China's Food Processing Industry

A Hot Tip about Food , Beverages and Tobacco in China

Posted on: 24 Dec 2009

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 Date: 5/1/2009 GAIN Report Number: CH9406 China - Peoples Republic of FOOD PROCESSING SECTOR 2009 Update & Forecast for China's Food Processing Industry Approved By: Eric Trachtenberg Prepared By: Wang Jun, Susan Zhang, Evid Liu, Shen Xuejia and Pei Zhiyong Report Highlights: 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 ingredients P Commodities: ost: Beijing ATO select Executive Summary: 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. Author Defined: SECTION I. MARKET SUMMARY Market Overview 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 categories, including: Food processing, including primary activities such as rice milling, flour milling, oil refining, sugar refining, slaughtering, salt processing, feed processing, and aquatic product processing; 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 [1] , 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) % Avg. Items 2004 2005 2006 2007 2008 Annual Growth Alcoholic drinks (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 Fresh food (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 Fish and 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 Health and wellness food and beverages (Value) 105,550.9 120,015.9 134,688.8 149,616.2 174,140.7 13.33 Health and wellness ? 48,259.7 52,102.9 56,854.8 61,478.7 66,293.6 8.26 Nutritionals (Value) Packaged food (Value) 458,838.7 509,873.0 566,936.2 636,425.8 706,120.0 11.38 Dairy products (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 Soft drinks (Value) 135,824.5 153,569.6 172,750.8 198,640.3 228,822.6 13.93 Fruit/vegetable 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 recent past. Figure 6: Food Ingredients Imports vs. Domestic Supply 2003-2007 % Avg. Items 2003 2004 2005 2006 2007 Annual Growth Cereals Imports 442.424 2,218.543 1,394.914 820.813 514.990 3.87 $ mil Domestic 10,000 37,428.7 41,157.2 42,776.0 45,099.2 45,632.4 5.08 tones Pork Imports 90.639 54.452 28.968 21.305 123.149 7.96 $ mil Domestic 4,238.6 4,341.0 4,555.3 4,650.5 4,287.8 0.29 10,000 tones Beef Imports 11.932 9.946 8.769 8.538 14.198 4.44 $ mil Domestic 10,000 542.5 560.4 568.1 576.7 613.4 3.12 tones Milk/Dairy Imports 413,093.84 560,809.5 660,220.709 791,791.135 956,258.454 23.35 products $ mil Domestic 10,000 1,848.6 2,368.4 2,864.8 3,302.5 3,633.4 18.40 tones Citrus Imports $ m 47.930 48.452 44.629 54.512 54.772 3.39 il Domestic 10,000 1,345.4 1,495.8 1,591.9 1,789.8 2,058.3 11.22 tones Grapes Imports 5.078 81.047 12.17 $ m 51.190 82.212 98.100 8il Domestic 10,000 517.6 567.5 579.4 627.1 669.7 6.65 tones 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 Growth Whole Production 1,196.7 1,296.5 1,414.9 1,545.0 8.89 Milk Consumption 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 tones) 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. 1.2.2. Urbanization 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 increase. 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 (Millions) 2003 2004 2005 2006 2007 % 4 Yr. Avg. Annual Growth Total 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 reverse it. 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 China. 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 Average Starches & Tubers 26.19 43.10 38.91 20.09 33.43 33.66 Beans and Bean 43.43 51.95 74.97 36.73 43.00 45.58 Products Oil and F 117.32 132.95 117.58 134.69 158.81 112.11 ats Meat, Poultry and 703.27 819.14 907.66 1264.72 848.81 429.03 Processed products Eggs 83.83 99.47 89.05 65.41 85.78 68.58 Aquatic Produ 243.78 208.82 669.24 489.13 135.13 68.76 cts Dried and Fresh melon 272.24 489.57 450.44 306.04 228.85 234.79 s and Fruits 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 Processed Products Source: China Statistical Yearbook 2008 The figures above in Red indicate the top consumption and the Blue ones imply the lowest consumption. 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 products. 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 (RMB million) 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 domestic brands. 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 brands. 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. 1.4.3. Baking 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 bakery clients. 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. Opportunities: Booming baking industry in the region creates ample opportunities for high quality baking ingredients; 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. Constraints: 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 benefits. 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 2009. 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 pound. 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 versatile application 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 processing industry. 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 impact. 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 30 percent. 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 last year. 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 processing. 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 industry. 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 tourism services. Another important food sector, food service, has faced difficulties. In many regions, it has been report
Posted: 24 December 2009

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