Vietnam’s Bakery and Confectionery Sector: Opportunity for Malaysian Palm Oil

Background

Vietnam is one of the important markets for palm oil in the ASEAN region. In 2020, Vietnam palm oil consumption almost reach a million MT. The demand for palm oil in Vietnam is expected to show an upward trend in the future with food industries and HORECA are the major consumers. One of the sectors in the Vietnamese food industry which have the opportunity for palm oil to grow is the Bakery and confectionery sector.

Vietnam’s bakery and confectionery market are one of the robust in the Asia Pacific region. According to Statista, revenue in the Bread & Bakery Products segment amounts had reached US$ 6,838 million in 2020 surged by 34.4% from US$ 5,088 million in 2019. In terms of volume, the segment registered 3,848 million kg in 2020. It was an increase of 31.1% from 2019 which was at 2,934 million kg.

Covid-19 pandemic is the main reason behind the huge increase in revenue and volume of the segment. The normal annual average growth for the segment’s revenue and volume is 3.3% and 2.5% respectively. During the current pandemic, similarly to other countries, Vietnamese prefer to dine at home rather than outside like before. Due to the simplicity and quickness to serve, bakery products have become the preferred choice among the Vietnamese.

The segment is expected to grow in the future. It may not be at the rate of 2020 but it may continue with the healthy average rate of 5% and 3% annually in 2021. Even though the growth is projected to be negative growth in 2021, the growth will recover in the subsequent years. The projected revenue and volume in 2021 are US$ 6,885 million and 3,779 million kg respectively.

Chart 1: Revenue in the Bread & Cereal Products Market in Vietnam

Source: Statista

Chart 2: Volume in the Bread & Cereal Products Market

Source: Statista

Malaysian Palm Oil in Vietnam

Vietnam is the second-largest importer of Malaysian palm oil in the ASEAN region after the Philippines. With a total population of 97.3 million people, the consumption of oils and fats was at 1.6 million MT in 2020 increase of 130,000 MT or 8.6% compared in 2019. Palm oil is the main consumed oil with a share of 61.2% or 976,000 MT from the total oils and fats consumption in the country. Palm oil is being imported from Malaysian and Indonesia. Malaysia is the major supplier of palm oil for Vietnam.

For the past five years, palm oil imports in Vietnam recorded strong growth with average annual growth of 7.3%. In 2020, Vietnam imported 1.04 million MT of palm oil which increased by 89,000 MT or 9.4% compared to 2019. However, Malaysian palm oil import in Vietnam has registered a decline of 158,427MT or 26.61% compared to the same period in 2019, mainly due to an increase in palm oil import from Indonesia and high import of soybeans from the USA. It is reported that for 2020, Indonesian palm oil imports in Vietnam increased by 259,000 MT or 75.7% compared to 2019. This is mainly due to the competitive price offered by the Indonesian suppliers.

Vietnam is also currently recovering from the 2019 African Swine Fever (ASF) outbreak which led to a surge in soybean domestic crushing activities in 2020. Soybean import increased to cater to the demand for domestic feed requirements which will also increase the availability of soybean oil in the market for local consumption. This will translate into slow imports of palm oil into Vietnam. Based on the Oil World data, USA soybean import in Vietnam recorded an increase of 330,200 MT or 58.42% to 895,400 MT for the period January to November in 2020 compared to the same period in 2019.

Table 1: Import of Malaysian Palm Oil Products in Vietnam

Palm Oil Products (MT) 2016 2017 2018 2019 2020
RBD Palm Olein 451,622 487,363 375,344 429,054 329,936
RBD Palm Oil 83,124 113,551 57,375 139,168 81,268
RBD Palm Stearin 19,489 29,374 25,636 24,821 22,140
Cooking Oil/Double Fraction Palm Olein 988 642 355 769 1,846
Others 1,119 2,207 2,858 1,454 1,648
Total 556,342 633,136 461,567 595,265 436,839

Source: MPOB

RBD palm olein, RBD palm oil and RBD palm stearin are the main imported palm oil products in Vietnam with the share of 75.5%, 18.6% and 5.1% respectively. Fractionation of RBD palm olein will produce palm mid fraction and super olein. The palm mid fraction can be used as a frying oil, biscuit fillings and confectionery fillings whereas super olein usages are for snacks and frying oil. Meanwhile, fractionation of RBD palm stearin will produce mid stearin and super stearin. Mid stearin can be used for hard stock for margarine and super stearin can be used to produce dry soup mixes and dry cake mixes.

Figure 1: Refining Process of Crude Palm Oil

Table 2: Import of Malaysian Palm Kernel Oil Products in Vietnam

Palm Kernel Oil Products (MT) 2016 2017 2018 2019 2020
 HRBD Palm Kernel Olein 3,034 3,398 5,653 8,371 11,124
 HRBD Palm Kernel Oil 1,635 1,117 1,295 5,487 3,871
 HRBD Palm Kernel Stearin 415 1,217 1,304 1,996 2,026
 RBD Palm Kernel Oil 459 419 406 312 355
 Others 2,482 2,447 445 226 600
 Total 8,024 8,598 9,102 16,393 17,977

Source: MPOB

The import of palm kernel oil products shows positive growth with a CAGR of 17.5% from 2016. HRBD palm kernel olein showed a tremendous increase by 8,091 MT or 266.7% to 11,124 MT in 2020 compared to the figure in 2016. It is widely used for coffee whiteners and margarine. There is also an increase in the import of HRBD palm kernel stearin which is mainly used for confectionary, cream biscuits and chocolate coatings. The increase in the import of these products is showed the positive development in the bakery and confectionary sector in Vietnam.

Figure 2: Refining Process of Crude Palm Kernel Oil

Table 3: Import of Malaysian Finished Palm Products in Vietnam

 Finished Products (MT) 2,016 2,017 2018 2019 2020
 Vegetable Fat 1,110 352 1,914 2,725 3,285
 Butter Oil Substitute 2,443 2,410 4,102 3,906 2,956
 Shortening 1,587 1,827 1,813 2,066 1,299
 Cocoa Butter Replacer 900 809 496 131 509
 Others 1,678 1,819 1,687 1,561 1,034
 Total 7,718 7,217 10,013 10,390 9,083

Source: MPOB

Most of the finished palm products import by Vietnam are mainly for the bakery and confectionary sectors. It shows that palm oil gives a significant role in this industry in Vietnam. The government of Vietnam has recognized the bakery sector as one of the important GDP contributors to the country. The demand drivers which contribute to the growth of this sector as follows:

  1. Growing youth and middle-class population with rapid urbanization are leading to more demand for bakery products.
  2. Growing numbers of high-end shops, restaurants, hotels, resort and shopping malls that offer numerous selections of bakery products.
  3. Increasing numbers of food chains those serving bakery products.
  4. Increasing interest and demand for organic and healthy foods. Bakery product is considered as a healthy food.

Therefore, the Malaysian palm oil exporters should continue to pursue and supply palm oil and its products for the growth of this sector in Vietnam. Based on the statistics data and projection, the bakery and confectionary sector promises strong growth for the future. This growth will spur the demand for palm oil in the country and Vietnam will continue to depend on imported palm oil from Malaysian and Indonesia.

Prepared by Muhammad Kharibi  & Rina Mariati 

Source :

  1. Statista
  2. MPOC Europe
  3. MPOB
  4. USDA
  5. Presentation of Mr Teah Yau Kun during POTS Vietnam 2019

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