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Malaysia Food and Drink Report Q2 2008
Business Monitor International, April 2008, Pages: 66
The Malaysia Food Drink Report provides independent forecasts and competitive intelligence on Malaysias food and drink industry
Executive Summary
Malaysia’s non self-sufficient food and beverage market - import dependent in spite of its vast agricultural and food processing potential - continues to feel the impact of rising global food prices keenly. Financial results released within the last few months by some of the country’s leading food and beverage producers all share the common theme of rising ingredient, production and distribution costs having a damaging effect on profitability. However, as BMI discusses in its newly published Malaysia Food & Drink Report for Q208, Malaysia is still a strong investment prospect for food and beverage
manufacturers, irrespective of rising prices and inherent consumer price sensitivity.
In February 2008, one of Malaysia’s leading local food and beverage companies, Yeo Hiap Seng, announced very disappointing full-year financial results. Faced with declining revenues - due to lower volume sales, disappointing product launches and intense competition - the company posted an operating loss of US$7.2mn; a loss exacerbated by rising operating costs. Also in February, leading brewer Carlsberg Malaysia confirmed that it continued to struggle with its usual battles with black market sales and rising excise duties, made worse by its on-going struggles with rising production prices. Prior to this, in November 2007, dairy specialist Dutch Lady Milk revealed that its net profit had fallen by 15.6% in Q307. The reason? Spiralling agricultural commodity costs.
Other key events from the quarter further illustrate this price pressure trend. In January the government was forced to introduce supposedly short-term rations on cooking oil purchases at the retail level. The rations were an effort to preserve supplies and thus prevent dramatic price hikes and yet critical consumers deemed them a failure of the government to guarantee its people affordable basic food supplies; after all Malaysia is the world’s largest producer and exporter of palm oil. Shortages of basic commodities pushed inflation up to 2.3% in November 2007, its highest level since February that year and producers in the country started to acknowledge, when outlining strategies for 2008, that this was a problem that was here to stay.
However - while all indicators suggest that spiralling food prices will remain a problem for at least the next few years - Malaysia’s food and beverage markets still have much to offer investors. At a forecast 2.4% in 2008, inflation in Malaysia still stands well below regional levels. Of course, economic growth in the slightly more mature Malaysian market is considerably lower than that of many of its regional peers and this does reduce inflationary pressures. However, sound government fiscal policies and sustained government efforts to boost domestic agricultural output should continue to help protect Malaysia and that should provide some encouragement to those food and beverage producers that are currently battling with weak profitability.
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