Over the past five years, China’s food processing industry has grown at nearly 30 percent annually, with 2008 total gross output value expected to reach RMB four trillion ($588 billion).
Required Report - public distribution
GAIN Report Number: CH9406
China - Peoples Republic of
FOOD PROCESSING SECTOR
2009 Update & Forecast for China's Food Processing Industry
Wang Jun, Susan Zhang, Evid Liu, Shen Xuejia and Pei
Over the past five years, China?s food processing industry has grown at nearly 30 percent
annually, with 2008 total gross output value expected to reach RMB four trillion ($588
billion). Continuing economic development, expansion of trade into the emerging cities,
increasing urbanization, interest in food safety, and increasing consumer interest in new
foods are all expected to continue generating major opportunities for high quality U.S. food
P Commodities: ost:
Beijing ATO select
This annual report examines trends and prospects in China?s food processing industry in
2009. The year 2009 is symbolic for China, because it marks the 30th anniversary of the
country?s reform process. While the country has been affected by the global financial
downturn, China still managed to grow at nine percent in 2008. In addition, the value of
foreign trade in 2008 reached $1,218 trillion, up 27 percent from $956 trillion in 2007.
According to the World Bank, China is now the second largest economy in the world -- only
the U.S. economy is bigger.
The food processing industry has played an important part in this economic miracle. In
2007, China?s food sales revenue exceeded RMB three trillion ($384 billion), 70 times the
1978 pre-reform level. In 2007, the number of large food processing companies grew to
nearly 30,000 with fixed assets totaling RMB 344.8 billion ($44.2 billion) with total food
export and imports of $32.3 billion and $30.6 billion, respectively. If small processors are
included, it is also believed that China has up to 500,000 food processing firms.
Despite 30 years of development, China?s food processing industry is still immature,
especially compared with developed countries. For example, its ratio of processed output
value to agricultural production value is only 1:2. This is much lower than the 3:1 in
developed countries. At the moment, relatively little value is added in China during
processing because much of the production is still fairly basic and focused on primary
activities such as milling and slaughter.
Growth in the food processing sector has averaged almost 30 percent from 2003 to 2007.
Although growth will likely fall after 2008, it should stay in the double digits. Food
processing has grown quickly partially because of rising demand for food products and
because the sector requires fairly low investment and uses relatively unsophisticated
technology. While this has resulted in a very open, competitive and dynamic industry, it
has also contributed to the fragmentation of China?s food market, low profit margins and
occasional quality and safety problems.
In 2008, China was not been spared from the global economic downturn ? although it was
less impacted than other places. Reliable sources believe that China will not reach its
earlier eight percent growth target. Instead, most put expected growth at six to seven
percent. This relative slowdown has led to the closure of many small and mid-sized
companies, declining FDI, and a reduction in customer visits to high end hotels and
restaurants. To boost economic activity, the Chinese government has implemented a
range of measures, including a RMB 4 trillion ($588 billion) plan aimed at revitalizing ten
core industries, including the food processing sector.
Fortunately, the food industry has been even less affected by the downturn than the
economy as whole. Slowing but sill rising disposable income and accelerating urbanization
are continuously changing the Chinese diet away from the conventional fresh food and wet
markets to the more western type packaged food and hyper market. Chinese are also
getting used to frequent dining-out and eating dairy foods while the young and white collars
prefer frozen and convenient food. At the same time, young parents seek out high quality
baby food and the elderly also seek healthier foods. At the same time, food safety has
become a major concern for Chinese consumers because of the Sanlu melamine-
contaminated infant milk powder scandal and other problems. Other trends such as
ongoing urbanization, an aging population and other factors will also have a major
influence on the market. For experienced U.S. exporters who prepare carefully, all of these
trends provide ample opportunities for U.S. food ingredients.
Note: RMB is converted into U.S. dollars at prevailing rates in effect during data collection
periods. In 2007, $1 = 7.6 RMB and in 2008-2009, $1 = 6.8 RMB.
SECTION I. MARKET SUMMARY
1.1.1. Number of firms and sales revenue
Despite rapid development over the last three decades, most of the Chinese food
processing industry is concentrated on primary processing. According to Chinese official
data, most firms still specialize in the primary processing of food products such as milling,
animal slaughter and refining. The statistics separate industrial food production into three
Food processing, including primary activities such as rice milling, flour milling, oil
refining, sugar refining, slaughtering, salt processing, feed processing, and aquatic
Food manufacturing, consisting of packaged food, pastries and confections, dairy
products, canned foods, fermented products, and condiments; and
Beverage manufacturing, which is the production of alcoholic beverages (i.e.,
distilled spirits, beer and wine), soft drinks and tea.
Figure 1: Food Processing Industry, Number of Firms & Sales Revenue, 2007
(Sales Revenue in RMB billion)
Source: China Statistical Yearbook, 2008
* Statistics are only available for firms with annual sales revenue in excess of RMB 5 million.
** 1 US. Dollar was equal to approximately 7.6 RMB in 2007`
With almost 30,000 major processors and sales worth RMB 2.8 trillion ($368 billion), the
data portray a large food processing industry in China, both in number of firms and sales
revenue. However, since these data do not include those with annual sales revenue less
than RMB 5 million ($735,000), the real number of processors is likely much larger. While
the 2006 China Statistical Yearbook estimated the total number of firms in the sector at
125,000, other sources put the total at between 450,000 to 500,000. In terms of value, the
large food processors are believed to have around a 70 percent market share  , putting
total industry value at around RMB 4 trillion ($526 billion).
The industry is also very fragmented: The top 100 firms in China only accounted for less
than 25 percent of total sales in 2006. Although consolidation is under way, major
economies of scale are a long way off for much of the industry. This process will also be
slowed by the dominance of regional firms, the undeveloped cold chain, and the fall-off in
Foreign Direct Investment (FDI) which fell 15 percent from March 2008 to March 2009.
Figure 2: Number of Firms and Sales Revenues in Sectors in Percentages 2007
Source: China Statistical Yearbook, 2008
* Statistics are only available for firms with annual sales revenue in excess of RMB 5 million
Despite of its huge size, China?s food processing is still focused on the primary processing
of agricultural products, which accounts for 62 percent of the industry. The other sectors
that include food and beverage manufacturing jointly account for only 38 percent. This
figure is far lower than in developed countries and reveals the immaturity of China?s food
processing industry. On the other hand, the relatively undeveloped state of food
processing can also create potential opportunities for U.S. exporters who can partner with
emerging Chinese companies.
