Singapore's F&B industry dives deep into value creation

Lee's presentation shared industry forecasts on the Asian food industry opportunity.

Singapore’s food and beverage (F&B) industry is shifting its focus away from productivity and onto value creation. Spearheaded by the Singapore Manufacturing Federation (SMF) and International Enterprise Singapore (IE Singapore), the industry is transforming as manufacturers look towards innovation, growth, and internationalisation.

Lee says Singapore F&B manufacturers have much to offer
the world.

From April 12 to 15, FoodAsia2016 will showcase a range of home-grown companies with first-of-a-kind creations as part of the Singapore Pavilion led by SMF. FoodAsia, a specialised exhibition dedicated to food and drink, is a part of Food&HotelAsia (FHA), Asia’s premier and most comprehensive biennial trade event for the food and hospitality industry. A total of 114 companies will be at the 1,857 sq m Singapore Pavilion, reflecting a 50% expansion compared to the previous event, with 24 others exhibiting in other events at FHA.

Asian F&B industry tipped for robust growth

The F&B industry is thriving in the Asia Pacific region as the world economy shifts from the West to the East. According to Euromonitor International, the region’s F&B ingredients industry is expected to have a CAGR of 4% over 2012 to 2017, accounting for 38% of global use of value-added food and drink ingredients by 2017. This prospect has attracted many foreign investors to expand into Asia, resulting in stiffer competition among local and regional F&B players. To compete, the Singapore F&B industry is looking toward creating long-term value and developing strategies that will set it apart.

“Despite a fall in global trade in 2015, Asia’s total trade with the rest of the world in packaged foods attained third spot in 2015, behind Europe and the Americas¹. Asia Pacific is also projected to have the second-highest growth rate for packaged foods in the next five years². So even with a modest economic outlook for 2016, there are pockets of opportunities in the region. It is thus imperative for Singapore companies to look beyond our market, innovate and transform their business models, in order to sustain future growth. With a strong ecosystem of food companies in place, the Singapore food and beverage industry is at a prime spot to ride this growth trajectory,” says Lee Yee Fung, Group Director for Lifestyle Business at International Enterprise (IE) Singapore.

Prima is introducing wholegrain LaMian (noodles) in
laksa and curry flavours. One pack will fulfil an adult's 
minimum recommended daily intake for whole grains. The 
steamed noodles are made with 51% Superfine Wholegrain 
flour, and come with Prima Taste paste. The halal-certified packs 
do not contain added MSG or preservatives, and have no 
artificial colouring or flavouring. Typical instant noodle packs 
offer fried noodles and powder-based seasoning.

Lee shared Euromonitor figures on the packaged foods opportunity, nothing that the Asia Pacific CAGR is 4.8% from 2015 to 2020, second only to the Middle East and Africa at 4.9% for the same period. Australasia comes in fourth with a 1.9% CAGR. Lee also pointed out that Asians have become more sophisticated consumers, with Asia projected to make up 66% of the global middle class population by the year 2030, according to Kharas and Gertz.

Instead of going for the cheapest product, Asian consumers are demanding quality, convenience and safety in their food. "These are opportunities going forward and as food manufacturers we should think about how to capture those opportunities," he said, pointing to Singapore's advantages of infrastructure and a tradition in food safety as plusses. Inherent strengths, Lee said, include free trade agreements, an emphasis on food safety, and excellent business infrastructure, including global connectivity and Singapore's leading position as a financial hub.

Value creation and internationalisation 

New products and solutions that will be showcased by Singapore food manufacturers at FoodAsia2016 range from ready-to-cook meals, premium chocolates, and canned fish otah.

One example of innovation is frozen "Hargow Crystal Skin” in a retail pack, which is the first of its kind globally. Developed by Tee Yih Jia Food Manufacturing, the pastry to make hargow (Chinese shrimp dumplings), is traditionally handmade. Quality can be inconsistent, and it has to be made fresh each time to remain pliable. This product can be thawed as required, and offers a consistent, tender yet chewy skin after steaming. Tee Yih Jia anticipates that it will reduce food preparation times significantly and will benefit home cooks, restaurant owners, dimsum manufacturers.

Tee Yih Jia is introducing frozen hargow skins for more consistent hargow, every time. These are the first frozen hargow crystal skins in the world.

Source: Tan Seng Kee Foods (TSK). TSK is known for its Kang Kang (康康) fresh, preservative-free shelf-stable noodle range. The company is launching Express Meal Kits, which incorporate its noodles together with sauces for laksa, curry mee and the non-spicy prawn mee. All products are halal and have a shelf life of a month. 

