population
market snapshot
CHINA
SHEEPMEAT
1.4 billion
Australian trade overview
in 2015
consumption
(sheepmeat & goat)
➡➡ Since 2012, China has been the largest sheepmeat export destination for Australia in
volume terms, with 60,220 tonnes swt of sheepmeat exported to the market in 2015, split
roughly half into lamb and mutton, and 905 tonnes swt of sheepmeat offal.
➡➡ In value terms, China is the second most valuable sheepmeat market for Australia
(after the US), delivering over A$226 million to the industry in 2015 up to November,
comprising almost 10% of Australian sheepmeat export revenues.
per capita
in 2014
export volume
(sheepmeat)
Australian sheepmeat
exports to China
80
60
40
20
0
tonnes swt
in 2015
export value
(sheepmeat)
$247 million*
in 2015
*estimate
Key insights
mutton
100
➡➡ China had predominantly been a lamb
market up to 2012, however the proportion
has evened up in recent years, with the 2015
lamb:mutton breakdown being 52%:48%.
➡➡ Popular cuts are breast and flap (both lamb
and mutton), carcase (mutton), manufacturing
(lamb), leg (mutton) and neck (lamb).
60,220
GDP
lamb
120
'000 tonnes swt
3.8 kg
➡➡ During 2015, several factors, but chiefly
oversupply in the China market, led to a
reduction in China’s import demand for
sheepmeat, including Australia’s. Australia’s
sheepmeat exports were down 32% in 2015 from
2014. Value was also down 40% year-on-year in
2015 up to November.
05 06 07 08 09 10 11 12 13 14 15
Source: DA
➡➡ Given lack of access for chilled product, a large proportion of Australian sheepmeat
exported to China is comparatively lower value product, traded as a commodity for further
processing, where price is the chief driver of purchasing decisions. However, there are
opportunities for Australia to develop the higher value segment of the market with stronger
branding and marketing efforts, leveraging the industry’s reputation for food safety, product
integrity, sustainability and a clean environment.
➡➡ China’s urban middle class, estimated at around 322 million, is already bigger than the
entire population of the USA. However, it is a sub-segment of affluent and upper middle
class consumers, estimated to already number around 44 million in 2012, who can afford
and appreciate imported premium sheepmeat.
mla industry insights – China – February 2016
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2
mla industry insights
market snapshot – CHINA – February 2016
Consumers
➡➡ China is the largest sheepmeat consumer in the world. At the same time, sheepmeat consumption
is the lowest of the meat proteins, averaging 3.8 kilograms per capita in 2014 (compared to around 43kg
of pork, 10kg of poultry and 4.9kg of beef).
➡➡ As rapid urbanisation continues, the rates of meat consumption, including sheepmeat, are
expected to continue to gradually increase. The top income groups are known to consume at least
50% more sheepmeat than the lowest income groups, with a significant proportion of that from meals/
snacks eaten out of the home.
➡➡ Sheepmeat consumption is higher in the northern areas of China, where domestic production is
concentrated.
➡➡ Sheepmeat is typically known as “yang rou”, with few making a distinction between lamb or
mutton, or indeed between sheep and goat meat.
➡➡ As a red meat, Chinese consumers perceive sheepmeat to be particularly high in nutritional
content and distinctively flavoured. At the same time, it is a food that is popularly perceived to
generate “internal heat” according to traditional Chinese medical thinking. Hence, consumption
increases during colder months.
➡➡ Aside from its higher cost compared to other proteins like pork and chicken, sheepmeat is
considered to be less versatile, making it less easy to prepare. It is also perceived to be comparatively
high in fat and calories.
➡➡ Hot pot, both in-home and out-of-home, is a popular sheepmeat cooking method, as is slow
cooking (bone in or out) and stir-fry.
➡➡ The comparatively high price of sheepmeat combined with tightening supply over recent years has
led to sheepmeat substitution scandals, which has shaken consumer confidence in domestic product.
➡➡ Chinese regard Australian sheepmeat highly and it has strong awareness amongst urban middle
class consumers, with some 52% saying they have eaten Australian sheepmeat in the past year and
is as high as 94% among the Affluent segment (those in households earning RMB200,000 or more
annually) (MLA Global Consumer Survey 2015).
➡➡ Australian sheepmeat is perceived to offer advantages over local Chinese product on attributes
that those who can afford to are willing to pay more for, such as delicious taste, guaranteed safe to
eat, consistency of quality standards, more environmentally sustainable and better animal welfare
standards.
