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'Chinese demand for beef is growing at a ferocious rate'

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At the announcement of the Irish food promotion deal with TMall.com, the world’s biggest online retailer, were (from left): Aidan Cotter, Bord Bia; Minister Simon Coveney; Irish Ambassador John Paul Kavanagh; John Spelich, Alibaba Group, and Julie Cinnamon, CEO Enterprise Ireland

At the announcement of the Irish food promotion deal with TMall.com, the world’s biggest online retailer, were (from left): Aidan Cotter, Bord Bia; Minister Simon Coveney; Irish Ambassador John Paul Kavanagh; John Spelich, Alibaba Group, and Julie Cinnamon, CEO Enterprise Ireland

At the announcement of the Irish food promotion deal with TMall.com, the world’s biggest online retailer, were (from left): Aidan Cotter, Bord Bia; Minister Simon Coveney; Irish Ambassador John Paul Kavanagh; John Spelich, Alibaba Group, and Julie Cinnamon, CEO Enterprise Ireland

What will last week's news that the Chinese are to send over an inspection team in early December with a view to opening up the massive Chinese market to Irish beef mean for Irish farmers and the price that they get for their beef?

This is the question that is on everybody's mind, but the truth is that nobody can give an exact answer.

What we do know is that China is a potential customer whose appetite for beef is growing at a ferocious rate. For example, Irish exports into the likes of Hong Kong over the last three years have grown dramatically. In 2012, beef and offal exports were less than €14m. Last year they more than doubled to €31m, and in the first eight months alone of 2014 beef exports to the ancient city port were higher again at €32m.

There is one reason for this massive rise - rising prices in the Chinese market.

Hong Kong is just one of a number of what are known in the trade as 'grey' channels - the unofficial entry points by which huge amounts of 'banned' product enters China. Vietnam, Taiwan and Macau also provide routes into China. It is believed that well over 500,000 tonnes of beef is effectively smuggled in through these channels on an annual basis, an amount that continues to rise. At close to two thirds of the total volume of imports, the Chinese authorities recognise that there is a supply issue, which may be a motivating factor in the apparent willingness of their food safety and customs authority, AQSIQ, to look at bringing Irish beef into the official fold.

Part of the draw for increased imports is the rate of rising beef prices in China, a trend that is predicted to continue. Prices are expected to rise 30pc by 2018 relative to 2013 values.

"The Chinese have been over-slaughtering (the national herd) for years due to a lack of profitability and governmental support," said Deloitte's head of commercial strategy and research, Alan MacCharles.

Subsidies

Between 2006 and 2012, the domestic herd in China size dropped by 12pc, a rate that is much higher than the global average and guaranteed to limit domestic beef production in the country over the coming decade.

The Chinese government may have good reason to drag its heels on subsidising its declining beef sector. Why should they pour scarce resources into a sector that they are not very competitive in, and one that is both land and water hungry? Bear in mind that China is facing water shortages in many of its northern regions and has less than 10pc of the world's land area to feed 20pc of the global population.

This drift out of beef production presents a golden opportunity for exporters like Ireland. With average income more than doubling since 2007, the Chinese have suddenly discovered that they have more to spend on food. In the move from the 'rice-bowl' diet where the vast majority of a Chinese person's daily calorific intake was made up of rice, they have reached for a more westernised diet - what's sometimes referred to as the 'proteinisation' of the Chinese.

Even still, beef remains a tiny portion of the average Chinese person's total meat consumption - not much more than 3pc. Instead, pork and poultry dominates, although as meat consumption has increased from just 10kg in 1980 to 55kg today, the Chinese have diluted their reliance on pork from 80pc to 65pc. This drift into a wider variety of meats has been driven mainly by the increased choice that extra income brings, but also by the obsession that the Chinese have developed about food safety.

"In a country that has suffered from a series of food scandals from exploding melons to fake meat, the safety of the food you eat is becoming one of the key trends," said Alan MacCharles. "Many people don't want to know about poultry following avian flu and they also believe that pigs are being injected so, if they've got the money, beef is increasingly seen as the safest type of meat."

It's against this back-drop that imports have shot up. Until 2012, total beef imports barely hit 400,000t a year. Today they are closer to 900,000t when all unofficial volumes are taken into account. Australia dominates with 47pc of the market, followed by Uruguay with a 30pc share, New Zealand on 15pc, and Canada and Argentina making up the rest.

These volumes are almost certainly set to rise.

