Bright Business Consulting LLP

Sunday, May 20, 2018

Agriculture and Food Industry in China

The increase in purchasing power and the evolution of life styles of Chinese consumers are changing the food industry, both in terms of domestic production than of imports.

In this context, the purchase of food products from abroad has seen a gradual diversification following the trends of the market. In terms of marketing have been overcome traditional formulas that provide for the sale of perishable food items at local markets and non-perishable products at state-run stores.

The arrival of new Western-style distribution formulas has largely revolutionized the purchasing system Hypermarkets, supermarkets, discount shopping malls and private shops are now widely available in urban areas, facilitating purchases by offering competitive prices and providing better sanitary conditions. Consequently, the transformation of local businesses continually launch new products, investing in modern equipment and introduce systems for processing and preserving able to ensure food safety.

Not secondary in this process, the strengthening of the logistics (transport, storage, equipment, cold chain, etc.).

The combined effect of demand growth and the reduction of taxes has also impressed a surge in imports of food products, thanks to the large size of the global market that offers unique business opportunities for foreign companies.

In this direction also act other factors: the increasing share of food consumption outside home, the development of ethnic and international food, although still limited to major metropolitan areas, and the majority of Chinese consumers contact with Western eating patterns through travelling abroad.

Thanks to the new policies adopted by the central Government any foreign enterprise, regardless of their size, can register as a company operating in the field of wholesale and retail at any point of mainland China. In addition, companies with foreign capital and the national ones must meet the same requirements regarding minimum capital, or about 500 thousand RMB for wholesalers and 300 thousand RMB for retailers.

China imports an average of over 40 billion dollars of food products and beverages. The value of exports of agro-food products occurs in large scale with approximately $ 33 million. The mainly imported products are soybeans, oils and fats, fish and shellfish.

The volume of trade with foreign countries in this area are favored by several factors: strong reduction of duties, liberalization of wholesale and retail markets, foreign investment in the sector, growth of chains of hotels and restaurants, strong spread of the large-scale distribution.

However, in this scenario we will highlight two factors, which deserve analysis, also moving towards a proper “Consulting on Company Investigation & Commercial Investigation”.

CRITICAL FACTORS

  • Strong link of the local population with their own culinary traditions.
  • Presence of tariff and non-tariff barriers.
  • Restrictions health, absolute prohibitions.
  • Burdensome administrative procedures and uncertain, complex certifications.
  • Insufficient local distribution channels.
  • Lack of knowledge of the Chinese system by foreign companies.
  • Lack of presence of retail and hotel facilities run by foreigners.

FAVOURABLE FACTORS

  • Class of affluent population continues to grow.
  • Strong signals of Westernization in food consumption.
  • Tourist flows that feed China's demand for foreign food quality.
  • Growing recognition of the health benefits of many foreign products.
  • Progressive simplification of local legislation.

Given that Bright Business Consulting LLP is not engaged as an agency representative, or as distributor, it supports companies in accessing the Chinese market through consolidated and calcified synergies in the “PEE Project”.

WINE:

Wine, typical beverage featuring the European food culture, is inexorably becoming part of the eating habits of countries with different realities and cultures and distant from the Western ones. China falls to be part of those situations where there is a very old wine tradition, but due to cultural issues, the consideration given to the production of wine has remained marginal over the centuries. Despite the Chinese wine production has origins far back in time, traditionally it does not exist in this Country a wine culture deeply rooted as that existing in the "old continent". However, the lack of a specific and effective knowledge and tradition of wine has not stopped the Asian giant in the race to conquer this area.

China is one of the "Emerging Market" for the wine industry, more and more sophisticated and competitive. China, in accordance with agreements with the World Trade Organization (WTO), has  reduced the customs duties on imported wines (from 65% to 14%) favoring the exponential growth of the wine market from abroad. All this has had a positive impact on the market, offering local consumers the opportunity to taste a wide range of products at more affordable prices.

In China there is a strong concentration of production. About 40% of the total production in quantities equal to about 51% by value, is owned by six local producers. Moreover, the increase in imports of wine exerts a strong pressure on the national wine pushing for greater competitiveness.

