1 business opportunities in the agrifood industry based on current and future trend of food...

1With Knowledge We ServeWith Knowledge We Serve

Business Opportunities in the Agrifood Business Opportunities in the Agrifood Industry based on Current and Future Industry based on Current and Future

Trend of Food Consumption and DemandTrend of Food Consumption and Demand

Mad Nasir ShamsudinMad Nasir Shamsudin

Jinap SelamatJinap Selamat

Alias RadamAlias Radam

Abdul Ghariff RaminAbdul Ghariff Ramin

Tay Yeong Sheng Tay Yeong Sheng

Ahmad Hanis Izani Abdul Hadi Ahmad Hanis Izani Abdul Hadi

MAHA 2008 Walk-in Seminar MAHA 2008 Walk-in Seminar 20 August 200820 August 2008


Questions

Are there changes in the food consumption patterns and demand?

If yes, what are the driving forces? Are there business opportunities as a

result of the changes? If yes, what the required strategies in

order to realize the opportunities?


Led to a research endeavour…… A study funded by FAMA on the Food Consumption and Demand Analyses

Food Consumption Trends & Spending Patterns

Marketing & Retailing

Manufacturing &

Processing

Production

Market-led Agri-food System

MarketStructure

Competitiveness

Product Introductions

Information

Logistics

Changing ConsumerDemand

Demographic factorsEconomics factors Health conscious


Presentation

Changes in the food consumption patterns and demand

The driving forces Business opportunities Some required strategies in order to

realize the opportunities


Trends in Food Consumption

Typical of developing economies

Stages: Initial increase in traditional staple foods Increase in non-traditional staples Diversification in consumption habits Increase in higher value, processed & higher proteins


Increase in per capita income leads to increase in the consumption of meat, vegetables, and fruits, but consumption of rice reduces.

Source: www.agrolink.moa.my/jph/dvsSumber:FAOSTAT

Consumption of Rice per capita, 1970-2005 (kg/capita/year)

118.8109.5

97.7 94.079.8 82.7 79.6 74.3

020406080

100120140

1970 1975 1980 1985 1990 1995 2000 2005

Year

kg/c

ap/y

ear

Consumption of Fruits per capita, 1982-01 (kg/capita/year)

21.223.5 25.6

27.732.8 34.1

05

10152025303540

1982 1985 1988 1991 2000 2001

Year

kg/c

ap/y

ear

Consumption of Meat per capita, 1990-03(kg/capita/year)

34.6 36.4 43

.4 45.6 48

.8

48.8

45.6 49

.2

45.0

41.8 43

.9 44.5 50

.1 51.3

0

10

20

30

40

50

60

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Year

kg/ca

p/yea

r

Consumption of Vegetables per capita, 1982-01 (kg/capita/year)

27.332.0 34.8 35.5

39.3 40.6

0

10

20

30

40

50

1982 1985 1988 1991 2000 2001

Year

kg/c

ap/y

ear


Proportion for food fell from 45.1% in 1973 to 22.6% in 1999

Food away-from-home increases Food at-home declines

Food Expenditure Patterns


1973* 1980* 1993/94 1998/99 2004/05

Total 45.1 35.4 35.6 35.1 30.6

At home 36.2 28.4 23.8 22.6 20.1

Away from home 8.9 7.1 11.8 12.5 10.5

* Peninsular Malaysia

Source: Department of Statistics Malaysia, HES, various issues

Changes in the proportion spent on food to total expenditures


In 1970s and 1980s: highest proportion was spent on rice, bread and other cereals

Early 1990s: ranked third

In 1999: ranked fourth Fruits and vegetables (20.4%) Fish (20.1%) Meat (13.6%) Bread & other cereals (11.4%) Rice (10.6%)

Expenditure within food group


Rural households Food ranked first => 28.8% spent on food Food away-from-home => 7%

Urban households Food ranked second => 19% spent on food Food away-from-home => 12%

Expenditure and ConsumptionPatterns by Stratum


Per capita food consumption in developing countries is shifting to fruits and vegetables, meat, and vegetable oils


The ratio of food processing value added to agriculture value added rises with income


Could it be translated into business Could it be translated into business opportunities? Yes or No? opportunities? Yes or No? there are opportunities if we understand the

driving forces behind the changes in consumption patterns.

