Hoang Anh Gia Lai bets on banana, Chinese market in agriculture switch

Banana is identified as one of HAGL's strategic fruit thanks to its high economic efficiency and huge demand from China.

Once a leading property developer, Hoang Anh Gia Lai has reinvented itself as a hi-tech agriculture giant.

About a decade ago, Hoang Anh Gia Lai (HAGL) was a leading property developer in Vietnam.

Today, it is more known for its agricultural prowess.

Agriculture is now everything to HAGL, chairman Doan Nguyen Duc told shareholders at the group’s general meeting last week.

Under a major restructuring effort launched in 2010, the group invested heavily in rubber plantations and livestock farming.

Five years later, the rubber arm was renamed HAGL Agricultural Joint Stock Company (HoSE: HNG), and it started growing fruit in 2016.

After two years, Duc has identified banana as a strategic fruit thanks to its high economic efficiency and huge demand from China.

There is some doubt among shareholders about his betting on the Chinese market, with many cases recorded of Vietnamese farm produce being stuck at the Vietnam-China border or even being sent back.

Duc, however, is confident that there will always be demand in the market of more than one billion people.

“From market research, I’ve seen that the whole world wants to tap into China’s one billion people market. I had no worries after learning that we could not meet their massive demand,” he said, adding that it was not just HAGL, but suppliers from the Philippines and South America who have being selling bananas to China. Still, the demand has not been met.

Duc said the group estimates China’s banana consumption at 15 million tons per year, while its annual banana export is no more than 240,000 tons. However, to reduce excessive reliance on the Chinese market, Duc is seeking to have about 20 percent of the group’s banana exports shifted to South Korea and Japan.

The business tycoon reassured investors about the economic feasibility of his plan, saying the cost of production is only VND8,000 ($0.35) per kilogram, but the company sells it for VND14,000-23,000 ($0.6-1), depending on the season.

Banana prices reach their peak between September and February or March as it corresponds to the winter in China.

Duc seeks to expand the group’s banana plantations to 10,000 ha as it is now one of his core businesses. Its agricultural unit HNG grew 1,500 ha of banana last year and targets another 4,000ha this year.

It expects to harvest 106,200 tons of banana in 2018, which will yield around VND1.7 trillion in revenue and VND983 billion in gross profit. Besides, it also looks to earn billions from dragon fruit and chili.

HNG, which owns 13,000ha of orchards, posted VND1.64 trillion in revenue from its fruit sector last year for a gross profit of VND893 billion, a margin of 54 percent.

HAGL has set an annual revenue target of VND3.7 trillion for HNG this year, more than 80 percent of it coming from selling fruit for a gross profit of nearly VND1.7 trillion.