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Southeast Asia E-Commerce: Opportunity and Optimism Abound

Southeast Asia digital spend by category, 2016 (US$ billions)

Southeast Asia’s 655 million plus population is increasingly migrating towards a digital-centric lifestyle, going online to conduct day-to-day activities such as shopping, entertainment, payments, and transport. Driven by an expanding middle class and a youthful, tech savvy population (about 43% of Southeast Asia’s inhabitants are aged 24 years and below according to data from the CIA), this evolution of consumer culture is expected to drive the region’s internet economy in the years ahead and e-commerce has emerged as one of the top categories for digital spending according to Bain & Company; of the region’s estimated US$ 50 billion internet economy in 2016, e-commerce accounted for US$ 15 billion or 30%, second only to travel and tourism which accounted for US$ 22 billion (equal to about 44%) of digital spending.

Southeast Asia digital spend by category, 2016 (US$ billions)

The dynamism is reflected in the growth numbers with Southeast Asia’s e-commerce sales of first-hand goods reaching US$ 10.9 billion in 2017, up from US$ 5.5 billion in 2015, representing a CAGR of 41% according to data from Google and Temasek’s “e-Conomy SEA Spotlight 2017” report.

Yet, there is still plenty of growth potential. With just about 390 million people in Southeast Asia connected to the internet, (making it the world’s third biggest internet population), internet penetration in the region stands at about 59%, thereby offering an untapped market of over 200 million people.

Bar chart showing the population of internet users and non-internet users in Southeast Asia by country as at December 2017. Indonesia had the highest number of internet users (143.26 million people) as well as the highest number of non-internet users (123.53 million people). After Indonesia, countries with the highest number of internet users are as follows: Philippines (67 million), Vietnam (64 million), Thailand (57 million), Malaysia (25.08 million), Myanmar (18 million), Cambodia (8.01 million), Singapore (4.84 million), Laos (2.44 million), Brunei (0.41 million) and Timor Leste (0.41 million).

And among this army of internet users, just a handful of them are active online shoppers and e-commerce accounts for just about 1% of total retail sales for most countries in Southeast Asia according to a report by ResearchAndMarkets. In Singapore, one of the region’s most mature e-commerce markets, online sales made up just 2.1% of total retail sales in 2015 – the highest proportion among Southeast Asian countries according to a report by Google and Temasek. This compared with China where e-commerce accounted for about 12.1% of total retail sales in 2015, according to the National Bureau of Statistics.

Unsurprisingly, there is an air of optimism about Southeast Asia’s e-commerce growth prospects and the region is expected to be the next rising star of e-commerce in Asia. Asia-Pacific e-commerce sales grew 31.1% in 2017, according to data from eMarketer, however nearly 83% of those sales came from China alone, the world’s biggest e-commerce market. Japan, South Korea and India make up the top four e-commerce markets in Asia-Pacific, which leaves Southeast Asia as the next frontier for e-commerce growth thereby opening opportunities for business and investment in the region. BMI Research projects Southeast Asia’s e-commerce sales to explode from US$ 37.7 billion in 2017 to US$ 64.8 billion by 2021, representing a CAGR of 14.5%.

Indonesia

Boasting the fourth largest population in the world, the largest population of internet users and the largest economy in Southeast Asia, Indonesia is often touted as one of the most promising e-commerce markets in the region. Indonesia’s e-commerce market was valued at US$ 8 billion in 2017 according to McKinsey and the market is forecast to grow eight-fold to US$ 55-65 billion by 2022, representing a grand CAGR of over 45% driven by increasing internet penetration and a growing consumer class; just about 53% of the country’s 260 million plus population is connected to the internet, leaving an unconnected population of over 120 million, and the country’s consumer class is projected to grow from 45 million in 2010 to 135 million by 2030 according to analysis by McKinsey Global Institute which represents huge potential for internet retailers.

With e-commerce accounting for 1.6% of Indonesia’s total retail sales as of 2016 (compared with 13% in China the same year) according to a report by AusTrade, and with just 15% (equal to about 30 million) of Indonesia’s adult population of 195 million being active online shoppers as of 2017, Indonesia’s e-commerce market, already the largest in Southeast Asia, is still at an infant stage of development and these driving forces are expected to propel the number of Indonesian online shoppers to 43.9 million people by 2022 and Indonesia’s online sales are expected to make up about 20% of total retail sales by 2020 according to estimates by Indonesia’s Trade Ministry. ResearchAndMarkets released a year 2018 report which foresees Indonesia to have the highest e-commerce growth rate in the region through 2025, and the potential has lured the likes of e-commerce giants Amazon, Alibaba who are aiming to capture a slice of this ever-growing pie which is currently dominated by homegrown head honcho Tokopedia with a 14% market share according to data from CLSA. Tokopedia is followed by Singapore-rebased Shopee with a market share of 11%, Bukalapak and Alibaba-backed Lazada with 6% each. 28% is taken up by other e-commerce platforms (such as Zalora, Blibli, MatahariMall and China’s JD.com-owned JD.id) while 36% of Indonesian online sales is generated by social media platforms, (notably Facebook and Instagram) and messaging apps (such as Whatsapp).

Part of the reason for the rise of social commerce in Indonesia could be attributed to a few factors; Indonesians are avid social media users (according to Hootsuite, Indonesia has the world’s fourth biggest population of Facebook users, and the world’s fourth biggest population of Instagram users, and according to Twitter, Indonesia has the world’s fifth biggest population of Twitter users), and Indonesian online shoppers seem to have a preference for interacting one-on-one with the seller prior to making a purchase. Banking on this consumer culture, a number of Indonesian SMEs began selling their wares online using available online channels such as social media, way before e-commerce platforms became ubiquitous. As a result, social commerce developed before e-commerce websites became mainstream with social commerce accounting for as much as 50% of online sales in Indonesia before dropping to 36% in 2017 as e-commerce websites gained traction.

While e-commerce is gathering momentum among Indonesian online shoppers, quite the opposite is taking place in China, the world’s biggest e-commerce market, where social commerce is gradually taking root and finding its place alongside well-entrenched e-tailing websites. Barely three years old, Pinduoduo, a Chinese social commerce platform launched in 2015, filed for an IPO this year, raising US$ 1.6 billion in what was the second-biggest Chinese IPO in the United States.

Hence, if the ongoing evolution of the relatively more mature Chinese e-commerce is anything to by, social commerce is likely to remain a formidable channel in Indonesia’s e-commerce sector going forward. However, the growth opportunity for dedicated e-commerce platforms could be more exciting as they potentially continue taking up market share from social media platforms. According to McKinsey, Indonesian online sales through e-commerce websites is forecast to grow eight-fold from US$ 5 billion in 2017 to US$ 40 billion by 2022 while online sales from social media is expected to rise about five-fold or so from US$ 3 billion in 2017 to US$ 15-25 billion by 2022.

Bar chart showing Gross Merchandise Volume (GMV) in Indonesia’s e-commerce market in 2017 and 2022 (forecast) (US$ billions). In 2017, Indonesia’s total GMV was estimated at over US$ 8 billion with about US$ 5 billion being generated by e-tailing websites and over US$ 3 billion being generated by social commerce channels. By 2022, Indonesia’s GMV is forecast to grow to US$ 55065 billion with US$ 40 billion being generated by e-tailing websites and US$ 15-25 billion being generated by social commerce channels.

So far, certain categories have been high flyers in Indonesia’s e-commerce growth wave. Much like in other Asian e-commerce markets such as India, Indonesian online shopping baskets tend to contain products in Fashion (the leading product category as per one market survey); Electronics & Media; Furniture & Appliances; Food & Personal Care; and Toys, Hobby & DIY product categories.

Although integrated e-commerce platforms such as Tokopedia, Lazada, and Blibli have been taking the limelight, specialist e-commerce websites that cater to these popular product niches are also showing promise. Seven-year old Islamic fashion e-tailing startup Hijup for instance, was ranked 20th in the number of visits to e-commerce sites in Indonesia in the second quarter of 2018 with a monthly average of 930,000 visits and has topped the list as the most followed e-commerce business on Instagram.

Much like the ongoing evolution of mature e-commerce markets such as China and India, where a proliferation of specialist e-tailing websites such as China’s Gome and Vipshop (which specialize in home ware and fashion respectively), and India’s Pepperfry and Ajio.com (which specialize in furniture and fashion respectively) take market share from integrated e-commerce bigwigs such as Alibaba in China and Flipkart in India, there is tremendous long term growth opportunity for such specialist sites in Indonesia as the country’s e-commerce market matures.

Indonesia’s largest luxury retailer, Masari Group appears to have spotted one such gap; luxury fashion. Although Indonesia isn’t particularly noted for its affluent class (unlike India or China for instance where swelling high income consumers has given birth to a burgeoning luxury fashion e-commerce market), the country is seeing a steady growth in its population of affluent consumers. And yet, there is no clear e-commerce platform for luxury fashion and unlike in India or China where existing e-commerce players are adding a luxury fashion component to their respective websites (Indian e-commerce giant Flipkart’s fashion arm Jabong for instance is piloting a ‘Jabong Luxe Store’ while Chinese e-commerce behemoth Alibaba launched ‘Luxury Pavilion’, an invite-only platform for premium and luxury brands to strut their stuff) so far there has yet to be such a move towards a dedicated platform for luxury brands by Indonesian e-commerce websites. Sensing an opportunity to offer an avenue for the country’s affluent demographic to shop online for high-end fashion wear, accessories, and shoes, Masari Group launched an e-commerce website showcasing products from brands such as Les Petits Joueurs, Rodo, Dorateymur to name a few.

