|Processing pangasius for export. Photo: Vietnam News Agency|
Currently, many enterprises are afraid to export to the new generation FTA markets due to fear of barriers; many units only do processing with low value and have not built a brand in these markets.
The story of those who paved the way
Speaking at an event organized by the Ministry of Industry and Trade to assess the situation of taking advantage of the FTAs held over the weekend, Phan Minh Thong, Chairman of the Board of Directors and General Director of Phuc Sinh JSC, mentioned a series of benefits that the company has had since Vietnam joined the FTAs.
Specifically, in addition to exporting agricultural products such as pepper and coffee, Phuc Sinh also operates in international trade. In which, Phuc Sinh bought pepper from Indonesia and sold it to European and American customers. However, this activity was previously subject to great competition by Indonesian enterprises.
Since Vietnam signed the FTA with the ASEAN region, Phuc Sinh has enjoyed great advantages from international trade activities. Because there is no sterilization factory like Phuc Sinh’s in Indonesia while the European market only imports pasteurized pepper. Therefore, Phuc Sinh imported pepper from Indonesia for processing and then re-exported it to Europe. “The special thing is that the ASEAN Agreement has brought the import tax rate of pepper from Indonesia to Vietnam to 0%. Therefore, Phuc Sinh has had a great advantage when competing with traders from the Netherlands and Germany,” said Thong.
Similarly, for the EVFTA, processed agricultural products exported to the EU are eligible for tax reduction. As a result, Phuc Sinh’s export sales to this market increased significantly. In 2020, Phuc Sinh exported to Europe US$50 million, but by 2021 it increased to US$63 million, equivalent to an increase of 26% and is expected to continue to increase by about 30% in 2022. In addition to benefits for export, import activities also benefit from the EVFTA.
“This gives businesses a lot more confidence in investing in expanding production and business activities, diversifying products to compete with many countries in the world,” said Thong.
Similar to Phuc Sinh, Pham Thai Binh, General Director of Trung An Hi-tech Agriculture JSC, said that before signing the EVFTA, the import tax rate of Vietnamese rice into the European market was very high, from 5-45% depending on the country. Therefore, although Vietnam has penetrated Europe, it is difficult for Vietnamese rice to compete with rice in countries such as Cambodia, Laos, and Myanmar because these are poor countries, that are exempt from taxes by the European Union. Therefore, the EVFTA brings fair competition opportunities for Vietnamese rice enterprises.
According to Binh, at that time when exporting rice to Europe, importers had to pay tax up to 100-200 Euro/ton. Now, there is no import tax, and Vietnamese rice has a very competitive price in this market.
Along with that, the increasingly improved quality has helped Europeans increasingly trust Vietnamese rice. Trung An even has successfully exported its own branded rice to the European market and sold it at the same price as Thailand’s rice.
The secret of success
According to businesses, the secret to helping them take advantage of the FTAs and build a foothold in these markets is the investment in quality and brand. Specifically, after many years of exporting rice to Europe under the brand name of foreign enterprises, in 2020, Trung An made a bold decision to build Trung An rice brand in this market. At that time, the company cut off all customers and announced to 27 European member countries that: European traders who want to buy Trung An rice must pack Trung An’s packaging.
At that time, this enterprise had about 6-7 customers in many European countries. When making this decision, many people were afraid that the company would lose customers and export volume to Europe would decrease.
But reality proves otherwise, Trung An’s sales were constantly increasing and now its clean rice is at the top in the German market. “Branding is very important and comes with quality and stability. If the quality of the following shipment is different, Europe will immediately return the goods,” said Binh.
Thong also emphasized that to be successful in export markets, enterprises need to be ready to improve processes to meet the regulations of international markets and qualify to benefit from the FTAs.
Specifically, it is necessary to promote deep processing activities because, in the food industry, food safety, especially sustainable development is very important to Europeans. “Before the pandemic, only about 30% of Phuc Sinh’s customers mentioned sustainable development, now 100% of customers are interested in this issue,” said Thong.
Regarding deep processing, Thong assessed that this was the way to save Vietnam’s agricultural industry. Because deep processing helps to cope with the waves of market price fluctuations. Deep processing also helps businesses compete better and can take advantage of the FTAs to sell. Thong said that with six factories processing pepper and coffee, total export sales in 2021 of this enterprise reached US$220 million, including 60,000 tons of coffee, 25,000 tons of pepper and many other items such as cinnamon, star anise, cashew nuts, rice, and processed products such as K-coffee and K-pepper.
According to Ngo Chung Khanh, Deputy Director of the Multilateral Trade Policy Department – Ministry of Industry and Trade, although the export value to the new FTA markets such as the EU, the UK, Canada, and Mexico has grown well, the proportion of these markets in Vietnam’s total export turnover has not increased, even some markets are still quite modest.
According to statistics, the rate of taking advantage of incentives in the EVFTA is 20%, the UKVFTA is more than 22% and the CPTPP is only 6%. This percentage needs to be increased as 20% is still low. The higher the utilization rate, the greater the benefits will be and hopefully, the growth rate over time will continue to be maintained.