1.1.2. Market growth
The past few years have witnessed the most robust growth for China?s food processing
industry since China?s reforms started over 30 years ago. For the last five years, the
industry maintained an annual average growth rate of 11.32 percent. The primary food
processing sector, the largest part of the industry, achieved an impressive growth rate of
12.83 percent, followed by food manufacturing with 9.41 percent and then beverage
manufacturing at 8.47 percent. Although growth data on small firms is not available, it is
believed to be tracking that of the primary food processors. Although the current economic
crisis is expected to sharply reduce these increases, rising incomes and the accompanying
move to better foods will likely keep growth at least half these levels in 2009 and beyond.
Figure 3: Growth of Numbers of Firms in Food Processing Sectors 2003 - 2007
Source: China Statistical Yearbook, 2008
* Statistics are only available for firms with annual sales revenue in excess of RMB 5 million
In the recent past, growth in the food processing sector was robust because of rising
demand for processed food products and aid by the fact that primary processing requires
fairly low investments and relatively unsophisticated technology. While this has resulted in
a very open, competitive and dynamic industry, it has also contributed to the fragmentation
of China?s food market, low profit margins and occasional quality and safety problems.
This dynamic is expected to continue since companies compete largely on price.
However, in the immediate future, growth for small firms may go slow because of a higher
entry bar set by the government?s new Food Safety Law, effective from June 1st, 2009.
Figure 4: Growth of Sales Revenue in Food Processing Sectors 2003- 2007 (RMB100 million)
Source: China Statistical Yearbook, 2008
Compared with the number of firms, the growth of sales revenue is even more impressive.
The 2003-2007 average annual growth was to 28.89 percent, far outpacing the growth in
the number of firms. The primary food processing sector still leads among the three
sectors, boasting a yearly average growth rate of 30.81 percent, followed by food
manufacturing at 28.18 percent and beverage manufacturing at 23.93 percent.
While the 2008 data is not available yet, it was reported recently that the sales by end of
the third quarter of 2008 were over RMB 3 trillion ($441 billion) ? and that this would climb
to RMB 4 trillion ($588 billion) by end of 2008. Even if the financial crisis cuts the 2008
total below RMB 4 trillion, growth in 2008 is still expected to be around 30 percent from
2007. Based on the long-term trends in the food industry and China?s expected growth of
six to seven percent, 2009 growth in food processing will likely fall is still expected to
remain well into the double digits.
1.1.3. Individual sector size and growth
The Chinese food processing sector can also be examined based on products and
ingredients. The table below illustrates the relative size of the sectors and how fast each
has grown over the past five years. Except for the fresh food sector (including meats, fish
and seafood, nuts and eggs, see table below) which experienced mild growth of 2.98
percent, all other major food sectors grew more than 10 percent -- with some even closing
20 percent. Growth in beer, oils/fats, juices and dairy processing were especially
remarkable. Although most of these sectors are expected to keep growing, the dairy
sector will likely face a contraction because of food safety issues. Although 2009 will likely
be challenging for the dairy sector, tighter regulation, ongoing consolidation and the exit of
the more disreputable companies will likely pave the way for recovery in 2010.
Figure 5: Sub Food Sector Market Sizes
(Value at RMB million at Current Prices, Volume at 1,000 tons)
Items 2004 2005 2006 2007 2008 Annual
(Value) 216,923.1 238,946.2 265,418.1 304,085.6 346,584.3 12.43
Beer 92,269.9 102,658.6 117,275.3 139,474.6 162,998.9 15.29
Wine 22,697.4 24,321.6 26,391 30,491.2 34,489.9 11.03
(Volume) 576,415.4 600,789.8 617,444.8 632,636.7 648,130.8 2.98
Meat 73,911.3 79,095.1 82,525.8 84,926.1 88,086.4 4.48
seafood 39,163.8 40,631.5 42,101.6 43,571.2 45,527.9 3.84
Nuts 5,328.4 5,355.4 5,550.6 5,708.3 5,843.0 2.33
Eggs 20,748.0 23,711.8 25,677.2 27,642.3 28,609.0 8.36
(Value) 105,550.9 120,015.9 134,688.8 149,616.2 174,140.7 13.33
wellness ? 48,259.7 52,102.9 56,854.8 61,478.7 66,293.6 8.26
(Value) 458,838.7 509,873.0 566,936.2 636,425.8 706,120.0 11.38
(Value) 79.735.0 97,371.9 114,990.9 132,258.6 148,722.7 16.86
Oils and fats
?Value? 25,039.3 30,177.8 36,540.9 43,819.1 51,562.4 19.79
(Value) 135,824.5 153,569.6 172,750.8 198,640.3 228,822.6 13.93
juice (Value) 36,281.3 43,785.6 51,578.5 62,781.4 72,308.5 18.82
Sources: ©2009 Euromonitor International
Note: 2008 data is provisional and based on part-year estimates.
1.1.4. Imports vs. domestic inputs
Pushed by its rapid food consumption growth, China?s demands for raw materials are
increasing quickly. While China itself is a major agricultural producer, it is also one of the
world?s largest agricultural importers. The data show that despite increasing agricultural
production over the past five years, China?s imports continue to climb because China?s
rising food consumption has outpaced domestic supplies. In 2008, China?s export of
agricultural products reached $40 billion, while imported $58.6 billion. This is the first time
in recent history that China?s food imports exceeded exports. And it is very likely that
China will remain a net food importer because of its limited production resources and high
consumption growth. The effects on individual products vary. For example, import growth
for commodities such as cereal and meat is generally below 5 percent while for other
products such as dairy the average growth rate hit 23 percent (before the melamine
crisis). In 2009, growth for many products should remain high ? although lower than in the
Figure 6: Food Ingredients Imports vs. Domestic Supply 2003-2007
Items 2003 2004 2005 2006 2007 Annual
442.424 2,218.543 1,394.914 820.813 514.990 3.87
10,000 37,428.7 41,157.2 42,776.0 45,099.2 45,632.4 5.08
90.639 54.452 28.968 21.305 123.149 7.96
Domestic 4,238.6 4,341.0 4,555.3 4,650.5 4,287.8 0.29
11.932 9.946 8.769 8.538 14.198 4.44
10,000 542.5 560.4 568.1 576.7 613.4 3.12
413,093.84 560,809.5 660,220.709 791,791.135 956,258.454 23.35
products $ mil
10,000 1,848.6 2,368.4 2,864.8 3,302.5 3,633.4 18.40
$ m 47.930 48.452 44.629 54.512 54.772 3.39 il
10,000 1,345.4 1,495.8 1,591.9 1,789.8 2,058.3 11.22
5.078 81.047 12.17
$ m 51.190 82.212 98.100 8il
10,000 517.6 567.5 579.4 627.1 669.7 6.65
Source: China Statistical Year Book 2008 and World Trade Atlas
1.1.5. Production & consumption forecasts
Based on currently available data and trends, China is likely to remain a major importer of
many major food ingredients. For example, trends in dairy products and meats point to
increasing Chinese imports from overseas.