Malaysia

As Malaysians increasingly turn to online channels for their shopping needs, e-commerce has been steadily growing its share of Malaysia’s GDP; e-commerce’s share of Malaysia’s GDP stood at 6.1% or RM 74.6 billion in 2016 according to Malaysia’s Statistics Department, up from 5.9% or RM 68.3 billion of in 2015. Online sales made up about 2.5% of Malaysia’s total retail sales in 2015 and the figure is expected to reach 4%-5% this year according to online deal website 11street. A 2016 report by yStats foresees Malaysia’s e-commerce sales jumping five-fold by 2025.

Several factors suggest that Malaysia, Southeast Asia’s fourth-largest economy according to data from the IMF is at an inflection point of e-commerce growth; internet penetration stands at about 78% as at December 2017, according to data from Internet World Stats, the country’s middle class is expanding (Malaysia, ranked third among Southeast Asian nations in terms of GDP per capita by PPP as of 2017 according to figures from the CIA, and incomes are rising among Malaysia’s youthful population (the median age of the country’s population is 28.5 as of 2017 according to the CIA, making it the country with the sixth-youngest population in Southeast Asia, younger than Thailand (median age: 37.7), Singapore (34.6), Indonesia (30.2), Vietnam (30.5), and Brunei (30.2). And with about 45% of the country’s population aged 24 and below according to data from the CIA, the long term outlook for Malaysia’s online sales growth is bright as these tech-savvy youngsters rise up the income ladder.

Although pundits point out that Malaysia’s logistic infrastructure may pose a bottleneck to the country’s burgeoning e-commerce sector, it is still worth noting that regionally Malaysia’s infrastructure is second only to Singapore according to the World Economic Forum’s Global Competitiveness Index 2017-2018. This could make delivery quality, speed and costs relatively more competitive in Malaysia compared to regional peers, which could better enable Malaysian e-tailers to profitably offer free shipping (an important advantage in an era where free shipping is increasingly becoming a competitive necessity) which incentivizes buyers to spend more money shopping online and thereby propel the domestic e-commerce market forward.

Bar chart showing the World Economic Forum's Global Competitiveness Index, 2017-2018 Infrastructure score for selected Southeast Asian nations. Singapore ranks highest with a score of 6.5, followed by Malaysia (5.5), Thailand (4.7), Indonesia (4.5), Brunei (4.3), Vietnam (3.9), Philippines (3.4), Laos (3.3) and Cambodia (3.1)

With the e-commerce space in Malaysia seemingly ripe for the taking, competition is heating up among e-tailers both foreign and local for a share of the pie. The horizontal e-commerce space is crowded with well-established players dominating the arena such as Alibaba-backed Lazada, Singapore-based Shopee, and homegrown e-commerce pioneer Lelong. Competition could get stiffer in the years ahead with deep-pocketed e-commerce heavyweights such as Amazon (which has already established operations in neighboring Singapore) and Chinese e-tailer JD.com (which has tied up with retail giant Walmart to tackle the Southeast Asian market) potentially setting up shop in Malaysia.

Vertical e-commerce however offers ample opportunity. Similar to most e-commerce markets, Fashion is the leading online shopping category in Malaysia, and there has been a blossoming of a number of local and international fashion and fashion-related platforms, the success of which minted a fair number of millionaire founders. Homegrown online beauty store Hermo was acquired by Japanese beauty portal iStyle, netting Gobi Partners (Hermo’s ex-investors) a 91% Internal Rate of Return (IRR) in just one and a half years. Meanwhile Fashion Valet, another homegrown fashion e-commerce platform successfully closed its Series C round this year with an investment from Malaysia’s main sovereign fund Khazanah.

Apart from Fashion, other popular categories include Electronics; and Sports & Hobbies. Opportunities exist in other verticals which are tremendously popular offline but have yet to established online. Furniture is one example; Malaysia’s furniture market has grown in along with the growth of the country’s middle class and the country’s has a vibrant furniture industry, currently ranked as the world’s eighth largest furniture exporter as of 2017 and has a target of being among the world’s top five furniture exporters by 2022.

While horizontal e-marketplaces such as Lazada and Rakuten sell furniture online, specialist online furniture marketplaces are a relatively new concept in Malaysia and there is so far no dominant specialist furniture e-commerce site in Malaysia as is found in other countries such as Pepperfy and Urban Ladder in India, and Wayfair(NYSE:W) in the United States. Malaysian furniture online stores iHias and Apver could be poised to ride this potential.

Part 3 of this series is coming soon. Sign up for the LD Investments newsletter to get the article delivered straight to your inbox. 

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Opportunities In Philippines’s Multi-Billion Dollar Infrastructure Bonanza

Pie chart showing 2017 FDI inflow into the Philippines, share by industry (%). The largest share of FDI inflows to the Philippines went to the electricity, gas, steam and AC industry (42.4%), followed by Manufacturing (35.2%), Real estate activities (7.6%), Construction (4.9%), and Finance and insurance (4.2%) while the balance 5.6% was taken up by other industries.

President Duterte’s ‘Build, Build, Build’ (BBB) project, an ambitious infrastructure program that will see US$ 180 billion being spent over the next decade towards building much needed roads, dams, bridges, airports, seaports and more in the Philippines is expected to push Philippines’s infrastructure spending from 6.3% of GDP this year to 7.3% by 2022 helping close the infrastructure gap between the Philippines and other countries; in the World Economic Forum’s latest Global Competitiveness Index, the Philippines ranks 97th out of 137 nations in terms of infrastructure ranking, lagging behind most of its Southeast Asian neighbors according to the World Economic Forum’s latest Global Competitiveness Report.

Bar chart showing the World Economic Forum's Global Competitiveness Index, 2017-2018 Infrastructure score for selected Southeast Asian nations. Singapore ranks highest with a score of 6.5, followed by Malaysia (5.5), Thailand (4.7), Indonesia (4.5), Brunei (4.3), Vietnam (3.9), Philippines (3.4), Laos (3.3) and Cambodia (3.1)

The latest World Economic Forum’s Executive Opinion Survey also revealed that inadequate supply of infrastructure is considered to be the second most problematic factor for doing business in the Philippines (inefficient government bureaucracy was rated as the number one problematic factor for doing business).

Philippines’s infrastructure challenge and the government’s ‘Build, Build, Build’ initiative which aims to usher in a “golden age of infrastructure” opens numerous avenues for business and investment for locals as well as foreigners. Business and investment opportunities in Philippines’s ‘Build, Build, Build’ program is attracting foreign investor interest, with the country enjoying record high FDI in 2017 which reached US$ 10.05 billion, a 21% YoY increase. Direct equity investment for local companies which made up 32% total FDI inflows, increased 26% YoY, much of which were channeled towards electricity, gas, steam and air-conditioning supply; construction; manufacturing; and real estate activities.

Pie chart showing 2017 FDI inflow into the Philippines, share by industry (%). The largest share of FDI inflows to the Philippines went to the electricity, gas, steam and AC industry (42.4%), followed by Manufacturing (35.2%), Real estate activities (7.6%), Construction (4.9%), and Finance and insurance (4.2%) while the balance 5.6% was taken up by other industries.

Numerous opportunities exist for local and foreign players in areas such as design engineering, cement and construction equipment, noteworthy opportunities are discussed below.

Cement

At about 212 kilograms per person (as of 2014), Philippines has one of the lowest per capita cement consumption compared to its ASEAN counterparts, and is about half the global average per capita cement consumption. However, that figure is set to improve as President Duterte’s Golden Age of Infrastructure which includes building six airports, 32 roads and bridges and a number of other developments such as bus rapid transits, industrial estates, and seaports drives domestic cement demand which is estimated to exceed 40 million metric tons by 2021, according to estimates from the Philippines’s Department of Trade and Industry. This is about double the quantity of Philippines’s current cement consumption which stood at 25.9 million metric tons in 2016.

This is a growth opportunity for cement firms such as LafargeHolcim, Cemex Holdings Philippines, Republic Cement and Eagle Cement Corporation. These four cement industry players account for about 80% and 82% of total clinker and cement domestic production, respectively.

German industrial giant Thyssenkrupp AG (ETR:TKA) expects its Philippines revenues to rise three-fold as a result of the country’s BBB initiative with much of that being driven by cement.

Cement producers are actively building capacity to capture a share of the country’s anticipated increase in cement demand. As of December 2016, the Philippine cement industry has an estimated annual clinker and cement capacity of 20.6 and 28.63 million tons, respectively, according to the 2017 Cement Market Report. The Philippine cement industry is estimated to need over 10 million tons of additional cement capacity to meet domestic cement demand until 2025. Unless local cement manufacturers increase capacity, the Philippines will have to fill the deficit through imports.

Construction equipment

According to BMI Research, Philippines’s construction industry is forecast to expand at an average real rate of 9.8% between 2017 and 2026, and the firm expects Philippines to be one of the fastest growing construction markets in Asia, which is expected to create heavy demand for construction equipment such as cranes, excavators and other heavy machinery, an opportunity companies such as Korean automotive firm Hyundai, Swedish auto firm Volvo, American heavy machinery giant Caterpillar (NYSE:CAT) among others are aiming to capitalize on.

Hyundai Heavy Machineries dominates Philippines’s excavator market and is expanding capacity to participate in the government’s BBB program.

Volvo Construction Equipment, the second largest player in Philippines’s excavators market according to a 2016 report by Ken Research is aiming to supply construction equipment as well as trucks, and buses to help with the program.

American heavy machinery giant Caterpillar is bullish on heavy machinery opportunities from the BBB initiative such as supplying excavators.

