Rising Singapore food industry 0 comments

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One of the often overlooked growth sectors in Singapore is the food and beverage manufacturing industry. If one were to look at the monthly manufacturing performance report released by EDB, this sector, classified (unfairly) under the General Manufacturing group, has been growing at about 7% year-on-year for the last few months. That is quite strong growth (remember, we're talking about a large number of companies, so averages tend to attentuate growth figures) and also very steady growth, compared to the volatile biomedical cluster or even the electronics cluster.

For some time now, Singapore has been the regional headquarters of a number of international food corporations, companies like Nestle, Danone, Unilever. Some companies have also been in the news recently for setting up base in Singapore: Barry Callebaut (a leading global chocolate manufacturer), and Danisco, a leading food ingredients manufacturer (in papers today). Additionally, we have large F&B manufacturers locally ourselves, companies such as Singapore Food Industries, Asia Pacific Breweries, Tee Yee Jia, Prima. And if one looks at the SGX he will find many listed companies there doing the food manufacturing/processing business.

To me, there are quite a number of underlying factors supporting the continued long-term growth of the food manufacturing industry in Singapore. Firstly, there is of course the burgeoning Asian consumer market, which Western companies cannot afford to ignore. One can be sure high-tech, and hence higher margin, Western food companies will continue to build their presence here in the future.

The next few reasons relate directly to Singapore's strengths. Firstly, Singapore's strengths in R&D. The government has actively brought in foreign food companies to set up R&D facilities here, while also encouraging R&D locally. The rapidly growing biotech sector also provides research that can probably be commercialised in the food sector; organic food products are a result of biotechnology. The food industry can be a high-margin business; probably the food ingredients industry, rather than the food manufacturing industry, would benefit most from such R&D. Secondly, Singapore has a strong national brand for quality control and integrity, a quality nowhere more important than in food products. That would mean consumers are ready to pay a premium for food products originating in Singapore, or even those made by Singapore-based companies. Thirdly, Singapore has long been a logistics and distribution base for Southeast Asia, with many products entering Singapore to be re-exported. It is a base for many global trading houses.

Hence, although the local population could never provide the critical mass for a domestic consumption market supporting the growth of the food processing/manufacturing sector, the "hinterland" of Southeast Asia, or even Asia, surely can. Add to that the availability and growth of key supporting services (R&D, quality control, logistics, distribution, trading operations) throughout the supply chain and one has to be optimistic about this industry.

References:
(1) USDA Report: Singapore's Food Manufacturing Industry 1998