Global agricultural production will grow more slowly in the coming decade compared with the past 10 years, according to the Organisation for Economic Co-operation and Development (OECD)-Food and Agricultural Organisation of the UN (FAO) Agricultural Outlook (2010 to 2019) report.

The publication forecasts that growth in big developing countries will become more sustainable and non-inflationary, while OECD countries will experience weak growth in the medium term. Global sectoral growth will be led by Latin America (the fastest growing) and eastern Europe (the fastest growing in per capita terms) and, to a lesser extent, by certain countries in Asia.

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In Asian agri markets and trade development, countries with a well-established presence on international markets, such as China, will be looking to diversify their sources of supply, which could be good news for new ventures. And with Asia expected to be riding on the global economic recovery during the next decade, it is expected to be a good time for agricultural producer-investors to enter new Asian markets. Investors would do well to re-assess investment opportunities in farming, milling, processing and other agri activities for domestic and re-export sales.

Livestock is expected to be one of the fastest growing sub-sectors in agriculture, with more than 80% of the projected growth in the next decade taking place in developing countries, particularly in Asia and the Pacific rim countries (especially China). Prospects for biofuels are uncertain because of unpredictable factors, such as the future trend in crude oil prices, changes in policies and regulations, and developments in new generation technologies.

Agri products that are expected to show rapid growth in Asia include: rice (89%), oilseeds (57%), protein meals (81%), vegetable oils (92%), sugar (89%), beef and veal (56%) and poultry (66%). These projections suggest that overseas investors in Cambodia, Vietnam, Indonesia and Thailand should expand their activities in rice, palm oil, jatropha, sugar cane and biodiesel production.

Many Asian mills currently have outdated technology with no sorting, drying or grading machines. This results in poorly harvested crops that risk not meeting international certification standards. To increase the likelihood of success, the report suggests investors should opt for bigger projects (no less than $10m per project) that use modern technology with adequate irrigation systems to increase annual crop yields and double-cropping.

In terms of local Asian partner search and evaluation, investors should study the viability of engaging in and holding minority shares in joint ventures. In some regions, local partners, such as established landlords and farmers, are screened and qualified, but they may also be required by law to hold a majority 51% equity stake in any joint venture.

Another issue is contract farming, and getting the scale of your operations right. The more contract farmers you have in your portfolio, the harder it becomes to enforce contract compliance. Even written agreements with local leaders will not guarantee compliance in some parts of Asia. It is tough getting 30,000 contract farmers to meet the contracted quality and quantity of crops within the stipulated harvest time, and equally challenging ensuring that they do not sell to the highest bidders.

Meanwhile, an operation comprising small units often results in less favourable economies of scale. Most small Asian farmers own land parcels between 0.5 hectares to 1 hectare, but having farms that are at least 500 hectares would enable these countries to emerge as important players in the export market. However, it is an ongoing challenge convincing small-scale local farmers to sell their land to a single owner.

Investors should also provide contingencies for adverse weather, such as floods, typhoons, droughts and pests. Rivers that span multiple countries, for example the Mekong River, can cause flash floods one year and drought the next.

For re-export implementation, locating agri farms and mills near a major port will minimise local transport costs, which can be high due to poor infrastructure.

The Asian agri business is always there to make money for investors. It is a matter of doing your research, knowing and managing the risks, and building strong relationships with the locals, be they officials, landlords, farmers, suppliers or employees. Bearing these factors in mind could make the difference between success and failure.

Lawrence Yeo is CEO and principal consultant of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asia market research and investment/trade promotion services. E-mail: lawrence@asiabizstrategy.com