Spotlight on China: Opportunities in the East for UK farming exports
CHINA is a country in the midst of radical change.
In the past century, it has transformed from the ashes of an imperial empire to one of the world’s true economic and technological powerhouses, undergoing population growth and political evolution in the process.
The country’s economy has grown at an annual average of almost 9 per cent for the past five years and while still a republic controlled by the Communist Party, growing wealth has allowed China to develop its own middle class.
This new and rapidly expanding demographic is prepared to spend on quality goods and a lifestyle more commonplace in the Western world.
Dr Jieyu Liu is deputy director at the School of Oriental and African Studies’ China Institute, University of London.
She said: “A lot of the Chinese middle class are pushing online shopping and there is a demand for consumption from foreign sources. They are looking for quality. If something is at a premium price, the middle class will go for it.”
High on the list of high-quality goods demanded by this new demographic is food and drink products, following a string of high-profile food scandals which have hit citizens’ confidence in domestic produce.
“There is a lack of trust because of the scandals,” continued Ms Liu. “Although the Chinese have invested in new measures on food security there is always a gap in implementation.”
This was a claim echoed by Clive Black, head of research at stockbrokers Shore Capital.
He said: “One of the big issues has been food adulteration and people have lost their lives because of ineffective supply chains. Western countries are in a reasonable position to service this.”
And countries not only in the West, but across the world, are taking the opportunity and moving quickly to grab a share of this relatively untapped market.
Rob Newbery, former chief dairy adviser at the NFU, discussed UK dairy companies’ attempted moves into the Far East.
“Dairy Crest is investing in getting products into China,” he said. “And Arla is investing in a plant in China.
“We talk about China as a big market but it is also a developing market.”
On the face of it, one worrying statistic for those looking at the longevity of Chinese dominance is the expected decline in its overall population after 2030.
Best estimates currently put the country’s population at 1.385 billion, just less than 20 per cent of the world’s population. After gaining an extra 50 million residents, China is expected to begin a reversal of the growth it has seen for most of the past century.
But another change is affecting the country in ways which continue to make it attractive to exporters.
Between 1991 and 2013, China doubled the number of urban residents to 53 per cent of its citizens.
Urbanisation has become so rapid, reports claim cities including Chongqing, Shiyan, Yichang and Lanzhou have had further development land created through ‘mountain moving’.
This is the process of removing the tops from mountains and filling in valleys to create flat areas to build on.
Ms Liu said: “Chinese policy makers have the objective of urbanising China. I am not sure who is going to provide food within the country. Younger generations do not have the skill set to do agricultural work.
“This problem will be very acute in the next 10-20 years and I am not sure it is sustainable.”
Peter Hardwick, head of trade development at AHDB/Eblex, highlighted the opportunities for the rest of the world as a result of this rapid lifestyle change.
He said: “A lot of sustenance farmers have stopped farming and gone to the cities. Not only do these people cease to be producers, they also become consumers – it is a double whammy.”
While there are questions about how sustainable it is for the country to have its self-sufficiency declining so rapidly, the effects of these changes are manifesting themselves on a world stage.
During the first six months of last year, China increased imports of skimmed milk powder (SMP) from the EU by 79 per cent, making it last year’s second largest non-EU destination for European SMP, behind North Africa.
The country accounts for more than 60 per cent of world soybean trade and it has become a major consumer of red meat within just the last few years.
This ‘magnet’ effect, and the capacity of the Chinese market to import large quantities of a vast array of commodities, could also hike food prices, experts have claimed.
Mr Black said: “I do not see anything in terms of an overnight sensation which will make the UK market concerned about food security. But food is going to become a precious resource.
“There is no doubt for many years there have been concerns over the balance of the UK industry. There is definite untapped potential to become more self-sufficient.”
This is already evident in the sheepmeat sector, where New Zealand’s choice to look more heavily at exporting to China has increased demand for lamb at home, aiding prices.
But to fully take advantage of China, UK exporters need greater help, experts have warned.
“The UK lags behind in help for exporting,” Mr Black said. “We have one of the most advanced agricultural sectors and there is considerable scope for options outside Europe.”
