Southeast Asia develops a taste for wheat

Indonesia is Canada’s number one wheat customer in that part of the world, but the Philippines is a more challenging market

Wheat demand is booming in Southeast Asia, according to the U.S. Department of Agriculture.

World exports to the region soared by more than 60 percent between 2013-14 and 2018-19 as consumer tastes and preferences shift to include more wheat and wheat-based products in their diets.

That trend shows no signs of abating. The region is expected to import 27.5 million tonnes of the grain in 2019-20, up from 26.7 million tonnes a year ago, according to the USDA.

The region’s tropical climate limits wheat production, so it has to rely on imports.

Indonesia is the top importer in the region followed by the Philippines, Vietnam and Thailand.

Australia had been the main supplier of wheat to the region, accounting for about 40 percent of exports in 2016-17 but three consecutive droughts have changed that dynamic.

Australia’s wheat exports to Southeast Asia have plummeted from a high of about 11 million tonnes in 2016-17 to well below half that amount.

Canada’s top customer in Southeast Asia is Indonesia. In fact, it is the biggest buyer of Canadian wheat in the world, purchasing 2.28 million tonnes in 2019 worth $699 million.

Sales to the Philippines are paltry by comparison. It is Canada’s 60th ranked customer, buying 2,356 tonnes worth $478,520 last year.

Neil Townsend, chief market analyst with FarmLink Marketing Solutions, said Canada faces an uphill battle in the Philippines, which is the only country in Southeast Asia that consumes more bread products than noodles.

“The Philippines has long had very close ties with the United States,” he said.

“I wouldn’t quite call it a captive customer but it is a former colony of the U.S.”

Daniel Ramage, director of market development with Cereals Canada, agrees with that assessment.

“The Philippines market is accustomed to those U.S. wheats,” he said.

In Indonesia, there has been much more acceptance of Canadian wheat by millers and bakers who are becoming familiar with the benefits of using it in blends.

Both Townsend and Ramage acknowledge that the looming question is what will happen to Canada’s market share in places like Indonesia, Vietnam and Thailand when Australia finally harvests a good crop.

Townsend said the Aussies have strong business relationships in Indonesia, such as joint ownership of flour mills. He also noted that Australian wheat is better suited than Canadian wheat for making ramen noodles, cakes and cookies, products that are in high demand in that country.

Ramage said Indonesia is a price-sensitive market and Australian wheat is more cost-competitive into that market given the country’s proximity to Indonesia.

The hope is that after three years of vastly reduced competition from Australia, some millers and bakers in Southeast Asia may have developed a preference for using blends containing Canadian blends.

Townsend noted that there is also fierce competition from the U.S., Ukraine, Russia and Argentina in Southeast Asia.

“The reality is there is just intensified competition for wheat export market share,” he said.

“That’s a huge risk to Canada.”

In fact, Canada is starting to face competition from many non-traditional exporters all around the world, including India, which harvested a record 102 million tonnes of wheat in 2019-20 and is expected to consume 98 million tonnes.

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