Serious growth in China

China is currently the fastest-growing market in the world for both beef and dairy protein. This reflects the growing wealth of the population that is now 60% urbanised with a move away from a rice-based diet to an increasingly westernised one. While a major food producer in its own right, it leaves us constrained by the fact that it has less than 10% of the world’s arable land and 7% of its freshwater, yet has to feed 25% of the global population.

Food purchasing by Chinese consumers is also changing rapidly and urban-based, middle-class consumers demand convenience, innovation and assurance of food safety ahead of price. In UK and EU retail, these qualities are also demanded but, above all, consumers are extremely price sensitive.

China is also at the forefront of online shopping, with one-third of all retail sales made online. It is an area that has further growth potential as demonstrated by a Bord Bia online campaign with Irish food companies, which increased sales three-fold in March.

Pigmeat

In addition to the generic growth in demand for meat imports from China, the market will be further affected by the serious outbreak of African swine fever (ASF) in the third quarter of 2018.

Initially, this left a serious oversupply of pigmeat due to culling of Chinese pigs but now that they have been processed, demand for imports will surge over the coming weeks and is likely to continue for the rest of this year.

Rabobank estimates that the loss of Chinese production could be as high as 30%, which would equate to a 10m tonne deficit in meat supply. Bord Bia’s China office puts the range at a minimum of 5% and as high as 30%, pointing out that even a 5% reduction would amount to a deficit of 3m tonnes of pigmeat that would have to be imported, and the general view reported by Bord Bia is that the deficit of supply will be greater than what is available to be traded from the rest of the world.

Prices and import demand

Chinese live pig prices have risen 25% since the end of January, and are now close to €2/kg (CNY 15). Though retail prices are still relatively stable, piglet prices have started to climb, suggesting that the sow herd has been hit hard in recent months.

Domestic and import prices are likely to increase further over the coming months with a demand ranging between 3m tonnes and 10m tonnes.

Given the sudden drop in sow numbers, Chinese production will take time to recover but China has already demonstrated its ability to rapidly scale production after the lows of 2016. The importance of pork to the Chinese cuisine ensures that the government will support this recovery to increase the availability and ensure the affordability of pork.

Though the last few months have led to widespread exits from smaller producers, the producers that remain are increasingly professional and efficient. Investment in cold-chain logistics will accelerate to support more concentrated production.

Dairy

The overall outlook for dairy in China in 2019 is positive. Last year, China imported 2.7m tonnes of dairy products, up nearly 8% on the previous year, while stock levels remained modest at the end of the year.

January 2019 was a record month for both SMP and WMP, two of the largest dairy import items to China. New Zealand is the major supplier of these powders, accounting for over 70% of imports, followed by the EU at 13%.

Milk in UHT format has been one of the fastest-growing import sectors over the last 10 years, recording double-digit growth levels annually. However, in 2018, the growth rate dropped to a modest 1%.

Europe, including Ireland, accounts for over 50% of imported UHT milk. What we are seeing here is a switch in how Chinese people consume their dairy requirement. Consumers are preferring flavoured yoghurt drinks to liquid milk as the dairy carrier.

Premium high-value infant nutrition is a sector that Ireland excels at and a brand produced in Ireland occupies the number one position in market share in China.

Ireland is now ranked as the third-largest supplier to the Chinese market behind the Netherlands and New Zealand, with the list of products supplied from Ireland in Table 1. Cheese consumption in China, however, is still in its infancy at around 0.1kg per capita (compared with 8.6kg in Ireland or 27.2kg in France). Last year, total imports amounted to 108,000t; small in the world trade context, but this is one area to watch. As major branded Chinese companies launch consumer products and fund marketing campaigns, this area is likely to grow similarly to the fast development of yoghurt over the last two years.

Beef

Irish beef exports began in the third quarter of 2018, with 1,400t exported to China by the end of the year. Already in the first two months of 2019, exports have reached 695t and this figure will grow quickly if the further 12 factories that have applied are approved in the near future, joining the seven factories already approved.

China is primarily a market for cuts of beef taken from the forequarter of the carcase. Cuts such as shin/shank, feather blade, navel end brisket, rib fingers, short ribs and chuck make up the bulk of Irish exports and China is currently the best export market for these cuts.

There are restrictions in cattle eligibility for the Chinese market. They cannot come from feedlots and must be kept separately in the chills as well as being under 30 months of age. The beef must all be frozen and, so far, offal isn’t approved.

Demand for beef imports will increase again this year but even more rapidly than expected because of the fallout from the ASF outbreak in the pig heard. It is expected that the deficit in pigmeat availability will create a huge increase in demand for all meat, beef included.

China is taking supplies from Australia and New Zealand that would have previously gone to North America and is also absorbing much of the extra production being exported by Brazil and Argentina.

A country’s overall brand in China has a big impact on the reputation of its products. Chinese consumers are the opposite of many Europeans, including the Irish, in having a preference for imported food produce over domestic production. This is because domestic production hasn’t the same level of trust, due largely to the use of melamine in infant milk formula a decade ago. New Zealand and Australia have a long association with China, both in trading relationships and as top holiday and study destinations for Chinese students. They both have strong country brands for food safety and nature. By default, their products are in high demand, with relatively close geographic location also benefiting them.

Australia

The US was the top beef supplier in the 90s, but Australia’s beef benefited hugely after the US was blocked following BSE—it was the only major supplier left. It is now securely established with a reputation for quality and widespread understanding at trade level of its grading and cuts. It is the benchmark that all others are checked against. It is also boosted by the fact that it has chilled grain-fed Wagyu product at the very high end, which pulls up its overall country image for beef.

New Zealand

Though New Zealand’s export volumes are similar to Australia, its beef is notably less visible at the consumer end of the market. A greater proportion of its beef is from the dairy herd, used more in processing. A notable exception is Silver Fern Farms, which has a strong brand for quality among trade buyers (they supply a lot of Angus).

Where does this leave Ireland?

Ireland is, in general, much less well understood outside of government than New Zealand or Australia, but the European Union is.

With the recognition of the EU among Chinese consumers, it makes sense for Ireland to work under the EU umbrella to grow our own identity as a component part of the EU with a particular ability to produce and export high-quality food.

The success of our dairy industry, particularly infant formula, is a big boost for us and we have an excellent reputation for safety, care for the environment and quality among the growing middle- to high-income consumers in the top-tier cities.

While our beef exports are just starting to China, Ireland is positioned next to Australian grass-fed beef and Silver Fern Farms from New Zealand, which is considered the top end of the market. We are considered above general New Zealand and South American beef.

The market is growing, so this is a good position for Ireland. We don’t need to displace New Zealand or Australia to do well over time.

As Ireland becomes established, our beef will be considered to be among the best, just as our dairy and pigmeat is.