Australia’s largest wheat export market, South-East Asia, is tipped to continue to increase wheat consumption, however this additional demand will increasingly be met by the Black Sea region, according to a recently-released industry report.
The report, The wheat is on – South-East Asia’s wheat demand is on the rise, by agribusiness banking specialist Rabobank, says the volume of Australia’s wheat exports to South-East Asia will increase over the next five years, however its market share will shrink as South-East Asia turns to alternate markets to fulfil growing demand.
“Currently Australia accounts for around 49 per cent of South-East Asia’s wheat imports, however this is expected to fall to 37 per cent by 2020 (which still represents around 7.5 million tonnes),” says Rabobank senior grains and oilseeds analyst Graydon Chong. “Conversely, market share out of the Black Sea region is expected to grow, from around eight per cent to 18 per cent over the same five year period (or around 3 million tonnes).”
The report says while it “expects to see a shift towards wheat originating in the Black Sea Region” being imported by South-East Asia, it will be primarily directed to the feed sector, with Australia forecast to remain the key wheat supplier for food – particularly into Indonesia, Vietnam and Malaysia.
“That said, price, quality and logistics will play an increasingly important role in determining the share of imports each country has into South-East Asia, which highlights the need for Australian product to remain internationally competitive, and vigilant in terms of marketing initiatives,” Mr Chong says.
Rising wheat consumption in South-East Asia
According to the report, rising incomes and westernisation of diets is expected to drive up South-East Asia’s wheat demand by an average annual growth rate of 4.5 per cent over the next five years.
“This is down from average growth rates of 6.2 per cent over the past decade,” Mr Chong says, “but still reflects increasing demand from both the food and feed sectors.”
Mr Chong says with most of the consumption growth set to come from convenient wheat-based products (such as, instant noodles and bakery products), there is significant potential for further per capita consumption growth.
“Wheat consumption in South-East Asia is well down on the global per capita average of 78 kilograms per year, and even around three times lower than consumption rates in China and India,” he says. “And with annual per capita consumption at only 29 kilograms in Indonesia, the largest wheat consumer in terms of volume, it highlights the potential for demand.”
Across the region, Thailand is expected to exhibit the strongest growth for wheat-based food products (at five per cent, per annum), with solid growth rates also foreseen for Indonesia and Vietnam – in the vicinity of four per cent. While growth rates are forecast to sit around two per cent in the Philippines and Malaysia.
While strong demand fundamentals exist throughout South-East Asia, Mr Chong warns the market is likely to remain price-sensitive.
“In 2011 to 2013 (when wheat prices spiked) we saw a decline in their wheat consumption, largely dragged down by the feed sector, but food demand also fell below the 10-year growth rate,” he says.
Low freight and weak currencies changing competiveness
The Rabobank report says while Australia has a competitive freight advantage into South-East Asia, it has been eroded by the fall in global oil prices and bulk shipping rates.
“Over the past five years, we have seen these competitive pressures contribute to a reduction in Australia’s freight advantage against the Black Sea region by up to 50 per cent,” Mr Chong says.
“Furthermore, competitiveness out of the Black Sea region has been aided by currency weakness, with the Russian rouble falling by more than 50 per cent against the US dollar since the beginning of 2014, and there being a 60 per cent drop in the Ukrainian hryvnia over this time period.”
Mr Chong estimates the current price differential between Australian wheat landed into South-East Asia and that from the Black Sea region to be around $15 per tonne.
“Not only are the Black Sea region a low-cost producer, but the quality of their product is improving,” he says. “While this will put some pressure on Australia’s competitiveness, the strong demand growth for wheat across the South-East Asian region is expected to underpin the volumes of wheat supplied into the region by Australia.”
The report also highlights the need for companies to navigate the complex supply chain (which remains challenging with its lack of deep water ports, inefficient road logistics and lack of road and rail infrastructure) as well as, regulatory diversity across the region, if they are to meet the growing demand for wheat.
Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 115 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of approximately 8.6 million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading rural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.
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