Opportunities for Australian grain in South East Asia and implications of the ASEAN Free Trade Area James Campbell Head of Agribusiness, China March 2015
CONTENTS 2 AUSTRALIA GRAIN INDUSTRY OVERVIEW 3 WHAT IS DRIVING ASIAN DEMAND? 8 ASEAN-AUSTRALIA-NEW ZEALAND FREE TRADE AREA (AANZFTA) 17 OPPORTUNITY FOR AUSTRALIAN AGRICULTURE SECTOR: ASEAN 19 CHINA AUSTRALIA FREE TRADE AGREEMENT (ChAFTA): IMPACT OF GRAIN INDUSTRY 23 INDIRECT FACTORS AFFECTING AUSTRALIAN GRAIN 25 APPROACH TO ASIAN MARKET: CHANGING MARKET DYNAMICS 24
AUSTRALIA GRAIN INDUSTRY OVERVIEW
HIGH VOLATILITY IN WHEAT PRODUCTION ATTRIBUTABLE TO CHANGING WEATHER CONDITIONS >4 AUSTRALIA WHEAT PRODUCTION BY REGION (In mt) 30.0 25.0 20.0 15.0 10.0 5.0-13.8 11.7 12.2 16.9 9.8 10.2 11.6 10.4 11.4 4.8 5.1 3.9 5.4 2.4 4.2 4.0 3.9 4.2 6.2 4.1 1.4 2.3 9.1 11.2 10.8 8.3 8.2 5.1 5.8 5.4 6.7 8.8 8.6 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 WA SA East Coast AUSTRALIA WHEAT EXPORT BY REGION (In mt) 30.0 25.0 20.0 15.0 10.0 5.0-4.9 2.4 8.3 1.1 1.5 1.1 1.4 5.8 4.6 5.3 4.9 1.8 2.7 5.6 7.5 6.9 7.8 5.1 10.6 5.6 7.1 3.7 5.4 4.2 5.7 4.4 3.5 3.6 8.4 7.8 9.0 9.5 9.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 WA SA East Coast Ending Stock - Total Source: ANZ Analysis Page 4
WHEAT >5 AUSTRALIA EXPORT BY COUNTRY: WHEAT (In mt) 20.0 16.0 12.0 8.0 4.0-2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13 2013 14 Indonesia China Vietnam Yemen Iraq Malaysia Korea,Rep.of Japan Iran Thailand Philippines Source: ABARES Page 5
BARLEY >6 AUSTRALIA EXPORT BY COUNTRY: BARLEY (In mt) 6.5 5.2 3.9 2.6 1.3-2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13 2013 14 China SaudiArabia Japan Korea,Rep.of Thailand Vietnam Kuwait UnitedArabEmirates Taiwan Philippines Source: ABARES Page 6
SORGHUM >7 AUSTRALIA EXPORT BY COUNTRY: SORGHUM (In mt) 1.5 1.2 0.9 0.6 0.3-2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13 2013 14 China Japan Taiwan New Zealand Papua New Guinea Source: ABARES Page 7
WHAT IS DRIVING ASIAN DEMAND?
