May 5 - 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.
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.