EP83: Food Security and Tariffs in Southeast Asia with Dr Jose Ma. Luis P. Montesclaros
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Welcome to Straight Talk Southeast Asia. This is a podcast that covers current developments in the region, particular countries, domestic politics, as well as regional issues. We look in depth at what is happening, why it might be happening. We speak to analysts, academics from the region, based in the region, and to better understand what's happening and what might be the projections of what's happening ahead. We're now in our second season.

I'm Bridget Welsh. I'm a political analyst and academic who's worked on Southeast Asia for many decades. I was raised here. I'm living here. And very importantly, I care about what's happening in the region. Thanks for joining me. Welcome to Straight Talk Southeast Asia. You're with Bridget Welsh, and this is episode 15 of season three. Thank you so much for joining me and Zach Abouza on this program. And thanks for listening in.

Here in Malaysia, we're mourning the passing of Abdullah Badawi, or Patlah, as he was more affectionately known. He was Malaysia's fifth prime minister from 2003 to 2009. He came into office after Mahathir Mohamad.

Mahathir Mohamad's long tenure as a strongman leader stood in contrast to Abdullah Badawi's more gentlemanly style of politics. While people talked about him as being weak, it was this weakness that allowed Malaysia to become much stronger. We saw during his tenure the empowerment of voices of ordinary people. We saw the expansion of demands for democratic governance.

We saw also the building and strengthening of institutions that had been damaged during Mahathir's first tenure in office, including the strengthening of the judiciary, creating a judicial commission. We also saw expanding of parliament and the parliamentary committees and the building of the bureaucracy. This can go on.

There are controversies during Abdullah Badawi's tenure about the use of religion, the management of ethnic relations. But Qatla was very much someone who embraced and engaged across communities, coming from a very rich, different heritage himself. I think that he was a transformative figure for Malaysia, bridging one particular period to a different time.

Abdullah Badawi received the strongest electoral victory of any UMNO leader, any prime minister in the country, in 2004 election, only to have that evaporate by 2008, where the Barisan Nasional, led by UMNO, which he was the president of that party, he had to face a two-thirds loss. It was the second time in Malaysian history where there was a loss of two-thirds.

And in the previous time of 1969, we saw the use of emergency rule, the denial of election in 2008. In part because of Paila's leadership, we saw a very different result. We saw the acceptance of the results, a stability, a bridge. The defeat was taken with a sense of acceptance and dignity.

While that led to pressure for him to step down, which he did a year later in 2009, it did see a transformation of the country. We're now in a situation of Malaysian politics is much more fragmented. But in allowing the different power centers to emerge, Abdullah Badawi allowed Malaysia to become more resilient and stronger.

While he died quietly, having suffered from dementia for a long time, he is remembered for his laughter, his smile, his transformative legacy that I think will be and deserves to be remembered. Over a week after President Trump's Liberation Day tariff announcement, Southeast Asia continues to experience whiplash.

While the collapse in the stock exchange didn't faze the American president, the sell-off in the bond market clearly rattled him, congressional Republicans, and their Wall Street supporters. Once considered the safest of havens, the large-scale dumping of Treasury bills, in particular by foreign investors, is the clearest sign of fading confidence in U.S. economic leadership.

Following the imposition of the record-setting tariffs on April 2, President Trump stated unequivocally that he would not back down. By April 9, the president had reversed course, stating that countries that had not retaliated would be given 90 days to negotiate with the United States.

Meanwhile, U.S. tariffs on Chinese goods hit 145%, provoking a larger trade war between the two largest economies in the world, with President Trump continuing to hope that the Chinese will blink. So far, they have not. Trump then announced that imports of electronics from China, including semiconductors, smartphones, and computers, would be exempted.

By April 13th, the U.S. Commerce Secretary had announced that the U.S. would reverse course and impose tariffs on electronic goods within a month. All of this uncertainty will certainly impact spending and investment, making a global recession more likely.

