Impact of Coronavirus on Southeast Asian Food & Agribusiness

Southeast Asia will face far-reaching challenges from the impacts of the coronavirus outbreak, such as economic decline, reduced out-of-home consumption, and supply chains disruptions, even beyond the lockdowns. After panic buying, consumers will shift from foodservice to retail and – after a short, suppressed splurge (if any) – to recession-period spending. Production will also be affected, albeit less, but transporting goods will continue to experience problems due to the movement measures and supply chains disruptions. Rabobank will provide more elaboration on the specific impacts to each sector in its respective section.

Introduction

The increasing number of virus cases in Southeast Asia is forcing countries in the region to introduce or reimpose drastic measures to control the outbreak. Impacts to food & agribusiness (F&A) sectors extend beyond the lockdowns, as these measures have resulted in GDP slowdown, capital outflow, weak currencies, job losses, and overall weaker consumer confidence throughout the region. We expect more negative economic impacts to come in terms of global recession and global decline for Southeast Asian export economies. The consumer pattern will move from panic buying/stocking, to rechanneling purchases from foodservice to retail due to increased cooking at home, and to lower spending due to recession.

We also expect supply chains to be significantly disrupted across Southeast Asian F&A sectors as a result of reduced demand, absent workforce, and interruptions in production, trade, and logistics.

Challenges Faced by the Southeast Asian F&A Industry

The Foodservice Sector Is the Most Severely Impacted

Rabobank has estimated the impact of the situation on foodservice sales affected by a combination of lockdowns, restrictions, and consumer wariness of visiting crowded areas for a three-month period. Based on this scenario, an approximate 50% decline could happen in foodservice revenues in Southeast Asia. With only 4% of total foodservice sales in 2019, online delivery will not mitigate the decline in dine-in sales, despite the pick-up in online sales.

Panic purchases by consumers have benefited retail sales of staples, such as rice, instant noodles, edible oils, and canned food, in the short term. However, this trend is expected to change once social distancing and mobility restrictions are eased. Having stocked up on staples, consumers are likely to shift to spending on discretionary purchases, including affordable (rather than premium) snacks, due to worsening economic conditions. Out-of-home consumption is also expected to be limited once lockdown measures are lifted.

Government Restrictions Cause Disruptions Across F&A Supply Chains

Southeast Asian informal and formal economies are significantly supported by migrant workers. Restrictive government measures, however, have resulted in the exodus of migrant workers back to their hometowns. The reduction of migrant workers in F&A sectors will severely disrupt production, supply chains, and distribution. Case in point: 70% of Malaysia’s plantation workforce is made up of migrant workers. We also expect to see more logistics disruptions in the region, such as roadblocks, port congestion, and limited air freight capacity, if more countries extend or implement stricter measures to control the outbreak.

Reduced Out-Of-Home Consumption and Slower Economic Growth Bring Knock-On Effects Across F&A Sectors

Animal Protein: We estimate that the economic slowdown will impact full-year beef consumption in Southeast Asia by 9% to 13%, including the drop in foodservice traffic in the three-month period. Likewise, pork consumption is expected to decline by 4% to 17% YOY, even though supply shortages and high pork prices from ongoing ASF outbreaks remain key drivers in Vietnam and the Philippines. Southeast Asian full-year fish demand is also expected to dip by 6% to 11% YOY this year, as at-home meals will only partly compensate for the drop in consumption through foodservice. With weaker spending power, Southeast Asian poultry consumption is forecast to decline 1% to 4% in Indonesia, Malaysia, Thailand, and the Philippines, but still grow 4% in Vietnam this year.

Beverages: The coronavirus outbreak will hurt Southeast Asian beverage consumption, primarily due to lower on-premise consumption and social distancing measures. This impact varies across Southeast Asian countries and categories, depending on the share of tourist arrivals and on-trade share of total demand. For our base case of a three-month suspension in international arrivals, Southeast Asian 2020 beer demand will decrease by ~3% YOY and will be the last to recover from the Covid-19 disruption. Social distancing measures have severely curtailed out-of-home consumption. Based on a three-month period of 50% capacity utilization in the on-premise channel, Southeast beer volumes could drop by 8% YOY.

Grains & Oilseeds (G&O): Demand from home consumption is expected to remain resilient. G&O demand for animal feed is expected to decline due to reduced animal protein consumption. We estimate demand for wheat, corn, soybean, and soymeal for animal feed in Indonesia, Malaysia, the Philippines, Thailand, and Vietnam to reduce by 6% YOY in 2020. Around 35% of total annual wheat, corn, soybean, and soymeal demand in these five countries is used for food consumption, while the remaining 65% is used for animal feed. Hence, the decrease in G&O use for animal feed outweighs the increase in G&O use for home consumption. We estimate total wheat, corn, soybean, and soymeal demand in these five countries will reduce by 3% YOY in 2020.

Sugar: Southeast Asian demand is set to experience a 2% to 3% YOY fall in 2020, as out-of-home consumption is avoided. However, in-home and F&B consumption is expected to remain resilient, both in domestic markets and for major sugar importers.

Dairy: While e-commerce is up substantially, it is unlikely to offset the squeeze in offline dairy purchases. With foodservice closures, business-to-business dairy sales are dropping significantly. This will lead to declines in Southeast Asian imports of dairy ingredients from major exporters. In 2020, Southeast Asian SMP and WMP imports are estimated to retreat by nearly 8% YOY.

Packaging: Demand for packaging film in Southeast Asia has not been negatively impacted. However, supply chains disruptions are creating challenges. Though packaged food is designated as an “essential industry,” there is not much clarity on the packaging film segment in some countries. This has disrupted the movement of raw materials and finished film products.

Weak Currencies and Protectionism Negatively Affect Trades in F&A Sectors

Rabobank expects currencies of Southeast Asian countries to depreciate further against the US dollar in 2020, which will increase imported input costs across F&A sectors and reduce margins. The combination of lower margins and a relatively weak demand outlook will result in lower import volumes. F&A trades could also be disrupted as more Southeast Asian countries adopt protectionist measures to safeguard their food supplies.

Small- and Medium-Sized Enterprise (SME) Closures Will Worsen Disruptions in F&A Industry Supply Chains

This virus will likely impact SMEs more than bigger players and possibly lead to bankruptcies and closures. According to ASEAN, SMEs account for about 90% of all establishments and between 50% and 97% of total employment. Even though food has been classified as an essential service across many countries and SMEs are receiving government support, many SMEs are unlikely to be able to operate. The resultant impact on economies and supply chains would be significant.

Potential Risks for Southeast Asian F&A Sectors

●Southeast Asian government restrictions could be extended if the coronavirus outbreak situation is not controlled.

●Even though most airports and seaports currently remain open to support supply chains globally and most countries are still exporting their F&A products, there are still risks of bottlenecks and export restrictions across F&A sectors.

●Social unrest and political upheaval could arise if the economic and health impacts become more extreme.

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  • Ping Chew

    Head of RaboResearch Food & Agribusiness - Asia
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  • Oscar Tjakra

    Senior Analyst - Asia
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  • Ben Santoso

    Senior Analyst - Animal Protein
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  • Sudip Sinha

    Senior Analyst - Beverages
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  • Sandy Chen

    Senior Analyst - Dairy
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  • Umesh Madhavan

    Analyst – Consumer Foods
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  • Shiva Mudgil

    Analyst - Dairy
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  • Charles Clack

    Commodity Analyst
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