Publications
Executive Summary
Australia needs to take a comprehensive and creative approach to the
opportunities offered by the transformation of food and agricultural demand
and supply in South-East Asia. Such an approach needs to embrace a wide range
of activities across the whole spectrum of food and agricultural supply,
including raw materials and semi-processed products, high value-added fresh
and processed goods, farm and factory equipment and technology, and food and
agriculture-related services.
A sustained period of strong economic growth in most of the South-East
Asian economies, rapid structural change, increasing affluence, probable
continued strong economic performance in the region, and a projected
population of over 615 million by the year 2010, are all factors causing
rising South-East Asian demand for food and agricultural products.
The potential benefits to Australia of a well-focused food and agriculture
strategy towards South-East Asia are large. An improvement in Australia's
share of the South-East Asian market for food and agricultural imports from
7.5 per cent to 9.5 per cent over the coming two decades, could deliver a
five-fold increase in food and agricultural export revenue (from annual
exports of US$1.2 billion/A$1.5 billion in 1991 to around US$6 billion/A$7.7
billion by 2010 ). Significant further benefits could also flow from increased
exports of food and agricultural technology and agribusiness-related services.
But improving market share will require hard work in an area of increased
international interest and competition. A considerable expansion of Australian
investment in South-East Asia will need to take place as part of Australia's
strategy to improve its access to South-East Asian markets.
FOOD AND AGRICULTURAL TRANSFORMATION IN SOUTH-EAST ASIA IS PART OF A WIDER
PROCESS OF ECONOMIC CHANGE WHICH HAS SWEPT THE REGION
Forty years ago, subsistence agriculture accounted for the major share of
most economies in South-East Asia, apart from some export cash crops. But by
the 1980s, the ASEAN economies had achieved either near self-sufficiency or
surplus production of the primary staple rice and other traditional
foodstuffs, or else developed other economic means to provide these (Singapore
and Brunei). As the governments of Indo-China and Myanmar/Burma have gradually
abandoned socialist economic policies since the 1980s, there has been marked
progress towards improved agricultural production, though there remains much
scope for greater efficiency. Much of South-East Asian manufacturing has long
been based on processing of agricultural products ('agro-processing'), and
this has become increasingly sophisticated as industrialisation and economic
growth have accelerated.
Governments of South-East Asia have traditionally placed a high priority on
agricultural growth to achieve a range of economic, social and political
objectives. In most cases, government intervention has been extensive, with a
maze of producer and consumer subsidies, land use regulations, import
restrictions and exchange rate controls employed to direct agricultural
development. Within a framework of accelerating economic liberalisation in
recent years, there has been some movement to liberalise agriculture also, but
overall it remains a highly regulated sector in the region.
As rapid economic growth tightens resource constraints, the region's
governments are increasingly confronted with a stark choice: either to adhere
to long-standing goals of agricultural and food self-sufficiency, thereby
restricting the flow of resources from traditional to faster growing parts of
the economy (such as manufacturing and services); or else, to allow this
restructuring to take its course. A number of factors are pushing governments
towards the second option, including: land limitations; rising agricultural
production costs; mounting costs of state subsidies and other agricultural
assistance; and slowing world demand and falling world prices for many
traditional agricultural products.
GROWTH AND DIVERSIFICATION OF DEMAND
A major challenge for South-East Asian food and agricultural production is
the transformation in the volume and pattern of demand. Large population
growth - projected to rise from 450 million in 1991 to over 615 million by
2010 - is continuing to primarily drive growth in demand for food and
agricultural products, spurring governments to pursue annually rising
agricultural production targets.
However, the major economic growth of the ASEAN economies in particular has
meant a considerable growth in per capita GDP, resulting not only in increased
consumption of traditional foods, but also, at per capita income levels
between about US$800 and US$2,200, increasing diversification of the pattern
of food consumption into higher value and higher quality foods. As per capita
incomes rise in South-East Asia, people are tending first of all to eat more
of the traditional primary staple (rice), and less of traditional secondary
staples (cassava, sweet potatoes, maize); then to shift towards an alternative
staple (wheat), more fruit and vegetables, and more animal products (meat,
fish and dairy products); and finally, to reduce consumption of both
traditional and alternative staples, and consume far more animal products, and
higher value foods, both fresh and highly processed.
- A Spill-Over into Increase Imports...
Many of the goods subject to increasing demand - such as wheat, beef, dairy
products, temperate vegetables and fruit - are ones in which South-East Asia
is either a non-traditional or minor producer. As a result, South-East Asia
has emerged as a significant importer of a diverse range of food and
agricultural products. For example, from 1981 to 1992, the region's share of
world wheat grain imports increased from 3.8 per cent to 5.4 per cent (or from
3.6 million tonnes to almost 6 million tonnes). Even for some traditional
products, such as pulses and seafood, domestic production has failed to keep
up with demand, likewise resulting in growing imports.
The large-scale growth and development of South-East Asia's manufacturing
sector has also been an important and growing source of demand for
agricultural products. In addition to processing of locally produced raw
materials, Singapore and Malaysia have adopted strategies of wholly importing
agricultural raw materials and processing them for export, either as an
extension of import substitution (for example, sugar refining by Malaysia), or
unrelated to domestic requirements (for example, as a further step in
Singapore's entrepot strategy). Thailand also has increasingly adopted this
strategy (for example, importing tuna for canning and export), and
particularly as its own natural resources have become depleted (for example,
timber).
The gradual relocation of the textile industry began in the 1980s, from the
high income economies of North-East Asia (Japan, the ROK, Taiwan and Hong
Kong), to South-East Asia and China, in pursuit of lower labour and production
costs. This has meant a gradual shift in the pattern of countries importing
natural fibres like cotton and wool for early stage processing. As a result,
South-East Asia's cotton lint imports more than tripled from around 270,000
tonnes in 1981 to nearly 1 million tonnes by 1992, worth around US$1.5 billion
(A$2 billion). Wool fibre imports have also grown significantly, with greasy
and scoured wool imports rising to over 26,000 tonnes by 1992, worth almost
US$160 million (A$218 million). South-East Asia is only a small producer of
both cotton lint and shorn wool (the latter mainly by Indonesia and Malaysia)
so must depend on imports.
Overall, between 1981 and 1992, South-East Asia's imports of food and
agricultural products doubled, to be worth almost US$19 billion (A$25 billion)
in 1992, and equivalent to about a third of the massive Japanese import market
for these products. With the likelihood of continued strong economic growth,
so are South-East Asia's food and agricultural imports bound to continue to
rise.
SOUTH-EAST ASIAN GOVERNMENT AND PRIVATE SECTOR RESPONSES
Supply-side responses to changes in food and agricultural demand in
South-East Asia have begun to take shape. These responses can be grouped into
those occurring at the level of the individual production unit, the national
economy, and the region as a whole.
- individual production units...
Perhaps the key feature of supply-side responses is the expanding role of
the private sector and agribusiness. Increasingly aware of the limitations of
government intervention and the costs of budgetary support, the region's
governments are encouraging more and more private sector participation in
South-East Asian food and agriculture. Large-scale conglomerates and
agribusinesses, both local and foreign, occupy a growing role in agricultural
production, agro-processing (including food processing), and marketing and
distribution of food and agricultural products in the region. This pattern,
likely to intensify further in coming years, is the driving force behind much
of the modernisation and restructuring within countries' agricultural sectors.
- national economies...
The agricultural profile of many South-East Asian economies is changing.
While most types of agricultural production have continued to grow overall,
various subsector shares have changed. In ASEAN countries, the share of rice
in agricultural production (in both volume and value terms) has fallen from 75
per cent or more in the 1950s and 1960s to around 40-50 per cent today, while
production of fruit and vegetables has grown noticeably. Some cash crops have
remained important (rubber, palm oil), whereas others have shrunk considerably
(cotton, jute). Livestock industries comprise the fastest growing subsector in
South-East Asian agriculture, now occupying at least a 10 per cent share of
agricultural GDP in most countries. Fisheries, once mainly a subsistence
activity, has become increasingly commercialised, and a valuable export
industry. The share of forestry and forestry products - in past decades a
major export industry for all countries except Singapore - has declined to
become the smallest subsector of most regional economies' agricultural GDP.
Industrialisation, government policies and changing patterns of demand in
ASEAN economies have led to an expansion of the scale and range of
agricultural processing industries. In the 1980s, these countries diversified
from simple processing for export (such as tropical fruit canning and seafood
canning) into a wide range of sophisticated activities (such as beer, soft
drinks, dairy products, wheat-based processed foods and processed vegetables,
textile and garment manufacture, and timber processing like plywood). A
significant proportion of output now serves domestic markets, as well as a
growing amount for export markets. For example, ASEAN5 exports of processed
foods reached US$13.2 billion/A$17 billion in 1991 (compared to imports in
this year of US$6.6 billion/A$8.5 billion).
It is interesting to note that South-East Asia's food and agricultural
import growth has been increasingly concentrated in unprocessed and
semi-processed food and agricultural products where possible, in order to
carry out further processing and value-adding within countries' own borders
prior to retail sale or export. This is an important part of countries'
economic strategies to deal with the massive growth in demand and consequent
necessity to increase imports. The higher income economies of Singapore,
Malaysia and Thailand are leading this approach. Most South-East Asian
countries (but not Singapore) use their trade import regimes to support this
strategy.
However, the rapid development of agriculture over the last four decades
has exacted a heavy toll on many countries' natural resources - and to an
unsustainable degree in some cases. Deforestation, overgrazing, the expansion
of agriculture to marginal land, salinisation and pollution have resulted in
significant land degradation. Fresh water supplies have been drawn down by the
demands of rapidly growing populations and contaminated by industrial and
residential waste. In developing their agricultural strategies, governments
cannot afford to ignore the pressing resource and environmental constraints
which, if not managed responsibly, could imperil future agricultural growth
and development.
Partly as a result of these concerns, ASEAN countries are giving greater
attention to food and agricultural research and development (R&D). In the
past, ASEAN R&D focused on traditional staples and cash crops, and
applying the results of international agricultural research to local
conditions. In tandem with the development of new forms of agricultural
production, there is a trend towards more private sector and agribusiness
participation in R&D in areas of higher value agriculture and
biotechnology.
- the regional economy...
But another main feature is the gradual restructuring of agriculture across
the region as a whole. The higher income and higher cost economies of the
region - particularly Singapore, Malaysia and Thailand - are in effect moving
towards a regional approach to food and agricultural self-sufficiency by
relocating some of their lower value agricultural production to the lower cost
economies of the region, including Indo-China and Myanmar.
ASEAN agribusinesses are playing a leading role in forging this regional
division of labour. For example, Malaysian rubber growers, hard pressed by
rising costs and competition from Thai and Indonesian producers, are helping
to revive rubber production in Indo-China. Malaysian investment in
Indo-Chinese palm oil facilities has started in earnest. Thai agribusinesses
are the main participants in the development of aquaculture and forestry
industries in Indo-China and Myanmar.
Market-driven developments have been accompanied by government-directed
regional initiatives. In January 1992, ASEAN leaders agreed to create an ASEAN
Free Trade Area (AFTA) over 15 years. In its current form, AFTA applies only
to trade in manufactured products. However, with the emergence of a South-East
Asian pattern of food and agricultural trade and investment, the potential
advantages of widening AFTA to include unprocessed goods and raw materials,
and eventually extending AFTA membership to the Indo-China economies and
Myanmar, are being noted by some.
Sub-regional growth zones - better known as growth triangles - are likely
to play an increasingly important role in the development of the region's food
and agricultural production. These initiatives remove political and other
impediments to the joint commercial development of neighbouring - and
economically complementary - parts of two or more countries. For example, the
Singapore-Johore-Riau (SIJORI) growth triangle, which combines Singaporean
capital with land, labour and natural resources available in Malaysia and
Indonesia, has already spawned a number of agro-processing ventures.
Encouraged by the success of SIJORI, South-East Asian governments are
supporting a number of other growth zone proposals.
AUSTRALIAN RESPONSES
A more prosperous South-East Asian region offers a wide range of commercial
opportunities for Australia, and at the same time, raises issues for Australia
to address in pursuing those opportunities. The central conclusion of this
report is that Australia has, in the past, paid insufficient attention to many
aspects of the transformation sweeping South-East Asian food and agricultural
demand and supply. Some recent developments, however, are a promising sign of
a realisation that Australia can do better.
The provision of plentiful food for national populations at international
parity prices will be important for the continued strong economic growth of
South-East Asian economies. The most efficient way of achieving this will be
on the basis of open, internationally competitive agricultural sectors,
allowing imports where this is more efficient than domestic production. But it
is not clear that the countries of the region will choose this path. Whatever
the choice of the region's various governments, it is very much in Australia's
interests to pursue a multi-faceted strategy towards South-East Asia's demand
for food and agricultural products. It should not be a simple strategy of just
seeking to maximise Australia's share of regional imports of food and
agricultural products, but rather to embrace a wide range of activities across
the whole spectrum of food and agricultural supply, including raw materials
and semi-processed products, high value-added fresh and processed goods, farm
and factory equipment and technology, and food and agriculture-related
services.
- is Australia taking full advantage of the transformation of food and
agricultural demand in South-East Asia?
Australia has secured a considerable stake in the fast-growing South-East
Asian market for food and agricultural products. The 7.5 per cent share
achieved in 1991 translated into A$1.5 billion in exports (and 10 per cent of
our overall food and agricultural exports in that year). However, our
performance has not been even across all commodity types and target markets.
- While traditional exports such as wheat, sugar, beef and dairy products
retain significant market shares, Australian participation in potentially
lucrative South-East Asian markets for livestock feed, fish and fishery
products and forestry products remains small (less than 4 per cent share). - From 1986 to 1991, the ASEAN5's imports of processed foods grew by an
average annual rate of 15.7 per cent to reach US$6.6 billion/A$8.5
billion. Despite its geographical proximity and ambitions to increase
exports of processed foods, Australia's share of this market fell from
10.5 to 9.4 per cent.
A deeper issue is whether Australia is producing the right products for the
South-East Asian market. In the past, Australia seems to have focused on
selling what it traditionally produced rather than producing more of what it
could sell. South-East Asian demand for commodities such as fish and fishery
products, livestock feeds, timber and forestry products, and a wide range of
traditional and non-traditional horticultural goods and processed foods is
growing strongly. Australia is a potentially competitive supplier in these
areas, yet is failing to take advantage of these market opportunities.
- is Australia taking full advantage of the transformation of food and
agricultural production in South-East Asia?
Australian investment in agro-processing, storage, distribution and
retailing of food and agricultural products in South-East Asia has only
recently shown signs of growth. Each of these areas is a multi-billion dollar
business in the region. Given the strong backward linkages that exist between,
say, retailing and sourcing of processed products to fill supermarket shelves,
better performance in this area would flow through to improved market
penetration for exports.
Even more importantly, closer Australian engagement in South-East Asian
food and agriculture would help Australian food and agricultural producers to
forge effective links with end users of our exports: consumers and processing
industries. Some Australian industries - notably wine producers - are
meticulous in coordinating the entire chain of growing, production,
distribution and marketing overseas, but it is generally agreed that most
Australian enterprises and industries can do more in this area.
A by-product of closer links would also be greater sensitivity of
Australian food and agricultural supply to the changing demands of
increasingly affluent South-East Asian consumers. Some areas of Australian
food and agriculture are devoting considerable attention to the specific
requirements of overseas consumer demand. The wheat industry has developed 40
different types of wheat grain to suit varied processing and end-product
requirements in different Asian and other markets. The beef industry's
increasing production of the marbled, grain-fed and chilled varieties favoured
by Japanese and Korean consumers is a further case in point. But there are
many other areas which have yet to follow suit.
- is Australian access to South-East Asian markets improving?
The GATT Uruguay Round outcome will deliver some improvements in market
access to South-East Asian countries, but significant barriers to imports of
Australian food and agricultural goods remain. Outdated goals of food and
agricultural self sufficiency and the use of import substitution policy tools
to achieve them are still common. It will be important for Australia to
continue to press for further trade liberalisation in the region, including
through APEC. The ASEAN Free Trade Area (AFTA) requires close monitoring,
given the potential for its extension to unprocessed agricultural goods and
other primary products to divert some ASEAN imports away from more efficient
Australian suppliers.
- is Australia projecting a clear image to South-East Asian markets of
Australia's 'clean, green' foods and agricultural products?
As elsewhere, there is growing awareness in South-East Asian countries of
the desirability of environmentally sustainable agriculture and clean food and
agricultural products. Better perception and understanding of this quality by
South-East Asian manufacturers and consumers, and of Australia's strengths in
this regard, can add a significant premium to Australian products in the
region.
- are Australian suppliers 'up to the game'?
Australia is well positioned to benefit from the opportunities opening up
in South-East Asia, but there is more that needs to be done to improve
performance. Domestic efforts to further improve the competitive edge of
Australian food and agricultural production must continue. Fundamental will be
conserving and repairing Australia's natural resource base, and achieving
sustainable agricultural production systems. The food and beverage processing
sector could contribute a larger share of exports. Australia could do more to
get the message through to South-East Asian manufacturers and consumers about
the 'cleanness and greenness' of its foods and agricultural products, whether
unprocessed or semi-processed, fresh or highly processed. An on-going
challenge is to continue microeconomic reform and address other impediments to
food and agricultural exports, such as inadequate transport links with
South-East Asia. Maintaining Australia's research and development effort in
food and agriculture will remain crucial.
The South-East Asian market for food and agricultural products doubled (in
US dollar terms) from 1981 to 1992. If this rate of expansion is maintained
for this decade and the next, this market will be worth around US$60
billion/A$77 billion (in 1991 US dollar terms) by the year 2010. If Australia
retains its current market share, its food and agriculture exports to the
region could reach US$4.8 billion/A$6.2 billion by 2010 (from US$1.2
billion/A$1.5 billion in 1991).
But by better exploiting its position as the region's most efficient
agricultural supplier, and further enhancing its capacity to process and
otherwise add value to its produce, Australia has the capacity to increase its
share of South-East Asia's market by one percentage point in each of the next
two decades. This would deliver an additional US$1.2 billion/A$1.5 billion to
our exports over the period, bringing the total to US$6 billion/A$7.7 billion
by 2010. It certainly seems worth the effort.
A SOUTH-EAST ASIA STRATEGY FOR AUSTRALIAN FOOD AND AGRICULTURE
OBJECTIVE
To take advantage of opportunities along the full spectrum of changes in
South-East Asian demand and supply for food and agricultural products.
ACTION PLAN
- Better inform Australian producers, processors, marketers and investors
of the full range of opportunities in South-East Asian markets for food
and agricultural products, and related goods and services - Continue to monitor barriers to Australian food and agricultural exports
and pursue liberalisation and harmonisation to improve market access in
South-East Asia - Maintain and build on Australia's strengths to meet South-East Asian
needs, and in particular improve Australia's competitiveness in food and
agricultural production (including by repairing Australia's natural
resource base, maintaining food and agricultural R&D effort, and
continuing microeconomic reform) - Project a clear image of Australia's agricultural and food production
and processing capabilities, as well as other related areas of Australian
expertise - Foster effective linkages between Australian and South-East Asian
players - Keep ahead of the game by continuing targeted research on changes in
South-East Asian food and agriculture markets
TARGETS
- By improving its share of the fast growing South-East Asian market for
food and agricultural imports from 7.5 per cent to 9.5 per cent over the
coming two decades, Australia's annual exports of these goods to
South-East Asia could rise from US$1.2 billion/A$1.5 billion in 1991 to
US$6 billion/A$7.7 billion by 2010. Australia's exports of agriculture and
agribusiness-related services could also expand over that period. But such
an increase will require considerable effort on Australia's part.
A considerable expansion of Australian investment in South-East Asia (from
below the present less than 1 per cent of total foreign investment in the
region) will need to take place as part of Australia's strategy to gain access
to South-East Asian markets.