Tan Seng Kee Foods (TSK), already well known for Kang Kang (康康) noodles, will be introducing Express Meal Kits based on the fresh, preservative-free noodles. These all-natural and preservative-free pasteurised fresh noodles have a shelf life of three to four weeks without refrigeration, six months in chilled conditions and 12 months if frozen. The company is launching Express Meal Kits, which incorporate its noodles together with sauces for laksa, curry mee and prawn mee. All three flavours were chosen for their popularity, with the prawn mee offering a non-spicy alternative for those who prefer it.

The Factory Chocolat is offering matcha flavoured luxury chocolate-covered fruit. The freeze-drying process preserves the antioxidant and vitamin content of the fruit.

The Factory Chocolat, manufacturer of a range of freeze-dried fruit chocolates, will be unveiling its Gourmet range at FoodAsia2016. It is one of the local companies that have successfully expanded and exported its products overseas, to Mainland China, Hong Kong, Indonesia, Taiwan, Thailand, and Vietnam. The company will introduce matcha (green tea) flavoured fruit chocolates, presented in premium packaging. Each fruit is carefully coated in a thin layer of dark chocolate and then white chocolate, and finally rolled in matcha powder from Japan that has been specially chosen to complement the chocolate and the freeze-dried fruit.

“FoodAsia2016 is a good platform for us to introduce our new product as it presents a catchment with so many visitors coming from different parts of the world. It creates export potential for our product,” says Ronald Ng, General Manager of The Factory Chocolat.

SMF has in place several initiatives that aim to help local F&B manufacturers create value and internationalise, including the Working-in-Partnership (WIP) Programme. WIP allows local food exporters to consolidate their efforts and ship their products directly to overseas supermarkets. This does away with middlemen, helping food companies reduce operational costs, while leveraging on the strength of collective branding.

“Innovative practices and technology as well as strategic alliances are important pillars for the Singapore F&B industry to create value, stay competitive in the global and local market, and contribute towards a diverse global food industry. The Singapore Pavilion at FoodAsia2016 allows exhibitors to build networks and distribution channels. SMF helps to make the internationalisation process easier for our exhibitors through the Hosted Buyers Programme, whereby buyers from all parts of the world are brought to meet the exhibitors directly. We are seeing some positive results of food companies’ efforts to expand overseas, especially as the Made in Singapore brand becomes increasingly recognised for food safety and high quality, ” says Sunny Koh, SMF Deputy President and Chairman of SMF Food & Beverages Industry Group.

Koh speaks at a media preview of Food&HotelAsia.

Koh emphasised that both retailers and manufacturers have to transform, and the value chain trimmed. "Retailers facing challenge of operational costs, low margins and strong competition from e-commerce channels," said Koh. "For exporters, gone are the days where you sit in the office waiting for orders to come."

Internationalisation is the answer, Koh said, noting that food manufacturers can get help from fellow SMEs; government support; as well as from trade associations and chambers.

He shared that the Working-in-Partnership (WIP) Programme allows manufacturers to share the costs of shipping their food products in the same container, which is then sent to the port closest to the customer. The initiative helps SMEs to achieve internationalisation faster and more easily, he noted, and does away with logistics middlemen to narrow the price between e-shop and physical shop.

"Singapore products in China are selling at two to three times the Singapore retail price. WIP consolidation can cut retail prices down," he said. Soy sauce, for instance, may cost S$5.30 a bottle locally, but RMB78 (S$16.28) in China. "With WIP we can cut it down to RMB32.15 (S$6.71), and penetrate the market better, in a more efficient way," he said.

Koh added that the WIP programme, already working with companies in Thailand and Myanmar, is set to expand. "By going direct some of the Singapore products in Thailand can retail at almost same price as (those from) local manufacturers," he said.

This year, FHA expects to attract more than 65,000 trade attendees from more than 90 countries and regions. In collaboration with IE Singapore, SMF will be inviting more than 130 buyers from over 60 companies across 18 countries and regions to meet Singapore exhibitors through scheduled business matching sessions.

“We are pleased that more local exhibitors are taking up booth space this year. It is a testament to their confidence that the convergence of buyers and exhibitors from across the globe at FoodAsia forms a budding marketplace for the Singapore food sector to develop partnerships and broaden their network with the relevant buyers,” said Ting Siew Mui, Project Director of Lifestyle Events at Singapore Exhibition Services, organiser of FHA.

FHA will see many firsts in 2016, including a significant number of new exhibitors from Singapore, such as Boon Tong Kee, Fraser & Neave, Lam Soon, Owl International, Super Group and Yeo Hiap Seng. There are exhibitors from Singapore both at the Singapore pavilion and outside it. Individual exhibitors include Aalst Chocolate, Cocoaorient, Delifrance Singapore, Euraco Finefood and Foodxervices.

Interested?

