Investing in Cinnamon in Vietnam: Opportunities and Challenges

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Vietnam is among the world’s biggest cinnamon exporters though this is mostly raw product with little value added. This could be an opportunity for foreign food processing firms to enter the market in a myriad of ways. In this article, we discuss what those ways are.


According to Vietnam’s , as of November 15, 2023, Vietnam was the world’s leading exporter, and the third-largest producer, of cinnamon. With a cinnamon growing area of 180 thousand hectares, Vietnam’s cinnamon export turnover reached US$292.2 million last year, accounting for 17 percent of the global cinnamon market. The country also has cinnamon bark reserves estimated to be between 900,000 and 1.2 million tons and each year harvests between 70,000 to 80,000 tons more. This year, by the end of October, Vietnam had exported 74,744 tons of cinnamon, worth US$220.3 million. The largest importers of this 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 , suggests there may be opportunities for foreign firms to profit from this burgeoning sector. In this light, the Vietnam Briefing runs through what these opportunities might be.

Markets for cinnamon products

Food

Cinnamon, a medicinal herb, provides nourishment and flavor in all culinary products. It can be found in baked goods, meat marinades, and tea bags. With its warming qualities, mild spicy taste, and pleasant aroma, cinnamon aids in the reduction of fishy smells in meat and fish, while also improving the seasoning of components and encouraging digestion. Further, cinnamon can be utilized as a preservative in food products due to its antioxidant characteristics,

Medicine

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 . The research also indicates that cinnamon has properties that can be used to make medications to treat Parkinson’s and Alzheimer’s disease.

Pesticides and fertilisers

Cinnamon has compounds that can effectively prevent the growth of mold and germs, according to the . Specifically, because of its cytotoxicity, cinnamon is utilized as an active component in organic herbicides. In addition, the poultry sector is steadily using cinnamon more and more. The growth performance and intestinal health of poultry have reportedly been improved by the inclusion of cinnamon in animal feed.

Opportunities in cinnamon production in Vietnam

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.

Training

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 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, 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.

Equipment

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. Vietnamese farmers often forego investing in equipment such as sterilization machines, opting instead for manual cleaning of cinnamon. This manual process frequently leads to the production of low-quality goods that are prone to damage during storage. Nevertheless, this challenge presents a significant opportunity for foreign suppliers of machinery and equipment. According to , Senior Lecturer and former Head of the Food Department at Hanoi University of Pharmacy, upgrading technology for cinnamon processing in Vietnam could potentially elevate the industry to an annual worth of up to VND 22 trillion (over US$900 million). As the local sector expresses a strong interest in improving output quality, foreign manufacturers of machinery may discover a substantial market for their products.

Cinnamon production in Vietnam: Challenges

prohibits foreign investors from acquiring land in Vietnam to establish a farm. Instead, 100 percent foreign-owned enterprises can lease land. They may, however, be able to get around this by entering into a joint venture with a local firm. That said, climate change may also be a problem. Vietnam is extremely sensitive to rising global temperatures and adapting to the changes that they bring may prove costly.

See also: Agriculture in Vietnam: Rising Star in Food Production.

EU Pesticides Regulations

The European Union has very severe pesticide use regulations in agriculture. In terms of , products with pesticide residues that exceed permissible levels are .

US FDA regulations

The majority of cinnamon firms in Vietnam still do not fulfill the standards for . As such, they are unable to in the US. Firms looking to invest in cinnamon production in Vietnam should be mindful that this criterion will need to be satisfied should they wish to export to the US.

Looking forward

The cinnamon market in Vietnam holds many unexplored opportunities for foreign investment and development. With a significant global market share, and multifaceted usage of higher value cinnamon products, foreign investors with the right knowledge, training skills, and equipment may be able to generate lucrative returns in Vietnam’s cinnamon sector. These opportunities, however, can be difficult to access and may require professional support and guidance. Firms looking to learn more about these opportunities should contact the business advisory experts at Dezan Shira & Associates.

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