MarketOpportunitiesforNorwegiantechonologyprovidersandprocessors

inthepangasiusbyproductsinVietnam

Jan2014ThisdocumenthasbeenissuedbyInnovationNorwayOffice: HanoiAddress: 8thFloor,HanoiTower,49HaiBaTrung

Hanoi,VietnamContactperson:DangPhuongLien,MarketAdvisorTel: +84439742930Fax: +84439743303

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ExecutiveSummaryVietnamistheWorldsNumber1countryinproducingandexportingpangasius.Thecatfishisthekeyfishspecies inVietnameseaquaculturewithannualproductionofaround1.3miltons (2012). They aremainly processed and exported in the form of frozen filletswhichaccountforonly30%35%ofthewholefish.Thisresultsinahugevolumeofpangasiusrestraw materials called byproducts, estimated at 800900 thousand tons per year. Manystudiesrevealthatcatfishbyproductscontainrelativelylargeconcentrationsofproteinandoil,which are considered to have a high nutritive value for livestock. Themost commonproductsderivedfromcatfishbyproductsarefishoilandfishmeal.Otherpossibleproductsincludecollagen,gelatin,biodieseland fertilizer.Keyplayersarebig integratedcompanieswhoinvolvesinfarming,processing,exportandbyproductproduction.

This reportwillpresentabriefsummaryof thepangasius farmingandprocessing industryfollowedbyanoverviewofthecatfishbyproductbusiness.Itwillthenfocusonthemarketanalysis of the pangasius fish meal and fish oil segment in order to derive possibleopportunitiesforinvestmentandcooperation.

Thisreporthasbeenpreparedby InnovationNorwayHanoiundertheKnowledgeTransferproject.Nowarrantyorguarantee,whetherexpressorimplied,ismadewithrespecttotheinformation reported or to the findings observations and conclusions expressed in thisreport. Further, such information, findings,observations and conclusions arebased solelyuponinformationinexistenceatthetimeofreportpreparation.

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I. VietnamFacts&Figures:

MainlandArea: 331.690km2Coastline: 3,260kmClimate: TropicalMineralresources: Oil,naturalgas,coal,iron,zinc,bauxite,uran,etc.Politicalregime: Socialist Republic of Vietnam, communist party is

leadingparty.Population: 89.7million(2012)Populationgrowthrate: 1.0%(2011)Laborforce: 51.4million(2011)Birthrate: 16.83births/1,000population(2012)Deathrate: 5.95/1,000population(2012)Lifeexpectancy: 72.41yearsAdministrationdivision: 64provincesCurrency: DONG(VND);1US$=21,246VND;1NOK=3,448VND)GDP: VNDTrillion2,535(2011);VNDTrillion2,950(2012);GDPgrowthrate: 5.9%(2011),5.0%(2012)Nationalspecialcities: Hanoi(thecapital)andHochiminhcitySource:www.adb.org;www.businessmonitor.com

II. FisheriesandAquacultureIndustry:

Totalproduction(2012): 5,745milliontonsCatching: 2.633milliontonsAquaculture: 3.112milliontonsExportturnover(2012): US$6.134billion(910%oftotalexportturnover)Labourforce: Morethan4milFisheriescontributes 45%ofGDPPangasiusproduction&export WorldsNo.1(Production:approx.1.26milMTper

yearandUS$1.7bilin2012exportrevenue)

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Shrimpproduction&export Worlds No. 3 (Production: 470,000 MT andUS$2.2bilin2012exportrevenue)

Source:VASEP2012 III. PangasisusFarming&Processing1. PangasiusFarming

The pangasius farming in Vietnam is mostly concentrated in 8 provinces in the MekongDelta, includingAnGiang,DongThap,CanTho,VinhLong,TienGiang,HauGiang,BenTreandSocTrang.Thetotalareaforfarmingpangasisusinthecountryisestimatedat6,000ha.

Themostcommonformofpangasiusculture ispondfarmingthanksto itsrelativelyfastergrowthrate,betterfleshqualityandappearance.Pondtechniqueaccountsfor97%oftotalproductionwhile the floatingcage technique isonly3%.Catfishculture iscarriedout in3cropsevery2yearswithanaverageyieldof300500ton/ha/crop,dependingonthedepthandsizeof thepond.A few farmersevenreportupto600 ton/ha/crop in favorableyears.Averageyieldoftheindividualfarmrangesbetween450750tons/haperyear.

