Smallholder competitiveness: insights from pig

production systems in Vietnam

Ma. Lucila A. Lapar, Nguyen Ngoc Toan, Steve Staal, Nick Minot, Clement

Tisdell, Nguyen Ngoc Que, and Nguyen Do Anh Tuan

28th triennial conference of the International Association of Agricultural Economists

Foz do Iguacu, Brazil

18-24 August 2012

Improving competitiveness of pig

producers in an adjusting Vietnam market:

Aim of the Project

To identify options for technology, policy, and

forms of market institution or coordination

that will allow smallholder pig producers to

raise incomes through better access to

higher value chains (including niche markets)

in the context of rising demand for products

with specific quality attributes and within the

broader context of the changing dynamics of

the pig sector in Vietnam.

Issues around smallholder pig

production • Perceptions that smallholders are not competitive

vis-à-vis large industrial farms,

• Sources and vectors of disease and food safety

risks

• Sources of environmental pollution

• Policy bias towards large farms (due to above, and

in terms of preferential taxes and input price

support and subsidies)

• Dominant suppliers of pork; significant contribution

to livestock output

• Although continuously challenged by resource

constraints, lack of access to input markets,

supportive services and enabling institutional and

policy environment

Methodology and data

• Structured survey of 1,051 households in

6 agroecological zones (700 pig producers,

351 non-producers), and 600 urban

household consumers in Hanoi and HCMC

• Descriptive statistical analysis to

compare, contrast, describe; VC analysis

• Econometric analysis of feed and breed

choice; AIDS demand model

• Pig sector model (partial equilibrium

model that simulates markets for maize,

traditional sector pigs, and modern sector

pigs)

HCMC, Dong Nai, Tien Giang

Nghe An

Hanoi, Ha tay Phu Tho

Dak Lak

Project

survey sites

across 6

agro-

ecological

regions of

Vietnam

Future scenarios for the Vietnam pig sector

• The modern pig sector is likely to remain small

over the next ten years and beyond; even with

stagnant technology growth in traditional pig

sector, it will only surpass market share of 10%

after 10 years.

• Growth in modern pig sector depends on

technology rather than demand; in short to medium

term, growth in demand are absorbed by offsetting

changes in export.

• On the other hand, technology affects the growth

of the modern pig sector regardless of whether

modern pork products are exported or not.

Projected share of pork supply from

large-scale producers

0%

2%

4%

6%

8%

10%

12%

14%

0 1 2 3 4 5 6 7 8 9 10

Sha

re o

f la

rge

-sca

le m

od

ern

se

cto

r in

pig

pro

du

ctio

n

Year

Base simulation

High income growth

High tech growth in modern sector

No tech growth in traditional

No tech growth in maize

High income elasticity of modern

High income elast and tech growth in modern

Worst case for traditional sector

What does micro-level evidence show

to support future trends?

• Demand for pork

• Supply of pork

• Costs, efficiency, competitiveness

• Contribution to income, employment

Demand for pork

• Strong preference for fresh, unchilled pork;

natural protection from imports

• Preference for lean pork

• Fresh pork demand is inelastic to own

price

• Poultry, eggs, and seafood are

complements to fresh pork

• Pork demand rises with income

Preference rating for pork 9.4

2.2 2.1

0

2

4

6

8

10

Fresh/unchilled Chilled Frozen

Preference rating

Vietnamese consumers have a strong

preference for fresh, unchilled pork; this

provides natural protection from imported

pork.

Changing nature of demand for pork

75%

4% 8%

1% 12%

Lean

High fat

Mixed cuts

Don't know

Others

The majority of Vietnamese consumers indicated

preference for lean pork compared to other types of pork.

No significant change in lean meat consumption from 10

years ago, but significant reduction in consumption of high

fat meat from 10 years ago.

Preferred market outlets for fresh pork

0%

20%

40%

60%

80%

100%

Hanoi HCMC Overall

Modern retail outlets Permanent open marketTraditional temporary outlet

Traditional market outlets remain the most

preferred purchase outlets for fresh pork

by Vietnamese consumers.

