Insights from the Food Digital Week
Food photography © StockSnap / Public Domain / Pixabay
On the 1st of July, China celebrated the centenary of the Communist Party, but this day also marked the deadline for the first goal of President Xi’s “Chinese Dream”: the building of a moderately prosperous society (Xiaokang shehui), the Chinese equivalent of "middle class".
With the continuous growth of the domestic per capita income, which according to the National Bureau of Statistics reached 32,189RMB in 2020 (National Bureau of Statistics of China, 2021), China has been ranked by the World Bank as an ‘upper middle income’ country. China’s middle class has been among the fastest growing in the world, swelling from 39.1 million people (3.1 percent of the population) in 2000 to roughly 440 million in 2019 (more than 30% of the population). A report by Brookings Institution (2017) has predicted the country will add 850 million to its middle class by 2030 - a 73 percent of its overall population.
As the middle class grows, especially in times of globalization and urbanization, lifestyles tend to undergo changes, which can easily be noticeable in shifts in F&B habits and priorities. As part of this diet diversification, increasing disposable income allows consumers to invest in imported food products, generally associated with a higher quality and food safety compared to domestic products. Additionally, as in the case of many other nations, consuming international products in China has often been associated with high social status, international lifestyle and an open mindset.
These new consumption habits resulted in a growing net demand for imported F&B products, with around 80% of consumers buying imported products, making China the world’s largest food importer and consumer (Zhang, 2020). According to UN Statistics data, in 2020, China’s food imports reached US$113.9 billion, showing a year-on-year growth of 19 percent. From 2016 to 2020, the value of China’s imported food has increased by a CAGR of 13.5 percent.
The increasing demand for imported F&B products has brought new opportunities for European producers, as well as new challenges for those seeking access to the Chinese market. This article will focus on trends, opportunities and challenges in China’s 2021 F&B market, based on data and analysis shared by industry experts and government officials during the informative sessions of the Food Digital Week, and the role of China’s growing middle class. The Food Digital Week took place last 21st-25th June 2021, and was organized by ChemLinked, the specialized news portal of REACH24H, an internationally renowned consulting company providing market entrance services with headquarters in Hangzhou.
New trends and opportunities
The rise of a younger, wealthier and better educated middle class in China is transforming the F&B industry, shaping new demand trends and policy responses. To better understand these interactions, three of the major trends in China’s F&B market are analyzed, Health Food, Dairy products, and Pet Food, pointing out the opportunities for imported products in these sectors.
Health and wellness have traditionally been high-priorities in the East Asian mindset. In the case of China, the last decades of development and growth have also brought upon a growing need for a health reform, with several actions taken by the government to support its social transformation. Even before Covid-19, personal health was considered the most important aspect of life by the majority of the population. (National Health Insights Report, 2019) In 2016 the Chinese government officially made health a national priority, announcing the “Healthy China 2030” strategy, followed by its 2019 15-point strategic action plan to achieve health-related goals by 2030 (Chozan, 2020).
As disposable income increases, so do demands for higher quality and better health. In China, this situation was only intensified by the global pandemic, with a growth in consumption and overall interest in healthy food. These developments impacted markets including organic food, vitamins and supplements and the use of plant based traditional Chinese medicine (TCM). The size of the health food market in China grew by 18.5% to about RMB 222.7 billion in 2019, and is expected to reach sales worth RMB 330.7 billion by the end of 2021.
Some international brands, especially from Australia but also from some European countries such as Germany and Netherlands, have been able to see this rising demand as an opportunity to significantly increase their exports to China, taking advantage of new distribution channels, such as Cross-Border E-Commerce (commonly referred to as CBEC). According to the data from China Chamber of Commerce for Import & Export of Medicines & Health Products (CCCMHPIE), China imported a total of $4.81 billion of nutrition and health food in 2020 (Food Digital Week, 2021).
