Agricultural, food & beverages

Agricultural, Food and Beverages

The agriculture sector accounts for approximately 13 percent of China’s GDP, but growing consumption patterns and potential resource constraints are expected to push for Chinato become the world’s largest importer of agriculture and food products.  With a reliance on agricultural imports to feed China’s population, a great opportunity exists for Canadian exporters to meet these demands.

Canadian exports of agricultural and food products to China exceeded $2.7 billion in 2010.  The largest volumes of export products to China in 2012 (September) were oilseeds (canola oil, canola seed, canola mean, peas and barley), animal fats and oils, and seafood.  Seafood exports (lobster, sablefish, snow crab, gooduck and scallop), have performed well in China, and rising levels in disposable income for domestic consumers provide the vehicle for continued growth.  Recent bans on Canadian beef exports to China have been lifted, so resurgence in demand should occur for this subsector [1].

Agricultural Production by Region:

The Beijing-Tianjin corridor represents the region with the greatest consumer purchasing power for food products in its territory; second-tiers cities such as Dalian,Qingdao and Shenyang also offer lucrative markets which are less competitive and sometimes more interested in imported products.

Heilongjiang, Inner Mongolia, Hebei and Shandong are leaders in dairy production. These and other provinces in the Western and Northern parts of the country have significant livestock industries.  Hebei, Shandong and Henan produce about one-fifth of China’s hogs. The same provinces are among China’s top poultry and egg-producing provinces. Corn, soybeans and sugar beats are produced in China’s North and Northwest. The principal wheat-growing areas include Shandong, Hubei, Gansu, Shanxi and Shaanxi provinces. There are opportunities for selling fertilizers, machinery and equipment and other inputs in these areas.

Shandong Province and some of the larger cities also have significant food processing industries.  China’s vermicelli noodle industry is an important client for Canadian dried peas. China has a large brewing industry led by companies such as Tsingtao and Yanjing which import large quantities of barley. COFCO, a state-owned enterprise, is China’s largest food company and imports significant quantities of grains and oilseeds. The import of a number of agricultural commodities is controlled by State trading monopolies. For example, China’s central government has authorized COFCO, headquartered in Beijing, to handle 90-per-cent of China’s wheat imports. Depending on market conditions on local production, commodities are imported for either immediate resale on the domestic market or for storage in the national strategic reserves.

Bilateral Cooperation:

Bilateral cooperation in the fields of agriculture and food safety is extensive with many meetings between Canadian and Chinese officials taking place each year. Under a memorandum of understanding signed in early 2007 between Canada’s Department of Foreign Affairs and International Trade and China’s Ministry of Science and Technology, both countries engaged in joint agriculture related research projects which are deemed to have a commercial potential.  The formulation of China’s Food Safety Law in 2009 further strengthened the need for food safety to be a central component of agricultural and food trade between Canada and China.

Market and Sector Strengths and Weaknesses:

There is still a wide gap between the standards of living between Chinese cities and the countryside, and with the 13.4% of the population in 2011 living below China’s poverty line (set at RMB 2300), social stability is an issue. In order to promote social stability, China’s central government has made agricultural development its primary focus in order to address social stability concerns and widening economic disparities between urban and rural areas [3].  This translates into support for the development of physical and social infrastructure in rural areas as well as a greater emphasis on the application of science and technology to improve productivity and increase farmers’ income.  A policy allowing the trading of land use rights in rural areas was announced in the fall of 2008.  This policy allows for a consolidation of farming plots and increased productivity.

In rural areas, many government subsidies and incentives are designed to encourage a transition from small, localized operations to larger commercial-scale operations in both the horticulture and livestock sectors.  The result is that new sales opportunities are being generated for Canadian companies selling products such as slow-release fertilizers, farming equipment, veterinary medicines, livestock genetics, and feed additives that were previously considered too expensive or not economically viable by smaller-scale producers.

There are many challenges to selling to rural areas in China’s North and West.  Some companies have been successful selling through state-sponsored programs at the local, provincial or even central government level which aim to improve rural processing or farming techniques.  Relations with local officials are important and a detailed knowledge of local plans and objectives is required.  Farmers purchasing inputs subsidized by local governments are not always free to choose imported products.  Good, long-term cooperation with local officials is sometimes required to introduce Canadian goods as viable alternatives and allow Canadian supplier take advantage of these opportunities.

