Vietnam Agriculture: Challenges in Supply Chain and Logistics Management

The latest report on agricultural logistics operation of the World Bank revealed some interesting indicators for Vietnam's agricultural sector. Food industry needs to focus on improving the supply chain for frozen food to improve the quality of products not only for export but also for domestic consumption.

Accordingly, on a scale of 100, Vietnam has reached 55.7 points in terms of the logistics operations, 60.6 points in terms of product quality management and 48.4 points in terms of commercial agribusiness. Compared with the Philippines, Vietnam is superior in terms of quality control, but inferior in terms of logistics and trade activities. Vietnam has also traded lower scores Cambodia and Laos.

 

Besides, the study of the CEL Consulting, a leader in the development of technology solutions to help manage the logistics operation in Southeast Asia, shows that the losses in the planning, processing, storage and transportation pose challenges to the agricultural supply chain in Vietnam. As reported by the Department of Processing, the average loss ratio is now 25-30 per cent. However, depending on the method of processing and transportation, the loss of fruits and vegetable can be up to 45 per cent and up to 35 per cent for seafood products.

 

The main reason leading to the high loss rate includes the low level of mechanisation of agricultural production as well as low transportation capacities of frozen foods. According to a research by the World Bank, the mechanisation index of Vietnam is 24.4 points, equivalent tothat of  Laos, Cambodia and Myanmar but less than the Philippines (40 points). The agricultural transport index of the Philippines and Laos is 10-15 points higher than Vietnam.

 

According to the research by CEL Consulting, another weakness in the governance of the agricultural supply chain of Vietnam is the lack of provisions that help remove barriers of the cross-border transport. Vietnam is among the countries of which the international transport operations have not been optimised. Although the overall transportation index was rated equivalently, the international transportation index of Vietnam is only half of Cambodia and the Philippines.

 

Known as a strong agricultural exporting nation, Vietnam has been restricted to the international transport issues, leading to bad impacts on the commercial capacity of Vietnam.

 

According to Julien Brun, General Manager of the CEL Consulting, the supply chain of frozen food draws a lot of attention of the leaders in the field of agriculture and food. To date, the World Bank and Vietnam have invested a total of over VND10 billion to develop a supply chain of the frozen food to reduce losses and improve the quality of food sold in the market. However, according to the CEO of the CEL Consulting, most of the logistics providers in the agricultural sector are small-sized purchasers, transporters, and processors. These units often lack the equipment and infrastructure to operate effectively a supply chain of frozen food, resulting in the loss of food in both of quantity and quality.

 

Besides, in the past 10 years, the scale of frozen food storage in Vietnam has increased 4 times, but mainly concentrated in the southern region to serve seafood exports. The supply chain of the frozen food in the domestic restaurants and supermarkets is still very limited. The operation of the supply chain is segmented on each stage instead of operating on a consistent basis and it still lacks activities to generate higher value.

 

To improve the quality of the exports but also the product's export and domestic consumption, the CEL Consulting said that the agricultural producers, agricultural distributors, restaurant chains and supermarkets should work more closely with the logistics providers to meet the criteria of value, quality and level throughout the whole chain. Small businesses often offer low cost but lack the criteria like quality control and food safety, leading to higher losses.

 

The CEL Consulting also recommended that the low-price logistics will be counterproductive the cost savings. Apart from damage, the contamination during transport will cause the loss, leading to a shorter product life. This is one of the hidden costs that businesses can not calculate. The shortened product life caused by the poor transport and storage is a factor that the businesses need to consider when choosing between cheap and high-value non-stop logistics services.