July 26, 2008

 

China open to Australia's beef exports, not pork

Australian exporters should be looking for the Chinese food market's 'sweet spot' before jumping in the market, according to Pan Chenjun, a senior analyst with Rabobank said. 

 

China looks set to remain largely self-sufficient in its food staples, but opportunities exist for Australian businesses in the thriving Chinese market, Pan, who was at a Visiting Experts Programme said.

 

Australian-produced beef and grain and, to a lesser extent, pork, would find opportunities in China.

 

"This sweet spot is where you see the intersection of three conditions - the point where strong demand potential, insufficient supply or resources and access to market all coincide," she said.

 

Pan advised that Australian producers need to focus on niche areas, rather than the Chinese mass market.

 

In beef, this would be in the high-end and offal products; in grain, in barley, oats and durum wheat and in pork, in high-end processed meat and pig offal products.

 

China's rising meat consumption is tempered with food safety concerns, which should provide an opening for Australian producers, she said.

 

However, Australian players face a number of challenges in cracking the market with issues such as the strong Australian dollar, intense competition from lower cost producers and tariffs.

 

Even as China remains largely self-sufficent, it has increasingly found it a challenge in the area of food production, where scarcer land and water supplies is straining the present system.

 

"With only 7 percent of the world's land, but 22 percent of the world's population, China has been surprisingly successful at feeding its population," she said.

 

Pan said China will become a small importer of meat and corn to feed the rising demand for meat consumption in the coming years, but will still maintain 95 percent self-sufficiency, she said.

 

In fact, China's beef production growth slowed significantly in 2007, as low economic returns and rising labour costs discouraged cattle farming. As a result, China is now experiencing a serious beef shortage, Pan said.

 

Consumption of beef is still low in China - lower even than other Asian regions with similar dietary patterns - and has been decreasing since 2007 due to tight supply and soaring prices in the local market, she noted.

 

China mainly imports beef offal and a small amount of frozen beef and only four countries - Australia, Uruguay, New Zealand and Brazil - have legal access to China's market. China's beef exports are mainly frozen and processed meat to Asia and the Middle East.

 

Until recently, Australia has been the largest supplier of beef meat to China, with Australian beef accounting for 55 percent of China's imports in 2006.

 

However, in 2008, Uruguay has overtaken Australia as the largest supplier, due to its much cheaper price.

 

The high-end market for beef in China, however, did not seem to be affected by the higher Australian prices, with Australia remaining the dominant supplier of fresh and chilled beef.

 

Despite a purported pork shortage last year, prospects are not bright for Australian pork in China, due to the issue of market entry and the situation is unlikely to change in the near future, Pan said.

 

Only five countries have existing access to China's wider pork market - the US, Canada, Denmark, France and Ireland - with only a small amount of processed pork imported from Australia.

 

There is currently no market access for Australian raw pork meat exports to China, although trade talks have been under way for some time, said Pan.

 

Pork production fell an estimated 20 percent in 2007 on a year-on-year basis and as a result, China experienced a serious shortage of pork supply, which saw prices almost doubling last year, she said.

 

Pan said a full recovery in production was not forecast until 2009, and prices were not expected to return to previous levels even then, due to rising input prices (including feed grain and labour) and structural changes in the industry.