THE NETHERLANDS, Utrecht. Southeast Asia will face far-reaching challenges from the impacts of the coronavirus outbreak, such as economic decline, reduced out-of-home consumption, and supply chains disruptions, even beyond the lockdowns.
After panic buying, consumers will shift from foodservice to retail and – after a short, suppressed splurge (if any) – to recession-period spending. Production will also be affected, albeit less, but transporting goods will continue to experience problems due to the movement measures and supply chains disruptions. Rabobank will provide more elaboration on the specific impacts to each sector in its respective section.
The increasing number of virus cases in Southeast Asia is forcing countries in the region to introduce or reimpose drastic measures to control the outbreak. Impacts to food & agribusiness (F&A) sectors extend beyond the lockdowns, as these measures have resulted in GDP slowdown, capital outflow, weak currencies, job losses, and overall weaker consumer confidence throughout the region. The analysts at Rabobank expect more negative economic impacts to come in terms of global recession and global decline for Southeast Asian export economies. The consumer pattern will move from panic buying/stocking, to rechanneling purchases from foodservice to retail due to increased cooking at home, and to lower spending due to recession.
They also expect supply chains to be significantly disrupted across Southeast Asian F&A sectors as a result of reduced demand, absent workforce, and interruptions in production, trade, and logistics.
Rabobank has estimated the impact of the situation on foodservice sales affected by a combination of lockdowns, restrictions, and consumer wariness of visiting crowded areas for a three-month period. Based on this scenario, an approximate 50% decline could happen in foodservice revenues in Southeast Asia. With only 4% of total foodservice sales in 2019, online delivery will not mitigate the decline in dine-in sales, despite the pick-up in online sales.
Panic purchases by consumers have benefited retail sales of staples, such as rice, instant noodles, edible oils, and canned food, in the short term. However, this trend is expected to change once social distancing and mobility restrictions are eased. Having stocked up on staples, consumers are likely to shift to spending on discretionary purchases, including affordable (rather than premium) snacks, due to worsening economic conditions. Out-of-home consumption is also expected to be limited once lockdown measures are lifted.
Southeast Asian informal and formal economies are significantly supported by migrant workers. Restrictive government measures, however, have resulted in the exodus of migrant workers back to their hometowns. The reduction of migrant workers in F&A sectors will severely disrupt production, supply chains, and distribution. Case in point: 70% of Malaysia’s plantation workforce is made up of migrant workers. The analysts also expect to see more logistics disruptions in the region, such as roadblocks, port congestion, and limited air freight capacity, if more countries extend or implement stricter measures to control the outbreak.
Rabobank estimates that the economic slowdown will impact full-year beef consumption in Southeast Asia by 9% to 13%, including the drop in foodservice traffic in the three-month period. Likewise, pork consumption is expected to decline by 4% to 17% YOY, even though supply shortages and high pork prices from ongoing ASF outbreaks remain key drivers in Vietnam and the Philippines. Southeast Asian full-year fish demand is also expected to dip by 6% to 11% YOY this year, as at-home meals will only partly compensate for the drop in consumption through foodservice. With weaker spending power, Southeast Asian poultry consumption is forecast to decline 1% to 4% in Indonesia, Malaysia, Thailand, and the Philippines, but still grow 4% in Vietnam this year.