FHA2016 will run from 12 to 15 April 2016 at Singapore Expo (Halls 1 to 9 Annex) from
10am – 6pm (12 – 14 April 2016) and 10am – 4pm (15 April 2016)
The event is open to business and trade professionals only

Read the WorkSmart Asia blog post on what's new at FHA

1 According to International Trade Centre, total trade of packaged foods between each region and the rest of the world are as follows: Europe (US$416 billion), Americas (US$295 billion), Asia (US$197 billion), Middle East and Africa (US$88 billion), and Oceania (US$40 billion).
2 According to Euromonitor, Asia Pacific’s market size for packaged food is expected to grow at a 4.8% five-year CAGR till 2020. This is the highest growth rate projected after the combined Middle East and Africa region.

Singapore's Budget 2015 supports businesses

Source: Ministry of Finance, Singapore. Infrastructure investments were also announced as part of Budget 2015.

The measures announced in yesterday's Singapore Budget 2015 by Deputy Prime Minister and Minister for Finance, Tharman Shanmugaratnam for businesses included more training help, tapering off aid for business restructuring, freezing of foreign worker levies other than for manufacturing and construction, as well as boosting innovation and expansion.

Training and development 

"We will invest continually in Singaporeans, throughout their careers," said Shanmugaratnam. With SkillsFuture, the government will help Singaporeans learn at every age and develop mastery and flair in every field. The SkillsFuture measures specific to businesses are:

· SkillsFuture Earn and Learn Programme. Fresh polytechnic and ITE graduates will be placed in jobs and receive a salary while undergoing institution-based and structured on-the-job training that leads to an industry-recognised qualification. Both trainees and employers will receive substantial support from the government.

· Targeted support for career progression. According to Shanmugaratnam, these will support individuals who wish to develop the specialist skills required for future growth clusters. 
"For example, they may include software developers, satellite engineers or master craftsmen. The awards can also support those who already have deep specialist skills and wish to develop other competencies such as business and cross-cultural  skills," he said. 

According to the Minister, the growth clusters Singapore will focus on are:

• Advanced manufacturing, including advanced robotics and additive manufacturing (3D printing); 
• Applied health sciences, such as developing new medical devices and better nutrition, and transforming healthcare delivery; Smart, sustainable urban solutions, from water and waste management to transport and urban planning; 
• Logistics and aerospace, capitalising on air and seaport infrastructure and investing in new technological platforms; and 
• Asian and global financial services. 

SkillsFuture Study Awards will be introduced in phases, starting this year, and will be awarded to about 2,000 recipients per year eventually. SkillsFuture Fellowships will also be introduced from 2016, to develop Singaporeans to achieve mastery in their respective fields. About 100 fellowships will be awarded each year.

· Under the SkillsFuture Leadership Development Initiative, collaborations with strategic companies will be stepped up, to develop a pipeline of Singaporeans to take on corporate leadership roles and responsibilities.

· Industry collaboration. To uplift the broad base of companies, and to help Singaporeans develop their careers, the government will work with employers, unions, and education and training providers to develop and implement Sectoral Manpower Plans (SMPs) in all key sectors by 2020.

To help SMEs overcome the constraints they face in developing capabilities and capacity, the government will also work with industry partners to develop a shared pool of SkillsFuture Mentors with specialised, industry-relevant skills which SMEs can tap on.

More details on these initiatives will be provided subsequently.

Restructuring support

Shanmugaratnam noted that Singapore's productivity level is 13% higher today than the start of the national restructuring journey in 2010. "This is an average growth rate of 2.5% per year. All of this gain was achieved in 2010 (11.6%) and 2011 (2.3%) as we recovered from the recession, and growth has been negligible in the three years since then," he said.

More productivity is possible, especially when globalising companies are compared against those firms which only compete locally, he added. "There is a stark difference between productivity growth in industries where our businesses compete internationally, and in those where businesses compete mainly in the domestic market, such as construction, retail and F&B. 

"Over the past five years, our outward-oriented sectors saw productivity growth of over 5% per year on average, compared to less than 1% for our domestic-oriented sectors. Further, employment growth has been mainly in the domestic-oriented sectors. This is essentially why our overall productivity growth has lagged," he said.

"Every sector can achieve a lift in productivity, but it is especially important for our domestic sectors. It will only happen as firms rethink business strategies, seek to break the mould by finding new ways of growing their revenues, and take full advantage of government incentives for upgrading. Our tight labour market itself will motivate businesses to do so. We know that this major upgrading is possible in our domestic industries where productivity has lagged, because there are leaders internationally who have done it."

As businesses may need more time to adjust to rising costs as they restructure, the Transition Support Package will be extended by two years but provided at reduced support levels.

· The Wage Credit Scheme will be extended to 2017, to give employers more time to adjust to the tight labour market. Gross monthly wage increases of at least S$50 in the qualifying year (2016 to 2017), up to a gross monthly wage level of $4,000, will qualify for 20% co-funding.

