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Semiconductor Players Riding The Chip Upcycle

World semiconductor sales 2019 - 2021 (forecast)

The semiconductor upcycle is underway spurred by increasing demand for smartphones, PCs, game consoles and other devices as people around the world, forced to remain indoors as a result of the Covid pandemic, turned to technology for reasons such as remote working, remote learning, entertainment etc. After posting double digit growth of 6.8% growth in 2020, WSTS projects global semiconductor demand to accelerate in 2021, with global semiconductor sales growth of 10.9% for the year.

World semiconductor sales 2019 - 2021 (forecast)

The CEO of the world’s largest foundry – Taiwan Semiconductor Manufacturing Company (TSMC) – said in a letter to customers that its fabs are running at 100% capacity over the past year, but demand still exceeds supply. U.S. chip giant Qualcomm reported a 52% jump in revenues on an annualized basis for the quarter ended March 2021 driven by strong smartphone sales. Meanwhile the gradual increase of electric vehicle production (which had been curbed at the start of the pandemic) triggered an ongoing chip shortage resulting in a number of automotive companies being forced to temporarily suspend production.

Longer term, emerging technologies such as 5G, IoT, AI, Industry 4.0 are expected to drive increasing quantities of semiconductors presenting a long term structural uptrend for the semiconductor industry, presenting growth opportunities for players along the entire value chain from design to fabrication. 

Against this backdrop, some notable chip players to watch include Taiwan’s MediaTek, Dutch lithography giant ASML, and Singaporean precision tools player Micromechanics, and Singaporean test solutions provider AEM Holdings.  

MediaTek (聯發科)

Taiwanese chip supplier MediaTek overtook U.S. chip giant Qualcomm to emerge as the world’s largest mobile chip supplier in 2020, driven by the U.S. government’s sanctions on Chinese smartphone company Huawei which turned to MediaTek chips to power its smartphones. Meanwhile, Chinese smartphone manufacturers Xiaomi, Vivo, and Oppo, also turned to MediaTek in an effort to diversify their supply chains to avoid becoming the next Huawei. The supply chain reshuffle saw MediaTek emerging as the number one spot mobile chip supplier in China while Qualcomm settled for second place. Data from CINNO Research revealed that Qualcomm’s shipments in China shrank 48.1% year-on-year, while its market share dropped to 25.4% in 2020 compared with 37.9% in 2019. 

MediaTek’s rise to pole position in China, the world’s biggest smartphone market appears to have helped it capture the number one spot worldwide as well. According to data from consultancy firm Omdia, MediaTek commanded a 27% market share of the global smartphone chipset market in 2020,  while Qualcomm held 25%. MediaTek’s worldwide shipments rose 48% YoY in 2020, compared with an 18% decline for Qualcomm’s Snapdragon.

Chipset series 2020 2019 Market share (2020) YoY 
MediaTek 352 238 27% 48%
Snapdragon 319 386 25% -18%
Apple 204 195 16% 5%
Kirin 147 177 11% -17%
Exynos 115 177 9% -35%
Unknown 100 146 8% -32%
Exynos or Snapdragon 36 55 3% -35%
UNISOC 23 12 2% -89%
Armada 0 0 0% -100%

Grand Total

Data: Omdia

1,295 1,387 100% -7%

MediaTek’s stellar market performance showed up its financials as well; revenues rose to a record high of TWD 322 billion in 2020 for the financial year ended December 2020, representing a YoY growth of 30.8%, while operating income shot up to TWD 43.2 million, a 91.5% growth YoY. By contrast Qualcomm (whose financial year ends September 2020) saw revenues contract 4.8% YoY.  The momentum carried on to 2021 with the Taiwanese player reporting a 77.5% YoY increase in first quarter 2021 revenues (which reached TWD 108 billion) and net profits of TWD 25.77 billion, up 347% YoY. MediaTek expects revenues to grow 40% this year and expects the momentum to remain strong going into 2022.

Micromechanics

Singapore-listed Micromechanics makes high precision tools and parts used in process critical applications for wafer fabrication and assembly. Apart from its portfolio of proprietary consumable tools , the company also offers contract manufacturing services of high precision parts to OEMs in the semiconductor, aerospace, laser, and medical industries. Its diverse customer base includes IDMs, wafer fabrication equipment manufacturers, and semiconductor assembly and test service providers in more than 10 countries around the world.

Amid the current geopolitical turmoil, Micromechanics stands out as one of the few Southeast Asian players with a broad production range, scale, and geographical presence. And that unique positioning amid growing chip demand, along with prudent financial management is reflected in its financials; Micromechanics posted record revenues of SGD 36.9 million (up 16.9% YoY) and record net profits of SGD 9.1 million (up 31% YoY), pushing ROE to 32% for the first half of 2021, an exceptional performance for a company with zero borrowings.

To further strengthen its market positioning amid a rapidly changing chip market, Micromechanics is working towards becoming a “Next Generation Supplier” which sees the company investing in developing its product portfolio to serve chip manufacturers’ needs at 10nm and below. In fact, Micromechanics’s R&D team in Singapore has already produced several proprietary materials that are essential for 10nm and below device geometries.  

ASML

Dutch lithography giant ASML dominates the global lithography market with a market share of more than 80% in the mature DUV market and a market share of 100% in EUV – the next generation lithography technology that is seeing rising penetration as more chip makers move to leading edge process technologies driven by anticipated demand growth for advanced chips such as those used in 5G smartphones and other high-performance devices such as those with AI capabilities. About 80% of TSMC’s USD 28 billion capex allocated for this year will be spent on the company’s most advanced chip making  processes – 7nm, 5nm, and 3nm. Meanwhile Samsung is racing to catch up to TSMC in terms of leading edge manufacturing process capacity; TSMC claims to have more than 50% of the world’s EUV base and 60% of the world’s cumulative EUV wafer production. With 5G increasingly gathering pace, Samsung has ramped up orders of ASML’s EUV machines placing a multi-billion dollar order of 20 machines when Samsung vice-chairman Lee flew to ASML’s headquarters last year to press the Dutch giant for early delivery of the machines. DRAM giant SK Hynix plans to use EUV in volume production in the coming years having signed a five-year contract worth USD 4.3 billion with ASML for the supply of EUV systems. SK Hynix’s DRAM rival Micron Technologies aims to use EUV a few years ahead.  

Given that ASML currently has a production and installation capacity of about 50+ machines annually, the company appears to be sitting pretty with demand potentially outstripping supply in the coming years as demand for advanced chips continues its upward march. The impact on ASML’s financials are significant; revenues jumped 18% YoY to nearly EUR 14 billion for the financial year ended December 2020, while net profits rose 37% YoY to 3.5 billion, helping push up the company’s return on equity (ROE) to 25.6%. 

Rising EUV sales also boosted profitability with gross margins rising from 44.6% in 2019 to 48.6% in 2020. Rising gross margins helped push up net profit margins as well which rose to 25.4% in 2020 from nearly 22% a year earlier. As sales of EUV sales continue to trend upwards in the coming years, there is potential for continued margin improvement. 

Meanwhile the potential for top-line growth is significant as well. ASML shipped 31 EUV machines last year (generating  EUR 4.5 billion) and Cowen expects ASML’s EUV shipments to rise to 40 units in 2021, 53 in 2022, and 56 in 2023. Not only does this drive EUV revenues, but DUV revenues are should benefit too as every order for an EUV system drives demand for DUV systems as well. Indeed ASML’s DUV business (a market that ASML dominates with a market share of more than 80%) is large and going strong; ASML generated EUR 5.38 billion in revenues from its DUV business (accounting for 52% of 2020 revenues) which included 68 immersion systems – the most advanced DUV machines – which accounted for EUR 4 billion in revenue alone in 2020.

ASML net system sales per technology - 2018 - 2020

A growing installed base of EUV machines could further add to top line growth in the form of service revenue which rose to EUR 3.6 billion in 2020, up from EUR 2.8 billion in 2019, a 28% increase YoY. 

AEM Holdings Ltd

Semiconductor and electronics packaging and test services company AEM Holdings is headquartered in Singapore but has a global presence with offices and manufacturing plants located in Asia, Europe, and America. Riding on strong demand for IC testing, AEM Holdings generated record revenues of SGD 519 million (up 60% YoY) and net profits of SGD 97.6 million (up 84.9% YoY) which translated into a whopping 46% return on equity (up from 39% in 2019) for the financial year ended December 2020. 

The company isn’t resting on its laurels however; with an eye on future growth, AEM Holdings has been making strategic acquisitions to expand its technical capabilities and product solutions in an effort to better serve existing customers, capture new customers, as well as penetrate into new markets such as China. In 2020, the company scooped up two companies, with more acquisitions expected going forward as the company leverages its balance sheet (AEM Holdings sits on a cash pile of about SGD 134 million while total long term liabilities stood at just 13.3 million as at December 2020, equivalent to less than 7% of equity) to make strategic acquisitions aimed at strengthening its capabilities and market positioning.

In early 2020, AEM Holdings acquired Mu-TEST, a French semiconductor test solutions provider for EUR 7.5 million (about SGD 11.3 million). Following on that in mid 2020, the company acquired California-based DB Design Group, a world-renowned supplier of automation fixtures, device kits and other test-related products. The purchase price of USD 3.3 million (about SGD 4.5 million) is comfortably affordable for AEM Holdings and could potentially drive top line growth as the acquisition expands AEM Holding’s Serviceable Available Market to include the automation fixture and device kit markets. 

“We are now able to offer almost 24-hour R&D services to our customers leveraging our US and Asia based teams, as well as rapid prototyping and supply chain resiliency via high mix production run support in the US.” – Loke Wai San, Executive Chairman AEM Holdings

The momentum continued in 2021 with the company acquiring Lattice Innovation, an American company offering design, simulation, and process services in the thermal control space. The acquisition is expected to further strengthen AEM’s semiconductor test solutions. AEM also announced the acquisition of majority stakes in CEI Limited and ATECO Inc this year. Apart from the potential strengthening of market positioning, these acquisitions also help reduce AEM’s customer concentration risk (Intel which has been AEM’s biggest customer for years, accounted for 95% of AEM’s revenues in 2020). 

AEM Holdings is a crucial partner of global semiconductor giant Intel, supplying it next generation test handlers. Intel’s recently announced IDM 2.0 strategy, which sees Intel expanding its chip manufacturing capacity, is expected to be a positive for AEM Holdings as expanding chip capacity from its sole major customer should result in greater demand for AEM’s semiconductor testing solutions as well.  While AEM’s heavy dependence on one major customer for bulk of its revenues presents a customer concentration risk, there is little reason to expect Intel to switch to an alternative test vendor given AEM’s competitive advantage as a longstanding partner and cost competitive supplier for Intel;  AEM and Intel have worked together for years to design, and manufacture test handlers which are well customized for Intel’s needs and according to analyst estimates from Singaporean financial services giant DBS, Intel incurs a 10% manufacturing cost when using AEM’s solutions versus 20% during traditional testing.

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Indonesia fintech: opportunity, competitors, and trends

Bar chart showing top 10 countries by number of startups in January 2021. The U.S. lead the tally followed by India, the United Kingdom, Canada, Indonesia, Germany, Australia, France, Spain, and Brazil.

With a significant unbanked population, a burgeoning e-commerce market, and a tech savvy, young population, Indonesia’s fintech growth story is unfolding with a number of startups disrupting an industry that has traditionally been dominated by big banks and financial institutions.

Indonesia is among the top five in the world in terms of number of startups. According to Startup Ranking, with 2,200 startups, Indonesia is ranked fifth in the world and second in Asia in terms of number of startups.

Bar chart showing top 10 countries by number of startups in January 2021. The U.S. lead the tally followed by India, the United Kingdom, Canada, Indonesia, Germany, Australia, France, Spain, and Brazil.

Apart from e-commerce, fintech is a major segment in Indonesia’s startup scene. According to the Financial Technology Association in Indonesia, the country had 362 fintech startups as of end-January 2020.

However it is not just startups jostling for a share of Indonesia’s fintech pie. Incumbent financial giants such as Bank Mandiri, Bank Tabungan Negara,  Bank Rakyat Indonesia, are increasingly flexing their muscles too, either through organic market entry strategies or through inorganic growth, such as through investments and acquisitions. A notable example is Bank Mandiri, Indonesia’s largest bank, whose venture capital subsidiary Mandiri Capital Indonesia which was launched in 2016, has already invested in at least 13 fintech startups and is reportedly on the hunt to invest in more, armed with about USD 5 million available for investment. Startups in Bank Mandiri’s portfolio include microfinance startup Amartha (a peer-to-peer (P2P) lending platform focused on micro enterprises owned by women, and Crowde, a P2P lending platform focused on farmers.

State-owned Bank Tabungan Negara (BTN) has taken a partnership route, striking an agreement with homegrown online lending platform Koinworks to lend IRD 75 billion in loans to SMEs in the property sector.

Bank Rakyat Indonesia (BRI), Indonesia’s oldest banking institution, meanwhile has so far adopted a mixed strategy through partnerships as well as acquisitions. The bank struck a partnership with Investree, a homegrown P2P lending marketplace, to support the working capital requirements of entrepreneurs in the creative industry which includes handicrafts, fashion, design, architecture and ad agencies to name a few. Businesses in these industries are often overlooked by the formal financial sector as they often have little in the way of assets, inventories or machinery to pledge as collateral. Their people and “ideas” are difficult for banks to consider as collateral, and consequently they often lack access to capital from traditional lending and financial institutions compared to other industries. The BRI-Investree partnership aims to solve this problem, with Investree assessing the credit worthiness of the company, before getting a final approval from BRI for funds to be released to the loan applicant.

BRI has also been active in the acquisitions space, through its venture capital arm PT BRI Ventures Investama which reportedly has USD 250 million of available capital for investment.

