Food exports to China have been growing for some years now. Chinese consumers are known to pay a premium for foreign food and beverage as it is perceived to be safer and healthier, more prestigious and having interesting, unique varieties to feed their inherent curiosity. Yet one of the big drivers for shipping food from afar is that in many cases, they are actually cheaper and meet a demand that local produce can’t serve.
Although China has long been known for low wages and exporting cheaply produced food, for many food categories, China finds itself unable to supply enough food at a quality and price acceptable to Chinese consumers. The well-cited stat that China has to feed over 20% of the world’s population with just 7% of its farmland means this shortage will be around for some time yet.
With China’s population becoming wealthier and eating more as a result (calorie intakes have more than doubled in the last 50 years on average) and arable land eroding due to urbanisation, natural disasters and pollution, China is having a hard time keeping up with supplies. In addition, much of China’s working population have left rural areas for the bright lights of the city, and all of its drones, robots and AI have been unable to fill the farm worker gap. The majority of China’s farms are tiny and lack the ability to produce as cheaply and efficiently as in other countries, and even many of its larger scale operations cost more than abroad. For example, the US produces pigs 20% cheaper per kilo than even China’s new, factory-scale hog farms. Filling a bottle of wine in Ningxia Province can be as much as three times more expensive as South Australia, with the need to bury vines during the harsh winter and high costs of bringing experts into the Chinese hinterland.
Food production costs continue to soar in China, contributing to food prices growing 6.1% in the past year according to the Government’s official consumer price index. To note a few, prices for fresh vegetables jumped 17.4% and pork prices grew 14.4% – the most since mid-2016.
The domestic price increases are making imported alternatives more alluring and giving some rosy trade figures – imported fruit purchases grew by 36% last year and beef imports have more than doubled since 2016 for example. Unfortunately the lion’s share of those imports are commodities, which are much more vulnerable to price variations.
The benefits of well branded food and beverages is nothing new – they can command a higher premium and are less susceptible to fluctuations in commodity prices and new lower-cost producing markets coming on board such as Latin America, Southern Asia and Africa. But having well-branded food products has become increasingly important as producers face mysterious delays and inexplicable rejections for food imports into China due to geopolitical tensions, and of course, increasing tariffs or lowering tariffs for competing exporters. In most cases, the hold ups at the border are commodities rather than branded products. With tariffs, well-branded products will always fare better as consumers are much less price sensitive to a brand they like than a no-name product.
Food producers don’t have to be one or the other. Selling commodities often provides cashflow that can be used to invest in building a brand. But to reduce exposure in these increasingly uncertain times, the advantages of branded products have never been more pronounced. Even if you already have branded products, it’s likely you could make them more resonant with consumers from optimised branding, messaging and other communications, being in the right channels and integrating those channels, having more appropriate packaging and formats and even loyalty programmes. China Skinny can assist you with these. Go to Page 2 to see this week’s China news and highlights.