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1 Business Opportunities in the Agrifood Industry based on Current and Future Trend of Food Consumption and Demand Mad Nasir Shamsudin Jinap Selamat Alias.

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Presentation on theme: "1 Business Opportunities in the Agrifood Industry based on Current and Future Trend of Food Consumption and Demand Mad Nasir Shamsudin Jinap Selamat Alias."— Presentation transcript:

1 1 Business Opportunities in the Agrifood Industry based on Current and Future Trend of Food Consumption and Demand Mad Nasir Shamsudin Jinap Selamat Alias Radam Abdul Ghariff Ramin Tay Yeong Sheng Ahmad Hanis Izani Abdul Hadi MAHA 2008 Walk-in Seminar 20 August 2008

2 2 Questions Are there changes in the food consumption patterns and demand? If yes, what are the driving forces? Are there business opportunities as a result of the changes? If yes, what the required strategies in order to realize the opportunities?

3 3 Led to a research endeavour…… A study funded by FAMA on the Food Consumption and Demand Analyses

4 4 Presentation Changes in the food consumption patterns and demand The driving forces Business opportunities Some required strategies in order to realize the opportunities

5 5 Trends in Food Consumption Typical of developing economies Stages:  Initial increase in traditional staple foods  Increase in non-traditional staples  Diversification in consumption habits  Increase in higher value, processed & higher proteins

6 6 Increase in per capita income leads to increase in the consumption of meat, vegetables, and fruits, but consumption of rice reduces. Source: Sumber:FAOSTAT

7 7  Proportion for food fell from 45.1% in 1973 to 22.6% in 1999  Food away-from-home increases  Food at-home declines Food Expenditure Patterns

8 8 1973*1980*1993/941998/992004/05 Total At home Away from home * Peninsular Malaysia Source: Department of Statistics Malaysia, HES, various issues Changes in the proportion spent on food to total expenditures

9 9  In 1970s and 1980s: highest proportion was spent on rice, bread and other cereals  Early 1990s: ranked third  In 1999: ranked fourth  Fruits and vegetables (20.4%)  Fish (20.1%)  Meat (13.6%)  Bread & other cereals (11.4%)  Rice (10.6%) Expenditure within food group

10 10 Rural households  Food ranked first => 28.8% spent on food  Food away-from-home => 7% Urban households  Food ranked second => 19% spent on food  Food away-from-home => 12% Expenditure and Consumption Patterns by Stratum

11 11 Per capita food consumption in developing countries is shifting to fruits and vegetables, meat, and vegetable oils

12 12 The ratio of food processing value added to agriculture value added rises with income

13 13 Could it be translated into business opportunities? Yes or No? there are opportunities if we understand the driving forces behind the changes in consumption patterns. Attempts to understand better the nature of the changes and drivers for the changes provide the best basis for appropriate policy formulation and a meaningful response. Questions

14 14 Why changes in the trend of the food consumption patterns? What are the driving forces?

15 15 The Driving Forces Income growth Urbanization Gender Employment Race Age

16 16 Economic growth, a dominant force, has… pushed up middle-class consumers’ purchasing power generated rising demand for food, and shifted food demand away from traditional staples and towards higher-value foods. Income growth

17 17 ASEAN:GDP per cap, 2003 (USD) 05,00010,00015,00020,00025,000 Myanmar Cambodia Lao PDR g Viet Nam Indonesia Philippines Thailand Malaysia Brunei Singapore USD GDP per cap ASEAN: GDP per capita GDP per capita: A mix of 1 developed economy (Singapore), NICs =Malaysia & Thailand, Post-crisis recovering=Indonesia & Philippines, Up & coming=Vietnam

18 18 ASEAN: Human Dev. Index A mix of HDIs – from the most developed (Spore=25) to the least developed (Lao=135) ASEAN: HDI,2004 Singapore, 25 Brunei, 33 Malaysia, 59 Thailand, 76 Philippines, 83 Indonesia, 111 Vietnam, 112 Cambodia, 130 Myanmar, 132 Lao, HDI

19 19 Consumption Patterns (from ξ y ) Indicates signs of convergence towards western diet Higher income elasticity (ξ y ) for wheat-based products than for rice products Decline in per capita consumption of staple food ξ y for meat, fish, fruit & vegetable items are high Demand for red meats increases more than white meat as shown by their ξ y. Implications of Income Elasticity

20 20 Consumption Patterns (from ξ ii ) Wheat-based, meat, fish, fruits are more price sensitive than vegetables & rice => staples are not price sensitive compared to non-staples Implications of Price Elasticity

21 21 Consumption Trend – monthly per capita food consumption Consumption Trend – monthly per capita food consumption Except rice, per capita consumption of food increases, albeit at declining rates.

