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Business Opportunities in the Agrifood
Industry based on Current and Future
Trend of Food Consumption and Demand
Mad Nasir Shamsudin
Jinap Selamat
Alias Radam
Abdul Ghariff Ramin
Tay Yeong Sheng
Ahmad Hanis Izani Abdul Hadi
MAHA 2008 Walk-in Seminar
20 August 2008
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Questions
Are there changes in the food
consumption patterns and demand?
 If yes, what are the driving forces?
 Are there business opportunities as a
result of the changes?
 If yes, what the required strategies in
order to realize the opportunities?

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Led to a research endeavour……
A study funded by FAMA on the Food
Consumption and Demand Analyses
Market-led Agri-food System
Competitiveness
Production
Market
Structure
Manufacturing
&
Processing
Product
Introductions
Marketing
& Retailing
Logistics
Changing
Consumer
Demand
Food Consumption Trends &
Spending Patterns
Demographic factors
Economics factors
Health conscious
Information
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Presentation
Changes in the food consumption
patterns and demand
 The driving forces
 Business opportunities
 Some required strategies in order to
realize the opportunities

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Trends in Food Consumption
Typical of developing economies
Stages:




Initial increase in traditional staple foods
Increase in non-traditional staples
Diversification in consumption habits
Increase in higher value, processed & higher
proteins
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Increase in per capita income leads to increase in the consumption of meat,
vegetables, and fruits, but consumption of rice reduces.
50
51.3
50.1
44.5
43.9
41.8
45.0
49.2
45.6
48.8
48.8
45.6
43.4
Consum ption of Vegetables per capita, 1982-01 (kg/capita/year)
40
kg/cap/year
40
30
20
36.4
60
50
34.6
kg/cap/year
Consumption of Meat per capita, 1990-03
(kg/capita/year)
10
0
30
32.0
34.8
35.5
1988
1991
39.3
40.6
2000
2001
27.3
20
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
10
0
1982
Year
1985
Year
Consum ption of Rice per capita, 1970-2005
(kg/capita/year)
40
35
30
25
20
15
10
5
0
32.8
23.5
21.2
1982
1985
34.1
27.7
25.6
kg/cap/year
kg/cap/year
Consum ption of Fruits per capita, 1982-01 (kg/capita/year)
1988
1991
2000
2001
140
120
100
80
60
40
20
0
118.8
1970
109.5
1975
97.7
1980
Year
94.0
1985
79.8
82.7
79.6
74.3
1990
1995
2000
2005
Year
Sumber:FAOSTAT
Source: www.agrolink.moa.my/jph/dvs
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Food Expenditure Patterns



Proportion for food fell from 45.1% in
1973 to 22.6% in 1999
Food away-from-home increases
Food at-home declines
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Changes in the proportion spent on
food to total expenditures
1973*
1980*
1993/94
1998/99
2004/05
Total
45.1
35.4
35.6
35.1
30.6
At home
36.2
28.4
23.8
22.6
20.1
8.9
7.1
11.8
12.5
10.5
Away from home
* Peninsular Malaysia
Source: Department of Statistics Malaysia, HES, various issues
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Expenditure within food group








In 1970s and 1980s: highest proportion was
spent on rice, bread and other cereals
Early 1990s: ranked third
In 1999: ranked fourth
Fruits and vegetables (20.4%)
Fish (20.1%)
Meat (13.6%)
Bread & other cereals (11.4%)
Rice (10.6%)
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Expenditure and Consumption
Patterns by Stratum
Rural households


Food ranked first => 28.8% spent on food
Food away-from-home => 7%
Urban households


Food ranked second => 19% spent on food
Food away-from-home => 12%
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Per capita food consumption in developing
countries is shifting to fruits and vegetables, meat,
and vegetable oils
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The ratio of food processing value added to
agriculture value added rises with income
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Questions
Could it be translated into business
opportunities? Yes or No?
there are opportunities if we understand the
driving forces behind the changes in
consumption patterns.
 Attempts to understand better the nature of
the changes and drivers for the changes
provide the best basis for appropriate policy
formulation and a meaningful response.

