by Professor Ross Kingwell – AEGIC Chief Economist.
It’s well known that South East Asia is likely to be the main source of demand for Australian grain exports over the next decade. Projected economic development in the region will see a continuing rise in incomes, higher populations and more people moving to urban areas. Less well known is that consumer buying habits in the region are likely to change. A previous blog mentioned that as incomes rise there is a gradual shift from staples like cereals to protein-based diets.
In South East Asia, this shift is already underway, with a fall in the relative importance of rice in diets. The OECD found that this phenomenon is most pronounced in Thailand and Malaysia, which unsurprisingly, have the highest per capita incomes in the region (see Table 1). Household consumption data in five Southeast Asian countries (Indonesia, Myanmar, Philippines, Thailand and Vietnam) reveal an income effect whereby wealthy households consume less rice than poorer households. Hence, as individual wealth increases there is a shift away from the central role that rice has traditionally played in this part of the world.
Table 1: Key economic and population statistics for South East Asian countries (Source: World Bank (2017). Note: GDP is measured in current 2015 USD.)
However, offsetting this income effect is population growth, which will ensure the total demand for rice and many other grains will actually increase over the next decade in these countries. But as this growth in population slows, income growth will become more important, playing an increasingly pivotal role in determining the composition of each nation’s diet. The widespread urbanisation of the region will continue to be an important contributing factor underpinning the growth of incomes and population over the coming years. By 2020, the region’s urban population will exceed its rural population for the first time.
Already underway in most South East Asian countries (see Chart 1) is a trend towards non-agricultural sectors growing more rapidly than agriculture, thereby reducing agriculture’s share of employment and GDP in each country. Greater employment opportunities will continue to draw people out of the rural areas, further supporting the shift towards urbanisation.
Chart 1: The changing economic importance of agriculture in South East Asian countries (Source: Source: World Bank (2017), World Development Indicators, http://databank.worldbank.org/data/.)
However, although farm production is likely to play an increasingly less important part in the economies of many South East Asian countries, nonetheless, food manufacturing and food product export will play more important roles. The region is becoming a net food exporter, with around USD$139 billion in exports in 2014, compared to USD$90 billion worth of food imports.
Hence, a likely future for Australia’s grains industry is that it will be an exporter of grains to many South East Asian countries, where those imported grains will then be processed to produce foodstuffs for a growing, urbanised local market as well as markets in nearby countries and beyond.