Grain and oilseeds
THE UK exports little to China, but the country’s presence, particularly in the oilseed market, give it a strong influence over world supply and demand patterns.
Jack Watts, senior analyst for grain and oilseed at AHDB/HGCA, said: “From a UK perspective, we ship very little grain or oilseed to China. To find any serious tonnage we have to go back to 2008/2009 when 51,000 tonnes of wheat was exported.”
But Mr Watts said the UK did not have to export to China for its ‘emerging demand’ to influence the domestic market.
“The oilseed market is a classic example of this,” he said.
Mr Watts said China’s appetite for soy imports was likely to have added support to the UK oilseed rape price earlier this year as it helped ‘tighten the global oilseed supply and demand balance’.
And as well as importing most of the world’s soybean, China is making moves on the front foot in world grain markets.
In 2012, a state-owned Chinese company bought a majority share in British-owned Weetabix.
Guy Gagen, chief arable adviser at the NFU, said: “It is a strategically important business. They export to 68 countries so it is a massive opportunity for British wheat to go abroad.”
What does it mean for producers?
- China’s continued economic growth means it will continue to import soybeans, making it highly influential in the oilseeds market. “China has a developing economy and its demand will grow,” said Mr Gagen.
THE growth of China, and its demand for primarily powdered milk, has seen it climb to become the world’s top dairy importer, accounting for about 16 per cent of global trade.
While this means there are growing opportunities for UK exporters, the scale of the country’s dairy deficit means it holds a special significance in global milk markets.
Mr Newbery said: “It is such a huge market it shifts the world price.
“China is having a major impact on the value of dairy commodities globally and something which is clear is the EU market is converged with global markets.”
UK processors have realised this and are toying with ways to manage the volatility Chinese buying is bringing to the trade.
Mr Newbery said: “Processors are building supply chains to protect them from volatility, such as the Dairy Crest and Fonterra deal [for whey powder].”
What does it mean for producers?
- The global nature of milk markets means Chinese demand can dictate UK farmgate prices. In April, Rabobank predicted a decline in dairy prices on the back of weakening Chinese demand and this has become a reality. “While there is not a huge amount of milk going into China from the UK, Chinese buyers are influencing British farmers,” Mr Newbery said.
THE ‘big prize’ finally became a reality for UK beef and lamb exporters in June, when former Defra Secretary Owen Paterson announced a memorandum of understanding, effectively ending a red meat export ban to China dating back to the BSE crisis.
Peter Hardwick, AHDB/Eblex head of trade development, said it was a big step and a subsequent trade visit to the country by Eblex, NFU and the National Sheep Association led many to believe export barriers could be down by 2016.
“There is no specific timeframe but it is a number of years rather than a number of months. I would suggest no less than two years,” said Mr Hardwick.
Stages in opening up the Chinese market for red meat:
- Risk assessment – A questionnaire is sent to the UK which tells Chinese authorities how food controls protect animal health.
- Protocol – China recommends measures put in place are sufficient to guarantee safety.
- Plant-by-plant access – Chinese authorities visit plants.
- Health certificate.
- Exports start.
Pork, which is already being exported to China, has been branded a ‘success story’ by Mr Hardwick.
China is currently the biggest non-EU market for pork and combined with Hong Kong, imported 22,162 tonnes from the UK from the start of this year to August, an increase of about 13 per cent on the same period in 2013.
What does it mean for producers?
- The Chinese consume parts of the carcase not usually eaten in the UK. This means processors can increase returns and cut waste, which can theoretically boost farmgate returns. Stephen Rossides, director at the British Meat Processors Association, said UK processors could sell cuts which would be worth little value on the home market. Mr Hardwick added: “A market such as this gives more options to producers and processors in the UK. This is a very important part of dealing with volatility.
- But Chinese consumers are also turning to higher value cuts, which could mean competition with domestic consumers. Mr Hardwick said: “The Chinese are not only demanding fifth quarter. There are added value higher cuts being exported
- from Australia and New Zealand.”
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