Figure 7: China Agricultural Production & Consumption Forecast (volume at 1,000 tones)
Items 2008 2009 2010 2011 % Avg.
forecast forecast forecast forecast Annual
Whole Production 1,196.7 1,296.5 1,414.9 1,545.0 8.89
Powder 1,187.7 1,282.2 1,382.9 1,498.0 8.04
Butter Production 99.4 99.9 100.9 103.3 1.29
Consumption 132.6 138.4 142.0 146.3 3.33
Cheese Production 249.5 252.3 253.3 259.5 1.32
Consumption 294.5 313.4 326.2 337.9 4.69
Poultry Production 11,115 11,385 11,652 12,000 2.59
Consumption 11,286 11,520 11,788 12,117 2.40
Pork Production 48,191 52,045 55,232 58,585 6.73
Consumption 47,938 51,259 54,249 57,494 6.25
Beef & Production 8,058 8,381 8,882 9,410 5.31
Veal Consumption 7,969 8,397 8,924 9,556 6.24
Source: Business Monitor International
These trends are expected to increase net imports for all major meat and dairy products,
except for poultry (where China can be generally competitive).
Figure 8: Forecast on China?s Negative Trade Balance on Some Products 2008-2011 (volume at 1,000
Source: Business Monitor International
1.2. Market Drivers
The Chinese food market is driven by several factors ? all of which are pushing up
demand for me. Although the economic slowdown has had an impact, the increases in
most kinds of consumption are expected to continue.
1.2.1. Increasing disposable income
The robust economic development over the last 30 years has greatly increased Chinese
disposable income, fueling expansion of the food industry.
Figure 9: Per Capita Income and Food Expenditure in China 2003-2007 (RMB)
Source: China Statistical Yearbook, 2008
Most recently, disposable income growth over the past five years has increased more than
ten percent annually. Urban income grew at 12.94 percent while rural grew at 12.10
percent. Meanwhile, food expenditures had high average annual growth rates of 10.70
percent for urban consumers and 11.90 percent in rural areas. Since urban consumers
already have higher incomes and already consume more expensive and processed food
products, their consumption growth rate is lower than in rural areas.
While the growth rates vary only slightly, it is worth noting that rural food expenditures are
growing more rapidly but from a smaller base since they only are around 40 percent of
urban totals. This is mainly because rural consumers? sensitivity to price and their
preference for fresh food over processed food. Until rural areas get more income, the
center of the processed food market still lies in the urban areas.
Over the next several years, continuing growth in disposable income is expected to keep
fueling a consumer boom. The number of urban households earning more than US$5,000
a year will likely grow annually by 24 percent, creating tens of millions of new consumers
for high-value and imported food products. Around 5.8 million Chinese households
already have ?Western? levels of disposable income at US$10,000 or more per year.
Chinese traditionally prefer fresh food and the wet market than processed food and super
market. Reflecting this, rural people still mostly consume self-farmed crops, swine, poultry
and eggs and only trade limited food when needed in wet markets. In urban areas, people
are getting increasingly used to processed food and shopping in supermarkets. As
urbanization moves forward, it is expected that the consumption of processed foods will
The Chinese government has been encouraging urbanization for years, with a purpose of
creating more jobs to accommodate more surplus rural laborers. As a result, rural
population has been decreasing as urban population climbs. If current trends continue,
the majority of Chinese will live in cities by 2013. This could have profound implications for
Chinese demand for processed foods.
Figure 10: Urbanization Trends 2003-2007
2003 2004 2005 2006 2007 % 4 Yr.
P 1292.27 1299.88 1307.56 1314.48 1321.29 0.56 opulation
Urban 523.76 542.83 562.12 577.06 593.79 3.19
Rural 768.51 757.05 745.44 737.42 727.50 -1.40
Source: China Statistical Yearbook, 2008
The above figure shows a clear trend toward urbanization. While the total population
increased by 0.56 percent (7 million) annually, the rural population has been shrinking by
1.4 percent or by about 10 million a year. At the same time, the urban population soaring
by 3.19 percent or around 15 to 20 million a year. Although the 2008-9 economic crisis
saw a slight reversal of this trend because 20-40 million migrants lost their jobs,
urbanization is expected to resume in the near future.
1.3. Consumer Trends
Consumption patters in China are in rapid transition, particularly in the urban areas.
1.3.1. Safe food welcomed more than ever
Following a long list of food safety scandals, Chinese have never been so concerned
about food safety. In 2007, a survey made by A.T. Kearney Inc showed food safety is very
important for Chinese middle-class consumers, and 83 percent are willing to pay more for
it. A more recent survey by the Horizon Group and Sohu News Centre also showed that
food safety remains of the biggest concerns for residents in China?s major cities. These
trends should boost the market for U.S. food ingredients.
1.3.2. Food away from home increasing
According to a July 2007 USDA survey, urban Chinese spent RMB 225 ($33) per person
per month on food away from home. This came to around 20 percent of their yearly
disposable income on food away from home (This is based on urban disposable income of
RMB13,786 in 2007, China Statistical Year Book 2008). Around 40 percent of food away
from home is consumed in cafeterias, with another 20 percent in restaurants, about 10
percent in fast food venues, and another 10 percent at small food stands. Even though
the financial crisis has changed this trend slightly, it is not expected to fundamentally
1.3.3. Young generation are fans of convenient food and dining out
As in any other country, the generation aged from 20 to 40 wants to use their purchasing
power to get a better lifestyle. This group is largely different from their parents and is
influenced by the western lifestyle. As a result, they are usually fond of dining out and
shopping. When eating at home, they prefer cooked, semi prepared and packaged foods.
For them, food should be recreational, convenient, healthy, and ideally functional.
1.3.4. Yinfa industry, a promising market
While the young are an important market, China?s population is also ageing rapidly. This
is leasing to the creation of an industry, the ?Yinfa? sector, or The ?Silver Hair? industry.