Pangasius farming establishments must be in compliance with Vietnamese requirementsrelatedtofoodhygieneandsafetyandveterinaryhygieneconditions.Theyarealsosubjectto regular inspections and surveillance. Most farms apply international recognizedsustainable aquaculture techniques like GAP Good Aquaculture Practice or AquacultureStewardshipCouncilASCCertificate.

Thevariationincatfishqualityisclassifiedbycolouroftheflesh:whiteoryellow;thewhiterthecolour,thebetterthequality.Thequalitydependsagreatdealonthefarmingconditionsuchasfeedandwaterquality.

Vietnamscatfishproductionhasbeendecreasinginrecentyearsduetothefallingpriceofpangasiusfillet.Theoutputwasaround1,3miltonsin2012comparedtothepeakof1.5miltons in2008.Production in2013 is forecast to fallbelow1mil tonsasmanypondshavebeenput idlewhen theprice is stillon thedownward trend.TheVietnamAssociationofSeafood Exporters and Producers VASEP is now discussing among its member to find

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measures to control the production and improve the product values. Meanwhile thegovernment Master Plan on the development of fisheries strategies by 2020 andorientationsto2030setatargetforpangagiusproductiontoachieve1.82.0miltonswiththeannualgrowthrateof4.8%.2. PangasiusProcessing

There are about 70 pangasius processing factories in Vietnam. All factories comply withnationalstandardsofhygieneincludingHACCP,GMP,SSOP.Manyofthemarequalifiedforexporting to theEUbymeeting ISO, IFS,SQF (Safe&QualityFood),BRC,Halal,whicharecertifiedby3rdpartyagencies.Pangasiusisprimarilyprocessedforexportmarketsintheformoffrozenfillets.KeymarketsforJanAug2013 includeUSA(23%),EU(22%),ASEAN(7%),Brazil(6%).EuropeanretailersarekeentobuytheproductscertifiedbyAquacultureStewardshipCouncilASC.Currently33 farming companies in Vietnam have obtained ASC, including Vinh Hoan Corporation,HungVuongGroup,AgifishAnGiangFisheries,GoDangSeafood,ToChauJsc,HungCaJsc,Anvifish,DocifishJSC,NTSFFulllistcanbeviewedattheAquacultureStewardshipCouncilwebsite:http://www.ascaqua.org/index.cfm?act=tekst.item&iid=4&iids=204&lng=1.

Figure1:PangasiusfarmandPangasiusProcessingFactory

Source:PangasiusVietnamAssociation

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Fish ineverypondhasbeensampledandtestedoncontaminationofantibioticalresiduesby processors before harvest is allowed. Pangasius is harvested alive and transported bytankshiptotheprocessingplants.Thefilletprocessingisalwayscompletedwithinthedaytoensurethehighestqualityoftheproducts.

There has been a trend that processors integrate in all value chains from hatcheries,aquaculture, processing and export. Top 10 pangasius processing and export companiesaccountfor42%ofthecountrysexportvaluein2012whiletheTop20companiesaccountfor61%.Annex1presentsthelistoftop20processingandexportcompaniesin2012.IV. Pangasisusbyproducts1. Overview

Pangasisusbyproductsincludehead,bone,skin,scrapmeat,finandviscera.Theseaccountfor 6065% of the total raw whole fish. The annual volume for pangasius processing isreportedataround1.2miltons,resultingin700,000900,000tonsofrestrawmaterialsperyear.

Table1Compositionofmainparts

Source:NhaTrangUniversity

MostofkeypangasiusprocessingfactoriesarelocatedintheMekongDelta,thustheaccessto the rest rawmaterials isconsideredeasyandconvenient.Thebyproduct factoriesaregenerally locatednext to the filletprocessingplantsor in thesame industrialparkswherefilletprocessingplantslocateinordertosecurethefreshinputs.

Parts PercentageFillet 3035%Scrapmeat 812%Fat 810%Head,backbone&fins 3237%Internalorgans 55.5%Skin 88.5%Total 100%

Parts PercentageFillet 3035%Scrapmeat 812%Fat 810%Head,backbone&fins 3237%Internalorgans 55.5%Skin 88.5%Total 100%

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Recently,moreandmoreprocessingplantsstartinvestinginbyproductproductionwiththeminimumdesignedcapacitytoconsumetheirownrawmaterials.Asthebusinessdevelopswell in thepast years, several companiesexpand theproductionandpurchaseadditionalrawmaterialsfromotherprocessors inthe locality.Accordingtoourstudy,between1215filletprocessingcompanieshavebyproductfactories.Theremainingprocessingcompaniessellout rest rawmaterials to localmarket, typically inbulk to the third collectorwithoutseparatingdifferentparts.

