Speaker 1: You're listening to Asia Centric from Bloomberg Intelligence, the podcast
Speaker 1: that explores the big ideas and trends moving money across
Speaker 1: the region. I'm John Lee in Hong Kong.
Speaker 2: And I'm Kadi Dmitriyeva, also in Hong Kong. John, I
Speaker 2: was reading a UN report earlier this year about this
Speaker 2: big global change that's happening in agriculture. India is set
Speaker 2: to overtake China as the world's number one driver of
Speaker 2: global food demand and that's going to be over the
Speaker 2: next decade.
Speaker 1: Interesting, and that's quite a big change from what we
Speaker 1: saw in the past few decades where all the growth
Speaker 1: in demand came from China, everything from meat to rice.
Speaker 1: We shift a lot of supply chains, impact prices and
Speaker 1: in general, it's a trend that most investors should be
Speaker 1: aware of.
Speaker 2: Yeah. Also the climate factor. We're seeing bigger and more
Speaker 2: frequent climate change events, particularly in India and China. Well,
Speaker 2: here to discuss all things agriculture across the region is
Speaker 2: Darren Fredericks, director of Setonia Consulting. Welcome, Darren, Hi, thanks
Speaker 2: for having me well in this report.
Speaker 3: Darren.
Speaker 2: The un FAO, that's the Food and Agriculture Organization They
Speaker 2: said that China's agriculture and fisheries consumption growth will drop
Speaker 2: to about eleven percent, So it's a pretty big decline
Speaker 2: from the sort of twenty eight percent we've had over
Speaker 2: the past decade, So quite a big shift, a big slowdown,
Speaker 2: and the un cited China shrinking population, flat income growth.
Speaker 2: I'm just wondering, from what you're looking at, are you
Speaker 2: seeing that slow down in China's agricultural demands yet?
Speaker 3: Yeah, Yeah, we're definitely seeing a slowdown. Part of that
Speaker 3: is due to the school or economic growth that we're
Speaker 3: seeing following COVID. Part of that's also the changing demographics.
Speaker 3: You have an aging population, they're trying to eat healthier.
Speaker 3: You know, back in twenty ten you saw very high
Speaker 3: growth in port consumption things like that. But now China's
Speaker 3: the economy slowing, the older demographics are trying to eat healthier,
Speaker 3: the younger demographics also trying to eat healthier, And we've
Speaker 3: sort of had all the major gains previously and now
Speaker 3: things are settling into a more slower pace.
Speaker 2: What kind of agricultural goods are we talking about, Like,
Speaker 2: if someone wants to eat healthy in China, what kind
Speaker 2: of items are they reaching for or what are they
Speaker 2: not reaching for anymore.
Speaker 3: I think the biggest thing that we've seen impacted is pork.
Speaker 3: I mean, pork remains the dominant protein source, the biggest meat,
Speaker 3: but over the past decade, pork consumption is basically flat
Speaker 3: in comparison consumption of paltry so like chicken meat that's
Speaker 3: actually increased quite a bit over the past decade. So
Speaker 3: as people are eating healthier, they're going for that. We've
Speaker 3: seen a big increase in beef consumption eggs as well,
Speaker 3: So pork is still the dominant meat, but people are
Speaker 3: switching to alternatives, and they're also going for what they
Speaker 3: see as healthier options.
Speaker 1: Darren China consumes roughly, you know, half the world's poor consumption,
Speaker 1: so it's still very important. How has a slow down
Speaker 1: impacted poor prices?
Speaker 3: Generally, consumers right now are being just more frugal, and
Speaker 3: we're seeing that across the board, even in things like
Speaker 3: flour demand or rice demand. People are just not spending
Speaker 3: quite as much money. We're seeing that also in the
Speaker 3: restaurant industry, where a lot of restaurants are noting that
Speaker 3: people want discounts, they want deals. They're being more cautious
Speaker 3: what they're spending. A common phrase that's used is downgrading consumption.
Speaker 3: You know, people are still going out, they're still spending money.
Speaker 3: But if previously they were spending you know, one hundred
Speaker 3: remen be on dinner, now they're probably trying to spend seventy.
Speaker 3: So it's just this downgrading of consumption.
