Food For Thought: Keeping Up With China As Its F&B Industry 'Moves On'
China’s food industry is transforming, demanding agility from multinational companies. They will increasingly need to consider how their businesses could contribute to improving China’s food security, food safety, health & nutrition, and sustainability … As well as what innovation they could bring to the Chinese market.
China’s enormous food sector, which accounts for around 10% of the country’s GDP, is going through great structural change. In particular, the sector is being transformed by four mega drivers which we also see playing out in other sectors too - namely biosecurity, sustainability, digitalization and productivity.
If we were to sum up what’s happening I would simply describe China as having ‘moved on’ as its pushes boundaries further. Its markets are evolving rapidly, and this demands flexibility and agility from home-grown players and multinationals alike.
Time For A Strategic Review
Little wonder that right now almost every multinational I meet is conducting some kind of a strategic review of their China business. But as China moves on, have multinationals fully understood exactly what this means for the particular sector they operate in? Have they grasped how these four drivers are really changing their own ecosystems?
In this article we explore the top-level changes being seen in China’s food industry and offer advice for those conducting strategic reviews.
Transformation Of The Pork Sector
A particularly good example of how these four drivers are transforming a specific sector within the food industry is pork which, as you can see from Chart #1, accounts for well over half of Chinese meat consumption (and also half of the world’s pork production).
China strives to be self-sufficient for its most critical protein staple and only imports 5% of pork in areas such as specialty products and for supply chain diversification.
However, it was a very different story only five years ago when China was forced to start importing pork on a large scale when local production was struck by African Swine Fever (ASF). As China lost a lot of its hogs, this created a huge opportunity for international exporters to fill the gap.
Today the crisis has abated, and through a monumental effort, China has managed to return itself to self-reliance.
This, of course, has impacted those pork exporters that rushed to fill the gap, especially those that expected China to take longer to contain ASF. Today, many of them are in the midst of strategic reviews to reflect on this dramatic drop in demand and work out how to respond.
Although there will always be a commodity export opportunity, the reality is that China has rebuilt its own domestic pork supply. Moreover, it is striving to build it back better - centralized and modernized, with some new farms adopting state-of-the-art technology.
Due to the massive scale of China’s pork industry, this will be a long journey and will require significant capital investment.
Beef Sector
If we look at the beef sector, it accounts for a much smaller portion (10%) of China’s meat consumption, albeit still a greater volume than that of some leading beef-producing countries.
Unlike pork, China elects to import most of its premium beef due to the resource intensity of cattle farms. Chart #2 shows how beef imports have grown ten-fold over a decade and look set to reach a record high in 2024. This trajectory is likely to continue for the foreseeable future, bringing potential business opportunities for beef exporters to China either as a B2B bulk supplier or as a B2C brand for fine dining.
Breaking into the local Chinese cuisine market will bring far greater business volumes than remaining in the niche markets of Western-style steakhouses.
China’s Pork Sector - Opportunities
If we return to the four mega drivers we mentioned above, there are specific ways in which China’s pork sector is responding:
? Biosecurity – Producers are making great efforts to reduce animal disease and improve reliability of supply.
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? Sustainability – The industry is making strides in clean energy utilization, environmental conservation for water, air and soil, and is expected to reduce carbon emissions as with other industries.
? Digitalization – Producers are alive to the opportunities around the use of cutting-edge blockchain and AI technologies to improve animal health monitoring, disease detection and product traceability.
? Productivity – Improving breeding and animal husbandry, increasing feed to meat conversion rates, and modernising processing and packaging.
This transformation creates significant opportunities for local and international players along the pork supply chain.
Indeed, if as a Western pork producer you possess cutting-edge technology and know-how, then there are undoubtedly Chinese companies that will value that and will want to work with you so that they can reach the ‘next level’ themselves. Your specialism could be, for instance, breeding and husbandry know-how, animal health and disease control, or efficient processing equipment and technology.
These mega drivers cut across many other sectors significant to China’s food security, including aqua, poultry and dairy among others. The pork sector could be a good leading indicator for the future direction that these other food sectors are heading.
Indeed, from my personal experience on the ground in China, I am already seeing examples of international companies working in partnership with Chinese counterparts across a range of sectors, whether that be in breeding, farming, or processing equipment.
Advice For A Strategic Review
Against this backdrop, for international food companies either starting out or in the midst of strategic reviews, I would offer the following advice:
Know Thy Self: While the size of the Chinese market sometimes whets an appetite to take up everything, it’s also the most competitive. Thus, it’s important to determine whether you are positioned as an upstream commodity exporter TO China, or whether you are a downstream consumer brand IN China. Knowing the ‘to be or not to be’ question will help you focus on your most competitive strengths, and offer a higher chance for success.
Know Your ‘Client’ – The China Market: Double check that your value proposition is relevant to the scale of the China market and its speed of change, and be prepared to adjust accordingly. What worked elsewhere and yesteryear won’t guarantee your slice of the pie in the China market in the future.
Corporate Social Responsibility (CSR+): How can your business contribute to improving China’s food security, food safety, health & nutrition, and sustainability? Are you working with trade associations and industry alliances to advance these causes? What is your company’s expertise? These non-commercial elements may well be the secret sauce that sets you apart from the rest.
Innovation: What innovation can you bring to the China market? What can you learn from the local market that can be adapted to strengthen your China game, and ultimately improve your competitiveness in the global market?
Solo Act Or Partnership? Should you be doing this alone, or with a local partner? This deserves serious soul searching, especially if your branded products need local channels to reach a vast consumer base, or if you are offering a systems solution that requires equipment customization and process integration.
Walk The Walk: Finally, I encourage HQ executives to visit the Chinese market and walk a trade show. It’s important to hear directly from customers and feel the vibes of the market that virtual meetings cannot convey. The in-person experience should give you a better flavour of the local market and help you make more balanced decisions.
Author
Li Xin (Senior Advisor, Shanghai)
Li Xin is a Senior Advisor at InterChina and Chair of the Food, Agriculture & Beverage Committee at the American Chamber of Commerce in Shanghai. He has had ~30 years of experience in food and industrial packaging operations, and advisory in the manufacturing and food & beverage industries.
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