ASEAN market dynamics in a global world and achieving food security
ASEAN is a dynamic region and U.S. dairy can be a reliable supplier to meet customer and consumer needs with nutritious and sustainably produced dairy products.
By Dennis L. Erpelding, Public Policy Asia Advisors
The Association of Southeast Asian Nations (ASEAN) region is a dynamic region with population growth, economic opportunity, agriculture development, and improving consumer diets. The region includes developing economies with a population expected to exceed 700 million in the near future. Food security, innovation, and sourcing are key to the future of ASEAN. Thus, it is an excellent opportunity for the U.S. dairy sector to work with and collaborate with the local dairy sector to meet current needs, evolving market segments, and growth in food animal sourced nutrition for which dairy offers excellent value.
ASEAN consists of 10 countries, and key trade statistics capture the trends in this growing market area. The United States of America (USA) has grown trade with ASEAN by 82% over the past decade. The United States (U.S.) is the third largest export destination of ASEAN goods with US$255 billion in trade with the U.S. comprising 14.9 percent of the export market share in 2021. The U.S. ranks as the sixth largest supply origin of goods to ASEAN with a value of US$109 billion, or 6.7 percent market share in 2021. For ASEAN, it has a positive trade balance with the U.S. of US$145.9 billion in 2021. In 2021, ASEAN was a beneficiary of US$40 billion from the U.S. in foreign direct investment. A summary framing ASEAN’s overall importance is that for 2021 ASEAN accounts for 21.7 percent of global exports and 20.9 percent of global imports.
Examples of the importance of ASEAN, include that in 2022 the United States and ASEAN took the historic step of upgrading their relationship to a Comprehensive Strategic Partnership (CSP). This step creates new ministerial dialogue processes on health, environment and climate, energy, transportation, and women’s empowerment, as well as elevated engagement within existing dialogue tracks on foreign affairs, economics, and defense. Additionally, the U.S. Agency for International Development (USAID) has now extended the U.S.-ASEAN Regional Development Cooperation Agreement to 2029, and the United States is rapidly scaling the Partnership for Global Infrastructure and Investment in Southeast Asia.
September 4-7 ASEAN summit leaders met and issued a declaration around strengthening food security and nutrition. Explore, increase, promote, facilitate, accelerate, and optimize lead in their declaration reflecting their drive to become the ‘epicentrum of growth’. Further the leaders noted the need to enhance private sector collaboration. Thus, it is an excellent opportunity for U.S. dairy, and the local dairy and food sectors, to work with governments for the betterment of consumers. This summit declaration, plus the Comprehensive Strategic Partnership, combined provide venues for dialogue to collaborate on issues important to dairy such as health, environment, trade facilitation, and public-private partnerships.
As one considers geopolitics and the evolving global and regional dynamics, the recent ASEAN summit is amongst several key meetings to watch including the BRICS August 24-27 in South Africa, the G-20 September 9-10 in Indonesia, the United Nations meetings September 19-23 and 26th in the U.S., and then the APEC leaders meeting November 12-18 in the U.S. These meetings each have dynamics around global and regional politics, economics, and trade. Add in the Indo-Pacific Economic Framework for Prosperity with a focus on trade, supply chains, a clean economy, and a fair economy and one can see where ASEAN is well positioned to be a central and key player. Though ASEAN as an entity is not a member of these gatherings, some of its members are, and ASEAN’s geographical location positions it centrally as one considers trade flows, markets, and regional politics.
Importantly, today we see some potential reassessing and realignment regarding global leadership and influence. The more traditional centers of power and influence were the U.S. and the European Union, in the recent decade one sees the increasing role of the P.R. China, more recently the rising roles of India and Brazil, and now recently the declining influence of Russia. Global dynamics are changing and with change comes opportunities. Prior to where one saw strong alignments, today one sees countries act more in their interest, working with those that can enhance their future, thus creating more situational alliances. Geopolitics and political uncertainties are intense now in a multi-polar world.
ASEAN can be a significant beneficiary of the global dynamics. ASEAN population is to grow to 700 million. Dynamic economies mean GDP and per capita growth. Excellent natural resources, though with some limits for example around dairying capacity, mean investment for food security. A strong regional labor force with migration and immigration means labor availability. Trade interdependency in the region is recognized and generally championed. Diversification of global supply chains and markets is resulting in more investment in the region. Businesses are looking for a new approach to risk management that is resulting in a strategic direction toward just-in-time coupled with just-in-case. Global players are looking to de-risk from one production base, specifically P.R. China, to other areas.
