2017 there are 36.4% households consuming 29.0 kg/year (Quang 2019). The increase in consumption of liquid milk is registered both in rural and urban areas (Table 3).

The awareness of the consumers on positive effects of milk on the growth, development, human health and disease prevention is an important factor in fostering the milk consumption. The communication programs given by public media, private sector, etc. play a key role in the change of consumer’s awareness. As an evidence, the study result of Hoang Vu Quang in 2019 (Quang 2019) indicated that the consumption of liquid milk increases averagely every year, if all others remain unchanged, 2.33 kg/HH.

Increased income and urban population

The study of Hoang Vu Quang in 2019 found positive effect of household’s income and urban population on liquid milk consumption. Accordingly, the income elasticity is 0.079 and an urban household consumes higher 6.3 kg/year than rural household. The innovation of economic mechanism, the industrialization, urbanization and the depth integration into world economy allow Vietnam to have high growth rate of GDP in long period and improve the income of households (Table 4). In the period 2000-2017, the GNI per capita increase annually 4.7%.

The liquid milk consumption of urban area is higher than rural area in term of household proportion, volume and share of income (Table 3). So, rapid growth of urban population (Table 4) speeds up milk consumption in Vietnam. The continuous urbanization process fosters the volume of milk for food in Vietnam in the coming time.

High profit of cow enterprise

The dairy cow enterprise brings higher income for the farmers than other agricultural production activities (as poultry, pork, rice). The study in 2012 of Le Thi Phi Van (Van 2012) indicated that annual income of a dairy cow is equivalent to income of enterprise with 106 pigs. In Tien Giang province, profit rate is 37%, in Ho Chi Minh city, the profit rate is from 1.9 % to 27% in function of enterprise scale (1.9% for scale less than 5 cows and 27% for scale from 50 cows and over).

Study of Hoang Vu Quang and Ta Van Tuong in 2018 (Quang et Tuong 2016) also indicated that a dairy cow enterprise brings to farmers in Northern provinces an income of 28.3 millions VND and 1 ha of annual crop land can cultivate the grass and provide to 13 cows. Meanwhile, 1 ha of rice only brings to farmer from 10 to 20 millions VND. So, in term of land use performance, 1 ha of land used for cultivating cow grass can bring an income of 15 time higher than if this land is used for rice cultivation.

In addition, in the last 20 years there was no crisis of milk price as happened with pork price. Theprofitable rate of dairy cow enterprise is key factor for booming of dairy cow enterprise at houseold level in the last two decades.

Role of milk processing companies

The role of milk processing companies is manisfested in ywo aspects: 1) because of domestic need to fresh milk increase rapidly, the milk processing companies have to reinforce milk purchase from farmers, support the cow farmers (providing milk cows, technique training and guidance and advanced feeding). This fosters the farmers to invest in dairy cow enterprise (increase the number of cow farmers, increase the number of cow per farmer); 2) the companies invest directly in the activity of dairy cow enterprise. Several provinces change suddenly the number of cow in some years due to the investment of processing companies in dairy cow enterprise in these provinces. With numerous cow and high milk productivity, the processing companies have big contribution into increase of milk production of Vietnam in last years.

Technology

Advanced technique, modern and high technology have made important contribution to the development of dairy cow enterprise in Vietnam. The use of industrial feed in combination with green feed allow the farmers to increase the number of dairy cow and improve milk productivity. Most dairy cow farmers use machine, equipment in caring cow, and doing hygiene, disinfection measures. That increase labor productivity and the number of cow raised by a labor.

Figure 5. Rate of farmers owning machines and equipment for dairy cow enterprise (Source: Quang and Tuong 2016)

The artificial insermination is applied in all farms with exotic sperm. That helps to improve the quality of dairy cows. With companies, the tendency is to use exotic breed with high productivity and to apply high technology, so milk productivity of companies is very high.

Supporting policy

The Government has several policies and measure to support the dairy cow producers and attract the companies to invest in dairy cow enterprise.

For individual households, the government provide training course, including trainings on caring, feed use, veterianry measure, use of antibiotics, hygiene and disinfection, milking, etc. The households are supported for vaccination, use of diet test, artificial insermination, buying equipment for caring animals (grass cutting machine, feed slicer, spraying machine, etc).

For company, they are supported in the building of infrastructure for dairy cow enterprise as road, electricity system, water system, animal waste treatment system, factory and buying equipment. The companies are supported by 10 million VND/head for imported dairy cows with high milk productivity. The companies also are facilitated in renting land for dairy cow farms and are exempted or reduced the tax on land use right.

Conclusions

• The dairy cow enterprise of Vietnam registered a rapid transformation in the last two decades. Dairy cow enterprise is expanded in more than a half of provinces with 32349 dairy cow enterprise households. The households with less than 10 cows tend to be reduced while households with more 10 cows increase. Several big processing companies invested in dairy cow raising help to increase rapidly milk production of Vietnam.
  
  
• The development of dairy cow enterprise in Vietnam has had contributions from several factors. The consumption need of liquid milk thanks to increased income, the increase of population and urban people, increased awareness of consumers on positive effect of milk. Improved technology helps to increase milk productivity and labor production, facilitating the farmers to increase their cow herd. The most important element can be higher profit from dairy cow enterprise than several other agricultural activities. The development of dairy cow households has the support of public services in providing training courses, guidance in the application.

Reference

Ba Nguyen Van, Quang Hoang Vu and Huy Hoang Minh 2018 Current situation and solutions for developing milk value chains in Soc Trang province. Study report for The Vietnam Cooperative Enterprise Development (VCED) Project.

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Received 2 May 2019; Accepted 18 July 2019; Published 1 September 2019

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