INDONESIA >9 CONSUMPTION (In mt) IMPORTS (In mt) CONSUMPTION MIX (2012-13) IMPORT MIX (2013-14) 6 2 1 71% 15% 8.2 8.1 11% DRIVERS Noodles AH, APW 8.2 6.8 Instant Noodles APW,AH & ASW 7.1 7.1 Bread DNS & CWRS Sponge Cake SWW,APW & ASW Source: FAOSTAT, USDA, AEGIC & ANZ Analysis 2013 2023 Page 9
CHINA >10 CONSUMPTION (In mt) IMPORTS (In mt) IMPORT MIX (2013-14) 54% 25% 1 123.0 6.0 DRIVERS Noodles AH, CWHWS 8.2 & CPSW 2.8 121.4 Steam Buns 7.1 Bread APW & ASFT DNS & CWRS Sponge Cake SWW,APW & ASW Source: FAOSTAT, USDA, AEGIC & ANZ Analysis 2013 2023 Page 10
VIETNAM >11 CONSUMPTION (In mt) IMPORTS (In mt) CONSUMPTION MIX (2012-13) IMPORT MIX (2013-14) 4-5 35%-4 Other 1 66% 8% 7% 2.9 2.9 2.4 DRIVERS 1.9 Dried Noodle APW 8.2 Instant Noodles 7.1 Bakery APW,AH & ASW APH, AH and APW & high Protein wheat from America Source: FAOSTAT, USDA, AEGIC & ANZ Analysis 2013 2023 Page 11
MALAYSIA >12 CONSUMPTION (In mt) IMPORTS (In mt) IMPORT MIX (2013-14) 6 15% 8% 1.6 1.4 DRIVERS Noodles AH, APW 8.2 1.2 Instant Noodles APW,AH & ASW 1.4 7.1 Bread DNS & CWRS Source: FAOSTAT, USDA, AEGIC & ANZ Analysis 2013 2023 Page 12
KOREA >13 CONSUMPTION (In mt) IMPORTS (In mt) CONSUMPTION MIX (2012-13) IMPORT MIX (2013-14) 44% 14% Other 42% 35-4 35-4 5.1 4.8 5.0 4.8 DRIVERS Noodles WSN ASWN 8.2 Ramyon AH & ASWN 7.1 Bread DNS Biscuits SWW Source: FAOSTAT, USDA, AEGIC & ANZ Analysis 2013 2023 Page 13
JAPAN >14 CONSUMPTION (In mt) IMPORTS (In mt) IMPORT MIX (2013-14) 57-6 20-25% 6.5 6.7 5.8 5.8 DRIVERS Udon Ramen 7.1 Bread ASWN & 8.2 Domestic APH,DNS & CWRS DNS & CWRS Sponge Cake SWW,APW & ASW Source: FAOSTAT, USDA, AEGIC & ANZ Analysis 2013 2023 Page 14
THAILAND >15 CONSUMPTION (In mt) IMPORTS (In mt) IMPORT MIX (2013-14) 71% 15% 11% 1.9 2.0 2.1 1.8 DRIVERS Noodles AH, APW 8.2 Bread DNS & CWRS 7.1 Source: FAOSTAT, USDA, AEGIC & ANZ Analysis 2013 2023 Page 15
PHILIPPINES >16 CONSUMPTION (In mt) IMPORTS (In mt) CONSUMPTION MIX (2012-13) IMPORT MIX (2013-14) 55% 5 44% 2% 3.9 3.9 3.3 3.4 DRIVERS Noodles AH, APW 8.2 Bread DNS & CWRS 7.1 Source: FAOSTAT, USDA, AEGIC & ANZ Analysis 2013 2023 Page 16
ASEAN-AUSTRALIA-NEW ZEALAND FREE TRADE AREA (AANZFTA)
TARIFF POST AANZFTA >18 INDONESIA 2005 2015 2025+ VIETNAM 2005 2015 2025+ MALAYSIA 2005 2015 2025+ Wheat Wheat 5% 5% Wheat Meslin 5% Meslin Meslin Barley Barley 3% 3% Barley Oat 5% Oat 3% 3% Oat PHILIPPINES 2005 2015 2025+ THAILAND (In THB/kg) 2005 2015 2025+ MYANMAR 2005 2015 2025+ Wheat 3% Wheat 0.1 Wheat Meslin 3% Meslin 0.1 Meslin Barley 7% Barley 2.75 Barley Oat 7% Oat 2.75 Oat CAMBODIA 1 2005 2015 2025+ LAOS 2005 2015 2025+ BRUNEI / SINGAPORE 2005 2015 2025+ Wheat 7% U U Wheat 5% 5% Wheat Meslin 7% 7% Meslin 5% 5% Meslin Barley 7% U U Barley 5% 5% Barley Oat 7% 7% Oat 5% 5% Oat Source: ASEAN Database & ANZ Analysis Note 1: U stands for Undisclosed Page 18