Themostcommonproductsderivedfromthecatfishbyproductsarefishoilandfishmeal.Some factoriesalsoproducecollagen,biodiesel, fertilizerBeloware the summaryof thepossibleproductsmadefrompangasiusrestrawmaterials.

Fishmeal:Pangasiusbyproductsexcept forvisceraaregenerallyused tomakefishmeal: both dried meal (90%) and wet meal. Several factories separateshreddedmeatfromtherestmaterialsforotherpurposes.Itisreportedthatfishmealproducedfromscrapmeatcontainshigherproteincontentthanonlyfromheadandbone.Catfishbyproductmealismainlysoldtoanimalfeedproducerssuchasforpigsorducksandisconsideredahighnutritionvalueforlivestock.

Fishoil:Fishoil isproduced in two types:purifiedandunpurified.According toourstudy,allfactories,exceptforHonoroadChongQingLtdChinaandTrisedcoVietnam,canonlymakeunpurifiedoil.Theunpurifiedoilisthenusedtoreplacepalmoil inproducing animal feed.Meanwhile thepurifiedoil canbeused forcooking,mainlyintheprocessedfoodindustry.

Collagenandgelatinaremadefromcatfishskin.Itcanbeintheformofpowderor drinks. Collagen obtains 4 proteins of molecular weight 217kDa, 185kDa,156kDa and 104kDa (Nha Trang University report 2013). Collagen powder ismainlyused in the foodand cosmetic industries.VinhHoanCorporation is thepioneerinthisfieldandinajointventurewithaMalaysianpartner.Currently,itis in the test production and commercial production is scheduled in 2015.Meanwhile,CollagendrinkisproducedbyBinhAnSeafood.ThisisconsideredasahealthydrinkandisalsoexportedtoHongkong(VASEP).

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Fishball/ fishpaste: several companiesmake fishpasteor fishball from scrapmeatforhumanuse,whicharesoldtothelocalmarket.

Biodiesel: is derived from pangasius fat. According to a study, Biodieselmadefrompangasiushastheproductioncost20%lowerthanthatfordiesel.ItisalsoconsideredasgreenenergyastheCOdiffusionisjustonethirdofthelevelfromdiesel. The only project for biodiesel was carried out by Hiep Thanh SeafoodCompany and a Finish partner,whichwas partly funded by the EU ENERFISHproject. Itsdesignwas toprovidebiodieselnotonly to the companys internalcooling systems but also for local industry use.However the projecthas beensuspendedforoneyearnowwhentheFinishpartnerencountereddifficulties.

Fishsauce:PangasiusbyproductsarealsosoldtothirdcompaniessuchasMasanGrouptoproducefishsauceforbothlocalconsumptionandforexport.

Fertilizer: it is said that fertilizermade from catfish is rich in protein, fat andminerals.Thevolumeisstilllowandonlyforlocalmarket.

Dried swim bladders: Swim bladders are normally cleaned and dried by smallfamilybusinesses.One report fromVASEP said the volume isestimatedat56tonsperdayandonlyforexport.

Others: a few fish processing plants also process pangasius fin, belly, stomachandselltorestaurantsorsupermarketsforlocalconsumption.

It isobserved thatnoneof the factories treat thedilutedbloodafterprocessing,which isthendischargedaswastewater.Someresearcherssaythedilutedbloodcontainrelativelyhighconcentrateprotein(55%58%).

2. Marketanalysisforfishmealandfishoil

Thefollowingsectionwillfocusonthesupplyanddemandanalysisforfishmealandfishoilas90%oftherestrawmaterialsisusedtomakethosetwoproducts.

2.1Supplyoffishmealandfishoil

The rest rawmaterialsare received from the filletprocessing factoriesand transferredbytruck to the byproduct processing factorieswithin the day. Therefore thematerials are

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fresh when they are put into processing line. According to local fish meal and fish oilproducers, with the inputs of 1 tons of pangasius byproducts, they can extractapproximately250kgoil(25%)and200kgoffishmeal(20%).Manyfactoriessaythewaterreleasedduringtheprocessstillcontainsvaluablenutritionelementsbuttheydonthavethesolution for extracting them yet. Thereforemost of them just simply discharge aswastewater while a few others attempt to sell it to fish sauce producers in the locality. TheproductionprocesscanbeelaboratedinFigure1.