Speaker 2: What about the production? And I guess sort of implications
Speaker 2: for investors, like if we know that China's consumption of
Speaker 2: agricultural goods is going to sort of flatline, well grow
Speaker 2: at a slower pace in the coming years, does that
Speaker 2: open up space for Chinese investors to look offshore that
Speaker 2: increase competition for investors. You know, we've seen Chinese investors
Speaker 2: buying farmland in North America for example. What are sort
Speaker 2: of those implications.
Speaker 3: So one of the big things we've seen this here
Speaker 3: is because of the scower growth, we've seen, for example,
Speaker 3: hog populations decline. We've seen soybean imports are relatively weak
Speaker 3: on the sort of international markets in Chicago, we've seen
Speaker 3: soybean's fall to very low levels. Soybean futures, we've seen
Speaker 3: corn prices relatively weak. Same thing with wheat, where China's
Speaker 3: had a very good wheat crop, but there's not that
Speaker 3: much demand. So that's definitely pressure and global markets from
Speaker 3: the demand side because China is simply buying less.
Speaker 1: Sit down, if you are a say like a weight
Speaker 1: or a soybean farmer sitting in the US or maybe
Speaker 1: even Brazil, what's the strategy going forward because it sounds
Speaker 1: like China's going to be consuming less these products.
Speaker 3: I mean, I think it raises the issue of diversification
Speaker 3: of finding these new markets because for the past let's
Speaker 3: say twenty years, China has been the demand driver. Pretty much.
Speaker 3: Every year demand would go up, China would import more,
Speaker 3: and that was your market. So now we're faced with
Speaker 3: the scenario where China is not going to stop buying,
Speaker 3: but they're not going to increase every single year and
Speaker 3: they're not going to be the biggest demand driver in
Speaker 3: the world. So I think it's important for those people
Speaker 3: to understand that they need to diversify markets. And we've
Speaker 3: been seeing this in some countries where for example, Australia
Speaker 3: is trying to make sure that they've got a diversified
Speaker 3: supply chain and just selling to a broader range of countries,
Speaker 3: and that does mean expanding and making those trade connections
Speaker 3: in new countries because the sort of year on year
Speaker 3: endless growth that we've seen out of China is not
Speaker 3: happening at this point.
Speaker 2: Basically, does that weaken the demand for certain commodities now
Speaker 2: you talked about like soybeans, wheat prices longer term, does
Speaker 2: that kind of add pressure on those commodities that China
Speaker 2: usually eats up.
Speaker 3: I think that we'll still see relatively good demand for that,
Speaker 3: it's just going to be from different markets. So for example,
Speaker 3: you know plenty of markets in Africa and South Asia
Speaker 3: they're having huge population growth, rising incomes, and what we've
Speaker 3: seen from China, I think we can apply to these
Speaker 3: countries as well. As people get wealthier, they're going to
Speaker 3: eat more meat, they're going to consume more protein, They're
Speaker 3: going to have more money to spend on food, and
Speaker 3: they will spend it on food. I mean, we've seen
Speaker 3: this in China. I think it's just shifting the markets
Speaker 3: from where it was traditionally to maybe new markets.
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Speaker 1: China's had this big self sufficiency push in a number
Speaker 1: of industries for a number of decades. How has China
Speaker 1: been Has it been successful in the self sufficiency for agriculture,
Speaker 1: for food?
Speaker 3: Yeah, so it's been relatively I would say mixed. For contexts.
Speaker 3: In the past decade, China's faced a lot of potential
Speaker 3: supply sharks. I mean, we had the trade world between
Speaker 3: China and the US. We had the sus Canal getting blocked,
Speaker 3: we had COVID, we had supply chain disruptions. There's a
Speaker 3: lot of reasons that China is worried about it self sufficiency,
Speaker 3: so it has been trying to increase that, but I
Speaker 3: would say the results have been relatively mixed. For example,
Speaker 3: one of the big pushes is to increase soybean production.
Speaker 3: China is by far the biggest importer of soybeans. They
Speaker 3: import about one hundred and five million tons every year.
Speaker 3: In comparison, they were growing about fifteen million tons before.
Speaker 3: After the self sufficiency push, they're growing about twenty million
Speaker 3: now in comparison to importing one hundred and five million.