OPPORTUNITY FOR AUSTRALIAN AGRICULTURE SECTOR: ASEAN
ASEAN HOME FOR 617 MILLION PEOPLE TO DRIVE AGRI DEMAND IN LONG RUN >20 ASSOCIATION OF SOUTHEAST ASIA NATIONS (ASEAN): KEY STATS GDP (Current Price USD Billion) 2,500 2,000 Laos Myanmar Thailand Philippines 1,500 1,000 Cambodia Vietnam 500 Brunei Malaysia Singapore Indonesia - 2009 2010 2011 2012 2013 Indonesia Thailand Malaysia Singapore Philippines Viet Nam Myanmar Cambodia Lao PDR POPULATION (In Million) GDP PER CAPITA (Current Price USD 000 ) Indonesia Philippines Vietnam Thailand Myanmar Malaysia Cambodia Laos Singapore Brunei 98.4 89.7 67.0 53.3 29.7 15.1 6.8 5.4 0.4 249.9 Singapore Brunei Malaysia Thailand ASEAN Indonesia Philippines Viet Nam Lao PDR Cambodia Myanmar 5.7 3.8 3.5 2.7 1.9 1.5 1.0 0.9 10.4 39.7 55.2 Source: World Bank & ANZ Analysis Page 20
ASEAN: TRADE OVERVIEW >21 ASEAN TRADE (In USD bn) ASEAN TRADING PARTNERS (In USD bn) ASEAN TRADE COMMODITY GROUP (In USD bn) Singapore 410 373 ASEAN 330 278 Electrical Machinery 277 249 Thailand 229 250 China 153 198 Mineral fuels 220 274 Malaysia 228 206 EU-28 124 122 Nuclear Reactors 138 156 Indonesia 183 187 Japan 123 118 Vehicles 40 40 Viet Nam 133 132 USA 115 92 Plastics 40 41 Philippines 54 65 Korea 53 82 Optical Instruments 33 28 Myanmar 11 12 Taiwan 35 66 Precious Metal 26 34 Cambodia 9 9 Hong Kong 13 82 Organic Chemicals 33 26 Brunei 11 4 Australia 46 23 Rubber 40 13 Laos 3 3 India 42 26 Iron and Steel 8 44 Exports Imports Exports Imports Exports Imports Source: ASEAN Database & ANZ Analysis Page 21
AUSTRALIA IS WELL POSITIONED TO TAKE ADVANTAGE OF THE ROBUST DEMAND >22 ASEAN 1967 1992 1997 2005 2007 2008 2008 2009 2010 Birth of ASEAN ASEAN Free Trade Area (AFTA) Vision 2020 China FTA Korea FTA Japan Economic Partnership ASEAN Charter Road Map 2009-15 Master Plan ASEAN Connectivity 2010 2010 Australia NZ FTA India FTA AUS EXPORT TO ASEAN 2013 (AUD m) 3,193 2,251 2,106 987 53% ASEAN IMPORT DEPENDENCE ON AUSTRALIA (2013) WHEAT BARLEY OAT USD 5.0bn 47% 47% 53% USD 18.8m 47% 53% 17% USD 7.3m 83% Crude Wheat Gold Aluminium Australia Other ASEAN KEY WHEAT IMPORTERS 2013 (In mt) AUS IMPORT FROM ASEAN 2013 (AUD m) 9,506 8,634 7.5 6.0 4.5 2,905 1,849 3.0 Refined Petroleum Crude petroleum Goods vehicles Passenger motor vehicles 1.5 - Indonesia Philippines Thailand Vietnam Malaysia Myanmar Singapore Cambodia Brunei Source: ABARES, Trade Map & ANZ Analysis Page 22
CHINA AUSTRALIA FREE TRADE AGREEMENT (ChAFTA): IMPACT OF GRAIN INDUSTRY
