South-East Asian market a ‘bright spot’ for dairy exporters 

Dairy exporters are eyeing up the South-East Asia market as growth opportunities appear in the medium to longer term market forecast for the region.

Rabobank senior dairy analyst Michael Harvey said in a sector report, South-East Asia – in Transition to Better Times, that the region presented a “bright spot” for Australian and New Zealand dairy exporters in an “increasingly lethargic global economy”.

Mr Harvey said “better times lie ahead” for the Philippines, Malaysia, Thailand, Singapore and Vietnam dairy markets, beyond short-term headwinds currently at play — which means South-East Asia will continue to provide growth opportunities for dairy exporters in the medium term.

“This is positive news for Australian and NZ dairy exporters, with Oceania traditionally dominating dairy exports to the region,” Mr Harvey said.

He said the dairy markets in South-East Asia were in transition as they cycle out of a period of channel disruption, sluggish consumer demand and downstream margin pressure that had culminated in a slow down in trade growth between 2020-2022.

Dairy trade growth into the region slowed to 1.4 per cent average annual growth during the COVID-19 pandemic (from 2020-2022), down on a compound annual growth rate of 3.3 per cent over the past decade.

South East Asia has not been immune to global pressures, Mr Harvey said, with economies across the region posting weak growth during that two year period.

“From 2024 onward, the region will present a bright spot against an increasingly lethargic global economy,” Mr Harvey 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.”

He said the International Monetary Fund forecasted growth of between four and seven per cent across South-East Asian economies between 2023 and 2028.

“This is strong growth that underpins our dairy demand forecasts,” Mr Harvey said.

Although he also cautioned that “these growth rates forecasts still fall below recent historical rates and these economies also face the looming risk of China’s economic slowdown proliferating through the region”.

The South-East Asia region has a significant milk deficit, and while local milk production is growing in most countries in the region, it is coming from a low base.

Mr Harvey said challenges associated with feed quality, genetics, capital and other resources remained major hurdles to domestic milk supply growth in the region.

Rabobank estimates the South-East Asian region’s combined dairy import stood at almost 10 billion litres in 2022, compared with China’s 14 billion litres in the same year.

Rabobank expects total dairy import volumes for South-East Asian countries to be two per cent lower in 2023 before import growth accelerates by three per cent in 2024 and widens further as demand growth collides with local supply limitations.

While this will provide a good platform for growth for dairy exporters, Mr Harvey warns the region will remain a “fierce battleground” for local brands and exporters.

“The region is typically dominated by Oceania, but opportunities are opening up for the emergence of new players,” 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.”