Speaker 3: That's not really going to help them much. So they've
Speaker 3: been making efforts towards it, but there's some things that
Speaker 3: simply can't be fixed.
Speaker 2: You talked about a lot of risks there, and one
Speaker 2: thing been thinking of is does this increased climate change
Speaker 2: risk extreme weather events impacting harvests and yields. And we
Speaker 2: recently had pretty bad flooding in China. Wonder as we
Speaker 2: see this shift from China to India and of growth
Speaker 2: of consumption, how does that play into these climate change disasters.
Speaker 3: Yeah, I mean this year has been very difficult in
Speaker 3: terms of weather. You know, big agricultural areas in the
Speaker 3: north of China had droughts to begin the year, than
Speaker 3: it switched to very heavy rainfall. We've seen vegetable prices
Speaker 3: go up by fifty percent in some cases, and there's
Speaker 3: just been more weather volatility and that increases the risks.
Speaker 3: We've seen record amounts of rainfall in some areas, We've
Speaker 3: seen extreme temperatures and that's just going to have to
Speaker 3: be something that needs to be adapted to, but it's
Speaker 3: definitely having an impact on agriculture, on prices, and then
Speaker 3: also on consumer spending.
Speaker 2: Do you expect those swings to continue? I mean, climate
Speaker 2: change risk is always going to be a risk. It
Speaker 2: will probably intensify, storms will intensify, and the impact will intensify.
Speaker 2: But in terms of agriculture in China, how are you
Speaker 2: kind of thinking about that a longer term, like over
Speaker 2: the next ten twenty years, just more volatility? Are there
Speaker 2: certain momodity is you're eyeing?
Speaker 1: Yeah?
Speaker 3: I think I definitely think that there's going to be
Speaker 3: more volatility as we go forward, as we're dealing with
Speaker 3: climate change. And this is I think part of the
Speaker 3: reason that the Chinese government is very focused on self sufficiency,
Speaker 3: very focused on food security. They're making a very big
Speaker 3: effort to have large stockpiles of this basically buffer stocks,
Speaker 3: because if we do have a situation where there's an
Speaker 3: excessive rainfall or excessive drought and we have a very
Speaker 3: bad corn harvest or wheat harvest or rice harvest, they
Speaker 3: want to have those stockpiles built up so that they
Speaker 3: can prevent prices from going up, make sure everyone is fed.
Speaker 3: And so I think part of the reason for China's
Speaker 3: food security push is because of this awareness of the
Speaker 3: climate risks.
Speaker 1: So Darren, we've seen wheat prices as well as soybean
Speaker 1: prices almost that like you know, three year lows. What's
Speaker 1: the outlook going forward? It seems pretty bleak. Can we
Speaker 1: see a recovery?
Speaker 3: Yeah, it does seem pretty negative at the moment. So
Speaker 3: part of the reason is on the supply side, we've
Speaker 3: had relatively good crops out of the US and out
Speaker 3: of Brazil. They're producing plenty of corn, plenty of soybeans,
Speaker 3: plenty of wheat. And then on the demand side, China
Speaker 3: has been the traditional driver for a long time and
Speaker 3: now is entering a period of slower growth muted consumption.
Speaker 3: So that's a bit of a perfect storm where we
Speaker 3: have very good crops out of the main growing regions,
Speaker 3: farmers planted quite a bit, and the weather's been good
Speaker 3: there in China, demand has been relatively weak, So there
Speaker 3: isn't really a terribly optimistic outlook at the moment.
Speaker 2: Are there certain companies Like if you're an investor and
Speaker 2: you know you're looking at what's happening with soybeans and
Speaker 2: you want to invest them or else and you know
Speaker 2: that Chinese demand is just not going to be there
Speaker 2: the way it was the past decade. What should investors
Speaker 2: be doing? Where should they be investing their money?
Speaker 3: Well, I think there's a couple areas that are very promising,
Speaker 3: even if within China it's sort of slow. For example,
Speaker 3: sea technology is going to be a very big thing.