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Why changes in the trend
of the food consumption
patterns? What are the
driving forces?
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The Driving Forces
Income growth
 Urbanization
 Gender
 Employment
 Race
 Age

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Income growth
Economic growth, a dominant force, has…
pushed up middle-class consumers’ purchasing
power
 generated rising demand for food, and
 shifted food demand away from traditional
staples and towards higher-value foods.

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ASEAN: GDP per capita
GDP per capita: A mix of 1 developed economy (Singapore),
NICs =Malaysia & Thailand, Post-crisis recovering=Indonesia &
Philippines, Up & coming=Vietnam
ASEAN:GDP per cap, 2003 (USD)
GDP per cap
0
5,000
10,000
15,000
20,000
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25,000
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ASEAN: Human Dev. Index
A mix of HDIs – from the most developed (Spore=25)
to the least developed (Lao=135)
ASEAN: HDI,2004
Lao, 135
Myanmar, 132
Cambodia, 130
Vietnam, 112
Indonesia, 111
Philippines, 83
Thailand, 76
Malaysia, 59
Brunei, 33
Singapore, 25
0
20
40
60
80
100
120
140
160
HDI
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Implications of Income Elasticity
 Consumption Patterns (from ξy )
 Indicates signs of convergence towards western diet
 Higher income elasticity (ξy) for wheat-based
products than for rice products
 Decline in per capita consumption of staple food
 ξy for meat, fish, fruit & vegetable items are high
 Demand for red meats increases more than white
meat as shown by their ξy.
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Implications of Price Elasticity

Consumption Patterns (from ξii)
 Wheat-based, meat, fish, fruits are more
price sensitive than vegetables & rice
=> staples are not price sensitive
compared to non-staples
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Consumption Trend –
monthly per capita food consumption
Except rice, per capita consumption of food increases, albeit at declining rates.
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Income growth
Income growth has also caused
changes in the demand for food
attributes & its willingness to pay
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There have been changes in the demand for food
attributes, e.g. Leafy Vegetables
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Consumers are willing to pay higher prices for food
attributes, e.g. Leafy Vegetables
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Changing patterns of food consumption as income rises
0 - 1000
1 - 5000
5 - 10000
10 - 15000
15 - 20000
+ 20000
Loose unbranded cereals
Per capita
income
Basic packaged food
Basic frozen products
Types of food
Health, variety, pre-prepared
Fresh and health
Chart: SG Heilbron, Source: The
Economist, December
4, 1993
Sophisticated
processed
and
fresh, health products: Singapore, Brunei,
Malaysia, Thailand
Basic packaged food and frozen products: Malaysia, Thailand, Philippines
Unbranded products, and basic packaged products with some frozen
products: Indonesia, Philippines, Vietnam
Unbranded products, and some basic packaged foods: Cambodia, Laos,
Myanmar
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Effect of Demographic Factors
on Food Consumption Patterns
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Effect of Demographic Factors
on Food Consumption Patterns
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Summing up: Changes in food
consumption patterns
Increase in higher value and higher proteins



Consumption of meats, fish, dairy products, wheat,
fruits and vegetables increased
Consumption of rice decreased
Emerging patterns on the demand for attributes
Driving forces