Some data with regard to bottled wine:

  • Customs Duties: 14%.
  • VAT (IVA): 17%.

For the bulk wine:

  • Customs Duties: 20%.
  • VAT (IVA): 17%.

In addition to the duties and value added tax (VAT-IVA) is also applied a Consumption Tax (CT) of 10%.

Nowadays the wine, regardless the manner in which it is consumed, to the eyes of the average Chinese is part of the series of "status symbol" products necessary for the consumer to underline its economic capacity and its position in the social scale. The consumer is attracted by the quality, taste and smell of the wine as well as by the bottle and the very elaborate packaging.

The criteria determining the purchase of wine, listed from the most significant to least one, are: the brand, the taste, the price, the origin and packaging

THE NUMBERS OF WINE IN CHINA:

  • Over 10 million the number of regular consumers of wine.
  • Approximately 0.4 liters per year, the national per capita consumption of wine.
  • Approximately 0.7 liters per year consumption of urban residents.

The number of individuals with significant purchasing power is growing, especially in the municipal provinces Guandong, Shanghai, Beijing and Zhejiang and Hangzhou.

In recent years there is a growing number of stores specializing in the sale of wines, this does not need to be flattered by a seemingly simple investment. Many elements and strategic foresight if you do not want to run into any unpleasant and costly pitfalls; appropriate to support the implementation of “Warranty & Assistance” of Bright Business Consulting LLP (to be noted that most of the shops are run by the respective trading companies).

The trading company directly opens these stores mainly for two reasons:

  • Make your own wines best-known so that the shop becomes a window of the company's presentation.
  • Add a form of targeted distribution for direct sale to the final consumer.

Given that Bright Business Consulting LLP is not engaged in an agency representative, it supports companies in accessing the appropriate mode distribution considering the intentions of the company, assessing the direct control of the region through consolidated and calcified synergies in the “PEE Proiect”.

OLIVE OIL:

The consumption of olive oil in China is booming thanks to the fact that the more affluent tier and wealthy consumers are changing their eating habits, but more importantly, they recognize the great nutritional properties of this product.

The price factor still continues to be the key variable as, while appreciating its characteristics, the final  consumers are not yet able to make choices according to the quality.

Year after year, the value of Chinese imports of olive oil has grown rapidly. The main distribution channels for this product are restaurants, luxury hotels and the import food section of large supermarkets. Due to the increased attention paid by consumers to the quality of olive oil, supermarkets are becoming the main distribution channel for this product for domestic consumption selling more than 90% of the imported product.

At the time the local production of olive oil is almost non-existent and then the olive oil is a product that is identified with a foreign origin. Olive oil is one of the imported products that best benefits from his picture in terms of its high nutritional properties. At the same time it takes advantage of some changes in lifestyle such as consumption of raw foods to dress and the introduction of lighter cooking methods, different from the usual Chinese fried in a wok made with large quantities of seed oil.

Research indicates that the majority of Chinese consumers buy extra virgin olive oil. The choice between the different varieties of oil is determined by the comparative price, from the brand and only a residual from the origin. In order to enjoy greater credibility in the market, and to protect your identity the “Mark Registration” is recommended.

Given that Bright Business Consulting LLP is not engaged in an agency representative, it supports business through access to distribution channels and specific consolidated and calcified synergies in the “PEE Project”.

    PASTA AND BAKERY PRODUCTS:

    Pasta is in the tradition Chinese food and then the acceptance of imported pasta with durum wheat is not so difficult. The baked goods are really interesting products. They are essentially absent in the tradition of Chinese food, have had over the last 15 years a so great success to feed food import flows as well as to determine the birth and development of a thriving local industry and numerous craft shops. In China there are more than 4,000 companies operating in the sector of bakery products with more than 5,000 working lines. The total annual production is about 2 million tons, with an annual per capita consumption of 1.5 kg.

    The entry of foreign firms has greatly stimulated the development of the Chinese market of bakery products and has triggered profound changes in the traditional market, which initially was state-owned.