Speaker 3: So China recently approved GMO genetically modified seeds after the
Speaker 3: much of the world has already adopted those. So China's
Speaker 3: adopting those and they're needing to build up that industry,
Speaker 3: and part of that also plays into climate change. Part
Speaker 3: of GMO seeds is that they are more resistant to
Speaker 3: drought or flooding, so that's a potential opportunity. Also, even
Speaker 3: though pork demand is down in China, beef consumption has
Speaker 3: also been rising a lot. So I've seen record levels
Speaker 3: of beef and a lot of that is coming from Brazil, Australia,
Speaker 3: the United States. They're shipping huge amounts of beef to China.
Speaker 3: Chinese consumers are eating more and China is not going
Speaker 3: to be self sufficient in that, so a lot of
Speaker 3: those companies are going to benefit as well.
Speaker 1: Darren, we did touch on other markets that are seeing
Speaker 1: some growth, like maybe India South Asia. Can India and
Speaker 1: South Asia pick up the slack from China for a start.
Speaker 3: Yeah, I think they will. It's just also adjusting to
Speaker 3: sort of the scale of the market. I mean, China
Speaker 3: just grew so fast, so consistently for so long, and
Speaker 3: there's also one market, so I mean, if you're a
Speaker 3: soybean exporter, you can just deal with China, whereas with
Speaker 3: South Asia you're dealing with you know, bang Goadesh, you're
Speaker 3: dealing with India, you're dealing with Sri Lanka. So it's
Speaker 3: a little bit harder to scale at the same pace.
Speaker 3: But I think they're definitely doing that because we've seen
Speaker 3: a bunch of milestones in the past few years. For example,
Speaker 3: like previously a lot of these markets would only take
Speaker 3: containerized cargo, and now they're able to do these big
Speaker 3: Panamax vessels, the bulk vessels. So there is a lot
Speaker 3: of progress there and their growth rates are also very
Speaker 3: very strong.
Speaker 2: Yeah, you spoke about some of the ships there just
Speaker 2: now that transport this stuff. And if you think about
Speaker 2: Chinese demands bowing and demand from India picking up, I mean,
Speaker 2: how could that reshape some of the ways that food
Speaker 2: is delivered. How could that reshape not just the supply chains,
Speaker 2: but also ports and ships and the you know sort
Speaker 2: of trucks that you need to deliver this stuff or
Speaker 2: they're potentially you know, opportunities there And how big of
Speaker 2: a change do you think that'll be in the next decade.
Speaker 3: Yeah, absolutely So. Part of the thing is China has
Speaker 3: been very good at building large ports, deep water ports,
Speaker 3: able to take these big Panamax vessels not only for
Speaker 3: grain but also for iron ore, coal, other commodities. A
Speaker 3: lot of South Asia is still at a point where
Speaker 3: they're taking a lot of this by container, these you know,
Speaker 3: forty foot twenty foot shipping containers bringing in that way,
Speaker 3: which is more expensive, it's less efficient, it's more expensive.
Speaker 3: So there's a lot of opportunities there, especially with infrastructure.
Speaker 3: I mean, one thing that China has very good is
Speaker 3: really good infrastructure, ports, trains, efficient shipping, and that's going
Speaker 3: to be something that South Asia will need to build
Speaker 3: out more. So I think there's a lot of opportunities
Speaker 3: for growth there.
Speaker 1: So, Darren, after what we've discussed, it sounds like being
Speaker 1: a pig farmer is not looking too good. If you
Speaker 1: were a farmer, what would you focus on.
Speaker 3: If I was a farmer right now, I would focus
Speaker 3: on probably something like beef to sell to the Chinese market.
Speaker 3: It's not something that they are going to be self
Speaker 3: sufficient in. Despite the long economy, people still have money
Speaker 3: in China. There's just spending a little bit less. I
Speaker 3: think there's still great market opportunities there and I think
Speaker 3: it's a product that I would enjoy eating, and I
Speaker 3: think that those customers there would as well.
Speaker 2: And why is it so tricky for China to get
Speaker 2: self sufficiency with beef production.
Speaker 3: It's basically they have limited land. I mean, if you
Speaker 3: look at someplace like I'm from Iowa, we have wide
Speaker 3: open fees. You look at someplace like Brazil, wide open fields.