Figure2ProductionProcessforPangasiusFishMealandFishOil

Solids Liquid

Rest raw materials (head, bone, skins, scrap meat)

Grinding

Cooking/ Pre-heating

Pressing

Drying

Milling

Fish meal

Centrifugal

Evaporating Oil recovery

Fish oil

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It issaid thatcurrent technologiesproducerough fishmealwithoutvalueaddedtechnicaltreatment.Basedonourinterviewswithseveralfactories,thetechnologyandequipmentincatfishmealproductionmainly come fromChina.A few companies areusing theThaiorGerman technologies. The technologies from Thailand andGermany are said to producebetter quality of meal and consume less power than the Chinese technology. Still localproducers seem toprefer theChineseequipmentdue to its lower investmentcosts.Pricehasbeenaverysensitiveissueinthecurrentcontextofindustrydownturnandisforecasttoremain critical in the medium run. According to one company in Can Tho province, theGermanequipment cost aroundUSD 2mil compared toUSD 300,000 for aChineseone.ThusthecompanychosetheChinesetechnologyeventhoughtheyknowthatthequalityoffishmealisnotasgoodastheonemadebyGermantechnology.

Figure3ProductionlineofPangasiusFishmealandFishoil

Inaddition,thequalityoffishmealandfishoildependsalotonthetypesofinputs(withorwithoutscrapmeat)andthequalityorfreshnessofthebyproducts.Amongthefreshwaterfish,pangasius issaidtocontainthehighestconcentrationprotein.Thebyproductswhichincludescrapmeatcanmake fishmealwith6062%proteinwhilewithoutscrapmeat, theprotein content is on average 5055%. This is said to be lower than fishmealmade fromwholemarinefish(approx.70%protein)buthigherthanthefishmealmadefrommarinefish

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headandboneonly(approx.50%protein).Thecompositionanalysesofpangasiusfishmealand fishoilvary largelydependingon typesof rawmaterialsand thedifferent technologyandequipmentusedbyeachfactory.Thefollowingtablesareconsolidatedfromanumberofcompanieswevisited.

Table2Compositionanalysisoffishmealandfishoil

Pangasiusfishmealparameter specificationprotein 5562%fat 1213%maxmoisture 10%maxsand&salt 5%maxash 2325%maxtvbn 100150ppmmincolor Lightbrown/brownodour specific

Figure4Fishmealandfishoilmadefrompangasiusbyproducts

Keyplayersfromthesupplysidearebigintegratedcompanieswhoinvolveinfarming,filletprocessing,byproductprocessingandexport.11enterprisesamong theTop20PangasiusProcessingandExportcompaniesengage inbyproductbusiness.Mostofthemare locatedin Can tho, An Giang and Dong Thap provinces. Their byproduct production consumesapprox.600,000 tonsof the rest rawmaterialsperyearoralmost two thirdsof the totalamount.Table3presentsthelistofkeypangasiusbyproductproducers,inwhichwecan

Pangasiusfishoilparameter specificationiodinevalue 6080%impurities 0.11%maxmoisture 0.21%maxacidvalue 35%maxperoxide 310%maxmeltingpoint 2437Cdegreecolor lightyellow/orangeodour specific

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Table3ListofKeyPangasiusfishmealandfishoilProducers