Attempts to understand better the nature of the changes and drivers for the changes provide the best basis for appropriate policy formulation and a meaningful response.

Questions


Why changes in the trend Why changes in the trend of the food consumption of the food consumption patterns? What are the patterns? What are the driving forces? driving forces?


The Driving Forces Income growth Urbanization Gender Employment Race Age


Economic growth, a dominant force, has… pushed up middle-class consumers’ purchasing

power generated rising demand for food, and shifted food demand away from traditional

staples and towards higher-value foods.

Income growth Income growth


ASEAN:GDP per cap, 2003 (USD)

0 5,000 10,000 15,000 20,000 25,000

Myanmar

Cambodia

Lao PDR g

Viet Nam

Indonesia

Philippines

Thailand

Malaysia

Brunei

Singapore

USD

GDP per cap

ASEAN: GDP per capitaGDP per capita: A mix of 1 developed economy (Singapore),NICs =Malaysia & Thailand, Post-crisis recovering=Indonesia &Philippines, Up & coming=Vietnam


ASEAN: Human Dev. IndexA mix of HDIs – from the most developed (Spore=25)to the least developed (Lao=135)

ASEAN: HDI,2004

Singapore, 25

Brunei, 33

Malaysia, 59

Thailand, 76

Philippines, 83

Indonesia, 111

Vietnam, 112

Cambodia, 130

Myanmar, 132

Lao, 135

0 20 40 60 80 100 120 140 160

HDI


Consumption Patterns (from ξy ) Indicates signs of convergence towards western diet Higher income elasticity (ξy) for wheat-based

products than for rice products Decline in per capita consumption of staple food

ξy for meat, fish, fruit & vegetable items are high Demand for red meats increases more than white

meat as shown by their ξy.

Implications of Income Elasticity Implications of Income Elasticity


Consumption Patterns (from ξii) Wheat-based, meat, fish, fruits are more

price sensitive than vegetables & rice

=> staples are not price sensitive compared to non-staples

Implications of Price Elasticity Implications of Price Elasticity


Consumption Trend –monthly per capita food consumption Consumption Trend –monthly per capita food consumption

Except rice, per capita consumption of food increases, albeit at declining rates.


Income growth Income growth

Income growth has also caused changes in the demand for food attributes & its willingness to pay

23With Knowledge We ServeWith Knowledge We Serve 23

There have been changes in the demand for food attributes, e.g. Leafy VegetablesThere have been changes in the demand for food attributes, e.g. Leafy Vegetables


Consumers are willing to pay higher prices for food attributes, e.g. Leafy VegetablesConsumers are willing to pay higher prices for food attributes, e.g. Leafy Vegetables


0 - 1000 1 - 5000 5 - 10000 10 - 15000 15 - 20000 + 20000

Loose unbranded cereals

Basic packaged food

Basic frozen products

Health, variety, pre-prepared

Fresh and health

Chart: SG Heilbron, Source: The Economist, December 4, 1993

Changing patterns of food consumption as income rises

Sophisticated processed and fresh, health products: Singapore, Brunei, Malaysia, ThailandBasic packaged food and frozen products: Malaysia, Thailand, PhilippinesUnbranded products, and basic packaged products with some frozen products: Indonesia, Philippines, VietnamUnbranded products, and some basic packaged foods: Cambodia, Laos, Myanmar

Per capitaincome

Types of food


Effect of Demographic Factors on Food Consumption Patterns


Effect of Demographic Factorson Food Consumption Patterns


Summing up: Changes in food consumption patterns

Increase in higher value and higher proteins Consumption of meats, fish, dairy products, wheat,

fruits and vegetables increased Consumption of rice decreased Emerging patterns on the demand for attributes

Driving forces Increase in income Structural transformation and urbanization Changes in tastes and lifestyles Market development


Summing up: What consumers want…Summing up: What consumers want…

…in food attributes

taste

price

quality

convenience

health

safety

Income growth has caused changes in food consumption patterns & trend. So, what are the responses of the agri-food system to such changes in order to take the opportunities?


