Regional Review: Southeast Asia - Growing together
August 01, 2003
by Emily Buckley
WG’s annual regional review looks at the 10 dynamic ASEAN member countries and their remarkable growth in grain industry activities
When it comes to grain, Southeast Asia has much to distinguish it. Thailand is the world’s perennial number one rice exporter, with Vietnam beginning to challenge it. Indonesia, a country with no wheat production, boasts the world’s largest and most modern flour mill. The Thai multinational CP Group ranks as one of the world’s top feed milling companies, with operations in more than 12 countries. Malaysia’s 12 million tonnes of palm oil exports make it a major force in the edible oil market. This tropical region has long been an important market for wheat, maize and soybeans from the more temperate parts of the world. And Southeast Asian countries have been increasingly aggressive in exporting poultry, pork and aquaculture products.
The ten countries analyzed here in World Grain’s annual regional review are all members of the Association of Southeast Asian Nations, or ASEAN, whose hallmark has been openness to foreign investment and a commitment to free trade. It is these policies that largely explain the region’s economic accomplishments.
Still there are major parts of the traditional grain sectors of ASEAN countries that remain subsidized, protected from competition and inefficient. The task of agricultural reform is tied closely to the politically difficult reform of the national food agencies, such as Malaysia’s Bernas and Indonesia’s BULOG, which have both made strides in privatization.
The ASEAN alignment came into being in 1967 as a loose political and economic alliance, a kind of anti-communist club, at the height of the Vietnam War. In the 1970s, ’80s and early ’90s, the economies of the founding ASEAN countries easily outperformed those of their socialist neighbors, as they attracted investment from developed countries and traded with the world. Vietnam, after reforming and opening up its economy, was made a member in 1995, and nominally communist Laos, socialist Myanmar and formerly communist Cambodia followed a few years later.
After more than two decades of growth, most of the regions’ economies collapsed on top of suddenly deflated currencies and under a mountain of debt during the Asian economic crisis of 1997-98. The last five years has been a period of recovery and uneven growth, and the region faces many challenges.
Not the least of these challenges is China, which attracts foreign direct investment at the expense of the ASEAN economies. At the same time, China has become the major supplier of yellow corn to ASEAN countries. But trade and investment flows both ways. Premium priced jasmine rice from Thailand is gaining a wider market in China’s rich southern provinces. Some of the region’s largest companies, like the Thai CP Group in feed milling are among the heaviest investors in China’s food industry.
The level of economic development in ASEAN nations is very skewed, ranging from prosperous Singapore to semi-industrialized middle income countries like Malaysia and Thailand, to largely rural peasant societies like Myanmar, Laos and Cambodia, where many live at subsistence levels. This unevenness does tend to stimulate investment flows in grain processing industries from the richer countries to the less developed ones as companies seek to be the first to establish footholds in new markets with ample room for growth.
Capital: Bandar Seri Begawan
In this tiny, wealthy oil sultanate on the island of Borneo per capita GDP is $18,000. Almost no food processing takes place and the population’s nutritional needs are paid for by petroleum exports. Rice production is subsidized, but most rice is imported from Thailand.
Capital: Phnom Penh
Population: 12.8 million
The non-rice grain sector is small, and larger food processing enterprises are mostly the result of regional investment such as that by CP Group in feed. A new flour mill is operating, but smuggled flour is a drag on investment. Rice milling is one of the leading industries.
Population: 231.3 million
The high cost of the traditional staple rice has helped wheat-based foods to become an important part of the local diet. Bogasari Flour Mills has a capacity of 16,000 tonnes per day in just two locations, and its parent, Indofood, is one of the world’s biggest producers of instant noodles with 34 manufacturing plants.
Population: 5.8 million
Admitted to ASEAN in 1997, it is one of the poorest countries in the region and the only one where rice is not the main food staple. Only 3.5% of the land is arable. Subsistence agriculture accounts for 80% of employment. The lone flour mill, feed mill and brewery all have resulted from foreign investment.
Capital: Kuala Lumpur
Population: 22.7 million
As the world’s leading palm oil producer and exporter, production policies here affect worldwide oilseed prices. The former government grain import and distribution monopoly, Bernas, has been successfully transformed into a commercial enterprise, and has invested in rice millers and exporters in Pakistan and Thailand.
Myanmar (formerly Burma)
Capital: Yangon (formerly Rangoon)
Population: 42.2 million
This country has suffered from over a decade of diplomatic opprobrium that has limited foreign investment. Recently rice exports have risen rap-idly to more than 1 million tonnes. Agriculture and food processing is starting to attract regional investment, mainly to take advantage of low wage production.
Population: 84.5 million
Domestic rice prices here are close to twice the world average. Despite pressure and offers of assistance from the Asian Development Bank and other international bodies, the country has resisted restructuring its grain sector. Brewing giant San Miguel recently acquired two flour milling companies to complement its feed and poultry activities.
Population: 4.5 million
Singapore is the financial and trading center of Southeast Asia. Most of the region’s grain-trading takes place here. Five Asian subsidiaries of the major multinational grain companies rank among its largest companies. Its flour millers, feed millers and brewers have invested in the ASEAN region and beyond to East and South Asia.
Population: 62.3 million
More than 20 years as the world’s biggest rice exporter, Thailand is the eighth largest food exporter (U.S. ranks first, E.U. second). There is a sophisticated market for baked goods requiring special flours. Thai-based Charoen Pokphand (CP Group) dominates feed milling with operations in seven ASEAN countries, and also in China with 104 mills there.
Population: 81.1 million
This officially communist state with a market-oriented economy has one of the highest growth rates in the region, attracting new investment in flour and feed milling from within and outside the region. Rice exports are booming. Vietnam’s swine count at more than 23 million, is the second largest in Asia.
(See related articles on page 32 and page 38.)
David McKee is a grain industry consultant providing market research and other services to companies seeking to initiate business in new markets. He can be reached by E-mail at email@example.com.