Asean As Food Basket Bogor 05-10-1

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

Prof. Rolando T. Dy, Ph.D.
Executive Director, Center for Food and Agri Business
Dean, School of Management
University of Asia and the Pacific

ASEAN
AS A GLOBAL FOOD BASKET:
Challenges, Opportunities and
Global Competitiveness
Bogor, Indonesia
May 2010
R. Dy, UA&P, March 2010 R. Dy, UA&P, May 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
AGRICULTURE
Grains, 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 M
142 M
128 M
228 M
90 M
86 M
67 M
49 M
27 M
15 M
6 M
5 M
0.4 M
ASEAN
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
built40 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, J une 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 Market
Large Size, High Growth
Shanghai GDP surpassed Hong Kongs 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. eldis-agriculture@lyris.ids.ac.uk

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 21
st

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
Taiwan
Developed Country Lifestyle
Source: Euromonitor
Population: 128 M
High income market
Aging and declining population
Large tourists base

Japan
Rich but Aging
Japan
Quality-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 Korea
Developed 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)
Product
ASEAN
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
Product
ASEAN
Export
World
Export
% Share
ASEAN

Remarks
Total Fishery
Products
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 7.3
Products 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 endowment
Difference in productivity
and costs
Dynamic 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
PROCESSORS
INPUT
SUPPLIERS
GROWERS/
PRODUCERS
CONSUMERS DISTRIBUTORS RETAILERS
Seed supplier
Breeder
Researcher
Propagator, etc.
Abbatoir
Cannery
Mill, etc.
Farmer
Grower
Grazier
Pastoralist
Wholesaler
Importer
Exporter
Transport company, etc.
You and me
Restaurant
Supermarket
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 farm productivity
Expand market-led diversification
Promote non-farm and off-farm
jobs through supply/value chain
linkages

RESPONSE TO THE
CHALLENGES AND OPPORTUNITIES
AGRICULTURE
pathways out of poverty

Increase productivity in food sector
Connect 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 DEVELOPMENT
MACRO
ECONOMIC
POLICIES PUBLIC
INVESTMENT
INFRASTRUCTURE
AND R & D

INSTITUTIONS
(Bureaucracy)
LAND
MARKETS AND
LAND LAWS
PRIVATE
INVESTMENTS
(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 dont 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 its 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!

Asean As Food Basket Bogor 05-10-1

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