Masan Nutri-Science delivers 3F promise

At first glance, the Vietnamese animal protein industry appears to have reached its full potential with a total market size of $18 billion, equivalent to over 9 per cent of the national GDP. The entire value chain includes animal feed, farming, and end-consumer products, both fresh and processed meat.

However, Vietnam is still far away from realising the full potential of this sector. The animal protein sector is not only fragmented, but also inefficient and unproductive compared to the developed world. To be more specific, Vietnamese farmers require 3.5 to 4 kilogrammes of feed on average to produce a kilogramme of pork, versus the 2.5 kilogrammes in the US.

The result is that Vietnamese consumers pay 1.5-2 times the price of meat compared to the US, while GDP per capita is only one-tenth of that in the US. Affordability is a key issue. At the grassroots level, millions of Vietnamese people do not have the appropriate levels of daily protein intake required for good health.

In particular, the rural population, which accounts for almost 70 per cent of Vietnam’s population, consumes less than half of what is recommended by the World Health Organisation (WHO). Meat consumption in Vietnam is 40 kilogrammes per capita, which is substantially lower than China (60 kilogrammes), South Korea (65 kilogrammes), the EU (75 kilogrammes), and the US (over 100 kilogrammes). So, what is the key to transform and unlock the potential of the animal protein sector in Vietnam?

The answer is that Vietnam needs to invest in innovation to close the aforementioned productivity gap across the entire value chain. This requires a fully-integrated 3F (Feed-Farm-Food) business model in order to ultimately transfer the benefits to end-consumers.

According to Pham Trung Lam, CEO of Masan Nutri-Science (MNS), of the “3F” value chain, feed alone accounts for one-third, while farm and food together claim two-thirds of the remaining value.

The successful integration of Vietnamese-French Cattle Feed JSC (Proconco) and Agro Nutrition International (ANCO) is just one facet of MNS’ three-pronged approach. In order to become a major player in the meat value chain, MNS has to build out the other two pillars to bridge the gap between the Vietnamese meat sector and developed markets.

Transformation after M&A

The earliest signs of Masan’s interest in consumer agriculture came when they acquired 40 per cent of Proconco and later 70 per cent of ANCO. Today, MNS owns 75.15 per cent of Proconco and 99.99 per cent of ANCO.

Soon after the establishment of MNS, Masan grew to become the largest local animal feed company in Vietnam with a market-leading position in pig feed products (excluding the captive market). The growth was driven by the launch of a new brand called Bio-zeem, an innovation that improves the feed conversion ratio for farmers.

Bio-zeem is an umbrella brand for feed products that contain a proprietary enzyme which improves the feed conversion ratio (FCR), enabling farmers to sell their pigs 12 days earlier than market average. MNS’ other products include Bio-zeem Super, which is free from antibodies, and Bio-zeem Mama, which increases yield by two piglets per sow per annum.

Today, Bio-zeem represents the majority of MNS’ pig feed sales. However, feed is just MNS’ very first step to transform the entire meat industry with the ultimate goal to provide Vietnamese consumers with quality meat and meat products.

Masan views its future pig farms as a centre of productivity to further improve the efficiency of the meat value chain. Today, MNS is building a hi-tech pig farm called Masan Nutri-Farm in the central province of Nghe An with an output capacity of 230,000 pig heads per annum. When fully operational, it is poised to become the largest and most advanced pig farm in Vietnam. MNS’ foray into meat production began by acquiring 14 per cent (now nearly 25 per cent) of Vissan, Vietnam’s leading meat producer, through its subsidiary ANCO by public auction. Now Vissan’s strategic partner, MNS can tap into Vissan’s production pipeline and its nationwide distribution network to bolster its meat business.

With these moves, MNS is building up its capabilities to fully integrate the 3F business model in order to ultimately transfer the benefits to end-consumers. Vietnamese people will not only benefit from lower prices, but they will be guaranteed safe, traceable, and affordable animal protein products.

2014 was the first anniversary of Proconco and ANCO’s integration and 2015 marked the first profitable year for MNS, with net revenue of VND14.054 trillion ($618.24 million) and net profit after tax of VND449 billion ($19.8 million).

A consumer growth strategy

2016 turned out to be MNS’ most successful year, with net revenue of VND24.423 trillion ($1.074 billion), a 73.8 per cent increase year-on-year, making MNS legitimately a billion-dollar company by revenue. Net profit for the year 2016 was VND1.538 trillion ($67.7 million), a 243 per cent increase year-on-year due to effective input cost control initiatives and Bio-zeem feed products, which delivered high margins comparable to fast moving consumer goods (FMCG) categories.

“Our vision is to be the largest local feed producer with over 50 per cent of the market share and drive productivity along Vietnam’s meat value chain. We want to enrich Vietnamese people’s lives by providing real, delicious, and affordable animal protein products for each and every meal,” said Danny Le, vice chairman of MNS.

In what is often considered a commoditised industry, Masan believes that the recent decline in the price of pork has further validated its FMCG-esque strategy focused on innovation, branding, and distribution. Recently, pig prices in Vietnam have declined significantly, going from VND42,000 to VND25,000 per kilogramme (from $1.85 to $1.10) and staying low for over three quarters. As a result, the company estimates that the pig feed market declined by 35-40 per cent within the first half of the year as farmers raised fewer pigs. However, Masan’s Bio-zeem feed products only declined by approximately 12 per cent. With the recent recovery in pig prices (now VND35,000-40,000 per kilogramme), the company believes it is now better positioned to further consolidate its market share.  MNS’ 2020 target is $4 billion in revenue and $400 million in profit.

Top-tier financing and great validation

Masan’s financial prowess is immense, ensuring great capability to grow in scale. Masan has been able to raise funds from leading global financial institutions and strategic investors, with funds totalling well over $1 billion.

MNS’ market share expansion, capability for 3F integration, and consumer growth strategy prompted KKR, a leading global investment firm, to invest $150 million to acquire a 7.5 per cent stake in MNS, thereby effectively valuating MNS at $2 billion.

Ming Lu, member of KKR and head of Asia Private Equity, said, “Masan is a world-class partner in Vietnam. We have witnessed the group develop a seasonings company into a $2-billion diversified consumer group and look forward to backing MNS again as it executes its growth plans in the meat industry.”

MNS has proved capable of raising large funds to effectively execute mergers and acquisitions in short timespans, thus consolidating its market share and becoming a leader in many consumer categories. MNS is now on track to grow even larger in scale by doubling down on its three-prong approach to lead both the meat and feed industries.

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