While Indonesia, Thailand, and Cambodia have reached out to the Trump administration to negotiate, none have been as proactive as Vietnam, which quickly dispatched the Deputy Prime Minister to Washington. Vietnam has already raised tariffs on Chinese aluminum and steel imports, all too aware that the country has been used for transshipment in the past.

Immediately following the tariffs, Vietnam announced cuts in tariffs on U.S. goods, and Hanoi has moved quickly to address the sustained flatline of imports from the United States as their exports surged. There are expected to be large deals completed soon.

whether it be C-130 military cargo planes or Boeing jets. Hanoi should also be expected to sign some big liquefied natural gas contracts, as that's the single fastest way to increase imports, even if their LNG electric generation capacity lags behind. Malaysia and Singapore have been leading calls for a more regional response.

It is in that context that Chinese President Xi Jinping will travel to Malaysia, Cambodia, and Vietnam this week. His timing is excellent.

The United States' tariff policies are a direct threat to the growth and economic prosperity of the countries of ASEAN. The past week's volatility has clearly damaged America's reputation. And while tariffs are delayed for 90 days, the Trump administration is forcing all the countries in Southeast Asia to come to Washington to make concessions.

China will not be so foolish, presenting itself as the adult in the room committed to regional trade and investment. While America is undermining regional growth, China is trying to present itself as the savior. That said, the region is still under pressure from China's surplus industrial capacity.

While Chinese firms are some of the largest investors in Southeast Asia right now, they do so for different reasons. While some tech firms are chasing profits as Xi Jinping continues to push for state control at the expense of economic growth, other firms are setting the stage to undercut local production. Others are simply evading tariffs and sanctions.

But for now, President Xi is offering the capitals of Southeast Asia the lesser of two evils. And he should be expected to be met in Southeast Asia with great fanfare. This week marks the start of the Songkran and Tingan holidays in Thailand and Myanmar. In Myanmar, the junta continues to block international assistance to the earthquake-stricken territory outside of military control.

The military continues to use its air power to attack opposition forces and civilians under their control. There have been nearly 40 strikes since the earthquake. The military has pledged to support a humanitarian pause in fighting after their forces attacked a Chinese aid convoy. But the diplomatically isolated junta is simply looking to the humanitarian disaster that has left nearly 4,000 people dead as a way to legitimize itself.

Tingin is normally a holiday of water fights, dancing, and overall merriment as people gather with their families and return to their villages. Once again, the people of Myanmar are protesting military rule and their abject incompetence by refusing to celebrate. The only new year that the people of Myanmar want to celebrate is the one that follows the collapse of the military regime.

In Thailand, some 47 people remain behind bars for political crimes, according to the Thai Lawyers for Human Rights. 17 of those have been convicted and sentenced, 30 are detained while on trial or appeals, and sadly, one more has joined those ranks: U.S. academic Paul Chambers, who was arrested on April 8th following a complaint lodged by the Royal Thai Armed Forces.

chambers is the leading academic of the thai military and he is studiously careful of never breaching article one twelve otherwise known as l'essai majest it was his analysis of the annual military reshuffle that ran him afoul of the military leadership

Thai immigration authorities have already stripped his visa, indicating that while the courts may find that the offending statement that was falsely attributed to him in a Singapore webinar may not be sufficient to charge him under Article 12, but that he will likely be removed from the country. It is yet another blight on Thailand's reputation and another assault on free speech and academic freedoms.

I am happy to have Louis, José Luis Montes Claros, the head of the food security section of the non-traditional security issues at RSIS in Singapore. He's written extensively on food security, raising attention in the last few years to the issues associated with what ASEAN can do to change and improve the situation for food security. With the trade wars and the tariffs that are happening, Louis' work becomes even more salient.

Louis, thank you so much for coming on Straight Talk Southeast Asia. Hey, Bridget. It's my honor to be here and to share more about our work on food security. Thank you. You've written a lot on food security, and you talked about the supply chains during COVID and the impact of the Ukrainian war. We're now in a very different situation. We've got an impacting on inputs that go into food, such as fertilizers, feed, pesticides, and things for livestock.