Growth drivers

Indonesia’s burgeoning e-commerce market is a key growth driver towards digital payments adoption. Cards and cash are currently the most popular payment methods for online shopping accounting for 33% and 16% of e-commerce payments respectively in 2019 according to data from JP Morgan.

Digital wallets meanwhile accounted for just 16% of e-commerce payments that year, making it the third most popular online shopping payment method along with cash. By 2023, it is forecasted that digital wallets will surpass cash accounting for 22% of e-commerce payments for the year, remaining as the third most popular e-commerce payment method while cash drops to fourth position.

Column chart showing the most popular e-commerce payment methods in Indonesia in 2019, and forecast for 2023. In 2019, card was the most popular payment method followed by bank transfer, digital wallet, and cash.

Indonesia’s demographic segments offer tremendous potential to drive an expansion in the country’s fintech industry in the years ahead. The country’s rising middle class, and its young, tech-savvy population are expected to continue driving the country’s digital economy, and digital payments is expected to be a major beneficiary of that growth. Out of its massive population of more than 250 million, about 40% are aged 24 and below, while 42.56% are in the working age group of 25-54 years according to data from the CIA World Factbook. Like the rest of the world, this working age generation stands to drive the country’s GDP per capita which bodes well for the economy.

Internet penetration in the country rose to 73.7% in 2019 (amounting to 196 million people), from 64.8% (or 171 million people) the previous year according to data from Indonesia’s Statistics department, with an overwhelming 95% of them accessing the internet through smartphones.

Regulatory environment

With the country having a large unbanked population, the government is actively pushing to increase financial inclusion, a positive regulatory environment for the country’s blossoming fintech industry.

According to a report by Google, Temasek, and Bain & Company, Indonesia has around 47 million underbanked (nearly a fifth of its population), and 92 million unbanked adults (representing about a third of its population), which indicates a sizeable market for fintech.

A key component of the Indonesian government’s push to nurture the fintech sector and encourage innovation is the OJK Regulatory Sandbox (POJK 13/2018), which is closed testing environment aimed at entrepreneurs and startups for the safe experimentation of new technologies which do not currently fall under OJK legislative protection. Participating in the sandbox temporarily exempts companies from OJK’s non-prudential requirements. The sandbox period lasts one year, after which time participating companies are eligible for a six month extension. Upon completion of testing, the OJK will determine if the fintech is (i) recommended (ii) requires improvement; or (iii) not recommended. If recommended, the fintech company may proceed to register with the OJK.

Challenges

Much of this underbanked and unbanked population reside in rural areas, where financial literacy is relatively low compared to residents in urban areas. Lower financial literacy levels lead to trust deficits which in turn present challenges to increasing adoption rates of fintech solutions among this demographic.

Digital payments

Cash is king in Indonesia, and in fact, Indonesia is the second-largest cash based economy in the world. However, this is poised to change as its youthful tech, savvy population and its growing digital economy serve as catalysts for growth in the digital payments space.

Riding on the country’s e-commerce growth which has been a major beneficiary of the pandemic, digital payments in Indonesia is on the rise. A 2017 survey found that 84% used online wallets for online shopping purposes and as the country’s e-commerce sector continues to grow, online payments is poised for growth as well.

Merchant partnerships are key to e-wallet adoption, particularly to capture “low hanging fruit” such as mobile air time top-ups.

Competition

Indonesia’s digital payments space is quite crowded with more than 30 players vying for a slice of the market. Notable players include GoPay (owned by homegrown ride-hailing giant Gojek which is aiming to become Indonesia’s answer to China’s super app WeChat), Doku, OYO, and LinkAja (owned by Indonesian wireless operator Telkomsel and local banks Bank Mandiri, Bank Tabungan Negara, Bank Negara Indonesia, and Bank Rakyat Indonesia.

Going forward, these payment processors are likely to have to face competition from foreign rivals as well.

With e-wallets having relatively little room for differentiation, it is likely that e-wallets that are deeply entrenched a vast ecosystem will find greater success compared to standalone payment apps with limited reach. Examples include GoPay (owned by Indonesia’s ride-hailing giant GoJek which is aiming for superapp status), and OVO which cannot boast an ecosystem to rival GoPay but does have significant reach thanks to partnerships with Singapore-based ride-hailing giant Grab and Indonesian e-commerce giant Tokopedia, after both failed to secure licenses for their respective payment platforms. Both are reportedly the number 1 and number 2 e-wallets in Indonesia, followed by Dana, and LinkAja according to figures from AppAnnie and iPrice.

GoPay is currently the leading e-wallet in Indonesia with a market share of 60% according to a survey conducted by market research firm Ipsos, which was commissioned by Gojek (which owns GoPay).

Looking at the e-wallet duopoly in China which is dominated by Alibaba’s Alipay and Tencent’s WeChatPay, both of which grew their respective platforms thanks to the popularity of their own ecosystems, it is likely Indonesia will follow a similar trend with just a handful of e-wallets commanding meaningful market share. GoPay with its ride-hailing platform looks poised to continue commanding a market leading position going forward, as the startup continues to expand its platform to other areas beyond its core ride-hailing business such as video streaming.

Online investment platforms

Indonesia’s online investment platforms had a bonanza year in 2020 as the number of retail investors surged, providing a buffer for the local bourse and foreign investors exited Indonesia which is considered to be an emerging market (which is riskier than a developed market). Thousands of individuals, stuck at home, and numerous others among the millions of Indonesians who lost their jobs as a result of the pandemic (more than 9.5 million people were unemployed as of August 2020, an unemployment rate of 7.07%), turned to online trading as an additional source of income. Mandiri Securitas, a leading stockbroker in Indonesia reportedly acquired 11,000 new retail customers in the four months up to April 2020, adding to the brokerage firm’s 133,000 existing retail clients. Mandiri Securitas also saw a two-fold increase in average transaction value for its retail customers in April compared to January.

By June, the Indonesia Stock Exchange (IDX) reported that retail investors dominated stock trading, accounting for 52% of trading value that month.

Yet, with the number of retail investors standing at just 1.2 million as of June 2020 according to data from (representing less than 0.5% of Indonesia’s total population of 250 million), there is tremendous opportunity for further growth in the years ahead In Southeast Asia’s largest economy.

Investors aged between 18 and 30 made up the fastest-growing investor segment over the past few years, and their ascent up the income ladder, along with government-endorsed education and campaigns, the number of retail stock investors is poised for growth.

Domestic investors made up 55.71% of investors at the end of 2019 but as of 08 January 2020, domestic investors made up more than 80% of total investors according to statistics from the Indonesia Stock Exchange.

Competition

Sensing a long term opportunity, venture capital firms and online investment startups have been quick to capitalize, with a number of them successfully raising millions of dollars in funding.

Ajaib, an online investment platform that enables investors to invest in stocks, ETFs and mutual funds raised USD 25 million in Series A financing in January 2020, in a funding round led by Horizons Ventures, a venture capital arm founded by Hong Kong billionaire Li K-Shing, and Alpha JWC. Founded in 2018, the startup is less five years old, and claims to be the fifth largest stock brokerage firm in Indonesia. The startup had acquired stock brokerage firm in May 2020 Primasia Unggul Sekuritas (Primasia Sekuritas) as part of its efforts to expand from providing investors with mutual fund investment services, to providing share investment services as well.

A week earlier, Indonesian investment robo advisor Bibit raised USD 30 million from Sequoia Capital India who led the round, along with participation from existing investors East Ventures, EV Growth, AC Ventures and 500 Startups. Found in early 2019, Bibit’s robo-advisory platform builds customized mutual fund portfolios based on the users’ risk profiles and investment goals. Barely two years old, the startup has already seen phenomenal growth with more than a million first time investors joining in 2020 alone, and transaction volume rising ten-fold. Having implemented a strategy of targeting millenials early on the platform’s launch, the startup is likely to have benefited tremendously with more than the Indonesia Stock Exchange reporting that the number of retail investors jumped 56% in 2020 compared to a year ago, driven largely by millenials with 92% of new investors in 2020 coming from the 21-40 age group. The startup owners sensed an opportunity to offer a quick, easy, investment platform for mutual funding investing after observing that the millennial generation are simply not inclined towards opening wordy, time-consuming accounts at traditional investment firms and brokerages. Bibit CEO Wellson Lo along with parent company Stockbit acquired Bibit in 2018 for an undisclosed amount, after the latter had obtained a license as a mutual-fund selling agent from Indonesia’s Financial Services Authority (OJK) in 2017.

The Stockbit team then pivoted the platform from mutual fund marketplace to robo advisory, using Modern Portfolio Theory principles introduced by economist Harry Markowitz to design optimal portfolios for their investors.

Regulatory environment

Even before the pandemic, the Indonesian government had taken steps to increase retail participation. For instance, trading rules such as minimum lot size and minimum trading price were eased in 2019.  And several years before, the government initiated national campaigns as part of a strategy to attract middle-class citizens to invest.

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China’s film industry: changing market dynamics driven by technology

Bar chart showing China's online video market by revenue for 2009 - 2019, and forecast until 2022.

Chinese moviegoers bought a total of 548 million movie tickets in China in 2020, and the country’s total box office reached CNY 20.4 billion (about USD 3 billion) in 2020, overtaking the North America to become the world’s largest movie market for the first time (until 2019, China had been the world’s second largest movie market).

China’s ascent to pole position in 2020 is despite China’s box office takings plunging 68.2% year-on-year (YoY) from a record high of USD 9.2 billion in 2019, and a 66.5% decline from 2018 – due to cinema shutdowns as a result of the Covid pandemic and significant losses as a result of delayed or scrapped film releases. As many as seven Chinese films that were scheduled to be released during the Lunar New Year Holiday 2020 were pulled which is estimated to have cost USD 210 million in those two days alone. The roughly one week long Lunar Holiday is a key release period for Chinese films. Chinese authorities shut Chinese cinemas nationwide for 178 days from January 23, to July 20 when cinemas were allowed to re-open at 30%. The restriction was lifted to 50% on August 14, and 75% on September 25.

The shutdowns hit industry players hard. Maoyan Entertainment for instance, China’s largest online movie ticketing app for instance said revenues plunged to 89.7% YoY to CNY 200 million during the six months to June 2020, from 1.94 billion the same period a year earlier. Tencent-backed ticketing platform Maoyan Entertainment, dominates China’s online movie ticket sales with an estimated market share of 60% in China where more than 80% of all movie tickets are sold online (mostly over mobile devices). Together with arch rival Alibaba-backed Taopiaopiao which has a market share of 30%, the duo command a combined market share of as much as 90% of China’s online movie ticket sales.

Wanda Film Holding万达院线, which acquired AMC Entertainment Holdings in 2012 to become the largest cinema chain operator in the world said revenues declined 73.93% YoY during the first six months of 2020 to CNY 1.97 billion, pushing the company into the red, with a net loss of CNY 1.57 billion a staggering 398.8% decline from a year earlier when it reported a profit of CNY 524 million. Box office revenues which sank 88.5% YoY to CNY 580 million in 1H 2020, accounted for just 27% of total revenue during the period.

Meanwhile, North American box office revenues sank more than 80% YoY to USD 2.28 billion in 2020, from USD 11.4 billion in 2019 according to American media analytics firm Comscore as a result of the Covid pandemic which shut cinemas throughout the country causing blockbuster Hollywood productions like Black Widow and Wonder Woman 1984 to postpone their 2020 releases. According to Comscore by late 2020, just 34% of all North American theatres were open.

Last October, Wanda Film’s AMC Entertainment warned the US Securities and Exchange Commission (SEC) that it could run out of cash within half a year, as poor attendance weighs on its cash flow despite 494 of its 598 theatres being open as of October. The cash-strapped movie theater operator has managed to raise USD 200 million but is still short of USD 750 million more which it needs to ensure its survival.

Chinese moviegoers– a declining market

Movie viewership is on a downward trend with Chinese watching an average of 1.73 theatrical films in 2020, down from 2.88 in 2019, and 3.06 the year before. This could be due to the fact that with an average age of 28.8 years in 2020, Chinese movie-goers are on average younger than their American counterparts. Just 11% of Chinese movie-goers are above 40 years of age (compared with more than 50% in the United States according to data from Statista).

This young, tech-savvy generation appear to be more inclined towards watching films online from the comfort of their homes, and at the convenience of their time and pace, rather than in cinema as evidenced by a 2019 report from Tencent and Moayan which reveals that in 2019 just 66 million movie tickets were sold for the year’s top 10 highest-grossing films in China, while those same films were viewed 503 million times online. Their preference for options to suit their online lifestyle is also amply evidenced by China’s online movie ticket sales which has steadily increased over the years climbing from 76.1% in 2016, 81.6% in 2017, and 84.3% in 2018.

Meanwhile, the rise of “internet films” which are movies commissioned by internet streaming platforms such as Baidu-backed iQIYI, Tencent Video and Alibaba’s Youku Tudou, (China’s three biggest online video streaming companies) further illustrate the shifting dynamics of China’s conventional film industry. China’s online video market has grown tremendously and having emerged as major online film distributors, these online video behemoths are now increasingly moving to increase their involvement in the film industry with a particular focus on online-only “internet films”.

Bar chart showing China's online video market by revenue for 2009 - 2019, and forecast until 2022.

The trend is similar to that in the West where studios are increasingly finding themselves with the difficult decision on whether a movie will be streamed online through a streaming platform such as Netflix or whether they should stick to traditional theaters.

Meanwhile streaming giants such as Netflix and tech behemoths such as Amazon and Apple are also flexing their muscles in the film industry with a number of them churning out their own original video content, leveraging on their positions as major consumer entertainment or e-commerce platforms to market and distribute their content, and thereby disrupting Hollywood’s decades-old stronghold on the world of entertainment.

