Demand trends for beef in China

Increasing demand for beef

The OECD assesses that beef will be the fastest-growing import sector in China in coming years (Department of Foreign Affairs and Trade, 2016).

The chart below shows the volume amount and growth of documented beef imports in 2015.

Figure 2: Beef imports to China 2015
Source: (GACC, 2016)

Pork is by far the most popular meat type in China, followed by poultry, beef and mutton (Meat & Livestock Australia, 2015).  However, with increased urbanisation, and as middle-class incomes continue to rise, consumption preferences continue to broaden to include less traditional sources of protein, such as beef.

China’s total beef consumption is expected to reach around 7.25 million tonnes in 2015 and increase to around 8 million tonnes in 2020. On a per-capita basis, this equates to estimates ranging from between 3.6 kilograms and 5.2 kilograms in 2015, with overall consumption rates expected to increase in China’s more northerly regions (Meat & Livestock Australia, 2016).

In the medium to long term, demand for beef in China is predicted to be strong. China’s official beef imports have grown almost 20-fold in the past five years, from 23,702 tonnes in 2010 to an estimated 460,000 tonnes in 2015. The strength of imports reflects the growing imbalance between expanding consumption and production that cannot fully meet demand (Meat & Livestock Australia, 2016)

China’s cattle herd is the world’s third-largest, after those in India and Brazil. It is estimated that around 75 per cent of beef in China is from local supplies. While the nation’s herd continues to grow, China’s beef production is not expected to keep up with local demand, which experts predict will grow by 10 per cent per year (Meat & Livestock Australia, 2016).

In part, this is because the industry remains in its primary development stage, lagging significantly behind other major producers in many areas, such as classification systems, quality standards, testing and monitoring systems.

Further compounding these issues is the fact that China’s beef industry is in its primary development stage, and is challenged by land, feed, water and environmental constraints as well as by supply-chain issues.

Figure 3: Official China total beef imports by country of origin
Source: MLA (Meat & Livestock Australia, 2015)

Current Australian beef exports to China

China Customs documented total imports of 410,559 shipping weight tonnes (swt) of beef in 2015 (Jan-Nov), which included beef from Australia, Uruguay, New Zealand, Argentina and Canada.

Australia contributed 34 per cent (148,222 tonnes swt) of these imports, making it the largest documented supplier of beef to the Chinese in 2015[5]. Australia is also China’s second-largest supplier of frozen bovine offal at 4,053 tonnes swt of bovine offal in 2015. With these 

contributions, Australian beef export volume to China increased 19 per cent year‑on-year in 2015 (Meat & Livestock Australia, 2016).

These figures must be considered in the context of the massive Chinese grey market, however. Imports of beef from other sources in 2015 were estimated at an additional 808,000 tonnes swt, making overall beef imports into China around 1.3 million tonnes swt (GIRA estimates). This would make China the world’s largest beef importer.

It should be noted that since early 2015, Chinese authorities have conducted several sustained crackdowns on unofficial channels for meat imports, which has seen the total volume of documented beef imports increase significantly during 2015 – by around 50 per cent year-on-year.[6]

Beef produced in NSW and destined for China exited Australia from a number of ports in 2015. The largest total of exports by volume – 17.7 million tonnes, valued at just over AU$112 million – was via the port of Sydney. Meanwhile, 10.8 million tonnes of NSW-produced beef valued at AU$73 million exited via the port of Brisbane, and 6.4 million tonnes valued at almost AU$57 million exited through the port of Melbourne (Meat & Livestock Australia, 2015).

A study by the University of Southern Queensland found that in 2014 there were 32 different cuts exported to China.  Major cuts by volume were: brisket (34,481 tonnes swt[7]), shin/shank (27,841 tonnes swt), carcase (21,442 tonnes swt), silverside/outside (15,535 tonnes swt), thick flank/knuckle (11,697 tonnes swt), and blade (11,387 tonnes swt). These major cuts accounted for approximately 76.3% (122,383 tonnes swt) of the total export volume of 160,440 tonnes swt.  There is also increasing interest in cuts beyond the six major types with demand for cube roll/ribeye roll, ribs, rump, striploin, and topside/inside (University of Southern Queensland, 2016).

MLA data for the most popular cuts of Australian frozen and chilled meat imported by China in 2015 is shown in the figures below.

 

Figure 4: Australian frozen beef exports to China by cut
 
Figure 5: Top Australian chilled beef imports by cut
Source: MLA (Meat & Livestock Australia, 2015)

 

Australian beef is facing more competition in the China market from Brazil (which regained access to China in mid-2015), Uruguay, New Zealand and Argentina. This has resulted in a steady decline in Australia’s import market share, from 54 per cent in 2013 to 45 per cent in 2014 to 34 per cent in 2015. New Zealand has the advantage of low preferential tariffs on imports and has been importing at a zero tariff rate since January 2016.

In September 2016, US beef regained access to China, which is likely to have further impact on market share, particularly for premium products. Chinese beef importers interviewed during the project reported a preference for US beef over Australian beef due to the former’s ‘whiter’ fat colour, and because US beef displays greater consistency in cuts from shipment to shipment.

China may continue to be a strategically important market for Australia’s beef and cattle industry but this is likely to demand a shift from bulk frozen export to retail-ready premium products and chilled premium meats marketed on the basis of provenance.

Key demand factors for Australian beef

Numerous food scandals, from rat meat sold as beef to the marketing of 30-year-old frozen ‘zombie’ beef, have led Chinese consumers to increasingly prefer and seek out authenticated imported meat.

Beef from Australia is ranked highly by Chinese consumers. This has led to beef imports from Australia reaching AU$65 million in 2015, an increase of 137 per cent in value from 2014 (GACC, 2016).  