Figure 12: Population by Age 1995, 2007 and 2015 (% of total Population)
Age Groups 1995 2007 2015
0-4 yrs 8.23 4.82 5.08
5-9 yrs 10.18 5.59 4.92
10-14 yrs 8.60 7.12 4.95
15-19 yrs 8.06 9.02 5.91
20-24 yrs 9.89 6.56 7.25
25-29 yrs 10.32 6.56 8.06
30-34 yrs 8.06 8.29 6.52
35-39 yrs 7.20 9.81 6.84
40-44 yrs 6.88 9.74 9.10
45-49 yrs 4.93 6.31 9.64
50-54 yrs 4.13 7.53 7.95
55-59 yrs 3.78 5.61 6.82
60-64 yrs 3.40 4.05 6.32
65-69 yrs 2.60 3.28 4.14
70-74 yrs 1.86 2.73 2.79
75-79 yrs 1.08 1.68 1.94
80+ yrs 0.82 1.28 1.74
TOTAL 100.00 100.00 100.00
Source: National statistics, UN, Euromonitor International
Note: As of 1 January 2008
The table above shows that the population over the age of 60 has increased from 9.76
percent in 1995 to 13.02 percent in 2007, and is estimated to reach 16.93 percent by
2015. This change could be attributed to both increasing life expectancies and the One
Child policy. Thanks to increasing life expectancies and much-improved health conditions,
the number of elderly in China has been increasing rapidly. In 2007, this number reached
170 million, and is projected to hit over 230 million by 2015. The One Child Policy works in
the opposite way by decreasing the size and proportion of children in the population.
The ever growing number of the old has triggered emergence of the Yinfa food sector.
The old are quite concerned about their health, and see food as a part of the way to stay
healthy. This is based on the traditional Chinese philosophy of ?Shi Bu Sheng Yu Yao Bu?,
meaning ?healthy food is superior to medicine?. To this end, the old are consuming a large
amount of functional and healthy food and/or vitamins and nutritional supplements plus
traditional Chinese herbal medicines. These trends open the door to producers of high
quality health food ingredients and nutritional supplements.
1.3.5. Geographic consumption differences
China is a huge country. This idea not only applies to its population size, but also its land
area. The vastness of the country creates has created varied cultures and highly
diversified eating and drinking preferences across the country. Previously, exporters
would just leave the decision of where to sell their products to agents. But to be effective
in the market, people need to understand the geographic eating preferences throughout
In general, China?s market for consumption of food can be divided into five major regions:
East, North, South, Southwest and Northwest. Provinces from the same region have
relatively similar eating habits. This guide provides some rough ideas on where their
products could generally go. The table below takes one representative province for
example from each region to show the differences. For example, Beijing for the North,
Shanghai for the East, Guangdong for the South, Chongqing for the Southwest, and
Shaanxi for the Northwest.
Figure 11. Per Capita Annual Consumption Expenditure on Food Types of Urban Households by
Region 2007 (2007 RMB)
National Beijing Shanghai Guangdong Chongqing Shaanxi
Tubers 26.19 43.10 38.91 20.09 33.43 33.66
Bean 43.43 51.95 74.97 36.73 43.00 45.58
F 117.32 132.95 117.58 134.69 158.81 112.11 ats
and 703.27 819.14 907.66 1264.72 848.81 429.03
Eggs 83.83 99.47 89.05 65.41 85.78 68.58
Produ 243.78 208.82 669.24 489.13 135.13 68.76 cts
melon 272.24 489.57 450.44 306.04 228.85 234.79 s
Cake 74.01 173.87 170.70 90.34 57.60 83.32
Milk and 160.72 279.45 313.04 147.10 181.94 151.78
Source: China Statistical Yearbook 2008
The figures above in Red indicate the top consumption and the Blue ones imply the lowest
Generally speaking, North and Northeast region prefers starches, tubers, eggs,
dried and fresh melons and fruits.
Eastern people are willing to spend more on beans and bean products, and
particularly like aquatic and dairy products.
The southern region, represented by Guangdong, takes lead in meat and poultry
consumption, but is less interested in starches, tubers, beans, eggs and dairy
Southwest people are prefer fat and oil, but stingy on melons and fruits and cake.
Northwest, compared with other regions, is not keen on aquatic products and, is less
interested in meat and oil and fats.
Note: Although the table does not correct for the varying purchasing power of the different
regions, it does provide some rough idea of consumption patterns.
1.4. Analysis on Selected Sectors
1.4.1. Frozen processed food
Thanks to the ongoing improvement of cold chain infrastructure and the increasing
ownership of refrigerators, the quick frozen products industry has been growing at over 20
percent since early 2000s. Increased family incomes and a reduction in the time available
to cook among urban middle-class consumers are spurring more Chinese consumers to
purchase frozen processed foods. According to Euromonitor, total sales of frozen
processed food, including frozen processed red meat, poultry, seafood, vegetables,
potatoes, and quick frozen read-to-eat products amounted to RMB 32.3 billion ($4.8 billion)
in 2008, a 12 percent increase over 2007. The largest sector is quick frozen processed
food products, which are becoming increasingly varied. In addition to the traditional best
sellers of frozen dumplings, sticky rice cakes, buns and frozen beef/pork/fish/shrimp balls,
new varieties such as frozen pizza, frozen soup, frozen noodles and frozen desserts are
gaining popularity among younger consumers in China.
Currently, 90 percent of quick frozen processed food products are consumed by families.
The major consumer segment is the working mothers and single white-collars in 1st tier
and 2nd tier cities. The HRI is not as well developed because of weak distribution
channels to the sector. However, higher margins in the food service sector are attracting
major players interested in exploring market opportunities in this area and could be
another opportunity for U.S. exporters.
According to the China Institute of Food Science and Technology, there were around
3,000 quick frozen processed food product manufacturers in China in 2008, with famous
brands including Synear, Sanquan, Longfeng, Haibawang, Taixiang, Jiayuan, and
Haodangjia. The manufacturers are mainly located in north China, and the top ten
manufacturers holding more than 70 percent of the total market share in 2008. Among
them the two biggest brands Synear and Sanquan, both located in Henan Province, took
nearly 16 percent of the total market share.
The promising industry has been the target of heavy in investment in the past few years.
Large-scale meat processors including Shuanghui, Jinluo, Yurun, Zhongpin have also set
up branch companies specializing in quick frozen processed food products.
Local firms have been making considerable effort to attract investment for further
expansion. Some successfully export their products to overseas markets such as Japan,
Korea and the United States. Some are listed on the stock market. After Synear
successfully listed on the Singapore Stock Exchange in 2006, Sanquan, another famous
brand also based in Henan, was also listed on the Shenzhen Stock Exchange in February
2008. The 2008 Olympics even had an official dumpling supplier ? Synear, which unveiled
a series of advertising and marketing campaigns last year to strengthen its leading position
in the industry.
