The growing economy and the population growth in Southeast Asian countries make this region more and more attractive for food supply. Respectively, Ukraine and Russia that strengthen their positions on the global grain market are interested in this region. Traditionally, there is a high competition between the largest exporters of black sea grain to the Southeast Asian market. Therefore, we will focus on the key trends of the delivery of Ukrainian and Russian grain to the region.
Position of the region on the global market
The region of Southeast Asia is a considerable large consumer and importer of grains, but it has different preferences in terms of the product suppliers. For example, Indonesia, being one of the largest importers of wheat in the world, gradually declines the import of corn thus stimulating the domestic production. At the same time, Malaysia and Vietnam are the active buyers of corn. Herewith, these countries mostly have a low interest in the purchase of barley.
The analysis of the main figures of corn distribution in the region shows that the consumption if this grain is gradually increasing — up nearly 3% during the season. Herewith, taking into account the stimulation of the domestic production by the main countries, the import is rather fluctuating. For example, in 2017/18 MY the import declined by 11% year-on-year, but in 2018/19 MY it is expected to increase by 17% y-o-y. For 5-year term, the average imports of corn by Southeast Asia increases by 2% annually. Herewith, the share of the imported grain in the total domestic consumption totals in general 33%.
The share of this region in the global corn consumption totals nearly 4% per year, whereas the volumes of the grain imported by Southeast Asia totals nearly 10% of the global import of corn.
As we noted, the key importers of corn in this region are Malaysia and Vietnam. The volumes of the purchases by Malaysia are rather constant and for the five recent years totaled in average 3.9 mln tonnes per year. Vietnam gradually increases the import of corn — up 7% in average per year for the last 5 seasons. In 2019/20 MY, the USDA experts forecast the import of corn by Vietnam at 10.5 mln tonnes. According to the International Trade Center data, the key suppliers of corn to Vietnam are Argentina, Brazil and the US. But in 2017 and 2018 Russia has become of the TOP-5 exporters of corn to Vietnam. Ukraine does not deliver corn to Vietnam. Thus, even despite the significant purchase of the grain by country, this is not about the competition between Russia and Ukraine on this market.
Wheat is the main crop in terms of the consumption and import in the region. The cumulative volume of the domestic consumption by Southeast Asia increases by 4% per year and according to the USDA in 2019/20 MY it can reach 27.4 mln tonnes. As the consumption increases there is a need to import which increases by 3% per year in average. The peculiarity of the region is that the volumes of the import always surpass the volumes of the domestic consumption, which shows the further growth of the consumption and the need to keep the stocks high (53 mln tonnes in average, cumulative number for the region according to the USDA).
In 2019/20 MY, Southeast Asian countries are forecasted to purchase record volumes of wheat — 28.6 mln tonnes (+4% y-o-y), which is 5% higher compared the expected wheat consumption in the region.
The analysis of the import structure of these countries shows that there are 5 key players in the region: Indonesia, the Philippines, Vietnam, Thailand and Malaysia. The leading wheat importer in the region is Indonesia, which obtains 40% of the regional import of wheat, herewith it increases the import of the grain by 3% annually. On the global market, Indonesia is the second to Egypt. In 2019/20 MY the import of wheat to Indonesia is expected to reach 11.5 mln tonnes, which is record volume and it gives good perspectives to Ukrainian and Russian wheat supply. Apart from the Black Sea countries, the TOP-5 countries suppliers of wheat to Indonesia are Australia, Canada and the USA, which for a high competition on the market.
The Philippines that takes second position as an importer of wheat among Southeast Asian countries also gradually enlarges the import of wheat. For 4 season the volumes of import to this country increased by 46% and in 2018/19 and 2019/20 MY it is expected at the record 7.2 mln tonnes. This volume forms 25% of the total wheat import to the region. The TOP-5 importers of wheat to the Philippines is the same that supply the grain to Indonesia.
The third largest importer of wheat in the region is Vietnam that has mixed trend in import volumes. For the 5 recent seasons the maximum volume of import was observed in 2017/18 MY with 5.5 mln tonnes (20% of the total regional import). Later the import lowered and by the end of 2018/19 MY totaled only 3.3 mln tonnes (12% of the regional import). In the new season the USDA experts forecast the import to increase to 4.0 mln tonnes.
Russia dominates among the importers of wheat to Vietnam. Also, the TOP-5 suppliers are Australia, the USA, Canada and Argentina. The deliveries of wheat from Ukraine are ad-hoc and rather low so there is competition.
Thailand is characterized by the gradual decline of the domestic consumption of wheat. According to the USDA estimations in 2019/20 MY it can total 2.8 mln tonnes which is 36% lower compared to import volumes in 2015/16 MY (4.4 mln tonnes). In accordance with this trend the import also decreases – to 3.1 mln tonnes in 2019/20 MY compared to 4.9 mln tonnes in 2015/16 MY (-36%). The TOP-5 exporters of wheat to Thailand are the USA, Ukraine, Australia and Russia.
The last of TOP-5 in terms of consumption and import is Malaysia. In particular, for the 5 seasons the average annual consumption totals 1.6 mln tonnes and the import – 1.8 mln tonnes. Here Ukraine and Russia are also one of TOP-5 suppliers and compete with Australia, Canada and the USA.
