China is already the world’s largest meat consumer, but as millions of newly wealthy Chinese seek a richer diet, many are developing a taste for beef, until now not generally part of the national cuisine. Beef has long lagged behind other staples, accounting for only nine percent of per capita meat consumption in 2013, compared to 22% for poultry and 65% for pork. According to a report released by Rabobank International late last year, China is on target to double beef imports by 2018.
Today Chinese consume around five kilograms of beef per person per year, compared to about 26kgs in the US and 35kgs in Australia. But while American and Australian beef consumption has declined over the past decade, Chinese consumption has risen by half a kilogram per capita since 2000 – that’s an extra 700,000 tons of beef every year.
According to a separate report compiled by Chinese researchers for Australia’s Department of Agriculture, Fisheries and Forestry, part of the reason for traditionally low beef consumption in China is cultural. Chinese consumers are reluctant to prepare beef dishes at home due to their unfamiliarity with cooking the meat, the researchers write. Much of China’s beef consumption therefore occurs in restaurants.
With the country’s burgeoning middle class set to drive Chinese consumption to fully one quarter of global consumption by 2025, the domestic restaurant industry is geared for rapid growth. A study by AlixPartners finds that Chinese consumers spend only 22% of total food expenditures in restaurants, compared with nearly 50% for US consumers. Total average spending in restaurants increased 10% in 2010 alone.
The finding has significance for the world’s big beef exporters. In restaurants, customers want quality, and are increasingly willing to fork out for premium cuts from abroad. Well-justified concerns about the safety of domestically produced meat are also driving customers to foreign brands. Beef imports have already shot by 400% in the last six years, and if Rabobank is right, this trend is set to continue.
Part of the recent import rise is due to a collapse in local herd numbers. China’s cattle herd fell from 89m in 2008 to 65m in 2012, according to a report by the Beijing-based China Suppliers Institute. The report blames an exodus of rural labour to the cities and government subsidy programs that have encouraged farmers to switch to pork and dairy production. A long-term rise in grain prices has also hurt profitability in the sector.
One result of falling herd numbers has been a massive rise in the price of beef, which has made imports vastly more competitive.
Traditional beef producers like Australia and New Zealand are the main beneficiaries of the import spike. China only allows beef imports from a handful of other nations, including Uruguay and Costa Rica. Among them, the two Australasian nations enjoy the best reputation for produce quality in China.
One country to be missing out is the United States. China banned American beef in 2003 as a result of the mad cow disease scare. The state-owned China Daily reports that the ban was lifted on beef from cattle up to 30 months old and five kinds of by-products in 2006, but that US authorities, calling for a total lifting of the ban, refused to certify any and all beef exports to China.
Some US beef has nevertheless been making its way to China through so-called ‘grey channels.’ The beef is first shipped to neighbours, such as Vietnam, before being shuttled across the border illegally. Chinese authorities clamped down on this trade last year, leading to a further surge in legal imports.
The Chinese government sees all rapid price inflation as a threat to its tenuous grip on social stability, and is attempting to ease beef price pressures by reassessing its import bans on beef from countries that suffered BSE. China Daily reports that as of last November, the country’s General Administration of Quality Supervision, Inspection and Quarantine was in talks with US government agencies to allow a partial lifting of the ban. In January, Global Meat News reported Ireland’s Minister for Agriculture, Food and the Marine, Simon Coveney, as saying that the Chinese market would open to Irish beef this year.
For their part, Australian and New Zealand beef exporters aren’t worried about resurgent competition in the sector. The nations’ major comparative advantage – cheap land – isn’t going away soon.
“Certainly [China’s] shortage can be filled by others, and I expect imports from all producing countries will grow,” said Adam Laitt, business development manager at Milne Agrigroup of Western Australia.
“Australia is never going to be the lowest cost, but we are quite an efficient producer of beef, much more so than most of Asia. You need lots of cheap land: Brazil, the U.S. and Argentina might be competitive but not the likes of Vietnam, Thailand or Indonesia, as you might expect,” Laitt said
Neither is Laitt particularly worried about the prospect of renewed US beef exports to China. “Even if imports from the US picked up, such is the demand that China would still be a massive market for the Australian industry. At the end of the day, it would also mean a redirection of US beef from Japan and Korea, which would lead to more Australian beef in those markets.”
Laitt thinks that supply-side pressures will keep beef prices high for the medium term. “Demand will only rise, and China can’t produce more at this stage.” He adds that the long growing cycle means the current domestic shortage will prop up import prices for at least another five years. “What’s more, herd numbers in other countries are actually falling as the global market faces uncertain times.”
Last year the US cattle herd shrunk to its smallest size in 60 years, as drought hit Texas for a third year running and producers faced excess slaughterhouse capacity. In Australia, prolonged drought in the East has led to record slaughter numbers over the last few years.
All in all, it looks like China’s middle-class millions will have to keep paying top dollar for their richer diet.