Chinese dairy production is expected to increase further in 2018, as will its own meat production. The country cannot do without imports yet, but it is becoming increasingly self-sufficient. Does this mean that exports to China will come under pressure?
Co-authors are Kimberly Bakker and Esther de Snoo
The United States (US) is currently the largest dairy market, but this could change in the coming years. For example, the demand for dairy in the US is declining sharply, while in China it is increasing considerably. It is therefore expected that China will be the largest dairy market by 2022.
In addition, Chinese dairy production is expected to increase in 2018, putting an end to the ever-increasing amount of imports. Imports are expected to reach 2018 tons in 520.000; in 2017 this was still 575.000 tons. European countries, especially Germany, remain the largest exporters of dairy to China (65% market share).
However, the country has also had some setbacks. For example, China was confronted with the milk powder scandal in 2008. As a result, a quarter of all dairies disappeared and the market share of Chinese milk fell from 65% to 30%. The scandal also led to the introduction of the first food safety law in China.
On the other hand, China, with an annual growth of 9%, is the record holder for the fastest developed country ever. This also means that the country accounts for 15% of the world economy and that almost 20% of the world's population lives in China. But how big is the Chinese agricultural sector, and where are the opportunities for Dutch exporters?
(Text continues below the photo)About 20% of the total world population lives in China.
Meat sales to China are declining
China mainly imported more beef in 2017, but sales to the country fell by 9% overall. The country mainly imports smaller volumes of pork and poultry meat. Uruguay, Brazil, Argentina and New Zealand are the 4 most important suppliers.
Chinese meat production increased by 2% last year, according to Rabobank's quarterly report. Due to the amended environmental and safety regulations, a restructuring of the pig sector is taking place in China. Small companies must make way for large and modern pig farms. The increase in domestic production has driven down Chinese pork imports (-27% to 833.000 tons).
Although the Chinese economy is still growing, this has slowed down in recent years. This has an effect on the international markets, according to Stefan Vogel (Rabobank Food & Agribusiness Research). "Developments on the stock market have led to a drop in the price of raw materials that China imports. Investors are therefore keen to invest in agricultural raw materials."
Globalization changes culture
What is also striking is that the influences from the Western world are clearly visible in China. The traditional Chinese diet is based on grain products and vegetables. Globalization has changed that. Globalization has led to an exchange of culture and eating habits. In the past, dairy products were not part of the diet, especially not in rural areas.
However, today dairy is a standard part of the food intake. When China was founded in 1949, the average Chinese drank 2 glasses of milk per year. The demand for milk only increased when the country had to deal with foreign influences. By the end of the 90s, milk was a regular part of the diet. Former Prime Minister Wen Jiabao emphasized this in 2016: "I have the dream to provide every Chinese, especially children, with enough milk."
(Text continues below the photo)It wasn't until the late 90s that milk became a regular part of the Chinese diet.
In addition to the introduction of dairy products, meat also became increasingly popular. Many Chinese saw meat as a luxury product. From 1970 to 2014, demand for pork increased by an average of 5,7% annually. In addition, China consumes more meat than any other country (74 million tons: pork, beef and poultry). That is twice as much as Americans consume.
However, it is expected that meat consumption will change and decrease. This is mainly caused by the aging population in the country. In addition, the Chinese government has drawn up a plan to reduce meat consumption by 50%. This is due to environmental and health considerations.
Import is still important
The Chinese import quite a few products. This is largely due to the fact that China only owns 10% of the world's arable land. In the past, this even led to chronic food shortages and famine. To prevent these shortages, Chinese companies are now investing massively in agricultural land abroad (particularly in Australia and Africa).
In addition, the Chinese government has wanted to stimulate the food industry since the 80s by handing out subsidies. For example, in 2012 the government paid out approximately $165 billion in agricultural subsidies. By comparison, Japan paid out $65 billion in subsidies and the United States (US) paid out $30 billion in the same year. However, even with these 2 measures, China cannot survive without imports from abroad.
The country also often faces food safety problems, such as the aforementioned milk powder scandal. Scandals like that have made the Chinese prefer imported products. To improve its own products and food safety, the government has drawn up new policy plans. For example, a 5-year plan should improve the efficiency and quality of the agricultural sector in China.
