South-east Asia opportunity for dairy exporters, says Rabobank

A new report from specialist agribusiness bank Rabobank says south-east Asia will be an economic bright spot for dairy as the region shakes off a pandemic-induced economic slowdown

But while Australia and New Zealand are in the box seat to take advantage of the growing dairy demand, the region will also become increasingly attractive to new exporters.

Dairy Australia ranks all the key south-east Asian markets - the Philippines, Malaysia, Thailand, Singapore, Indonesia and Vietnam - in its top dozen global dairy markets by volume.

Its International Dairy Market briefs reveal that dairy markets are growing in all these countries.

Although several of these countries have implemented strategies to grow domestic production, none are forecast to be able to satisfy the big growth in demand for dairy from increasingly middle-class populations.

Rabobank senior dairy analyst Michael Harvey said dairy markets in south-east Asia were in transition, after a slow down in trade growth during the pandemic.

"However, from 2024 onward, the region will present a bright spot against an increasingly lethargic global economy," he said.

"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 growing demand from this region will help offset the uncertainty about China.

ANZ's August Agrifocus report says China's economy will struggle to grow as quickly as it has done in the past, so demand for imports is unlikely to increase as it has previously.

"For several decades, China's growing middle class has meant strong demand for dairy products," it said.

"But Chinese consumers are currently saving rather than spending, so there isn't sufficient consumer demand to push prices higher.

"That said, China is still by far the largest importer of dairy products and is buying roughly the same volumes as in the past."

ANZ pointed to a prolonged slowdown in the property market and associated financial wobbles for the Chinese decline - with a large proportion of household wealth tied up in the property sector.

Rabobank consumer foods analyst Michelle Huang said China played a critical role in global dairy markets as the world's largest importer.

But the outlook looking forward to 2032 was uncertain - with a range of supply and demand forces and scenarios likely to impact China's import deficit.

The estimates deficit ranges from 8 million metric tonnes to 19.2 million metric tonnes.

"The size and growth of this deficit will shape global markets over the coming decade," she said.

Rabobank said south-east Asia had a significant milk deficit.

While local milk production was growing in most countries in the region, it was from a low base.

Rabobank estimates the region's combined dairy imports stood at 9.9 billion litres in 2022 - compared with China's 14 billion litres in the same year.

It expects total dairy import volumes for south-east Asian countries to be 2 per cent lower in 2023 before accelerating by 3pc cent in 2024.

The import deficit is expected to widen even more as demand growth collides with local supply limitations

Mr Harvey said this was positive news for Australian and New Zealand dairy exporters, with Oceania traditionally dominating dairy exports to the region.

However, he cautioned, opportunities were 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," Mr Harvey said.

"This means price competitiveness, distribution, new product development and marketing credentials will be critical for the long-term success of all players."

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