A major Vietnamese firm, which was formerly known as one of the biggest realty developers, has recently turned to its cow herd for a sustainable cash flow, enabling it to forecast a triumph over Australian cows in the post-Trans-Pacific Partnership (TPP) period.
According to consolidated business results of Hoang Anh Gia Lai (HAGL) released on Friday last week, revenue from its 120,000-strong cow herd in the third quarter of 2015 reached VND1.4 trillion (US$61.6 million), accounting for over 63 percent of its total turnover during these three months.
In the first nine months of this year, HAGL earned VND5.18 trillion ($227.92 million) and VND1.34 trillion ($58.96 million) in revenue and post-tax profit respectively, a big part of which came from the cow herd, HAGL chairman Doan Nguyen Duc told news website VnExpress.
The earnings from the cows in the January-September period topped VND2.14 trillion ($94.16 million), making up 41.33 percent of the total.
Duc told Dau Tu (Investment) newspaper that as the cattle flock is a new investment, initiated early this year, HAGL is anticipating the challenges brought by economic integration, including the TPP.
The TPP deal, which aims to liberalize commerce in 40 percent of the world's economy, was reached following five years of negotiations between 12 countries, including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam, during a final meeting in Atlanta on October 5.
The free trade pact is expected to be ratified by all member countries in 2016-17 and take effect shortly after.
According to its chairman, HAGL analyzed the market very carefully before investing in cattle.
Taking the lead from Australia and New Zealand, its farming technology and cow breed are similar to the leading ranches in those two countries.
Where the Vietnamese company has a comparative advantage however is in transport costs.
Specifically, the cost of transporting cattle from Australia to Vietnam accounts for 30 percent of the market price, so when the price of cattle in Australia is $2 per kg, this rises to $3.10 per kg in Vietnam, Duc told Dau Tu.
The second factor affecting cost is the time it takes to transport cows from Australia and New Zealand, which invariably causes losses in the number of cattle.
As a result, raising Australian cattle domestically is more competitive, the chairman said.
So far HAGL has had 120,000 cows and plans to double its investment to 250,000 next year.
One of the most important reasons for HAGL’s confidence is that 70 percent of the animal feed for the herd is self-sufficient, based on 100,000 hectares of land the company has owned or leased in Vietnam, Laos, and Cambodia.
HAGL has also begun to provide cattle for slaughterhouses in Hanoi, but still has no brand of its own, Duc told VnExpress.
Because the firm is afraid of the blending of its cows with others, threatening its credibility, HAGL will soon introduce its own brand of beef, Duc revealed.
The beef will be retailed in supermarket chains, satisfying all criteria of the Ministry of Health after being raised, slaughtered and packaged in accordance with Australian technology, he added.
HAGL, which previously concentrated on real estate, turned its head to agriculture by setting up rubber, sugarcane, palm oil, and corn plantations in Laos and Cambodia in 2008, after recognizing that the local realty sector had many potential risks.
As of mid-2014, the company owned approximately 44,500 hectares of rubber, 8,000 hectares of sugarcane, 17,300 hectares of oil palm, and 5,000 hectares of corn.
Taking advantage of available agricultural by-products, it last year announced a plan to raise 100,000 cows domestically.