Cinnamon Investment in Vietnam Faces Challenges
Vietnam stands among the world’s biggest cinnamon exporters, with a significant portion of its exports being raw products with little value added. This situation presents an opportunity for foreign food processing firms to enter the market and add value to Vietnam’s cinnamon products.
According to Vietnam’s Ministry of Agriculture and Rural Development, the country was the world’s leading exporter and third-largest producer of cinnamon as of November 15, 2023. Vietnam possesses a cinnamon growing area of 180 thousand hectares and exported 74,744 tons of cinnamon worth US$220.3 million by the end of October this year.
The largest importers of Vietnam’s cinnamon were India, the United States, and Bangladesh, which combined accounted for 67.1 percent of total exports. This positive result, along with a world organic spice market CAGR of 4.5 percent, suggests there may be opportunities for foreign firms to profit from this burgeoning sector.
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Cinnamon is a medicinal herb that provides nourishment and flavor in various culinary products. It can be found in baked goods, meat marinades, and tea bags. Cinnamon’s antioxidant characteristics make it a useful preservative in food products, according to data from the National Center for Biotechnology Information.
Antioxidants and active antibacterial components found in cinnamon help shield against bacteria, viruses, and inflammation. As a result, cinnamon is now a necessary component in medications that boost immunity against cancer. Research also indicates that cinnamon has properties that can be used to make medications to treat Parkinson’s and Alzheimer’s disease.
Challenges in Cinnamon Production
Despite having the world’s biggest cinnamon market share, Vietnam’s cinnamon production is much lower than that of other nations, particularly China. This contrast indicates a plethora of opportunities and strong earning potential for foreign investors.
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However, Vietnam’s cinnamon production is much lower than that of other nations, particularly China. This contrast indicates a plethora of opportunities and strong earning potential for foreign investors. Around 85 percent of Vietnam’s cinnamon is exported to India, driven in part by the ASEAN-India Free Trade Agreement, which offers advantageous tariff rates. However, the majority of these exports are in raw form, as Vietnam currently lacks the necessary processing skills to add value before exporting, as noted by Thuong Trung Bui, Commercial Counselor at the Vietnam Trade Office in India. That is because India has extensive experience processing cinnamon, spanning hundreds of years, unlike Vietnam where cinnamon production itself is comparatively recent.
Moreover, the Asian Productivity Organization’s 2020 study revealed that between 2011 and 2020, Vietnam’s labor productivity grew at an average rate of 5.1 percent annually, whereas India’s labor productivity showed a higher average of 6 percent per year—suggesting the potential for enhanced value in cinnamon processing in India. This opens up numerous opportunities for foreign firms in the upskilling and training sector. Foreign agricultural education companies could identify a market for training courses designed to enhance the skills of Vietnamese farmers and workers. Upskilling the local workforce is just one avenue for foreign firms seeking investment opportunities.
Another critical factor impacting Vietnamese cinnamon output is the limited use of machinery and technology, which presents a significant opportunity for foreign suppliers of machinery and equipment. The European Union has very severe pesticide use regulations in agriculture, and products with pesticide residues that exceed permissible levels are removed from the European market. Climate change may also be a problem, as Vietnam is extremely sensitive to rising global temperatures and adapting to the changes that they bring may prove costly. Despite these challenges, the cinnamon market in Vietnam remains an attractive opportunity for foreign investment and development.
