The Competitiveness of Ho Chi Minh's Food Processing Industry

The competitiveness of the food-processing industry (FPI) in Ho Chi Minh City (HCMC) and the impact of various policy reforms are analyzed. Data comes from a survey of 350 Ho Chi Minh City (HCMC) manufacturing firms and an in-depth survey of 27 FPI companies conducted in 2000. The results are compared with Thai producers as well as by ownership type (state, private and foreign-owned). Examining the base case before any policy changes, we note that FPEs are generally slightly more profitable than their non-FPE counterparts, especially in the case of FIEs, although the inverse is true for PEs. We also note that SOEs are more profitable than their private and, particularly, their foreign-invested rivals among both FPEs and non-FPEs. Among the different scenarios, devaluation and efficiency gains have the strongest and most positive impact on profitability. Positive, but much smaller, impacts are obtained from reduction in material input and service costs. All other policy reforms have negative effects on profitability, in particular tariff reductions of 20 percent and more, increasing labor costs and increasing fuel/energy costs. Smaller tariff reductions and a rise in social and health insurance costs for workers both have more moderate negative impacts on profitability.