Tuesday, November 20, 2012

China's Food Trade Goes Upscale

The buzz at this year's Canton Trade Fair is that China's food market is going upscale. Earlier this month, Xinhua reporters talked with representatives of several Chinese companies about this remarkable transition.

One Anhui food trader remarked that China now exports less canned fruit to America and imports more canned meat from Europe. Chinese consumers are in transition from just filling their stomachs to eating well.

With export prices falling due to the slow economy overseas and a robust domestic market, Chinese food companies are turning their attention from exporting to importing and serving the domestic market. A manager from Jiangsu Grain and Oil Food Group said his company imported products valued at less than 1 million yuan 3 or 4 years ago, but this year they have over 50 million yuan of import business.

In past years, China would export its best food products and leave the lowest-quality items for domestic consumers. Now that pattern is reversing, say the merchants. The best products are kept for the Chinese market while a shrinking surplus is available for export.

Companies at the Canton Fair agreed that costs are rising: labor, land rent, pesticide prices... Economist Li Guoxiang from the Chinese Academy of Social Sciences has documented a 106-percent increase in agricultural prices from 2002 to 2011. He says many Chinese prices are now higher than international prices and will go even higher in the future.

The mantra now in exporting is less volume and higher price. In the 1980s--during the days of an overvalued Chinese currency--the main objective in exporting agricultural products was to earn foreign currency, but those days are long gone now that China has the world's largest foreign currency reserves. China also has an appreciating currency that magnifies its cost increases when converted to dollars.

Now Chinese companies are moving up the value chain. Instead of exporting unprocessed low-products, they are moving into processed and branded products. The Jiangsu company used to buy agricultural commodities and then look for somebody with a factory to process them. Now they have an integrated supply chain that includes its own supply base and cold storage in Dalian.

1 comment:

Mark Powell said...

See recent Rabobank report on "The Dragon's Changing Appetite" (for seafood). Chinese preferences are beginning to move towards premium seafoods, like salmon which Rabo calls "The Prada of Seafood" in China.