Sourcing of Agricultural Products in Southeast Asia: An Introduction

June 7, 2022

Rice farmers in Thailand

 

Southeast Asia is a major producer of agriculture products and plays an increasingly important role for the US and the EU. Increased exports also result in the need for new technologies, opening for investment, and sales opportunities for foreign companies.

In this article, we review the agriculture industry in Southeast Asia with a focus on the most important markets. We explain what products are exported by country, what challenges the countries face, and how foreign companies can profit from this growing market.

The Agriculture Industry in Southeast Asia

The agriculture sector in Southeast Asia includes three main categories: farming and planting, fishing, and forestry. Most countries are developing the three simultaneously due to the geographical advantages that can be found, including long coastal lines, large and diverse ocean ecosystems, and tropical weather.

Even if the proportion of total GDP is decreasing due to industrialization, agriculture remains a significantly important economic pillar. In frontier markets like Cambodia and Myanmar, the agriculture sector is even more important to the local economies.

Southeast Asia is a top exporter of certain commodities globally, where the following five stand out: Malaysia, Indonesia, Vietnam, the Philippines, and Thailand.

Apart from the food industry, agricultural products from Southeast Asian countries also serve many other industries, especially wooden furniture production. Indonesia, Malaysia, and Vietnam are some of the major exporters of wooden products globally, accounting for more than 15% of the global export volume.

What agriculture products can be imported from Southeast Asia?

We have already covered the three main categories, including farming and planting, fishing, and forestry. Let’s review the categories in greater detail and what specific products the countries export.

Planting and farming

Vegetable oils, coffee, and rice are exported in large volumes from Southeast Asia. For instance, Malaysia and Indonesia account for more than 90% of the world’s palm oil exports during the period 2019-2021, at the same time as Vietnam is the second-biggest exporter of coffee, after Brazil.

Palm oil has various applications, apart from being an ingredient for direct cooking. It could also be used for the production of lipsticks or detergents. The conflict between Russia and Ukraine pushed the prices for vegetable oils to record levels, as the Black Sea countries are key suppliers of vegetable oils.

Global importers have turned their focus to other major producers, especially in Southeast Asia. Indonesia even banned all palm oil export for three weeks, due to soaring prices domestically. Still, Indonesian producers are required to ensure a sufficient domestic supply before selling such products overseas.

Rice and coffee beans are also major exporting commodities in Southeast Asia, particularly from Vietnam and Indonesia.

Among ten countries that have the largest exports of rice, four are from Southeast Asia. More than 40% of the rice imported to the EU comes from Southeast Asia, such as Vietnam, Thailand, Myanmar, or Cambodia.

The import of rice from Pakistan and India to the EU has been increasing over time thanks to the duty-free policy of such products to the EU. We can also expect the same movement for rice imported from Vietnam when the free trade agreement between it and the EU came into effect in 2020.

Forestry and wood manufacturing

Southeast Asia has large forestry and wood manufacturing industries with exports of products like wood pellets, veneer sheets, wood-based panels, and wooden furniture.

Vietnam is the leading exporter of furniture globally and has even surpassed China, which is a major achievement. Southeast Asia exports around 20% of all wooden furniture products globally and where Vietnam accounts for more than 50%. The biggest export markets are the UK, the US, and Japan.

Wood pellets are also vastly produced in Southeast Asia and which has suffered from a supply shortage globally. Key drivers of the shortage are the growing demand for renewable energy in Europe and nonrenewable energy production in Asia.

Europe is the main consumer of wood pellets, mostly for home heating and power generation. The ongoing tensions in Ukraine, which affected the supply of wood pellets, have made Malaysia and Vietnam alternative sourcing destinations.

Fishing

Southeast Asia is rich in marine resources with Indonesia, Vietnam, Thailand, and the Philippines being top seafood exporters globally.

Over the last decade, the US has significantly increased its seafood imports from Southeast Asia. Typical products are tuna and shrimp, which are exported primarily from Vietnam and Thailand.

The trade tensions between the US and China have made Southeast Asia increasingly important as an alternative supply market. Import tariffs are now as high as 25% and the rising wages make China less attractive to US-based importers.

The implementation of the European Union–Vietnam Free Trade Agreement (EVFTA) has resulted in tax exemptions for the majority of over 200 tariff lines for seafood imported from Vietnam. Key exports from Vietnam include fish, shrimps, oysters, and scallops.

To summarize, the five countries covered primarily export the following agriculture products:

  • Malaysia – Palm oil, rubber, cocoa and wood products
  • Indonesia – Palm oil, coffee, vegetables, and fruits
  • Vietnam – Rice, seafood, coffee, cashew nuts, tea, and fruits
  • The Philippines – Coconut oil, fruits, seafood, and tuna
  • Thailand – Rice, sugar, fruits, processed tuna, and seafood

Investment Opportunities in the Agriculture Sector

Key challenges for most Southeast Asian countries are to cope with increasing export volumes, outdated techniques used, and weak quality control systems. However, with the adaption of new technology and collaboration with foreign companies, the industry is catching up to meet global standards.

Below you can find some of the primary reasons why there will be increased investment opportunities in Southeast Asia’s agriculture sector.

Demand for agriculture machinery

Modernization of the agriculture industry allows local producers to increase effectiveness and product quality. Most Southeast Asian countries rely on imported agriculture machinery from China, South Korea, Japan, and the EU with only a small percentage supplied within the region, with most coming from Malaysia.

Let us take Vietnam as an example, which is a large exporter of different types of crops such as rice, coffee beans, and pepper. However, 70% of the agricultural machinery used is imported. This has created opportunities for reputable machinery brands to enter the market.

Worth mentioning is also that there’s a strong demand for machinery brands from developed countries thanks to the high quality offered.

The growing market for Agri-tech startups

Apart from innovating dated techniques, modernization also boosts the performance and productivity of well-established companies or individuals. Two major drivers for this are the push for the digital transformation from governments, as well as the growth in internet usage.

Thailand, for example, has been rewarding farmers and enterprises who introduced technology in agriculture production. As a result, drones are getting more popular to plant seeds, spray pesticides, or map crop fields. Poladrone, a Malaysian startup, also provides pest control services by drones to local palm oil farmers.

Local startups that embed the Internet of Things (IoT) into agriculture production have also started to receive attention from foreign investors, both within the region, from the EU, or the US. Agribuddy, a Cambodia-based startup, has successfully raised funds from The Index Project (Denmark) or KSK Angle Fund (the US). MimosaTek (Vietnam-based) also receives investments from Seedstars (Switzerland) and Captii Ventures (Malaysia).

The increase in the middle-class population is one of the main factors driving the growth of Agri-tech startups. Consumers are now demanding products of higher quality (organic, transparent, healthy, etc). Meanwhile, new technologies and advanced farming methods are getting more accessible to the producers, allowing them to improve the output quality and meet consumers’ rising demand.

Conclusion

Southeast Asia is a large exporter of agricultural products, particularly crops, fish, and seafood. Crops include rice, coffee, fruits, and vegetables, for example. While the agriculture industry contributes less to GDP as countries develop, agriculture exports are crucial for countries like Vietnam, Thailand, and the Philippines.

The ongoing trade war between the US and China has resulted in increased demand for the Southeast Asia region, further enticing companies to invest in local production. Recently introduced trade agreements, like the EVFTA between the EU and Vietnam, further increase demand for products from the region.

The Agri-tech industry also sees great growth as governments push for digitalization and the introduction of new technology, to make production more effective and for higher product quality. This attracts more investors and companies with goals to profit from growing companies or through B2B sales.


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