Emerging concerns of food safety

Nearly half the consumers (43%) had

concerns about pork.

Most common was fear of disease from pork,

followed by fear of chemical contamination,

un-fresh pork, and bad smell.

Only 1% expressed nutritional concerns.

Average ranking of major concerns

about meat safety

HN HCMC All

Diseases of livestock 1.2 1.1 1.2

Hormone used in animals 2.8 3.0 2.9

Antibiotic use 3.0 2.9 3.0

Hygiene in market outlet (including

meat seller) 3.8 2.6 3.2

Hygiene in slaughtering 3.9 2.8 3.4

Concentrate feeding of animals 3.7 4.1 3.8

Other 3.5 3.1 3.2

Animal diseases tops the list of major concerns of

urban consumers about meat safety.

Consumer response to pig disease

outbreak

•About half of consumers either stop or reduce pork

consumption; about one-third substitute other meats.

•More consumers in HCMC than in Hanoi shift to

modern outlets for pork.

52%

6%

35%

7%

Hanoi Stopped/reducedconsumption

Shift to modernoutlets

Substitute othermeats

Other

50%

15%

29%

6%

HCMC

Stopped/reducedconsumption

Shift to modernoutlets

Substitute othermeats

Other

Proportion of pork samples that did not

meet standards for different hazards

0

20

40

60

80

100

Poor totalbacteria

Unacceptabletotal bacteria

Unacceptablestaph.

Unacceptablelisteria

Anyunacceptable

Supermarket Wet market

•High level of microbial contamination in pork sold

in Hanoi and Ha Tay.

•Fecal contamination is greatest contributor to

bacterial load, likely to be at slaughter point.

•Pork sold in supermarkets contains significantly

higher hazards than pork sold in wet markets.

Hazards vs. Risk

Although hazards were high, pork consumers

report low levels of gastro-intestinal disease

(1 episode/person/year).

There is no association between amount of

pork consumed and incidence of gastro-

intestinal disease (p=0.60).

There is strong positive association between

consuming vegetables and reporting illness

(p=o.006).

Supply of pork

• Historical dominance of pig sector in

livestock production (2/3 of total volume of

livestock output over last 2 decades)

• Yield (kg liveweight/head) has increased

from 70 kg/head to 100 kg/head

• Size distribution dominated by small-scale

household pig producers (1-5 sows), 84%

in 2006, 92% in 2001

Dominance of pork in livestock total

output

Year Pig Chicken Cattle Others Total

1990 65 11 14 10 100

2000 68 14 9 9 100

2005 72 12 8 8 100

2009 62 13 11 14 100

Household pig production supply at least

80% of Vietnam’s pork.

But growth in supply has failed to keep

pace with rising demand, resulting in

accelerated increase in real pork prices.

Source of data: FAOSTAT 2009.

Supply of pork in Vietnam

Most Vietnamese pigholding households keep very few pigs but

on average the size of their herds is slowly rising. Although not

shown, the percentage of pigholding households with 21 pigs or

more rose from 0.3% in 2001 to 1.75% in 2006.

Costs, efficiency, competitiveness

• Own-produced feed holds significant share

of pig feed in household pig production,

providing low-cost feeding strategies

• Use of industrial feed associated with scale

of production

• Use of crossbreeds with high % of local

breeds (e.g., Mong Cai) suitable to

smallholder conditions

• Adoption of improved breeds associated

with scale of production, wealth of

producers

Costs, efficiency, competitiveness

• Feed conversion ratio (FCR) estimates

using maize equivalent (ME) suggest no

significant differences in feed efficiency

across scale

• There are no significant differences in

cost/unit output across scales

• While not significant, differences in unit

cost is highly sensitive to feed cost (65-

90% of total production cost)

• No clear evidence of economies of scale

found in household pig production in this

study.

Increasing the proportion of own-produced feed to

total feed use can decrease total feed cost.

This provides cost advantage to small

producers that use higher proportion of own-

produced feed.

