ASIA’S FOOD MARKET: Business These Days

Cyclical market trends and price swings are nothing new. But when the affected sector is as basic to daily survival as food, the implications of a worldwide price spiral can be devastating.

Prices of food and feed grain have risen by at least 60 percent year on year, with rice taking the lead by a doubling in price. Edible oil prices have also been nudged higher by the twin effects of record crude oil prices and the worldwide biofuels initiative. Weather shocks have further exacerbated food shortages, causing a drawdown in world stocks and triggering outbursts of hungry rage in the developing world.

While the 1970s saw food prices sky-rocketing as well, the difference this time is that it is taking place against a backdrop of globalization, more intense trade flows, and the geopolitical power play shifting towards populous and increasingly properous China and India.

The good news is that challenging times like these have forced companies to step up on efficiencies to gain an edge, now that price competition is close to impossible. The result? “As companies are looking to improve efficiency along the whole business, we’re seeing more consolidation, less wastage of resources and therefore higher efficiency, which is really the no.1 issue,” shares Thomas Bauer, regional head for food and agribusiness at Rabobank in Singapore. Consolidation also leads to a more organized structure and greater access to credit facilities, points out Bauer. Besides lowering wastage through better cold chain utilization and proper packing of perishable fresh foods, companies are also seeking ways to make use of waste products as renewable resources. Size also improves the economics of recycling and conservation, and makes the building of waste treatment facilities for instance, feasible.

Asia’s food industry is hardly taking the higher prices sitting down. Government-led initiatives are moving the food and agri sector along strategic comparative advantages, notes Bauer, pointing to some of the advisory projects that Rabobank has taken on in Asia. Among them is the northern corridor economic region in Malaysia, a government initiative that covers the northern states of Kedah, Penang, Perak and Perlis with a focus on developing aquaculture, livestock production, fruits and vegetables, and paddy cultivation. Down south, Singapore is positioning itself as a hub for regional cold chain needs while addressing issues of traceability, food safety and product integrity.

(See box-text above on ‘Niche areas’ for other Asian markets.) While consolidation has its place, diversification is also driving change. Food companies are also moving out to different lines of the business to capture more value along the chain, says Bauer, citing palm oil companies which are getting involved in the distribution and logistics aspects for vegetable oils. The coffee and cocoa markets are increasingly seeing players moving between both while specialty sectors like spices are adding zest to the game.

Escalating food prices are no doubt a bane everywhere. But the upside to this is that it has forced companies towards innovation, better resource management and creative applications of alternatives. As the current food market is increasingly supply-driven, focus must return to the suppliers themselves—the farmers. Says Bauer: “Never underestimate the power of farmers to use technology where this is made available.” Making technology available to all, rather than only to multinationals that can afford it, is perhaps the key to weathering this critical period of tight supplies.