Speaker 3: China is a very crowded country. On top of that,
Speaker 3: it's also they don't have the forged materials, so they
Speaker 3: need to import a lot of alfalfa and hay to
Speaker 3: feed these cows. So it's just something that they're never
Speaker 3: really going to have the space because beef farming takes
Speaker 3: a lot of space.
Speaker 1: That's quite interesting. But some of the neighboring countries are
Speaker 1: very famous with beef, like Japan and Korea.
Speaker 3: Yeah, and they do import there, but it also comes
Speaker 3: down to the scale. So I mean the biggest supplier
Speaker 3: to beef right now to China is Brazil, and then
Speaker 3: we have after that Australia, Argentina and the US. So yeah,
Speaker 3: I mean the Japanese beef is very good, but it's
Speaker 3: also very expensive, whereas Brazil it's more affordable.
Speaker 2: Yeah. It makes you think about potential pain points for
Speaker 2: future tariffs as well.
Speaker 3: Yeah, we've definitely seen that, especially with the European Union
Speaker 3: over the past few months, because the European Union put
Speaker 3: tariffs on Chinese electric vehicles. In recent sponse, China has
Speaker 3: put tariffs on pork from the EU and now recently dairy.
Speaker 3: So it is a point of leverage. Because China is
Speaker 3: such a net importer of agricultural products, it's very easy
Speaker 3: for them to put tariffs on that certain country. We
Speaker 3: saw that with Australia back in twenty twenty. So yeah,
Speaker 3: it does also provide the government a large amount of
Speaker 3: leverage in sort of trade wars, trade disputes, or political disagreements.
Speaker 1: Yeah. So Darren, China seems to have water problems at
Speaker 1: both ends of the spectrum. Some areas appoint to flooding.
Speaker 1: As you mentioned, you know, some are prone to droughts.
Speaker 1: What's the bigger risk and which areas in China are
Speaker 1: the most exposed.
Speaker 3: Yeah, it's definitely a serious problem. This year, for example,
Speaker 3: we've had Southern China facing way too much rain, we've
Speaker 3: had Northern China had a drought at the beginning of
Speaker 3: the year, and it is a very serious problem, especially
Speaker 3: in northern China. The groundwater levels have been depleted over
Speaker 3: the past several decades. So when there was a drought
Speaker 3: situation earlier this year in northern China, a lot of
Speaker 3: the farmers were simply struggling to get water out of
Speaker 3: the groundwater wells. They were running dry. And this is
Speaker 3: not a one time thing. The groundwater levels have been
Speaker 3: depleted over several decades due to this farming, and it's
Speaker 3: going to be a very serious challenge if you have
Speaker 3: sort of acute droughts or periods without rain. Sometimes, you know,
Speaker 3: farmers will pump from a well give the field irrigated,
Speaker 3: but if you're doing that over decades and you run
Speaker 3: out of water, that creates a very serious risk. The
Speaker 3: crops that are probably most affected by that would be corn,
Speaker 3: wheat and then also just vegetable production as well.
Speaker 2: So, Darren, you mentioned that you previously lived in Shanghai
Speaker 2: for some time, you have since moved to Ireland. Any
Speaker 2: initial takeaways on the food, different things you're seeing in
Speaker 2: the grocery store.
Speaker 3: I think my biggest impression is just the changes in
Speaker 3: the vegetables. So being in Shanghai, you could go down
Speaker 3: to any wet market and they have the widest variety
Speaker 3: of French vegetables you've ever seen, just everything, and it's
Speaker 3: also very cheap, and I would say in comparison, Ireland
Speaker 3: has maybe less variety and it's also a little bit
Speaker 3: more expensive. So I'm definitely missing some of my traditional
Speaker 3: sort of Chinese staples that I used to cook.
Speaker 1: Okay, great, it's been an interesting conversation on China agriculture,
Speaker 1: it's food security and the impact on climate change. Thank
Speaker 1: you Darren for appearing on the show.
Speaker 3: Thanks so much for having me.
Speaker 1: I'm John Lee in Hong.
Speaker 2: Kong, and I'm Katy Dmitrieva, also in Hong Kong.
Speaker 1: And this podcast was produced by Clara Chen and you've
Speaker 1: been listening to the Asia Centric podcast