Chinese per capita
meat consumption
Sheepmeat perceptions by
country of origin chart
(49.7 kg per capita per year)
Local Chinese sheepmeat
Australian Sheepmeat
70
40
30
20
10
Source: FAO-OECD (excludes fish/seafood)
fo
r
e
d
ar
e
lc
el
w
is
im
al
An
ry
is
en
vi
ro
bl
fo
na
ta
lly
su
st
ai
e
m
or
y
pa
to
en
nm
ill
w
Am
r
s
rd
io
al
ity
in
g
qu
nt
te
is
ns
da
st
an
lic
de
Ta
st
es
fe
sa
d
ee
us
t
ea
to
m
nt
ar
a
du
st
Pork 64%
Poultry 23%
In
Beef 7%
Co
Sheepmeat 6%
Gu
up
er
io
rs
he
ep
Fr
es
h
ea
t
0
ts
sheepmeat than the
lowest income groups
50
os
50% more
2015
M
The top income groups
are known to consume
at least
% agreement
60
Base: Affluent urban Chinese in households earning 200K+Yuan p.a.
who buy imported sheepmeat at least monthly
Source: MLA Global Consumer Survey 2015
mla industry insights
market snapshot – CHINA – February 2016
Food trends
Market access
➡➡ The chances of success in the China
market will be maximized if strategies are
in tune with the forces of change. MLA has
identified some key trends expected to
significantly impact Chinese consumers’
food purchasing, including meat, into the
medium-term future:
➡➡ ChAFTA came into force on 20
December 2015 with two tariff reductions
occurring by 1 Jan 2016.
The Agreement will see elimination of the:
⇨⇨ Food without fear: frequent serious
food safety scares, many involving meat,
as well as regular reports on China’s
soil, air and water contamination have
caused the middle-class to be more
selective about their food choices,
resulting in stronger demand for imported
foods which are regarded safer, more
environmentally sustainable and of higher
quality compared to domestic produce.
⇨⇨ Glocalisation: international brands
are increasingly finding success with
product innovations that “play” with local
expressions and flavours. For example,
Starbucks Coffee offers Chinese tea on
the menu and re-invented the traditional
‘zongzi’ cake consumed at Dragon Boat
Festival time, creating a new gifting
occasion.
⇨⇨ E-commerce: will become an ever
more important retail channel, and
through to 2020 is expected to drive
42% of total consumption growth, with
90% of that growth coming from mobile
e-commerce (BCG).
China’s middle
class will help lift
consumption share
of GDP from
36% in 2014
to
50% by 2030
➡➡ The affluent segment of China’s middle
class will continue to be the key driver of
consumption growth into the future. This
group is more health conscious and seek
products that offer healthier options. They
will increasingly look for products that
enhance a personal sense of well-being via
engaging, authentic provenance stories and
that represent values they aspire to, such
as “sustainable”, “organic” and “socially
responsible”.
⇨⇨12-23% tariffs on sheepmeat within 8
years
⇨⇨18%-20% tariffs on sheepmeat offal
within 7-9 years
⇨⇨10% tariff on live sheep within 4 years
⇨⇨7% tariffs on sheep skins within 4
years
➡➡ Australia does not currently have
access to China for chilled sheepmeat or
tripe.
➡➡ Access to China for integrated
and non-integrated meat export
establishments remains in place. Further
processed meat products are not currently
included in official Chinese import
protocols.
ChAFTA tariff rates on sheepmeat
Australian frozen lamb carcase & frozen boneless
Australian frozen sheepmeat bone in
Australian sheep carcasses & half carcesses
Australian frozen edible offal
New Zealand sheepmeat
25
20
Tariff %
⇨⇨ Premiumisation: a trend especially
prominent in food and beverages.
Up-scale products and services are
sought to meet the middle class demand
for better quality products and more
interesting consumption experiences.
3
15
10
5
0
ChAFTA
1st tariff cut Dec 2015
2nd tariff cut Jan 2016
13
14
15 16 17 18 19 20 21 22 23
Dec Jan Jan Jan Jan Jan Jan Jan Jan
Source: DFAT, MLA
Note: ChAFTA entered into force 20 Dec 2015
4
mla industry insights
market snapshot – CHINA – February 2016
Competitors
Domestic Chinese Sheep Production
➡➡ Almost 90% of sheepmeat
consumed in China is domestic product.
➡➡ According to the latest 2014
Agricultural Yearbook from the Ministry
of Agriculture, China’s sheep flock
numbered around 145 million head at the
end of 2013, representing a year-on-year
increase of 1.9%.
➡➡ China’s sheep flocks are
concentrated particularly in the
provinces of Inner Mongolia and Xinjiang,
followed by Gansu, Qinghai and Hebei.
➡➡ China’s sheep production
capacity is limited by the availability of
natural grasslands, which are already
over-grazed, one of the contributing
factors behind the worsening dust
storms experienced in northern Chinese
cities. The government is actively
involved in grassland management,
aimed at restoring, protecting and
expanding grassland areas.
➡➡ The fall in sheepmeat prices in China
which began mid-2014 and continued
over 2015 – registering around a 20% fall
over this period - has led a significant
number of Chinese producers to reduce
their flock sizes, culling more sheep, with
some leaving the industry altogether.
