Subscribe

Five key agri themes from on the ground in China and Vietnam

How far is it from Beijing to Ho Chi Minh City? They could be planets apart if you ask attendees from our recent ANZ grains delegation from Australia and New Zealand.

Click image to zoom Tap image to zoom

To be fair, the multiplicity of markets, culture and tastes within China means a single impression in Beijing is hardly typical of China either. Nor can HCM represent all of Vietnam.

"There is a transition occurring across rural China… with over 120 million workers leaving primary production in the past 10 years"
Mark Bennett, Head of Agribusiness Australia, ANZ

Yet there are some telling differences between the two cities for the grain industry evident from our trip and they can be summarised as five critical planks to market understanding.

Key agri themes from on the ground in China and Vietnam

Price and relationship

We were at the inaugural Australian Grains Industry Conference (AGIC) in Beijing, an opportunity to create a better understanding of the Australian grains industry in the China and Asia with global commodity traders.

One thing was clear: price is crucial – as an opportunity or an obstacle, depending on whether you were buying or selling. Consistency of supply was the next big factor and there were concerns seasonal variation in Australia made it difficult for importers looking for volume or particular characteristics.

It was clear too that building the relationship between buyer and seller in China would take time before a true level of engagement was reached.

Price was still important in Vietnam but it was just one of many other issues. The bigger impression was importers need to understand their trading partner as a prerequisite to a relationship.

A genuine conversation is needed to understand the person, their business, production system, their region and longer term business objectives.

DOMESTIC PRODUCTION

China produces and consumes around 125 million tonnes of wheat per year. Approximately 80 per cent of this is milled locally for human consumption flours. Because of China's priority focus on rice and corn, we would expect land and water resources dedicated to wheat to remain stable for the foreseeable future. It's reasonable to expect that wheat output will remain stable too.

But there is a transition occurring across rural China. Many farmers are seeking higher incomes in fast developing urban areas, with over 120 million workers leaving primary production in the past 10 years and small arable plots being consolidated by commercially focussed scale producers.

At face value this might lead to greater output. However wheat growers today operate a very high cost structure and many are arguably not sustainable.

Commercial operators are likely to farm for profitability and sustainability, hence having minimal impact on output - it may even reduce, seasons pending. This increases the prospects of an ongoing net import need for China.

Vietnam is completely dependent on imported wheat, currently importing about three quarters of their requirements from Australia. The import need of Vietnam will not change. Rice is the mainstay crop for this population and always will be.

This market is internationally competitive but a complete dependency cereal imports makes for a different imperative.

CULTURE

Beijing city, the production area we visited and the AGIC audience gave an impression of careful, guarded, serious, methodical, technical, mature and process driven.

Ho Chi Minh City on the other hand was alive with colour, activity, enthusiasm, emergence, keenness and engagement. These are two very different countries at different stages of development. We hear much of China and its efforts in opening up to the world economy and trade.

Vietnam is also a more recently 'opened' economy and is in its early stages of commercialisation.

For Vietnam, a driving force is youth: 60 per cent of Vietnamese are under the age of 30 making for a fascinating market and a different kind of consumer population for all kinds of goods and services.

INVESTMENT

Both Chinese companies and individuals are more advanced and coordinated in investing in other parts of the world. We have seen this in Australia, not just with large agricultural assets like VDL and Kidman, but also many smaller farm investments. More investments will come.

In Vietnam they are not ready for this kind of investment - but they are welcoming of inbound investment in processing and manufacturing in stand-alone or JV structures.

Interflour and Intermalt are examples. Strategically, to invest within such a consumer led transforming economy, while having risks, can also make a lot of sense.

There will also be an evolution in relationship driven supply chain arrangements.

END PRODUCT

At AGIC Beijing the focus was representing the Australian industry to the North China market. Conversations very much centred on the commodity itself, rather than the end use.

No doubt there is a transforming diet led by the rapidly rising middle class and urbanisation. Food safety and retail food placement plays to the food brand and origin opportunity but this does not come to Australia's benefit by chance.

In a new international hypermarket - the largest in Beijing, a city of 22 million people - we saw a truly international flood of brands. Save for a little UHT milk and sectioned Australian wine, we could find no Australian produce amongst local and imported goods.

European brands dominated cheese and fresh meat was dominated by seafood, poultry, beef and pork that practically had no identification as to where it came from.

This is not the case in all modern supermarkets in China but it was example of an opportunity not yet taken by our supply chain.

In Vietnam there is a definite shift towards wheat based flours. Per capita consumption has risen from 7 kilograms to 10 kilograms over the last three years – however that compares with Australian consumption of 121 kilograms.

While wheat In Vietnam is used for noodles, breads and bakery goods, there is also an increasing demand for animal feed as the consumption of protein has almost doubled in the past 20 years.

What might be more dramatic is the beer market, driving the need for malt and hence malting barley. Per capita consumption is the third highest in Asia at 32 litres and is growing steadily at 8 per cent a year.

Another good news story is emerging here for barley producers but with the ongoing caveat of price competitiveness to key competitors in Europe. That said, Australia is well positioned for shipping time and cost and growing need for volume must be a positive. So that's a tale of two cities. There is much more to it of course but the key take outs are that time in market is critically important if you want to truly understand what's playing out.

Secondly, every city and country we trade with across the Asian region is incredibly different. You need to understand the specific characteristics of these markets in order to do well.

Mark Bennett is Head of Agribusiness Australia, at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

22 Feb 2016

Why agriculture funding is a hard row to hoe

Jan McCallum | Freelance business journalist and former China correspondent

Rural Australia needs capital. Asian investors have an appetite to fund a food boom. It sounds like a perfect match.

01 Apr 2016

Data: the fertiliser for agribiz growth

Michael Whitehead | Director Industry Insights and Agribusiness, ANZ

Big data and analytics are big news. The opportunities data analytics present for the global agricultural sector are astonishing yet in many ways they are just the next step in a process which has been happening for centuries.

30 Nov 2015

The future of sustainable agriculture

Andrew Cornell | Managing Editor, bluenotes

Food and water are two of the most basic essentials for human existence. Under pressure, we may well learn to live without the internet again but without food, water and acceptable air to breathe, we cease to exist.