Local content gaining greater share of film consumption

Imported films accounted for about a sixth of China’s total box office takings in 2020, a 55% year-on-year decline according to figures from Maoyan Entertainment. The decline was largely attributed to the Covid pandemic which affected Hollywood release schedules, as well as rising interest in domestic content. Foreign films had been seeing consistent declines in their share of China’s box office takings over the past few years, accounting for 38% in 2018, 35.9% in 2019, and just 16.3% in 2020.

China’s growing importance in the global film industry has made Hollywood studios eager to capture a share of the pie, however with the Chinese government limiting the number of distribution slots for foreign films and domestic productions increasingly gaining greater appeal among Chinese movie goers as a result of greater content, and improving quality and competitiveness, foreign films are fighting an uphill battle in China.

Chinese film The Eight Hundred, which was released in August earned USD 461 million in the global box office, making it the highest grossing film in 2020 according to data from box office tracking website Box Office Mojo.

Produced Huayi Brothers, Tencent Pictures, Alibaba Pictures and Beijing Enlight Media, The Eight Hundred is the first Chinese film to reach the top spot in the global box office, and is the first non-English film to win the annual global box office crown since 1915.

Competition looks set to intensify as a growing number of local players enter the market as well. Alibaba Pictures, which has so far positioned itself as a joint rather than a primary role in local film production is now reportedly working on expanding its original content production capabilities, with the launch of a new in-house film studio called “Surprise Works”.

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India E-Commerce: Trends And Notable Players

Column chart showing GDP per capita (PPP) growth, 4 selected countries. In 2016 GDP per capita rose 8.26% in Bangladesh, 4.58% in China, 6.86% in India, 0.85% in Pakistan, 5.77% in Sri Lanka, 3% in Malaysia, 2.77 percent in Singapore, 7.71% in Vietnam, and 2.41% in Indonesia. In 2017 GDP per capita rose 8.11% in Bangladesh, 5.69% in China, 5.93% in India, 3.66% in Pakistan, 2.94%, 4.46% in Malaysia, 6.21% in Singapore, 8.86% in Vietnam, and 4.2% in Indonesia. In 2018 GDP per capita rose 9.26% in Bangladesh, 8.77% in China, 7.5% in India, 6.13% in Pakistan, 4.64% in Sri Lanka, 5.63% in Malaysia, 5.38% in Singapore, 8.52% in Vietnam, and 6.44% in Indonesia. In 2019, GDP per capita 8.9% in Bangladesh, 7.57% in China, 5.78% in India, 0.69% in Pakistan, 3.43% in Sri Lanka, 4.75% in Malaysia, 1.32% in Singapore, 7.84% in Vietnam, and 5.69% in Indonesia. Data from The World Bank and LD Investments analysis.

India’s e-commerce market has been booming but the story is just beginning. Out of India’s 1.3 billion population (the world’s second largest after China), an estimated 574 million are active internet users according to consulting company Kantar representing an internet penetration rate of about 44%. That is bigger than the entire population of the United States. This makes India the second largest online market after China which has 904 million internet users as of March 2020 according to CNNIC.

There is still tremendous opportunity for internet users to grow in number. Kantar estimates an 11% growth rate for 2020, with India’s internet users reaching 639 million. As India’s online population grows propelling to country’s digital economy, e-commerce is poised to grow as well. With about 100-110 million online shoppers as of 2019 according to data from a report by Bain & Co, about 17% of India’s internet users shop online.

By comparison, representing 78.6% of China’s internet population, China has 710 million online shoppers as of March 2020,. That is about seven-times that of India’s online shopper population, suggesting an enormous growth opportunity in India. As Indian incomes grow and consumption increases, consumers will seek greater product variety, and quality, at competitive prices. E-commerce can help unlock consumer spending as incomes rise. India’s GDP per capita growth has exceeded 5% since 2016.

Column chart showing GDP per capita (PPP) growth, 4 selected countries. In 2016 GDP per capita rose 8.26% in Bangladesh, 4.58% in China, 6.86% in India, 0.85% in Pakistan, 5.77% in Sri Lanka, 3% in Malaysia, 2.77 percent in Singapore, 7.71% in Vietnam, and 2.41% in Indonesia. In 2017 GDP per capita  rose 8.11% in Bangladesh, 5.69% in China, 5.93% in India, 3.66% in Pakistan, 2.94%, 4.46% in Malaysia,  6.21% in Singapore, 8.86% in Vietnam, and 4.2% in Indonesia. In 2018 GDP per capita rose 9.26% in Bangladesh, 8.77% in China, 7.5% in India, 6.13% in Pakistan, 4.64% in Sri Lanka, 5.63% in Malaysia, 5.38% in Singapore, 8.52% in Vietnam, and 6.44% in Indonesia. In 2019, GDP per capita 8.9% in Bangladesh, 7.57% in China, 5.78% in India, 0.69% in Pakistan, 3.43% in Sri Lanka, 4.75% in Malaysia, 1.32% in Singapore, 7.84% in Vietnam, and 5.69% in Indonesia. Data from The World Bank and LD Investments analysis.

India’s youthful population bodes well for e-commerce growth; as of 2020, 43.82% of India’s population was aged 24 years and below according to data from the CIA World Factbook. As they enter the workforce they will continue to be a major driving force for Indian e-commerce in the long term. India’s e-commerce market is expected to quadruple from US$ 48.5 billion in 2018 to US$ 200 billion by 2026 according to the International Trade Administration representing a CAGR of 19.37%.

Trends and notable players

Social commerce

Riding on India’s vast user base of social media users, social commerce is on the cusp of growth. India had the biggest rise in social media users in 2019, seeing 130 million new users (a 48% YoY) according to Hootsuite. Yet, at just 29% of the total population as at January 2020, India’s social media penetration is lower than the world average of 49% indicating ample room for growth. As more Indians get social, social commerce is poised to flourish.

Bar chart showing social media penetration for selected countries as of January 2020. The worldwide social media penetration at 49%. Social media penetration was 99% in the UAE, 88% in Taiwan, 87% in South Korea, 81% in Malaysia, 79% in Singapore, 78% in Hong Kong, 75% in Thailand, 72% in China, 70% in the United States, 67% in Vietnam, 67% in Philippines, 65% in Japan, 59% in Indonesia, and 29% in India. Data from Hootsuite.

Considered to be the second wave of e-commerce in the country notable Indian social commerce players looking to capitalize on this vast and growing userbase include Meesho, Bikayi, and JioMart. While first wave e-commerce giants such as Walmart-owned Flipkart, Amazon, and Snapdeal offer the opportunity to open an online store on their marketplace platforms, Meesho, Bikayi and JioMart leverage on social media platforms to offer businesses and individuals a chance to sell online, somewhat similar to WeChat’s mini-programs which enabled businesses to open stores within the WeChat app. China’s third biggest e-commerce player Pinduoduo for instance was born out of a WeChat’s mini-program.

Whatsapp is the number one messaging app in India with more than 400 million Whatsapp users, making India the country with the world’s biggest Whatsapp user population. Not surprisingly, Whatsapp is a popular social media platform for social e-commerce. Y Combinator-backed Bikayi’s app enables businesses to create a Whatsapp-integrated e-commerce store in a few minutes. The startup reportedly has more than 100,000 businesses using its app. For micro and small SMEs with little capital for a full-fledged e-commerce store, Bikayi’s app is an ideal solution for them to offer their catalogs online. From a consumer point of view, Bikayi is an ideal solution for a mobile-first market like India where 97% of internet users are mobile internet users.

Bikayi’s larger rival Meesho, also enables businesses to open a social media store but its app supports not just Whatsapp, but several other popular social media platforms as well such as Facebook, Twitter, and Instagram. There are more than 260 million Facebook users in India, making it the leading country in terms of Facebook users.

New social commerce startup Bulbul meanwhile has attracted investor interest with Bulbul raising USD 14.7 million from Sequoia Capital this year. 

The elephant in the room however is JioMart, the online grocery arm owned by petrochemicals behemoth Reliance Industries which has also jumped into social commerce arena; already available to shoppers via app or e-commerce website, JioMart recently piloted a Whatsapp-based grocery ordering platform that allows shoppers to order essentials through Whatsapp. The order is then routed to one of the 1,000+ mom-pop ‘kirana’ stores nearby the customer to fulfill the order.

The social commerce opportunity is driven not just through rising social media penetration but also from a growing number of online shoppers in rural India where internet penetration is less than 30% but growing considerably faster than urban India. According to data from the Telecom Regulatory Authority of India (TRAI), urban internet users grew 1.54% during the quarter ended march 2020 while rural internet users grew 6.53% during the same period.

For these new online shoppers, there is a general lack of trust for the millions of unknown online merchants on e-commerce marketplaces such as Flipkart. Social commerce on the other hand enables merchants to interact with first time online shoppers, clear their doubts and essentially provide a ‘face’ to the online store, helping bridge the trust deficit. Meesho for instance generates about three-quarters of its business from outside the top six cities.

Vertical e-commerce

While Amazon, Walmart’s Flipkart, and homegrown newcomer Reliance JioMart focus on the horizontal e-commerce marketplace arena which is crowded with other rivals such as Snapdeal, and ShopClues to name a few, India is increasingly seeing a growing number of vertical e-commerce marketplaces the e-commerce landscape. Flipkart’s fashion marketplace Myntra, Reliance Industries’ fashion marketplace Ajio, beauty e-commerce marketplace Nykaa, and furniture e-commerce marketplaces Pepperfry, and Urban Ladder are some notable established vertical e-commerce marketplaces. As they increasingly gain popularity along with growing e-commerce popularity in India, the number of specialized vertical e-commerce marketplaces is anticipated to continue an upward march in the coming years.

A report by research firm Redseer expects vertical e-commerce marketplaces to grow their share of India’s online retail Gross Merchandise Value (GMV) from 20% in 2019 to 30% by 2022. Marketplaces in industry verticals that have a strong advantage against horizontal e-commerce marketplaces highlighted in the report include pharmaceuticals, furniture, mom and baby care, and beauty and personal care, owing to their differentiated supply chain, and non-standard product which leads to consumer expectations of greater variety, quality and specialized service.

Mom and baby care e-commerce marketplace FirstCry achieved unicorn status this year with a valuation of US$ 1.2 billion, after Softbank committed to investing US$ 400 million in February.

Homegrown startup Livspace, an interior design marketplace connecting homeowners with trusted interior designers, vendors, and customers, currently serves 9 metro areas in India (Bengaluru, Chennai, Hyderabad, Delhi, Gurugram, Noida, Mumbai, Thane and Pune) and plans to expand locally and overseas (its only overseas market is Singapore currently) having raised US$ 90 million in September this year in Series D equity funding, and Indian Rupees 300 million in debt funding in October. Livspace is expected to generate US$ 500 million within the next 24-30 months.

Indian agriculture marketplace DeHaat meanwhile, raised US$ 12 million from Sequoia Capital this year,  after raising US$ 4 million in Series A funding in March last year, bringing the total amount raised to US$ 16 million to date.

Direct-to-consumer (D2C) e-commerce

India’s vast retail market features numerous local brands, and with e-commerce gaining popularity in the country, there been a trend of these brands going directly to consumers, essentially eliminating ‘online middlemen’ e-commerce marketplaces.

According to a report by e-commerce-focused SaaS company Unicommerce, there was a 65% increase in brands developing their own websites in June 2020. Meanwhile, an increasing number of online shoppers too appear to be going direct to brand websites, bypassing marketplaces. According to the Unicommerce report, brand websites reportedly saw an 88% increase in order growth compared with 32% for marketplace platforms during India’s lockdown period in June 2020 which led to an increase in self-shipped orders. Given the many advantages of a brand going direct to the consumer, such as greater control over brand perception, and direct interaction with consumers, it is likely that brand e-commerce popularity will continue growing in the years ahead.

The rise of D2C e-commerce in India looks set to follow a path similar to that of China, where rising brand e-commerce has led to the birth of brand e-commerce SaaS (Software as a Solution) companies such as Baozun. India too, has its own homegrown brand e-commerce SaaS solutions companies, notable ones include Zoho and Zepo.

Last year, Indian SaaS major Zoho Corp which has millions of users in more than 180 countries, launched an e-commerce solution enabling small retailers to set up their own e-commerce sites. Unlike other solutions that charge users on a per transaction basis, Zoho will charge a flat monthly fee for stores earning up to US$ 1,000 monthly after which a transaction fee of 1.5% is imposed (for its most basic plan). Zoho is a very established SaaS player offering a plethora of SaaS applications including productivity tools, CRM, and cloud solutions for finance and HR to name a few. This extensive suite of SaaS solutions and an existing customer base gives Zoho ample cross-selling opportunities for its new e-commerce SaaS solution which puts the company in great position to capitalize on India’s rising brand e-commerce market.

Homegrown e-commerce enabler Zepo which raised INR 31.9 million in August 2017 in funding from angel investors Kunal Shah (co-founder FreeCharge), Anupam Mittal and Hetal Sonpal, has its own advantages in the brand e-commerce race. The company offers merchants an integrated platform that enables them to manage their own e-commerce website, as well as manage orders from their online stores on marketplace platforms such as Amazon and Flipkart. For merchants wanting to maintain official marketplace stores while running their own e-commerce website, Zepo could be the player with the ideal solution.

Shopify, one of the world’s most popular e-commerce SaaS solution providers is another notable player in this space. Having begun operations in India in 2014, Shopify now has thousands of Indian merchants on its platform including Blue Tokai Coffee, apparel company Raymond Group, clothing brand NUSH by Anushka Sharma, John Jacobs Eyewear to name a few. Shopify said the number of merchants in India using their platform grew 44% in 2019 and GMV grew 59%. Shopify supports ten languages in India which is an advantage as more non-English or Hindi speaking Indians increasingly shop online (according to the latest census data from The Office of the Registrar General and Census Commissioner of India, Hindi was spoken by 43.63% of the population which means more than 56% of India’s population speak other languages).

