Southeast Asia presents a ‘bright spot’ for dairy exporters in Australia and New Zealand in an increasingly lethargic global economy, Rabobank says in a sector report.
Rabobank emphasises better times lie ahead for the dairy markets of the Philippines, Malaysia, Thailand, Singapore and Vietnam, beyond short-term headwinds currently at play across the region. This means Southeast Asia will continue to provide growth opportunities for dairy exporters in the medium term, the report ‘South-East Asia – in Transition to Better Times’ says.
This is positive news for Australian and New Zealand dairy exporters, according to senior dairy analyst Michael Harvey of Rabobank, with Oceania traditionally dominating dairy exports to the region. However, he cautions, opportunities are opening up for the emergence of new, competitive players.
“Over the medium term, this region is full of vibrant dairy markets with diverse consumer bases that deliver opportunities for exporters to offer a wide range of consumer products in fast-growing markets,” Harvey says.
Dairy markets in Southeast Asia are in transition, as they cycle out of a period of channel disruption, sluggish consumer demand for dairy products and downstream margin pressure that had culminated in a slowdown in trade growth between 2020 and 2022.
Dairy trade growth into the region slowed to just 1.4% average annual growth during the pandemic (from 2020 to 2022), down on a compound annual growth rate of 3.3% over the past decade.
“Southeast Asia has not been immune to global pressures, with economies across the region posting weak growth between 2020 and 2022,” Harvey points out. “However, from 2024 onward, the region will present a bright spot against an increasingly lethargic global economy. Consumer market conditions are improving, with a more meaningful recovery expected from 2024 as inflation eases, food service demand improves and marketing and investment activities increase to support demand growth.”
The International Monetary Fund forecasts growth of between 4% and 7% across Southeast Asian economies between 2023 and 2028. This underpins the dairy demand forecasts of the report, Harvey says. “That said, these growth rate forecasts still fall below recent historical rates and these economies also face the looming risk of China’s economic slowdown proliferating through the region.”
Collectively, Southeast Asia has a significant milk deficit, the report says. And while local milk production is growing in most countries in the region, it is coming from a low base. Harvey expects challenges associated with feed quality, genetics, capital and other resources remain major hurdles to domestic milk supply growth in Southeast Asia. “As a result, self-sufficiency rates for dairy remain low in the region and are unlikely to see a transformational lift over the medium term to 2030.”
Rabobank estimates the region’s combined dairy import stood at 9.9 billion litres in 2022 compared with China’s 14 billion litres in the same year. With the region at the beginning of a trade recovery, Rabobank expects total dairy import volumes for Southeast Asian countries to be 2% lower in 2023 before import growth accelerates by 3% in 2024.
Further over the horizon, the bank expects Southeast Asia’s import deficit to widen even more as demand growth collides with local supply limitations. While this will provide a good platform for growth for dairy exporters, the report warns the region will remain a fierce battleground for local brands and exporters.
“The region is typically dominated by Oceania, but opportunities are opening up for the emergence of new players,” Harvey says. “This means price competitiveness, distribution, new product development and marketing credentials will be critical for the long-term success of all players.”