Chinese consumers perceive the competitive advantages of Australian beef to be in the areas of quality, variety, taste, industry, and product safety and integrity (Meat & Livestock Australia , 2016).

Food-safety may lose impact as a marketing factor as China improves quality assurance around domestic beef production. The best opportunity to establish premium Australian brands, therefore, may be over the next five to 10 years (Cheng, 2016).

Government seeking to moderate meat consumption

Due to rising incomes among urban Chinese the overall consumption of meat is on the rise and is expected to reach 100 million tonnes by 2020 (Meat Management.com, 2016).

This has led to concerns about negative impacts on public health, and organisations such as the Chinese Nutrition Society are campaigning to decrease per-capita meat consumption.

In an attempt to encourage its citizens to adopt healthier, more balanced diets, the PRC released new China Dietary Guidelines in June 2016, and has engaged celebrities such as James Cameron and Arnold Schwarzenegger to help raise Chinese consumers’ awareness of the benefits of balanced diets.

The campaign is unlikely to impact the consumption of premium meat in China, as it is now an important part of urban diets for both nutritional and lifestyle reasons. Arguably, the campaign may help drive a shift from quantity to quality which could favour premium beef brands (China Skinny, 2016).

Consumer trends

Consumers in major urban centres are leading China’s growing demand for meat. Beef and veal achieved highest volume growth of 5 per cent in 2014, due not just to their nutrition value but also to the growing popularity of Western food culture in China (Department of Agriculture, 2015). Compared with other meats, beef and veal are considered to offer higher nutritional value, thanks to their higher levels of protein and lower fat content.

Food-safety incidents concerning pork and poultry have been hot issues in the past. Furthermore, prices for China’s ‘mainstay meat’, pork, have soared, with the value of products such as pork belly rising more than 50 per cent in the past 24 months. The pork price hikes follow culls in pig herds in response to a steep drop in prices in 2014 and 2015, and a subsequent disease outbreak that further thinned supplies.

This has driven China’s consumers to consider alternative animal proteins, such as beef. As a result, today’s consumers are more inclined to eat fish and seafood – or safer, often imported beef or veal – and less likely to eat pork and poultry (China Skinny, 2016).

Figure 6: Health the top concern of Chinese urban consumers
Source: derived from (Nielsen, 2016)

Health focus

According to Nielsen’s Consumer Confidence Index, health has overtaken income to become the top concern of Chinese urban consumers (Nielsen, 2016).

Environmental pollution and China’s poor track record on food safety – with several incidents involving rotten, tampered-with and unsafe food and food chains – have made Chinese consumers the least trusting, the most concerned about food-safety and, arguably, the most health-conscious in the world.  China’s health food and nutritional supplement market is estimated to be worth more than RMB1 trillion (HKTDC, 2016). 

A 2016 study by McKinsey found that 72 per cent of Chinese consumers now worry that the food they eat is harmful to their health, up from 60 per cent in 2012, and over 50 per cent prioritise eating healthy and nutritious foods.  Growing wealth and rising education levels drive the demand for imported products, which are considered by many to be healthier and safer as they are produced in clean environments and in the absence of corrupt supply chains. Indeed, 73 per cent of consumers surveyed said they’d be willing to ‘trade up’ and pay a premium for products deemed healthier (Zisper, 2016).

This trend is reflected in Walmart China’s sales of imported products, which doubled in 2015, led by sales of foreign food.

 
 

Millennials a key demographic

There is a striking difference in the age-to-income ratio between Western and Chinese populations (Figure 7). 

Millennials (those aged between 15 and 29) in China are more educated than older Chinese generations, have higher salaries, travel more, and are heavy users of mobile devices. Marketing has to embrace the ways in which millennials use digital platforms and social media to research and share information and to purchase goods. 

Figure 7: Young Chinese have money and Western tastes
Source: derived from (Barton, Chen, & Jin, 2013) (Wike, 2015)

Trends in Chinese beef consumption

The majority of beef sold in China, around 70 per cent, is sold fresh, while frozen beef accounts for around 25 per cent of beef sales and the remaining 5 per cent is sold as chilled meat. According to MLA, chilled beef is the fastest-growing sales category (Meat & Livestock Australia, 2015).  

Traditionally, beef has been a comparatively small component of Chinese diets, due to the lower cost and greater versatility of pork and chicken. This is changing, however, as more of China’s consumers are able to afford to buy beef and as they become more aware of the nutritional benefits of red meat and seek greater variety in their diets.

MLA market research has identified that it is the urban, affluent sub-group of the middle class with annual disposable household incomes of at least 229,000 yuan (approximately AU$50,000), who can afford to buy imported Australian beef.  Many of these, however, only consume beef special occasions rather than for everyday meals (Meat & Livestock Australia, 2016). 

 

[1] Autonomous regions are specific areas associated with one or more ethnic minorities who are nominally given a number of rights not accorded to other administrative divisions.

[2] Directly Controlled Municipality is the highest-level classification for cities used by the People's Republic of China. These cities have the same rank as provinces and form part of the first tier of administrative divisions of China.

[3] Self-governing autonomous territories are defined as those that fall within the sovereignty of the People's Republic of China, yet do not form part of mainland China: they include Hong Kong and Macau.

[4] China Customs.

[5] In 2015, Australia was the only country with access to export chilled beef to China, which resumed for a number of establishments in mid-2014 after a nine-month suspension. While Australia had an agreed chilled-beef protocol to China for some years, the suspension arose because China had not listed any eligible Australian export plants specifically for chilled trade against that protocol ((MLA), Feb 2016).

[6] Unofficial channels are mainly via Vietnam and Hong Kong.

[7] Short for ‘shipping weight’

Bibliography

 

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