This, in turn, has led to more sheep being
put on the market in the short-term,
putting further pressure on prices.
However, as domestic producers have
been culling their breeding ewes, this
should result in tighter supplies in the
medium- to long-term, potentially leading
to a resumption of the upward trend in
import demand. The high inventories
of domestic sheepmeat in China, which
weakened import demand during 2015,
are reportedly beginning to clear and may
lead to a comparative ‘normalisation’ of
the market during the latter half of 2016.
China retail prices
Mutton
12.00
Beef
Pork
Chicken
US$ per kilogram
➡➡ China has been a net importer of
sheepmeat for almost two decades.
➡➡ In 2015 (Jan-Nov), China exported
a total of 1,623 tonnes swt of frozen
sheepmeat, with Hong Kong and Jordan
being its largest export markets.
➡➡ Currently, China only imports frozen
sheepmeat. In 2015 (Jan-Nov), China
officially imported a total of 202,304
tonnes swt of sheepmeat, down 22%
year-on-year. China’s imported lamb
volume for 2015 (Jan-Nov) was down 84%
year-on-year, whilst mutton was down
19%.
➡➡ The bulk of China’s 2015 (Jan-Nov)
sheepmeat imports came from New
Zealand (63%) and Australia (36%).
➡➡ New Zealand’s share of China’s
sheepmeat market has increased in
recent years, as Australia’s has fallen.
In 2010, Australia had 44% of the market
and in 2015 it was 36%.
➡➡ The NZ China FTA will allow New
Zealand sheepmeat to enter China tariff
free from 2016.
10.00
8.00
➡➡ The majority (around two-thirds in
2015) of Australia’s sheepmeat exported
to China goes to northern China, with
key discharge ports being Shanghai,
Xingang, Dalian, Qingdao and Qingdao.
6.00
4.00
2.00
0
Imports
05
06
07
08
09
10
11
12
13
14
15
Source: GIRA based on CAAA
Top cuts to China
AUSTRALIAN SHEEPMEAT EXPORTS
tonnes swt
1
2
3
4
5
6
7
8
9
10
Source: DA
China TOTAL
BREAST & FLAP
CARCASE
MANUFACTURING
NECK
LEG
SHOULDER
RACK
SHANK
SHORTLOIN
CHUMP
OTHER
2015
TOTAL
60,220
37,745
7,097
5,514
4,167
3,499
1,265
478
196
83
57
120
2015
2015
LAMB
MUTTON
31,326
21,744
122
5,289
3,293
32
612
115
33
3
43
39
28,894
16,001
6,976
225
873
3,467
652
364
163
80
14
81
2014
TOTAL
88,905
42,417
19,892
8,379
4,000
4,295
5,675
1,852
940
216
357
883
2014
2014
change
change
change
LAMB
MUTTON
TOTAL
LAMB
MUTTON
38,842
23,659
634
7,009
2,860
57
3,323
219
174
15
350
544
50,064
18,759
19,258
1,370
1,140
4,239
2,352
1,634
766
200
8
338
-32%
-11%
-64%
-34%
4%
-19%
-78%
-74%
-79%
-62%
-84%
-86%
-19%
-8%
-81%
-25%
15%
-43%
-82%
-48%
-81%
-81%
-88%
-93%
-42%
-15%
-64%
-84%
-23%
-18%
-72%
-78%
-79%
-60%
75%
-76%
market snapshot – CHINA – February 2016
➡➡ These forces will be key drivers of strong and growing
demand for imported red meat into the medium- and long-term.
15.0
Incremental growth in Chinese consumption
over the next five years will roughly equal a
market 1.3 times the size of Germany or the UK
2.6
10
6.5
0.4
1.6
2.1
1.8
1.8
0.5
2.4
1.3
0
2.2
1.7
0.3
Ge
0.4
1.3
Fr
an
ce
2.8
3.0
UK
4.2
an
y
2.3
rm
5
12.4
Ja
pa
n
➡➡ Economists estimate that China’s GDP per capita will rise
from A$12,324 in 2016 to A$16,844 in 2020 (IMF, WEO 2015).
15
private consumption, 2015
Consumption growth, 2015-2020
US
➡➡ Much of this growth will be driven by the urban affluent and
upper middle class, estimated to number around 80 million in
2016, and expected to continue growing in number (McKinsey).
20
Nominal private consumption, 2020
($ trillions)
➡➡ China will see slower economic growth in coming years as
it undergoes a structural transition. But this reduced growth
will occur on a large economy with increasing urbanisation and
rising incomes. Real private consumption is expected to remain
strong and grow by an average of 8.0% per year for the next five
years (BMI).