Increase in income
Structural transformation and urbanization
Changes in tastes and lifestyles
Market development
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Summing up: What consumers want…
…in food attributes
taste
price
quality
Income growth has caused
changes in food consumption
patterns & trend. So, what are
the responses of the agri-food
system to such changes in
order to take the
opportunities?
convenience
health
safety
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Could it be translated into business
opportunities?
 The
answer is YES, but HOW?
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Agri-food System
Demographic and economic factors as well as health conscious are the main drivers
for changes in food consumption trends and patterns
Competitiveness
Production
Market
Structure
Manufacturing
&
Processing
Product
Introductions
Food Consumption Trends &
Spending Patterns
Marketing
& Retailing
Logistics
Changing
Consumer
Demand
Demographic factors
Economics factors
Health conscious
Information
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31
Productivity Issues: R&D expenditure in Malaysia is
relatively low compared to more developing & developed
economies… has undermined its key role for economic
growth. As a result, agricultural productivity growth was
marginal and is too low to meet the present challenges.
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Productivity Issues: limited technological
advancement after the Green Revolution in the
1960’s....Marginal productivity is declining
Paddy Productivity per hector in selected countries, 1961-2006 (kg/ha)
9,000
8,000
7,000
5,000
4,000
3,000
2,000
Indonesia
Korea
Phillipines
USA
Japan
Malaysia
Sumber: FAOSTAT
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2006
2003
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
1967
0
1964
1,000
1961
kg/ha
6,000
Thailand
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Productivity Issues: Public spending on agriculture in
transforming economies is less compared to
urbanised economies…
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Productivity Issues: Estimated returns to
investment in agriculture R&D are high in all region
– averaging 43 percent
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Malaysia depends on imports for rice, livestock, meat, dairy
products, feedstuff, food and beverages, and other agricultural
inputs….could be translated into opportunities…..
20,000
y = -274.27x + 12215
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
RM '000
-20,000
-40,000
y = -3606.6x - 19529
y = -3880.8x - 7314
-60,000
-80,000
Net Deficit
Total surplus
Total Deficit
Linear (Total surplus)
Linear (Net Defisit)
Linear (Total Deficit)
-100,000
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What are the opportunities?





Agri-food industry – changes in the food
consumption patterns mean more business
opportunities
Producers – more infrastructure development
Researchers – more R&D grants
Agricultural & rural economy – more
investments
Policy makers – to formulate the policy right
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An opportunity for the Agri-food
system? Will not happen, unless…
allow the price signals to reach small-scale
farmers
 promote product development & capturing
new markets
 improve services like R&D, though take time
to realise the results
 establish sound regulatory environment on
issues such as food safety


improvement in infrastructure (irrigation)
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Strategies: the Way
Forward
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Strategies to realize the business
opportunities
Strategic Marketing
Advertising
Sales promotion
Sales Force
Servicing
Distributing
Making
Sourcing
Advertising
Pricing
Service
Development
Product
Development
Value
Positioning
Market
Selection/
Focus
Customer
Segmentation
Communicating the value
Providing the value
Choosing the value
Tactical Marketing
Value Creation and delivery sequences
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Strategies to realize the business
opportunities…..
Choosing the value
Value positioning
 Market segmentation

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Strategies to realize the business
opportunities…..
Providing the value






Product development
Relevant R&D in agrifood technology & marketing
Input Procurement system
Service development
Distribution channels
Strategic alliance with LEs
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Strategies to realize the business
opportunities…..
Communicating the value
Promotion
 Advertisement
 Strategic alliance with LEs

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Policy Implications: the
Way Forward
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The relative shares of agriculture and agribusiness
in GDP change as incomes rise. Thus, we need to
consider the whole supply chain in policy
formulation.
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Policy diamond for a transforming economy
More investment in
R&D and provide
infrastructure to
improve productivity
R&D and infrastructure
to improve productivity
Rural non-farm
economy;
Skills for non-farm
economy
High-value
Activities,
inclusion in new
food markets
Promote high-value
activities to diversify
farming away from staples
as income rise & diet
changes. Blue Ocean.
Promote rural non-farm
economy to confront rural
employment problem;
enhance skills to give
access to jobs offered by
the growth of rural nonfarm economy.
Food staples,
safety nets,
environmental Services
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Extend green revolution in
staples to areas bypassed
by technological progress;
provide safety nets;
payments for environmental
services to create
conservation incentives.
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Sekian,
Terima Kasih
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