China: What opportunity does it offer British farmers?

Every food-exporting nation on earth wants a slice of China, and it’s no surprise.

Six years ago, China surpassed the US to become the world’s largest consumer market for food and drink.

By next year, the Association of Food Industries in the US believes it will be the world’s biggest consumer of imported food.

Jez Fredenburg travels to China

In the first of a special series on China,our deputy business editor visits the vast country to see what opportunities are available for British farmers.

Across the country – not just in the well-known east coast cities such as Shanghai and Beijing – the rapidly rising middle classes are increasingly buying imported food.

They are visiting high-end retailers or vast e-commerce platforms, eating in Western-style burger and pizza joints, stopping by cheese and wine bars and visiting hotels for cream teas.

Decades of targeted building and development have made this all possible.

But things aren’t stopping there and the Chinese government is now planning to pour billions of dollars into reinvigorating trade along the old Silk Route, promising to connect the East and West like never before. 

Will China’s demand for food imports continue?

Yes. In the concrete jungles of major cities it’s hard to imagine that China has much more growing left to do.

But it does, and that’s where the opportunity lies, say analysts at The Economist Intelligence Unit (EIU).

China’s $11.2 trillion (£8.7 trillion) GDP is expected to grow at a rate of 6.3-6.5% over the next three years – slower than its previous double-digit growth, but enough to ensure that three-quarters of the population are middle-income earners by 2030, says the EIU.

By then, those moving into the upper-middle and high-income earner categories will have swelled to 276m and 204m people respectively, according to the EIU.  

For the first time this will be driven by consumer spending rather than government spending. As disposable incomes rise, more people will buy goods such as imported food for the first time, while there will be “significant demand” from higher-earners to upgrade to premium and branded products, it says.


Where will the growth be?

British food companies and producers will need to take time to understand where the growth lies for their product in China.

By 2030 the number of residents in the main first-tier cities of Beijing, Guangzhou, Shanghai and Shenzhen with a high disposable income will double, with Shanghai crossing the 10m mark (43.2% of its population).

But the strongest growth in high-income residents will for the first time be in cities further inland.

The number of high-income consumers in the western municipality of Chongqing, for example, will increase almost tenfold, raising the overall number above 4m. Similar growth is also expected in interior provincial capitals such as Chengdu, Xi’an, and Changsha.

Is there an opportunity for British food?

Yes, undoubtedly there is. While China may have been the UK’s fastest-growing export market for food and drink in 2016 (up 51%), according to the Food and Drink Federation (FDF), there are still relatively few British products on the shelves there and buyers seem keen to hear more from UK producers and companies.

China was also only the UK’s ninth-biggest export market for food and drink last year by value (£439.5m), according to the FDF, despite having a population of 1.37bn people.

In comparison, Ireland – our closest neighbour, but with a population of just 4.6m people – was the UK’s top export market, buying £1.4bn-worth of food and drink in 2016.

So there is room to unlock more trade and this is also the case with market access – currently the UK has health certification and access to for pig meat, dairy and grain based products and is actively trading. Access for beef and sheep meat are still being worked on.

See also: How to avoid the tax traps of farm diversifications

To make the most of the opportunity, British producers and companies will need to be highly competitive in an ever more crowded market, says Mick Sloyan, strategy director at AHDB Pork and deputy chief executive at AHDB.

This will mean focusing on the UK’s unique selling point (USP) – high-quality products and welfare – rather than trying to compete on volume and prices with big commodity producers such as the US, Canada and Brazil.

“It’s not true Chinese consumers are not interested in welfare,” says Mr Sloyan. “People are interested in quality; food safety and traceability is hugely important.”

The British brand itself – the UK’s heritage and culture in particular – also has a big appeal in China and could be used much more. 

However, the UK is far from the only country offering quality food with a strong story. Germany, France, the Netherlands and Australia, for example, have a strong presence and are among some of China’s biggest exporting partners.

How easy is it to successfully sell food products?

Doing business in China takes a real commitment of time and resources to understanding the market, says Antoaneta Becker, regional manager for the China-Britain Business Council (CBBC)in the South West and adviser to the UK Department for International Trade. 

