Asia’s growing taste for meat and dairy could see agricultural exports outperform metals and drive Australia’s next commodities boom as the unprecedented investment in the mining sector winds down, a global report says.
The increasing demand for foods such as meat and dairy reflected the growing economies in Asia and other regions, with the expanding incomes of the new middle-class fuelling the shift in preference towards more high-quality foods, the HSBC report released on Tuesday said.
It may, in fact, be the case that food prices have the potential to outperform relative to metals and energy prices in coming years.
Australia, as one of the world’s biggest exporters of soft commodities such as meat, dairy, wheat and sugar, was well-placed to benefit from the changing tastes of the growing middle-class in Asia – the fastest-growing part of the global economy, HSBC’s chief economist for Australia Paul Bloxham said.
At the same time, the region’s economic expansion would also boost other sectors in Australia including tourism and education, he added.
«Agricultural product prices have risen by far less than metals and energy prices over the past decade, but could be the next big story,» HSBC’s economists Mr Bloxham and Adam Richardson said in the report.
«It may, in fact, be the case that food prices have the potential to outperform relative to metals and energy prices in coming years, as growing middle class incomes continue to boost demand.»
The analysts estimate about 1.3 billion people could reach at least middle-income levels by 2030, while another 2.6 billion could achieve that income status in the following two decades.
This in turn could lead to a change in diet and a taste for finer foods, benefiting soft commodities exporters such as Australia, Brazil and New Zealand.
The types of soft commodities that are consumed also changes as an economy develops, the report’s authors said.
«Historical patterns show as a country develops, demand for grains rises first. Demand for better quality food picks up later, as middle class incomes increase,» Mr Bloxham and Mr Richardson wrote.
«As incomes rise and diets change, demand rises for animal products, such as milk and meat, and for other finer foods, like sugar and edible oils.»
Historically, the demand for cereal peaks early in an economy’s development phase, but has a drawn-out path as the grains become used for other purposes such as for animal feed, sweeteners, and energy, they wrote.
Meanwhile, the demand for animal products kicks off at a later stage, due to the higher costs of production, but continues to rise beyond the growth experienced by cereals as a country transits to high-levels of income.
The demand for dairy is even more drawn out, the economists wrote, with statistics showing the consumption of such products continues to rise beyond per-capita gross domestic product (GDP) of $US30,000 ($32,800).
«In broad terms, the demand estimates suggest that metals demand is likely to peak before energy or animal product demand,» the analysts said.
«The demand for energy products evolves in a similar way to animal products through a country’s development. As a result, emerging market demand for energy products, including natural gas, coal and oil, should remain robust as incomes continue to rise.»
Australia’s agricultural sector makes up about 2 per cent of the economy, far lower that the mining sector. Agriculture makes up about 12 per cent of all exports, below the 57 per cent of exports from the resources sector.
Even so, the report’s authors said the sector’s productivity gains over the last few decades, as well as the healthy outlook for Asian food demand, could encourage local farmers to boost their output.
Further consolidation in the agricultural sector, such as allowing more farms to be purchased by larger conglomerates, as well as greater foreign investment would also boost productivity, Mr Bloxham said.
«That is sometimes a politically unpalatable message,» Mr Bloxham said.
«[But] we also need to be conscious that we are not the only players in this field and there is stiff competition from places like Latin America.»
HSBC’s analysts said Brazil was the world’s most competitive beef producer and would greatly benefit from the rising meat demand.
Earlier this month, a report by the Economist Intelligence Unit called on Australia to give up government support for industries such as traditional manufacturing to encourage Asian countries to liberalise access to their agricultural sectors, which are currently being protected by trade restrictions.
The federal government is set to release a white paper later this year on developing northern Australia as a potential food basket for the Asian region.
Source: SMH