No Companies website farm processingplant

ByproductMT/year

Markets Remarks

1 VinhHoanCorp

http://vinhhoan.com.vn/ yes yes 87100 Domestic,EU,China

2 HungVuongCorp

http://www.hungvuongpanga.com/en

yes yes 73700 Domestic,China

3 AnvifishCo http://www.anvifish.com/ yes yes 50585 Domestic,China

4 Navico http://www.navicorp.com.vn/

yes yes 26800 Domestic,China,India

5 I.D.ICorp http://www.idiseafood.com/

yes yes 110000 Domestic,China

6 HungCaCo.,Ltd

http://www.hungca.com/ yes yes 64500 Domestic,China

7 Dathaco http://www.daithanhseafoods.com/

yes yes 26800 Domestic,China

8 Cadovimex http://cadovimex2.com.vn/en/

yes yes 26800 Domestic,China,Korea

9 HTFood http://www.hiepthanhgroup.com

yes yes 55500 Currentlyputonhold

10 Godaco http://www.godacoseafood.com.vn/?lang=2

yes yes 60000 Domestic,SouthKorea,Singapore,China

11 HoangLongSeafoodCo.,

Ltd

http://www.hoanglongseafood.com/

yes yes 12060 Domestic,China

12 Tafishco http://tafishco.com.vn/ yes yes 100,000 China,ASEAN

13 QuangMinhSeafood

http://quangminhseafood.com.vn/

yes yes 25,000 China,Taiwan,ASEAN

14 HungTriEximJsc

http://www.trihung.com.vn/

no no 120,000 Domestic,China

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seecompaniesfromrow1to11arein2012Top20processingandexportingcompanylist.Besides,thereareafew independentcatfishbyproductproducersbuttheyareofsmallerscalesoroperate in the formof fragmentedhouseholdbusinesses. It isobserved that thenumberof smallbyproductplantsandhouseholdbusinesseshavebeen increasing in thelastfewyears.TheirproductionischaracterizedbylowqualityandlowpriceastheytargetlocalmarketandChinesemarket.Thishasexertedcertainnegativeimpactsontheimageofthelocalindustryandproducts.

Generalspeaking,byproductfactoriesaremakingbothfishmealandfishoil.Asmentionedinthepreviouspart,mostofthemproduceunpurifiedoil.ThereareonlytwocompaniesinVietnamthatproducepurifiedoilfrompangasius.ThefirstoneisChineseownedHonoroadChongQingLtd.TheirfactorystartedoperationinApril2011andthecapacityis60,000tonsof raw materials per year. The second one is the Vietnamese Trisedco owned byInternationalDevelopmentand Investment I.D.ICorporation. Theirfactory iscurrently inthetrialrunwiththecapacityof100,000tonsofinputsperyear.

2.1. Demandoffishmealandfishoil

Themarketdemandforpangasiusfishmealandfishoildependsontheanimalfeedindustryastheyareprimarilyusedasinputsforthefeedproduction.Thereforethefollowingpartwillbrieflyexplorethelocalfeedindustryandtheirdemand.

According to the Ministry of Agriculture and Rural Development, livestock farming inVietnamconsistsof23,000industrialfarmsand8.5millionhouseholdfarms.Thehouseholdsaccount for thebiggerproduction:65%of thepig,70%of the chickenand90%of cattle.Annex2showsthelivestockproductionfortheperiodof20052010.

Therehasbeen a shift fromhousehold farming to industrial farming in recent years.Thetrendhas triggered thedemand for industrial feed togrowat1517%per year. Statisticsshowedthatthelocaldemandforanimalfeedsin2010wasapprox.20milliontons,ofwhich6milliontons(30%ofthetotaldemand)areimported.

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At present, more than 200 feed factories are operating in Vietnam and 58 are foreigninvestedcompanies.Theforeigninvestmentcompaniesaccountfor60%ofthetotalnationalproduction.Keyfeedproducers,bothlocalandinternational,arelistedinAnnex3.

Analysts say local feed ingredients can supply 3040% of thematerials for the local feedindustry. Imports of feeds and feed ingredients have been on a steady rise since 2005.AccordingtoAgromonitor,Vietnamimportsabigquantityoffishmeal,estimatedat40%ofthetotaldemandandtheimportsmainlycomefromPeru,IndiaandMalaysia.

Itshouldbenotedthat80%oftheindustrialfeedisforpigproduction.AstudybyThuyetal2010,pangasiusfishmealcanbevaluableproteinsourcesandcompletelyreplacemarinefishmeal in the diets for pigs without affecting the digestibility and nitrogen retention. Inaddition,thecatfishbyproductcan improvetheperformanceaswellasreducethecostofpigproduction.

Intheirstrategyto2020,theMinistryofAgricultureandRuralDevelopmenthastargetedtoincrease the livestock population, particularly to 35 million pigs. Accordingly, the feedindustry istargetedtomanufacture19milliontonsoffeedswithanannualgrowthrateof7.8%.

Figure5:Importsoffeedsandfeedingredients20052011(USDmillion)

Source:VietnamGeneralStatisticOffice

594742

1124

1747 1723

21602330

0

500

1000

1500

2000

2500

2005 2006 2007 2008 2009 2010 2011

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Ontheotherhand,alltheinterviewedcompaniessaythattheexportdemandforpangasiusfishmealandfishoilhasbeenincreasinginrecentyears.KeyexportmarketsincludeChina,Taiwan, South Korea and ASEAN countries. The fact that China is still a traditional anddominantmarketforVietnamesefishmealandfishoilhasexertedcertainpressureonlocalsupplierson theprice level.Therefore,good suppliersofhighqualityproductshavebeenmaking efforts to improve the quality in order to be able to reach out to newmarkets,particularlytheEUmarkets.