Could it be translated into business Could it be translated into business opportunities? opportunities?

The answer is YES, but HOW? The answer is YES, but HOW?


Food Consumption Trends & Spending Patterns

Marketing & Retailing

Manufacturing &

Processing

Production

Agri-food System

MarketStructure

Competitiveness

Product Introductions

Information

Logistics

Changing ConsumerDemand

Demographic factorsEconomics factors Health conscious

Demographic and economic factors as well as health conscious are the main drivers for changes in food consumption trends and patterns


Productivity Issues: R&D expenditure in Malaysia is relatively low compared to more developing & developed economies… has undermined its key role for economic growth. As a result, agricultural productivity growth was marginal and is too low to meet the present challenges.


Productivity Issues: limited technological advancement after the Green Revolution in the 1960’s....Marginal productivity is declining

Sumber: FAOSTAT

Paddy Productivity per hector in selected countries, 1961-2006 (kg/ha)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

19

61

19

64

19

67

19

70

19

73

19

76

19

79

19

82

19

85

19

88

19

91

19

94

19

97

20

00

20

03

20

06

kg/h

a

Indonesia Korea Phillipines USA Japan Malaysia Thailand


Productivity Issues: Public spending on agriculture intransforming economies is less compared tourbanised economies…


Productivity Issues: Estimated returns toinvestment in agriculture R&D are high in all region – averaging 43 percent


Malaysia depends on imports for rice, livestock, meat, dairy products, feedstuff, food and beverages, and other agricultural inputs….could be translated into opportunities…..

y = -274.27x + 12215

y = -3880.8x - 7314y = -3606.6x - 19529

-100,000

-80,000

-60,000

-40,000

-20,000

0

20,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

RM

'000

Net Deficit Total surplus

Total Deficit Linear (Total surplus)

Linear (Net Defisit) Linear (Total Deficit)


What are the opportunities?

Agri-food industry – changes in the food consumption patterns mean more business opportunities

Producers – more infrastructure development Researchers – more R&D grants Agricultural & rural economy – more

investments Policy makers – to formulate the policy right


An opportunity for the Agri-food An opportunity for the Agri-food

system? Will not happen, unless…system? Will not happen, unless… allow the price signals to reach small-scale

farmers promote product development & capturing

new markets improve services like R&D, though take time

to realise the results establish sound regulatory environment on

issues such as food safety improvement in infrastructure (irrigation)


Strategies: the Way Forward


Value Creation and delivery sequencesValue Creation and delivery sequences

Strategic MarketingTactical Marketing

Choosing the value Providing the value Communicating the value

Strategies to realize the business Strategies to realize the business opportunitiesopportunities


Strategies to realize the business Strategies to realize the business

opportunities…..opportunities…..

Choosing the value

Value positioning Market segmentation




Providing the value

Product development Relevant R&D in agrifood technology & marketing

Input Procurement system Service development Distribution channels Strategic alliance with LEs




Communicating the value

Promotion Advertisement Strategic alliance with LEs


Policy Implications: the Way Forward


The relative shares of agriculture and agribusiness in GDP change as incomes rise. Thus, we need to consider the whole supply chain in policy formulation.


Policy diamond for a transforming economyPolicy diamond for a transforming economy

High-valueActivities,

inclusion in newfood markets

R&D and infrastructure to improve productivity

Food staples,safety nets,

environmental Services

Rural non-farmeconomy;

Skills for non-farmeconomy

More investment in R&D and provide infrastructure to improve productivity

Promote high-value activities to diversify farming away from staples as income rise & diet changes. Blue Ocean.

Extend green revolution in staples to areas bypassed by technological progress; provide safety nets; payments for environmental services to create conservation incentives.

Promote rural non-farm economy to confront rural employment problem; enhance skills to give access to jobs offered by the growth of rural non-farm economy.

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1 business opportunities in the agrifood industry based on current and future trend of food...

Documents

food food

food consumption patterns

food group slide

income slide

shifted food demand

home increases food

stratum slide

faostat slide