The sheer scale of opportunity for beef exports into an emerging China market is almost beyond comprehension, but the market is a moving feast, and not without its challenges.

Keynote speaker at this last week’s Australian Meat Industry Council national processor conference, Brady Sidwell, provided an insight into the likely evolution in beef trade into China, as the country continues to move towards urbanisation and a more ‘mature’ economy. 

Mr Sidwell is vice president of corporate development and strategy for OSI Group in the Asia-Pacific region. OSI is one of five global grinders producing hamburger patties for McDonald’s, plus a host of other large food service customers.

A former global agribusiness analyst with Rabobank, now based in Hong Kong, Mr Sidwell told the audience that better understanding of cultural, governance and economic aspects of China would provide important cues about how Australian exporters should ‘attack’ the market.

Australia was in the box seat to do this, however, currently commanding about half of the direct-trade market access for beef into the market. 

“There’s risk, but there’s also great opportunity in the Chinese market,” he said.

One of the changes being seen was a slowing in the frantic pace of growth in the Chinese economy.

“For the past three decades we’ve seen double digit growth in China. Estimates for this year are 7 to 7.4pc. GDP is actually slowing – but you could describe it either as slowing down, or reaching a stage of maturity. It’s clear that the future for the Chinese economy is still growth, but its going to be more mature growth,” Mr Sidwell said.

“The changes in government policy we see today is a reflection of that slowdown. In 1993, less than 20pc of China’s 1.3 billion people were over the age of 50. Today, more than one quarter is aged 50 or more.”

These were very important developments for Australian beef because the typical Chinese consumer was also changing, due to the rapidly expanding middle class, changing diets, greater beef consumption, and preparedness to pay for luxury items – all of which was being driven by urbanisation.

Urbanisation a key driver

A key success factor in the next 20 years and for the Australian industry exporting to the Chinese market would be the success of China’s urbanisation strategy, Mr Sidwell said.

“Twenty years ago, only one third of the population was in urban areas, whereas today it is more than 51pc. In another ten years the figure could be 60-70pc. This is changing rapidly, and is impacting on consumer channels and consumer preferences,” he said.

China was also changing in other ways. Twenty years ago, China rated second last in the world, to Indonesia, in a ‘corruption index’. But China had made a lot of progress, and urbanisation and slowing economic growth was all leading into policy reform, meaning it now ranked much better on the same scale.

“Chinese consumers are also getting richer. Annual disposable income was US$698 per capita 20 years ago, but today is five times that figure. That’s good news for the food business,” Mr Sidwell said.

Consumer expenditure on food and beverage had grown ten times larger than what it was 20 years ago. Spending on food is about 40pc of income, and a growing part of that is beef.

“China also loves bling. China’s share of Louis Vuitton sales is now 50pc of the global market,” he said.

“We always hear that Asian countries save the most of anywhere in the world. But that is changing rapidly. That’s because people who save more feel they have less certainty about their future. If you save less (and spend more) its because you have more certainty about the future,” Mr Sidwell said.

“Americans are now saving more, while the Chinese are saving less.”

Mr Sidwell said the use of the internet was one of the keys to reaching the emerging Chinese consumer. “China today has about 720 million internet users: more than half the country is connected – easily the largest population in the world.”

“Why is this important to the Australian beef industry?” Social media is both a risk and an opportunity. Educating consumers, especially about the beef industry and how to consume beef is a huge opportunity.”

“Social media is a great opportunity to extend that critical Chinese consumer education about beef – how to cook it and how to eat it. Australia can leverage the perception that it is a source of good, reliable beef through social media.”

He said at this point, most Chinese consumers had no idea about beef brands, but as supermarket retailing became more common through the urbanisation process, that direct-to-customer trade was growing, and brands would increasingly become important. They already knew about domestic and imported pork brands, but had no idea at this point about beef brands, and did not yet associate Australia with meat products.

China, already the world’s largest pork producer and consumer, with more than half the world’s production, was already consuming 10pc of the world’s beef production. Over time pork consumption would decline, while beef and chicken would increase as a percentage of overall sales, Mr Sidwell said. Beef’s growth would not be at the same pace, however, because it was more expensive.

Beef was considered leaner and healthier than both pork and chicken.

“As Chinese consumers get older, as they become more urbanised and better educated via social media, and as they get greater disposable income, they get more concerned about their dietary health. That’s good news for the beef industry,” he said.

Mr Sidwell said urban Chinese ate almost three times as much beef as those living in country areas.  

“And looking within urban communities, comparing the top 20pc versus the bottom 20pc by income group, beef is the protein with greatest uptake once Chinese consumers earn more.”
“They eat more meat in general, but especially beef – it is the aspirational protein – the Louis Vuitton of the meat category in China.”

Growing middle class

A lot had been said about the growth in China’s middle class. So how big is it?

“The numbers are just staggering, but today, the middle class in China is about the size of the US population – roughly 300 million. By 2020, that’s going to more than double, and in fact every year, China adds the population of Australia to its middle class – around 27 million.

“Henry Kissinger once made the observation that no other large country had ever had such a divide, whereby half its population lived in the developed world, and the other half in the developing world – all under the same government and management system.”

Mr Sidwell said much of the incongruence and lack of transparency seen in regulation was because China was transitioning from being a developing economy into developed one.

The Chinese Premier himself was leading this effort, and was also in charge of China’s food safety effort. Urbanisation was playing a critical role in reforming China’s industries, including agriculture, and forcing standards to be set.

Middle class Chinese consumers were getting a little more ‘picky’ however, and attempts to substitute meat from other animals like fox, rat and mink as lamb had recently hit the headlines.

“To me this indicates that domestic lamb price is getting more expensive, and processors, traders and middle men have become more ‘creative’ in how they try to meet that demand.”
Food safety, together with traffic and pollution, was something that the Chinese Government was now getting ‘very serious’ about.

“What’s clear about China is the direction. You have administrations that are in place for ten years, not three or four as in the US or Australia. Since 1949, there have been only seven

Premiers, while there have been 15 prime ministers in Australia.”

While the direction was clear, what was not clear was the execution. The country’s 12 five year plans are called ‘guidelines’, executed differently in different parts of the country.

As part of changes to the way the country is managed, there is a new food and drug administration, so the way that food and trade is managed is changing. This is a simplified process, replacing nine previous bodies, in theory.

As China transitioned through urbanisation and its domestic agricultural economy, there were a lot of changes occurring in areas like policy and regulation.

“Navigating this is really the tricky part, because while the central government sets the direction, China has ‘many Chinas’, and each region may administrate the policy differently. There are more than 3000 county-level districts,” Mr Sidwell said.

While there had been impressive growth in domestic Chinese production of animal protein, that process may be beginning to reach its climax, at least until China modernises and consolidates its agricultural base.

“On one hand it has its rural population of 600 million people – twice the size of the US – while on the other it has one of the most modern countries in the world. But arable land is rapidly converting to real estate, making it harder for China to balance the needs of the two sides. China manages this through trade, and inventory management,” he said.

“But it’s important for trade from Australia that China’s beef industry does develop. I would argue that those beef companies with feedlots and processing plants in China are not your competitors, but your potential partners.”