ASEAN market trends: cause for concern or hopeful portents?

Despite its present economic difficulties, Southeast Asia is a market that the United States cannot afford to relinquish. All 10 countries in the region (Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam) are members of the Association of Southeast

Increasing industrialization in these countries over the last two decades or so has created rapid economic growth, with more job opportunities and a consumer class with considerable purchasing power. Middle-class prosperity fostered the lifestyle changes typically seen in emerging markets: supermarkets began to replace traditional open-air markets (known as wet markets), convenience foods gained popularity and fast-food outlets became ubiquitous.

The recent financial crisis has had region-wide impacts, too: a decline in fine dining; drops in supermarket sales of expensive items and increased purchases of lower priced (often domestic or regional) foods; more meals prepared at home; and steady or higher sales by fast-food chains, street vendors and wet markets.

In the short term, U.S. exports of consumer foods will likely decline further, due to the region's continuing economic slump, the strong dollar and promotions that encourage consumers to buy local goods and discourage importers and retailers from carrying foreign goods.

The Countries and Their Markets

Indonesia:

* Demographics - This country has a population of 207 million, 5 to 10 percent of it in upper- and middle-income groups.

* Economics - The financial and political crises that have plagued Indonesia obscure the fundamental strengths of its economy: its strategic location; large labor force earning relatively low wages; abundant natural resources; and growing manufacturing industry offering more job opportunities. Recent currency stability supports trade, especially in high-value commodities; but financing difficulties remain a drag on overall recovery.

* Politics - Indonesia's financial difficulties led to social and political turbulence, capped by violence, a change to an interim government and an ongoing process introducing the country's first open election of parliament. In conjunction with its International Monetary Fund (IMF) program, the government is introducing reforms to reduce taxes, tariffs and export and import restrictions.

* U.S. Prospects - Indonesia retains strong prospects for U.S. agricultural exports. The tourism sector in Bali remains largely unaffected by the crisis while the retail food sector is showing signs of recovery, such as increased sales and renewed interest in promotional activities for U.S. products. Best market prospects in the retail and tourism sectors include beef, poultry, processed meats, frozen french fries, wines, fresh fruits, canned foods, sauces and seasonings, beans, pastas, cooking/salad oils and snack foods. The food processing sector should actually emerge from the crisis in a stronger position and has become a popular target in recent months for joint ventures and direct foreign investment. Rapid growth potential exists in the baking and confectionery industry: including increased demand for flours and premixes, processed dairy and potato products, frozen dough, dried fruits, nuts, syrups/toppings and jams/jellies. For bulk commodities, Indonesia remains a large and growing market for cotton and soybeans. U.S. wheat is now able to compete due to the end of the state trading system.

Malaysia:

* Demographics - This nation's population of 22 million is predominantly young, well-educated, highly productive and increasingly urban.

* Economics - Malaysia experienced an economic downturn from July 1997 through the first quarter of 1999. However, the Malaysian economy is showing signs of recovery and the food retail sector is gradually coming out from the doldrums. The GDP growth rate for 1999 is projected at 1 percent: a significant turnaround from 1998, which saw a contraction of 6.7 percent.

* Politics - To curb inflation, the Malaysian government has instituted many stabilization programs to control prices of essential food items. A "Buy Local Products" campaign has intensified: vehicles such as trade expositions and shows promote local products, and retailers have been directed to showcase them.

* U.S. Prospects - Demand for U.S. fresh fruits (apples, oranges, grapes and plums) remains strong. Opportunities also exist for frozen microwaveable and canned foods, ice cream and yogurt. The exorbitant retail prices of cognac drinks (brandy) and the increasing health-consciousness of consumers are expected to contribute to increased sales of wine. The country's food processing sector offers good prospects for ingredients like beverage concentrates, bakery items and dairy ingredients such as whey powder and skim milk powder.

The Philippines:

* Demographics -This nation has a population of 72 million, a large part of it young, urban and increasingly affluent. The Philippines has close ties with the United States, so trends popular here invariably appear there.

* Economics - Compared to other ASEAN countries, the Philippines has managed relatively well during the financial difficulties, with the economy contracting just 0.5 percent in 1998. However, the nation was not entirely unscathed; it experienced a currency crisis in which the value of its peso dropped by over 40 percent, but has partially rebounded and stabilized in recent months. Many analysts, pointing to the Philippines' large current account deficit, feel that the devaluation was probably needed and will benefit the country. Its banking system is basically sound, with comparatively low levels of nonperforming loans. In 1999 and in 2000, the economy is expected to expand by 2 to 3 percent.

* Politics - Important reforms have been instituted in recent years: liberalization of trade, foreign exchange and investment regimes; privatization of stateowned enterprises; tariff reductions; monetary reforms; and infrastructure improvements. Because these reforms were enacted through the democratic system, they cannot be easily reversed. Moreover, the government has held firmly to its course of trade reform and market-based policies.

* U.S. Prospects - The Philippines remains the brightest and largest market in Southeast Asia for the full range of U.S. consumer food products. Long-term prospects are for robust growth in foods and beverages, thanks to growing prosperity; limited agricultural resources; the popular appeal of U.S. foods, restaurants and eating and shopping trends; and the burgeoning retail and food service sectors.

Singapore:

* Demographics - This city state of 3.5 million people has developed into an affluent, sophisticated market. Young people and children, whose eating habits are growing more Westernized, exert a lot of influence on family food choices. The Singapore market is receptive to new and innovative products, and is considered a showcase for the rest of ASEAN: products accepted here will likely be accepted in neighboring countries.