0%

20%

40%

60%

80%

100%

Small Medium Large Small Medium Large Small Medium Large

Farrow to Wean Farrow to Finish Grow to Finish

Structure of Feed Cost by Production System and Scale

Purchased feed Own produced feed

Feed-use efficiency (in maize

equivalent)

0

1

2

3

4

5

6

Smal

l

Me

diu

m

Larg

e

Ove

rall

Smal

l

Me

diu

m

Larg

e

Ove

rall

Smal

l

Me

diu

m

Larg

e

ove

rall

Farrow to wean Farrow to finish Grow to finish

Kg maize equivalent/kg liveweight gain

Purchased feed Own produced feed

Cost per unit output in household-based pig

production

Economies of scale in piglet production; no

significant difference across scale full cycle

slaughter hog production and pig fattening

0

5

10

15

20

25

Farrow to Wean Farrow to finish Grow to finish

Small

Medium

Large

Gross margin (‘000 VND per kg output)

0

2

4

6

8

10

12

14

16

Farrow to Wean Farrow to finish Grow to finish

Small

Medium

Large

Overall

Household-based pig production can

generate gross margins ranging from 4,000

to 15,000 VND/kg liveweight of pig produced.

Cost-efficiency and economies of

scale

Own produced feed is cheaper per unit of feed value.

As farm size increases:

Proportion of purchased feed increases

Effective unit cost of feed increases

Feed costs account for at least two-thirds of total costs.

Small producers can exploit this cost advantage to improve

their competitiveness.

Share of pig income in total household

income

38.2%

13.9%

3.3% 3.6%

11.6%

20.2%

9.2% Crop

Pig

Non-piglivestockOtheragricultureNon-agricultureproductionWage and salary

Income from pigs accounts for about 14%

of rural household income, or 24% of rural

household income from agriculture.

Value added along the pork supply

chain where household producers

participate

Feed Suppliers

•+2400VND ($0.13)

•21%

Pig Producers

•+6200 VND ($0.33)

•53%

Butchers

•+1800 VND ($0.09)

•15%

Retailers

•+1300 VND ($0.07)

•11%

Consumers

Value added generated in pork value chains

where household pig producers participate is

about 11,700 VND per kg liveweight (or $0.62)

Share of retail price that accrues to

producers (based on average pork

retail price of 40,000VND/kg in 2007)

Producers receive at least half to two-thirds

of the retail price of pork. This share

increases with scale.

56%63% 65%

60% 61% 65%

Small Medium Large

Farrow to finish Grow to finish

Employment generation in household

pig production

Smallholder pig production generates

employment estimated at about 4 million full-

time labor along the pork supply chain,

valued at about $3.3 billion or approximately

5.5% of Vietnam’s GDP in 2007.

Household labor constitutes the main labor

inputs in household pig production.

Women labor accounts for at least half of

total labor days in household pig production.

Implications on production efficiency

Smallholder pig producers are competitive in

producing pork that meet the demand requirements of

Vietnam’s fresh meat market.

Expanding options for own-produced feeds, in terms

of choices and quality, can improve efficiency and

enhance competitiveness, particularly in areas that

are far from commercial feed sources, and

complemented with improved access to extension.

Limitations in available land and household labor will

be constraints to scaling up by household pig

producers.

Implications on economies of scale

Within smallholder piglet production, marginal

increases in scale can reduce cost and increase

profitability (e.g., from 1 sow to 2-3 sows).

It is not clear that policy support and investment in

large scale operations will reduce unit cost of pork

production or increase employment.

Policies directed to strengthen capacity to deal with

production and market risks and enhance

competitiveness of household pig producers are likely

to generate efficiency gains for the sector.

Implications on food safety

Growing awareness among consumers about food

safety will shape emerging demand for pork and

supply response.

Food safety policy should be based on evidence;

currently risk to human health by pork is not fully

understood.

Food safety policy should be based on risk rather than

hazards; risks must be distinguished from hazards.

Risk is multi-source, and various transmission

pathways for diseases including waste water and

urban/peri-urban agriculture need to be considered.

International Livestock Research Institute Better lives through livestock

Animal agriculture to reduce poverty, hunger and

environmental degradation in developing countries

Project website: www.vietpigs.com.vn

ILRI

www.ilri.org