Encouraged by the promising market, international food firms including Katokichi from
Japan, and General Mills from the United States also came to China to set up their joint
ventures or wholly-owned companies. General Mills invested $13 million in Shanghai to
produce frozen dumplings and wontons, targeting the upper tier of the market. Nowadays
Wanchai Ferry, a famous brand owned by General Mills, has dominated the high-end
market in Shanghai, Beijing and Guangzhou, and has racked up sales of nearly RMB 200
million ($29 million) in 2008. Wanchai Ferry has occupied one third of the market in
Shanghai and Beijing, and over 50 percent of the Guangzhou market share.
Unit prices of frozen processed products grew in 2008 due to rising cost of ingredients
(edible oil, flour, pork) and operations (listing charges at retail outlet) as well as the
packaging materials. The new regulations effective in 2007 required that all frozen food
products must be packaged, hence driving all ?naked? frozen dumplings out of the
retailers. This effectively improved the food safety of the quick frozen processed food
products, but meanwhile resulted in a 20 percent increase in retail prices.
Although distribution problems caused by inefficient logistics and China?s relatively
undeveloped cold chain infrastructure continue to constrain development of the sector,
Post believes that continuing urbanization and increasing affluence of Chinese consumers
leaves immense room for growth of the still-young quick frozen food industry in China.
U.S. exporters could find targeting this sector very lucrative.
1.4.2. Baby food
Approximately 20 million babies are born in China every year. Statistics show that
currently the population of infants aged between newborn and four years old is around 80
million. The 2008 Beijing Olympics stimulated many couples to have an ?Olympics Baby?
to coincide with this major historical event. This helped create another baby boom after
the last 2007 ?golden pig? baby boom. The family planning system imposed by the
Chinese government that only allows most Chinese families only one child, ensures that
more care and attention are lavished on those children.
Statistics show that nearly 80 percent of all working women are mothers in China, with
children aged between zero and 16 years old. Increasingly, these working mothers are
influencing the baby food industry. Working mothers help maintain the income of the
household at higher levels, but also have less time to prepare fresh food for their children.
With increased disposable incomes, young Chinese couples demand safer and better
quality baby foods and are less sensitive to price.
According to Euromonitor, 2008 saw the market size of baby foods in China reach RMB
29.1 billion ($4.3 billion), a 25.4 percent increase over 2007. Taken over time, the growth
has been especially remarkable: The baby foods market in China has grown 191 percent
since 2002. The spread of retail outlets, improved cold chain and distribution systems,
and increased refrigerator ownership are contributing to the growing consumption of more
diversified baby food products.
Spending per child is also on the rise, and consumers are able to afford the higher quality
and more expensive products in the market. Unit prices of baby food increased in 2008
due to increasing global dairy ingredients prices as well as growing packaging materials
and transportation cost.
Over 70 percent of baby foods are distributed via supermarkets and hypermarkets.
Internet sales are growing popular among those who are very busy or loyal to imported
brands. On the other hand, the institutional market for baby food products is also growing,
as nurseries and childcare institutions proliferate. Those with better food care are more
attractive to busy working parents.
Figure 11: Sales of Baby Food by Subsector: Value 2003-2008
Source: Euromonitor International
Newcomers to this industry, whether domestic or overseas companies, continually enter
the market, driving the demand for many new and increasingly sophisticated products for
babies. Infant formula milk powder, dried baby food (rice powders etc.) and prepared baby
food (packaged foods in cans and jars) constitute the core of the baby food market.
Infant formula milk powder represented 87.5 percent of the total market value in China in
2008 and was its fastest growing sector. Although breastfeeding has been actively
promoted by the government and health authorities, working mothers generally have to
return to work after their maternity leave (normally 90-120 days) in urban areas and are
often no longer able to breastfeed their babies. In addition, strong TV advertising
campaigns by the infant formula manufacturers try to convince young parents that the
added nutrients, like ARA, DHA, minerals and vitamins in their products are helpful in
improving their babies? brain and eye development. Foreign brands such as Nestle,
Wyeth, Similac Advance, Ausnutria, Dumex, Anmum, Mead Johnson, Primavita,
Ausmeadow, and Good Health share 80-90 percent of the market. Yili from Inner
Mongolia, Shengyuan from Qingdao and Wonder Sun from Heilongjiang are the biggest
Dried meals and packaged foods in cans continue growing, with flavored rice powders the
most significant part of the dried meals category, and mixed vegetables, fruit, fish and
meat are found in much more diversified flavors. Heinz and Nestle entered the China
market in the 1980s and since then have built up high awareness among their target
consumers. The domestic brand Beingmate was created in early 1990 and has more than
50 percent market share shared with Nestle and Heinz. Imported brands such as Gerber
are dominating the high end market and have cultivated their own loyal consumers.
Attracted by the great potential in China market, newcomers such as Eastwes and CEVO
have also entered into this fierce competition.
The melamine scandal triggered by Sanlu, a leading domestic dairy brand whose baby
formula powder was contaminated by melamine killed at least six infants and poisoned
around 30,000, influenced the baby food market in several areas. One, it undermined
consumers? confidence in domestic baby formula products and baby foods, resulting in
drastic increase in demand for imported products. Many consumers, affluent or not so
affluent, decided they were concerned more about safety instead of price ? and turned to
foreign brands. Two, new channels were developed by concerned parents for purchasing
imported baby formula. As a result, online shopping on Tao Bao, purchasing via
international airline crews, buying via friends or relatives traveling abroad, or traveling to
Hong Kong and Macau to purchase baby formula, all undermined the sales of domestic
Post estimates that in 2009 the baby food market will continue growing quickly in line with
rising incomes, especially since the baby food market is not very price sensitive, especially
in affluent areas like Shanghai and Beijing. Brand awareness, which is seen as a
guarantee of quality and safety, will remain the key factor that influencing purchasing
decisions. More international brands who enjoy good reputation on quality and safety will
find it easier to break into the market. However, domestic baby formula brands are likely
to eventually regain part of the market share with strengthened production standards and
intensive promotion aimed at restoring consumer confidence. Exporters or producers of
high quality baby food raw materials are highly recommended to tap this market.
Over the last ten years, China?s baking sector has grown by 10 percent annually. This
performance is relatively strong given China traditionally is not a bakery food consuming
country. Strong demand is being driven by both economic growth and changing consumer
lifestyles. Western lifestyles in urban areas are pushing up demand for
packaged/industrial bread in China, and whole-wheat sandwich and white bread are the
two most popular varieties. Children, teenagers and white collar workers are the main
consumer groups while others such as older family members are also influenced by them.
