What Asia wants

China and India together account for 28 per cent of world cereal consumption and nearly 40 per cent of palm oil consumption. China alone accounts for 25 per cent and 27 per cent of world soy and meat consumption respectively, including 52 per cent of world pork consumption. The total GDP of what is known as ‘Emerging Asia’ (which includes India and China but excludes Japan) overtook that of the EU in 2016.

Additionally, India is the fastest growing large economy in the world today – with the International Monetary Fund (IMF) predicting India’s growth in 2016-2017 at 7.5 per cent – remarkable compared to the global growth forecast downgrading to 3.2 per cent this year. Changing demographics is the key driver transforming food consumption patterns in Asia. According to The Brookings Institution (an American think tank), by 2030 the Asia Pacific region will cater to 59 per cent of middle class consumption (India 23 per cent; China 18 per cent).

India has the largest youth population in the world with 650 million people (more than half the total population) under 25 years of age. It is also home to the second largest English-speaking population in the world after the United States. Interestingly there are over 220 million smartphone users, making India the world’s second-biggest smartphone market.

The combination of young, increasingly affluent consumers and rapid technology advancements are creating structural changes in which food is distributed and consumed. Recent reforms which allow 100 per cent foreign direct investment (FDI) in food retailing in India is another avenue investors can tap.

Across Asia, consumption of high value protein foods, such as poultry, dairy, fruits and vegetables is increasing at a faster pace compared to staple foods. This trend follows the established correlation between GDP and the share of protein component in food. Growth in modern trade is also facilitating experimentation and innovation in processed and packaged food. For instance, whilst overall rice consumption in India per capita is lagging behind population growth, the organised, branded rice market is growing at 15 per cent per annum.

From a supply side perspective, Asia will continue to remain a structural import market as resource constraints are key impediments to growth in agricultural production. As an example, India has 2 per cent of the world’s land area and 4 per cent of its water resources, while hosting 17 per cent of the population.

The 2030 Water Resource Group estimates India to have a 50 per cent water gap by 2030. Asian agriculture continues to face several other internal and external risk factors such as land fragmentation, climate change, low technology adoption, soil degradation, rising cost of production (particularly labour cost), poor post-harvest infrastructure and inadequate market linkages.

On the demand side, Asia is also far from a single market. Customs, culture, religion, language, food habits, agriculture productivity, regulatory environment and distribution channels vary widely across the key markets. Even within countries, there are differences – it is said that food habits change every 100km in India.

In China, limited land and water resources, relatively low production efficiency, rising production costs and concerns over food safety have prompted the country to further increase the share of imports as well as outbound merger and acquisition activities to secure offshore assets and supply. However, China’s slower growth has had a profound impact on the global commodity markets; and global exporters need to develop other markets such as India, Indonesia, Myanmar, and Vietnam.

In India, despite structural challenges, such as fragmented landholding, low productivity, dependence on monsoon impacts and high waste through a multi-layered supply chain, the country is among the top producers of several agricultural products, including sugarcane, rice, milk, fruits, vegetables, tea and spices.

Foreign companies and institutions have a significant opportunity to work with the Indian government, farmers and the private sector to deliver modern technology and knowledge in order to improve practices, productivity, quality and traceability. This long term approach will help grow India as a strategic sourcing base for agricultural produce.

This is a win-win situation for all stakeholders, and several Indian state governments are keen to provide funding and other support to overseas investors to promote public-private-partnership projects and link farmers to markets. The New Vision for Agriculture (NVA), a global initiative of the World Economic Forum, has catalysed multi-stakeholder partnership platforms in 20 countries in Asia, Africa and Latin America. These include partnerships with five Indian state governments and involve the private sector in several commodity value chains.

Specifically for Australian agribusinesses, pulses and dairy products are two clear areas of opportunity. Despite being the largest producer of pulses, India is also the largest consumer and may have to import over 35 per cent of its consumption demand in coming years. Dairy also offers great opportunities for value-added products for both domestic and export markets. Similar opportunities exist in several other regional products and segments in the value chain, such as post-harvest storage and logistics management.

Other emerging markets (especially Indonesia, Vietnam and even a rapidly modernising Myanmar) desire high-value and traceable meat and dairy products to feed their urban centres. The new government in Myanmar in particular has a great opportunity to boost agriculture productivity and enhance rural development through smallholder development.

Asian agricultural policy has hitherto been biased towards creating self-sufficiency in food production. However, going forward, several factors will drive Asian countries to integrate more closely with global food supply chains. Urbanisation, economic aspirations and changing food consumption patterns coupled with modern retail formats and ecommerce will put pressure on the domestic supply side.

In order to play a greater role in the global food commodity trade, Asian agriculture needs to become more sustainable, productive and resource efficient. Local and regional consumers demand safety and quality-assured foods that are traceable and come via suppliers with good agricultural practices. Competing against top global food brands requires meeting them head-to-head with high quality standards, while leveraging local market expertise to provide a more attractive local offering.

As Asian populations continue to advance, an evolving food culture provides opportunities for high quality food companies, domestic and abroad. The race to capture these markets starts at the top, leading with quality assurance that is communicated to local consumers in an accessible and affordable way.

In order to make Asian food industries integrated with the global food chain, both local companies and multinational corporations need to demonstrate leadership in working together with domestic supply chain partners, farmers and larger stakeholders in a collaborative manner. This has implications not only for a company’s success, but in addressing larger issues such as food security, farm gate income, rural prosperity and resource efficiency. The governments of Asia need to play the role of catalyst, creating favourable polices and enabling infrastructure. There is a growing imperative for all stakeholders to cooperate and collaborate to accelerate this value chain revolution.



About the author: Asitava Sen has over 20 years of experience in corporate banking, strategic business advisory and research focused around the food, agribusiness, retail, consumer and services industries in India and the Middle East. He is currently senior agribusiness specialist with the International Finance Corporation (IFC), based in New Delhi. He also advises the World Economic Forum for their New Vision of Agriculture (NVA) initiatives in India. Prior to IFC, he held various senior management positions at Rabobank, PricewaterhouseCoopers and Nielsen Company among others. For more information on IFC, visit www.ifc.org