Food for Thought: changing diets in Asia are providing opportunities for investors
We are all aware, to some extent, of the importance of food in Asian cultures. In fact, many westerners’ first contact with the Chinese, Indian, Thai, Vietnamese and Korean cultures will likely be via the cuisines of those countries.
Food is important to many Asians. It is a successful cultural export and source of pride for the diaspora – probably the most potent expression of Asian ‘soft power’. It is also a measure of how life has improved over the past three decades for those who stayed behind.
Recent developments in the food and agriculture sectors are prime examples of the effect of wealth creation and other dynamics, such as urbanisation. These lead to greater domestic demand for everything from automobiles to washing machines. Linked to this narrative is the idea that, as people get richer, they also become more discerning.
A generation ago, many people living in this region would have been happy with three meals a day. Tragically, there are still plenty of people who go hungry amid income inequality that can be more extreme than that found in the developed world.
However, there are also countless people in Asia who now buy their groceries from a supermarket (online as well as in a shop) rather than a street market; who consume more protein and fat in their diet; and more recently, have been asking questions about the food they eat and how it is produced.
For example, China is the world’s fourth-largest market for organic food, a packaged organic food and beverage market that’s worth some US$2.8 billion, which is forecast to grow at a compounded annual rate of 14 per cent until 2022.*
Food safety is an especially sensitive issue for China. A history of food production scandals means the country’s growing middle class is often willing to pay more for brands, both foreign and domestic, that they trust. When trust commands a premium, companies with good environmental, social and governance regimes have a clear head start.
When trust commands a premium, companies with good environmental, social and governance regimes have a clear head start.
Consumer tastes elsewhere in Asia are also changing. Factors such as better access to knowledge, sedentary lifestyles and a rise in childhood obesity cases have forced people to think more carefully about what they eat. As Asian consumers become more sophisticated, many are demanding healthier alternatives. This is driving the growth in the market for healthier snacks that contain less sugar and fat.
Legislation is also playing a part. Some Asian countries such as Thailand, India and Sri Lanka have introduced taxes to reduce the sugar content in food and beverages, in the wake of similar moves in Europe and the US, while the Philippines and Vietnam have tabled proposals to do so. Being ‘unhealthy’ now comes with an immediate financial cost.
The implication for companies is that tried-and-tested products that used to sell may no longer be as popular. Food and drinks manufacturers will have to innovate in order to stay relevant in a changing marketplace.
This is borne out by the conversations we have with management teams as part of our regular schedule of company visits that saw ASI fund managers make 1,582 trips to 862 companies across the Asia Pacific region in 2017 and a similar number in the last year.
For example, Hindustan Unilever in India produces a ‘naturals’ range of food and personal care products that use all-natural ingredients and are free from chemicals and preservatives. This portfolio is growing some two-and-a-half times faster than the company average.
In Vietnam a company called Dairy Products, better known as Vinamilk, is developing dairy farms that produce organic milk in response to the growth in domestic demand for this premium product.
Interest is also rising in living more healthily. The Asia Pacific region accounted for some 30 per cent of the ‘health and wellness’ market – which encompasses superfoods, supplements and serums – in 2017, up from 19 per cent in 2007, according to Oliver Wyman. The global market generates sales of more than US$700 billion.
Health and wellness, natural products and food safety are industry trends that have become as important in the emerging markets of Asia as they are in the west. Food stopped being just about keeping hunger at bay some time ago. For more and more consumers here, what goes into the shopping basket reflects the greater expectations that come with enhanced wealth and knowledge.
*Source: Global Organic Trade Guide (https://globalorganictrade.com/country/china), data as of October 2018.
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