So, what does this mean for ASEAN and U.S. dairy, ultimately it means customers and consumers. More global investment is being directed to the ASEAN region. Players are looking to strengthen local and regional supply chains, which emphasize trade. The evolution of markets means a shift toward higher value-added business versus solely a commodity mindset. With economic growth, both at the country GDP level, and at the individual per capita level, it means more affluent locals, thus more customers and consumers.
During the recent COVID-19 era, we saw food security challenges globally. There were shortages linked to supply chain disruptions and logistics. There were production shortfalls around the world. Lockdowns affected the supply chain functions. And there were trade impediments. Constraints on the movement of labor due to lockdowns and infection rates, and migrant labor restrictions, all contributed to disruption. Food prices increased, imports were restricted, and exports were reduced. Globally, as reported by FAO this year, severe and moderate food insecurity increased. In Asia 10.5 percent have severe food insecurity, and another 14.2 percent have moderate food insecurity. Globally the trends are similar, undernourished total 768 million. In broader Asia, 425 million are undernourished. The increase in food insecurity resulted from increased prices for key staples such as rice and wheat and trade restrictions hitting supply options. Children who often get meals at school were left at home, less nourished. Lockdowns and stay at home actions resulted in reduced income for families.
The COVID-19 era was challenging as country income levels fell and the prevalence of food insecurity increased. Asia, in part due to its total population of 4.68 billion individuals, and status of country development meant more food insecurity – moderate and severe food insecurity totaling 1.151 billion individuals. Asia is at risk and the world is at risk. The COVID-19 era was unprecedented in our interconnected world and a steep learning curve for all.
Looking at global food security, there is an increasing gap, increases in food insecurity, the arrows and lines are going in the wrong direction. Our current global population of eight billion is to grow to 10 billion. Global hunger measured by the prevalence of undernourishment is around 9.2 percent of the world population in 2022, compared to 7.9 percent in 2019. Thus, the estimate is that 735 million people faced hunger in 2022. 122 million more people faced hunger in 2022 than in 2019. What needs to be done? Let us think about our global agriculture productivity gap index, the projected rate of growth in low-income countries is lacking, or slower, and even the global rate is lacking, or slower, thus further divergence from the needed or required increases to have a food secure world. We need to work to close the productivity gap to reduce food insecurity. Yet, let one note, we are seeing dramatic population leveling or declines in countries as Japan, S. Korea, and even now P.R. China, as has been happening in several European countries. Of note, even Thailand’s current birthrate of 1.5 does not meet the replenishment rate of 2.1. Yet let us note, diets globally are improving due to increased demand for more animal-sourced protein for nutrition, and this bodes well for dairy.
We often hear of the UN Sustainable Development Goals, well as they relate to hunger, we are looking at a dramatic miss for the goals, and even the UN recognizes that, for the September high-level meeting they note, “… urgent need to put the 17 Sustainable Development Goals (SDGs) back on track.” One can offer an observation, our UN organizations have lost focus especially as it relates to the role of agriculture innovation and production. Work sometimes even undermines increasing food animal production.
The post COVID-19 era provides an opportunity to recalibrate our global food security approach. The World Bank notes rising inflation, recognizing more recent moderation. Though export restrictions have eased commodity markets remain volatile, and we are seeing some countries impose restrictions. Risks to righting the ship are high food commodity prices, tight markets for staple foods, Ukraine commodity supply impact, remaining high fertilizer prices, adverse climatic conditions such as droughts, and macroeconomic issues as low-income countries seek to mitigate price shocks. Finally, more nationalism means higher risks for the implementation of measures that inhibit production and trade, issues we have seen in Asia.
Looking at food insecurity in ASEAN, there are genuine issues. Animal diseases such as African Swine Fever (ASF), Avian Influenza (AI), specifically high pathogenic, and Foot and Mouth Disease (FMD) each plague the area with transboundary disease risks that result in animal morbidity and mortality. Fortunately, they pose a non-existent to an extremely limited zoonotic risk. But collectively the reduction in food animal production has meant food price inflation. Further as one looks at the climate and soil and water use, we do seek water scarcity for irrigation supplies. Solutions are available, including innovation and trade agreements. Innovation through genetics on the plant and animal side and improved farm management practices can dramatically improve yields and output. Trade agreements can provide access to imports and exports. Further, done right trade agreement provide for a more competitive market through the reduction of tariffs and increases in quotas. These challenges and solutions require government policy engagement, private sector leadership, collaboration between government and the private sector, and ideally, even collaboration with trading partners. We need to work together so we can grow the pie and create an expanded market.