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High-Flying Growth Prospects In India’s Domestic Travel Market

Bar chart showing domestic and foreign visits to Indian states, 2006-2016 (in millions of visits). Domestic visits to Indian states grew from 462.4 million in 2006 to 1,613.6 million in 2016 while foreign visits grew from 11.7 million in 2006 to 24.7 million in 2016.

Tourism is booming in India, and the industry is emerging as a key growth driver in India’s service sector. Much of the growth stems from India’s domestic tourism sector which has seen a steady increase in visits from domestic travelers over the past decade; domestic tourist visits (DTVs)  increased 12.7% to 1.613 billion in FY 2016, (the latest year for which data is available) according to statistics from India’s Ministry of Tourism.

Domestic tourist visits have consistently registered positive growth rates over the past decade; during 2006-2016 domestic tourist visits grew at double digit rates every year except in years 2008 and 2013 when growth was at single digits. This compares with foreign tourist visits which mostly saw single-digit growth and sometimes zero or negative growth. In 2012 for instance, foreign tourist visits registered negative 6% growth while domestic tourist visits jumped 20%.

The rise of India’s domestic visitor numbers has been a long term trend; during the period 1991-2016, domestic visits to all Indian states grew at a CAGR of 13.03%, far outpacing foreign visits which grew at a CAGR of 8.25% during the same period according to data from India’s Ministry of Tourism.

Bar chart showing domestic and foreign visits to Indian states, 2006-2016 (in millions of visits). Domestic visits to Indian states grew from 462.4 million in 2006 to 1,613.6 million in 2016 while foreign visits grew from 11.7 million in 2006 to 24.7 million in 2016.

Domestic travelers also account for the lion’s share of tourism earnings; India’s tourism industry contributes about 7% to India’s GDP, and domestic travelers accounted for 88% of the sector’s contribution to GDP in 2016.

India’s rising numbers of domestic tourists have largely been driven by an expanding middle class with rapidly increasing purchasing power (currently estimated at 250 million Indians and counting), infrastructure development, a growing fleet of low cost airlines, and initiatives such as the UDAN Regional Connectivity Scheme.

Yet, there is considerable potential for further growth as a result of demographic, regulatory and economic factors. The number of middle class Indians is small compared to China and their purchasing power is considerably lower than their Chinese counterparts. However, India continues to be the fastest growing major economy in the world and this is likely to remain so in the foreseeable future; the International Monetary Fund (IMF) predicts India’s Gross domestic Product (GDP) will grow at an average of more than 8% every year over the next five years and this should drive income growth. According to Global Insight Inc, some 150 million additional Indian households are due to achieve real PPP incomes of more than US$ 20,000 by 2026, almost triple the amount in 2016 and according to Steelcase Growth Market Research, India’s middle class population is expected to grow to around 475 million people by 2030.

India’s expanding middle class citizens are expected to drive India’s consumption expenditures to reach US$ 4 trillion by 2025, helping India emerge as the world’s third biggest consumer market by 2025 according to consultancy firm Boston Consulting Group.

India’s domestic tourism sector is also benefiting from an encouraging regulatory environment; the Indian government is planning to turbocharge the tourism sector with tax cuts, incentives, infrastructure development and more. The Union Budget 2018 focuses on expansion of airport infrastructure (a key constraint limiting air traffic growth in the country) and there are expectations of a reduction in hotel tariffs and tax exemptions on investments in new hotels.

Thus, with several growth drivers in place from favorable demographics to a supportive policy environment, India’s domestic tourism sector is poised for greater expansion in the future. Domestic tourism is expected to maintain its dominance in India’s tourism industry through 2021. A report by Google India and Boston Consulting Group projects India’s domestic travel market to grow at a five-year CAGR of 11.2% to US$ 48 billion by 2020 from US$ 27 billion in 2015 opening numerous opportunities for businesses and investors.

 

Airlines

India’s domestic air traffic crossed the 100 million mark for the first time with 117 million passengers flying in 2017, up 18% from 99.88 million passengers in 2016 according to data from India’s Directorate General of Civil Aviation (DGCA) making India the world’s fastest growing domestic aviation market for the third consecutive year according to IATA. India was followed by China and Russia where domestic air passenger numbers increased 13.3% and 10.1% respectively in 2017.

Bar chart showing India’s domestic air traffic, 2013-2017 (in millions of passengers). India’s domestic air traffic grew from 61,426 million passengers in 2013 to 117,176 passengers in 2017, representing a CAGR of 17.5% between 2013 and 2017.

The boom in domestic air travel was a boon to local airlines such as Indigo (NSE:INDIGO), Jet Airways (NSE:JETAIRWAYS), Spice Jet (BOM:500285) and Vistara (a joint venture between Tata Group and Singapore Airlines) which enjoyed higher passenger load factors.

In 2017, market leader Indigo commanded a market share of 39.6%, Jet Airways had 17.8%, Air India 13.3%, Spice Jet 13.2%, Go Air 8.5%, Air Asia 3.7%, and Vistara 3.5%.

Yet the growth potential is still enormous; less than 10% of Indians take to flying and at around 0.08 annual domestic seats per capita, India’s penetration rate is relatively low compared to other developing markets such as Brazil (0.6) and China (0.4) according to data from flight information and data company OAG. By comparison, the United States has around 2.8 annual domestic seats per capita.

Rising incomes particularly among India’s tech-savvy millennial generation (those born between 1981 and 1996) which have a greater affinity to travel could propel India’s domestic aviation sector in the years to come. India has about 400 million millenials which account for about a third of the country’s one billion plus population and India is expected to be the youngest nation in the world by 2020 with a median age of 29. A survey by Phocuswright and ixigo revealed that Indian millenials take more trips per year compared to seniors and they also spend more.

The Indian government is also taking encouraging measures to boost efficiency and reduce flying costs. For instance, India is mulling the prospect of breaking the monopoly held by public sector oil companies in the supply of Aviation Turbine Fuel (ATF) at the Mumbai airport by allowing private refiners to enter the market, thereby improving operating costs and increasing efficiency. Mumbai airport, India’s busiest airport, accounts for about 20% of India’s ATF consumption. With ATF costs making up about 40% of the operating costs of airlines, the move could be a boon for India’s aviation industry, benefiting airlines as well as private refiners such as Reliance Industries (NSE:RELIANCE).

The International Air Transport Association expects India to overtake the United Kingdom to emerge as the third largest aviation market by 2025 (China will be the biggest market followed by the United States).

Morgan Stanley forecasts India to witness a CAGR of 13% in domestic air traffic during 2016-2026.

According to a report by Google India and Boston Consulting Group, air travel is expected to be the biggest contributor to the India’s travel market, registering a CAGR of 15% reaching a market value of US$ 30 billion by 2020, making up over 50% of the projected value of India’s domestic travel market which is forecast to reach US$ 48 billion by 2020.

Hotels

Overinvestment, cost overruns and high interest rates have hampered the financial performance of India’s hotel industry with stressed loans jumping 63% over the past three years.

Much of the industry’s woes appear to be concentrated on branded, full-service hotels in the luxury and upscale segment in Tier I and Tier II cities.

On the other hand, India’s mid-market hotel segment (i.e., two, three and four star hotels) is booming, driven by both domestic and overseas tourists, encouraging brands such as Lemon Tree Hotels (NSE:LEMONTREE), and Royal Orchid Hotels (NSE:ROHLTD) to expand into the sector pushing up the supply of mid-market hotel rooms over the past several years; in 2002, some 6,000 of the 26,000 branded hotel rooms in India – less than 25% percent – were mid-market hotel rooms. By 2017, mid-market hotel rooms jumped nine-fold to 53,200, accounting for 43% of the total branded hotel rooms in the country which increased five-fold to 125,000 according to data from hospitality consulting firm Horwath HTL.

However, there are signs of recovery in India’s hotel industry with occupancy rates rising to 66% in 2017 – the highest in nine years according to a report by Horwath HTL – and average room rates growing by 8% since 2008 according to hotel consultant firm Hotelivate.

Bar chart showing all-India hotel occupancy rates, FY 2013 - FY 2017 (E). Occupancy rates have been rising in India; during FY 2013, FY 2014, FY 2015, FY 2016 and FY 2017 (E) hotel occupancy rates were 58%, 59%, 61%, 64% and 66% respectively.

The momentum is expected to continue going forward driven by a muted hotel room supply pipeline, an increasingly travel-hungry Indian middle class population, and favorable policies such as the Indian government’s UDAN scheme Phase-II which is expected to open new opportunities benefiting domestic mid-tier hotels in particular. Horwath HTL anticipates all-India occupancy rates to be more than 70% next year and mid-market segment occupancy rates will hit 82%.

The annual average leisure hotel spend per household is expected to grow 7% to US$ 18 by 2020 compared with US$ 13 in 2015.

A report by Google India and Boston Consulting Group expects hotels to grow at CAGR of 13% to US$ 13 billion by 2020, making up slightly more than a quarter of the overall domestic travel industry which is expected to be valued at US$ 48 billion. Much of the demand will be fueled by domestic travelers who are expected to account for over 60% of hotel spend in India. The mid-scale segment is expected to retain its dominant share, accounting for about 44% of India’s branded hotel rooms in 2020.

Bar chart showing India hotel spend by domestic and foreign tourists in 2010, 2015 and 2020 (forecast) (in US$ billions). India’s hotel market was valued at US$ 4 billion in 2010, US$ 7 billion in 2015 and is expected to grow to US$ 13 billion by 2020. At about US$ 9 billion - US$ 10 billion, domestic travelers will account for more than 60% of hotel spend in India by 2020.

