From Kuala Lumpur, in the heart of Southeast Asia, it’s almost 10,000 miles to Julius Schaaf’s corn and soybean farm in Randolph, Iowa, but Schaaf is quick to point out the region’s growing importance as a market for U.S. farmers.
“The economic development there is just like the rest of Asia,” says Schaaf. “There’s tons of investment going in, and that creates jobs and brings people into the middle class. People start eating meat. And wherever the meat production takes place, it’s going to take grain.”
The numbers give an idea of the region’s growth potential, beginning with 620 million people who currently have little meat in their diets. For example, people in Thailand eat less than half the amount of meat as people in Mexico (30 kg [66 lbs.])/person/year vs. 60 kg). Indonesians consume just one-sixth (10 kg annually) that of Mexicans.
Feeding that population is a challenge for the region. Southeast Asia is slightly less than half the size of the U.S., and only 13% of the land is suitable for agricultural production. Most of that is dedicated to rice and palm oil production, according to Adel Yusupov, who directs the U.S. Grains Council’s (USGC) market development efforts in the region.
“Their climate and soil just will not allow them to grow their own grain supplies,” says Schaaf. “They will always have to look to others to supply their grain needs.”
Economic growth is increasingly providing the money to pay for imports. The regional economy, second largest in Asia, has been growing by 6-7% annually and is expected to continue expanding faster than the world average, Yusupov notes.
GDP has risen by 170% in the last decade for the 10 countries that make up the region’s ASEAN community – Brunei, Burma, Cambodia, Laos, Indonesia, Malaysia, the Philippines, Thailand, Singapore and Vietnam. Countries like Indonesia and Thailand are also in a strong position to attract investments because they fall at the low end of the Global Risk Index, notes John Lindblom, regional director for ASA International Marketing.
Big livestock growth
Across the region, there are specific signs of livestock sector growth. Thailand, a long-time net corn exporter, is selling less corn as increasing domestic demand for feed pressures its supplies.
In egg production, Indonesia has moved from 14th in the world to 7th in just one decade, and per-capita broiler consumption climbed 51%, from 4.7 kg (10.3 lbs.) to 7.1 kg (15.6 lbs.) between 2007 and 2011.
In Malaysia, an ambitious program of entry point projects includes feedlot expansion and integration of cattle with oil palm plantations to increase production and improve sustainability. Sector targets call for expanding production to move Malaysia from its current 25% self-sufficiency in beef to 37% self-sufficiency by 2020. That will require expanding breeding stock from 792,000 to more than 3 million head.
Swine numbers in Vietnam increase annually and are forecast to rise 33% (to 32.9 million) in just eight years. Total feed production doubled from 2005 to the present and will double again by 2020, according to Lindblom. Vietnam’s expanding feed industry relies on imports for 65-75% of its ingredients.
Aquaculture expansion is also boosting feed demand. In Indonesia, it grew 29% from 2009 to 2012. From 2001-2002 to 2010-2011 it tripled in Myanmar.
“Everything points to expanded grain use in that region,” says Schaaf, citing heavy investments in livestock production, milling capacity and port facilities to handle commodities.
Challenges for the region
Lindblom agrees on the region’s market potential, but notes it faces many challenges. For soybeans and soybean meal, he cites the costs of logistics and transportation, competition from alternative sources of energy and protein, and industry development issues such as the need to improve animal husbandry and control diseases.
Current high commodity prices are also a limiting factor. “This has pressured livestock and poultry raisers,” he explains. “Our region has many alternative sources of protein available, and end-users will tweak their formulation to reduce soybean meal use if it becomes too expensive. Consumers will also change their spending habits as higher food prices take a toll. In our part of the world, 50-60% of disposable income goes to food.”
Logistics are also an issue for U.S. corn sales, says Yusupov. In a major change over the past 15 years, most of Southeast Asia’s main ports can now handle Panamax grain shipments, but that doesn’t guarantee U.S. sales.
“Our competition in South America can load 75,000-ton vessels, while the U.S. can load a maximum of 65,000 tons, which gives Argentine-origin corn a freight advantage. We need deeper draft ports that can load super Panamax vessels to be able to compete,” he says.
In some cases, U.S. corn shipments benefit when big importers can book a mixed load with soybeans or soybean meal in some holds and corn completing the cargo.
“Southeast Asia is a unique spot,” says Schaaf. “They can pull in feed wheat or corn from the Ukraine very easily. India has a shipping advantage to supply corn, and they can get wheat out of Australia. So it’s very competitive.
“The good thing is that grain is going to get used, and if it’s not U.S. origin, it will still create a draw elsewhere in the world where we do have an advantage,” he says. “The U.S. won’t monopolize this market, but it’s ultimately about using world grain stocks – and we’re always going to be a big part of that.”
Yusupov sums up Southeast Asia’s potential. “It’s a younger population than China, and the economy has demonstrated spectacular growth. The region is more dependent on imports of raw materials like corn, soybean meal, dried distillers grains and other feedstuffs.
“The macro and micro economic fundamentals are reminiscent of conditions that the Asian Tigers (Japan, Korea and Taiwan) went through,” he says. “Lack of purchasing power has plagued Southeast Asia for decades but is now rapidly improving. For everyone in the ag export sector, demand-driven ASEAN is the market to watch for the next decade or two.”