The recent global financial crisis and the slow growth of China?s economy have had a
minimal impact on the fast growing baking industry. Sales of expensive items have slowed
but those at moderate or lower prices still sell well. To illustrate current trends, this section
looks at southern China, which has China?s most developed baking industry.
Baking business in wealthy southern China has kept growing well, especially in large cities
in Guangdong and Fujian provinces. Industry sources believe that the industry in general
has had two-digit percentage annual growth in recent years (official statistics were not
available). Improving income levels drive consumers to become more lifestyle focused,
and the faster pace of life is making ready-to-eat and prepared foods more accepted.
Western style baked items, including breads, cakes, pastries and desserts, have all
become very popular daily items.
The lucrative business has attracted both foreign and domestic bakery operators. While
veteran chain stores, for example, Maxim?s Group and Queens Cake Shops in
Guangdong, enjoy consumer loyalty, thanks to their consistently high product quality.
Meanwhile, upscale newcomers like Bread Talk, Yamazaki and even Starbucks Coffee
and Circle K Convenient Stores are trying to gain market share by introducing innovative
flavors, interesting product names, on-site baking, and eye-catching store images.
The bakery industry is highly fragmented because of product freshness requirements,
uneven development of the industry, as well as subtle consumer taste differences in each
province. Therefore, each area has its own dominant bakery chains. Meanwhile, high-end
bakeries are eager to differentiate themselves from competitors, and a focus of their
strategy is on product quality and innovation, which creates ample opportunities for high
quality ingredients from the United States and other countries.
Imported ingredients and those made by foreign invested companies or joint ventures
accounted for a substantial portion of the high valued items. Price remains a constraint
that limits expansion of high quality ingredients in China. Setting up processing and
manufacturing facilities in China is a way that many foreign companies employ to make
their products more price competitive.
Though traditional Chinese pastries such as moon cakes still dominate, consumers are
becoming more sophisticated and demanding for greater varieties and quality of bakery
products. Premium bakery chains continue playing a leading role in distribution, product
innovation with fierce competition. Regional bakery chains are the most influential
operators in respective territories, and there is no national chain yet.
The baking industry in southern China is made up of domestic and international
ingredients makers, baking ingredients traders and numerous bakeries in various sizes.
Major baked products makers can be categorized as industrial manufacturers, bakery
chains, retail outlets as well as the upscale hotels. Baking industry in Guangdong and
Fujian provinces are much better developed than in other southern China provinces.
A limited number of ingredients traders serve most of the market in respective provinces,
e.g., Guangdong or Fujian. They consolidate ingredients from a number of ingredients
producers who are located either in China or overseas, and sell to bakeries. Many of them
supply a full range of ingredients, whereas some specialize in a certain category of
ingredients, for instance, dairy ingredients, or oils and fat. With the support from
ingredients producers, large ingredients traders often provide technical assistance to their
The industry is shows some trends:
Bakery chains are grabbing more and more shares from individual bakery shops;
Cold chain and frozen dough is becoming popular to ensure freshness
The operation in the industry becomes more standardized and less labor intensive,
due to the increasing labor cost and limited labor supply
Food safety and quality becomes increasing concerns for the industry
The baking market in South China offers promising opportunities for U.S. bakery ingredient
exporters. Making products with high quality ingredients is a way that high-end bakeries
use to differentiate themselves from competitors, and thus create substantial demand for
high quality ingredients. A wide range of imported baking ingredients, including wheat
flour, dairy ingredients, dried nuts and fruits to fruit jam, filling and premixed flour, are
frequently incorporated in baked goods by high-end bakeries, aiming to enhance nutrition
and improve appearance with the consequence of bringing the products higher margins.
Large international baking ingredients makers, including Rich?s, Bake Mark, AB Mauri and
Roquette aggressively promote their products in this market. Some international giants
have also established processing plants in China to better serve this huge market in the
long term. Baking related associations from the US, France, Germany and Japan are
actively developing their influence on the Chinese industry. Overall, the US is a
competitive supplier in this market, given its high product quality, constant supply, as well
as the versatility and diversity of products.
Traders tend to view wanting ingredients that fall into three categories:
(1) Large volumes of frequently used ingredients such as flour, sugar, fat and oil
(2) Items used less frequently but add value to the final products, such as canned fruit,
baking powder and chocolate
(3) Additives and colorings.
Below summarizes the opportunities and constraints for U.S. ingredients in South China.
Booming baking industry in the region creates ample opportunities for high quality
Wealthy consumers in the region and westernized life style generate substantial
demand for high quality baked products;
Depreciated U.S. dollar against Chinese Remenbi makes U.S. ingredients more
price competitive in this price sensitive market;
As consumers are exposed to more western baked goods in their travels to other
Asian countries and to North America and Europe, they are looking for similar items
to be available locally.
Limited knowledge by baking professionals on use and application and how U.S.
baking ingredients can add value;
Lack of new recipes featuring U.S. ingredients because of the perception that
products made with U.S. ingredients are too expensive;
Low consumer awareness of the wide variety of U.S. bakery ingredients and their
Price is the determinant factor for bakery ingredient sales. Chinese ingredients are usually
less expensive, and produced by numerous individual farmers or small farms. Compared
to Chinese ingredients, U.S. ones are commercially grown and processed, which enables
more consistent quality, traceability and guaranteed food safety. However, prices are
highly sensitive and constrain expansion of U.S. ingredients in this market.
As a result of cost concerns, most baking ingredients are domestically processed, by
either foreign invested companies or domestic Chinese companies. But some ingredients,
for example, cheese, butter, whipping cream, high quality fruit jam, rely on imports. High
quality dried fruit and nuts are also competitive for upscale bakeries as they are eager to
differentiate their products from their lower end competitors. High end bakeries insist on
quality, despite the high prices.
However, higher prices compared to Chinese ingredients together with improved quality of
domestically processed ingredients make the imported ingredients less competitive. U.S.
bakery ingredients are available in China, but there is potential to expand penetration,
promote sustained usage, and diversify selection. To further promote ingredients, U.S.
exporters are suggested to continue working closely with ingredient traders, to educate
users, as well as promote final products to consumers. Targets include bakery
manufacturers, bakery chains and luxury hotels with internal bakeries in South China
markets including Guangzhou, Shenzhen, Dongguan and Foshan in Guangdong province,
as well as Fuzhou and Xiamen in Fujian province, where the baking industry is well
capable to further feature U.S. ingredients.