2.2 Marketpriceandcostfactors

PangasiusfishmealissoldlocallyataroundUS$900/tonwhiletheexportpricecanbeuptoUS$1,050/ton (15% higher than domestic price). The price is significantly lower than themarinewholefishmeal(US$1,300perton).Thepricefortherestrawmaterialsdependsagreatdealontheexfarmcatfishprice,whichfluctuatesweekly.Atthetimeofthisreport,themarketpriceforbyproductsrangesbetweenVND6,000VND6,500/kg(3235UScents),whichissaidmuchhigherthanpreviousyearsasmoreandmorecompaniesjointhesupplymarket.

Regarding production costs, raw materials are reported to account for 25% of the totalfigure while labour accounts for 20%. The remaining is for technology, equipmentdepreciationandoperationcosts. ItshouldbenotedthatVietnamhasayoungpopulation(65%under35yearsold)andabiglaborforce(>51mil).Morethan4millionisnowworkinginthemarinesector.Locallabourisevaluatedashardworking,dedicatedandskillful.

Generally, pangasius byproduct is said to be a good source of profit for processing factories,particularlyinthecontextoffallingpriceforfilletsduringthelastfewyears.Mostofthecompaniesreportthatthefishmealandfishoilbusinessyieldsbetterprofitandbettercashflowthanthefilletprocessingbusiness. Some factories can secure long term contracts for ahalf yearorwhole yearperiodwithadvancepayment.Thepaybacktimeforinitialinvestmentsisestimatedfor3yearsifthecompany isabletoexporttheirproducts.Nevertheless,expertssaythatthequalityoffishmealandfishoilisstilllow.ThatmakespriceforVietnamesepangasiusfishmealandfishoillowerthanforeigncompetitorsandtheprofitmarginissmallaswell.

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VLegalFramework

Vietnamhasestablishednationallegislationandstandardsinordertocontrolthequalityofpangasiusfarming,processingandaquaticfeedproduction.Thedocumentsrelatedtosuchactivitiesinclude:

FisheriesLaw DecisionNo.1445/2013/QDTTgofthePrimeMinisterontheMasterPlanforthe

developmentofVietnamFisheriesby2020andorientationstowards2030. DecisionNo.70/2008/QDBNNdated June5,2008of theMinistryofAgriculture

andRuralDevelopmentMARD,promulgatingtheRegulationonmanagementofcatfishrearingzonesandestablishments.

Decision No. 130/2008/QDBNN dated December 31, 2008, promulgating theRegulation on control of harmful substances residues in aquaculture fish andproductsthereof.

CircularNo.03/2011/TTBNNPTNTdatedJanuary21,2011,regulatingtraceabilityandrevokingaquaticproductswhichfailtoensurefoodsafetyandhygiene.

Circular No. 55/2011/TTBNNPTNT dated August 3, 2011 regulating inspection,certificationofseafoodquality,foodsafetyandhygiene.

Circular No 14/2009/TTBNN dated March 21, 2009 guiding environmentalmanagementinseafoodprocessing.

QCVN 0214: 2009/BNNPTNN:National technical standard on industrial aquaticfeed producting plants Conditions for food safety and hygiene, veterinarysanitationandenvironmentalprotection.

Sofar,thereisnospecificregulationontheproductionoffishmealandfishoilmadefrompangasius.

VIOpportunitiesforNorwegiancompanies

The industryanalysishasrevealedanumberofgoodbusinessopportunitiesforNorwegiancompaniesbothasbyproductproducersandtechnologysuppliers.

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SWOTAnalysisStrengths Vietnam is the worlds 3rd largest

aquaculturenation.Fisheries isoneofthekeyimportanteconomicsectors.

Pangasius production is huge withannual output of 1.21.3million tons,the biggest among cultured species.Pangasius has been identified as astrategic export item and receivedstrongsupportfromtheGovernment.

Pangasius rest raw materials areabundant, fresh and concentrated inthe Mekong Delta region. The catfishbyproductsarerichinproteinandoil.

Processing companies (with farmingactivities) are familiar withinternational business practices.Businesssizeandstructurearesuitableto Norwegian structure, e.g. privateand/or listedcompanies,SMEsizeandverydynamic.