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The Technology Trends Powering China’s Agrifood Sector

Column chart showing crop yields in China vs United States for selected crops during crop year 2018/19. During crop year 2018/19, coarse grain yields in the United States stood at 10.44 metric tons per hectare compared with 5.95 metric tons per hectare in China. Wheat yields were 3.2 metric tons per hectare in the United States and 5.42 metric tons per hectare in China. Corn yields were 6.11 metric tons per hectare in China and 11.07 metric tons per hectare in the United States. Barley yields were 3.64 metric tons per hectare in China and 4.17 metric tons per hectare in the United States. Oats yields were 1.15 metric tons per hectare in China and 2.33 metric tons per hectare in the United States. Sorghum yields were 4.79 metric tons per hectare in China and 4.53 metric tons per hectare in the United States. Rice yields were 7.03 metric tons per hectare in China and 8.62 metric tons per hectare in the United States. Soybean yields were 1.9 metric tons per hectare in China and 3.4 metric tons per hectare in the United States. Cottonseed yields were 3.11 metric tons per hectare in China and 1.26 metric tons per hectare in the United States. Peanut yields were 3.75 metric tons per hectare in China and 4.48 metric tons per hectare in the United States. Sunflower seed yields were 2.71 metric tons per hectare in China and 1.94 metric tons per hectare in the United States. Rapeseed yields were 2.03 metric tons per hectare in China and 2.09 metric tons per hectare in the United States.

China is one of the world’s largest food producers. With the country’s middle class expanding along with growing incomes, food demand in China has been on a steady growth path. China is the world’s largest wheat consumer, largest fruit consumer, largest egg consumer, and largest meat consumer. China is the world’s biggest importer of soybeans, is the world’s largest tea market, and is the world’s largest market for alternative meat. China is expected to be the world’s largest dairy market by 2022, and the country is expected to overtake the United States to become the world’s largest grocery market as well.

With Chinese per capita incomes standing at less than one-third of the United States, there is tremendous potential for growth in China’s agrifood sector as per capita food consumption grows along with rising prosperity opening interesting opportunities. While China has attracted much attention due to some high profile outbound agri-food acquisitions such as ChemChina’s of Swiss seed giant Syngenta, and China Mengniu Dairy’s  acquisition of Australian dairy company Bellamy’s Australia, business optimism is strong on the domestic front as well. Listed agrifood companies such as New Hope Liuhe Co Ltd, and Muyuan Foods Co Ltd (SHE:002714) have seen share prices jump over the past five years; Muyuan Foods Co Ltd saw its share price jump more than ten-fold during the five years until August 2020 while New Hope Liuhe’s share price quintupled during the same period. Hong Kong-listed China Mengniu Dairy’s share price also quintupled during the same period. On the startup front, China remains the world’s second largest market for agrifood tech startup investing by total deal number and amount invested after the US according to AgFunder.

Much of investor attention is currently on China’s booming eGrocery market, which raked in 60% of agrifood startup investment in 2019 according to data from Agfunder. However, there are numerous other sectors worth watching particularly in agri-tech which has strong government support. This year, the Chinese government released the “Digital Agriculture and Rural Area Development Plan 2019-2025” which aims to have digital agriculture account for 15% of China’s agricultural value-add.

Precision farming

Precision farming is a growth industry and the opportunity is no different in China, one of the world’s largest agricultural producers. China is upgrading is agriculture infrastructure to precision farming. The vast majority of China’s farms are small scale farms with basic machinery. Agriculture 4.0 technologies such as precision and smart farming accounts for just 1% of the nation’s total agricultural production. For instance according to a 2018 article by a Chinese economist HE Fan, agricultural drone penetration is about 65% in the U.S. but just 2% in China. Innovation and advancement in areas such as AI, IoT, remote sensing, and 5G will spur greater adoption.

The regulatory environment is favorable too, with the Chinese government stepping up efforts to boost domestic agricultural yields and production in an effort to reduce reliance on food imports from the U.S.

 

Column chart showing crop yields in China vs United States for selected crops during crop year 2018/19. During crop year 2018/19, coarse grain yields in the United States stood at 10.44 metric tons per hectare compared with 5.95 metric tons per hectare in China. Wheat yields were 3.2 metric tons per hectare in the United States and 5.42 metric tons per hectare in China. Corn yields were 6.11 metric tons per hectare in China and 11.07 metric tons per hectare in the United States. Barley yields were 3.64 metric tons per hectare in China and 4.17 metric tons per hectare in the United States. Oats yields were 1.15 metric tons per hectare in China and 2.33 metric tons per hectare in the United States. Sorghum yields were 4.79 metric tons per hectare in China and 4.53 metric tons per hectare in the United States. Rice yields were 7.03 metric tons per hectare in China and 8.62 metric tons per hectare in the United States. Soybean yields were 1.9 metric tons per hectare in China and 3.4 metric tons per hectare in the United States. Cottonseed yields were 3.11 metric tons per hectare in China and 1.26 metric tons per hectare in the United States. Peanut yields were 3.75 metric tons per hectare in China and 4.48 metric tons per hectare in the United States. Sunflower seed yields were 2.71 metric tons per hectare in China and 1.94 metric tons per hectare in the United States. Rapeseed yields were 2.03 metric tons per hectare in China and 2.09 metric tons per hectare in the United States.

One such area where precision farming holds tremendous potential in China is pesticide use. China feeds about 19% of the world’s population with just 7% of the world’s arable land. While this is commendable, the country also uses about 47% of the world’s pesticides, making it the world’s largest user of agricultural chemicals. China’s heavy pesticide use despite the country’s relatively minute cropland share, is a national concern. In an effort to improve food safety, and minimize environmental damage caused by pesticide overuse and thereby improve the sustainability of Chinese agriculture, the Chinese government has been phasing out highly toxic pesticides from use over the past few years.

Chinese agritech drone startups such as XAG, and McFly are well placed to emerge as solution providers to tackle China’s pesticide issue. XAG is a leader in China’s smart agriculture field, with more than 40,000 of its agricultural drones operating in China. Baidu-backed McFly, which raised US$ 14 million in 2019 is a relatively new player. Both develop AI-powered remote sensing agriculture-focused aviation equipment to help farmers reduce farm pesticide use. For instance McFly’s precision pesticide spray is able to detect with 97% accuracy the presence of pests on specific areas of a farm land and spray pesticide accordingly.

This precise use of pesticides eliminates the need for the current practice of completely spraying an entire farmland with pesticide since more often than not, pest distribution occurs in parts of the farm, not throughout the farm. The benefits are clear; consumers have safer food while farmers benefit from reduced farm input costs.

The growth story is just beginning. Farmers need large sized farms to justify the investment in expensive agricultural drones. In McFly’s case for instance, farmers need reportedly a little more than 13 hectares to justify the investment in McFly’s commercial services. However, unlike in the United States, very few Chinese farmers have farmland of that size. McFly worked around this limitation by offering a group-buying model to make the services more affordable, which has been successful. However, McFly’s bottom margins may be better off dealing with large-scale individual customers as opposed to millions of small scale users. This will likely materialize in the years ahead. 

For centuries, millions of small-scale farms have been dominating China’s rural areas, and these are often managed by farming families themselves. Apart from the cost disadvantage of small scale farming due to their inability to benefit from of economies of scale, it has also been found that agricultural chemicals are often used inefficiently on small farms according to a research study conducted a team of researchers from the Universities of Melbourne, Zhejiang, Fudan, Wuhan and Stanford.

The inefficiencies of small-scale farming along with China’s growing problem of ageing farmers has prompted the Chinese government to clear the path for private investment in large-scale commercial farming, through rural land reform which will allow family farmland owners to collectively rent out their land to large-scale farmers to cultivate the land on a large scale.  Much like the gradual disappearance of America’s small family farms in the in the mid 20th century, China too appears to be on the path towards farm consolidation where small family farms will gradually give way to modernized, large scale commercial farms which suggests good for McFly.

Agricultural e-commerce

According to government data, e-commerce sales of agricultural produce reached CNY 554.2 billion in 2018, representing 9.8% of total agricultural sales. There is still ample room for growth. Under China’s “Digital Agriculture and Rural Area Development Plan 2019-2025” the Chinese government is aiming to boost the proportion of agricultural products sold online to reach 15% by 2025 which suggests bright prospects for agri-marketplaces in China. The competitor landscape however is crowded with players. Pinduoduo is perhaps one of the biggest names in the game having shot up to becoming China’s third largest marketplace after Alibaba and JD.com, by capitalizing on the growth of rural e-commerce. Their strategy was largely based on agriculture e-commerce and their popularity as a platform for rural farmers to sell their wares to city folk hungry to buy fresh agricultural produce straight from farmers continues to this day. Pinduoduo’s group-buying model enabled shoppers to team up with other interested buyers to collectively make a purchase of farm produce. Shoppers earn discounts for the relatively large purchase while farmers get to sell their produce at higher prices (since there is no middleman involved) and in relatively large order sizes thus saving them the hassle of fulfilling a large number of small orders.

Valued at US$ 7 billion,  agri-marketplace unicorn Meicai took a different route, connecting farmers with restaurants and hotel chains instead who also make relatively large purchases (for instance, the minimum order quantity is 5kilograms for vegetables). Meicai started off as an online retailer, directly sourcing and selling the fresh produce themselves. Starting 2017 however, the platform was opened to third party merchants as well.

The company in-house cold chain logistics network which was built with an investment of more than RMB 2 billion. This supply chain advantage is a significant competitive strength, with the company boasting more than 74 cold storage centers scattered in 52 cities with a warehouse area of approximately 800,000 square meters. Meicai has a fleet of more than 17,000 delivery vehicles and the company has a daily parcel handling capacity of more than 5.2 million. Meicai’s sales are expected to exceed RMB 14 billion in 2019 and although the company is currently loss-making, it is cash flow positive and is expected to turn in a profit by 2020.

 

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China’s Centuries-Old Plant Based Meat Industry Set For Growth

Bar chart showing the top five vegetarian markets in the world by vegetarian population. India was the biggest with a vegetarian population of 390 million followed by Indonesia with 66.9 million vegetarians, Nigeria with 58.1 million vegetarians, China with 51.9 million vegetarians, and Pakistan with 33.2 million vegetarians.

According to Euromonitor China’s “free from meat” market which includes plant-based meat products has grown 33.5% since 2014 to reach US$ 9.7 billion in 2019. The industry is forecast to reach US$ 11.9 billion by 2023. Already the world’s largest market for alternative meats, the Covid pandemic could serve as a catalyst to encourage greater numbers of non-vegetarian Chinese to adopt alternative meats as consumers, wary of potential sickness from animal protein increasingly turn to plant-based proteins such as plant-based meat and plant-based eggs. For instance, Just Egg, a plant-based egg alternative reportedly saw sales jump 30% on e-commerce platforms JD.com and Alibaba’s Tmall since the Covid outbreak.

The potential is enormous; protein demand in China is on a structural uptrend, driven by a growing middle class, rising incomes, and living standards. China is the world’s largest meat consumer, the world’s largest meat importer, the world’s largest meat producer, and the world’s largest soybean importer (demand for which is largely driven by its livestock industry which uses soybean meal as animal food). China’s soybean imports by value are more than 10 times bigger than second-placed European Union.

Bar chart showing top five soybean imports by volume, 2018. China was the world’s largest soybean importer having imported 85.47 million metric tonnes in 2018, followed by the EU-27 + UK with imports of 17.29 million metric tonnes, Argentina with 6.78 million metric tonnes, Mexico with 5.15 million metric tonnes, and Egypt with 3.51 million metric tonnes. Data from UN Trade Data.

Yet, there is still room for growth. Although China has caught up with Asian neighbors such as South Korea in terms of average protein supply, China still falls short when compared with Western countries such as the United States and Germany.

Column chart showing average protein supply (in grams per capita per day) (three year average) in China, South Korea, United States, and Germany. In 2008-2010, average protein supply was 91.7 in South Korea, 92.4 in China, 101.3 in Germany, 110.7 in the United States. In 2009-2011, average protein supply was 93 in South Korea, 93.7 in China, 102 in Germany, 109.3 in the United States. In 2010-2012, average protein supply was 94.3 in South Korea, 95.3 in China, 101.7 in Germany, 109 in the United States. In 2011-2013, average protein supply was 96 in South Korea, 96.7 in China, 101.7 in Germany, 108.7 in the United States. Data from the Food and Agriculture Organization of the United Nations.

However, satisfying this expected protein demand may prove an uphill challenge due to scarce resources; home to 19% of the world’s population but owning just 7% of the world’s arable land, China has very limited arable land. At just 0.086 hectares per person, China’s arable land per capita is lower than India, the United States, the European Union, and Russia.

Bar chart showing arable land per capita for selected countries as a 2016. In 2016, arable land per capita reached 1.904 hectares per person in Australia, 0.853 hectares per person in Russia, 0.471 hectares per person in the United States, 0.2 to 3 hectares per person in the European Union, 0.118 hectares per person in India, and 0.086 hectares per person in China. Data from the World Bank.

And with the livestock industry producing just 18% of the world’s calories and 37% of total protein despite occupying 77% of the world’s agricultural land according to figures from Our World in Data, it is clear that animal protein is far more resource intensive than plant-based protein, and so China, already the world’s largest meat producer, likely has very little room for further land expansion for livestock which makes the case for plant-based meats in China is very compelling.

Furthermore, the industry is bound to benefit from support from the Chinese government which reportedly aims to cut down meat consumption by 50% to reduce greenhouse gas emissions. Plant-based meats are an answer to this and the climate-friendly narrative of plant-based meats is a major draw factor, particularly among China’s sustainability-conscious millennial generation. China has about 400 million millenials, compared with about 80 million in the United States.