In addition, gross monthly wage increases of at least S$50 given in 2015 and sustained in 2016/2017, and wage increases given in 2016 and sustained in 2017, will continue to be co-funded at 20%.

· The 30% Corporate Income Tax (CIT) Rebate will be extended for Year of Assessment (YA) 2016 and YA2017, with a reduced cap of S$20,000 per company per YA. The reduced cap will ensure that more support is focused on SMEs.

· The Productivity and Innovation Credit (PIC) Bonus will be phased out after YA2015 as it was intended as a transitional measure and has been successful in spreading the culture of productivity amongst SMEs. Businesses will continue to benefit from the PIC scheme which has been extended till YA2018, and the PIC+ scheme introduced in Budget 2014.

Foreign worker levies 

As the net inflow of foreign workers (excluding construction) has slowed significantly, the Government will defer this year’s round of announced levy increases for S Pass and Work Permit Holders, with the exception of Work Permit Holder levies in the Manufacturing and Construction sectors. 

Shanmugaratnam stressed that the government is not changing its stance on reliance on foreign talent. "..to avoid any misunderstanding, let me affirm unequivocally that while we are adjusting the pace of our foreign worker measures, we are not changing direction. It remains crucial for Singapore that we restructure towards reducing our reliance on manpower, and find new and more innovative ways to do business," he said.

"Our basic approach remains unchanged. We have to stay the course in reducing reliance on labour and especially unskilled foreign workers. However, we will continue to calibrate our foreign worker policies as informed by evidence on the pace of inflows, the quality of workers being employed, and the progress being made in raising productivity, sector by sector."

Strengthening support for innovation

Shanmugaratnam noted that Singapore's public investments have catalysed S$8.6 billion of industry R&D since 2011. He lauded local electronics manufacturer Dou Yee International as an innovation success story. "From a small trading business, it has transformed itself into a dominant player in the electrostatic materials industry with an annual turnover of S$300 million. It did this through R&D and a longstanding partnership with A*STAR. Most recently, Dou Yee has worked with A*STAR to develop smart plastic packaging that extends the freshness and shelf-life of food," he said.

"In our next Research, Innovation and Enterprise five-year plan, we will step up efforts to help companies develop, test and commercialise new products and solutions. More details will be provided later in the year."

· To support SME innovation, the Capability Development Grant (CDG) will be made more accessible to companies via a simplified application process for projects below S$30,000. The CDG’s enhanced funding support level of up to 70% of qualifying costs will also be extended for three more years, to 31 March 2018.

· To promote industry collaborations, SPRING’s Collaborative Industry Projects will be extended to all industry sectors to develop productive and innovative solutions. The Partnerships for Capability Transformation (PACT) scheme will also be enhanced to foster collaboration between large companies and SMEs in their supply chain.

· The National Research Fund will be topped up by S$1 billion this year, with greater efforts to help companies develop and commercialise new products.

· To ensure that promising companies have access to capital that they need to grow, the government will:

• Top up the Business Angel Scheme (BAS) by S$75 million and increase the co-investment cap to S$2 million per company for BAS and SPRING’s Startup Enterprise Development Scheme (SEEDS) to reduce early-stage funding gaps for startups. 
• Pilot a venture debt risk-sharing programme to provide 50% risk-sharing to selected financial institutions for such loans, over an initial period of two years. The aim is to catalyse about 100 venture debt loans, totalling approximately S$500 million. 

Expanding overseas

To support internationalisation, the government will:

· Raise the support level for SMEs for all activities under IE Singapore’s grant schemes from 50% to 70% for three years, to 31 March 2018*.

· Enhance the Double Tax Deduction for Internationalisation scheme to cover qualifying manpower expenses incurred for Singaporeans posted to new overseas entities.

· Introduce a new International Growth Scheme to provide qualifying companies a 10% concessionary tax rate on their incremental income from qualifying internationalisation activities. The scheme will expire on 31 March 2020.

Encouraging mergers & acquisitions

To help companies acquire scale through mergers & acquisitions (M&A), the government will:

· Increase the tax allowance for acquisition costs from the current 5% to 25% of the value of acquisition, with the cap on the allowance remaining at S$5 million per YA. In addition, companies will be able to claim M&A benefits for acquisitions that result in at least 20% shareholding in the target company, down from the current threshold of 50% shareholding. Also, the M&A tax allowance scheme will be extended till 31 March 2020.

· Extend the scope of IE Singapore’s Internationalisation Finance Scheme to cover overseas M&A financing.

More details will be announced at the Ministry of Trade and Industry’s Committee of Supply.

Read more about the Budget for 2015 here.

*These are the Global Company Partnership (GCP), and the Market Readiness Assistance (MRA) grants. The current support level for both these schemes is up to 50%, except for four activities: design, branding, intellectual property, and M&A, which are supported at 70% from 1 Apr 2012 to 31 Mar 2015.