Online travel portals

According to consulting firm Praxis, India’s online travel market was valued at US$ 5.71 billion at the end of 2015, and is expected to more than double to US$ 13.6 billion by 2021, representing a CAGR of over about 16% driven by increasing penetration of international hotel and flight bookings from travel portals such as MakeMyTrip (NASDAQ:MMYT) (India’s largest online travel agency), Yatra (NASDAQ:YTRA), and Cleartrip to name a few.

Increasing internet penetration and rising incomes among India’s tech savvy millenials as they increasingly climb up the income ladder are some of the tailwinds that are expected to drive India’s online hotel market. The country’s internet user base stood at 481 million in December 2017, up 11.34% from a year earlier, representing an internet penetration rate of less than 40% indicating ample potential for growth. Much of India’s offline population resides in rural India. However, even in urban India where incomes are higher and residents generally have a higher propensity to travel, there is potential for higher internet penetration; about 295 million (equal to about 64%) of India’s 455 million urban population are connected to the internet leaving a potential market of about 160 million internet users in urban India alone. This is equal to nearly one half of the entire population of the United States.

Indian millenials are expected to be a key driving force in India’s online travel market going forward. According to booking data from India’s largest online travel company MakeMyTrip which is often touted as India’s answer to Ctrip  (NASDAQ:CTRP) and Expedia (NASDAQ:EXPE), the majority of the platform’s customers were millenials; over half of travelers who made bookings through MakemyTrip were under 35 years of age.

India has the world’s largest millenial population and as their disposable incomes grow, they are likely to travel more and thereby drive the country’s online travel market as they plan their itineraries online, presenting a major growth opportunity for online travel companies.

Online hotel bookings in particular presents a major growth opportunity in India’s online travel market. According to a report by Morgan Stanley, Indian millenials have shifted a large part of their activities online, for instance through the adoption of digital entertainment channels (to the detriment of traditional channels such as radio) and online shopping. However, online travel booking is an exception to the trend with 63% of all hotel bookings being reportedly made by walking into hotels. Less than 20% of hotels were booked online, and only one third of those were booked using travel agencies indicating tremendous potential for growth.

One third of all hotels are expected to be booked online helping the sector grow at a CAGR of 25% to be worth US$ 4 billion by 2020 according to a report by BCG and Google India.

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Healthy Opportunities In China’s Blossoming Healthcare Market

Bar chart showing the top 10 countries by health expenditure per capita and China’s health expenditure per capita (in US dollars), 2000, 2005, 2015 according to data from the World Health Organization. The top countries by per capita health spend as at 2015 are: Switzerland (US$ 9,818), U.S.A. (US$ 9,536), Norway (US$ 7,464), Luxembourg (US$ 6,236), Sweden (US$ 5,600), Denmark (US$ 5,497), Australia (US$ 4,934), Ireland (US$ 4,757), Netherlands (US$ 4,746), and Germany (US$ 4,592). By comparison, China’s per capita health expenditure in 2015 amounted to just US$ 426.

China, the world’s second largest healthcare market in the world after the United States, is growing rapidly driven by an ageing population, government support,  and rising urbanization (which is contributing to an increase in lifestyle diseases such as diabetes and cancer.

China is currently the fastest growing major healthcare market in the world with a five-year compound annual growth rate (CAGR) of 17% compared with just 4% for the United States and -2% in Japan according to 2015 information from the World Bank. Healthcare spending in China has risen four-fold from about CNY 1 trillion (US$ 126 billion) in 2006 to CNY 4.6 trillion in 2016 (US$ 698 billion).

Yet, the Chinese healthcare market is still relatively immature compared to developed economies such as the United States and Germany. China holds nearly 20% of the world’s population but the country accounts for just about 3% of the world’s healthcare spend.

As a percentage of GDP, China’s healthcare expenditure is about 5.6% of the country’s GDP compared with 17.1% for the United States, 11.3% for Germany and 10.3% for Japan according to 2013 data from the World Health Organization.

Furthermore, despite being the world’s second biggest healthcare market, China’s per capita healthcare spending is only a fraction of mature markets such as the United States, Luxembourg and Germany. China does not even make it to the list of the world’s top 10 countries with the highest per capita health expenditure indicating huge potential for spending increases.

Bar chart showing the top 10 countries by health expenditure per capita and China’s health expenditure per capita (in US dollars), 2000, 2005, 2015 according to data from the World Health Organization. The top countries by per capita health spend as at 2015 are: Switzerland (US$ 9,818), U.S.A. (US$ 9,536), Norway (US$ 7,464), Luxembourg (US$ 6,236), Sweden (US$ 5,600), Denmark (US$ 5,497), Australia (US$ 4,934), Ireland (US$ 4,757), Netherlands (US$ 4,746), and Germany (US$ 4,592). By comparison, China’s per capita health expenditure in 2015 amounted to just US$ 426.

China’s healthcare market is expected to continue its rapid growth in the years to come propelled by growth drivers such as an greying population, increasing lifestyle diseases as a result of increasing urbanization and government support.

China’s population is ageing with the country’s over-65 year olds accounting for 11.4% of the total population in 2017, up from 10.8% in 2016 and less than 8% in 2000 according to data from the statistics bureau. That equates to over 150 million Chinese over the age of 65 which is slightly less than half of the entire population of the United States. This number is expected to grow with the State Council expecting 25% of China’s population to be aged 60 and over by 2030, up from 13% in 2010 which is expected to drive healthcare costs going forward.

China’s urbanization rate has been on the rise and it currently stands at 59% according to the National Statistics Bureau. This compares with the United States which is at 82%, the United Kingdom which is at 83% and South Korea which is at 83%. China’s increasing urbanization has contributed to a greater incidence of lifestyle diseases such as diabetes and cancer. China has the most number of obese children in the world and has the world’s second -biggest population of obese adults after the United States according to the Global Burden of Disease report by a team at the University of Washington.

The urbanization process is continuing in China and thus as Chinese get increasingly wealthier and urbanized which leads to unhealthy diets and sedentary lives, the country’s lifestyle disease burden is expected to increase thereby driving China’s healthcare market.

Recognizing the need for a robust healthcare industry to meet the country’s increasing healthcare needs, the Chinese government has undertaken a series of reforms and supportive government policies such as the blueprint “Healthy China 2030” which aims to improve the level of health throughout the country by improving health services, expanding the medical industry and encouraging private investment in the local healthcare sector.

By 2030, the National Health and Family Planning Commission (NHFPC) estimates China’s health-related industries will reach CNY 16 trillion (approximately US$ 2.4 trillion).

These factors are expected to drive China’s healthcare industry going forward. According to a 2017 report by Research ad Markets, China’s healthcare market is poised to expand from around US$ 710 billion in 2016 to over US$ 1.11 trillion in 2020 creating numerous opportunities.

 

Pharmaceuticals

Pharmaceuticals is the largest sector of China’s healthcare market and China’s pharmaceuticals industry has been growing rapidly; the Chinese pharmaceutical market grew at a CAGR of 9.4% from 2013 to 2017 helping China overtake Japan to emerge as the world’s second largest pharmaceutical in the world after the United States.

Bar chart showing the world’s top 10 pharmaceutical markets in 2016 by market value (US$ billion). The top 10 markets are U.S.A. (US$ 461.7 billion), China (US$ 116.7 billion), Japan (US$ 90.1 billion), Germany (US$ 43.1 billion), France (US$32.1 billion), Italy (US$ 28.8 billion), U.K. (US$ 27 billion), Brazil (US$ 26.9 billion), Spain (US$ 20.7 billion), and Canada (US$19.3 billion).

 

Yet, China’s pharmaceutical market lags far behind the United States in sales; despite having a population that is three times the size of the United States, at US$ 122.6 billion in 2017, China’s pharmaceutical market was worth less than a quarter of the United States’ which was valued at US$ 466.6 billion the same year according to data from health information vendor IQVIA. However, with drug demand expected to grow due to factors such as a greater incidence of lifestyle diseases and faster drug approvals, IQVIA forecasts China’s pharmaceutical market to expand from US$ 122.6 billion in 2017 to reach US$ 145 billion to US$ 175 billion by 2022.

In 2017, China announced new rules aimed at speeding up the country’s inefficient drug approval process, which could be a revenue boost for pharmaceutical companies.

Foreign pharmaceutical companies in particular stand to benefit as the new rules allow foreign drug makers to file for drug approval in China using data from international, multinational trials (provided China is included as a study site) which enables them to gain greater inroads into the Chinese market and eliminates the necessity of conducting additional costly and often time-consuming clinical trials in China after receiving approval overseas.

Swiss pharmaceutical giant Novartis AG (VTX: NOVN) aims to double China sales over the next five years.

AstraZeneca (LON:AZN) has deepened its substantial China business with the announcement of a new company Dizal Pharmaceutical, which is a drug development joint venture with the Chinese Future Industry Investment Fund (FIIF).

French pharma giant Sanofi (EPA:SAN), one of the leading insulin providers in the world and in China, expects to maintain double-digit sales growth in China thanks to China’s growing diabetes population. One third of the world’s approximately 420 million diabetic population live in China which amounts to over 100 million diabetic Chinese, accounting for about 11% of Chinese adults as of 2015 up from less than 1% in 1980, a dramatic increase over the past 35 years. China’s growing insulin demand has been a boon to Sanofi’s rival insulin makers as well, Novo Nordisk (CPH:NOVO-B) and Eli Lilly (NYSE:LLY).

Local drug makers also stand to benefit from accelerated drug approvals.