A good example of the massive import is the import of soy beans. China imports about 60% of its soybeans, mainly from the US and Brazil. The transition from 'backyard agriculture' to modern agriculture has a major impact on soybean imports. For example, smaller family farms fed their livestock with available fodder, but mass farms use modern feed (with soy as the main ingredient). This led to soybean imports reaching an all-time high in 2015.
(Text continues below the photo)Although the country also harvests soybeans itself, their import remains extremely popular.
China imports a lot from the European Union (EU). Exports to China are one of the main drivers behind the growth of the European agricultural sector. The Netherlands exported approximately 2017 tons of pork to China in 65.000, placing it in sixth place. However, in 2016 that number was 32,5% higher. On the other hand, Chinese imports of by-products from the Netherlands have increased by more than 12%, while total imports of by-products actually fell by just under 10%.
The popularity of dairy is increasing sharply
Today, giant dairy companies have become the norm in China. The largest farms keep around 40.000 cows. All this in the hope of stimulating the Chinese milk industry, so that less imports are necessary. To regain consumer trust, Shijiazhuang opened Junlebao Dairy Co. Ltd (one of the largest dairy manufacturers) an amusement park. The aim is to educate Chinese consumers about milk and increase its consumption.
It seems to be having an effect, because the market share of Chinese milk increased to 2017% in 70. Yet imported milk remains an important competitor. This is because the Chinese are impressed by long-life dairy products, especially imported from Germany and New Zealand. In addition, production costs are a major challenge for the Chinese dairy industry. These costs are almost twice as high in China as in Ireland. This is mainly due to rising salaries and high prices for animal feed.
(Text continues below the photo)Milk production costs in China are twice as high as in Ireland.
Leader of the future?
Industrialization has led to environmental damage, with far-reaching consequences for agricultural production. It is estimated that about 1/6 of the country is polluted by toxic emissions. In addition, 60% of all groundwater is polluted. Tackling this problem is high on the Chinese government's priority list.
That is why sustainability is becoming increasingly central to Chinese policy, not only in the agricultural sector. For example, China put the largest floating solar panel park into use last year. The image of a major polluter has not yet been erased, but China is investing more and more in wind, water and solar energy. At the beginning of 2017, the country indicated that it would invest $2020 billion in sustainable energy by 360.
One of the promising plans is to invest in vertical farms. This should ensure less environmental pollution and higher production. More than 40 research institutes conduct research into this way of farming and other ways to make agriculture more efficient. The biggest advantage of vertical farming is minimizing the risk, because there is no inconvenience from irregular weather conditions.
(Text continues below the photo)The Chinese government is increasingly focusing on sustainability and green energy.
Netherlands versus China
China is one of the 10 most important export markets of the Netherlands. Trade with China amounted to €2016 billion in 45, of which €10 billion consisted of Dutch goods exports. That amounts to 1,8% of the total. In addition, the Netherlands exported approximately €2,3 billion in services to China.
The greatest opportunities lie in the export of knowledge. The Netherlands is ahead in the field of agricultural knowledge and they desperately need that in China. "The Netherlands is far ahead in the field of agriculture, also in terms of facilities, techniques and management. We can learn a lot from you in all these areas," says Xia Xinfi, director of a Chinese Agri-Tech company. The application of Dutch techniques has increased the harvest of Chinese farmers by 20%.
Dutch exports of agricultural materials, knowledge and technology are also on the rise and currently have a share of more than 10%. In 2016, exports of agricultural machinery, fertilizers and special climate systems amounted to almost €9 billion, an increase of 2,2% compared to 2015.
Former State Secretary Martijn van Dam said: "We are succeeding in strengthening our leading position in Europe and the world. 'Made in Holland' no longer just stands for tulips and cheese. We are increasingly knowledgeable worldwide. and technology. In the future, we want to contribute to a good, healthy and sustainable world food supply. And thanks to our smart, innovative products and technologies, this is possible." Van Dam thus concludes that the Dutch mainly have opportunities in solving problems that countries such as China are facing.China wants to invest in vertical farming, as is already being done in Italy above.