Can Australia satisfy Southeast Asia’s growing dairy demand?

By Sam Leishman

GREATER CHINA and Japan are well-established export markets upon which the Australian dairy industry relies heavily.

Meanwhile, Southeast Asia continues to emerge as an international hotspot for dairy demand, as economic growth improves living standards in the region.

Following a year of trade turbulence in many key export markets, it’s worth accessing how Australia’s dairy industry is positioned to capitalise on growing demand out of the Southeast Asian region.

Southeast Asia ranks second to Greater China (China, Macau, Hong Kong), as Australia’s largest export market by value. Last year, approximately 272 000 tonnes ($857 million worth) of Australian dairy products were sent to the region.

Whilst this represents a drop in volume, overall value remained steady due to an increase in sales of higher value products.

A growing middle-income population across the region is driving this trend, as some of these consumers seek products that are considered to provide an easy and convenient way to stay healthy.

A strong socio-economic divide remains present in the region; however, education and income are improving exponentially in many areas.

Within Southeast Asia, the Association of Southeast Asian Nations is an organisation comprised of 10 countries working to improve political collaboration and increase economic growth in the region.

These countries already account for a large portion of demand for Australia dairy, with Singapore, Malaysia, Indonesia, Philippines and Thailand accounting for 32 per cent of Australia exports by volume collectively.

However, as these regions continue to grow, a wave of higher income, millennial consumers, increase their appetite for higher-value food products.

Global demand for dairy from the ASEAN region is expected to improve as proportion of the population in the ‘middle-class’ bracket expands.

In the next 10 years, 65 per cent of the ASEAN population is expected to be middle-class compared to 29 per cent in 2010. These consumers (190 million which are expected to be millennials) will ask more from their food suppliers, looking for healthy, safe and fresh food that is convenient for them to consume.

This trend has already begun to play out in some categories; last year the volume of Australian yoghurt exported to the ASEAN region increased 12 per cent, while in the same period, value growth improved 17 per cent.

Along with yoghurt, the volume of milk and cheese exported grew three per cent and six per cent respectively.

For areas with less cold storage infrastructure such as Thailand, the convenience and accessibility of long-life products has allowed dairy products to become a staple component to local diets.

Competition for market share within the ASEAN region has intensified over the past year with an increase in free trade agreements ratified along with product being re-directed from the United States.

At the peak of the trade war last year, the US sought alternative dairy markets for products originally destined for China, with some of these shipments targeting Southeast Asia. Meanwhile, Australia’s decline in milk supply reduced product availability for the export market.

The recent signing of the ‘Phase 1’ trade deal between the US and China has been favourable for American dairy exporters. The agreement reduces the need for China-specific inspections to US dairy facilities, prompting greater access to the Chinese market.

As a result of this trade agreement, some products re-routed to the ASEAN countries last year might be directed back to the Chinese market.

Assuming the US-China deal holds up in the face of renewed political tensions, this could open up more market opportunity for other exporters in the future.

Competition in Southeast Asia has also increased as a result of newly executed free trade agreements. Whilst Australian exporters have benefitted from long-standing trade agreements with countries within the region, the European Union has recently secured several bilateral trade agreements.

As a result, Australia’s ability to maintain strong business relationships with key contacts in these markets will become even more important going forward.

Southeast Asia, in particularly the ASEAN region, continues to become a key consumer of global dairy. Strong income growth is driving consumers to premium dairy products and demonstrate future opportunity for exports to these markets.

Whilst fundamentals for dairy exports are strong, Australia’s key limitation has been the ability to produce enough milk to capitalise on these opportunities. For coming years, this will remain the biggest challenge in securing international market share in the ASEAN region.

- Sam Leishman, Dairy Australia