What's the situation with food security in the region? Which of the countries in Southeast Asia have more risk of food security and which less? What are the communities that are most at risk with the shifts that are happening globally on issues of food security?

Thanks for that broad question to start with. Southeast Asia's food insecurity can be measured in three ways. You can think of it as an inverted triangle. The smallest one is undernourishment, where it is at about 8 to 10 percent undernourishment and severe food insecurity. So that's people regularly not having enough food to eat.

After that, we have the prevalence of moderate food insecurity. At this point, the figure becomes larger. It's now 24% regionally. Finally, the biggest is the unaffordability of a healthy diet, which translates to roughly 44% are critics of the region.

In terms of the countries that are affected by these challenges, I won't go too much into undernourishment since Southeast Asia has progressed significantly in addressing food insecurity. The challenge now is this problem of moderate food insecurity. The key countries affected are Cambodia, Laos, Philippines, and Timor-Leste. The prevalence is about 35% in Laos, 50% in Cambodia.

44% in the Philippines, and 53% in Timor-Leste. Although Timor-Leste is not part of ASEAN formally yet, I'm including it in the figures. The poor people or poverty takes up a large share of this. Let's say Laos and Myanmar are one of the poorer countries in Southeast Asia. And if you look at the indicator of the unaffordability of healthy diet in these two countries, it's close to 60%.

Whereas in the case of Indonesia and the Philippines, it's just at less than 50%. The income levels do matter. Poorer households will find it harder to afford food. That's just one of them.

Hope you're enjoying listening to this episode. If you want to find out more about previous episodes, you can reach this on the website, straighttalksouthestasia.com. The link should also be available in the show notes. If you want to contribute to the production costs of the podcast, you can hit the link, buy me a coffee. Every little penny counts. All that money will not go to me, but go to the producers who are helping me to put the show together. Thanks for listening.

These numbers are staggering. They're not small. And this highlights the importance, Louie, of our conversation, how we need to bring attention to the vulnerability and the issues that ordinary people are facing. You've done some work specifically on farmers, and in particular now with the trade wars coming, what are the different challenges that farmers in the region are facing? Because they are the ones that are the lifeblood of providing food for people who are addressing food insecurity.

When you look at farmers, let me start with the longer-term challenge of climate change. Amidst climate change, the productivity of land has been declining in terms of growth rate. We used to grow at about 1.5% productivity growth per year, 1.5 to 2% prior to the 1990s. But in the recent decade, this growth rate has fallen to half.

So the growth rate and the productivity of land or the yields has been declining. The other challenge is that the farmers are aging and dwindling in numbers. This is making it more challenging to provide food at affordable prices.

To give an idea, Southeast Asia as a whole is producing roughly half of what its full potential could have been if farmers had adopted the full scale of the technologies available. The key challenge is, how do we get farmers to adopt these technologies in a way that meets the food security requirements of the region and globally as well?

We have a situation where we have regional trade affecting food security. And I know you've written a recent piece on, in RSIS, on tariffs and how it's going to impact the region. And you noted in that piece that certain items such as soybeans, sorghum, beef, pork, wheat, corn, maize, are all caught up in this U.S.-China trade war, which has been increasing tariffs, but also will have impact on the region by having to have new flows of trade of these goods, which will impact countries' supply chains.

and also potentially rise costs for food in Southeast Asia. Can you discuss what the impact is on Southeast Asia for food security on areas of wheat and corn and soybeans? I noticed you highlighted in your piece on Indonesia. What are the countries in the region you see as the most impacted by what's going on in this trade war and the new food trading patterns that are going to evolve?

Yes, we published this piece last week, and I'm quite excited to share about it. The concept in general is about the collateral effects of the trade war. So here I'm not talking about how the trade war or U.S. tariffs affect the individual ASEAN countries, but instead how they affect China. We have observed China has imposed tit-for-tat increases in tariffs on the U.S.,

As a result of this, the impacts on Southeast Asia are based on where China will turn to meet the gap as it imposes tariffs on the U.S. Thankfully, while many things are still uncertain, the MIT has this Observer for Economic Complexity Tariff Simulator, which is currently available for use.

