Food and beverage industry developing

10:24 | 28/03/2016 Society

(VEN) - The EU-Vietnam Free Trade Agreement as well as other FTAs which Vietnam agreed upon will bring extensive changes to the Vietnamese market. The Vietnamese food and beverage industry will have the opportunity to benefit from exporting to key markets but also face severe competition from foreign rivals on the domestic market. Consumers will have the opportunity to buy new products but might also see traditional products vanish from the market.

Food and beverage industry developing

The Vietnamese market is characterized by an exceptional sales growth:
Total food consumption:          +18.0 percent;
Per-capita food consumption:      +17.0 percent;
Alcoholic drinks:             +8.0 percent;
Soft drinks:                 +5.7 percent;
Mass grocery retail:             +10.7 percent;

Most remarkable is the high and rapidly increasing demand for high quality products, especially for famously branded products. The main concern of consumers is food quality and safety. Increase of household buying power is widely invested in buying higher quality. Famous foreign brands and the Certificate of Origin showing the production in a country with high standards of quality are preferred.

Currently, brands made in Vietnam are having a good market share. However, this has to be evaluated also seeing the barriers for market entry in Vietnam.

On August 4, 2015, the EU and Vietnam agreed in principle on a free trade agreement (EVFTA). On December 2, 2015, the declaration on the conclusion of the negotiations was announced. The EVFTA is expected to take effect on January 1, 2018.

The customs tariffs will be mostly abolished. Concerning food and beverages, this will take some years. Vietnam will open its market for most EU food products, both primary and processed:
Wines and spirits will be liberalized after 07 years,
Frozen pork meat will be duty free after 07 years,
Beef after 03 years,
Dairy products after a maximum of 05 year,
Food preparations after a maximum of 07 years,
Chicken will be fully liberalized after 10 years.

During this time, on one side, European companies will prepare to increase their market share in Vietnam and on the other side the Vietnamese food and beverage industry will use this time to prepare for this intensive competition.

Under the EVFTA, Vietnam will have to reduce non-tariff barriers. The specific implications are not clear, but it can be expected that several legal documents regulating the production and distribution of food and beverages will be amended to improve market access and reduce existing barriers.

It will be crucial for the Vietnamese industry to begin with this preparation right away. Since the position on the home market will depend on how competitive Vietnamese products are compared to European products, Vietnamese companies will consider entering the European market as soon as possible for two reasons:

Europe is a very interesting market for Vietnamese food industry; and
Operating successfully on the European market will be a very good preparation for the upcoming competition on the Vietnamese market once the tariffs are abolished.

Many Vietnamese companies are operating the production itself at a high standard of quality. However, even very well operating companies are not selling a reasonable part of their finished products abroad. The major part of Vietnamese exports still is unprocessed agricultural products. The reasons are widely persified, but one of the major deficiencies is the lack of experience and expertise in international trading of finished food products and especially in handling the full set of very detailed requirements of major foreign retail chains. Developing this expertise will be crucial also for the Vietnamese market because these retail chains will increasingly enter Vietnam and have the same high requirements here.
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Source: Gruenkorn & Partner Law Co. Ltd.; Email: