Post-COVID South East Asian grain market to swing back to noodles, biscuits

Grain Central May 27, 2020

AS RECESSION looms in South East Asia, artisan cakes and pastries are off the menu, and instant noodles and biscuits are in – with Australian grain exports into the region forecast to shift accordingly, according to an international grains market expert.

Speaking on a recent podcast ‘Will South East Asia Look to Australian Wheat and Barley in 2020/21?’, Rabobank Singapore-based grains specialist Oscar Tjakra said while COVID-19 had flattened the consumption outlook for the region, demand was expected to shift from premium products to lower-end alternatives.

Oscar Tjakra

And with 40 per cent of Australian wheat exports sold into the South East Asian market, Mr Tjakra believed there would still be opportunity for Australian wheat, particularly for low to mid-grade varieties.

For barley, although South East Asia would not be able to replace China as a destination for the same quantity of Australian barley, it would provide an alternative export market.

Low to mid-protein wheat

Mr Tjakra said demand in the region for cheaper-end products that require a slightly lower-grade of milling wheat, such as instant noodles and biscuits, would remain firm, driven by slowing economic growth.

This increased demand for lower-end alternatives would, he said, counter the loss of demand for high-grade wheat – typically used in higher-end products such as cakes and pastries – and support stable demand across the whole wheat complex.

He said instant noodles remaining cheaper than rice in Indonesia – a large importer of Australian Premium White wheat – would also play into Australia’s favour.

However, Mr Tjakra forecast flat demand for milling wheat, with a best-case scenario of marginal growth – at 1.5 per cent in 2020, considerably lower than pre-COVID-19 forecasts.

Feed grain complex

With less disposable income among South East Asian consumers, Mr Tjakra said, animal protein consumption would also drop, driving down demand for grain in the feed complex.

“In the five major South East Asian countries – Indonesia, Vietnam, Philippines, Thailand and Malaysia – we forecast that the demand for grains and oilseeds for animal consumption to drop 5.5 per cent, year on year,” he said.

African swine fever impacts, slowing economic growth and reduced food service all contributed to the significant decline.

A record planting of corn in the US, coupled with a slump in oil prices, would also increase the availability of global corn for exports, at a relatively low trading price – limiting the potential for feed wheat into Philippines and Vietnam, two countries Mr Tjakra said had become increasingly important markets for Australian feed wheat.

Alternative barley market

Following the recent announcement of 80 per cent tariffs on Australian barley into China, Rabobank senior grains analyst, Cheryl Kalisch Gordon said, South East Asia, while unable to replace the quantity China had secured in recent years, would provide an important alternative market.

“Thailand is one of the fastest-growing destinations for Australian feed barley, and, with recent drought in the region, there’s been a much-reduced domestic production of rice, corn and cassava typically used to support feed rations,” Dr Kalisch Gordon said.

While this drought resulted in a need for imported grain, Mr Tjakra said Thailand’s government regulations aimed at protecting local farmers would still restrict Australian product into the country.

“Thailand’s feed millers are required to purchase domestic corn over imported feed wheat at a ratio of three to one,” he said.

“However even after importing the required feed wheat, there is still a gap, and Thailand fills this gap with Australian feed barley.”

With Australia positioned as Thailand’s sole source of feed barley, Mr Tjakra said it was still unclear whether the South East Asian country could be the next major market for Australian feed barley.

“I think this will all depend on the animal feed composition in Thailand,” he said.

“There is potential to increase Australian feed barley into the swine feed mix, but all of this will depend on feed barley price and a strong marketing effort by Australia to foster this relationship.”

China barley tariff

Meanwhile, Dr Kalisch Gordon, said the recent move by China to impose an 80 per cent tariff on Australian barley imports would temporarily cut Australia’s barley trade to China. She expected it would resume at some level for malting barley in the medium term.

“Despite high prices in Australia during 2019 and this case hanging over Australian exporters, $590 million of barley was still exported to China. This speaks to the attractiveness of Australia’s barley for their malting sector,” she said.

“As such while I think China can go without Australia’s feed barley (it needs less and can source substitutes elsewhere), at some stage during 2020/21 they can be expected to come back to Australia for malting barley.  It will certainly be less than we have been exporting to them (both due their lower YOY beer consumption and because they will source malting barley elsewhere).

“There will be a movement of “deckchairs” so that we can look to other markets, however this won’t happen overnight and other market opportunities do not represent the same scale of opportunity.

“With malt being less substitutable, China should need to come back to the market at some point (either directly, or demand comes back to Australia via deck chairs moving) and so I’d expect that we should see less of a drop so that the malt-feed spread opens towards long term averages (after being narrow to non-existent during much of the past 2-3 years due to drought).”

Dr Kalisch Gordon said the most recent relevant precedent comparable to the current tariff issue was 18 months ago when China placed a 173pc anti-dumping duty on sorghum from the United States.

“This was revoked within six to eight weeks”, she said.

Source: Rabobank

The podcast, ‘Will South East Asia Look to Australian Wheat and Barley in 2020/21?’ is available at https://research.rabobank.com/far/en/sectors/regional-food-agri/AUNZ_podcasts.html




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