Safe food is fertile soil for financiers There are enormous opportunities for investment in agriculture in Vietnam, but through mergers and acquisitions, success has only come to a few investors, particularly the more experienced financiers.   The trend for organic and safer foods has led to improved food handling practices The domestic agricultural sector has recently witnessed scores of investors pursuing the relatively new investment trend of organic food production. Many experts forecast the rise of a wave of business startups engaged in organic agricultural production and the application of technological advancements in agricultural produce and seafood processing. This investment trend is being greeted by domestic and foreign investors and has proven to be a life-buoy to Vietnamese agriculture, which is facing multiple challenges arising from new-generation free trade agreements (FTAs) that Vietnam has signed with other countries, such as the landmark Trans-Pacific Partnership agreement (TPP). South Korea’s food conglomerate CJ Cheil Jedang recently announced its plan to pour an additional $500 million into Vietnam, either directly or through a merger and acquisition (M&A) path. The aim is turning Vietnam into its second-largest offshore production base after China. The group currently operates a farm, four processing plants, and one retail unit in Vietnam. PAN Group is a local business also relying on M&As to enter into the agricultural and organic food production sector. Nguyen Duy Hung, chairman of Saigon Securities Incorporation – a leading financial institution in Vietnam – and PAN Group shared that together they are considering buying “bad assets” and currently less-effective businesses at low prices, empowering them, then adding these companies to their enclosed safe food chain model, which pursues the 3F (feed-farm-food) principle. “We pay attention to firms with long-term and sustainable development strategies. PAN focuses on under-developed companies, buying them at below par value. We then help them refit with much better growth indexes to become effective players in their fields,” said Hung. To date, PAN Group has completed five M&A deals: with National Seed JSC (NSC), Long An Food Processing Export JSC (LAF), Ben Tre Aquaproduct Import and Export JSC (ABT), Bien Hoa Confectionery JSC (Bibica), and Southern Seed JSC (SSC). A project planting daisies is the group’s first step in flower and vegetable investment through its subsidiary PAN-Salad Bowl, with capital contribution coming from a Japanese partner. PAN Group held a dominant share in the joint venture firm. In this field, PAN-Salad  Bowl will engage in producing high-quality products that are still badly needed in this market. This month, PAN Food, a member unit under PAN Group, bought a 20 per cent stake in 584 Nha Trang Seafood JSC, turning the latter into one of its affiliates. This affiliate currently possesses 584 Nha Trang – a leading fish sauce brand. The total investment value PAN Group has put into these firms has surpassed VND1.93 trillion ($88.5 million). Most of the acquired companies have reported upbeat business results in the post M&A period. For instance, LAF, one year after its team-up with PAN Group, has escaped its loss-running status and has begun to count its profits. Meanwhile, Vingroup, a leading property developer, will not miss out when it comes to investment into organic agriculture. Vingroup’s three core targets with its agricultural investment plans are the production of safe fruit and vegetables to feed the market, promotion of hi-tech applications in large-scale fields to save in production costs, and turning out agricultural produce with a high export value. Last year, Vingroup spent VND2 trillion ($91.3 million) forming VinEco, specialising in safe vegetable production for supply to locations across the country, such as Quang Ninh, Thanh Hoa, and Dong Nai. The group retains a 70 per cent stake valued at VND1.4 trillion ($63.9 million) in the new company.  In another case, Thong Nhat Production and Investment JSC (GTN) have made strong forays into the agricultural field by capitalising on the ongoing state-owned enterprises equitisation wave. GTN has become a strategic partner of Vietnam Tea Corporation (Vinatea) holding a 75 per cent stake, and retaining a 12 per cent stake in Vietnam Livestock Corporation (Vilico), as well as a 35.4 per cent stake in Saigon Forest Products Import-Export JSC (Forimex). According to industry experts, any investor can avail of the agricultural sector potential through M&As. However, when looking into M&A deals over the past few years, it is apparent that there have been three main methods for effective agricultural investment. Firstly, we have seen success with M&As. Secondly, through expansive investment with the deployment of large-scale fields. For a group of businesses wishing to develop a production chain, they need to form allied firms and develop stable material sources. In the third option, firms need to have financial strength. Even with sound finance, agricultural investment does not always bring success, as has been seen in the case of leading steel maker, Hoa Phat Group. In their 20-year plus development this group has ventured into many new fields, from the manufacture of construction equipment to real estate investment, and even electro-cryogenic products. In the field of agriculture and animal feed, Hoa Phat has faced growing competition from multinationals on the Vietnamese market. Consequently, by the end of 2016’s first quarter, when most of its businesses reported upbeat outcomes, the agricultural investment generated nearly VND14 billion ($639,250) in losses. By Anh Hoa, VIR