Asean as Food Basket Bogor 05-10-1

R. Dy, UA&P, March 2010R. Dy, UA&P, May 2010

Prof. Rolando T. Dy, Ph.D.Executive Director, Center for Food and Agri Business

Dean, School of ManagementUniversity of Asia and the Pacific

ASEAN AS A GLOBAL FOOD BASKET:

Challenges, Opportunities and Global Competitiveness

Bogor, IndonesiaMay 2010


• Role of Agriculture and Agribusiness

• The Global Picture: Challenges and Opportunities

• The ASEAN Global Presence

• The ASEAN Strategic Advantage

• Competitiveness Guidelines

• Challenges

• Food for Thought

OUTLINE


• Economic – contribution to GDP, food, raw materials for processing, and exports

• Linkages – user fertilizers, machinery, transport, storage, finance and trade

• Livelihood - jobs

• Environment - impact of water use, deforestation, coral reefs, climate change

Source: World Bank, World Development Report 2008; Author, 2010

STRATEGIC ROLE OF AGRICULTURE


• Strong synergies between agriculture and economic development

• Dynamic and efficient agribusiness spurs agricultural growth

• Strong links between agribusiness and smallholders can reduce rural poverty

- WDR 2008

AGRIBUSINESS AND ECONOMIC GROWTH


AGRICULTUREGrains, fiber, fruits,

vegetables, tree crops, fishery,

aquaculture

SERVICES-Banking

-Transport-Storage-Trade

-Consulting-Government

INDUSTRY-Processing- Fertilizers

- Machineries

Farm Inputs

Food &

Raw Materials

AGRIBUSINESS AND SECTORAL LINKAGES


Agriculture as % of GDP

Agribusiness

as % of GDP Multiplier

Indonesia 20 33 1.6

Malaysia 13 36 2.8

Thailand 11 43 3.9

Argentina 5.6 32.2 5.8

Brazil 7.5 26.6 3.6

Chile 8.5 32.1 3.8

Costa Rica 12.8 32.5 2.5

Source: World Bank (2008), Guilhoto ( 2004 ), Jaffee (1999).

AGRIBUSINESS AND MULTIPLIERS


THE SHARES OF AGRICULTURE AND AGRIBUSINESS IN GDP CHANGE AS INCOME

RISES(WDR 2009)


THE RATIO OF FOOD PROCESSING TO AGRI. VALUE ADDED RISES WITH INCOME


GLOBAL TRENDS

• Diversification toward high-value production - a demand-driven process in which the private sector plays a vital role

• Higher incomes, urbanization, and changing preferences cause domestic consumer demand for high-value products

• Food spending is shifting from grains and staples to vegetables, fruits, meat, dairy, and fish.

• Demand for ready-to-cook and ready-to-eat foods is also rising, particularly in urban areas.

- IFPRI, 2007


THE GLOBAL CHALLENGES

Pressure on food supply

Rising energy costs

High fertilizer costs

Increasing land scarcity

Increasing water scarcity

Climate change

Stringent food standards


Pressure on Food Supply

• Growing demand for food, feed, and biofuels

• Industrialization, urbanization and infrastructure reduce prime farm lands

• Less water for agriculture


Rising Input Prices

Energy and fertilizer• Sustained demand for food and bio-

fuels production

• No/few new discoveries of large oil fields (peak oil?)

• Non-renewable supplies of natural gas (urea-N) phosphate (P) and potash (K)

• Sources limited to few countries


Land and Water Scarcity

• Conversion of farm lands to many uses

• Competing water use: agriculture, industry, infrastructure, housing

Today: agriculture accounts for about 70% • Climate change


Climate Change

• Increasing variability

• Rising intensities of droughts, floods, and typhoons.

• Impact on farm areas and yields


Food Safety Standards

New non-tariff barriers

• New opportunities are stifled by rigorous safety and quality standards of countries, processors and retailers

• Traceability certifications can be costly for SMEs

• Many developing, agri-exporting countries are ill-prepared.