    In this sector, the large companies based on Chinese capital are few in number, while there are many Joint-Ventures and greater produces with foreign capital. Currently, the market has therefore outlined a particular situation firms based on the Chinese capital exceed the sales volume of foreign firms, while the latter show better performance in terms of profitability. The situation in different as regards Different situation in the pulp where there is no presence of local producers of product made with whole wheat flour.

    In recent years, Chinese imports of pasta and baked goods reached almost $ 100 million. Given the very large Chinese population, the total potential demand of bakery products is very high, even though the volume of current per capita consumption stood well below the international average. There are then to imagine very high growth rates in the coming years that will cover the whole range of biscuits (both dry and pastry), snacks, also in the light version.

    Given that Bright Business Consulting LLP is not engaged in an agency representative, it supports business through access to distribution channels and specific consolidated and calcified synergies in the “PEE Project”.

    CHEESE:

    In no other country in the world, the dairy industry has a potential and growth prospects in the long term as bright as in China. The annual per capita consumption of milk does not exceed 2.3 kg.

    Chinese consumers are beginning to change and improve their diet. The recent growth in the consumption of dairy products has been rapid, at an average annual rate of 10% over the past five years. According to forecasts from the National Institute of Statistics of China in the years 2015-2020 the volume of dairy consumption per capita could reach values close to those of Japan, thus pushing the demand to a value 4 times higher than the current one. 

    The demand for dairy products from China will live a period of growth that will last at least for the next two years. To nourish it there are the problems in the local production caused by changes in the national chain, which prevent internal resources in the Country to meet the growing demand for products of the dairy industry.

    Over the past two years, Chinese imports of dairy products increased by approximately 30%. According to analysts, the forecast increase in demand from consumers and the slowdown in domestic production will ensure that China purchases abroad as much as 20% of the dairy products they need to meet the demands. The remaining 80% will come from the milk produced in the country, but in most cases (60%) to produce it will be small firms that have to deal with the most stringent control standards imposed by the central Government after the scandal of melamine-tainted milk and, at the same time, with the rising costs of feed and labor. In this context exporters of dairy products are an opportunity to gain in the coming years. Experts believe, however, that soon China will be forced to seek alternative sources of supply instead of the current channel.

    Given that Bright Business Consulting LLP is not engaged in an agency representative, it supports business through access to distribution channels and specific consolidated and calcified synergies in the “PEE Project”.

    CHOCOLATE:

    Do the Chinese like mouth-watering chocolate? Judging by the size of the market for this product, second only to the U.S. by volume, it would seem so. The value of chocolate imports is growing.

    In the case of chocolate in China there are three types of product:

    • The imported one, high quality and purchased from a high-end consumer.
    • The one produced on site by the “Joint Venture” with multinationals, mid-range level but made attractive by a strong commercial promotion.
    • The local one, produced by Chinese companies, of low quality and with cheap prices, not very competitive on the same Chinese market.

    Although the per capita consumption is only 1% of the average per capita consumption worldwide, the Chinese market is still very promising and, starting from the 90s, many foreign manufacturers have entered China. The ten brands that compete for approximately 90% of the chocolate market in China are Dove, Cadbury, Le Conte, Nestle, Hershey 's, Golden Monkey, Ferrero, M & M's, Tresor Dore and Shenfeng. The Chinese producers are still several problems to be solved: firms employing  obsolete machinery and they lack the necessary infrastructure and also the research on this type of product.

    Recently, the annual production capacity far exceeds the 100 thousand tons, but the high competitiveness of foreign brands causes difficulties for local production, often unable to achieve the internationally recognized standards Chinese consumers, however, even in this field, are becoming connoisseurs and have begun to appreciate the quality of chocolate, especially dark chocolate. A few Chinese companies that are distinguished by the production choices.

    Given that Bright Business Consulting LLP is not engaged in an agency representative, it supports business through access to distribution channels and specific consolidated and calcified synergies in the “PEE Project”.


    TO HIGHLIGHT

    In order to operate successfully today and in the future, in the growing sector of food products in China is definitely advisable to have a local commercial presence this also in order to have access to both the contributions provided and to the tax benefits of the case. To this purpose a Chinese legal figure with appropriate accreditation is recommended and Bright Business Consulting LLP is the ideal partner for the implementation of the representation.

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