Not only is the country getting richer and developing an appetite for beef, it also set to get even bigger. Yes, just when you thought that a 1.35bn population couldn't possibly grow any further, the Chinese government relaxes its one-child policy to ensure that it isn't lumbered with an aging population in the future.

This means that the country with 20pc of the world's population is set to increase closer to 1.44bn by 2025.

Growth

Based on the history of the Japanese, Korean and Taiwan beef consumption in the 1980's and 1990's, consumption is closely related with GDP per capita. Beef consumption enters a period of particularly rapid growth when per capita GDP gets close to €5,000. China's GDP reached this point in 2012.

As a result, all the analysis points to beef consumption increasing by 20pc in China over the next decade. That may only equate to 1kg per head (China's current average beef intake is about 5kg), but an extra 1kg in demand over 1.4bn is the equivalent to almost three times Ireland's entire export volume.

It was for all of the above reasons that the main heavy-hitters in the Irish beef sector were out in force for the full week in China last week. ABP's Mark Goodman, Dawn's Niall Browne, Kepak's Stephen Keating and John Horgan, were just some of the names that gave up a week of their time to press the flesh in the east.

ABP already have a sense of the market opportunities with staff on the ground in China managing their share of the €40m in hides that we already sell into China annually.

If and when the 14 year-long ban on Irish beef ends next year, these men are ready to jump. They know that Ireland will be one of just six countries with access to the €51bn Chinese beef market. The US are the only other country that currently has a "working relationship" with China's AQSIQ in relation to gaining access to the market.

Everybody else has been banned since 2000, largely on the back of the BSE crisis. But Ireland's admission to the Japanese market in 2013 was seen as a key development in raising the country's profile as an internationally reputable supplier of safe beef.

Current prices in China's retail market for chilled beef are €13/kg, while frozen and processed meat ranges from €6.50-13/kg. According to Deloitte, these prices should return margins of 15-30pc for meat processors.

Of course, these businesses will play down the opportunity.

A Meat Industry Ireland spokesman in China for announcement of the Chinese authorities' intention to inspect Irish meat plants next month said that it represented an opportunity to move up the value chain. Currently more than 80pc of the exports to China were in the form of offal making less than €1,000/t.

This view was echoed by Kepak's managing director, John Horgan: "The main opportunity is probably around the lower value forequarter cuts that are the mainstay of the Chinese diet. And there's probably a chance now to move from frozen to chilled because there will be more certainty (going through official channels). We really want to be targeting the high-end food service sector," he said.

Agriculture Minister Simon Coveney had a much more positive analysis.

"The Chinese price is lower on average, but we're going to target the premium market, which is similar in size to most standard markets. Ireland has moved from producing commodities to premium products.

"That it the message that the Chinese got when they inspected our dairy plants in May and found that we were the only country in the world that passed all their tests without a problem."

While the absence of a trade agreement between the EU and China means that Irish beef exports will be subject to tariffs of over 20pc, the minister insisted that it was still a great opportunity.

"It would be helpful if the EU had a trade agreement with China, but there is no way that the Chinese were ever going to let all EU beef come in because they don't believe that everyone has dealt with the BSE issue as thoroughly."

Last week's trade mission to Beijing and Shanghai could be a game-changer for the Irish beef sector and food industry.

A Tmall world for Irish food exporters

A major promotion of Irish food and drink products is set to be beamed across China on St Patrick's Day next year using the country's largest online platform - Tmall.com - the Minister for Agriculture, Simon Coveney announced during his visit to China last week.

TMall.com, along with its sister platform Taoboa, accounts for 53% of China's online purchasing which is currently valued at €250bn.

Minister Coveney said the link-up between the platform and Irish food and drink exporters provided an excellent opportunity to raise awareness of sustainably produced premium Irish food and beverages to a web savvy Chinese population.

"Online sales are competing, with, and in many cases leapfrogging, traditional brick and mortar retails formats.

"We recognise the value of building partnerships with TMall.com as a leader in the industry," added Minister Coveney.

Bord Bia chief executive, Aidan Cotter said the Tmall.com site provided an excellent route to market for new Irish products such as UHT milk.

This will generate a positive interest in Ireland's clean green and sustainable food credentials which were increasingly important in the Chinese market, said Mr Cotter.

The planned St Patrick's Day promotion with Tmall.com would allow Chinese consumers to order a range of Irish beverages and food online, he added.

 

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