Trade war impacts on Asian agricultural commodity trading

Trade war impacts on Asian agricultural commodity trading

The tensions over the past year between the US and China have led to increased complexity within the agricultural commodity trading markets in Asia.

Historically, as the affluence of a population grows, they tend to consume larger amounts of grain products like noodles and bread, alongside a correlated surge of meat consumption also further driving demand for feed.

With China accounting for 33% of the world’s middle-income population and projected to continue rapidly growing, China’s consumption trends have been reflecting this growth in affluence . It has been one of the most significant importers of grains in the world, buying over 50% of the exports from the US in 2017 , worth more than USD 12 billion.

Investigating the broader geography, Asia is projected to house over 60% of the worlds’ middle income population by 2030 with markets such as Vietnam and Myanmar seeing rapid economic development and showing significant positive trends in stable YoY increases in GDP and economic activity.

These trends have brought Asia to the forefront of agricultural trading as the future of the market increasingly focuses towards the Eastern geographies as an essential end user market for the global grains trade.

Uncertainties arising from the tariff standoffs in the trade war between US and China have seen both private and public organizations investigate alternative markets with the aim of diversifying their exposure towards any single markets in particular, from both buyer and seller standpoints.

Since July 2018, China has tapered off (and at some points completely halted) its purchases of soy from the US, instead focusing on substitute markets such as Brazil and Argentina to procure feed. To add on to the chaos within the industry, the African Swine Fever has, in recent times, spread across Asia – an as yet incurable disease that has significantly affected the regional pork market requiring entire herds to be culled, and hence also significantly impacting the dynamics of the feed industry in not just the Chinese markets but across emerging markets such as Vietnam and Thailand as well .

Traders, fearing even lower margins given a global oversupply stemming from 7 years of bumper crops , have been focusing their efforts in developing new consumer bases in emerging markets where demand still remains high. Efforts to gain market share and expand business by targeting niche Asian-centric industries such as aquaculture where the potential to capture higher margins still remains, have also grown significantly.

Within the Asian markets, however rapidly growing they may be, there exists barriers to entry and hence there are a finite number of end users and players. As such, a finite pool of trained and qualified talent that is familiar with the markets. Given the dynamic nature of each individual geography across Asia, the dangers of doing business within such emerging economies and new markets (the tip of the iceberg being a general lack of understanding of local political, infrastructure, market, credit, and operational contexts), and the intensely competitive nature of the business; the talent on the ground has become increasingly important.

Businesses looking to develop new markets or expand their current presences have found themselves searching within two almost mutually exclusive pools of talent: the internationally exposed individual capable of acculturating to a new environment and being groomed for business, or the experienced country-focused individual who has good networks within their current geography but who may not have as developed an international perspective. Given the scarce talent pool of both categories, business has been forced to play “musical chairs” with their talent, poaching from competitors or other business that have groomed such talent within their organizations.

Though governments have created incentives and programs over the past decades to attract international business and develop a pool of talent that can access the region (e.g. the Singapore Government’s Global Trader Program, the Singapore Management University’s International Trading Institute, Vietnam’s Foreign Trade University’s International Trade programme, etc.), there still remains a scarcity of talent that is prepared and able to fulfil the immediate needs of international firms wanted to do business across the broad geographies of Asia.

Given the ongoing uncertainties of the trade war, businesses that are able to find the right talent that can access these new markets will be the ones to gain a foothold in them – and be the most likely players to benefit from the underlying economic gains.


by Proco Commoditiesview my profile

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