As the Chinese population grows wealthier and their diets evolve, we will see the growth of an insatiable demand for high quality, safe and a greater variety of foods. China’s demand for food imports from select foreign destinations is expected to grow at a rate of ten per cent annually until at least the end of the decade. Chinese policymakers have identified “national food security and safety” as one of their top six priorities for 2014 at the nation’s Economic Work Conference held at the end of 2013. China’s new leaders have also emphasised that as a developing nation, the national food safety standards should be developed with a strong focus on local national conditions and environmental issues to develop their own risk assessment and safety standards, rather than adopting those of the West. As an international agribusiness player, the next five years will be a crucial step for China’s international competitiveness as the government implements its plans to upgrade its complex food safety regulations.
Amongst Chinese communities, high levels of public anxiety exists surrounding practices and safety in the food industry. This anxiety and uncertainty has stemmed from the growing demand for imported agricultural products from leading agricultural markets, particularly Australia, Chile and the USA. With the recent scandal of fox DNA found in Donkey meat, even global supermarket giant Wal-Mart struggles with licensing and inspection in a market with complex food safety issues. China’s food situation is an underlying issue intertwined with China’s regulatory design, industry structure, legal framework and political institutions. Wal-Mart is one of many corporations investing in improving China’s food safety, planning to invest over USD16million over the next three years which involves increasing and improving supply training and food inspection.
In January 2014, the Supreme People’s Court announced a new guideline and updated consumer protection laws which has placed more power in the hands of the consumer with the aim to prevent producers from cutting corners or sacrificing quality for costs at the expense of safety and quality.
As Chinese consumers’ incomes rise and their market access increases, we have seen an increase in sophistication and variety within the Chinese diet, notably an increase in consumption of dairy products (such as yoghurt and ice cream), and increased demand for high quality imported fresh fruit, meat and nuts. In November 2013, I enjoyed leading a delegation of citrus growers to China (see photo above) to develop both relationships and a mutual understanding between the Australian and Chinese citrus industries. It was interesting to note that China’s demand for citrus fruit appears to be far greater than Australia’s ability to supply – and it continues to grow rapidly each year.
One of the backbones of Chinese culture is the importance of health, emphasising that Chinese consumers are willing to pay top dollar for premium products for health reasons and increasingly, as status symbols or generous gifts for friends. Premium supermarkets such as “Ole” and “Jenny Liu”, are cornering China’s premium food and grocery market with a plethora of imported goods available, at a premium price. However, with price not an issue for the premium market, an improvement in logistics particularly in the cold storage chain and a relaxation in quarantine regulations will dramatically improve Australia’s food industry access and ability to service this premium consumer.
The Australian agricultural industry has the opportunity to fill a large market demand. In a culture that remembers first-movers, the longevity of demand will depend on brand awareness and strategic product marketing and positioning. In the foreseeable future, China will not be able to meet the local demand of rising premium consumers who are increasingly demanding top quality food from overseas.
With Australia’s international reputation for clean, fresh, safe and high quality food, Australian growers, farmers, packers and exporters are ideally positioned to supply China’s growing premium market with top quality produce.
Australia can produce enough food to supply approximately sixty to eighty million mouths (depending on the food mix) and should view its role as one to service the premium Chinese consumer market, not simply as the “food bowl” to Asia. Australia’s ability to address the following two issues for our Food and Agriculture sector will determine the success of Australia as a major supplier to the Chinese market:
- Access to Capital: Our ability to source, access and apply capital (whether from local, Asian, Chinese or other foreign investors) to effectively increase the efficiency, intensity and scalability of farming production and supply. This will be crucial to the success of the Australian food and agri sectors in accessing the Chinese market, and requires the focus of our best minds, skills and knowledge from the financial services sector to ensure that opportunities are properly leveraged, organised efficiently and not squandered.
- Marketing and Branding: Australia must have a unified and consistent approach to branding, marketing, positioning and targeting our higher value food product(s) to the premium market in China, and across Asia. This will differentiate Australia from other foreign suppliers but requires a new and fresh approach to marketing from the whole food sector.
One path that could prove successful for Australian agricultural companies (which are predominantly SMEs) is to form joint ventures, co-operatives, SPVs and even managed funds to create a platform to provide scale and convenience for investors and to provide access to local expertise and knowledge. For those companies who can bridge the gap between the Australian and Chinese agricultural industries, there will be enormous opportunities to take advantage of each market’s size and competitive advantages.
Whilst over the past decade, China has earned the reputation as one of the world’s worst food safety offenders, the reputation won’t stick for long – it may be time for a fresh approach?