GLOBAL OPPORTUNITIES

• Rising incomes and wealth in Asia - China, India, ASEAN

• Supply chain transformation

• Bio-fuels boom

• Technology advances

(Life sciences + ICT)

• Liberalized trade

• Cross-border investments


• Moving goods efficiently

• With faster turnaround

• Multi-points sourcing

• Lower final costs to consumers

Impact: Countries, regions and firms with better logistics have the competitive edge.

Supply Chain Transformation


• Bio- ethanol

Raw materials: sugarcane,

cassava and sweet sorghum

• Bio-diesel

Raw materials: palm oil, palm kernel oil, coconut oil, jatropha(??)

Biofuels (Mandated In Many Countries)


• GMO impact of increasing yield and shelf life, better nutrition, cost-effective plant architecture, nitrogen-fixing trait, and elimination/reduction of cost of farm chemicals use.

• ICT impact on connectivity: rapid transmission of market signals, market transactions, new technologies, and decision-making

Technology advances (Life sciences + ICT)


Liberalized Trade

• AFTA

• China-AFTA

• Bilateral FTAs

• APEC

• WTO


Cross-border investments

• FTAs enlarge markets, lift economies of scale, and attract foreign direct investments (FDI)

• Improving risk profile attracts attract foreign capital into emerging economies

• Simplified customs and quarantine• Lower barriers of nationalism


Rising incomes and wealth in Asia - China, India, ASEAN

• Population size

• Rapid economic growth

• Fast-rising middle class


Population Sizes, 2008

1,326 M

1,140 M 192 M142 M

128 M

228 M90 M

86 M

67 M

49 M

27 M

15 M

6 M5 M

0.4 M

ASEANASEAN


• China: 1,326 M

• Ave. economic growth: 10% p.a.

• 300 M middle class (mostly in the coastal cities)

• Olympic and Expo dividends

China Market


• "By 2025, China will have 221 cities with more than one million inhabitants – compared with 35 in Europe today – and 24 cities with more than five million people."

• "By 2030, 1 billion people will live in China's cities… 170 mass-transit systems could be built…40 billion of square meters of floor space will be built in five million buildings—50,000 of which could be skyscrapers.“

Source: Mckinsey Global Institute, June 2008

China in 15-20 Years


• Mainland China has:

22 provinces

5 autonomous regions

4 municipalities.

• 20 provinces have population of over 30 million!

• Each province is a different country!!

China Market


2004 2007 2008 (e)

Consumer Spending

$ billion

758 1,160 1,226

Food Spending

$ billion

276 295 405

China Consumer MarketLarge Size, High Growth

Shanghai GDP surpassed Hong Kong’s in 2009

Source: Euromonitor


Key agriculture and food imports:

• Vegetable oils

• Fresh fruits

• Seafoods• Raw materials (rubber, hides, cotton,

etc.)

China Food Market


China

• Since 1978, agriculture growth has exceeded the growth of population by nearly five times, transforming the country's food economy.

• But, with 240 million small farms (ave. < 0.6 ha), there are challenges in moving the system into a modern, vertically integrated and able to meet the nation's increasing demand for safe, traceable and reliable food.

Source: Huang, L.(2008) Regoverning Markets Programme http://www. [email protected]


• Supermarkets and hypermarkets are expanding and packaged food is getting more common.

• From 2000 to 2008, the average real annual growth in retail sales of packaged food was 10.8% on the mainland, way above the average 4.2% in the Asian region as a whole.

- HKTDC (March 13, 2009)

China


“Nowhere in the world is there a market like this – nowhere. To me, the 21st

century will be the Chinese century. China will change the economic

balance of the world.”

- Guy McLeod, President, Airbus China (China CEO: Voices of Experience by Fernandez and Underwood, John Wiley, 2006)

CEO Quotes


• Population: 23 M

start of aging?