We leveraged this to see how ASEAN's imports might be impacted by China's own decisions to source beyond the U.S. And we found that the scale is actually quite large. Let me just start with how much trade is diverted away from China.

China is imposing 10% tariffs on soybeans, for instance. This will lead to $1,618 million worth of China's imports from the U.S., which will now be need-sourced from other countries. Where will it get it from? So for soybeans, this amount of $1,618 million translates to 1.13 million cannes.

Most of this will be drawn from Brazil, approximately 80%. The vulnerability of ASEAN countries then is who are importing from Brazil. Here we have Vietnam and Malaysia as the most likely to be impacted because what they import from Brazil is worth 1.16 million tons, which is roughly the same amount that China will need to source. Now, that's not the largest.

If you look at other commodities, let's say wheat. Wheat is used for cup noodles, for bread, for cakes, everywhere. In the case of wheat, China's tariffs will turn away 752,000 tons of exports. We're using the wheat exports of 15% that was announced last month. The results could be much bigger in the coming months.

If we use that previous estimate, we can see that China will likely turn to Canada and Australia. And who among ASEAN countries are sourcing from these? Two other sources. Basically, it's Indonesia. It's the most affected. It imports 2.5 million tons from Canada and 3.4 million tons from Australia. The amount that China will need to source from these countries makes up roughly 13% of Indonesia's imports from these countries.

We can expect that Indonesia's supplies will either be reduced or come at higher prices for both. Beyond Indonesia, the other countries affected are Vietnam, the Philippines, Malaysia, Thailand, and Singapore. Together, they import over 6 million tons from both of these countries. China's additional imports makes up 11% of what these five countries import.

This is really important. What we're seeing here is the demand on certain countries for their food imports is going to increase. So we're going to see a price increase in those four Southeast Asian countries. And Southeast Asian countries have to search harder to maintain their supply chains, also to do it at an affordable level. So inevitably, there will be increases in prices as a result of the U.S.-China trade war.

The impact, however, is how countries in Southeast Asia negotiate that. And also, there will be a bit of a lag effect because as you have written and others, that many of these food contracts are set up in advance. So therefore, there's some time before those relationships can shift. Although it will be interesting to see if China puts pressure on some of these countries like Canada, Australia and Brazil to basically shift their food export patterns more quickly.

What are the things that should be done to ameliorate the shifts? What should Southeast Asian countries be doing to reduce the inflation, potential shortages, and prevent a food crisis? The countries that you've listed there are the heart of Southeast Asia and the Southeast Asian major economies, very large populations. This is a serious thing coming down the road.

Now, the best case scenario to prevent disruption is if you have some resourcing. The ones that China used to import from the U.S., if Southeast Asia could import them instead, that will reduce the uncertainties as far as supply is concerned. But even then, as you shared, this will imply costly renegotiations and the prices from the U.S. will also be much higher.

There is a reason why certain countries are the dominant suppliers, and that boils down to cost. And any deviation from these costs will likely lead to higher costs or lower quality than expected. So what can be done? And what is ASEAN able to do?

Presently, ASEAN's integrated food security strategy developed in 2009 after the previous crisis in 07-08 when grain prices went to double to triple their normal levels. ASEAN strategy has three main components that I think are strategic. Firstly, they are the food security reserves and mostly these involve rice.

Secondly, ASEAN has an integrated food security information system to understand where the challenges are in the supply chains. Although the reporting is done on a monthly basis, so they might need to leverage their informal networks. And thirdly, ASEAN has a mechanism for promoting inter-regional trade, the ATIGA, ASEAN Trade in Goods Agreement.

If you compare the previous crises, 07-08, COVID-19, and then the Ukraine war, I'll start with the trade one. The share of the calories that were affected by the trade bans have reduced. In 07-08, it corresponded to roughly 24%. And this is based on a study by David Laborde and Abdel Mamoun. In the most recent Ukraine war, it fell to about 10%. So this is working.