5
By 2020 Chinese consumption
will have grown by $2.3 trillion
In
di
a
Growth outlook
Ch
in
a
mla industry insights
Source: Economist Intelligence Unit: BCG analysis, World Economic Forum
Note: Assumes annual GDP growth rate of 5.5%.
Because of rounding, not all numbers add up to the totals shown
Sector growth
➡➡ In the coming years, value growth will replace volume growth in many categories, including meat. Spending on
higher-value products is ready to accelerate as a result of the growth of the upper-middle class.
Foodservice
➡➡ Foodservice is a key user of Australian sheepmeat, particularly hot pot restaurants and Western style high-end
restaurants and hotels. The sector plays an important role in diversifying consumption experiences of sheepmeat, with
increases in sheepmeat consumption since 2005 attributed in large part to the foodservice sector.
Retail
➡➡ China is expected to become the world’s largest retail market by 2018. Whilst overall growth is slowing, the convenience
store format will see growth as will domestic retail chains, all improving their fresh food offerings. The contribution to
growth is shifting from physical retail to e-commerce channels and, as in developed economies, online and off-line retail are
becoming increasingly intertwined. Typically, before they decide to make a purchase, Chinese consumers make contact with
a product through an average of seven different touch points, such as store displays, product promotions, or social-media
comments (BCG).
E-commerce
➡➡ Private online consumption has grown exponentially in recent years and is projected to surge
by 20% annually through 2020, compared with 6% annual growth in off-line retail sales.
⇨⇨In addition to offering better prices and wider selections, e-commerce provides consumers
access to products that aren’t available at local stores and is used increasingly to purchase
fresh food as well as take away and prepared meals. For example, spending by the average
e-shopper on organic and imported food and beverages has reportedly expanded eightfold
over the past three years (Alibaba). Big investments in cold chain logistics will continue to
improve delivery of meat to online customers and become a more important channel.
⇨⇨Mobile e-commerce, which already accounts for 51% of all online sales in China, compared
with a global average of 35%, will also continue to grow. By 2020, mobile e-commerce is
projected to account for 74% of all online sales in China.
⇨⇨Cross-border e-commerce has become a new driver of retail sales as online retailers
connect domestic consumers with an increasing number of overseas brands and are
projected to account for 15% of total e-commerce in China by 2020 (BCG).
By 2020 mobile
e-commerce is
projected to
account for
74%
of all online
sales in China
6
mla industry insights
market snapshot – CHINA – February 2016
Relevant Chinese government
policies
A number of Chinese government policies have implications for Australian sheepmeat
exports to China, some impacting on market access, consumer demand or market
competition due to domestic industry reform and investment:
➡➡ The Chinese government’s new Food Safety Law came into effect on 1 October 2015,
along with revisions to the Consumer Protection Law and Advertising Law, underscoring
their increasing commitment to improved food safety. This is expected to force Chinese
meat producers to improve (labelling, traceability, safety and quality) and is intended
to gradually increase consumer confidence in local product, increasing competition for
countries exporting meat to China in the long-term.
➡➡ The Shanghai Free Trade Zone, a pilot now a year old, has been expanded to seven new
cities (Hangzhou, Tianjin, Ningbo, Zhengzhou, Chongqing, Guangzhou & Shenzhen). Meat
is a target industry, with the creation of two inland meat import ports in Henan province,
offering reduced tax rates and streamlined customs and quarantine procedures. These
facilities are intended to encourage cross-border e-commerce into China’s inland cities,
giving consumers there improved access to imported meat and other perishable products.
➡➡ On November 3, 2015, the Chinese Communist Party Central Committee’s Thirteenth
Five-year Plan (2016-2020) on National Economic and Social Development was released,
with agricultural sector reform a significant component. Agricultural goals include shifting
to larger farms and “professionalized” farmers who will be more productive and efficient
and enhance quality and safety. Other highly relevant goals include faster urbanization,
doubling GDP and per capita income of both urban and rural residents from 2010 to 2020
and greater investments in infrastructure. A new two child policy will help grow the middle
class by allowing those who are willing and can afford to have more than one child to do so.
➡➡ China’s “One Belt One Road” New Silk Road foreign policy and trade initiative is
building stronger transport and trade links between Asia and Europe, significantly reducing
goods delivery times between China and Western Europe, possibly opening up a free trade
corridor and, potentially, better access to China for European exporters. This has seen
significant investments made in construction and development in the Northwest area of
China, the areas with the highest per capita sheepmeat consumption.
➡➡ The China-led Asian Infrastructure Investment Bank (AIIB) entered into force in
December 2015, with Australia as one of the 17 members to have ratified its Articles of
Agreement. From 2016, the AIIB will emerge as a new player in the world of development
financing in Asia, with a total capitalization of about A$138 billion.
© Meat & Livestock Australia, 2016. ABN 39 081 678 364. MLA makes no representations as to the accuracy of any information or advice contained in
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