* Economics - Singapore has suffered some spill-over effects from the crisis due to its close investment and trade ties with ASEAN neighbors. From 8 percent the year before, economic growth slowed to just 1.5 percent in 1998 and is expected to slow further in 1999. However, by 2000, the country's economy should bounce back with growth estimated at 4.5 percent. Loan exposure among the nation's banks runs to several billion dollars; companies with investments in Indonesia, Malaysia and Thailand have seen rapid decline in the value of their investments in these countries. But its open market, excellent infrastructure, reliable trade links and skilled population will serve Singapore well.

* Politics - Singapore has long followed policies to encourage open trade and investment. These policies have created a climate conducive to economic growth, characterized by a competitive business environment and clear regulatory system.

* U.S. Prospects - Major U.S. exports to this market include fresh fruits and vegetables, frozen meats and poultry, tobacco, grain and feed ingredients, wood products, beverages and baking and seasoning items. Singapore consumers are dedicated snackers, so there's considerable potential for foods in this category. Growing numbers of U.S. products have space on Singapore supermarket shelves.

Late last year, Singapore's largest supermarket chain, NTUC FairPrice, opened Liberty Market, a model American supermarket (see "Singapore's Smitten by the U.S. Supermarket Experience" in the May '99 AgExporter). Over half of the 12,000 items displayed came from the United States, and the goal is to keep U.S. product share at 50 to 60 percent. The store is expected to rack up sales of $20 million the first year alone.

Thailand:

* Demographics - Like its neighbors, a growing share of Thailand's population is young, urban and middle-class.

* Economics - In 1997, after decades of virtually uninterrupted growth, Thailand plunged into a severe financial and economic crisis that shook investor confidence and raised questions about the country's competitiveness. The baht devaluation exposed and exacerbated glaring flaws in the financial system, including massive unhedged, private-sector foreign debt that was not always productively invested. The result: 2 years of recession that saw the economy contract by 8 percent in 1998.

THE CLOCK CANNOT BE COMPLETELY TURNED BACK...

But it would be a mistake to underestimate Thailand's future: its economic growth was no fluke, and it remains one of ASEAN's main manufacturing and agricultural centers. Economic diversification and an increasingly open trade and investment environment have made this country a favorite among foreign investors. The economy appears to have bottomed out and should expand by 1 to 3 percent over each of the next 2 years.

* Politics - Even at the height of the crisis, Thai leaders engaged in a responsible, introspective debate on root problems. The Thai government's resolute adherence to the IMF program has helped restore investor confidence and shield the country from violent upheavals.

Despite frequent changes of government, the political system, buttressed by the monarchy, has provided remarkable continuity and transparency. Thai political pluralism proved to be a blessing throughout the crisis. Open political debate, supported by perhaps the freest press in Asia, helped the country embrace a modified IMF program that is beginning to bear fruit. The first to plunge into crisis, Thailand may well be the first to dig its way out.

* U.S. Prospects - The recession has dampened demand growth for U.S. agricultural products, especially high-value foods; a prolonged economic downturn and stiffer competition from domestic and third-country suppliers could trim U.S. sales still more. But the clock cannot be completely turned back on the changes in Thailand's lifestyles, eating habits and food retail sector noted above.

Thailand's recovery should spur a significant rebound in consumer-product demand and additional opportunities in the retail, food service and food processing sectors. In the meantime, good growth potential exists for U.S. fresh fruits, dairy products, processed fruits and vegetables and convenience and snack foods.

U.S. trade prospects would be considerably improved if the government rendered its tariffs for fruits, vegetables, meats and wines more like those of other countries in the region. As a high-tariff regime, Thailand has been victimized by the volume of goods brought in by smuggling, depriving the government of import revenue.

Vietnam:

* Demographics - With its young, well-educated population of 80 million, this country holds promise as a U.S. agricultural market. Vietnam's sophisticated population, with its growing prosperity and appreciation for U.S. products, make it a market ripe for expansion.

* Economics - Though the financial crisis has not affected this nation as much as some of its ASEAN partners-Vietnam's GDP rose 3.5 percent in 1998-it has caught a minor dose of the Asian financial flu. A large part of the problem is that import demand has sagged in many Asian markets which were previously reliable customers. But the economy continues to grow, thanks in part to economic and trade reforms which should improve U.S. market access.

* Politics - In the spring of 1998, the government announced removal of all quantitative restrictions on consumer goods and reform in duty assessments. The government trimmed the current account deficit, which led to a drop in consumer-product imports. To reduce it further, on Jan. 1, 1999, the government raised duties on several chapters of the General Import Schedule. Tariffs and other access issues are currently a focus of the ongoing Bilateral Trade Negotiation process.

* U.S. Market Potential -Accurate data on U.S. agricultural exports to Vietnam are elusive, partly because Vietnam lacks the resources to closely track trade flows, and partly because a lot of U.S. exports are shipped through Hong Kong and Singapore, and therefore often show up as imports from those countries. But Vietnam is ready for U.S. products; like the Philippines, it has strong cultural and historical ties with the United States. When Vietnam and the other ASEAN economies recover from the current slowdown, consumers will renew demand for U.S. consumer food products.

Bearing all this in mind, FAS offices throughout ASEAN continue to pursue an ambitious agenda of activities to promote U.S. agricultural products. Through trade shows, trade missions, seminars, restaurant and store promotions and assessment of industry input needs, they're working to maintain interest in, and demand for, U.S. agricultural products.

This story was based on reports from FAS posts throughout the ASEAN region and from the U.S. Department of State.