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Asia’s Middle Class Changes Demand for Wheat Grain Exporters

  • Ron Corben

FILE - A combine drives through a field of soft red winter wheat during the harvest on a farm in Dixon, Illinois, July 16, 2013.

FILE - A combine drives through a field of soft red winter wheat during the harvest on a farm in Dixon, Illinois, July 16, 2013.

Asia’s growing middle class is stimulating demand for grains, especially wheat-based foods. The increase in demand is a consequence of changes in the tastes and diets of this segment of the Asian economy and marks a boon for wheat exporters such as Australia and the United States. Recent analysis indicates the demand for wheat-based food will continue in the years ahead, posing challenges for the global food industry.

The Organization for Economic Cooperation and Development says by 2030 two thirds of the global middle class, or 3.3 billion people, will be living in Asia, with China accounting for the largest share from just 1.8 billion now.

Major changes are already afoot in the food industry. The higher incomes offer the growing middle class greater choices from traditional food staples such as rice. And a marked increase in demand for wheat-based foods comes as demand for rice, appears to be flattening on a per capita basis.

Australian Greg Harvey, managing director of Singapore-based flour miller, Interflour Group, says the outlook is positive for wheat and grain-based food products across Asia.

“You have a growing middle class population with high disposable income [driving] the demand for grain-based food products, more red meat protein and dairy products growth," he explained. "[And] the middle class in Asia estimated to grow six times over the next 20 years and Africa, Middle East is to grow one and half to two times over the next 20 years.”

'Westernized food'

The change in consumption patterns is apparent in malls and supermarkets. Nick Reitmeier, a vice president at Thailand’s Central Food Retail group, says changes in tastes are evident amid greater demand for what he calls "Westernized food."

“Bread is one of the key factors. We are selling a lot of sour dough bread today," he said. "And most Asian people have really liked the taste of it. In the bakery even speciality bread where they use different flour from Austria, purple wheat flour, Japanese flour, a huge demand for flour as well as bread mixes.”

The International Grains Council's (IGC) latest forecast is for global wheat production to rise to 719 million metric tons over 2014-15.

Australia is a leader in wheat exports to Asia, with competition from the United States, Canada and countries of the Black Sea, including Turkey and the Ukraine.

In its annual forecasts released in March, The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecast Australia’s grain and oilseed production to rise over the next five years to over 42 million tons. The current national wheat crop is likely to be more than 24 million tons, with 18 million tons worth $4.5 billion bound for export.

Shift in demand

Ron Storey, a consultant with Australian Crop Forecasters, says changing food tastes are driving the demand.

“That shift from the bowl of rice across to chicken and pork and more dairy products is what’s happening and that appears to be what’s driving the demand," he said. "One of the real questions from a supply side is the capacity of the different origins of grain production to be able to meet that demand over the next 10 to 20 year period.”

Wheat traders say Australia’s exports will be unable to meet the rising demand, leaving the way open for increased sales from the Black Sea region into Asia.

Currently in Asia, pasta occupies a major portion of the milled flour market, especially in regions such as Indonesia, but bread is the fastest growing segment. In China, more coarse grain imports are targeting rising demand for malting barley for beer production. Feed grain sales also to China are increasing for the meat industry.

Australia’s wheat export industry was deregulated in 2008, leaving individual wheat exporters greater capacity to target changing market demands in Asia, says Rosemary Richards, the executive officer for the Australian Grain Exporters Association.

"Take Indonesia, which is [Australia’s] biggest wheat market. There used to be six to 10 major mills in that market. Today there’s I think 160 mills. So the market has become more fragmented," she said. "There’s a lot more customers - there’s new customers. So just as our industry has changed in terms of being deregulated and having more exporters operating in the market - so have our customers.”

In Asia changing patterns of consumption are being mirrored in the food processing industries, as millers and food producers move to tailor support to meet the middle classes’ increasing and changing food demands.