The opportunity has not gone unnoticed. Global alternative protein players such as Beyond Meat, and Impossible Foods have stepped up marketing efforts in China while food and beverage players such as Starbucks, and Yum! Brands’ KFC, Pizza Hut and Taco Bell have launched plant-based menus. KFC’s plant-based chicken will be supplied by agri-business giant Cargill, while Stabucks’ plant-based menu will see faux meats supplied by Beyond Meat.

Beyond Meat also partnered with Alibaba’s grocery retailer Hema to bring its plant-based packaged meat to supermarket shelves in China.

Competitive landscape: China’s mock meat industry is centuries old, and the country’s has well established players offering a wide variety of plant-based meat products

Imitation meat originated in China, and restaurants in Buddhist temples throughout the country have been serving fake meat as far back as the Song dynasty which lasted until the 13th century. A key pillar of Buddhist principles is respect for all life i.e., all living creatures and hence vegetarianism is commonly practiced among Buddhists. To accommodate the diets of patrons and guests, these temple kitchens mastered the art of preparing mock meats, a tradition which continues to this day in numerous Chinese Buddhist temples not only throughout China but also around the world from Malaysia, to the United States. Over the centuries, restaurants sprung up throughout the Middle Kingdom offering faux meat menus to cater to vegetarian Buddhists. According to China Daily there are more than 300 restaurants offering fake meat in Beijing alone.

Chinese entrepreneurs and merchants brought their expertise with them during their overseas travels and hence countries with a significant ethnic Chinese population such as Malaysia, also have their share of mock meat restaurants and mock meat manufacturers. Notable Malaysian players such as Ahimsa (which literally means “non-violence” in Sanskrit) for instance have been in the business for decades. X% of Malaysian vegetarian meat companies in the LD Investments database are more than 10 years old.

Thus, China has a very long history of manufacturing plant-based protein and the country has several players producing mock meat products out of a variety of plant-based foods such as tofu skin (known as yuba), soybeans, wheat gluten (sometimes called seitan), mushrooms, peanuts, and vegetables such as potatoes and carrots.

These well established players offer much more than just burghers and sausages, with their product range covering a wide breadth of faux meat and seafood products from ordinary staples such as beef, pork, lamb, chicken, crab meat, roast duck, and cuttlefish, to exotic meats such as eels, puffer fish, shark’s fin, and abalone.

It has been noted however that a number of these companies’ products are targeted at China’s vegetarian population, and the products often do not mimic the taste, texture, and color of authentic meat very well. Hence, while they satisfactorily serve the needs of China’s vegetarian population, the products may need some tinkering before China’s mammoth non-vegetarian population will be sufficiently persuaded to make the switch and consume plant-based meats on a regular basis. Impossible Foods’ burgher for instance uses a patent-protected lab-grown heme which makes its vegetarian burgher look, taste, and “bleed” like the real thing, and thereby differentiates itself from competing burghers.

This probably explains why despite having a centuries-old and well-established mock meat industry, Chinese still favor animal meat over plant-based options and animal meat’s popularity has only grown along with the country’s affluence-driven protein demand. China’s vegetarian population is just about 3.8% of the total population.

Bar chart showing vegetarians as a percentage of the population for selected countries. With vegetarians accounting for 29.8% of the country’s population, India’s vegetarian population had the highest percentage, followed by Indonesia where vegetarians accounted for 25.4% of the country’s population, and Pakistan at 16.8%. China’s vegetarian population made up just 3.8% of the country’ s total population.

And in absolute terms, China’s vegetarian population is dwarfed by Asian neighbors India, and Indonesia.

Bar chart showing the top five vegetarian markets in the world by vegetarian population. India was the biggest with a vegetarian population of 390 million followed by Indonesia with 66.9 million vegetarians, Nigeria with 58.1 million vegetarians, China with 51.9 million vegetarians, and Pakistan with 33.2 million vegetarians.

Nevertheless, these established players will seek to expand beyond their traditional target market of vegetarian Buddhists, which suggests competition will be fierce.

Overseas players will be up against local upstarts and established domestic players

Overseas companies Beyond Meat, JUST, and Impossible Foods will be up against local upstarts such as Zhenmeat (often touted as China’s answer to Beyond Meat), and OmniPork who are also beefing up their businesses to carve out their slice of the market.

While Beyond Meat and Impossible Foods’ product offering is heavily skewed towards the western palate with products such as burghers and sausages, China’s domestic players are heavily focused on Chinese taste buds with a focus on pork rather than beef (given that pork is China’s most popular meat) and with a product range covering local delicacies such as dumplings, mooncakes, and meatballs.

Zhenmeat for instance offers local delicacies such as plant-based meat mooncakes, and konjac-based crayfish. Hong Kong-based OmniPork offers a line of pork products tailored to Chinese taste buds such as pork buns and pork strips. Pork makes up 80% of China’s meat market, and China is the world’s largest pork consumer accounting for nearly half of global pork consumption.

Pie chart showing pork consumption by country in 2018. Accounting for 49.3% of global pork consumption, China was the world’s biggest pork consumer followed by the European Union with 19%, and the United States at 8.7%. Other countries accounted for the balance 23.1%. Data from the United States Department of Agriculture, Foreign Agricultural Service, and LD Investments analysis.

With domestic demand outstripping domestic supply, China has also held the position as the world’s largest pork importer for a few years, before being overtaken by Japan in 2018 but expected to regain the leading position in 2019 according to data from the United States Department of Agriculture (USDA) as the African Swine Fever (ASF) disease reduced China’s domestic pig herd by at least 40%, leading to a spike in imported pork from all China; China’s pork imports by dollar value jumped 117.4% in 2019.

The ASSF outbreak has also pushed up meat prices such as pork helping further push interest towards plant-based pork. The current conditions prevailing in China’s pork market suggest apt timing for OmniPork to capture its share of China’s alternative protein market.

Established domestic mock meat players to watch include Whole Perfect Food and Godly. Founded in 1993, Whole Perfect Food has been in the industry for decades selling faux meat to Chinese consumers shunning meat for religious reasons. Now they are looking to expand that market and the company could emerge as a strong contender armed with a product range of more than 300 vegetarian/plant-based meat and meat product alternatives including vegetarian versions of oyster sauce, tailored to the Chinese palate.

Founded in 1922, Godly 功德林is considered to be one of the pioneers of plant-based meats. And like Whole Perfect Food offers a plethora of faux meat products from mock meat chicken, duck, ham and traditional meats such as vegetarian dried intestines, to local delicacies such as mock meat buns, dumplings, traditional Chinese cakes, and mooncakes. Their official store on JD.com has over 200 reviews, most of which are positive.

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World Wheat Trade, Supply, And Demand Outlook

Column chart showing world, flour, and products, export share by country. Russia's share of world wheat, flour, and products exports grew from 7.7% in calendar year 2012/13 to 18% in calendar year 2019/20 while The European Union's 15.5% in calendar year 2012/13 to 20% in calendar year 2019/20, the United States' share dropped from 18.8% in calendar year 2012/13 to 13.8% in calendar year 2019/20, Ukraine's share grew from 4.9% in calendar year 2012/13 to 11.1% in calendar year 2019/20, Canada's share dropped slightly from 12.6% in calendar year 2012/13 to 12.2% in calendar year 2019/20, and Australia's share dropped from 14.4% in calendar year 2012/13 to 5.3% in calendar year 2019/20.

Wheat flour saw a spike in demand early this year in the United States, as a Coronavirus baking boom and widespread stay at home orders triggered demand from retail consumers for family flour (used for home baking),and wheat-based prepared and processed food stuffs such as pasta, breads, and wheat-based snack products. America’s number one flour brand – King Arthur Flour – saw flour sales spike 2,000% in March alone, and U.S. wheat flour production during the first three months of calendar year 2020 increased more than 4% according to data from the United States Department of Agriculture.

Demand

China is the world’s largest consumer of wheat, followed by the European Union and India.

Bar chart showing world wheat consumption by country calendar year 2019/20. At 126 million metric tons, China was the biggest consumer of wheat followed by the European Union at 122 million metric tons, India at 96.11 million metric tons, Russia at 40 million metric tons, the United States at 29.82 million metric tons, Pakistan at 25.4 million metric tons, Egypt at 20.6 million metric tons, Turkey at 19.9 million metric tons, Iran at 16.6 million metric tons, Brazil at 12.1 million metric tons, Algeria at 10.85 million metric tons, Morocco at 10.8 million metric tons, Indonesia at 10.5 million metric tons, Canada at 10.4 million metric tons, Uzbekistan at 9.5 million metric tons, and Ukraine at 9.1 million metric tons. All other countries consumed 173 million metric tons.

The world’s three largest wheat consumers are also the world’s leading wheat producers.

Bar chart showing world wheat production by country during calendar year 2019/20.At 154.94 million metric tons, the European Union was the world’s largest wheat producer followed by China at 133.59 million metric tons, India at 103.6 million metric tons, Russia at 73.61 million metric tons, United States at 52.26 million metric tons, Canada at 32.35 million metric tons, Ukraine at 29.17 million metric tons, Pakistan at 24.3 million metric tons, and Argentina at 19.74 million metric tons.

Although domestic wheat production satisfies the vast majority of all three countries’ wheat consumption requirements, for China and the European Union, domestic demand is outstripped by supply and hence both countries appear in the ranks of the world’s biggest wheat importers. China accounts for 2.8% of global wheat imports and the European Union accounts for 2.6% as of calendar year 2019/20 according to data from the United States Department of Agriculture.

Bar chart showing world wheat, flour, and products Imports by country during calendar 2019/20. At 13.3 million metric tonnes Egypt emerged as the world's biggest importer, followed by Turkey at 10.95 million metric tonnes, Indonesia at 10.8 million metric tonnes, Philippines at 7.2 million metric tonnes, Brazil at 7.18 million metric tonnes, Algeria at 6.8 million metric tonnes, Bangladesh at 6.7 million metric tonnes, Japan at 5.68 million metric tonnes, China at 5.38 million metric tonnes, Mexico at 5.2 million metric tonnes, Nigeria at 5.2 million metric tonnes, and European Union at 4.9 million metric tonnes.

China

China’s wheat consumption has been generally flat over the past several years with wheat consumption hovering around 125 million metric tons to 112 million metric tons during calendar years 2012/13 to 2019/20 according to data from the United States Department of Agriculture. 90% of China’s wheat demand is met from domestic production and about 10% is met through imports. China has a 95% self-sufficiency target for key staples rice, wheat and corn consumption and allows a certain amount of imports through a tariff rate quota (TRQ) system. China sets annual corn quotas at 7.2 million ton every year, wheat quotas at 9.64 million tons, and rice at 5.32 million tons.

Looking ahead, there is little room for China to grow domestic wheat production to replace imports. China’s wheat yields are among the highest in the world.

Bar chart showing wheat yields by country during calendar year 2019/20. At 6.4 metric tonnes per hectare Egypt has the highest wheat yields in the world, followed by Mexico at 5.56 metric tonnes per hectare, China at 5.42 metric tonnes per hectare, the European Union at 5.36 metric tonnes per hectare, Serbia at 4.92 metric tonnes per hectare, Uzbekistan at 4.29 metric tonnes per hectare, Ukraine at 3.73 metric tons per hectare, Uruguay at 3.68 metric tonnes per hectare, India at 3.37 metric tonnes per hectare, Canada at 3.26 metric tonnes per hectare, Argentina at 3.22 metric tonnes per hectare, United States at 3.2 metric tonnes per hectare.

And with China being home to about 19% of the world’s population, but having about 7% of the world’s arable land, China’s arable land availability is tight; China’s arable land per capita stood at 0.086 hectares per capita in 2016, compared with 0.118 hectares per capita in India, 0.223 hectares per capita in the European Union, and 0.471 hectares per capita in the United States, the same year according to data from the World Bank.

Bar chart showing arable land per capita for selected countries as a 2016. In 2016, arable land per capita reached 1.904 hectares per person in Australia, 0.853 hectares per person in Russia, 0.471 hectares per person in the United States, 0.2 to 3 hectares per person in the European Union, 0.118 hectares per person in India, and 0.086 hectares per person in China. Data from the World Bank.

This suggests that trade policy reasons aside, China will continue to appear in the ranks of the world’s largest wheat importers in the years ahead.

China-U.S. trade tensions saw China imposing a 25% retaliatory tariff on U.S. wheat which saw China-bound wheat exports dive 84% from 2017 figures. However, as part of the Phase 1 Trade deal negotiated between the two countries early this year, China reportedly may increase wheat imports from the U.S. The relief to U.S. wheat farmers may be short-lived however; with China-U.S. relations on showing limited improvement and becoming increasingly fragile, the trade deal may fall apart.

Egypt

Egypt is one of the few countries worldwide where wheat consumption has been consistently growing, albeit at a very slow rate. And with domestic production outstripped by domestic consumption, Egypt, the world’s largest wheat importer for several years, has been seeing its share of global wheat imports steadily grow from 5.7% in 2012/13 to 7% in 2019/20.

Column chart showing world wheat, flour, and products Imports by share for selected countries. Egypt's share of world wheat, flour, and products grew from 5.7% in calendar year 2012/13 to 7% in calendar year 2019/20 while Japan's share dropped from 4.5% in calendar year 2012/13 to 3% in calendar year 2019/20, Algeria's dropped from 4.4% in calendar year 2012/13 to 3.6% in calendar year 2019/20, Brazil's share dropped from 5.1% in calendar year 2012/13 to 3.8% in calendar year 2019/20, Indonesia's share grew from 4.9% in calendar year 2012/13 to 5.7% in calendar year 2019/20, Turkey's share grew from 2.2% in calendar year 2012/13 to 5.8% in calendar year 2019/20, Philippines' share grew from 2.5% in calendar year 2012/13 to 3.8% in calendar year 2019/20.

