Creating value chains in Vietnam

HANOI – Vietnam is booming. For many years, Vietnam has been the second fastest growing economy after China. Entrance to the WTO recently has opened the door to a record high number of foreign direct investment in many sectors.

Committed to allowing 100% foreign owned investments in the retail sector by 2009, many companies are looking to tap into the large consumer market of over 85 million people. But opening its markets also means more competition. One sector where Vietnam is feeling this competition is in the horticulture sector. Chinese carrots, potatoes, onions, tomatoes, Thai durian and mangosteen threaten Vietnamese farmers in their own backyard.

Value chains
With its twenty talented professionals and two offices in Vietnam, Fresh Studio® is busy transforming traditional fruit and vegetable distribution channels into more dynamic value chains. The key difference is: firms which participate in a value chain – farmers, traders and retailers – form a strategic alliance which focuses on the competitiveness of the overall chain and not just on their own short term profit. Firms in a value chain realize that they need each other to be successful, if one fails, everyone in the chain is hurt. They are aware that they are interdependent, and they are driven by consumer demands.

Fresh Studio® is currently implementing value chain projects for a wide range of fruit and vegetables including avocado and watermelon for both the domestic and export market. A common factor in all these projects is that they align all crucial chain actors: seed companies (eg. Rijk Zwaan), crop protection (eg. Syngenta), farmers, traders, transporters, packaging companies, finance (Rabobank), modern wholesalers (METRO Cash & Carry) and retailers to create win-win situations for all involved.

One of the first modern distributors to see the potential in Vietnam was METRO Cash & Carry. Since 2002, they have invested US$ 200 million dollar and opened eight large stores in key locations of Vietnam, with more stores planned for the near future. Within four years, METRO has become the largest wholesaler of Vietnam. Fruits and vegetables are important for Metro. With no professional supply companies present in Vietnam who can control the quality from field to fork, METRO decided it needed to meet consumer demand for safe food.

To do this successfully, METRO Cash & Carry, requested Fresh Studio® to develop a project for a new vegetable sourcing system which would assure quality and food safety. A key element of the project was to be as close as possible to the farmers. To achieve this, METRO is investing in a fresh distribution centre (DC) in the heart of Vietnam’s premium vegetable growing area, Dalat. Since this project will play a key role in linking small farmers to modern retail chains, the investment is co-funded by a special public-private partnership program of the Dutch government.

Because of its high altitude (1000-1600 m), sunny weather and availability of water, Dalat has a suitable climate for the year round cultivation of a wide range of fruits and vegetables. We strongly believe that Dalat has the potential to become the main year-round vegetable supply area for urban Asia. The Vietnamese government is also realizing this, and is upgrading the airport in Dalat and the road to HCMC, Vietnam’s eight million population mega city.

Being present in this unique production area allows METRO to source directly from farmers, instead of working with a long chain of collectors and traditional wholesalers. METRO can now procure traceable vegetables in the cold chain within one hour after harvesting. To assure food safety and quality, Fresh Studio’s quality-assurance specialist trains the METRO staff in preparing the DC for HACCP certification. At the same time pre- and post-harvest specialists of Fresh Studio® are developing cultivation protocols (good agricultural practices) for every key vegetable required by METRO. Farmers will be selected, trained and monitored to ensure that these GAPs are met. An extension system will be developed to support farmers in increasing their productivity, quality of the vegetables and meeting basic food safety standards.

Fresh Studio® is also busy setting up a small experimental farm to test the newest vegetable varieties in close cooperation with leading vegetable seed companies. The experimental farm will be used to demonstrate the GAPs, and to showcase value-adding technologies to local farmers.

The project will first focus on meeting the surging demand from METRO stores in Vietnam. Down the line, it will be possible to export directly from Dalat to METRO stores and clients in other countries.

Fresh Studio® is also developing an avocado value chain. Avocado is a relatively new product in Vietnam, where the majority of the Vietnamese consumers are not yet familiar with the product itself, its nutritional values and its uses. When consumed, avocados are currently used mainly as an ingredient for fruit shakes: the well known “Sinh To Bo”.

The Vietnamese Avocado is grown in one of the most important coffee production areas of the world, Dak Lak Province. At first coffee farmers in this area only used avocado trees as windbreakers and shade trees. In the past five years though, Vietnamese consumers and traders have slowly begun to discover avocados. Prices have increased, and farmers have responded by developing very small avocado orchards (10-100 trees). We estimate that currently about 250,000 avocado trees are cultivated in Dak Lak Province and in the main season about 200 tons of avocado per day are sold in the domestic market.

