Agri-majors shift corn trade strategy on Vietnam’s ASF disruptor

30 Jul 2019 | Tim Worledge

African swine fever’s relentless spread across Asia has already wrought a trail of havoc across the region, unleashing far-reaching consequences and challenging established dynamics, but the spread of the disease in Vietnam could be acting as a disruptor to facilitate a wider change in the country’s corn supply chain.  

Some of the country’s biggest suppliers are switching their supply tactics to sell on an ex-warehouse basis, effectively becoming local suppliers, as they address shifting demand patterns from the pig sector.

They are thus moving away from buying on term contracts to the spot, and are looking to seize market share in an area that is dominated by local traders.

Much of the change is being driven by some of the biggest names in international grain trading, but the story reflects the experience of Vietnam – which has emerged as one of the world’s biggest corn importers in recent years – as it seeks to cater for growing domestic and international pork demand.

“Many companies have started this local distribution program in a big way, like Cargill or ADM,” one Singapore-based trader said.

Other companies, such as Louis Dreyfus and Enerfo, have adopted ex-warehouse strategies on a smaller scale to provide an outlet for their unsold cargoes.

“ADM, Cargill, Enerfo… have been selling locally for years… but in the current tough market, they will do it more,” a Vietnam-based market source said.

The move makes practical sense for buyers, as the onset of African swine fever has made supply chain management much harder.

“This year, with ASF… it’s pushing customers to buy more on the spot market or hand-to-mouth and cover locally as they face big production swings on their side, so stock management is challenged,” the trader said.

Alongside the change in buying patterns, buying ex-warehouse offers advantages to buyers in terms of logistics and cost, both crucial factors in a fiercely competitive environment.

“There is also a cost differential between ex-warehouse and ex-vessel in the port… it’s better for the buyers in terms of logistics planning,” the trader said.

Equally, for some of the biggest players in the international grain trade, the change towards more local suppliers could mean they are able to use their supply chain management skills to consolidate a firm footing in a rapidly changing environment.

“The thing is, the market thinks Vietnam’s share is going too much to local traders, so they want to compete there and change the market structure,” the trader said, referring to the tactics of the international agri-majors.

And, with Vietnam’s pork industry also undergoing seismic change as the ASF outbreak accelerates a shift away from small-holding pig farms to industrial-scale pork production facilities, the growth in poultry and aquaculture continues and consolidating that foothold will be vital.

Vietnam has seen corn imports swell dramatically since its pig industry embarked on a significant expansion to cater to burgeoning domestic and Chinese demand, growing from 1.4 million mt in 2013, to hit 9.5 million mt in 2018, according to the Agricensus export dashboard.

However, confirmation of African swine fever in February saw mass culling of pigs, with provinces close to China bearing the initial brunt before the disease took hold and swept through the country, passing over the border and into Cambodia and Laos.