Although the Egyptian government has made efforts to make the country self-sufficient in wheat, plans have so far yielded little results. While Egypt’s wheat demand has grown from 18.7 million metric tons in 2012/13 to 20.6 million metric tons, representing a CAGR of 1.39%, the country’s production has grown from 8.5% million metric tons in 2012/13 to 8.77 million metric tons in 2019/20 representing a CAGR of 0.45%. The result has been a steady increase import’s share of Egypt’s wheat consumption which grew from 45% in 2012/13 to 64.6% in 2019/20 according to LD Investments analysis of figures from the United States Department of Agriculture.

Wheat production growth in Egypt will likely be driven from area gains rather than yields as Egypt already has the highest wheat yields in the world. Given that imports account for more than 60% of Egypt’s annual wheat consumption, in order to achieve self-sufficiency, Egypt will have to increase wheat acreage nearly two-fold, a highly unlikely possibility in the foreseeable future. And with Egypt’s population growing at 2.28% annually, ranking it 31st among 237 countries according to figures from the Central Intelligence Agency, Egypt appears to be a far way off from achieving wheat self-sufficiency and is therefore likely to continue being a major importer in the near future. 

Turkey

Turkey’s wheat consumption has grown from 17 million metric tons in 2012/13 to 19.9 million metric tons in 2019/20 partly the result of an influx of Syrian refugees who are highly dependent on staples such as bread. With domestic wheat production hovering between 16 million metric tons to 21 million metric tons during the period, Turkey has been nearly self-sufficient in wheat production in the past, but a surge in exports of Turkish-made pasta and flour has driven demand for wheat imports, which in turn has propelled Turkey to emerge as the world’s second-biggest importer of wheat accounting for 5.8% of global wheat imports. Over the past two decades, Turkey’s flour exports have doubled and pasta exports have jumped six-fold helping propel the country to become the world’s largest exporter of flour, semolina and the world’s second-largest exporter of pasta.

Supply

Russia

Over the past two decades, Russia moved from being a net wheat importer to a net wheat exporter and the country accounted for about 18% of global wheat exports during the calendar year 2019/20, up from just 7.7% in 2012/13.

Column chart showing world, flour, and products, export share by country. Russia's share of world wheat, flour, and products exports grew from 7.7% in calendar year 2012/13 to 18% in calendar year 2019/20 while The European Union's 15.5% in calendar year 2012/13 to 20% in calendar year 2019/20, the United States' share dropped from 18.8% in calendar year 2012/13 to 13.8% in calendar year 2019/20, Ukraine's share grew from 4.9% in calendar year 2012/13 to 11.1% in calendar year 2019/20, Canada's share dropped slightly from 12.6% in calendar year 2012/13 to 12.2% in calendar year 2019/20, and Australia's share dropped from 14.4% in calendar year 2012/13 to 5.3% in calendar year 2019/20.

There is tremendous potential for continued production growth in Russia driven by area gains and yield improvements. At 2.39 metric tons per hectare, Russia’s wheat yields are just about half that of China. And the export market opportunity for Russian wheat is significant. Apart from being one of the biggest wheat suppliers to growth markets Turkey and Egypt, Russia is also well placed to increase its share of Chin’s wheat imports in the long term, following a path similar to Russian soybeans which have seen exports to China grow 51 times between 2013/14 to 2018/19; China is increasingly diversifying its wheat sources away from the United States in the face of growing China-U.S. tensions, and Russia could be a beneficiary of this move which suggests sunny days ahead for Russian wheat farmers and more business for Russian grain traders such as Russia’s state-owned United Grain Company (UGC) who is emerging as a formidable contender in global grain trade, which is currently dominated by international merchants such as Cargill Inc, ADM, Glencore, and Louis Dreyfus.

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Singapore Economy: Current State, And Prospects

Pie chart showing Singapore's nominal GDP by industry in 2019. Singapore's manufacturing sector was the largest contributor to GDP was a 20.9% share followed by wholesale and retail trade with a 17.3% share, business services with a 14.8% share, finance and insurance with a 13.9% share, other services Industries 11.3% share, transportation and storage with a 6.7% share, information and Communications with a 4.3% share, ownership and dwellings with a 3.8% share, construction with a 3.7% share, accommodation and Food Services with a 2.1% share, and utilities with a 1.2%. Data from the department of Statistics Singapore.

Like many other countries that have been economically affected by the COVID crisis, Singapore, Southeast Asia’s fifth largest economy, has officially entered into a technical recession with the economy contracting 13.2% year on year during the second quarter of 2020 and The Straits Times Index entering bear territory as well with a decline of nearly 20% this year.

By industry, 70% of Singapore’s nominal GDP is from the services sector and about 26% from the goods-producing sector (Manufacturing, Construction, Utilities).

Pie chart showing Singapore's nominal GDP by industry in 2019. Singapore's manufacturing sector was the largest contributor to GDP was a 20.9% share followed by wholesale and retail trade with a 17.3% share, business services with a 14.8% share, finance and insurance with a 13.9% share, other services Industries 11.3% share,  transportation and storage with a 6.7% share, information and Communications with a 4.3% share, ownership and dwellings with a 3.8% share, construction with a 3.7% share, accommodation and Food Services with a 2.1% share, and utilities with a 1.2%. Data from the department of Statistics Singapore.

Of the services sector, the largest sub-sector is the Wholesale & Retail Trade sector which accounts for 17.3% of Singapore’s GDP, followed by Business Services accounting for 14.8% and Finance and Insurance accounting for 13.9% of Singapore’s GDP in 2019. The largest services subsector – Wholesale and Retail Trade – was heavily hit by the COVID pandemic when Singapore, like many other countries around the world, went into lockdown with retail sales declining 52% year on year on May 2020 and 27.8% year on year in June 2020.

However, as business activities resumed in June 2020 (in phases), retail sales jumped 51% in June 2020, with almost all subsectors in Singapore’s Wholesale and Retail Trade sector enjoying gains, reflecting an unleashing of pent up consumer demand. In fact, sales in the Watches & Jewellery industry jumped a whopping 1,236.9% month on month, a spectacular gain for an industry considered to be non-essential, and the demand for which is highly elastic which suggests Singapore’s consumer spending power and consumer confidence have been little affected by the Covid pandemic so far.

Bar chart showing the percentage change in retail sales by industry in Singapore for the month of June 2020. Department store sales increased 319.3% month on month but declined 69.5% year-on-year. Supermarket and hypermarket sales declined 3.3% month-on-month but grew 43.4% year on year. Mini Mart and convenience store sales declined 0.1% month-on-month but increased 8.7% year on year. Food and alcohol sales increased 34.3% month on month but declined 45.7% year on year. Motor vehicle sales grew 212.4% month on month but declined 47.8% year on year. Petrol service stations sales grew 51.9% month on month but declined 33.6% year on year. Cosmetics, toiletries and medical goods sales increased 34.2% month-on-month but declined 33.1% year on year. Wearing apparel and footwear sales increased 251.1% month-on-month but declined 63.4%. Furniture and household equipment sales increased 125.1% month on month but declined 19.9% year-on-year. Recreational goods sales increased 126.3% month on month but declined 40.7% year on year. Watches and jewellery sale increased 1236.9% month-on-month but declined 53.5% year-on-year. Computer and telecommunications equipment sales increase 49.7% month on month and also increased 20.9% year on year. Optical goods and book sales increased 228.3 percent month on month but declined 39.4% year on year. Sale in the other categories grew 90.5% month-on-month but declined 42.5% year on year. Data the department of Statistics Singapore.

Domestic wholesale sales dropped 9.6% year on year in the first quarter of 2020 while foreign wholesale sales dropped 12.2% year on year in the first quarter of 2020 as all domestic and foreign trade except essential industries such as food decelerated sharply during the Covid lockdown. Consequently, wholesale sales declines were registered in all sub-sectors in the domestic Wholesale Trade sector except Food, Beverages & Tobacco which grew 3.5% year on year during the first quarter of 2020, and General Wholesale Trade which rose by 1.4% year on year during the same period.

Bar chart showing the percentage change in domestic wholesale trade sales by industry in Singapore for the month of June 2020. Food, beverages and tobacco sales increased 4.6% quarter-on-quarter and increased 3.5% year on year. Household equipment and furniture sales fell 9% quarter-on-quarter and fell 16.4% year on year. Petroleum and Petroleum products sales dropped 1% quarter-on-quarter, and 10.4% year on year. Chemicals and chemical products sales increased 5.9% quarter-on-quarter and fell 7.7% year on year. Electronic components sales dropped 2.8% quarter-on-quarter and dropped 17.5% year-on-year. Industrial and construction machinery sales declined 6.3% quarter on quarter and dropped 15.2% year on year. Telecommunications and computer sales dropped 4.3% quarter-on-quarter, and fell 9.9% year on year. Metals, timber and construction sales fell 1.6% quarter on quarter and dropped 15.3% year on year. General wholesale trade dropped 3% quarter on quarter and increased 1.4% year on year. Ship chandlers and bunkering sales dropped 0.7% quarter on quarter and dropped 10% year on year. Transport equipment sales dropped 9.5% quarter-on-quarter and dropped 10.5% year-on-year. Other wholesale trade sales dropped 0.9% quarter-on-quarter and dropped 3.6% year-on-year. Data from the department of Statistics Singapore.

As global trade slowed and global supply chains nearly ground to a halt, all sub-sectors within Singapore’s Foreign Wholesale Trade sector saw year on year declines in the first quarter of 2020 and all except Other Wholesale Trade saw quarter-on-quarter sales declines.

Bar chart showing the percentage change in foreign wholesale trade sales in Singapore during the month of June 2020. Food, beverages tobacco wholesale sales dropped 4% quarter-on-quarter and 2% year on year. Household equipment and furniture wholesale sales dropped 0.5% quarter-on-quarter and 6% year on year. Petroleum and Petroleum products wholesale sales dropped 14.1% quarter-on-quarter and 18.6% year on year. Chemical and chemical products wholesale sales dropped 9.9% quarter-on-quarter and 10.9% year-on-year. Electronic components wholesale sales dropped 0.5% quarter-on-quarter 3.4% year-on-year. Industrial & Construction machinery wholesale sales dropped 7.9% quarter-on-quarter and 18% year on year. Telcommunications and computers wholesale sales dropped 4.1% quarter-on-quarter and 6.6% year-on-year. Metals, timber and Construction wholesale sales dropped 7% quarter on quarter and 4% year on year. General wholesale trade dropped 14% quarter on quarter and 12.7% year on year. Ship chandlers and bunkering dropped 9.7% quarter on quarter 0.6% year-on-year. Transport equipment wholesale sales dropped 9.2% quarter-on-quarter and 22.2% year-on-year. Other wholesale trade was unchanged quarter-on-quarter and dropped 0.5% year-on-year. Data from the department of Statistics Singapore.

Singapore’s Manufacturing sector, the single largest GDP contributing sector, accounting for 20.9% of Singapore’s nominal GDP in 2019, was also affected by the COVID crisis with manufacturing output declining 8.1% in May 2020 and 6.7% in June 2020. Excluding biomedical manufacturing, manufacturing output grew 2.1% in June 2020 clearly benefiting from the gradual lifting of lockdown measures.

Line chart showing Singapore's manufacturing output on your growth during the month of April May and June 2020. Singapore total manufacturing output increased 12% in April 2020, dropped 8.1% in May 2020 and dropped  6.7 percent in June 2020. Excluding biomedical manufacturing Singapore's manufacturing output dropped 2.7% in April 2020, dropped 10.3% in May 2020, and increased 2.1% in June 2020. Data from Singapore economic development board.

With SMEs accounting for 99% of Singapore’s 273,100 business establishments and 72% of Singapore’s 3.52 million employees, the economic slowdown caused by the nationwide lockdown has dented SME finances causing Singapore’s unemployment rate to rise to 2.9% in the second quarter of 2020, the highest in more than a decade, and up from 2.4% in the previous quarter. The number of bankruptcy applications also reached an all-time high in March this year, though the number rapidly declined in the months after as the Singaporean government swiftly put relief measures in place through the Covid-19 (Temporary Measures) Act.

On the bright side, at less than 3%, Singapore’s unemployment rate is still on the lower end of the unemployment scale compared to the rest of the world; Singapore’s neighbor in the north, Malaysia, registered an unemployment rate of 5.3% in May 2020, up from 5% in April 2020. Additionally, Singaporean households are relatively financially stable with household debt being well covered by financial assets which suggests the general population is reasonably well placed to weather an economic storm.

Line chart showing Singapore household debt as a percentage of household financial assets. Singapore's household debt as a percentage of household financial assets at 23.81% in the first quarter of 2020, 24.07% in the fourth quarter of 2019, 24.64% in the third quarter of 2019, 25.05% in the second quarter of 2019, 25.72% in first quarter of 2019, 26.65% in the fourth quarter of 2018, 26.78% in the third quarter of 2018, 27.03% in the second quarter of 2018, 27.19% in the first quarter of 2018, 27.39% in the fourth quarter of 2017, 27.62% in the third quarter of 2017, 27.67% in the second quarter of 2017, and 27.94% in the first quarter of 2017. Data from the department of Statistics analysis from LD investments.

Singapore’s strong fiscal position also helped it maintain its AAA sovereign debt rating despite the government rolling out large stimulus measures (as much as 12% of GDP) to support the economy from the Covid impact. By comparison, Australia saw its credit rating outlook revised to negative by S&P Ratings.

The bigger potential risk to Singapore’s recovery is a downturn in the global economy and international trade, as well as economic downturns among key trading partners such as China, the United States, and Malaysia which will have a knock-on effect on Singapore’s economy as well.

China is Singapore’s biggest merchandise trade partner as of 2019.

Bar chart showing Singapore's top five merchandise trade partners in 2019. With a total  merchandise trade value of S$ 137.3 billion, Mainland China was Singapore's top merchandise trading partner in 2019, followed by Malaysia with S$ 113 billion, the United States with S$ 105 billion, The EU with S$ 93 billion, and Taiwan with S$ 66.5 billion.