High quality and health benefits are the strong selling points for U.S. ingredients in China
market. A number of suggestions will be helpful for U.S. ingredients exporters to spur
consumption of U.S. ingredients in the market:
1. Educate both bakers and consumers with the product;
2. Provide technical assistance to bakeries;
3. Work with Chinese bakers to develop recipes that suit the local palette and market;
4. Conduct in-store promotions to encourage purchases
Mooncakes, Chinese delicacies enjoyed by families in the Mid-Autumn festival season in
mid-to-late September and the following National holidays, are the biggest revenue
generators during a year for bakeries in China. Mooncake sales of $1.6 billion in 2008 plus
growing hunger for trendy new mooncakes with innovative fillings have created a niche
market for U.S. ingredients. However, the chief challenges are price and ingredient
awareness. They need to be combined to maximize taste and profit. (Refer to GAIN
CH7624 for more details on the China mooncake market.)
Conventional moon cakes in south China consist of very fine crusts of flour and different
fillings: lotus seed puree with egg yolks, multiple nuts with pork, or red bean puree. In
recent years, new varieties with different ingredients, e.g., fruit flavor (filling with fruit flavor
winter melon puree), ice-cream and chocolate, have become popular, especially by young
high income earners. Various high quality U.S. ingredients, e.g., cranberry and almonds,
have also been creatively mixed with conventional lotus seed puree or multiple nuts in the
moon cake filling.
In recent years, there have been significant surges of high value mooncakes, largely
driven by increasing well-off new generation in cities. This group of consumers, mostly
urban females between 18 to 32 years old, earning $1,000 or more per month, believes
food products with health benefits and willing to pay. Cranberries and blueberries have
been the most successful ingredients promoted in the high end mooncake sector, due to
the health benefits and successful promotion.
Taiwan could provide a window to future trends for China. On Taiwan, mooncakes have
evolved from a seasonal item to an item that can increasingly be sold year round and even
pitched to the tourist sector. There have been product lines developed using mooncake
ingredients/fillings to create wedding cakes and tarts; all natural ingredient mooncakes
using nuts, almond paste, figs; and ice cream mooncakes, using dried fruit such as
cranberries, blueberries, raisings and almonds.
The problem with promoting high value ingredient or specialty mooncakes is justifying a
production line that creates limited amounts or need further investment to modify the
equipment or production line. Also, retailers tend to want to promote a line of mooncakes
rather than focus on a specialty.
Crackers. Crackers and cookies have gained increasing popularity with Chinese
consumers. Global food giants, including Kraft, Danone and Nestle have heavily invested
in this market and share the market with leading domestic manufacturers as well as a
large number of small and medium sized local manufacturers.
International and leading domestic brands dominate the mid- to upper market in urban
regions, whereas small and medium sized domestic players sell most products in rural,
lower markets. Large cracker makers enjoy strong brand awareness, product
development and comprehensive sales channel across the country. Famous international
brands, including Nabisco, Oreo, Ritz and Kjeldsens, either produced in China or imported
from other countries, are available in the market. Popular varieties include savory
crackers, plain crackers, chocolate coated ones, sandwich crackers, filled crackers,
wafers, butter cookies and creamy cookies. Small and medium sized companies, usually
offering less sophisticated product lines and less well-known brand serve in limited
regional or local markets. Many of the small and medium size manufacturers also make
Chinese specialty cookies, e.g., almond cookies and peanut cookies which have long
enjoyed popularity in the region.
Many production and operational personnel, including those working for international
companies in China, need to learn more about quality and diverse characteristics of U.S.
wheat which can enhance final products and reduce overall production costs. Without
thorough understanding, manufacturers who want to shave costs are more likely to choose
flour milled from less expensive wheat instead of the U.S. one. An approach is to educate
clients to look at total production costs by using high quality flour, rather than just material
cost of purchase. It is necessary to educate users with such knowledge, especially in the
price-sensitive China market.
A threat for leading brands is that small and medium sized makers are likely to produce
cheaper ?copycat? version products. An example is Popan, a popular thin round cracker
originally developed by the Singapore-invested Garden. This popular item with different
flavors, e.g., spring onion or sesame, has been sold in the market for more than twenty
years. Given the popularity of this product, many competitors copied the idea and sell
similar products in the market, and thus dramatically grabbed the share from Garden
Popan in the market.
1.4.4. Tree nuts
Falling import prices and strong domestic demand beefed up China?s imports of tree nuts
in 2008. Imports of pistachios rose 54 percent from the previous year to 29,604 tons,
shelled almonds up 171 percent to 2,615 tons, in shell almonds up 83 percent to 1,712
tons, in shell walnuts and pecans up 176 percent to 5,499 tons, hazel nuts up 56 percent
to 1,805 tons, and in shell brazil nuts to 1,267 tons by 217 percent. The tariff reduction on
pistachios from 10 to 5 percent also largely contributed to the leap of pistachio imports.
Sales of nut snacks in China reflect consumer preferences that vary by region and from
nut to nut. In general, flavored nut snacks are most popular, while natural flavors are more
popular among middle and upper income niches where consumers tend to associate
natural with healthier and better quality. Compared south and east Chinese whose taste
runs sweet, north and northeastern consumers prefer salty. Thus, nut processors have to
adjust the percentage of salt and sugar in the brine used to flavor nut snacks. Flavor
preference for pistachios, for example, seems universal across the country- either dunked
in a sugar and salt brine, then roasted to get rid of the moisture, or natural flavor. As for
pecans, creamy flavored is most preferred in the east while the five spice flavor is more
popular in the rest of China. Hazel nuts are generally roasted only.
Pistachios. Non-bleached U.S. pistachios are gaining ground over previously dominant
non-bleached ones in China. Compared to U.S. pistachios, Iranian ones, usually cheaper
due to inferior quality, originally have darker shell color, and therefore have to be bleached
prior to being sold. It dominated the market for years due to cheaper prices, and most
Chinese consumers, wrongly equated the bleached color as a symbol of quality. U.S.
pistachios, usually a natural ivory color, reentered the China market in 2007 with a strategy
to differentiate themselves from their Iranian competitor by having non-bleached natural
ivory shell color. Meanwhile, U.S. exporters also educated Chinese consumers about the
health benefits of non-bleached products over bleached ones. These efforts have paid
off. According to the trade, non-bleached products held only 10 percent in the market
across the country in 2007, but this dramatically climbed to 30-40 percent in 2008. Local
sources anticipate more than half the market will be dominated by non-bleached ones in
2009. Non-bleached pistachios are mostly sold in middle and upper markets, while
bleached ones are sold in lower end markets.