• High income: ~$20,000 per person

• Food importer: over $3 B a year

Wheat, soybeans, corn

Processed foods

Source: http://www.cepd.gov.tw/

Taiwan


2004 2007 2008 (e)

Consumer Spending $ billion

195 222 226

Food Spending

$ billion

42 50 51

TaiwanDeveloped Country Lifestyle

Source: Euromonitor


• Population: 128 M

• High income market

• Aging and declining population

• Large tourists base

JapanRich but Aging


JapanQuality-conscious but stagnant market

2004 2007 2008(e)

Consumer Spending

$ billion

2,546 2,394 2,391

Food Spending

$ billion

363 330 325

Source: Euromonitor


Food importer: $60 B a year

• Grains for feeds; some rice

• Meat

• Fruits, vegetables

• Seafood

• Quality and food safety concerns

Japan


• Consumer Market: 49 M

• High income markets

• Aging population

• Home to Samsung,LG, Hyundai and Kia

South Korea


2004 2007 2008(e)

Consumer Spending

$ billion

337 492 504

Food Spending

$ billion

50 72 73

South KoreaDeveloped Country, High Density

Source: Euromonitor


Food import: over $12 B a year

• Grains except rice

• Fruits and vegetables

• Seafood

• Quality and food safety concerns

South Korea


Rising incomes and wealth

• Global corporations are transforming opportunities for small agricultural producers.

• Transactions along the corporate food chain have increased. Between 2004 and 2006, global food spending grew by 16 percent from US$5.5 trillion to 6.4 trillion (Planet Retail 2007).

- IFPRI, December 2007


The ASEAN

• Nearly 600 M consumer market• Indonesia 228 M, Philippines 90 M,

Vietnam 86 M, Thailand 67 M, Malaysia 27 M

• Over 150 M middle class• Diverse cultures and markets• Heavy food importer: wheat, meat, fish,

fishmeal, temperate fruits, but a global exporter.


THE ASEAN

• In the whirlwind of opportunities.

• A global agri-food player: over US$90 B in exports

• Rich resources: land, seas, and people.


ASEAN COUNTRIES ARE GLOBAL FOOD PLAYERS

Global Rank 1 2 3

Rice Thailand Vietnam India

Palm oil Indonesia Malaysia Thailand

Coconut oil Philippines Indonesia India

Chicken meat Brazil EU Thailand

Coffee, robusta Vietnam Indonesia Brazil

Sugar Brazil Thailand Australia

Banana, fresh Ecuador Philippines Costa Rica

Pineapple, canned

Thailand Philippines Indonesia


ASEAN COUNTRIES ARE GLOBAL FOOD PLAYERS

Global Rank 1 2 3

Shrimps China Thailand Vietnam

Catfish Vietnam China USA

Canned tuna USA Thailand Spain

Tapioca starch

Thailand Vietnam Indonesia

Pepper Vietnam India Brazil

Cashew Vietnam Nigeria India

Cacao Ivory Coast Ghana Indonesia


ASEAN Presence in World Food Trade (‘000 tons)

ProductASEAN

Export

World Export

% Share

ASEAN

Remarks

Rice 14,600 28,670 51 2008/09: Thailand, Vietnam, Cambodia

Palm oil 32,223 35,480 91 2008-09: Indonesia, Malaysia, Thailand, USDA

Coconut oil 1,401 1,516 92 2008/09: Philippines, Indonesia

Coffee 1,380 5,376 26 2008/09: Vietnam, Indonesia

USDA

Chicken meat 385 8,183 5 2006: Thailand. USDA

Sugar 6,000 48,180 12.5 2008/09:Thailand, Philippines

USDA

Banana, fresh 1,856 17,666 10.5 2007: Philippines. FAO

Pineapple, canned

896 1,173 76 2007: Thailand, Philippines, Indonesia


ProductASEAN

Export

World Export

% Share

ASEAN Remarks

Total FisheryProducts

13,582 93,520 14.5 2007: All fishery and aquaculture, FAO (US$ million)

Shrimps 901 3,691 24 2006: FAO

Catfish ~500 ~600 > 80 2008: Vietnam

Canned tuna 480 1,026 47 2004: Thailand, Philippines, Indonesia (Globefish)

Cassava, dried

6,086 6,897 88 2007: Thailand, Vietnam Indonesia.