Ukrainian and Russian supplies to the region
As for the structure of supplies of grains and its by-products from Ukraine and Russia, APK-Inform analysts made a conclusion that the supplies to Southeast Asian countries covered rather small share in the general export structure of the countries. For three recent seasons, the figures for Ukraine varied at nearly 10%, and for Russia — 6%. At the same time, in absolute terms the Ukrainian exports demonstrated the systematic increasing of the export volumes for three recent seasons, while in 2018/19 MY the exports from Russia to Southeast Asian countries decreased to 3.5 mln tonnes, against 4.1 mln tonnes in the previous season. According to APK-Inform estimations, in 2018/19 MY Ukraine exported almost 5.3 mln tonnes of grains and its by-products to countries of Southeast Asia.
As for the dominant selling markets, the EU is the major market for Ukraine, mainly due to the significant volumes of corn supplies, as well as the markets of the Middle East and North Africa, which purchase the similar volumes of grain cargoes. At the same time, the markets of the Middle East and North Africa are dominant ones for Russia. Generally, the volume of grain exports from Ukraine and Russia are similar in absolute values. For three recent seasons, Ukraine supplied nearly 45.8 mln tonnes of grains and by-products on foreign markets, while the figures for Russia totaled nearly 46 mln tonnes. Due to somewhat different structure of grain production and exports (wheat dominates in the Russian exports, while corn and wheat are the main supplies from Ukraine), the countries formed somewhat contrasting key sales markets. At the same time, on the markets of the Middle East, North Africa and Southeast Asia Ukraine and Russia formed the significant level of competition rates, mainly in the supply of wheat.
As for the competition between the Black Sea suppliers on the Southeast Asian market, it should be noted that the supplies of corn in the reporting destination are quite insignificant, and there is no real competition in the segment. We can specify Vietnam only, which according to APK-Inform estimations in 2016/17 MY imported 123 thsd tonnes of the grain from Ukraine, and 807 thsd tonnes — from Russia. The reporting volumes formed 11% only of the general grain imports to the country.
Therefore, it makes sense to analyze the supply of wheat only from Ukraine and Russia to Southeast Asian countries. First of all, it should be noted that in 2017/18 MY Russia started very actively developing the reporting market, and supplied almost 4 mln tonnes of wheat to five major countries in the region. The figures increased in 6.4 times compared the export volumes in 2016/17 MY. In 2018/19 MY, the exports from Russia to the reporting countries decreased by 12%, and totaled 3.5 mln tonnes.
At the same time, the Ukrainian exports to the key Southeast Asian countries demonstrated the systematic growth rates. According to APK-Inform estimations, in 2017/18 MY the supplies increased by 7% (to 4.2 mln tonnes), compared with the previous season. Last season, the upward trend was even more significant (up 22%), and Ukraine exported more than 5.1 mln tonnes of wheat to five key importers of the region.
As for the structure of supplies by countries, it is well-established for Ukraine. Indonesia was the leader in purchasing of Ukrainian wheat, the Philippines took the second position, while Thailand was the third one. At the same time, for two recent seasons Vietnam and Indonesia were the main buyers of Russian wheat, and in 2018/19 MY Russia also increased the supplies to the Philippines. Thus, to date the main competition started developing in the supply on the markets of Indonesia and the Philippines. In absolute terms, in 2018/19 MY the exports of Ukrainian wheat exceeded the supply volumes of the Russian grain on the market of Indonesia in 2.2 times, and in the Philippines — up 1.7 times.
As for the price figures, it can be noted that for 5 recent years, Russian wheat already became more competitive on the Southeast Asian markets. According to the International Trade Center, if in 2014 the average weighted price of all export batches of wheat from Russia to Indonesia increased by 24 USD/t compared with the price of the Ukrainian grain, then in 2018 the figures almost got equal, and the price margin totaled 2 USD/t only. The similar situation is typical for the deliveries on the markets of Malaysia and Thailand. The deliveries on the Philippine market were realized at the comparable prices both in 2014 and 2018.
To date, Ukraine has the significant advantage in terms of wheat supplies on the markets of Indonesia and the Philippines, but does not have any high level of competitiveness in its pricing policy. At the same time, in the Southeast Asian region Russia well mastered the market of Vietnam, and almost did not face any competition from Ukraine.
First of all, it is necessary to pay attention to the expectations for changes in the population of the region, which mainly forms the domestic consumption volumes. According to the FAO estimations, by 2026 the population in Indonesia will increase by 7.6%, the Philippines — up 11.9%, Malaysia — up 10.3%, and Vietnam — up 7.3%. Therefore, by 2026 wheat imports to Malaysia will increase by 9%, Indonesia and the Philippines — up 10% each, and Vietnam — up 11%. Thus, Vietnam will remain the prospective market for Russia with the well-established sales channels, and Ukraine will only have to develop the market. Also, other countries are quite promising for Ukraine and Russia, but they demonstrate the increased competition rates from other suppliers.
The level of price competition will mainly depend on the foreign currency volatility of the main countries-suppliers. At the reporting stage, Ukraine is not in the best position. According to the global forecasts of several international agencies, until 2023 there will be a tendency to strengthen UAH against USD, while Russia and Australia will face moderate devaluation rates, and Argentina — significant weakening of the national currency. As a result, the trend will likely reduce the competitiveness of the Ukrainian grain compared with the Russian one, and not only on the Southeast Asian market.
The well-developed port infrastructure is the undeniable advantage of Ukraine in supplies on the distant markets of Southeast Asia. To date, the actual capacity of transshipment already exceeds the export volumes and has rather good prospects for further development. At the same time, Ukraine has some troubles in the segment of domestic transportation, which reduces the significance of the advantage as a competitive one.
Also, it is worth noting the frequent abnormal weather conditions in Australia, reducing the production and export volumes of grains, which can open new prospects for Ukraine and Russia on the Southeast Asian markets.
Andrei Kupchenko, APK-Inform Agency