During his speech at the Food Digital Week, the Director of the Chamber, Mr. Zhang Zhongpeng explained that in the past few years government efforts to accommodate social demands resulted in increasingly rigorous standards for both filing and registration of imported products and tougher e-commerce regulations (Food Digital Week, 2021). Nonetheless, there are still many opportunities for foreign brands, especially for those promoting “innovative” products. Opting for CBEC sales channels can support foreign brands as it gives companies an opportunity to “try” the Chinese market at a relatively low risk, overcoming high costs of market entry. As market regulations keep on evolving, the key is constant quality control and staying on top of updates to ensure compliance.
Since the beginning of the 1990s, China has witnessed the surge of the dairy industry. In line with government efforts to improve public health and nutrition, in recent years the growth of the dairy market in China moved at a faster pace, and Euromonitor International forecasts that China will be the first dairy market in the world by 2022 (Daxue Consulting, 2020). The reasons behind this forecast are both political and economic/social.
First, the Chinese government has made the development of this industry a national priority, one of the key goals expounded during the Two Sessions (Ye, 2021). In 2020, China’s PRC promoted regulatory changes focused on improving quality and upgrading the dairy industrial chain, to boost confidence in domestic products and thus contribute to the “Made in China” country brand strategy.
Second, consumers have higher purchasing power and are increasingly exposed to international trends resulting in more consumption of dairy products. The expanding middle class in China is more open to foreign eating habits that symbolize an international lifestyle, and a higher concern for health as a deciding factor (Wang, 2020). Dairy products are a useful source of protein, calcium, vitamins, and several minerals. This development would bring new opportunities to foreign companies with quality dairy products such as cheese, yogurt, whey powder and infant formula products.
During the Food Digital Week, Yilia Ye, REACH24H- ChemLinked regulatory and market expert in China’s food sector, highlighted the rapid growth of Chinese cheese sector compared to other dairy products –even if still considered at an initial stage, with a low awareness compared to other Asian countries. In fact, big overseas brands which dominate the market are investing to educate the new generation to eat cheese from a very young age, creating new cheese products designed for children that cover more than half of the retail market. In fact, around 70% of parents are favorable to buying cheese products for their children as a healthy snack.
Milk products still remain some of the most heavily regulated, with constant updates and great efforts placed on enforcement, especially as it is linked to products such as infant formula which still bring back hard memories of past adulterated milk scandals. China’s domestic industry modernization plan may continue to grow, but, as shared by Jan Carey, CEO of the Infant Nutrition Council, there is still a continued middle-class appetite for imported, premium, innovative products (Food Digital Week, 2021). Importing companies are advised to make it a top priority to stay on top of labeling, ingredients, and advertising regulations – the latter being an area of increasing pressure - and to incorporate them into their compliance strategy.
With the opening up of China to the rest of the world, its younger generations have been brought up with a more cosmopolitan worldview, which includes the notion of dogs and cats as companions to be cherished and nurtured. According to the 2020 China Pet Industry White Paper, the younger generations, post-80s and post-90s, living in first and second ranking “tier” cities have become the largest group of pet owners (Pethadoop, 2021). This factor is also linked to their considerable income, higher education and empathy for animal welfare issues, as well as a higher propensity for single life.
The number of dogs and cats in China's cities and towns reached 100.84 million in 2020, up 1.7% from 2019 (2020 China Pet Industry White Paper). The number of pet keepers (dogs and cats) in cities and towns across China has reached 62.94 million, leading to an increase in the consumption of pet food. In 2020, China’s pet food market size reached almost RMB 113 billion in 2020, accounting for a compound growth rate of 22.45% from 2014 to 2020 (2020 China Pet Industry White Paper).
Considering the high income and the high education of pet keepers, they want to offer their pets’ nutritious, fresh, natural, healthy, and high-quality food for pets. So, it is not surprising that there is a significant preference to buy imported pet food. In 2020 the import value of dog and cat food reached $621 million (CAG data), double in size compared to the previous year, and also the import from some European countries, such as Germany, Belgium and Italy, registered a significant increase (Tao, 2020).