FAO

Pepper 156 258 53 2007: Vietnam, Indonesia, Malaysia, FAO

Cashew 165 345 47 2007:Vietnam, FAO

Cacao beans >356 2,535 >14 2007/08

Indonesia, ICO

ASEAN Presence in World Food Trade (‘000 tons)


ASEAN AGRI-FOOD PLAYERS (Revenues of US$1,000 million and over in 2008)

• Wilmar International (Singapore)

• CP Group (Thailand)• Sime Darby (Malaysia)• Olam International (Singapore)• Felda Holdings (Malaysia)

• IOI (Malaysia)• Indofood (Indonesia)• San Miguel (Philippines)• Thai Union Frozen Seafoods

(Thailand)• RGM (Singapore)

• Golden Agri Resources (Indonesia)

• KLK (Malaysia)• SMART (Indonesia)• Musim Mas (Indonesia)• Asia Pacific Breweries Ltd

(Singapore)• Kulim (Malaysia)• F&NHB (Malaysia)• Universal Robina Corp

(Philippines)• Vinafood 2 (Vietnam)


ASEAN AGRI-FOOD PLAYERS (Revenues of US$300-US$1,000 million in 2008)

• Astra Agro Lestari (Indonesia)• Petra Foods (Singapore)• Thai Vegetable Oil (Thailand)• Halil Karsa (Indonesia)• QAF Holdings (Singapore)• Saigon Beer Alcohol Beverage

(Vietnam)• Liwayway Group (Philippines)• Vietnam Dairy Products (Vietnam)• Mayorah Indah (Indonesia)• Tunas Baru Lampung (Indonesia)

• Ha Hai Company (Vietnam)• Del Monte Pacific

(Philippines)• Top Glove (Malaysia)• Monde Nissin (Philippines)• Khon Kaen Sugar Industry

(Thailand)• Guiness Anchor (Malaysia)• United Plantations

(Malaysia)• Genting Plantations

(Malaysia)• Bakrie Sumatera Plantation

(Indonesia)


ASEAN Food Retailers

• SM Investments (Philippines)

• Matahari (Indonesia)

• The Store (Malaysia)

• Central Food Retail (Thailand)

• NTUC Fair Price (Singapore)

• Jollibee (Philippines)

• Minor Food (Thailand)


Selected ASEAN agriculture exports

Values in 2007

Exports($ B)

Imports($ B)

Balance($ B)

Export/Farm Area ($)

Indonesia 23.4 10.5 +12.9 710

Malaysia 20.5 10.6 +9.9 2,710

Thailand 25.0 8.4 +16.6 1,420

Vietnam 11.7 6.1 +5.6 1,500

Source of basic data: WTO, CIA


COMPARATIVE AGRICULTURE AND FISHERIES RECORD (Revealed Comparative Advantage)

Export Value in$ B INDON MALAY THAI VIET

Fish, etc. 1.6 2.3 2.5

Veggies 0.7 0.2

Fruits and nuts 0.5

Coffee 0.9 1.6

Cocoa and prep 0.9 0.6

Cereals & prep 2.7 0.9

Vegetable oils 6.1 7.0

Seafood prep 0.3 4.0 0.6

Rubber prod 5.5 4.8 8.9 0.9

All products 15.8 12.4 22.8 7.3Products Revealed Comparative Advantage (RCA) >1 (2006)Source: ITC


INDONESIA as ASEAN Anchor

• Feed Indonesia, then feed the world, was the recent call by President SBY.

• Between 2010 and 2030, Indonesia expects to become one of the world's biggest producers of rice, maize, sugar, coffee, shrimp, meats and palm oil, senior agriculture ministry official Hilman Manan said.


INDONESIA as ASEAN Anchor• The first area targeted for development is 1.6

million hectares in Papua - the Merauke Integrated Food and Energy Estate.