Canadian exporters should be aware of technical barriers to trade that may exist.  Since the implementation of China’s Food Safety Law in 2009, agricultural products could subject to additional costs for Canadian exporters.  Examples of these costs include: shipping storage requirements for sea foods, bans on certain food additives such as ractopamine in pork, certification and import requirements for pork due to H1N1 concerns, dairy, blueberries, and poultry [2].  In addition, China’s sanitary and phyto-sanitary standards do not always conform to Canadian standards and are not always in line with international standards.  Chinese ports have been known to apply phyto-sanitary standards differently.  For health food products, various standards can restrict the use of active ingredients and lengthy approval periods can be problematic.  Labeling approvals for retail products are now carried out by the local quarantine authorities, which can result in delays and added paperwork.    

The Canadian Government is working to resolve these and other related market access issues withChinaas they arise.  Nevertheless, conforming to the mandates of China’s Food Safety Law gives a chance for Canadian exporters to showcase their product quality and safety, which will definitely help build the brand awareness of Canadian agricultural food products in China [4].

Sub-Sector Identification

Cereals and oilseeds:

China’s demand for Canadian wheat fell dramatically over the recent year and has not recovered due to bumper harvests and adequate state reserves.  China has a stated policy of self-sufficiency in grain.  China imports large quantities of oilseed, mainly soybeans.  Canadian exports of canola seeds to China have continued to surge due to diminishing rapeseed harvests and high prices for cooking oil.  China is currently facing a shortage of oilseeds, vegetable oils and meal for its livestock industry. The outlook for canola seeds and canola oils are good.  There is great scope to expand sales of canola meal to China’s dairy industry.  China’s demand for Canadian barley is likely to grow as beer consumption increases.

Food ingredients and food service products:

Canadian products in demand by China’s food processing sector include: yellow peas, potatoes, frozen blueberries and milk powder (and whey powder).  China’s labour-intensive processing sector is increasingly modern.  Foods are produced both for the domestic market and for export markets.  Western functional foods and ingredients have not yet received widespread acceptance in North and West China.  Chinese consumers are demanding higher protein and fewer grains in their diet, and are eating out more often. Expenditures on food products have been increasing faster in some cases than income levels, and this trend is expected to continue.  Some of the greatest opportunities for Canadian suppliers of value-added goods exist in the food service industry.  Products in demand by hotels and restaurant include meat products, fish and seafood, cooking oil, maple syrup and beverages.

Livestock genetics, feed and other agricultural inputs:

The demand for protein by Chinese consumers is driving expansion of the livestock industry.  Pork is the preferred meat, followed by poultry products.  Beef and lamb consumption are smaller but growing.  China currently has 456 million pigs.  After many years of rapid expansion, the Chinese dairy industry is currently going through a major restructuration resulting from a drop in consumer confidence following a number of food safety issues. The long term prospects for the dairy industry remain positive.  Demand for dairy and swine genetics, live animals, veterinary medicines, management services for commercial-scale operations as well as for machinery and equipment is growing.  There is a growing demand for various feed ingredients.  On the horticultural side, China is the world’s largest user of pesticides and fertilizers.  Canada continues to export large amounts of potash to China.  Demand for new products that can lessen the environmental impact and improve food safety is increasing.

Canadian products with high potential include cooking oils, margarine, natural health products, maple syrup, bottled water as well as wine (especially ice wine).  Canadian imported processed products tend to be expensive and are found mainly in high-end supermarkets that cater to expatriates, wealthy Chinese people and weekend shoppers. Currently, Canadian food products are under-represented inNorth Chinain comparison with other foreign brands.  Canadian companies wishing to sell higher volume of products at the retail level in China are advised to undertake some processing and/or packaging in China to reduce their costs and, in certain cases, adapt the formulation and packaging to respond to local tastes.  Currently, most best-selling foreign brands are produced locally.

Source: The Canadian Trade Commissioner Service

Additional Sources

[1] and [2] taken from Export Development Canada’s, Doing Business in China - A Guide for Canadian Export.  This report is available for members to download from our Whitepapers & Reports section.

[3] The World Factbook.

[4] Information provided by theCanada China Business Council.

Canadian Government Contacts:

Embassy of Canada in Beijing
Email : infocentrechina@international.gc.ca
Website: tradecommissioner.gc.ca

Foreign Affairs and International Trade Canada
125 Sussex Dr .
Ottawa, ON K1A 0G2
Website: tradecommissioner.gc.ca