NorwegianmarineindustryisknowninVietnamasoneofthebestperformers.

Norwegian technologies are regardedas high quality, safe and environmentfriendlyfocusing.

Weakness Abigproportionofpangasiusfarmsare

ofsmallscalesandownedby farmers,thus face limit access to financialsources for big investments/newtechnologies.

Production of fish meal and fish oilmade from pangasius byproducts isstillfragmentedandoflowquality,lowprice.

Technologies for preservation of rawmaterials are not available, thus thebyproductprocessingdependson theoperationofthefilletfactories.

ExportmarketsforVietnamsfishmealand fish oil are limited in Asia withChinaasadominantmarket.

Prices: Norwegian products andservices are often regarded as moreexpensivethancompetitors.

Opportunities WTO membership, Trans Pacific

Threats Vietnams macro economy has been

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Partnershipagreement(expectedtobecompleted in 2014) and upcomingASEANAseanEconomicCommunity in2015 should give Vietnam greateraccess to both foreign markets andcapital while making Vietnameseenterprises stronger throughcompetition.

Master Plan for fisheries sector by2020 set the target foraquaculture toreach4.5miltons,inwhich1.82.0miltonsfrompangasiusproduction.

Fisheriesstrategyby2020alsocreatesfavorable investment environment toattractforeigninvestors.

Demand for fish meal and fish oil asinputs for animal feed production isincreasing both for local market andforexport.

Utilization of pangasius byproducts isstill regarded as limited, resulting inincreased demand for technologiesand/or equipment for higher addedvalueproductsderivedfrompangasiusrestrawmaterials.

Wild catch production in Vietnam isrelatively large at 2.6mil tons (2012),opening up business opportunities fortheproductionofmarinefishmealandfishoil.

facingdifficultiesinthepastyears.Thecountry still suffers from substantialtrade and fiscal deficits, leaving theeconomy vulnerable to globaleconomicuncertainties.

Pangasius production is on the downsize trend in 2013 as the industry isexperiencing difficult time withcontinuousfallingexportprices.

Vietnam is under the reform of thelegal system, which implies instabilityor unpredictability of the nationalregulationsincertainsectors.

Curruption and kickbacks amonggovernment officials still persist.However it should be noted that thegovernment has been taking drasticmeasuresagainstcorruption.

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Businesspotentialscanbeelaboratedinthefollowingparts.

1. Forbyproductproducers: Establishmentofadvancedproductionof fishmeal& fishoil: this is the right

time to enter the supply market using the abundant pangasius rest rawmaterialsintheMekongDelta.Themarketsegmentshouldbehighqualityhighpriceornewproductsextracted from the catfishbyproducts suchasproteinconcentrate.ThebusinesscantargetlocalmarketorAsianmarketswhichareinbigdemandfortheiranimalfeedindustry.

R&D and production of collagen and gelatin: there is a big opportunity inproducingcollagenandgelatinfrompangasiusskin.OnlyVinhHoanGroupandBinhAnCorporationare in thismarket segmentand theyare still in the trailproductionwithsmallquantity.Themajorityofthecatfishskin isput into fishmealandfishoilproduction.

Norwegian companies can set upwholly owned enterprises close to the sources of rawmaterials in the Mekong delta. Alternatively, they can take partnership with a localcompany. The most relevant local partners are pangasius producing and exportingcompanies. Such companies have sound financial foundation, good internationalexperiencesandmostimportantlycansecurehighqualityrawmaterialsfortheproduction.Althoughthe industryentry isconsideredeasyforpotential investors,the instabilityofthelegalsystemorinotherwords,frequentchangesinregulationsinVietnammayincreasethebarriersformarketaccess.

2. For suppliers of technology and equipment: The potentials are highlighted in thefollowingareas: Improvementoffishmealqualitybyincreasingtheproteincontentsorextracting

highqualityproteinconcentrates.Severalstudiesindicatethatthroughaseriesofvalueaddedtechnicaltreatments,theproteinconcentrationcanfarexceed60%orevencloseto70%.

Preservationofrestrawmaterials:withtechnologiesforpreservation,productionof pangasius fish meal and fish oil will not depend on the operation of fillet

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processingoutput.Thus thevolumeandscaleofprocessedbyproductscanbebettermanaged.

Purificationofcatfishoil.Manylocalbyproductfactoriesexpressinterestsinoilpurifyingtechnologyastheycanproducehigherqualityoilfordifferentusagesathighermarketprices.