Amongst the ASEAN countries, Thailand specifically is posed to be a potential beneficiary. Thailand and the U.S. have historical ties going back to 1833, 190 years, with the Treaty of Amity and Commerce. Thailand aspires to be the ‘kitchen of the world’ with strong production, good access, and a regional leader. Major global and regional food industry companies are based in Thailand. Thailand is part of key trade agreements, both bilateral and multilateral. The regional Food and Agriculture Organization office is in Bangkok and a sub-regional World Organization for Animal Health is based in Thailand. Combined, these local resources bode well in supporting the opportunity for Thailand to become the kitchen of the world. So why Thailand and why now? In the past days Thailand’s new Prime Minister, who is from the corporate world, is taking swift action engaging, deciding, and acting, looking to attract foreign investment and improve economic growth. He is engaging domestically, regionally, and globally and such leadership can be impactful and beneficial for Thailand now.
When one thinks of collaboration and productivity, the United States has been a historical leader in innovation. U.S. farm output is about 2.7 times, or 175 percent, of its 1948 level in 2019, growing at an annual rate of 1.42 percent over the period. Aggregate input use has increased a modest 0.06 percent so the primary growth in farm sector output is attributed to productivity growth, which averages about 1.36 percent per year. One can note the recent decline driven by adverse weather. Recent livestock and products annual growth rate rebounded, with meat animals growing faster than other livestock and products on average. The innovation driving this increased output has been biological, chemical, mechanical, and organizational changes in technology and farm practices.
The U.S. is blessed with expansive land and water for growing crops, livestock grazing, and livestock production. When one visualizes this on a map, one can see a resource-rich central U.S., and then regions in the west, northwest, northeast, and southeast. Collectively, these various regions and their climates provide an amazing array of food products, both plant and animal sourced.
The U.S. dairy sector is a splendid example of the U.S. for capability and capacity. U.S. milk production has increased 13 percent over the past 10 years. Production per cow has increased 10 percent over the past 10 years. Milk cow numbers are up 2 percent in the past decade. The U.S. dairy herd tends to concentrate in areas, the historical locations in the upper Midwest and Northeast, more recent decades in the west in California, Washington, and Idaho, and now more growth in the central panhandle area. The growth has significantly been impacted by what is the normal dairy farm operation, in the past a more traditional barn with stanchions, the current operation with large rotary milking parlors and free stall barns. The past 50 years have seen dramatic change that has allowed for a new focus for the U.S. dairy industry.
The U.S. dairy sector went from a purely domestic focus, a current market opportunity with 330 million people, to a global focus, a current market opportunity with eight billion consumers. Dairy policy changed from production management to risk management. The industry established export-focused organizations, specifically the U.S. Dairy Export Council. Also, it looked at innovation in the domestic market and global market to meet consumer preferences and nutrition needs. So, in around 25 years, the U.S. went from exporting 3.5 percent of production to exporting 15 percent of production. This has been good for dairy farmers, the dairy sector, and consumers globally. The U.S. is now a very reliable global supplier of sustainable nutritious dairy products.
Food security and nutrition can be achieved via a strong domestic sector as well as providing for imports. All countries seek to have a good farming infrastructure that can provide for strong domestic production. Further, as market needs grow there is a role for complementary imports. Ideally, the domestic and import sectors can work together and collaborate to grow the total market. This can be done via sharing best practices, leveraging resources, and identifying value-added growth. Innovation can lead to new market niches. Dairy provides a holistic nutrition source for which we are better understanding. The health benefits are well recognized – protein and calcium being key components. The dairy sustainability story is phenomenal. Dairy is different and can be positioned well for its role in human diets. Finally, brands can further build out new and expanding categories.
In summary, as one looks at the ASEAN snapshot and global context, there is an amazing growth opportunity which all need to capitalize on for the betterment of consumers. During the COVID-19 era, food security was challenged in the global system. In the post COVID-19 era, recalibration is yielding benefits, especially for ASEAN. The U.S. has thrived on innovation and productivity, and thus is an exceptionally reliable, sustainable long-term supplier. Finally, as we look to food security and nutrition via domestic and imports, collaboration for excellence needs to be our model, a true win for consumers.
Dennis L. Erpelding is Senior Advisor with Public Policy Asia Advisors and Chair of Global Farm View LLC
