In its report, ‘Australia and New Zealand beef up their presence in China’, agricultural banking specialist Rabobank says Chinese beef consumption is expected to continue growing at a faster pace than domestic production, increasing the reliance on imports to satisfy demand.
Report co-author, Rabobank animal proteins analyst Matt Costello, warns however that while the New Zealand beef industry sees long-term growth and potential within the Chinese market, so too do competitors from around the world.
“Currently both New Zealand and Australia have a significant head start due to direct trade and market access which gives them the opportunity to establish and cement long-term strategic partnerships along the supply chain,” he says.
However, he says, it is vital New Zealand beef producers promote their exports as a safe and trustworthy product, which the Chinese consumer recognises, values and demands.
Beef feast in the East
Chinese beef consumption has grown at a steady pace, and although it remains low in comparison to pork and poultry consumption, it has begun to outpace local production, setting the stage for an increase in beef imports.
Costello says beef exporters across the globe are now looking to China in an attempt to understand whether this demand surge will plateau or if the need for beef imports will continue to grow.
“Chinese producers and processors are also aware of the looming structural deficit in the beef sector and are adopting different strategies to secure supply amid an environment of flattening global production,” he says.
“The rapid growth of the quick service restaurant (QSR) sector in China is providing an efficient channel for increasing beef consumption among the young and wealthy.”
More than 60 per cent of beef consumption in China occurs outside the home – a stark contrast to the consumption channels of both pork and poultry.
“Beef is not a staple meat in China and is considered a special item – this cultural mentality has resulted in beef being a niche product, making up eight per cent of per capita meat consumption, compared to 22 per cent for poultry and 65 per cent for pork,” says Costello.
“Even though beef represents a small percentage of meat consumption, the growth in absolute volume is expected to increase by 25 per cent in the next 10 years, sparked by the introduction of Western-style food and QSRs such as McDonalds.”
Chinese middle class exceeds entire US population
The rise in Chinese disposable income is also increasing and consumers are beginning to diversify their meat-purchasing habits – another driver of optimism for beef producers and exporters in New Zealand.
In China, Costello comments, beef is perceived as a premium and more nutritious meat compared to pork, therefore as consumer incomes rise, beef is becoming a more popular choice.
The Chinese middle class continues to grow at the staggering pace of 27 million people per year and is currently sitting a 300 million.
“Encouragingly, this income group had the second highest rate of growth for beef purchases at 26 per cent between 1998 to 2011, and by 2010 they will represent 48 per cent of China’s population,” Costello says.
“Rapid urbanisation is also driving demand for beef in China – in 2012, annual average beef consumption for an urban citizen grew to six kilograms, compared to three kilograms for consumers in rural areas.”
However, he notes that even though rural beef consumption is a lot lower than in urban areas, rural consumption has grown 14 per cent from 2000-01 and it is important to recognise that low income households in China have seen the highest rate of growth for beef purchases, overtaking middle income households.
“This is another robust sign that the increase in beef consumption is not just limited to the wealthy.”
Chinese production versus reliance on exports
The Rabobank report says that due to high input costs (labour and feed), challenging herd genetics, reduced government support for beef producers and difficult access to rural credit, it is unlikely in the near term that Chinese beef production will rise to meet the growing domestic demand.
China shifted to a net importer of beef in 2010 and imports have continued to rise, tripling in volume from 20,135 tonnes shipped weight (swt) in 2011 to more than 60,000 tonnes swt in 2012, further increasing to 124,000 tonnes swt in the first half of 2013.
Costello notes there has been a significant change in China’s import profile – before 2008, offal made up the largest proportion of imports, however in recent years this has largely been reversed, with frozen and chilled beef making up more than 87 per cent of total imports in 2012.
“This reflects the influence of the fast-expanding Western restaurant chains and the spread of beef used in ethnic Asian cuisines,” he says.
While a limited number of countries including Australia, New Zealand and Uruguay have formal access to China, ‘front door’ trade is not the only way into the market. Official import volumes do not reflect other beef imports making their way into the country via the ‘grey channels’, which consist mostly of uncertain volumes of buffalo exports from India that are imported by Vietnam and Hong Kong, then re-exported into China.
Despite US beef also entering China via grey channels, ongoing trade restrictions limit the competiveness of US exports including the ban of growth promotant – ractopomine – and BSE disease (bovine spongiform encephalopathy or ‘mad cow disease’) history.
“Like the US, beef powerhouse Brazil has also been facing an export ban into China due to BSE issues, however when the Brazilians do regain access to China, New Zealand should expect to face strong competition for lower-value product in the market,” he says.
“Bearing this in mind, New Zealand exporters should be using this current trade advantage to cement their positions at the top end of the market with a targeted campaign that looks to differentiate their product.”
[Rabobank supplied material].