China’s dominance in world meat trade is set to grow out to 2020, albeit at a slowing rate, seeing opportunities for Australia’s beef and sheepmeat exports to China come from extracting value, rather than volume growth in an increasingly competitive market.
This is the key finding from Rabobank’s recently-released paper, Australian Red Meat Exports to China, which examines the implications of China’s growing animal protein demand – as forecast in Rabobank’s report China’s Animal Protein Outlook to 2020 – on Australia’s beef and sheepmeat exports to China.
Rabobank forecasts that while China is expected to import (in total) an additional 800,000 tonnes of beef and 50,000 tonnes of sheepmeat by 2020, this will only lead to a moderate increase in Australia’s red meat exports to China.
Rabobank senior animal protein analyst Angus Gidley-Baird says Australian beef and sheepmeat exports to China exploded in 2012 and 2013, however, since that time, Australia’s market share has been eroded by increasing competition, seeing exports return to more normal levels.
With Australia “no longer the only player in the Chinese market”, Mr Gidley-Baird says the Australian red meat industry needs to “temper its expectations” as it cannot directly compete with others in the mass market.
“In the beef sector, competition into China has really stepped up with Brazil regaining access for frozen beef in mid-2015, while Uruguay and Argentina have also expanded their export programs,” he says.
“And competition could increase further if the US gains direct access to the Chinese market, which is a distinct possibility.”
Mr Gidley-Baird says while most of Australia’s competition in the Chinese sheepmeat market comes from China’s own domestic production, with China having the world’s largest sheep population, New Zealand is also a key supplier into the Chinese market.
“With China exploring other markets and alternative supply sources, Australia needs to create a strong value proposition – rather than focus on chasing volumes – to differentiate the quality of its product and command a slightly higher price,” he says.
“To give the Chinese consumer a reason to purchase Australian product at a slightly higher price than our competitors, we need to tangibly demonstrate food safety, quality, traceability, reliability and freshness,” he says.
Australia’s ability to supply chilled product, something no other country is able to do, also creates a higher-value proposition to the Chinese consumer, Mr Gidley-Baird says.
With most of the opportunities stemming from the upper-end of China’s middle-income class, Mr Gidley-Baird warns that while income growth is set to continue, consumers remain price sensitive.
“Caution must be exercised not to overprice the value of Australian beef and sheepmeat, but rather to price ourselves sensibly as per capita consumption remains relatively low,” he says.
Mr Gidley-Baird says with Australia’s beef and sheepmeat industries needing to play to their strengths of quality, location, market access, trade relations and safety, Australia is set to increasingly benefit from the gradual reduction of tariffs over the next six years, through the China-Australia Free Trade Agreement (ChAFTA).
“China is one export market in which Australia can truly leverage the characteristics of its product and market access over others and, if we do this well, the Australian beef and sheepmeat sectors should avoid low-cost market competition and see exports to China grow at a sustained pace,” he says.