Hutchison MediPharma, a subsidiary of Hutchison Meditech (LON:HCM) is expected to receive approval this year for its fruquintinib capsule for colorectal cancer, the second-most common prevalent cancer in China with about 380,000 new cases annually according to the National Central Cancer Registry of China. The market potential for cancer drugs in China is substantial with cancer rates rising nationwide as a result of aging, and environmental factors among other reasons. With China seeing approximately 700,000 new cancer cases annually, the country has one-third of new cancer patients in the world.

While China is the world’s biggest producer of APIs, the country lags behind the U.S. and other developed markets in drug innovation, and most innovative drugs are produced by foreign pharmaceutical companies. To help its pharmaceutical industry move up the global value chain, the Chinese government has been actively creating a supportive regulatory framework to galvanize homegrown pharmaceutical companies through grants and tax breaks for research, and through initiatives such as the ‘Made in China 2025’ plan which mentions innovation in pharmaceuticals, among 10 other key sectors, a national priority.

With the results of such initiatives likely to bear fruit in the long term, in the shorter term Chinese pharmaceutical companies’ expansion efforts are likely to remain focused on capturing market share in the global generic drugs market. China’s drugs market is dominated by generics, accounting for 85% of total drug sales as of 2016 according to data from Fitch, and over 95% of the 170,000 drug approvals by the China FDA according to data from the National Health Commission. China’s generics market is dominated by a large number of low-cost domestic pharmaceutical companies, and these Chinese pharmaceutical companies are now venturing out to overseas markets. In the United States, the world’s largest generics market, Chinese generic drug manufacturers have reportedly won approval for 38 generic drugs from the U.S. Food & Drug Administration in 2017, up from 22 in 2016. Jiangsu Hengrui (SHA;600276), Zhejiang Huahai Pharmaceutical (SHA:600521), Zhejiang Hisun Pharmaceutical (SHA:600267) are among the Chinese pharmas that received U.S. FDA approval.

Meanwhile the world’s largest exporter of generic drugs, India, (which won U.S. FDA approval for 300 drugs, roughly one third of the 927 generic drugs granted U.S. FDA approval in 2016)  has seen its imports of Chinese generic drugs soar 50% in dollar terms over the past four years (2012/2013 – 2016/2017) according to data from the Pharmaceuticals Export Promotion Council (Pharmexcil).

 

Medical devices

One of China’s fastest growing sectors, the Chinese medical device industry has grown in leaps and bounds, with the industry maintaining double digit growth for over a decade. According to data from China Medical Pharmaceutical Material Association, China’s medical device market expanded from CNY 53.5 billion in 2007 to CNY 370 billion in 2016, representing a CAGR of 23.97%, which is three times faster than the global average growth rate of 8%.

Bar chart showing China’s medical device market size (US$ billions) in 2014, 2015, 2016 and 2017 (estimate). China’s medical device industry has been growing at double digits over the past few years with the market valued at US$ 39.32 billion in 2014, US$ 47.38 billion in 2015, US$ 53.62 billion in 2016 and an estimated US$ 58.63 billion in 2017.

The stellar growth has helped boost sales of multinational medical device manufacturers such as Siemens (ETR:SIE), J&J (NYSE:JNJ), Philips, and General Electric (NYSE:GE).

Yet the Chinese medical device market is still at a relatively immature stage considering the fact that globally, the medical device market is about 42% the size of the pharmaceutical market but in China however, the percentage is considerably lower at about 14%, indicating an attractive growth opportunity for medical device manufacturers.

China is Johnson & Johnson’s second largest market after the United States and the company expects China to remain as a key growth engine in the years to come.

Carlyle Group (NASDAQ:CG) owned American in-vitro diagnostics company, Ortho Clinical Diagnostics plans to build manufacturing facilities in China, as it banks on the mainland to be its “No. 1 growth country”. China’s in-vitro diagnostics (IVD) market is expected to grow at a CAGR of over 14% by 2021 according to research firm Technavio, which could be a boon for Swiss healthcare giant Roche Holdings (VTX:ROG), which is the dominant player in China’s IVD market.

But much like China’s pharmaceutical industry, foreign-made medical device brands are perceived to be of superior quality compared to those produced by domestic manufacturers. Consequently, while Chinese medical device manufacturers dominate the local market in general, the vast majority of them compete in the low to mid-range medical device product categories (according to figures from the International Trade Administration, more than 80% of Chinese medical device manufacturers compete in the low to mid-end medical device categories).

Meanwhile foreign medical device manufacturers such as those from the United States, Germany and Japan tend to dominate the higher-end, high-value medical device product category; medical device brands from the United States, which is the number one foreign supplier of medical devices in China, rake in nearly 75% of their local revenue from China’s top tier i.e., Tier III hospitals with the rest from Tier II hospitals according to figures from the International Trade Administration.

In an effort to help local medical device manufacturers play a greater role in the higher-end medical device segment, the Chinese government unveiled its ‘Made in China 2025’ plan which focuses on domestic high-end medical devices in sectors such as diagnostic imaging, medical robots, wearable devices and telemedicine.

Under the plan, China hopes to increase the use of domestically produced medical devices in hospitals to 50% by 2020 and 75% by 2025. The move could further accelerate the rise of local device manufacturers which have been growing faster than multinationals, (albeit from a smaller revenue base), and as a result of continuous product improvement, they have been increasingly taking market share from foreign rivals in medium-level segments of the country’s medical device sector.

For instance, multinationals’ share of China’s orthopedic implant market has dropped from 80% to less than 50% over the past five years, multinationals’ share of China’s drug-eluting stents market (which stood at about 90% as recently as 2004), has declined considerably with local manufacturers such as Biosensors International, Lepu Medical, and MicroPort selling about 80% of China’s drug-eluting stents and multinationals’ share of China’s direct radiography market has dropped from 100% in 2004 to about 50% currently according to data from Boston Consulting Group.

Buoyed by their growing financial, technological and R&D capabilities and supportive government initiatives, Chinese medical device manufacturers appear poised to take further market share in more of China’s medical device sectors in the long term.

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China’s $150 Billion AI Ambition Opens New Growth Opportunities

Line and bar chart showing facial technology investment value and deal volume (including grants) in China 2013-2017. Disclosed funding in facial recognition in China grew from US$ 2 million in 2013 to US$ 41 million in 2017 while the number of deals increased from 3 in 2013 to 41 in 2017.

China is aiming be the world’s leading player in artificial intelligence (人工智能) by 2030 and by some measures, the country appears to be on track.

According to a report by CB Insights, Chinese companies seem to be overtaking their US counterparts in AI-related patent applications; the number of patents published in China containing the words “artificial intelligence” and “deep learning” have grown rapidly over the past few years, and the middle Kingdom finished 2017 with six times more patent publications containing those words than the United States in 2017.

Line graph showing the number of AI related patent publications published in China and the United States, 2013-2017.

While the United States continues to lead in terms of the number of AI startups and equity deal volume, it has seen its share of global AI equity deal volume shrink from 77% in 2013 to 50% in 2017. By comparison, China accounts for a mere 9% share of the world’s AI equity deal volume.

Bar chart showing global AI equity deal share (US vs Non-US deal share), 2013-2017.

However, in terms of global AI funding value, China is the dominant player accounting for 48% of global equity funding in 2017 representing a major increase from the 10% share China held in 2016 and surpassing the United States for the first time. By comparison, the United States accounted for 38% while the rest of the world accounted for the balance 13% of global AI funding value in 2017.

The numbers are likely to be just the beginning for China’s AI industry expansion which, driven by government funding, an encouraging regulatory environment, and the natural advantage of having the world’s largest population yielding unrivaled quantities of data (AI systems need to be “trained” with real-world data and the more data fed into a system, the more accurate it is) positions China as a hotbed of AI opportunities for investors and entrepreneurs.

The Chinese government has set forth a plan for the Development of a New Generation of Artificial Intelligence Industry, which runs in three stages during which the country’s AI capabilities will be steadily developed through 2020 and 2025 and conclude in 2030 when the government aims China will be the leading player in artificial intelligence.

Towards this end, the Ministry of Industry and Information Technology (MIIT) unveiled the first stage of the plan in December 2017, a detailed Three-Year Action Plan (2018-2020) which supports the local AI sector as a strategic area by developing AI-related technologies, bolstering AI talent and investing in AI research through various initiatives, incentives, grants, and funding commitments. The plan focuses on the development of some key AI areas namely,

  1. Intelligent Networked Vehicles (智能网联汽车)
  2. Intelligent Service Robots (智能服务机器人)
  3. Intelligent Drones (智能无人机)
  4. Medical Imaging Diagnostic Systems (医疗影像辅助诊断系统)
  5. Video Image Recognition (视频图像识别)
  6. Intelligent Voice Systems (智能语音)
  7. Intelligent Translation Systems (智能翻译)

 

This creates tremendous business opportunities. By 2030, the Chinese government expects China’s AI sector to blossom into a CNY 1 trillion (US$ 150 billion) industry which could stimulate as much as CNY 10 trillion in related businesses.

The opportunity has attracted local and foreign tech giants eager to profit from China’s burgeoning AI industry. Google (NASDAQ:GOOGL) for instance has opened an AI research facility, Google AI China Center, in Beijing to hire China’s top talent in artificial intelligence while homegrown tech giants such as Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU), Tencent (HKG:0700), Xiaomi, Huawei and JD.com (NASDAQ:JD) are making hefty investments in AI technologies.

 

Artificial Intelligence chips

AI systems depend on powerful AI chips to run and while numerous Chinese tech giants such as Alibaba, Baidu and Tencent are actively deploying AI technologies to improve their core offerings, much of the AI chips that power their systems are made by foreign suppliers such as Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC).

