For almost any marketer or producer of just about anything, the Chinese market is one they’re eager to get into. The world’s most populous country boasts a potential 1.4 billion customers, and both its middle class and their purchasing power are on the rise.
Research by consultants McKinsey & Co. suggests that by 2022, more than three-quarters of China’s urban consumers will earn between 60,000 and 229,000 yuan renminbi (approximately C$11,600 to C$44,400) a year.
Only four per cent of urban Chinese households had earnings in that range in 2002.
That explosion can be directly attributed to the rapid pace of industrialization and urbanization that has been ongoing in China since the 1980s. According to the World Bank, only 16 per cent of China’s population lived in urban areas in 1960, increasing to 56 per cent by 2015 and expected to keep edging up to 60 per cent by 2020.
The new market
For a long time, China faced a problem of quantity when it came to feeding its people.
Today, the problem more often than not is quality, which may be good news for Canada’s farmers.
Various scandals involving food have shaken Chinese consumer confidence in domestically produced items, with the melamine scandal of 2008 marking a watershed moment in the Chinese food industry.
In that crisis, which killed six infants and sickened 300,000 people, products from one out of every five Chinese dairy companies were found to be tainted with melamine.
That lingering distrust, combined with the rising wealth of the middle class and more food availability, means that Chinese consumer demand is changing from focusing on having enough food to caring about quality.
Increasingly, too, Chinese consumers are paying more attention to where their food comes from, what it contains, and how it was produced.
Nor will it stop there.
“China is developing. First we had a focus on nutrition, then nutrition with quality,” explains William (Wim) Smits, director of farm management service with DeLaval in China. “Now the higher middle class wants emotional satisfaction as well.”
That evolution is driving change in Chinese agriculture. In the dairy sector, for example, post-melamine tightening of food safety and quality regulations saw large dairy processors change their buying practices from so-called “middle men” — those selling pooled milk from smaller village milking centres representing many small farmers — to either buying directly from only two or three large farms or producing their own milk.
Now the market is starting to see the emergence of smaller local milk brands, says Smits, where local farms are selling dairy products back to their own villages.
“This is for people wanting to know where their milk comes from. A local brand is one from a single farm, always above 1,000 cows, that produces and processes its own milk,” Smits says. “Food is a big part of Chinese culture.”
Wondermilk is one such example, a high-quality local brand sold in Beijing that prides itself on producing all of its milk at its own farm, Huaxia Dairy Farm, which is located only 50 km from the Chinese capital.
The impact is felt in other sectors too, as China’s co-operatives are faced with increasing quality demands for their crops, including reducing chemical use and growing interest in organic production.
Lan Jiasheng is the general manager of the Jianhu Lantian Agricultural Machinery Co-operative established in 2007 near the city of Yancheng in Jiangsu Province north of Shanghai. The government has raised its standards for crop quality and will now turn away a substandard crop, he says, which didn’t used to happen in the past.
“In the old days, we had a quantity problem and now we have a quality problem with people worried about residues,” he says. “We can’t test everything so we also need to focus on organic production. As Chinese people have higher living standards, they focus more on health and are willing to pay more, so this is a growth area for the future.”
Chinese government regulations for organic production published by the national agriculture ministry are very strict, he adds, and include fertilizer and pesticide bans, fallow periods and using cover crops to enrich the soil.
It’s a similar story at the nearby Liyang Haibin machinery co-operative, which is adding a focus on organic and so-called “green” standards to its business.
The co-op’s president, Haibing Wang, says the price he receives for his organic crop is three times higher than his conventional output, but he has to balance that with lower outputs and stricter standards for soil and inputs. Of the co-op’s 320 hectares, 20 are currently in organic production.
“We see 50 to 60 per cent less yield from our organic crops,” Wang says. “I have a vision for the future but also have to face the reality that it takes three to five years to go organic.”
The co-op is expanding by adding new farmland, but also trying to do a better job with its existing acreage, he adds, as well as introducing new businesses. That includes something new in China — agri-tourism. Many urbanites like to “sightsee” in the countryside, so the co-op organizes tours of its locations during cherry blossom or canola flower season, for example.
Agri-tourism is also part of the offering at the Beijing Xingnongtianli Agricultural Machinery Co-operative near Beijing, which works approximately 2,000 ha and provides agronomy, equipment repair and cropping services for over 2,000 farms.
“People from the urban areas come to the farm to see wheat and corn harvest,” says co-op president Chen Ling, who adds that city dwellers can also use small land plots at the farm to grow their own vegetables.
On livestock operations, the growing social conscience of Chinese consumers means improvements in animal welfare and environmental management, says DeLaval’s Smits.
“People still worry about people first here, but we see animal welfare changing too,” Smits says. “The advances are rapid. Five to 10 years ago we had no sand bedding on dairy farms, for example.”
China’s new dairy farms are world class, he adds, using the latest technologies and welfare standards and averaging 40 to 42 litres per day per cow with many older animals in the herds.
The rapid rate of urbanization in China also means a growing westernization of the population’s diet, another contributor to changing consumer buying habits. The traditional Asian diet doesn’t include much dairy, for example, but that’s been changing rapidly.
According to the Dairy Association of China, when the People’s Republic of China was formed in 1949, dairy consumption was practically non-existent, at only half a litre per capita per year with a national population of 541 million. By 2015, that consumption level had risen to 36.1 litres per capita — largely in milk and yogurt — among a population of 1.3 billion people.
“Breakfast habits are changing. The traditional Chinese breakfast takes a long time to prepare and with urbanization, you westernize, which means yogurt, bread, and starting to drink milk,” says Sören Lundin, DeLaval vice-president for Asia Pacific.
Despite the growing quantity and quality of Chinese-produced food, though, Western food remains popular — a boon to food exporting nations like Canada seeking to expand existing markets in China or add new ones.
Tetra packs of milk from Denmark, Germany, New Zealand and Australia line the shelves of Chinese grocery stores, and North American and European cooking oils, cereal, confectionary and dry goods are widely sold in both online and traditional market settings.
A three-litre jug of canola oil from Manitoba, for example, was priced at the equivalent of $22 at one Beijing market that targeted higher-end shoppers.
Foreign baby formula, too, remains a hot seller despite its high cost (up to 436 RMB or approximately $85) compared to domestic product (76-80 RMB or approximately $14-$15).
“The trust is coming back (in food) but not in infant formula,” explains Smits. These middle class one-child families, he says, are willing to pay more to buy food they trust.
Lilian Schaer is an Ontario-based freelance agricultural writer who recently travelled to China as part of an Exposure for Development tour organized by the International Federation of Agricultural Journalists.