Vietnamese demand for Aussie grain set to continue…

By Peter McMeekin

Southeast Asian powerhouse Vietnam announced last week that it had revised its most-favoured-nation (MFN) tariff rates for corn and wheat imported from origins that are not already subject to free trade agreements. The tax on corn will fall from five per cent to two per cent, and the wheat tax will drop from 3 per cent to zero.

The decree, which will reportedly take effect on December 30, was primarily made to support the domestic stockfeed industry, which was hit particularly hard in mid-2021 when the country’s most serious COVID-19 outbreak escalated government control measures.

According to the WTO trade rules, countries cannot normally discriminate between their trading partners. Grant a trading partner a special favour (such as a lower customs duty for one of their products), and the same must be awarded to all other WTO members. This principle is known as the MFN treatment.

However, some exceptions are permitted. For example, countries can set up a free trade agreement that applies only to goods traded within the group, discriminating against goods imported from outside.

The ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) is a trade agreement between Association of Southeast Asian Nations (ASEAN) member states (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and Australia and New Zealand. Under this agreement, Vietnam does not impose import taxes on Australian wheat or barley.

The change to the import tax regime will put the United States on a level playing field with its competitors from ASEAN and the Black Sea region. Nonetheless, rising prices and high sea freight rates have rendered US origin wheat uncompetitive into Vietnam for all but some inelastic milling wheat demand. Vietnamese millers prefer soft white wheat (SWW) from the US for its high dissolvability and dark northern spring (DNS) wheat for its gluten strength.

Vietnam has experienced rapid expansion and development over the last two decades. Growth in animal-based protein consumption has gone hand-in-hand with this economic development. Vietnam has turned to imports of corn, wheat and barley as stockfeed ingredients to support a 30 per cent increase in meat production since 2010. Pork has traditionally been the meat of choice for the Vietnamese people, but consumption of chicken meat, beef and seafood has increased considerably in recent years.

Vietnam imported more than 500,000 metric tonne of US wheat in the 2020/21 marketing year, second in volume to Australia at 2.37 million metric tonne. Vietnam has imported an average of 4.24MMT of wheat over the last five years, and the USDA has them in for 3.65MMT in the current marketing year. Australia is well positioned to capture the majority of that business again in 2021/22.

Feed wheat imports increased by 518,000 metric tonne in the first eight months of calendar year 2021, 96 per cent higher than the same period last year. This increase was due to the price competitiveness of feed wheat over corn. Demand for wheat-based products in the Vietnamese hotel/restaurant/catering sectors remained low due to COVID-19 restrictions on international tourism and travel.

Vietnam is by far the largest importer of corn in Southeast Asia after domestic production peaked midway through the last decade and demand continued to soar. It was fifth on the list of global importers in 2020/21 at 13.5MMT, and the USDA has them matching strides with South Korea in fifth spot in 2021/22 at 11.5MMT. This will be the first year-on-year decline in corn imports since 2011/12 and is primarily due to lower exportable supplies out of Brazil.

Corn imports decreased by 402,000 metric tonne in the eight months to August 2021, 5.8 per cent lower than the previous corresponding period. Corn and feed wheat are exchangeable sources of energy in many stockfeed formulations. As corn prices rose relative to wheat over the last 15 months, wheat, and to a lesser degree barley, replaced corn in the rations.

In response to domestic demand signals, Vietnamese corn production began increasing in the 1980s and continued this upward trend until 2015. However, it reached an inflection point in the 2015/16 marketing year when imports exceeded production for the first time in almost 50 years. Production stalled and has declined slowly ever since, as domestic producers found it increasingly difficult to compete with imported corn on both a cost and quality basis.

Barley has also found favour in stockfeed rations in Vietnam, particularly following the introduction of the exorbitant import tariff by China which forced Australian exporters to actively nurture alternate markets. In the 2018/19 marketing year, Vietnam imported just 133,000 metric tonne of barley, almost exclusively malting barley for the brewing industry.

That increased to almost 200,000 metric tonne in 2019/20 and then skyrocketed to 750,000 metric tonne in 2020/21. The USDA has them pencilled in for 800,000 metric tonne in the current trade year.

According to Australian Bureau of Statistics export data, barley shipments to Vietnam from October 1 last year to September 30 this year totalled 640,000 metric tonne. Malting barley accounted for 124,000 metric tonne, in line with historical purchases, but only 19.3 per cent of the total. Feed barley shipments came to 516,000 metric tonne, or 81.7 per cent of the total, up substantially on historical numbers. With another big barley crop being harvested now, Australia is ideally placed to capture the majority of Vietnams increasing barley demand this season.

The tax changes announced last week will make competing origins more competitive into Vietnam from December 30 onwards. However, it is unlikely to have a material impact on Vietnamese demand for Australian wheat and barley in 2021/22 as high prices and a hot sea freight market keep most competitors well out of the money.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.