The challenges of Singapore Agrifood industry
Singapore’s food security challenge
Before Singapore became the densely packed city-state it is today, the island was a farmland with over 2,000 farms. This island that used to produce food in abundance and export them regionally, however, reportedly produced only 10% of Singapore’s food needs in 2019, with the rest made up by imports. Against the backdrop of deglobalization, climate change and COVID-19, Singapore’s prevailing dependence on imports for food is increasingly worrying.
In response, the “30 by 30” campaign was born. Spearheaded by the Singapore Food Agency (SFA), the campaign aims to improve Singapore’s food self-sufficiency by three folds before 2030 and transform Singapore into a regional food hub by marrying agriculture and technology. Contrary to traditional notions of agriculture being a land-intensive industry, the budding Agritech industry in Singapore focuses on precision farming, with technology such as urban (vertical) farming, aquaculture, and alternative protein.
Currently in its initial phases, the campaign creates a fertile environment that fosters the growth of start-ups. Funds are allocated for grants and accelerator programmes while infrastructure investments are channeled to develop an innovation park and a designated Agri-food site. While these initiatives are likely to succeed in attracting investors, researchers, and businesses to Singapore to address the food security problem, the Agritech industry still faces a tough environment that can easily negate any current progress. Some challenges the agricultural industry will need to address include a price-sensitive audience and an ill-prepared industry.
In Singapore, a challenge for the Agritech industry is the low profit margin for vegetable. In general, Singapore consumers are highly price sensitive with regards to food, most evident in their hawker food prices. Even though hawker food was recently listed as one of UNESCO’s List of the Intangible Cultural Heritage, they are charged at a low price of around US$4 for a meal. When this price is compared to the median household income, Singapore has the lowest ratio compared to neighbouring countries like Malaysia and Hong Kong. This means even though Singaporeans can afford to pay more for their food, they do not. This is primarily due to the strong bargaining power of consumers, evident in a survey by Singapore’s Ministry of Trade and Industry that finds 54% of hawkers who experienced a hike in cost such as rental prices will not pass-through this cost to consumers but choose to absorb them instead. This is to retain their sales because a 16 per cent increase in hawker food price can lead to a 40-50 per cent drop in sales for hawkers. This price sensitivity is also found among vegetable prices in Singapore, where customers are only willing to pay 2-8 per cent more for better quality vegetables. Characterized by such low willingness to pay, Singapore Agritech firms face a market where they have low price-setting ability and a tight profit margin when catering to the masses.
An alternative avenue to become profitable would be to quantity-compete. Agritech firms have an edge over conventional farming due to their efficiency, which translates to a lower production cost. This means Agritech firms can outproduce the incumbents and cater to a wide audience to make up for the low profit margin. However, it is a herculean task for any Agritech firm. Currently, 90% of Singapore’s food are imported, mainly from regional countries like Malaysia and Indonesia. This means that Agritech firms face competition from the 71 million regional small farms, on top of budding Agritech firms in the region. Thus, for Singapore’s Agritech firms, a clear competitive advantage needs to be established to compliment the technological advantage they already possess. Such competitive advantage could be in the form of an established food supply chain to deliver the produce fresh and at a lower cost or farming expertise to produce uncommon or difficult to grow produces. These helps to enhance their offerings and better compete to cater to a wide appetite, which is critical for their business growth.
To circumvent the limitations, many Agritech firms in Singapore are targeting higher income consumers due to their higher buying power. By marketing these high-value vegetables for its premium quality that is derived from its better taste as well as organic and local status, they become regarded as “atas”- a Singapore colloquial term to describe something as ‘luxurious’, hence able to fetch a higher price. Produce like Bok Choy, a Chinese cabbage that is weather sensitive, can be better cultivated in laboratory condition. When sold at the prevailing market price of $7 to $11 per kilogram, it presents a higher profit margin than the common Beijing Cabbage that are priced less than $2 per kilogram. To target these consumers, Agritech farms also choose to supply boutique marts, thus targeting a niche group in an already small pool of Singapore consumers. This misses the opportunity to reach out and cater to the masses to Agritech produce.
An alternative market for Singapore Agritech firms to target may be the traditional farms in the region. Agritech firms could persuade farmers to adopt their technologies and know-hows to improve their farming efficiency. Traditional farms are not only resource and labour intensive, they also face uncertainty in the form of volatile income as their yield is heavily dependent on weather conditions. Contrasting that, the high efficiency of Agritech, such as vertical farming that uses 95% less water and 99% less land in a climate-controlled environment. This is a marked improvement in efficiency for traditional farms should they invest in the farming equipment and expertise of Agritech firms. However, it is important to note that these farms are small, with limited budget or credit ability for such equipment. Sticking to their farming method is not ideal but it is more viable than investing in such equipment. The issue may also be compounded by unwillingness to invest due to non-financial reasons such as an insistence on traditional farming techniques or a time constraint in such investment.
Therefore, without a clear value proposition and a sizable customer base, it will be challenging to attract and retain capital and talent critical to developing Singapore’s Agritech industry, much less support its pursuit of self-sufficiency and regional hub status.
Ill-prepared and Fragmented Industry
In Singapore, there is limited interest in the agriculture industry, resulting in little research dedicated to agriculture. This is unlike other countries that have set up agricultural universities and colleges that are hubs for farming innovation. A notable and world-leading one being Wageningen University and Research of the Netherlands. It has helped spur the country to become the second largest exporter of produce in the world despite its small land area. This suggests that Singapore has a long way to go in developing its Agritech industry, given its current lack of local expertise and knowledge hubs.
Furthermore, this lack of knowledge and know-how may be a bottleneck for Agritech firms given the high research outlay they would require. A prime example of such is the VertiVegies-SananBio collaboration, between Singapore start-up VertiVegies and Chinese giant Sanan Sino-Sciences Photobiotech. Here, Vertivegies gained not only the financial support, but also the “access to the years of data on growing produce”. However, not many start-ups have such favourable collaboration opportunities and hence face a natural disadvantage starting from ground zero.
Lastly, the agricultural industry is fragmented. Start-ups of varying agricultural practices located along different segments of the food supply chain are emerging while traditional agricultural players in Singapore have been laggards in digital innovation. Such fragmentation presents limited synergy opportunities for Agritech firms to learn, collaborate and grow with other similar firms. It is also a missed opportunity in capitalising on the unique agricultural challenges the tropical region presents to compete with strong competition from China and India’s Agritech firms.
Faced with a small consumer market and limited technical know-hows, Agritech firms in Singapore have an uphill task in defining their competitive edge. Against the backdrop of an estimated 20% annual growth, addressing these industry-related challenges is pertinent for Singapore Agritech firms to get a slice of the potentially USD$90 billion market.