Asia’s organic food market presents interesting opportunities for investors

By Stephanie Aikins

January 31 2019
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The organic food sector is providing an interesting opportunity for investors in Asian markets, one global asset manager has highlighted, as growing wealth in the region has led to more “discerning” consumers.

In a recent analysis, Hugh Young, managing director of Aberdeen Standard Investments Asia, explained to investors that changing dynamics, such as urbanisation, across Asia is creating increased demand for organic supermarket products.

“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,” Mr Young wrote.

“There are 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.”

He said that a history of issues with food safety, particularly for China, an awareness of the impact a sedentary lifestyle is having on health, and changes to legislation have all contributed to a shift towards the consumption of healthier products.

“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,” he explained.

“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.

“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… while the Philippines and Vietnam have tabled proposals to do so. Being ‘unhealthy’ now comes with an immediate financial cost.”

Mr Young said the trend is extending beyond food, with substantial growth across the region in the general “health and wellness” market.

“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,” he said.

“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.

“For more and more consumers, what goes into the shopping basket reflects the greater expectations that come with enhanced wealth and knowledge.”

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