And the United States is Singapore’s biggest services trade partner as of 2018, according to official data.

Bar chart showing Singapore's top five service trade partners in 2018. With a total service trade value of S$ 75.3 billion, the United States was Singapore's top services trading partner in 2018, followed by Japan with S$ 37.4 billion, Mainland China with S$ 35.3 billion, Australia with S$ 27.3 billion, and Ireland with S$ 23.3 billion.
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World Soybean Trade: A Long Term View

Bar chart showing top five soybean imports by volume, 2018. China was the world’s largest soybean importer having imported 85.47 million metric tonnes in 2018, followed by the EU-27 + UK with imports of 17.29 million metric tonnes, Argentina with 6.78 million metric tonnes, Mexico with 5.15 million metric tonnes, and Egypt with 3.51 million metric tonnes. Data from UN Trade Data.

Demand

Over the past nearly two decades, global soybean demand has outpaced other crops such as corn, cotton, rice, and wheat. According to figures from U.S. Soy, soybean demand has grown 229% during the 1990/91 marketing year to 2017/18 compared to 123% for corn, and 34% for wheat. Growth has been driven by growing demand for protein, and vegetable oil consumption for food. Much of the growth was driven by China. Soybean world per capita consumption averaged 43 pounds in 1990 and by 2010 that had nearly doubled to 81 pounds according to figures from US Soy. China’s per capita soybean consumption grew from just 19 pounds in 1990 to 110 pounds by 2010. By comparison, soybean per capita consumption in the United States grew from 304 pounds in 1990 to 344 pounds in 2010.

The growth momentum appears set to continue. Over 80% of imported soybeans are processed into animal feed in China. This is consistent with the world average with about 85% of the world’s soybean crop is used as animal feed. China, the world’s largest importer according to UN trade data, imports soybeans for its meat, poultry, and dairy industry which has been booming as Chinese citizens increasingly add more protein to their diets as incomes rise and living standards increase. China is on track to overtake the U.S. to become the world’s largest dairy market according to Euromonitor International, and currently is the world’s largest egg consumer and producer, and the world’s largest meat importer.

Bar chart showing top five soybean imports by volume, 2018. China was the world’s largest soybean importer having imported 85.47 million metric tonnes in 2018, followed by the EU-27 + UK with imports of 17.29 million metric tonnes, Argentina with 6.78 million metric tonnes, Mexico with 5.15 million metric tonnes, and Egypt with 3.51 million metric tonnes. Data from UN Trade Data.

Protein intake among Chinese citizens has been steadily growing reaching 96.7 grams per capita per day during 2011-2013 and has reached levels comparable to developed neighbors such South Korea (96 grams per capita per day). However, it has yet to reach levels comparable to other developed nations such as the United States (108.7 grams per capita per day), and Germany (101.7 grams per capita per day) suggesting room for Chinese soybean demand to grow.

Column chart showing average protein supply (in grams per capita per day) (three year average) in China, South Korea, United States, and Germany. In 2008-2010, average protein supply was 91.7 in South Korea, 92.4 in China, 101.3 in Germany, 110.7 in the United States. In 2009-2011, average protein supply was 93 in South Korea, 93.7 in China, 102 in Germany, 109.3 in the United States. In 2010-2012, average protein supply was 94.3 in South Korea, 95.3 in China, 101.7 in Germany, 109 in the United States. In 2011-2013, average protein supply was 96 in South Korea, 96.7 in China, 101.7 in Germany, 108.7 in the United States. Data from the Food and Agriculture Organization of the United Nations.

This is particularly true for animal protein which at 38 g/capita/day (3-year average) in China has not yet reached the levels of neighbors Japan (48 g/capita/day), and South Korea (46 g/capita/day), as well as developed nations such as the United States (69 g/capita/day), and Germany (61 g/capita/day).

At 45.7 kilograms per capita, China’s meat consumption per capita is higher than the world average of 34 kilograms per capita but has room to catch up with Asian countries such as Malaysia and Vietnam which have meat consumption per capita of 60.3 and 50.5 kilograms per person respectively.

Bar chart showing meat consumption per capita (beef and veal, pork meat, poultry meat, and sheep meat) for selected countries in 2019 (kilograms per capita). In 2019, meat consumption per capita stood at 34 kilograms per person worldwide, 100.8 kilograms per person in the United States, 89.7 kilograms per person in Australia, 62.6 kilograms per person in Russia, 60.3 kilograms per person in Malaysia, 50.5 kilograms per person in Vietnam, 45.7 kilograms per person in China, and 3.6 kilograms per person in India. Data from OECD Data and LD Investments analysis.

Chinese meat demand has pushed up meat imports over the past few years and China is the world’s largest meat importer. China’s growing appetite for imported meat should help drive EU soybean demand. As the world’s largest meat exporter, the EU has been a major beneficiary of China’s growing meat consumption which in turn helped push EU soybean imports; the EU is the world’s second largest soybean importer and the world’s largest importer of soybean meal which is used mainly as animal feed. With China driving global meat demand, soybean demand from the EU, the world’s second biggest importer, is poised to grow as well.

India also presents a tremendous growth driver. Incomes and living standards have been rising and India’s average protein supply is on a firm uptrend but is still about half of China’s suggesting ample room for growth.

Column chart showing the average protein supply in grams, per capita, per day on a 3-year average in China and India. During 2005-2007, average protein supply was 55 grams per capita per day in India, and 87.4 grams per capita per day in China. During 2006-2008, average protein supply was 56.7 grams per capita per day in India, and 89.1 grams per capita per day in China. During 2007 – 2009, average protein supply was 57.3 grams per capita per day in India and 90.8 grams per capita in China. During 2008 – 2010, average protein supply was 58 grams per capita per day in India, and 92.4 grams per capita per day in China. During 2009-2011, average protein supply was 58.7 grams per capita per day in India, and 93.7 grams per capita per day in China. During 2010-2012 average protein supply reached 59.3 grams per capita per day in India and 95.3 grams per capita per day in China. During 2011-2013 average protein supply reached 59.7 grams per capita per day in India, and 96.7 grams per capita per day in China.

A comparison between the meat markets in India and China are somewhat of an apples to oranges comparison; India is the world’s largest vegetarian market with more than 390 million vegetarians according to figures from Euromonitor International, India may not reach the ranks of other countries such as China and Australia in terms of meat consumption per capita in the near term. Vegetarians in countries such as India often abstain from consuming meat citing religious reasons (such as the moral concept of non-violence against all life forms) and thus meat affordability is not a concern. Hence, regardless of income growth and rising wealth, it is unlikely their diets will change to include any meat at all.

Bar chart showing the top five vegetarian markets in the world by vegetarian population. India was the biggest with a vegetarian population of 390 million followed by Indonesia with 66.9 million vegetarians, Nigeria with 58.1 million vegetarians, China with 51.9 million vegetarians, and Pakistan with 33.2 million vegetarians.

However there is tremendous room for meat consumption growth among the non-vegetarian population. Vegetarians make up 30% of India’s population which leaves a meat consuming population equal to about two-thirds of India’s one billion plus population.

Bar chart showing vegetarians as a percentage of the population for selected countries. With vegetarians accounting for 29.8% of the country’s population, India’s vegetarian population had the highest percentage, followed by Indonesia where vegetarians accounted for 25.4% of the country’s population, and Pakistan at 16.8%. China’s vegetarian population made up just 3.8% of the country’ s total population.

In fact, according to the results of a survey conducted by Indian Market research Bureau (IMRB), 73% of urban rich Indians are protein deficient, with 93% of them unaware about their daily protein requirements. With nearly 80% of Indian households expected to rise to middle income status by 2030, up from 50% today, the U.S. Soybean Export Council sees India as a prime export market in the future.

Supply

The top five largest soybean producers are the United States, Brazil, Argentina, China, and India.

Bar chart showing the leading countries in soybean production worldwide. During calendar year 2018-2019, the United States was the leading soybean producer in the world, producing 120.52 million metric tons, followed by Brazil with 119 million metric tons, Argentina with 55.3 million metric tons, China 15.97 million metric tons, India with 10.93 million metric tons, Paraguay with 8.85 million metric tons, Canada with 7.27 million metric tons, Ukraine with 4.83 million metric tons, and Russia with 4.03 million metric tonnes. According to preliminary figures for calendar year 2019-2020, Brazil was the leading soybean producer worldwide with 126 million metric tons, followed by the United States with 96.68 million metric tons, Argentina with 50 million metric tons, China with 18.1 million metric tons, Paraguay with 9.9 million metric tons, India with 9.3 million metric tons, Canada with 6 million metric tons, Russia with 4.36 million metric tons, and Ukraine with 4.05 million metric tons. Data from the United States Department of Agriculture Foreign Agricultural Service.

China, the world’s largest soybean importer and consumer is likely to remain a major import market in the years ahead. Domestic soybean production meets just about 20% of China’s domestic demand of about 100 million metric tons, and while there is potential for the country to increase domestic output by improving yields (particularly with the government reportedly making efforts to boost soybean production), this is unlikely to satisfy demand so the country will continue to depend heavily on imports going forward.

Even if China doubles its soybean production by doubling its yields to match the United States (China’s average soybean yield on the same area of land is about 40% that of the U.S. according to Heilongjiang Academy of Agricultural Sciences), China could potentially increase its production by about 15 million metric tons, which is not even one-fifth of China’s estimated 84 million metric ton soybean import volume during marketing year 2019/2020 according to data from the USDA.

India, the world’s fifth largest soybean producer, has been a consistent net exporter of soybeans but its net exports have been shaky as domestic production is outpaced by domestic demand.

Line chart showing India's net soybean exports from 2012-2018. India's soybean net exports were 45,413 metric tons in 2012, 100,908 metric tons in 2013, 195,003 metric tons in 2014, 197,340 metric tons in 2015, 84,557 metric tons in 2016, 219,425 metric tons in 2017, and 37,857 metric tons in 2018.

India became a net importer this year having imported some 114,000 metric tons from October 2019 to February 2020 according to USDA data. As incomes grow and protein intake increases, the country may well end up becoming a consistent net importer, unless they dramatically increase soybean yields; India’s average soybean yields on the same area of land is just 25% that of the U.S. according to data from the USDA.

Bar chart showing soybean yields in metric tons per hectare, for selected soybean producing countries, and world average. During crop year 2018/19, average soybean yields was 2.88 metric tons per hectare worldwide, 3.31 metric tons per hectare in Brazil, 3.4 metric tons per hectare in the United States,3.33 metric tons per hectare in Argentina, 2.39 metric tons per hectare in Paraguay, 2.86 metric tons per hectare in Canada, 1.9 metric tons per hectare in China, 2.91 metric tons per hectare in the European Union, 1.47 metric tons per hectare in Russia, and 0.96 metric tons per hectare in India. According to preliminary figures for calendar year 2019/20, average soybean yields was 2.75 metric tons per hectare worldwide, 3.41 metric tons per hectare in Brazil, 3.19 metric tons per hectare in the United States, 2.94 metric tons per hectare in Argentina, 2.8 metric tons per hectare in Paraguay, 2.61 metric tons per hectare in Canada, 1.95 metric tons per hectare in China, 2.87 metric tons per hectare in the European Union, 1.57 metric tons per hectare in Russia, and 0.78 metric tonnes per hectare in India.

That would leave current soybean export leaders Brazil, and the United States to continue dominating the soybean export market in the years ahead.

Bar chart showing the top five soybean exporting countries in the world in 2019. Brazil was the largest exporter with US$ 34.2 billion followed by the United States with US$ 16.7 billion, Paraguay with US$ 2.4 billion, Canada with US$ 1.7 billion, and Ukraine with US$ 0.8 billion.

The fragility of the U.S.-China relationship suggests Brazil is in a better position to capitalize on China’s soybean demand in the long term, presenting opportunities for Brazilian soybean suppliers. As of August 2020, Brazil accounted for 72% of China’s soybean imports so far this year, while imports from the U.S. accounted for just 21% which is an improvement from last year’s 15% but considerably lower than the 43% share pre-trade war. The long term impact of losing China as an export market for U.S. soybeans was abundantly clear when prior to the Phase 1 trade deal, the USDA’s long term projections for soybean planting in the U.S. expected only marginal increases and was not expected to recover to pre-trade war levels.

Line chart showing long-term projections for soybean planted acreage in the United States by the United States Department of Agriculture. The United States department of Agriculture projects soybean planted acreage in the United States at 90.1 million acres in 2017, 89.1 million acres in 2018, 82.5 million acres in 2019, 82.5 million acres in 2020, 83 million acres in 2021, 83.5 million acres in 2022, 84 million acres in 2023, 84.5 million acres in 2024, 85 million acres in 2025, 85 million acres in 2026, 85.5 million acres in 2027, and 85.5 million acres in 2028.

Agribusiness players ADM, Bunge, Cargill, which buy crops from farmers, then transport, store and/or process the crops and sell the processed crops to food, feed, and energy buyers all have operations in Brazil and should benefit from improved South American export volumes as Chinese soybean imports grow along with rising protein demand.

In 2019, Cargill was the largest soybean exporter in Brazil followed by Bunge, ADM, and Dreyfus.

Bar chart showing Brazil's top soybean and corn exporters in 2019. In 2019, Brazil's leading soybean exporters were Cargill, Bunge, ADM, Dreyfus, Amaggi, Gavilion, COFCO, Glencore, Coamo, and Engelhart respectively. In 2019, Brazil's top corn exporters were Cargill, Bunge, Amaggi, ADM, Dreyfus, Gavilion, COFCO, Glencore, Coamo, and Engelhart respectively

On the domestic front, Brazilian grain trader Agribrasil expects revenues to more than double this year to 1 billion reais from 390 million in 2019 thanks to China’s voracious appetite for commodities such as soybeans and corn.