Regulations in the field of pet food could be said to represent the path followed by pet-owners in their growing consciousness and interest in keeping pets as companions. In 2018, the Chinese Ministry of Agricultural and Rural Affairs (MoARA) issued a pet food regulation system independent from existing feed regulations (Food Digital Week, 2021), which focused on sanitary standards, overall administrative duties and labeling, which highlights the increasing scrutiny given to this industry. After all, as Shine Hu, from REACH24H-ChemLinked shared during the Food Digital Week, in the next ten years, as birth rate continues to descend, we should expect to see more pets. China will surpass the United States as the world's largest pet market, with a total market size of about US$160 billion, a trend that international pet food brands should not ignore.
Challenges and Final Considerations
The development of China’s F&B market is not just a story about a growing demand, but also about increasingly complex distribution channels, growing competition from both domestic and international brands, higher standards and better defined regulations.
China, as the World’s largest F&B market, is an attractive destination for many international food producers. However, a thorough understanding of its market, regulatory landscape and evolving culture and trends supported by a well-planned marketing and business strategy are essential to truly succeed in the Chinese market. First of all, many international brands already entered the Chinese market years ago and are well known by Chinese consumers, making it harder for new products to gain share on the market. Moreover, in some sectors, such as dairy products, the Chinese government has begun efforts to revitalize and promote its national industry, to become more self-reliant as well as to help grow public confidence towards domestic product quality, creating more competition for imported products (Ye, 2021). Finally, the constant updates in regulations and the effect of shifting global trade relations can impact businesses’ strategies, which requires that companies anticipate policy and regulatory changes to ensure true compliance.
It is worth noticing the new distribution channels and sales methods that have emerged to support businesses seeking a taste of the Asian giant’s market, such as e-commerce, cross-border e-commerce and live streaming. Nonetheless, a deep understanding of China’s digital environment and big investments should be prioritized to gain a certain visibility and create brand awareness (Food Digital Week, 2021).
The Chinese government has made its food safety governance system a priority, with its revised Food Safety Law in 2015, the newly established regulator State Administration for Market Regulation (SAMR) and implementation measures in 2019, along with the “Four Strictest” requirements proposed by Xi Jinping, highlighting the requirements on food safety supervision and management. As analyzed by Yang Jiao, director of TBT Research Centre of International Research Center for Inspection and Quarantine Standards and Technical Regulations of GACC, overseas exporters and Chinese importers must also perform their duties to guarantee food safety, such as the mandatory overseas manufacturer registration and the setting of manufacturer review system by the importers (Food Digital Week, 2021). Moreover, Chinese authorities are also developing new regulations and implementing more stringent supervision for import food labelling and promotion.
The Food Digital Week offered great insight into the opportunities and challenges of the food market in China, one that is still taking big steps thanks to the rise of the middle class and an increasing purchasing power, which represents an opportunity for food exporters. Still, a thorough understanding of its current trade practices, marketing trends, cultural associations and a constant vigilance of changing import and food regulations are sine qua non conditions to succeed.
Vincenza Caputo is a China’s F&B market expert, specialized in market entry strategies and import procedures for Italian F&B products. Following her degree in International Relations from the University of Naples “L’Orientale” and two years of studies in China, Vincenza specialized in International Business, gaining a professional master’s degree in Export Management from the Italian Trade Agency. Living and working in Hangzhou since 2018, she has continuously shared her experience and professional knowledge, becoming a LinkedIn influencer in China’s F&B sector.
Julia Pochat is the International Communications and Partnerships Specialist at REACH24H Consulting Group. With a Master’s degree in International Relations from the University of Jilin, China and a degree in Legal Certified Translation from the University of Buenos Aires, Ms. Pochat has worked for the public and corporate sectors in China, on international development and trade affairs. For the last 4 years she has supported REACH24H and ChemLinked on their international partnership and branding strategy within China and overseas. You can find her on LinkedIn.
About REACH24H Consulting Group & ChemLinked: Founded in 2009, REACH24H is a regulatory consulting firm specialized in providing one-stop global market access services to companies in the field of industrial chemicals, agrochemicals, cosmetics, food and food contact materials. ChemLinked was launched in 2012, to meet the growing demand for clear and concise regulatory advice and market intelligence in Asia, especially China.
The opinions expressed here are those of the writers and do not represent the views of European Guanxi.
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