Almonds. Imports of almonds from California into China significantly increased in 2008, a
result of lowered prices. CIF prices for orders delivered to Hong Kong in October 2008
ranged from $1.15 - 1.17 per pound, and fell to $0.85 per pound in December 2008.
Though prices bounced back to $1.00 levels in January 2009, due to peak sales season
during the Chinese lunar new year, many traders did not accrue big profits from large
imports in the 2008-2009 crop year, due to dropping prices.
Statistics by the Almond Board of California showed that 38 million pounds of shelled plus
18 million pounds of in-shell almonds were exported from California to China in the 2008-
2009 crop year (from August 2008 to January 2009), respectively a 134 and 142 percent
leap from the same period of the previous year. Growth is expected to remain strong in
Pecan. Despite producing 80 percent of the total pecans in the world, and being the
dominant supplier to China market, the United States is not the only pecan exporter to
China (mostly in-shell for snacks, plus some shelled as ingredients for baked products, ice
cream and candies). Mexico and Australia enjoy good product quality and hold a 15 and 8
percent share in the market by selling their products in China (mostly in-shell). China has
started a very small production of pecans, but it will take another four or five years until the
crops mature for commercial channels.
Up to seven U.S. varieties make it to China. The most popular is Western Schley, due to
the big size and amount of meat, which sought for perfect halves. The industry sized
pecan is Oversize (including Mammoth, Junior Mammoth and Junior), Extra Large, Large,
Medium and Small. The price difference between half sizes and pieces is 20 cents per
China is a price-sensitive market, and therefore less expensive in-shell ones are more
popular. Chinese processors and traders often directly buy pecans from U.S. growers to
minimize cost. Shelled pecans have limited share in the China market, and are mostly
used to make prestigious food items such as Haagen Daz ice-cream and bakery items
sold in Starbucks. However, the demand for shelled pecans, especially from high-end
niches, is largely unleashed.
Walnuts. Despite being one of the largest walnut producers in the world, China?s walnut
imports (mostly from the United States) have been boosted by strong demand and surging
walnut prices in the domestic market. To expand market share in China, California Walnut
Commission & Walnut Marketing Board has commenced aggressive marketing efforts.
High-end bakeries, snack and food manufacturers in affluent regions are targeted, given
California walnuts? consistent high quality, high product standards and versatile
application. To differentiate from less expensive Chinese walnuts, promotions will tout
California walnuts? good taste (less bitter, sweeter than Chinese varieties) and added
nutritional value, e.g., helps fight cardiovascular diseases, diabetes and weight gain.
Hazelnuts. Interest in carrying hazelnuts in general by the trade is down due to shrinking
profit margins because of how the product is traded. Importers in Hong Kong used to sell
to large nut traders on the mainland who in turn sold to small mainland processors and
wholesalers. The cause of the problem stemmed from traders in Hong Kong who wanted
to bypass the large nut traders and sell directly to the small mainland processors and
wholesalers. This caused the large mainland traders to compete with the Hong Kong
traders to capture business from the small processors and wholesalers. This
progressively squeezed profit margins to such low levels that most traders, especially the
large ones, lost interest in buying. Given the large amount of money involved in nut
imports, traders would rather carry more profitable nuts such as pistachios and almonds
which are sold under the original more orderly way of trading or directly from exporters.
Critical factors for success in China?s tree nut market, include constant supply, good
quality control, competitive prices, product promotion and product servicing. For
continuous success in China, there is a need to:
Educate Chinese buyers on product knowledge including sizing, supply availability
and proper product handling;
Educate Chinese users on the value that U.S. tree nuts add as ingredients and the
Provide trade service and technical assistance to users and processors through
importers and distributors
Educate Chinese consumers about health/nutritional benefits
Retail promotion to target young consumers (aged 18-45 years, mostly female ) of
high-income in large cities
1.5. Macro Issues
1.5.1. Financial crisis impact
The financial crisis started from the fourth quarter of 2008 has developed into a global
economic slowdown. As the second largest economy in the world and also one of the top
food consumption and processing countries, China?s reaction matters to the world food
In 2008, China was not been spared from the global economic downturn ? although it was
less impacted than other places. Its 2008 GDP growth fell to nine percent following five
years of double growth since 2003. The economy had been slowing since the beginning
of 2008 but the downturn accelerated sharply in the latter part of the year. In 2009,
reliable sources believe that China will not reach its earlier eight percent growth target.
Instead, most put expected growth at six to seven percent. Despite the grim news, there is
some hope for a rebound: The World Bank forecasted that China?s economy will improve
starting in the middle of 2009.
Consumer and business confidence have weakened drastically. The global economic
crisis led to the closure of 7.5 percent of China?s small and mid-size companies since the
end of 2008, pushing up unemployment rapidly. Officially, urban unemployment is put at
only four percent but this includes only urban residents. The 20 to 40 million rural
migrants, who have moved to cities to work and lost their jobs recently, are not counted.
Nevertheless, China?s performance is one of the best among the major economies.
Particularly, when we come to food sector, signals from different sources indicate limited
ATO Beijing has been meeting with dozens of food importers and distributers and major
supermarkets since January 2009 to evaluate the crisis? effects on northern China.
Surprisingly, most contacts said that impact was small because food is a ?daily necessity?
and is very resilient to economic fluctuations. Another reason for the resilience is that
China?s food industry mainly relies on domestic consumption and less dependent on
exports then much of the economy. In recent years, China?s food exports have grown by
about 20 percent while its food industry has maintained average revenue growth of over
The data seem to back this argument. According to the Ministry of Commerce, In Jan
2009, the top 1,000 retailers in China increased their sales value by 24.5 percent
compared with the same period last year. Although two big festivals, the New Year and
the Spring Festival (Chinese New Year) have contributed hugely to the increase, it still
points to a resilient domestic market. Also, the freshly released data on the gross
consumer goods retail value of the first quarter 2009 reported a 15 percent increase from
In response to the financial crisis, the Chinese government has taken action. The biggest
is the launching of the Four Trillion Stimulus Plan (equivalent to about $588 billion), aimed
at expanding domestic demand and transforming an export reliant economy to a more self
supported one. This plan has selected ten industries to support, including food
The core of the stimulus plan?s strategy for the food sector is to strengthen food safety.
Specifically, food processing and manufacturing industry will be further regulated. If
implemented, this could compel some low cost processors and manufacturers to improve
product quality or face closure. The dynamic will also likely accelerate consolidation in the
Apart from the central government, local governments are also working to maintain
economic growth. One shared measure among provincial and municipal governments is
to issue consumption coupons, with which people could purchase daily necessities and or
Another important food sector, food service, has faced difficulties. In many regions, it has