Although China is the world’s largest semiconductor market, accounting for about 45% of the world’s demand for chips (also known as integrated circuits), much of the country’s demand for chips is met through imports which account for about 90% of China’s total consumption of integrated circuits.

AI chips make up the basic infrastructure of AI systems and having a greater presence in the supply of such strategic components could potentially facilitate the Chinese government to achieve its goal of becoming an AI powerhouse.

Furthermore, as the global AI industry expands at a rapid clip, the global AI chips market is expected to witness extraordinary growth as well. According to research from ResearchAndMarkets, the AI chipset market is poised to expand from US$ 7.06 billion in 2018 to US$ 59.26 billion by 2025, representing a CAGR of 35.5% during 2018-2025.

Globally, chip startups have raised more than US$ 1.5 billion from in venture capital funding last year, nearly double the amount the year before according to CB Insights.

The Chinese government appears intent on capturing some of that profit potential too; in its Three Year Action Plan (2018-2020), the Chinese government aims to mass-produce neural network processing chips by 2020. China’s previous attempts to build the local semiconductor sector (from as way back as the 1990s) had mixed results partly due to the fact that government incentives and funds were concentrated on research and academia than on business.

This time however, Chinese AI chip businesses seeing greater government support, putting them in good position to participate in the growing global AI chip market.

Within 18 months of its founding by scientists at the Chinese Academy of Sciences (CAS), Chinese AI chip developer Cambricon Technologies raised US$ 100 million in Series A funding making it China’s first AI unicorn. Led by SDIC Chuangye Investment Management which is a subsidiary of China’s State Development and Investment Corporation, the funding round attracted prominent investors including e-commerce giant Alibaba Group, computer manufacturer Lenovo (HKG:0992), robotics company Zhongke Tuling Century Beijing Technology and the investment arm of the Chinese Academy of Sciences (CAS).

Scientists and engineers from Beijing’s Tsinghua University (which is known as China’s ‘MIT’) have developed “Thinker” a multi-purpose AI chip that can support any neural network and is extremely energy efficient. Beijing-based chip manufacturer Tsinghua Unigroup, a subsidiary of Tsinghua Holdings which is owned by Tsinghua University received up to US$ 22 billion in state financing in early 2017.

Chinese e-commerce goliath Alibaba is also reportedly developing its own chips, joining global tech giants such as Google, Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) which are already working building their own AI chips. Called the Ali-NPU, Alibaba’s AI chips will be made available for anyone to use through its Alibaba Cloud service.

 

Facial recognition

 Over the past few years, China’s facial recognition market has seen a rapid growth in investment in terms of deal value and volume.

Line and bar chart showing facial technology investment value and deal volume (including grants) in China 2013-2017. Disclosed funding in facial recognition in China grew from US$ 2 million in 2013 to US$ 41 million in 2017 while the number of deals increased from 3 in 2013 to 41 in 2017.

According to CB Insights, of all countries in the world, China appears to be making the greatest use of facial recognition software with the technology being widely used throughout the country from supermarkets, airports, streets, office buildings, apartments, hotels, bank counters and ATMs.

The business opportunity has given birth to a number of Chinese facial recognition startups such as Alibaba-backed AI unicorn SenseTime (the most valuable AI startup in the world as if April 2018), Megvii (which develops Face++, one of China’s most common facial recognition platforms used for applications such as to manage entry in places such as Beijing’s train stations and Alibaba’s office building, and to enable Alipay customers to authenticate payment), CloudWalk Technology (a facial recognition software developer whose clients include the Zimbabwean government and Bank of China), DeepGlint, Zoloz and Yitu Technology (which counts the Malaysian Police as a client).

Chinese police are already using facial recognition sunglasses to track its citizens and the Chinese government is reportedly aiming to build a national database that will recognize any of the 1.3 billion citizens in China (the world’s most populous country) in three seconds. Already, more than 4,000 people have been arrested by Chinese authorities, helped by facial recognition technology.

Alipay, China’s most popular mobile payment app owned Alibaba affiliate Ant Financial has rolled out the world’s first payment system that uses facial recognition to enable customers to authenticate payments using just their face and a second authentication using their mobile phones.

In spite of China seeing rapid advancements in facial recognition, there is still considerable potential for the industry to grow driven by the growth of intelligent vehicles in China.

 

Intelligent vehicles

While autonomous cars are gathering momentum worldwide, China, the world’s largest car market is speeding towards intelligent vehicles with the country’s top economic planning agency, the National Development and Reform Commission naming intelligent vehicles as a national priority in a three year action plan unveiled in December 2017.

Autonomous cars refer to vehicles that are equipped with sensors and GPS while intelligent vehicles (the so called “smartphones on wheels”) refer to cars with technologies such as road safety monitoring, interactive entertainment, facial recognition, voice interaction systems and in-vehicle payment systems.

By 2020, the Chinese government expects the market share of smart vehicles to reach 50% of total new vehicles sold in China. Towards that end, the Chinese authorities have taken steps to boost the country’s intelligent and connected vehicle industry such as through talent training and research, encouraging investment, and encouraging cross-border mergers and acquisitions.

Strong regulatory support coupled with Chinese car buyers’ seemingly high enthusiasm for connected vehicles which presents a potentially sizeable market for smart cars suggests the government’s target could be within reach. According to a survey conducted by McKinsey in 2017, 64% of Chinese consumers would switch brands for better in-car connectivity. By comparison, 37% of Americans would switch brands for better in-car connectivity and just 19% of Germans would do the same.

Bar chart showing desire for in-car connectivity from consumers in China, United States and Germany. 64% of Chinese consumers surveyed were willing to switch brands for better in-car connectivity compared with just 37% of American consumers and 19% of German consumers. For 33% of Chinese consumers, having in-car connectivity is critical while 20% of American consumers and 18% of German consumers felt the same. 62% of Chinese consumers were willing to pay a subscription for in-car connectivity while just 29% of American consumers and 13% of German consumers were willing to do the same.

The opportunity has turned China’s intelligent connected vehicle market into a hot sector attracting a raft of companies, from established tech giants to smaller startups, keen to participate.

Alibaba has signed agreements with auto companies such as Ford (NYSE:F), Dongfeng Peugeot Citroen and SAIC Motor (SHA:600104) to develop connected vehicles which use its AliOS automotive operating system which was unveiled in 2016.

Chinese social media behemoth Tencent has teamed up with Changan Automobile, while Chinese internet giant Baidu has partnered with Great Wall Motors towards develop intelligent connected vehicles.

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Multi-Billion Dollar Water Sector Offers Business Opportunities

Bar chart showing the top 15 countries with the largest estimated groundwater extractions in 2010, breakdown by sector (%): agriculture, domestic use and industrial use . The top 15 countries are (in order), India, China, United States, Pakistan, Iran, Bangladesh, Mexico, Saudi Arabia, Indonesia, Turkey, Russia, Syria, Japan, Thailand, and Italy. Data from the National Groundwater Association.

The gap between global water demand and global water supply is widening. Already more than half of the people in the MENA region (Middle East and North Africa), live under conditions of “water stress” (i.e., the demand for water exceeds supply) according to the World Bank and a report by the United Nations reveals that the world could face a 40% water shortfall by 2030. Demand for water is expected to grow by nearly one-third by 2050 according to a 2018 World Water Development Report by the United Nations.

Yet while water demand is projected to grow, earth’s water supply is limited. Just 1% of all earth’s water is fit for human use according to the National Groundwater Association, and 99% of this is derived from groundwater, 0.86% from lakes and 0.02% from rivers.

Earth’s total groundwater supply is estimated at 5.5 million cubic miles (equal to about 23 million cubic kilometers). However, groundwater is being depleted faster than it is being replenished due to a rapidly increasing population and increasing urbanization. Data from NASA’s Gravity Recovery and Climate Experiment (GRACE) satellites indicate that 13 of the world’s 37 biggest aquifers are being depleted due to irrigation, industrial usage and human consumption (groundwater supplies about 50% of all drinking water worldwide) faster than they are being replenished by rainfall. Climate change has affected rainfall patterns and as a consequence, the availability of groundwater resources will be impacted in the decades to come.

Of the 13 aquifers, eight aquifer systems are “overstressed” which means water is being withdrawn faster than it is being naturally recharged. The most overstressed aquifer is the Arabian aquifer system which lies underneath Saudi Arabia and Yemen. Other overstressed aquifers are the Indus Basin in Pakistan and India, and the Murzu-Djado Basin in Africa. The other five aquifer systems are “extremely” or “highly” stressed, which means they are being recharged by some rainfall but not enough to enough to offset withdrawals. California’s Central Valley is one of the five aquifer systems under this category.

The result has been a steady decline in the volume of renewable water resources per capita from 28,377 m3 per person per year in 1992 to 19,804 m3 per person per year in 2014, which corresponds to a roughly 30% decline over the last 22 years according to data from Aquastat.

Addressing the world’s impending water crisis demands better water management practices such as through the adoption of water recycling as is done in Singapore and Israel and to make water intensive sectors more efficient. This opens considerable opportunities for entrepreneurs and investors in the global water sector. A report by investment firm RobecoSAM expects market opportunities related to the water sector to reach US$ 1 trillion by 2025.

Smart irrigation

Global annual ground water withdrawals are estimated at 982 cubic kilometers a year according to estimates by the National Groundwater Association. By sector, agriculture is the largest user of groundwater, accounting for about 70% of groundwater withdrawals. Household use accounts for about 10% of groundwater withdrawals.

By country, India is the largest user of groundwater in the world, China is the second largest and the United States is third.