“The Chinese market is different,” she says. “Sometimes people assume is will be a one-market product entry, but China is not one homogenous market – it has regional cuisines and purchasing preferences and has a seasonal culture. It’s about understanding how and where the opportunity is.”

Because the country is developing so rapidly, consumer behaviour is too, so being flexible enough to change tack is also important, says Ms Becker.

Companies that succeed tend to start small by focusing on understanding one city or area and then expanding. So don’t expect to “crack China”.

Every British company exporting to China successfully will talk about the importance of business relationships and networking  – “guanxi” – which also means that getting a foot in the door takes time and patience, but can be invaluable once gained. 

Several British food firms – such as pig-processor Cranswick and organic milk producer Diaoni – have opened small offices there to do this more effectively.

Others, such as British cheese distributor Sommerdale, employ a distributor in China to help promote their products and maintain relationships.

Technology is also moving rapidly and the Chinese now buy more online than anyone else in the world, according to the CBBC and the EU SME Centre, so being able to exploit this is key.  

Exporters should also expect to have to navigate China’s complex legal, regulatory and certification rules – which have been tightened after several terrible food scares. In addition, processing facilities all have to be checked – again, a time-consuming task.  

There are also logistical difficulties to be aware of if transporting beyond the major east coast cities – China’s cold storage network is not always reliable, so products needing to be kept chilled or frozen can be at risk.

All in all, there is a lot to understand and keep on top of.

The good news is that UK producers and food companies have a wealth of resources and expertise to hand, with an overlapping network of people and organisations in the UK and China dedicated to sharing contacts and expertise.

These include AHDB’s export teams, with a food consul based in Beijing, CBBC, plus British government staff working for the Department for International Trade in major Chinese cities. 

Could Chinese production wipe out import demand?

China faces considerable challenges to its food production, which means that it is unable to keep up fully with the demands of its consumers.

It has a relatively small area of agricultural land – only 11% of its land mass is cultivated, compared with nearly 26% in the UK, according to the World Bank.

Additionally, it is facing serious problems of pollution, soil erosion and water scarcity, according to Seth Cook, senior researcher, natural resources, at the International Institute for Environment and Development.

Many of China’s farms are also very small – less than 1ha, according to the Food and Agriculture Organization of the United Nations (FAO) – and the industry is facing a huge loss of young people to the cities.

The government is acutely aware of these problems and has made agriculture its top priority in its national five-year plan, with a focus on upskilling farmers and improving the efficiency – and productivity – of agriculture.

There is also a growing number of large privately owned and state-owned farming companies bringing in more efficient and productive practices – some with 10,000-head dairy and beef herds.

This all points to China’s agricultural productivity increasing in the future – but it is not expected that this will keep pace with demand.

Beware boom and bust in a massive market that reacts as one

Richard Herzfelder, senior adviser at commodity analyst Gira, tells Farmers Weekly’s deputy business editor Jez Fredenburgh why UK food producers should be cautious of putting all their eggs into China’s basket. 

How to find out more

Over the coming weeks, the Trading in China series will be looking more closely at how British farmers can make the most of the opportunities in China: 

  • 28 July: What do Chinese consumers and buyers want?
  • 11 August:  Dairy – Opportunities for British farmers
  • 25 August: Meat – Opportunities for British farmers
  • 8 September: Grain – Opportunities for British farmers
  • 22 September: So you want to export to China? Expert advice, and resources

*Dates may change

Jez travelled to China and Hong Kong courtesy of the Perkins Global Innovation Scholarship, run by the British Guild of Agricultural Journalists. Farmers Weekly had full editorial control of this report.

The top food exporters to China by country

1. The US, 2. France, 3. Brazil, 4. The Netherlands, 5. Peru, 6. Australia, 7. Germany, 8. South Korea, 9. Thailand, 10. Zimbabwe, 25. UK

The UK will need to work hard to stand out from the crowd. Many other European countries – including Ireland, Italy, Spain and Denmark – already export more to China.

Data is for 2015, World Bank