CHINA S GRAIN IMPORT IS LIKELY TO CONTINUE, WITH THE CURRENT ENDING STOCK RECOVERED TO 38% OF ANNUAL CONSUMPTION >24 CHINA GRAIN 1 SUPPLY (In mt) GRAIN 1 ENDING STOCK AS % OF CONSUMPTION 800 4 700 600 Imports form ~3.4% of the China s grain 1 supply in 2013-14. Wheat account for 29.3% of the grain 1 imports 32% 500 24% 400 300 16% 200 8% 100 - '03/'04 '05/'06 '07/'08 '09/'10 '11/'12 '13/'14 - '03/'04 '05/'06 '07/'08 '09/'10 '11/'12 '13/'14 Source: USDA Begg. Stocks Dom. Production Imports Note: Grain includes Barley, Corn, Wheat, Rice, Sorghum End. Stock as % of Consumption Page 24
THE INDIRECT FACTORS AFFECTING AUSTRALIAN GRAIN
AUSTRALIA NEEDS TO LOOK INTO ALTERNATIVE FEEDING SYSTEMS TO LIFT LIVESTOCK PRODUCTIVITY >26 ~18% of Australian beef exports are grain fed and China accounts for 6% of total grain fed beef exports. With China Australia FTA in place that gradually reduces the tariffs, Australia exports to China will increase. However, recent fall in total beef exports to china highlight the 2013 export levels are not sustainable, which implies limited affect on grain fed beef exports Australia Beef Exports 2014 (In Shipped weight tonnes) LIVE CATTLE EXPORTS 2014 4% 2% 4% 5% 8% Grass fed beef 82% Grain fed beef 18% 1 55% 12% Indonesia Vietnam Israel China Malaysia Russia Philippines Other Source: Australian Feedlot Association & ANZ Analysis Page 26
AUSTRALIA NEEDS TO LOOK INTO ALTERNATIVE FEEDING SYSTEMS TO LIFT MILK PRODUCTION >27 DAIRY IMPORTS IN CHINA FROM AUSTRALIA -2013 (In million litres) 9,365 DAIRY IMPORTS IN CHINA FROM AUSTRALIA 2030 (In million litres) 16,300 INCREASE IN AUSTRALIA S EXPORT POTENTIAL TO CHINA (In million litres) 9,200 486 9,686 X 7% 655.5 X 7% 1,141.3 China's Dairy Imports China Imports from Australia China's forecasted Dairy Imports China forecasted Imports from Australia 2013 Additional 2030 INCREASE HERD SIZE (In million) CURRENT HERD SIZE 1.65 million EXPECTED HERD SIZE 1.75 million INCREASE CATTLE YIELD (In litres/cow/year) 5,525 345 5,870 Herd size Share Litres (m) Milk solids Feed (mt) Base case 7% 1,141 75 1.0 Upside 12% 1,956 128 1.7 Aggressive 15% 2,445 161 2.1 2013 Additional 2030 Sources: OECD, ANZ Analysis, NDSU: Extension Service Page 27
APPROACH TO ASIAN MARKET: CHANGING MARKET DYNAMICS
APPROACH TO ASIAN MARKET: CHANGING MARKET DYNAMICS >29 AUD USD EXCHANGE RATE 1.05 0.98 2023 ESTIMATED WHEAT TRADE SUMMARY (In mt) 18.3 46.0 46.2 0.91 0.84 (8.3) (7.1) 0.77 0.70 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 (50.0) Asia Pacific (45.0) Africa Other Latin America Caribben Oceania Europe North America JV WITH ASIAN FOOD PROCESSORS AUD DEPRECIATION: INWARD INVESTMENT OPPORTUNITY 1 FOCUS ON REDUCING TRANSPORTATION INEFFICIENCY 3% 3% 9% 38% 22% Canada Australia Asia Rail Port USA Singapore UK 24% Thailand Other Sources: OECD, ANZ Analysis, NDSU: Extension Service Note 1: Acquisition analysis over 2005-2015 highlight key Acquirer countries Page 29
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