The challenge is, what are the goods that ASEAN produces which will be strategic amid the trade war? And this is where the inputs come along.

If you look at the import dependence of ASEAN countries on fertilizers, we can see that Vietnam, Indonesia, the Philippines, and Malaysia rely on imports, but less so compared to the other ASEAN countries like Cambodia, Laos, Myanmar, Singapore, Timor-Leste, which are practically 100% import dependent.

Now, some work is happening in the region. For instance, in 2022, Brunei is expanding its fertilizer production capacity. But the problem is, this is a very capitally intensive activity that requires access to scarce resources.

The region will need to organize itself, organize its capital, to see how they can expand its fertilizer production. There is some fertilizer production happening in Vietnam, Indonesia, Philippines, Malaysia, and Thailand. But these are still not enough and may need to be further expanded. Apart from these, touching back on the strategic stockpiles, I feel that these may need to be expanded beyond just rice. We may need to look at other commodities, including fertilizers as well.

The last point is ASEAN will need to have a balance. And this balance is, I take the term from the 1979 ASEAN Food Reserve Board Agreement, where they mentioned this term collective self-reliance. And this collective self-reliance doesn't mean just relying on the region as a whole or the regional mechanisms.

While solidarity is important, it needs to be balanced with subsidiarity. Asking what can each country do best or do better and how can they contribute. So if each country provides more support to its farmers at the national level and ensures its own food security, then the region as a whole will be more robust against future disruptions.

What are the couple things that we should be looking out for ahead? This trade war doesn't seem to be going anywhere soon. In fact, it seems to be escalating. Can there be approach that pushes for areas of food being exemptions in the trade war? Can there be other strategies? What should we be looking out for? Even China has already in the news said that food should be outside of trade war. Food should not be touched. I feel that

This crisis is a very timely wake-up alarm because the food sector has been on the decline. Its share of GDP has been declining because we want to develop our industries. But over time, this leads to a reduction in resources for agriculture. So our current situation now where food supplies are in a precarious situation, they needn't have been there before.

If we had enough expertise, if farmers were trained enough, if we treated food as seriously as we treated other industries. So I think that this crisis can be leveraged for that. But to answer your question on what we should look out for, it's the tit-for-tat responses similar to China's.

What you want to see is where are countries moving as they divert their exports away from China. And we can't rely on annual statistics. We will need to have more regular data gathering on a monthly basis, looking at their trade statistics. So most of the monthly data, there's a paywall to it. Maybe that paywall can be removed. There are institutions that provide this data. And I think that informal dialogue will also be increasingly important.

for understanding what are the challenges faced by the importers of food in respective ASEAN countries. Another one that we have to watch out for is speculation. This speculation is actually what happened in the 07-08 food price crisis. Only India had a shortage then, not Thailand, not Vietnam. But because of the food trade dynamics and the price dynamics,

These two other countries imposed export restrictions beyond tariffs. As a result, the Philippines suddenly had a large order of food because they were expecting food prices to increase. It ordered food or negotiated a contract at double the existing pre-crisis levels. This cycle went on. We want to look out for these large purchases as well as these export restrictions purportedly to meet domestic food security requirements.

These are things to watch out for if we're looking for telltale signs following the 07-08 food price crisis.

This has been José Luis Montes Claros from RSIS Singapore, looking at food security and making a clarion call for greater attention to these issues and greater local food production, as well as access to data and careful monitoring for the well-being of people in Southeast Asia. Luis, thank you so much for being here on Straight Talk Southeast Asia. Thank you, Bridget. It was my pleasure to be here.

Thank you for listening to the episode. Subscribe to the show on your favorite podcast listening app. If you'd like to keep up to date on current Southeast Asian political affairs, just keep following. This is Bridget Welsh, and I look forward to connecting to you in the next episode. Straight Talk Southeast Asia is produced by Norman Chella, a.k.a. Norm, and you can find him at thatsthenorm.com. Thanks so much for listening.