Bar chart showing the top 15 countries with the largest estimated groundwater extractions in 2010, breakdown by sector (%): agriculture, domestic use and industrial use . The top 15 countries are (in order), India, China, United States, Pakistan, Iran, Bangladesh, Mexico, Saudi Arabia, Indonesia, Turkey, Russia, Syria, Japan, Thailand, and Italy. Data from the National Groundwater Association.

The world’s growing population will lead to growing water usage while rising urbanization will increase per capita water and food consumption, particularly meat consumption. Food production is water intensive and meat-based products are among the most water-intensive sectors in the food industry. About 15,400 liters of water is required to produce one kilogram of beef and 5,988 liters to produce one kilogram of pork. By comparison just about 2,500 liters of water is required to produce one kilogram of rice.

As incomes rise and meat consumption sees a corresponding increase for the one billion plus population in India and China, which are already the world’s largest groundwater using nations, the water demand-supply mismatch will widen. This suggests the global demand for water will increase exponentially in the decades to come. Without improved water-use efficiency measures, agricultural water consumption is expected to grow by about 20% globally by 2050.

Smart irrigation solutions for agriculture are expected to help increase efficiency in water intensive sectors such as agriculture. Driven by expanding farming operations, an increasing need to increase farm profit, and government initiatives to promote water conservation, smart irrigation, which is a branch of the broader agtech sector, holds considerable growth potential particularly in India, China and the United States where over 50% of extracted groundwater is used by the agriculture sector.

92% of groundwater extraction from India’s overstressed Indus Basin is from the agriculture sector according to analysis by Earth Security Group.

Israeli agtech startup CropX offers a cloud-based smart irrigation solution for agriculture. The integrated software and hardware platform helps farmers increase yields by saving water and energy. On-field purpose-made sensors monitor soil moisture and gather data which is sent to CropX’s cloud platform where it is analyzed by CropX software which then updates the farmer through a mobile app on the farmer’s smartphone.  The farmer is then able to control the amount of water to each plant eliminating the need to water the whole field at one time thereby preventing water wastage through over watering and improving crop yields by maintaining optimal soil moisture levels.

Smart water solutions

Household consumption accounts for 10% of global groundwater withdrawals, the volume of which is likely to increase in the years ahead drive by population growth and urbanization. Smart water solutions for domestic use are expected to help optimize household water consumption such as by reducing wastage of water.

About 30% of global water supply is lost through leakage costing water utilities US$ 14 billion annually according to the World Bank. Wasted water, which is called non-revenue water (NRW), is a problem not just in developing countries but in developed ones too. London loses 25% of water through leakage, Hong Kong wastes 32.5%, Norway loses 32%, and the United States loses 14%-18%.

Such losses are avoidable. Countries that have comparatively better rates of water loss include Tokyo which loses about 2%, and Singapore which loses about 5%.

Consequently, the market for smart water solutions which monitor, detect and reduce leakage is a potential growth opportunity.

Research firm MarketsandMarkets projects the global smart water management market will grow from US$ 8.46 billion in 2016 to US$ 20.10 billion in 2021, representing a CAGR of 18.9% driven by a growing need to reduce NRW losses, sustainable use of energy, regulatory compliance and smart city projects.

Boston-based Inkwood Research projects the global smart water management market will expand at a CGAR of approximately 20.6% during the period 2017 – 2026 driven by smart city projects, aging water infrastructure and increasing need to reduce water loss. North America is expected to be the largest market. However Asia Pacific is expected to be the fastest growing market driven by countries such as China, India and Japan.

China and India, already the top two groundwater extracting nations in the world as illustrated in the chart above are likely to see greater water demand and water stress in the years ahead due to rising per capita income, increasing urbanization and industrialization. This is particularly true in China where water demand has been rapidly increasing and water supply has been rapidly dwindling, a situation that has been getting worse over the years; about one-fifth of China’s groundwater extraction is used for domestic purposes and according to research from the World Resources Institute, the percentage of land area in China facing high and extremely high water stress increased from 28% in 2001 to 20% in 2010.

The over-extraction of groundwater is impacting China not just through growing water scarcity risk but also increasing ground subsidence, i.e., sinking of land caused by the excessive removal of oil, natural gas or in China’s case, groundwater. According to a report released in 2012, more than 50 Chinese cities suffer ground subsidence issues.

Israeli startup TakaDu offers a cloud-based water management software-as-a-service (SaaS) solution that uses IoT, big data analytics and algorithms to help utility companies cut NRW losses by reducing leakage and supply interruptions, and anomaly detection  and automatic early warning anomalies.

TakaDu has deployed Water Network Monitoring solutions for a number of water utility companies including Portuguese water utility Águas de Cascais (AdC), Australian water company Hunter Water Corporation, and Chilean to water supplier Aguas de Antofagasta.

Industrial water treatment and recycling

About 20% of global water consumption is for industrial use and roughly 75% of industrial water withdrawals are used for energy production according to the United Nations World Water Development Report 2014.

Certain types of fuels require more water to produce than others. For instance, coal is among the most water-intensive fuels while natural gas is among the least water intensive. Coal production requires 10 times more water per ton of oil equivalent than natural gas production. Shale gas production requires 10 times more water per ton of oil equivalent than conventional natural gas production.

Coal extraction and refining is a very water intensive process and in China the world’s largest coal producer, the impact of coal production on the country’s water resources is already evident. China’s overstressed North China Aquifer serves 11% of the country’s population, 13% of the country’s agricultural production and a whopping 70% of the country’s coal production.

Yet, with coal accounting for about 40% of the world’s generated energy, it is likely to continue playing a role in the world’s energy mix going forward, particularly in China, India, the United States and Australia which are the world’s largest, second-largest, third-largest and fourth-largest coal producing nations respectively, and all four of which face water shortage issues; the Indus Basin in northwestern India and Pakistan is the second-most overstressed in the world while California’s Central Valley aquifer has been labeled as “highly stressed” according to studies led by the University of California using data from NASA’s GRACE satellites.

According to the U.S. Government Accountability Office, water managers in 40 out of 50 U.S. states expect water shortages in some portions of their states in the next decade.

This opens opportunities for industrial water treatment solutions. The industrial water treatment and recycling market is projected to grow by over 50% from around US$ 7billion in 2015 to US$ 11 billion in 2020 according to a report by Global Water Intelligence.

Much of today’s wastewater treatment involves treating wastewater, or effluent, and returning the treated effluent to groundwater or aquifers. Water reuse or water recycling however, sees the treated water being reused rather than being returned to the environment. Water reuse tends to be practiced in water-stressed countries such as Israel and Australia. Israel, the world’s leader in water recycling, over 70% of treated wastewater is reused.

Bar chart showing the percentage of treated wastewater reused, in 2015. Israel reuses 70% of all its treated wastewater. Australia reuses 19%, North America 4% and Brazil 1%.

It is likely that as water shortage issues grow, the market increasingly moves from water treatment to water reuse.

Much of reused water is currently used for agricultural purposes according to data from Global Water Intelligence and with agriculture accounting for 70% of global water withdrawals, the opportunity for water reuse technologies is evident particularly in countries such as India, China and the United States which are the world’s top three largest groundwater extracting nations and agriculture accounts for over half of water withdrawals in all three countries.

Pie chart showing global treated wastewater reuse, market share by application. 32% of the world's treated wastewater was reused for agricultural irrigation, 20% for landscape irrigation, 19.3% for industrial use, 8.3% for non-potable urban uses, 8% for environmental enhancements, 6.4% for recreational purposes, 2.3% for indirect potable reuse, 2.1% for groundwater recharge and 1.5% for other purposes.

Water desalination

Historically, desalination plants were concentrated in Gulf regions which have little alternatives for water supply. However, depleting water supplies and increasing water demand has forced countries outside the Gulf such as Australia, China, Japan, and the United States to build desalination plants to address impending water shortages. Desalination is in practice in more than 150 countries.

Yet, with increasing pollution, climate change, population growth and rising urbanization expected to drive water demand amid stagnant or falling water supplies, the demand for desalination technologies are expected to increase in the coming years. According to Hexa Research, the water desalination market is expected to grow to US$ 26.81 billion by 2025 driven by reverse osmosis.

There are two primary water desalination technologies; multi-stage flash distillation and reverse osmosis.  Flash distillation involves boiling seawater at low pressures (which requires less heat) and then condensing the resulting steam into salt-free water. This technology has been the most commonly used method for desalination over the past few decades and still remains so. According to Hexa Research, the market for multi-stage flash distillation is expected to grow at an 8,4% CAGR between 2014-2025.

Reverse osmosis, on the other hand, uses a membrane to filter salts from seawater to produce salt-free water. The technology was commercialized in the 1970s but was considerably costlier compared to multi-stage flash distillation; the membranes were not as effective in filtering salts and the membranes tended to wear out quickly.

However, over the past few years, there have been significant improvements that have helped increase its competitiveness and the fact that reverse osmosis consumes less energy than flash distillation (which has helped drive down desalination costs over the past few years) makes the technology more attractive. Consequently, new desalination plants are increasingly being built with membrane technology; according to the International Desalination Association (IDA), as much as 90% of new desalination capacity worldwide uses RO as opposed to distillation technologies. For instance in 2017, membrane technology accounted for 2.2 million m3/d of annual contracted desalination capacity while distillation technologies accounted for just 0.1 million m3/d.

