Vietnam: Beer industry prospering in part thanks to FTAs

FTAs not only have helped reduce input costs of beer production, but have also turned Vietnam into a jumping board for foreign breweries to conquer the Southeast Asian and Asia Pacific markets, according to FPT Securities.

In Vietnam, the production of the input materials is still underdeveloped, so breweries have to import malt, hop and beer yeast.

According to FPTS, as brewers in Vietnam import nearly 100 percent of input materials, the proportion of the materials in COGS in Vietnam is higher than the average level in the world (70-90 percent). Malt, for example, accounts for 33 percent, while hop accounts for 2 percent of COGS and rice for 6 percent of COGS.

Therefore, membership in FTAs, under which import products, including malt, hop and beer yeast will become cheaper thanks to tariff cuts, will help the beer industry reduce production costs.

Eight FTAs will have a big impact on Vietnam’s beer industry, namely ATIGA (ASEAN countries), ACFTA (ASEAN-China), AKFTA (ASEAN-South Korea), VJEPA (Vietnam-Japan), AANZFTA (ASEAN – Australia – New Zealand), AIFTA (ASEAN-India), VCFTA (Vietnam-Chile) and VN-EAEUFTA.

Under Circular No 164/2013/TT-BTC, the preferential tariffs for malt, hop and beer yeast are 5 percent, 5 percent and 7 percent, respectively.

With these FTAs, the import tariffs have been cut up to zero percent.

However, trade liberalization not only helps domestic brewers cut expenses, but also brings new challenges.

Vietnam, with the advantageous geographical position, plentiful natural resources and low labor costs, has become very attractive in the eyes of foreign investors. More and more FDI will flow into the brewery sector, which will put pressure on domestic brewers which are less financially capable and experienced.

In addition, the import tariff on finished beer products will also be cut to 5 percent. Under the Vietnam-EU FTA which is to take effect in 2018, Vietnam will remove the import tariff on a 10-year roadmap. More imports will then flock to Vietnam as the products become cheaper.

Vietnam will also have more opportunities to export beer, especially to ASEAN and Chinese markets (with 5 percent tariff) and Europe (thanks to EVFTA). Vietnam’s exports are expected to increase by 10 percent by 2025.

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