Utilizationofthevaluablecomponents inthedilutedbloodwater fromthe filletprocessing.Currentlythedilutedbloodwater isdischargedaswastewateraftercertain treatment.According toNhaTrangUniversitysstudy, thedilutedbloodwatercontainsfairlyhighproteincontentat57%60%.

Technologiesfornewproductssuchasgelatin,biodieselandfertilizerThesearegoodopportunitiesforearlymovers.

Fornewadvanced technologyandequipment, it iscommon that theNorwegian suppliersneed to carry out pilot projects when penetrating the market. It is therefore stronglyrecommended that the newcomers form partnership with one or some big processingcompanies as well as initiate dialogues/cooperation with Norwegian establishments inVietnam, the Vietnam Association of Seafood Exporters and Producers VASEP orVietnameseresearchinstitutesintheinitialprocess.

In addition, for this market segment, price issue should always be taken into highestconsideration. Therefore, localproductionofparts is recommendedwhenever applicable.Withtheirrelativelylowerlaborcosts(comparedtoChinaandothercountriesintheregion)andskillfulworkers,Vietnamcanbeagoodproductionbaseforhighqualityproductswithcompetitiveprice.

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Annex1Top20PangasiusProcessingandExportingCompaniesin2012

No Companies Revenue2012(US$)1 VinhHoanCorp(onlypangasius) 1549883962 HungVuongCorp 1119005323 Agifish 918573554 AnvifishCo 827872345 Navico(pangasiusandtilapia) 580515476 I.D.ICorp 582257367 NTSFSeafoods 501769118 HungCaCo.,Ltd 434954119 Dathaco 4321116210 CLFishCorp 4273408111 SouthVina 4248443612 Cadovimex 4217733313 HTFood 3734303314 Caseamex 3469246215 AnPhuSeafoodJSC 3461643516 BienDongSeafood 3319511517 Godaco 3104043318 HoangLongSeafoodCo.,Ltd 2769979419 CuuLongSeafoodJSC 2557475920 VinhQuangFisheriesCorp 25186675 Top20Total 1,071,438,840 IndustrialTotal 1,744,000,000

Source:VASEP

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Annex2VietnamLivestockproductionfor20052010

Buffalo&Cattle

Pig Chicken

Population(mil.heads)

Production(mil.tonnes)

Population(mil.heads)

Production(mil.tonnes)

Population(mil.heads)

Production(mil.tonnes)

2005 8.4 202.0 27.4 2288 219.9 3222006 9.4 223.8 26.9 2505 214.6 3442007 9.7 273.6 26.6 2663 226.0 3592008 8.2 298.2 26.7 2783 248.3 4482009 9.0 342.4 27.6 3036 280.2 5282010 8.8 363.1 27.4 3036 300.5 621

Source:VietnamGeneralStatisticsOffice

Annex3KeyfeedManafacturers(consolidatedlist)

Feedproducers WebsiteForeigninvestedcompaniesCargill(US)CP(Thailand)Ewos(Norway)DeHeus(Netherland)UniPresident(Taiwan)Skretting/TomBoy(Norway)LocalcompaniesVICcompanyGoldenPigLtdProconcoVietThangFeedJscQuangMinhCorporationVasafeedJscDabacoHongHaNutritionJsc(LongHaiGroup)

http://www.cargill.com.vnhttp://www.cp.com.vnhttp://www.ewos.com/wps/wcm/connect/ewoscontentvietnam/ewosvietnamhttp://www.deheus.com.vnhttp://www.unipresident.com.vnhttp://www.skretting.vnhttp://conheovang.vn/http://conco.com.vn/http://www.vietthangfeed.com.vnhttp://qmcgroup.vn/http://www.vasafeed.comhttp://www.dabaco.com.vnhttp://longhaigroup.com.vn/enGB/

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REFERENCES1. VietnamAssociationofSeafoodExportersandProducersreportsat

http://www.vasep.com.vn/2. Surveyoftheproduction,processingandnutritivevalueofcatfishbyproductmealsinthe

MekongDeltaofVietnam,NguyenThiThuy,NguyenTanLoc,JELindbergandBOgle,20073. EvaluationofCatfishbyproductsasProteinSourcesforPigsintheMekongDeltaofVietnam,

NguyenThiThuy,20104. PangasiusByproductsinVietnam,NhaTrangUniversity,20135. VietnamFeedndustry,SwissBusinessHubASEAN/VietnamOffice,2012