• We chose Merauke because it's the ideal place for food crop cultivation, such as rice, corn, soybean and sugar cane. Merauke district has 4.5 million hectares of land; 2.5 million hectares are ideal for cultivation,

• The area is flat and has a good climate. Its soil is appropriate for those crops. Sumatra is already congested with other plantations, such as palm oil, and Kalimantan is already full of mining areas and many plantation areas also. - by Hilman Manan (AFP Report, Feb 21, 2010)


Factor endowmentDifference in productivity

and costsDynamic economies of scale

Source: Colliers and Venable (2007), Eifert, Gelb and Ramachandran (2005), and Wood and Mayer (2001) as quoted in the World Development Report 2008

SOURCES OF COMPETITIVE ADVANTAGE


Factor endowment Natural resources

Land, Water, Sea Human capital

Quantity and Quality


Business climate Infrastructure Institutions

Productivity and Cost Drivers


On Business Climate

Good macroeconomic fundamentals Reasonable fiscal and external

balances, realistic exchange rate, low inflation and interest rates, competitive markets

Social and political stability. - ADB (2005) Philippines: Moving Towards a Good Investment Climate.


Infrastructure availability and quality of roads and ports, telecommunications, power and water supply.

Maintenance of assets

- ADB (2005) Philippines: Moving Towards a Good Investment Climate.

On Business Climate


Governance and institutions: Transparency and efficiency in regulation,

taxation, and legal system Strong and well-functioning financial

sector, labor market flexibility Skilled labor force.

- ADB (2005) Philippines: Moving Towards a Good Investment Climate.

On Business Climate


Economies of Scale

Size matters Critical mass of raw materials Early movers have an

advantage

ECONOMIES OF SCOPE Supplier industries and

services in the cluster Support institutions


• Near Large Markets (China, Japan, Korea)

• Large Internal Market• Natural Endowments (Land, Water,

Seas)• Skilled Manpower• Entrepreneurship• Logistics Hub (Singapore/Malaysia)

ASEAN Strategic Advantage


IMPORT

• Domestic Price < Border (CIF) Price

EXPORT

• Domestic Price < Border (FOB) Price

GLOBAL COMPETITIVENESS


PROCESSORSINPUT

SUPPLIERSGROWERS/

PRODUCERSCONSUMERSDISTRIBUTORS RETAILERS

Seed supplierSeed supplierBreederBreederResearcherResearcher

Propagator, etcPropagator, etc..

AbbatoirAbbatoirCanneryCanneryMill, etc.Mill, etc.

FarmerFarmerGrowerGrowerGrazierGrazierPastoralistPastoralist

WholesalerWholesalerImporterImporterExporterExporterTransport company, etcTransport company, etc..

You and meYou and me

RestaurantRestaurantSupermarketSupermarketHotel, etc.Hotel, etc.

SOURCE: New Industrial Development Program (NIDP) – MADE IN AUSTRALIA, Number 1, Series 3, AFFA (2003).

THE SUPPLY CHAIN


AT THE FRONT OF THE SUPPLY/ VALUE CHAIN:

• The cost, availability, and reliability of raw materials delivered to the processors

DETERMINANTS OF GLOBAL COMPETITIVENESS

Source: AFFA


ALONG THE SUPPLY/VALUE CHAIN:

• The relative efficiency in value adding

• Importance of financing, manufacturing, packaging, branding, marketing and distribution.

DETERMINANTS OF GLOBAL COMPETITIVENESS

Source: AFFA


When raw materials are priced below world prices:

Processors are able to compete in price-sensitive markets provided supply chains are efficient.

Source: AFFA

AGRO-INDUSTRIAL COMPETITIVENESS


• Inter-connectivity of roads to ports

• Land consolidation

for large scale raw materials

• Supply chain efficiencies

IMPLICATIONS


Where raw materials are priced at near world prices: good marketing innovative product development a sound understanding of

consumers are keys to compete

in value –sensitive markets

Source: AFFA



• Investing in marketing and export development

• Investing in product R&D

• Investing in market research and intelligence

IMPLICATIONS


Where the prices of raw materials are higher than those of competitors:

it would be tough to develop products for the export.

