Merck Business Insights

SME Growth Opportunities: China seeking quality foreign food producers

SME Growth Opportunities: China seeking quality foreign food producers

SME Growth Opportunities: China seeking quality foreign food producers

Two hot topics at the moment:

  1. Baby Formula
  2. Slowing Chinese economy

While most other industry growth is slowing in China and the devaluation of their currency2 makes importing Australian products more expensive there is still one growth area that is presenting opportunities for Australian SMEs and is likely to for a while yet, the processed food industry3.

China’s increasing demand for safe and high quality ingredients and food products includes particularly dairy products, snack foods, tree nut products, confectionary and baby formula3. Over 30% of both China’s per capita and cash consumption in 2014 was spent on food, tobacco and liquor3 and as China’s economy continues to shift more and more towards consumption driven growth4 the processed food industry is poised to continue growing and reap rewards for those ready and willing to take on exporting to China.

Way back in 2007/8 we heard the terrible news of six infants dying and approximately 300,000 more falling ill due to shameful short cuts taken during manufacturing, as a result in 2009 Chinese authorities stepped up its efforts to improve regulations around the quality and safety of locally produced and manufactured food products1.

That was seven years ago!

The reason for the sudden high demand for baby formula over the last year is a direct result of Chinese authorities closing over 400 baby formula manufacturers in 20143. As part of its food and safety regulatory upgrades Chinese authorities audited manufacturers in 2013, so many failed the audit manufacturers declined from over 600 to 1253, hence the now steep increase in demand for Australian product.

Improvements to China’s production and manufacturing standards are underway1,3 but it is a large and slow moving beast, presenting opportunities for fast moving Australian businesses.

China’s desire for foreign quality products has led to a huge number of high end food retailers such as City Shop, BHG, Ole, City Super and G-Super seeking out high quality foreign foods and ingredients, particularly processed, to stock their shelves3. Although foreign products often come with a higher price tag Chinese consumers are willing to wear the higher cost for groceries in exchange for the guarantee that foods have been produced using safe manufacturing standards3.

Opportunities for Australian SME’s are not just limited to raw food producers and wholesale/retailers but anyone involved in the food manufacturing process including food production management consulting, technology & machinery, food innovation and logistics.

How can Australian SME’s involved in production of high quality and safe foods take advantage of the China’s growing demand? Easy, Australian businesses currently enjoy the following resources;

  1. Australia’s Free Trade Agreement with China www.austrade.gov.au/Australian/Exports/Free-Trade-Agreements/chafta
  1. Government grants program: Business Aid Centre http://governmentgrantsaustralia.org/

If you would like to know what opportunities your business is positioned to take advantage of please come and talk to us at MERCK Business Consulting, Ph (02) 9538 1254 or email us on info@merckbusiness.com.

References:

  1. Agres, T., (2011), Eye on China, Food Quality & Safety http://www.foodqualityandsafety.com/article/eye-on-china/2/?singlepage=1 accessed 22/01/2016
  1. Cendrowsky, S., (2015), Here’s why China devalued its currency, Fotune http://fortune.com/2015/08/11/why-china-devalued-yuan/ accessed 22/01/2016
  1. Jun, W., Shen, S., Tang, C., Zhang, R., Zhang, S., (2015) China’s Food Processing Annual Report; Food Processing Ingredients, Global Agricultural Information Network Report Number 15803, USDA Foreign Agricultural Service  http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Food%20Processing%20Ingredients_Beijing%20ATO_China%20-%20Peoples%20Republic%20of_9-4-2015.pdf accessed 22 /01/2016
  1. Lardy, N.R., (2006), China: toward a consumption-driven growth path, Policy Briefs in International Economics, Institute for International economics, Social Science Research Network http://papers.ssrn.com/sol3/papers.cfm?abtract_id=2126152 accessed 22/01/2016

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