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DEMANDS OF THE ASIAN MARKET

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OVERVIEW Ø  Macro economic & dietary trends.

Ø  The flour milling industry in S/E Asia.

Ø  The positioning of the Australian wheat

industry

Ø  Potential innovations

Ø  Closing comments on some challenges

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The “Asia Story” is well known…

Ø  Economic growth across the region, urbanisation, rapid expansion of the middle classes, increased domestic consumption, increased household wealth & discretionary expenditures.

Ø  Strong positive growth story and high expectations

of continuing improved outcomes.

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As the middle class develops, wheat flour consumption grows and market segments

multiple…

Broadening of diets, inclusion of wheat flour products as a standard part of a typical diet, within traditionally rice dominated diets. Wheat noodles have become a staple and ubiquitous food item, cakes & flour-based sweets are standard everyday items, and bread is the fastest growing segment

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Bogasari FM – Surabaya

Eastern Pearl FM – Makassar

Sriboga FM– Semarang

Panganmas FM – Cilacap

Bogasari FM – Jakarta

PETA LOKASI INDUSTRI TEPUNG TERIGU INDONESIA SEBELUM DEREGULASI (ERA BULOG)

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6

Bogasari FM – Surabaya

Eastern Pearl FM – Makassar

Sriboga FM– Semarang

Panganmas FM – Cilacap

Fugui Flour & Grain – Gresik

Bogasari FM – Jakarta

Pundi Kencana - Cilegon

Purnomo Sejati – Sidoarjo

Asia Raya – Sidoarjo

Pakindo Jaya – Sidoarjo

Berkat Indah Gemilang - Tangerang

Agri First – Medan

Cerestar - Cilegon

Lumbung Nasional - Bekasi

Halim Sarigandum-Medan

Golden Grand - Cilegon

Bumi Alam Segar - Bekasi

Horizon - Bekasi

Jakaranatama – Medan

Pioner Flour MiIls Sidoarjo Mustafa Mesindo -

Tangerang

Bungasari FM

Wilmar Group - Gresik

Crown Flour Mills - Tangerang

Note :

Pre-deregulation

Post-deregulation

Next – to be establish

PETA LOKASI INDUSTRI TEPUNG TERIGU INDONESIA - 2013

Sarana Prima Makmur - Banjarmasin

Total Kap. Giling: +/- 8.2 jt MT/Thn Terpusat di JAWA

Agrofood makmur Mandiri, Mojokerto

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MFM strategic locations

FFM Mill 1

SBFM Mill 2

FFM Mill 2

PFM

SBFM Mill 1

UMFM

MFM Mill 1

MFM Mill 2

KFM

Peninsular Malaysia – Location of all Flour Mills

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IFV

F

Uni

Uni

M

M

BD

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Milling capacity growth continues in EVERY market in S/E Asia…..

Ø  Many businesses extrapolating the growth trend out 5-10 years

and building capacity ahead of the demand curve. Ø  This consists of growth within existing players in

the flour industry, and new milling capacity from new players, typically with links to downstream processing and retail or to stockfeed milling. Ø  Decentralised industry structure based around

manufacturing locations and transport economics.

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Traditional margins being squeezed, are causing changes in grist and sales

management….

Ø  With much more milling capacity coming online, margins are being compressed in a battle for market share and throughput. Ø  There appears to be a general movement towards higher ash, lower gluten products – optimising extraction and using less expensive wheat. Ø  These cheap general purpose flours or 2-minute noodle flours have tight margins on sales but give bulk efficiency to a flour mill. Ø  Therefore alternative origin cargoes (IMW, RUS, etc) enable cheaper grists in a competitive low pro GP and low pro noodle wheat market.

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As a general comment, Australian wheat has a well established competitive position in S/E Asia built up

over 70+ years….

Although not always the best match for product quality, Australian wheat is consistently available, with reliable quality parameters across a gluten range of 23-32%, enabling usage in a broad range of applications. Ø  High extraction, low screenings, whiter noodle

colour, used in a range of products. Ø  Most GP flours and noodle flours in SE Asia are

based on a combination of AH, APW and ASW. Ø  Most 2-minute noodles are based on APW/ASW + a percentage of cheap filler wheat.

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For the bread segment, the boot is on the other foot, and has been for a long

time…. Bread flours are a

different story, which is a big area of opportunity for Australian producers. Apart from APH which is not typically price competitive with DNS/CWRS.

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Other origin wheats are becoming more important and less “opportunistic" in the

buying program….... Ø  Other origin wheats are utilised to then push the

base quality over the required standard or product parameter. (i.e., lifting gluten in noodle flours) Ø  Cost competitiveness of alternative origins,

especially on the low protein and lower quality products

Ø  Sometimes referred to as “Filler Wheat” due to on/

off availability and perceived inconsistency of quality parameters, phytosanitary issues and darker noodle colours.

Ø  However are typically $10/mt+ cheaper than lowest

on a CNF basis through lower costs of production and supply chain improvements.

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Taking everything into account, there are opportunities for wheat quality innovation…..

Ø  Innovation with wheat variety end-product performance.

Ø High yielding Australian varietal ASW or even feed

wheat that can satisfy cheap bulk flour for 2-minute noodles. Ø An AH wheat that gives better water absorbtion and

extensibility and prices PNW wheats out of the grist

Ø Australian Club wheat (soft) that can be blended or substitute for SWW, with good solvent retention.

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This is a very interesting time for the Australian wheat industry on a number of

fronts…

Ø  Ability to satisfy increasing demand within SE Asia and other regions with larger Australian production?

Ø  Millers will increasingly have to turn to alternative origins, strengthening buying patterns and channels and becoming more familiar with new origins.

Ø  Even more than in the past, the importance of front-end

shipments (December-April) immediately following harvest. i.e. prior to the Black Sea new crop increases.

Ø  Cost competiveness and supply chain flexibility is decreasing. Eg) Rabo study; port allocation systems

Ø  And the industry structure is yet to evolve to allow price signals up and down the supply chain. The BHCs’ have significant market power….

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FLOUR FORTIFICATION INITIATIVE

A Public-Private-Civic-Investment in Each Nation

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The Problem Ø  Two billion people – over 30% of the world’s

population – are anemic, many due to iron deficiency.

Ø  An estimated 300,000 neural tube birth defects occur every year globally. Most of these could be prevented.

Ø  Vitamin and mineral deficiency contributes to more than one-third of all deaths in children under age 5.

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A Proven Solution

Ø  Fortifying grains with iron improves iron status, which in turn helps children develop physically and mentally. Iron is also critical for productivity and the health of a pregnant mother and her unborn child.

Ø  Every year, an estimated 38,417 serious birth defects such as spina bifida are prevented globally where flour is fortified with folic acid. That’s an average of 105 healthier babies a day.

Ø  Comparing the cost of fortification with the cost of treating children with spina bifida, countries report a cost:benefit ratio of at least 1:12.

Ø  In three consecutive sessions, the Copenhagen Consensus panel of leading economists ranked providing vitamins and minerals among their top three most cost-effective investments.

Grain Fortification Legislation 79 countries require fortification of wheat flour, maize flour, and/or rice

November 2013. Source: Flour Fortification Initiative. http://www.ffinetwork.org/global_progress/index.php To request data, e-mail info@ffinetwork.org