A special rural development program of the German and Vietnamese government which wanted a market based intervention strategy, requested Fresh Studio® to develop a master plan to upgrade the avocado sector of Dak Lak. With 20 percent of Vietnamese children less than five years of age being under-developed for their age, avocado is seen as attractive product which can bring cash to farmers, and at the same time provide Vietnamese consumers and poorer farming families with healthy nutritious food.

The master plan, which was developed by Fresh Studio® and the Dak Lak Centre for Science and Technology Application focused on developing the local market demand for avocado, introducing an avocado quality label and improving the very basic local production, post harvest, packaging and transport system.

Fresh Studio® marketing specialists have developed a consumer awareness campaign. The market demand is expected to grow substantially, once consumers become more aware of the value avocados offer for health and beauty. It is anticipated that the ‘Discover the magic…’ campaign will seduce consumers into trying new ways of enjoying avocados, both as a fruit and as a vegetable. Saigon Co.Op Mart, the largest Vietnamese supermarket chain and METRO Cash & Carry are partners in this campaign. Cooking demonstrations and special avocado promotion teams will inform Vietnamese consumers in the stores during special avocado weeks, which are expected to attract media attention.

Besides creating more demand, close cooperation between farmers, collectors and traders has been organised in order to produce a higher quality avocado. The focus is on quick wins in harvesting and post- harvest operations. We introduced new and simple avocado harvesting tools; developed Standard Operating Procedures (SOPs) for harvest and post-harvest operations; developed more homogenous avocado batches consisting of the same maturity levels; piloted with cold storage and improved packaging solutions.

To enable these high quality avocados their identification in the market, an avocado quality label was introduced, named DAKADO (see In the coming year, this label will be further developed into a brand, and will be ‘institutionalised’ through the formation of a marketing board, which will use a levy to fund market development and R&D.

Introducing new concepts and approaches requires a passion for fresh produce and an alliance of collaborators who can act and think creatively. Successful examples lead the way and bring the whole F&V sector of Vietnam to a higher level.Also interesting to read:

Trade opportunities for seasonal fruit in Asian markets

HANOI – Fresh Studio is a multinational consulting, R&D and marketing development company in Asia which collaborates with growers and their suppliers towards the realization of added value to joint projects.

The company has offices operating in several Asian countries, servicing customers recognized worldwide. One of Fresh Studio´s Managing Partners will feature as a speaker at the Asiafruit Congress and Asia Fruit Logistica.

“Fresh Studio observes Asia as the consumer market that is fast becoming the biggest in the world. Here, largest part of the world’s population is living and where most of the economic growth is concentrated. This provides many opportunities for growth and especially for trade,” says Van Wijk. One of the interesting conclusions Fresh Studio notes, are trade opportunities arising from seasonal differences between Asian countries.

Another development that deserves attention is the increased interest in food safety and responsiveness to branding, which is starting to have an enormous impact on sales. Asian consumers display a curiosity to discover new products. They have high esteem for products from Australia, Europe, Chile and South Africa. Fresh Studio works within these areas, looking to create value, improve efficiency, and develop premium products and processes in the entire value chain to create uniqueness for its clients, and to provide consumers with an enjoyable and reliable food experience. This way, Fresh Studio intends to become the most recognized initiator and developer of unique value chains, and an accelerator of innovations adopted by the fresh food industry in Asia.

It will become more important for companies exporting to Asia to be based in Asia itself and to be close to the consumer, benefiting from the cheaper labor costs. In addition, much of the R&D talent will be Asian. Asian populations are young, agricultural universities are full, and people are eager to learn. International companies show more and more interest in selling fresh produce to Asia, and to deploy domestic market research.

At the Asiafruit Congress, Fresh Studio will present how it aims to convert product chains into value chains. The majority of fresh produce trade in Asia involves product chains, competing on price alone. By using some of its projects as examples, Van Wijk will illustrate what Fresh Studio is doing to transform these into value chains.

“We really like to invite investors from Europe to come investigate what is happening in Asia, to see and experience the amazing developments taking place. After such a trip, serious entrepreneurs will not hesitate to enter the Asian market,” concludes Van Wijk.

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