In the short term however, China will likely continue buying U.S. soybeans not just as part of the Phase 1 trade deal secured in January this year which helped end a nearly two year trade war between the two nations, but also perhaps to buy time as the country makes the necessary investments to cost effectively diversify its soybean sources in the long term, since top supplier Brazil may be unable to keep up with Chinese soybean demand. The opportunity in Russia is particularly compelling. Already the world’s second-largest wheat exporter, Russia has been vying for a greater share of China’s wheat imports and it is not a far stretch to envision Russia expanding its soybean production to capture a bigger slice of China’s soybean imports. Russian soybean exports to China have grown 51 times from just 15,000 metric tons in 2013/14 to 763,000 metric tons in 2018/19. Although this is less than 1% of China’s approximately 100 million metric ton soybean consumption currently, the long term potential is significant considering China’s top soybean producing region – Heilongjiang – is just across the China-Russia border from Russia’s top soybean producing region – the Amur region, which if developed could offer China soybeans at very cost effective prices with the added advantage that Russian soybeans are non-GMO (compared with the United States where 94% of US soybean acreage comprises GMO soybeans as of 2018). The expected completion of two new bridges over the Amur River (known as the Heilongjiang river in China) which borders Russia and China should greatly facilitate soybean trade between the two countries. With calls from China to set up a ‘soybean industry alliance’ with strategic partner Russia, it is highly likely Russia will continue to take greater share of China’s soybean imports going forward.

All is not lost for U.S. soybeans however. The EU is gradually phasing out palm oil for its domestic biodiesel use, and U.S. soybeans could be a beneficiary of this move. Accounting for 20.03% of the EU’s biodiesel feedstock mix, the EU consumed 2,640 million liters of palm oil in 2019 for biodiesel production according to data from the USDA. Soybeans’ share has grown from 7.83% in 2013 to 8.35% in 2019. Assuming the EU turns to soybeans to fill the void left by palm oil, soybean use for EU feedstock production could double.

Column chart showing EU biodiesel production by feedstock. In 2019, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 37.94%, followed by used cooking oil (20.86%), palm oil (20.03%), soybean oil (8.35%), animal fat (6.07%), sunflower oil (1.44%), and other oils such as pine/tall oil, fatty acids (5.31%). In 2017, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 44.18%, followed by used cooking oil (19.42%), palm oil (18.58%), soybean oil (6.52%), animal fat (5.58%), other oils such as pine/tall oil, fatty acids (4.45%) and sunflower oil (1.26%). In 2015, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 47.48%, followed by used cooking oil (17.80%), palm oil (17.36%), animal fat (7.64%), soybean oil (4.01%), other oils such as pine/tall oil, fatty acids (4.15%), and sunflower oil (1.56%). In 2013, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 51.37%, followed by palm oil (21.05%), used cooking oil (10.35%), soybean oil (7.83%), animal fat (3.78%), other oils such as pine/tall oil, fatty acids (3.01%), and sunflower oil (2.61%).

The reality however is that American soybeans will be fighting against EU-grown rapeseed, soybean, and sunflower oil for a chance at replacing the void left by the palm oil subsequent to EU phasing it out as a feedstock which indicates the opportunity for American soybean farmers looking to cash in on the EU opportunity will be smaller.

Nevertheless, it should still cushion the blow for companies such as ADM for whom soybean trading accounts for 16% of revenue with most of their origination from North America. In its latest annual report, ADM’s Ag Services and Oilseeds operating unit saw profit drop 4% which the company attributed to weaker North American grain margins and volumes, in part due to changing weather conditions and the U.S.-China trade tensions. Within the Ag Services and Oilseeds unit, Ag Services (which includes results from its origination business which buys grains from farmers) recorded a 23% drop in operating profit, compared with a 45% increase a year earlier.

The company benefited from China’s increased soybean consumption before the trade war and if Brazil replaces the United States as China’s leading soybean supplier or takes an increasing share of Chinese soybean imports, the EU could help partially fill in the void for U.S. soybean producers and traders such as ADM.

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Bright Prospects For China’s Cold Chain Logistics Sector

Column chart showing China's fresh food e-commerce market size, growth, and proportion of total fresh food market size. China's fresh food market was valued at RMB 43.6 trillion in 2015, RMB 47.3 billion in 2016, RMB 47.4 billion in 2017, RMB 49.5 billion in 2018, and RMB 51 billion in 2019. China's fresh food ecommerce market was valued at RMB 828 million 2015, RMB 1.324 billion in 2016, RMB 1.752 billion in 2017 RMB 2.424 billion in 2018, and RMB 2.888 billion in 2019. China's fresh food ecommerce market's sure of the country's overall fresh food market stood at 1.9% in 2015, 2.8% in 2016, 3.7% in 2017, 4.9% in 2018, and 5.66% in 2019. China's fresh food ecommerce market growth rate was 80.7% in 2015, 59.9% in 2016, 32.3% in 2017, 38.4% in 2018, and 19.1% in 2019. Data from Cushman and Wakefield.

China’s cold chain logistics market has been growing steadily over the past several years. According to management consulting firm L.E.K. Consulting, China’s cold chain market grew from RMB 81 billion in 2011 to RMB 181 billion in 2015 representing a growth rate of over 20% annually.

Column chart showing China's cold chain logistics market size (in RMB billions). China's cold chain logistics market was valued at RMB 81 billion in 2011, RMB 109 billion in 2013, RMB 181 billion in 2015, RMB 236 billion in 2017 (forecast), RMB 368 billion in 2019 (forecast), RMB 470 billion in 2020 (forecast).

Yet, there is still ample potential for growth. China’s cold chain logistics network currently represents a relatively small part of the overall logistics industry, with just about 19% of the Chinese market having access to cold chain technologies, compared to 85% in Europe and Japan. This explains why the cargo damage to fresh product (such as fruits and vegetables which accounts for the greatest demand for cold chain logistics services) within China’s cold chain is reportedly as high as 20% to 30% – which is considerably higher than the average 5% to 10% in developed countries.

Furthermore, the market for cold chain logistics is expected to be driven by consumption upgrades (for instance with regards to consumer expectations on product freshness and quality), and growing demand for agricultural commodities such as fresh fruits and vegetables, as a result of rising incomes and living standards.

Considering these growth drivers, market research firm Reportlinker, projects China’s cold chain logistics market to reach RMB 522.5 billion in 2025 from RMB 295.6 billion in 2018 representing a CAGR of 8.5% between 2018 and 2025.

Fundamental growth drivers: rising fresh produce demand along with increasing quality and freshness expectations as living standards rise, and an expanding fresh food e-commerce sector

Demand for cold chain logistics stems largely from five agricultural products including meat, aquatic products, quick-frozen foods, fruits and vegetables, and dairy products, among which cold chain for fruits and vegetables accounts for the greatest demand. With incomes growing and its middle class expanding, demand for such agricultural products are enjoying robust demand in China.

According to data from the China Chamber of Commerce for Import and Export of Foodstuffs, Native Produce, and Animal By Products, in 2019 China imported approximately 6.83 million tons of fruit with a total value of US$ 9.5 billion, representing a year-on-year increase of 24% 25% respectively.
With China’s fruit exports amounting to 3.61 million tons at a value of US$ 5.5 billion in 2019, up just 4% and 14% year on year respectively, China is a net fruit importer and is likely to remain so, as per capita fruit consumption grows while economic policy focuses on high-tech industries and high-value manufacturing sectors.
Data released by the National Bureau of Statistics show that per capita consumption of fresh fruits among urban residents was 56.423 kilograms in 2018, up from 47.6 kilograms 2013. With per capita fruit consumption growing steadily, the Chinese Academy of Agricultural Sciences projects China’s fruit market will reach US$ 460 billion in 2024.

China’s growing interest in milk and dairy products is also poised to contribute to demand for cold chain logistics. China today is the second largest dairy market behind the United States, the third largest milk producer in the world, with about 13 million dairy cows up from just 120,000 cows in 1949.  The average dairy product consumption per capita has increased from almost just 6 kilograms in 1999 to 36 kilograms in 2019. Yet, there is plenty of potential with China’s per capita consumption of dairy products being half of the rest of Asia and less than one third of the world average according to Milk Quotient report published by the China Dairy Industry Association and Dutch dairy producer Royal Friesland Campina last month in Beijing.

China’s burgeoning fresh food e-commerce sector is expected to drive some of the demand for these products. China fresh food e-commerce industry has been growing steadily over the past few years; according to Euromonitor and Qianzhan Industry Research Institute, in 2019, China’s fresh food e-commerce market was valued at around RMB 288.8 billion up 19.1% 2018 when the market was valued at RMB 242.4 billion in 2018. Yet, with fresh food e-commerce accounting for just 5.6% of the total fresh food industry market in China in 2019, there is tremendous potential for growth.

Column chart showing China's fresh food e-commerce market size, growth, and proportion of total fresh food market size. China's fresh food market was valued at RMB 43.6 trillion in 2015, RMB 47.3 billion in 2016, RMB 47.4 billion in 2017, RMB 49.5 billion in 2018, and RMB 51 billion in 2019. China's fresh food ecommerce market was valued at RMB 828 million 2015, RMB 1.324 billion in 2016, RMB 1.752 billion in 2017 RMB 2.424 billion in 2018, and RMB 2.888 billion in 2019. China's fresh food ecommerce market's sure of the country's overall fresh food market stood at 1.9% in 2015, 2.8% in 2016, 3.7% in 2017, 4.9% in 2018, and 5.66% in 2019. China's fresh food ecommerce market growth rate was 80.7% in 2015, 59.9% in 2016, 32.3% in 2017, 38.4% in 2018, and 19.1% in 2019. Data from Cushman and Wakefield.

However, the bigger growth driver is from fresh food e-commerce’s need for cold storage warehouses closer to the consumer to enable cheap and fast delivery as opposed to the conventional notion that warehouses and distribution centers should be near ports and airports. Much of China’s cold storage warehouse stock is located in provinces with some of the world’s busiest ports. For instance, Liaoning which has the biggest warehouse stock by area in China is home to the Port of Dalian (the world’s 16th busiest port), Guangdong which has the 5th largest logistics warehouse stock is home to the Port of Guangzhou (the world’s 5th busiest port), and Shanghai which has the 11th biggest logistics warehouse stock in China is home to the Port of Shanghai (the world’s busiest port).

Bar chart showing China's cold storage logistics warehouse distribution by storage area (in square metres). The Province with the highest cold storage logistics warehouse by storage space area is Liaoning with 1.065 million square metres, followed by Henan with 1.059 million square metres, Sichuan with 684.9 thousand square metres, Jiangsu with 567.5 thousand square metres, Guangdong with 399.2 thousand square metres, Shandong with 387.3 thousand square metres, Shaanxi with 373 thousand square metres, Tianjin with 363.5 thousand square metres, Beijing with 282.9 thousand square metres, Hubei with 258.5 thousand square metres, Shanghai with 235 thousand square metres, Heilongjiang with 150 thousand square metres, Hebei with 132 thousand square metres, Hainan with 81.7 thousand square metres, Zhejiang with 80 thousand square metres, Hunan with 75 thousand square metres, Chongqing with 72,600 square metres, Fujian with 58,680 square metres, Guangxi with 49,850 square metres, Anhui with 49,218 square metres, Jiangxi with 40,000 square metres, Yunan with 36,000 square metres, Shanxi with 25,300 square metres, Guizhou with 12,000 square metres.

Opportunities in China’s fragmented cold storage warehouse market

Cold storage is a major part of the cold chain logistics industry; according to projections from L.E.K. Consulting, transportation, cold storage, and other services are expected to make up 40%, 30%, and 30% of China’s cold chain logistics market, respectively in 2020.

Currently cold chain storage represents a small part of China’s logistics warehouse stock; according to Warehouse In Cloud (WIC), China’s total cold storage logistics warehouse stock was about 6.65 million square meters in 2019, accounting for just 2.15% of the total logistics warehouse market. Along with the development of China’s cold chain industry, the market for refrigerated warehousing is poised to experienced solid growth.

China’s cold storage market is fragmented with the top 10 cold storage operators commanding a market share of around 21%. One of the country’s largest property developers China Vanke (HKG:2202), is a notable player in China’s cold storage space. The company purchased Swire Cold Chain Logistics from Swire Pacific (HKG:0019) in 2018, propelling Vanke into the ranks of China’s 10 largest temperature controlled-storage providers.

Under its logistics and warehousing Service Platform ” VX Logistic Properties”, has been aggressively acquiring and building its portfolio of high-standard warehouses, cold storage warehouses, as well as cold storage integrated logistics parks. In 2019, China Vanke served more than 850 customers, covering e-commerce, manufacturing, catering, retailing, etc. According to their 2019 financial results, the annual utilization rate of their cold storage warehouses stood at around 82% in 2019. China Vanke is also one of the consortium of investors that participated in the buyout of GLP, cheap the world’s leading logistics solution provider.

Another player worth watching is Alibaba (NYSE:BABA) whose logistics subsidiary Cainiao has been actively building distribution centers equipped with cold storage and delivery facilities to offer B2C cold chain logistics services, which are expected to grow along with the country’s growing fresh food e-commerce sector.
Alibaba’s cross-border ecommerce platform TMall Global offers end-to-end cold chain logistics services including warehousing, processing, packaging, and transportation enabling merchants from around the world sell fresh foods to Chinese buyers. Once in China, the goods are stored in TMall Global’s warehouses and are delivered to consumers within 24 hours.
Alibaba’s marketplace TMall Global has introduced a cold storage logistics option to enable foreign merchants to sell fresh food to Chinese buyers. The service supports refrigeration across warehousing, processing, packaging, and transportation. It also offers customs clearance online. Once the goods have reached China they can be delivered within 24 hours. Cainiao Logistics offers the full chain of services, from cargo storage in bonded warehouses, to packaging and last mile delivery.