The momentum is expected to continue; reverse osmosis is expected to be the fastest growing desalination technology going forward with Hexa Research predicting the market will be valued at US$ 15.43 billion in 2025. This could be a growth opportunity for companies such as Tetra Tech (NASDAQ:TTEK) and Veolia Environnement (EPA:VIE). Tetra Tech provides consulting, engineering, and technical services for the water sector while Paris-based Veolia Environment has been in the water business for over a century, designing and operating desalination plants for municipalities and industry around the world.

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Organic Food Market Could Be A Delicious Investment Play

Bar and line graph showing the increase in world organic farmland in millions of hectares between 1999-2015 and the percentage share of organic farmland worldwide.

The global organic food market is growing at a rapid clip and offers significant potential for growth. Currently valued at around US$90 billion according to London-based consultancy firm Ecovia Intelligence (formerly Organic Monitor) the market is poised to expand to over US$ 200 billion by 2020 (representing a CAGR of 15.7% between 2015 and 2020) according to projections by Market Research Globe.

The forecast figures are similar to those from a report by market research firm Technavio which projects the global organic food and beverage market to grow at a rate of 14% from 2017 until 2021.

Organic is the fastest growing sector of the U.S. food industry. Organic food sales in the United States, the world’s largest organic food market, jumped 8.4% in 2016 to reach US$ 43 billion according to the Organic Trade Association.  That compares with a 0.6% increase in overall food market sales in the United States. Much of the demand for organic food is driven by millenials generating about half of U.S. organic food sales.

In Germany which is the world’s second -largest organic food market, organic food sales grew by nearly 10% in 2016, according to the German Federation of the Organic Food Industry (BÖLW).

France’s organic food market grew a whopping 20% in 2016 according to Agence Bio, and Spain’s organic food market grew 12.5% in 2016 (compared to 0.7% growth in conventional food) according to data from Spain’s Ministry of Agriculture and Fisheries, Food and Environment. UK organic food sales expanded by 7% in 2016 according to Soil Association a UK-based organic food and farming charity and certification body.

There is ample potential for the stellar growth numbers to maintain momentum going forward. In the United States, the world’s largest organic food market, organic food sales account for just 5.3% of U.S. food sales.

The situation is the same in Germany, the world’s second biggest organic food market after the United States (the United States, Germany and France together account for about 70% of global organic sales value as of 2017); organic food sales make up just about 5% of Germany’s total food sales.

In Britain, organic food sales make up about 1.5% of the country’s total food sales. In Spain, organic food sales make up just 1.7% of the country’s total food market. This compares with Sweden and Denmark where organic food sales comprise about 8.7% and 10% of the country’s total food sales respectively.

In Asia, organic food sales account for less than 1% of total food sales across Asia offering ample scope for growth. The organic food sector is poised to grow in leaps in bounds in the region, particularly in China and India, two countries which market research firm Ecovia Intelligence reveals are two of the fastest growing Asian markets for organic food products, driven by an expanding and educated middle class who are increasingly willing to pay a premium for organic products which are perceived to be healthier and safer than conventional food products.

In China, Asia’s largest organic food market and the world’s fourth largest, 72% of consumers worry about the safety of their food according to a 2016 survey by McKinsey. This presents an opportunity for the country’s organic food sector which, similar to the United States, is largely driven by a growing number of increasingly health-conscious millenials.

Meanwhile in India which created its first organic state, Sikkim, in 2016 (in Sikkim farmers are 100% organic), market research firm TechSci projects the country’s organic food market to grow at a CAGR of 25% between 2016-2021.

On a country level, Denmark and Bhutan have ambitious plans to be 100% organic by 2020, a positive trend for the global organic food market.

The underlying driving force behind the global organic food revolution is the millennial generation (those born between 1980 to 2000). In the United States, for instance, the world’s biggest organic food market, over 52% of organic food shoppers are millenials according to a survey by the Organic Trade Association. An estimated 25% of American millenials are parents and this figure is expected to increase to 80% over the next 10-15 years. As the percentage of millenials with children grows in the coming years, organic food sales are projected to rise as well.

To meet rising organic food demand, the number of organic food producers and the amount of organic acreage continue to increase globally.

Worldwide, the number of organic food producers increased twelve-fold in sixteen years from 200,000 producers in 1999 to 2.4 million producers in 2015 according to a report by the Research Institute of Organic Agriculture (Forschungsinstitut für biologischen Landbau or FiBL). During the same period, land used for organic farming expanded fivefold from 11 million hectares in 1999 to 50.9 million hectares in 2015. Despite this increase, organic farmland represented just 1.1% of the world’s farmland in 2015 indicating ample room for expansion.

Bar graphic showing the increase in world organic farmland in millions of hectares between 1999-2015 and the percentage share of organic farmland worldwide.

Nearly 45% of the world’s organic farmland is located in Australia, where with 22.7 million hectares makes it the country with the world’s largest area of organic agricultural land by hectare in 2015, way ahead of second-placed Argentina which has just 3.07 million hectares of organic acreage. In third-placed United States which is the world’s biggest organic food market, just 2.03 hectares of land is used for organic farming.

Bar graph shows the top 10 countries in the world with the largest organic farmland in millions of hectares, as of 2015. Pie chart showing percentage distribution of organic farmland around the world.

The global organic food trend has been a boon for Australian food producers. Despite having the largest area of certified organic land in the world, organic food sales account for just 1% of Australia’s total food and beverage sales. Part of this may be due to the fact that most of Australia’s organic farmland is used for cattle farming (which explains why organic beef is Australia’s top organic food export by tonnage) and hence the country’s overall organic food output is relatively low.

However, it may also be due to a growing hunger for Australian organic products from export markets such as the East Asia (which accounted for 38% of Australian organic food exports by tonnage in 2017), North America (29%) and Europe (12%).

China, in particular is a major growth opportunity. Australian organic food exports by tonnage to China jumped 55% between 2016 and 2017 and China’s share of Australian organic food exports by tonnage nearly doubled from 9% in 2016 to 15% in 2017 according to data from the 2018 Australian Organic Market Report.

Much of growth in China’s organic food demand stems from the baby food category, particularly organic infant formula. China is the biggest export market for Australian organic baby food and formulas and Australian organic dairy products.

Bar chart showing the top export markets (by % of tonnage) for selected Australian organic food sectors 2017. The biggest market for organic Australian eggs is Hong Kong (accounting for 100% of Australia’s organic egg exports by tonnage). The United States is the biggest market for Australian organic lamb/sheep meat (accounting for 91% of exports), Australian organic beef (accounting for 90% of exports) and Australian organic fruits and vegetables (accounting for 46% of exports). South Korea is the biggest market for Australian organic soya products (accounting for 90% of exports) and bread and bakery product (accounting for 58% of exports). China is the biggest market for Australian organic baby foods and formula (accounting for 81% of exports) and dairy (accounting for 57% of exports). Netherlands is the biggest market for Australian organic nuts (accounting for 80% of exports). Sweden is the biggest market for Australian organic wine (accounting for 49% of exports).

In China which is the largest market in the world for organic infant formula, it is estimated that 75% of mothers feed their babies with organic infant formula according to London-based market research firm Mintel. Younger mothers i.e., those aged 25-34 are the major driving force with 79% of them using organic infant formula. The abolition of China’s ‘one-child policy’ potentially opens opportunities for expansion in this sector.

Bubs Australia (ASX:BUB) and Bellamy’s Australia (ASX:BAL) are two Australian organic baby food and organic infant formula producers both of which have operations in China and are poised to capitalize on the opportunity. Bellamy’s Australia has seen its share price jump by over 900% since August 2014 while Bubs Australia’s share price has soared over 400% since January 2013.

With Australia boasting nearly half of the world’s certified organic farmland and enjoying strong export demand for its organic food products, Australian producers are well placed to take a big bite out of the world’s growing organic food pie going forward.

A number of organic food companies elsewhere around the world have also benefited from the trend and good prospects have attracted investment into the sector. Organic food grocer Whole Foods (NASDAQ:WFM) was acquired by Amazon (NASDAQ:AMZN) in June last year at a 27% premium to Whole Foods’ stock closing price the day the deal was announced.

French food company Danone (EPA:BN) acquired American organic food company Whitewave Foods Co (NYSE:WWAV) in April last year.

Consumer goods company Unilever (NYSE:UL) acquired UK-based organic herbal tea company Pukka Herbs and Brazilian organic food business Mae Terra last year.

American grocery company Albertsons reported that its line of private-label organic items, O Organics, saw sales grow 15% last year, reaching US$ 1 billion.

Albertsons plans on introducing 500 or more new products to the line which already encompasses a wide array of organic food items including fresh fruits and vegetables, eggs, milk, yogurt, ice cream, meats, bread, coffee, snacks, pasta sauce, and baby food.

Over in Europe, Dutch organic food company Koninklijke Wessanen NV (AMS:WES) which recently acquired Spanish organic food company Biogran, has benefited handsomely from the growing organic food market with its share price appreciating by over 600% from five years ago (in 2013). During the same period,

In Asia, Japanese organic vegetable producer Ariake Japan Co Ltd (TYO:2815) has seen its share price jump over 500% since 2013.

The organic food trend has also been a positive for e-commerce behemoth Amazon which is a relatively new entrant to the US grocery market. A report by data analytics firm Click Retail found that in 2017, organic products fared very well accounting for nearly 25% of all Amazon Fresh sales.

Nestle (VTX:NESN) has been actively re-orienting its business as it struggles with weak sales as a result of changing consumer preferences toward organic, natural food and away from prepared, mass-produced meals which make up bulk of the company’s product portfolio. Last year, Nestle acquired Chameleon Cold Brew – America’s oldest and largest purveyor of organic coffee. This year, Nestle sold its US candy business to Italian confectionery company Ferrero SpA.