Packaged food and meat will lead growth under Asean

The Asean region has a predominantly young and growing population of 625 million and the world’s seventh-largest gross domestic product (GDP), which is expected to grow to US$3.6 trillion by 2020.
Higher average income levels for Asean citizens will see them shift away from a carbohydrate-heavy diet to one that is richer in fat and protein, boosting demand for industries such as dairy and meat.
Increased urbanisation will also drive demand for packaged food as consumers look for more convenience in their purchase habits.
A report released last week by Rabobank, titled “AEC: One Large Non-Homogeneous Market”, predicts that packaged food and meant are the two sectors that will gain the most from AEC integration – growing by 5 per cent and 4 per cent per annum respectively by 2020. Globally though, the growth of these sectors during the same period would be 3 per cent for packaged food and 2 per cent for meat annually.
A rising standard of living across the region will also pose a huge opportunity for regional downstream producers as well as food and beverage businesses as the AEC boosts access to a larger consumer base, increased flow of capital and investment in infrastructure development.
While regional businesses are expected to be the biggest winners, they will need a regional strategy to compete against multinational companies (MNCs) attracted by improved business conditions, whose presence will raise competition across the market. Currently, only 55 per cent of regional firms have an Asean strategy, compared with 81 per cent of non-Asean companies, a survey conducted by the Economist Intelligence revealed.
Stiff competition from MNCs and established food and agriculture firms will push Asean-based firms into expanding their regional footprint, streamlining their operations and diversifying revenue streams in order to stay relevant and efficient.
Companies with better access to funds and management bandwidth would be better placed to execute a pan-Asean expansion strategy.
With the right strategy and support in place, this could even present an opportunity to develop the region’s first home-grown multinational food and beverage companies.
While most quantitative tariff barriers have already been reduced across the AEC, integration is still far from complete. Consequently, the full effects on F&A commodity trade flows will not be seen for as long as common food production challenges, quality differences, and strategic national trade barriers exist. The hurdles include moves to protect the local rice and sugar industries in Indonesia, Malaysia and Philippines, from being flooded by cheaper imports from Thailand or Vietnam.
Challenges at a country level will greatly impact the future of food and agriculture businesses under the AEC. Indonesia will need to focus on building production efficiencies across a number of its F&A sectors for local producers to be able to compete with other countries in the region such as Thailand.
Another key challenge for improving Indonesia’s F&A sectors is infrastructure development. Currently, the cost of shipping dry cargo such as wheat, corn and rice within different islands in Indonesia can be higher than the cost of shipping them to China or across the Pacific Ocean.
As AEC integration continues, countries will need to address issues such as non-tariff barriers to trade, effective infrastructure, a conducive regulatory framework and agricultural skill shortages in order to remain competitive.
While it’s understandable that countries want to protect their local industries, it could also be argued that these sensitivities should be dropped in the longer run to allow commodities to flow from the most efficient producers and reduce the overall cost in the region’s supply chain.
Governments have committed to gradually eliminate non-tariff barriers in the long term, however in the short term, it is likely to see a barter trade of non-tariff barriers removal between Asean nations.
Overall, this push towards integration will help countries focus on productivity improvements in agriculture – Rabobank is confident that the AEC is a step in the right direction for the F&A industry.

The writer is director of food and agribusiness research and advisory for Rabobank. Issues discussed in this column are his personal views.