Source: AFFA



Address longer term issues of:

• productivity

• plant efficiencies

• logistics

• scale

IMPLICATIONS


• Increase Increase farm productivity farm productivity

• ExpandExpand market-led diversification market-led diversification

• Promote Promote non-farm and off-farm non-farm and off-farm jobsjobs through supply/value chain through supply/value chain linkageslinkages

RESPONSE TO THECHALLENGES AND OPPORTUNITIES


AGRICULTURE pathways out of poverty

Increase productivity in food sectorConnect smallholders to rapidly

expanding high-value horticulture, poultry, aquaculture, as well as dairy markets

Generate jobs in the rural nonfarm economy.

Source: World Bank, WDR 2008


RESPONSE TO THE CHALLENGES

Rising energy costs: ENERGY FROM BIO-MASS AND BIO-FUELS?

High fertilizer costs: GOING ORGANIC?

Increasing water scarcity: R&D into less water intensive crops and dryland crops


RESPONSE TO THE CHALLENGES

Climate change: mitigation, preparedness, and R&D

Stringent food standards: Laboratory facilities, trainings in GMP and HACCP

Strategic Alliances: supply chain, global marketing, and R&D


R & D is a major catalyst of agriculture growth in competitor countries.

Education and roads are next.

RANKING OF PUBLIC INVESTMENT EFFECTS ON SECTORS

(INTERNATIONAL EXPERIENCE)


Item China India Thailand Vietnam Ranking of Returns in Agriculture Production

Agriculture R & D 1 1 1 1 Education 2 3 3 3 Roads 3 2 4 4 Telecommunications 4 - - 2 Irrigation 5 4 5 5 Electricity 6 8 2 - Soil and water conservation

- 6 - -

Item China India Thailand Vietnam Ranking of Returns in Poverty Reduction

Agriculture R &D 2 2 2 2 Roads 3 1 3 4 Education 1 3 4 3 Telecommunication - - - 1 Electricity 4 8 1 - Irrigation 6 7 5 5

Source: Shenggen Fan (2005). The Role of Agriculture in Poverty Reduction: Evidence from Asia. IFPRI

RANKING OF PUBLIC INVESTMENT EFFECTS ON SECTORS(INTERNATIONAL EXPERIENCE)


FACTORS IN AGRI DEVELOPMENTFACTORS IN AGRI DEVELOPMENT

MACRO ECONOMIC POLICIESPUBLIC

INVESTMENT

INFRASTRUCTURE AND R &

D

INSTITUTIONS

(Bureaucracy)

LAND MARKETS AND LAND

LAWS

PRIVATE INVESTMEN

TS

(INVESTMENT

CLIMATE)

HUMAN CAPITAL

AND EDUCATION

POLITICS, ELECTIONS

CONTINUITY

AGRICULTURE

DEVELOPMENT

ACCESS TO NATIONAL

AND GLOBAL MARKETS


FOOD FOR THOUGHT

Know your enemy, know yourself, and you can fight a hundred battles with no danger of defeat. When you are ignorant of the enemy but you know yourself, your chances of winning and losing are equal. If you don’t know your enemy or yourself, you are bound to perish in all battles.

- Sun Tzu, The Art of War as cited by Ghemawat,Strategy and the Business

Landscape, 2006


FOOD FOR THOUGHT

Globalization is about

producing where it is most cost effective, sourcing capital from

where it’s cheapest and selling it

where it is most profitable. - N.R. Narayana Murthy, Infosys, 2003 as cited by Ghemawat, Redefining

Global Strategy, Harvard Business School, 2007.


FOOD FOR THOUGHT

Innovation has become a primary force in determining industry growth and performance.

Unfortunately, a wide gap exists between aspirations to innovate, and the ability to execute.

- Paraphasing The McKinsey Quarterly 2007


TERIMA KASIH!

MARAMING SALAMAT!

THANK YOU!

Documents

Asean as Food Basket Bogor 05-10-1