22 22 Income growth Income growth has also caused changes in the demand for food attributes & its willingness to pay

23 23 There have been changes in the demand for food attributes, e.g. Leafy Vegetables

24 24 Consumers are willing to pay higher prices for food attributes, e.g. Leafy Vegetables

25 Loose unbranded cereals Basic packaged food Basic frozen products Health, variety, pre-prepared Fresh and health Chart: SG Heilbron, Source: The Economist, December 4, 1993 Changing patterns of food consumption as income rises  Sophisticated processed and fresh, health products: Singapore, Brunei, Malaysia, Thailand  Basic packaged food and frozen products: Malaysia, Thailand, Philippines  Unbranded products, and basic packaged products with some frozen products: Indonesia, Philippines, Vietnam  Unbranded products, and some basic packaged foods: Cambodia, Laos, Myanmar Per capita income Types of food

26 26 Effect of Demographic Factors on Food Consumption Patterns

27 27 Effect of Demographic Factors on Food Consumption Patterns

28 28 Summing up: Changes in food consumption patterns Increase in higher value and higher proteins  Consumption of meats, fish, dairy products, wheat, fruits and vegetables increased  Consumption of rice decreased  Emerging patterns on the demand for attributes Driving forces  Increase in income  Structural transformation and urbanization  Changes in tastes and lifestyles  Market development

29 29 Summing up: What consumers want… …in food attributes taste price quality convenience health safety Income growth has caused changes in food consumption patterns & trend. So, what are the responses of the agri-food system to such changes in order to take the opportunities?

30 30 Could it be translated into business opportunities? The answer is YES, but HOW? The answer is YES, but HOW?

31 31 Demographic and economic factors as well as health conscious are the main drivers for changes in food consumption trends and patterns

32 32 Productivity Issues: R&D expenditure in Malaysia is relatively low compared to more developing & developed economies… has undermined its key role for economic growth. As a result, agricultural productivity growth was marginal and is too low to meet the present challenges.

33 33 Productivity Issues: limited technological advancement after the Green Revolution in the 1960’s....Marginal productivity is declining Sumber: FAOSTAT

34 34 Productivity Issues: Public spending on agriculture in transforming economies is less compared to urbanised economies…

35 35 Productivity Issues: Estimated returns to investment in agriculture R&D are high in all region – averaging 43 percent

36 36 Malaysia depends on imports for rice, livestock, meat, dairy products, feedstuff, food and beverages, and other agricultural inputs….could be translated into opportunities…..

37 37 What are the opportunities? Agri-food industry – changes in the food consumption patterns mean more business opportunities Producers – more infrastructure development Researchers – more R&D grants Agricultural & rural economy – more investments Policy makers – to formulate the policy right

38 38 An opportunity for the Agri-food system? Will not happen, unless… allow the price signals to reach small-scale farmers promote product development & capturing new markets improve services like R&D, though take time to realise the results establish sound regulatory environment on issues such as food safety improvement in infrastructure (irrigation)

39 39 Strategies: the Way Forward

40 40 Value Creation and delivery sequences Market Selection/ Focus Service Development Product Development Value Positioning Pricing Advertising Sales promotion Sales Force Customer Segmentation Sourcing Making Strategic Marketing Tactical Marketing Choosing the value Providing the value Communicating the value Distributing Servicing Strategies to realize the business opportunities

41 41 Strategies to realize the business opportunities….. Choosing the value Value positioning Market segmentation

42 42 Strategies to realize the business opportunities….. Providing the value Product development Relevant R&D in agrifood technology & marketing Input Procurement system Service development Distribution channels Strategic alliance with LEs

43 43 Strategies to realize the business opportunities….. Communicating the value Promotion Advertisement Strategic alliance with LEs

44 44 Policy Implications: the Way Forward

45 45 The relative shares of agriculture and agribusiness in GDP change as incomes rise. Thus, we need to consider the whole supply chain in policy formulation.

46 46 Policy diamond for a transforming economy High-value Activities, inclusion in new food markets R&D and infrastructure to improve productivity Food staples, safety nets, environmental Services Rural non-farm economy; Skills for non-farm economy More investment in R&D and provide infrastructure to improve productivity Promote high-value activities to diversify farming away from staples as income rise & diet changes. Blue Ocean. Extend green revolution in staples to areas bypassed by technological progress; provide safety nets; payments for environmental services to create conservation incentives. Promote rural non-farm economy to confront rural employment problem; enhance skills to give access to jobs offered by the growth of rural non- farm economy.

47 Sekian, Terima Kasih


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