(Last updated: 15 Nov 2010)

Trends and opportunities

The market

With a population of over 1.3 billion, China is currently Asia’s second largest food and beverage market by value after Japan. As China’s economy grows and appetite for sophisticated consumer tastes develops, Australian food and beverage companies have a great opportunity to enter the China market. In 2007-08, Australian food exports to China were valued at $928 million, up to 40 per cent from the previous year (Source: Food Australia Report - Australian Food Statistics 2008).

The increased interest and demand for Australian food and beverages is being driven by China’s strong economic growth, and its rising per capita income. Emerging second tier markets and wealthy coastal cities, not just big hubs like Beijing, Shanghai and Guangzhou, are providing opportunities for Australian companies to access a greater share of the Chinese market.

Food consumption patterns in China have changed significantly as living standards have risen. Chinese consumers are becoming more discerning and are demanding:

• Higher quality
• Modern packaging
• Freshness
• Better nutrition
• Confidence in food safety and ingredients integrity
• Convenience
• More variety

Opportunities

Foreign-invested supermarket retailers such as Wal-mart, Trust-Mart, Makro, Jusco, Carrefour, Tesco, Lotus, Metro, Park’N Shop, 7-Eleven, Watson’s and major domestic chain store outlets such as Hualian, Lianhua, and Vanguard have expanded in China with speed. These supermarkets have become more diversified and sophisticated, and offer local consumers an increased range of imported foods and beverages.

The proliferation and growth in the number of food retail outlets and chains presents opportunity for Australian exporters of food to China. All of the foreign-funded supermarkets plan to increase their investment in China.

Australia is recognised by local consumers as having a clean and green environment with good quality products and brands. Many Australian exporters have already taken advantage of this competitive edge by establishing a position as a supplier of products such as meat, dairy products, fresh fruits and seafood.

Market feedback has shown interest in Australian suppliers of:

• Milk powder, UHT milk, cheese, butter and margarine
• Seafood (eg. oysters, live lobster, live abalone, live king crab)
• Fresh fruit (eg. citrus)
• Wheat, barley and rice
• Frozen red meats (eg. beef, veal, lamb)
• Processed foods
• Wine
• Beer
• Natural fruit juice
• Convenience and ‘instant’ foods
• Confectionery and snack products

Australian wine exports to China have risen significantly. China surpassed Japan becoming the largest export market in Asia for the Australian wine industry since 2007. Australia also ranked second largest overall supplier of bottled wine to China. Data released by the Australian Wine and Brandy Corporation (AWBC) highlights the importance of China as a key emerging market for Australian exporters. At the end of September 2010, Australian wine exports to China reached 57 million litres. China, has grown into Australia’s fourth biggest market in terms of volume of bottled wine exports, after US, UK, and Canada. In the first nine months of 2010, China recorded strong growth, up 34 per cent, from six million litres to 22 million (Source: Australian Wine and Brandy Corporation, September 2010 Wine Export Approval Report).

The AWBC and Austrade work closely together in promoting a unified Australian wine industry marketing and educational message to the Chinese market. In August 2008, the AWBC and Austrade China announced a cooperative partnership for the China market. The partnership will work towards the effective development and coordinated delivery of the Wine Australia China Market Program and Austrade China’s business development and export promotion initiatives to the benefit of the Australian wine industry. Australian wine producers already exporting to Shanghai and Beijing (branded wine) can apply for membership, please refer to the AWBC website: www.wineaustralia.com.

Both organisations support in-market initiatives including a China Australia Wine Importers Network (CAWIN) for importers and distributors of Australian wine in China. All Australian wines destined for export to China must have export approval from the AWBC. More information about Australian wine export licensing as well as Chinese imported wine regulations and requirements is available via the AWBC China market guide. For further information please refer to the AWBC website: www.wineaustralia.com.

Given the continued opening up of the China market, and with a bilateral Free Trade Agreement between Australia and China under discussion, there is potential for further growth in Australian food and beverage exports to China.

Currently, however, a range of Australian food and beverage products are still not permitted for export into China, as protocols are yet to be negotiated and agreed between the Chinese and Australian governments. Exporters are encouraged to confirm their product eligibility to enter the Chinese market prior to engaging in commercial activities with Chinese customers or directly investing in a Chinese business opportunity. Exporters can make initial enquiries to their local Australian Quarantine and Inspection Service (AQIS) office or Austrade.

Tariffs, regulations and customs

Following entry into the World Trade Organization, China has reduced its overall average tariff for agricultural products from 21.2 per cent to 15.3 per cent. However, China still has pockets of high tariff protection - as high as 65 per cent on some key products of interest to Australia.

Australia-China Free Trade Agreement negotiations are progressing on tariffs and other China market access issues. These include tariff rate quotas, standards and technical regulations. Latest information on Australia-China Free Trade Agreement negotiations can be viewed at Trade policy - Australian Department of Foreign Affairs and Trade.
UPDATE: Advice from Chinese quarantine and customs officials is that a ban is not in place and arrangements remain unchanged for Australian live seafood including rock lobster. However, it is important to consult with logistic providers before arranging such shipments to China. Contact Austrade China’s F&B network for more information.

Industry standards

All import foodstuffs and beverages are subject to inspections by the China Entry-Exit Inspection and Quarantine Bureau (CIQ). Quarantine and Inspection in China can be complicated and challenging, so be prepared and do not underestimate the cost, documentation and time required. Accessing up-to-date information on quarantine and customs requirements such as labelling and packaging requirements, food standards and allowable ingredient listings can be challenging. The most recent China Entry-Exist Food and Beverage Quarantine and Inspection Industrial Standard took effect on December 1, 2007. The new Standard adopted the internationally common use, 3MTM PetrfilmTM as one of its standards.

All imported pre-packaged food must be labelled in both English and Chinese (simplified Chinese as used in mainland China) with the general standard for the labelling of pre-packaged food (GB7718-2004), the following is the example of minimum information to be listed:

• Standard name of foodstuffs
• List of ingredients
• Exact volume of each ingredient
• Net weight and volume
• Name and address of manufacture and local agent or distributor
• Production date, use by date and guidance for storing
• Quality grade
• Code of national standard, or industrial standard, or enterprise standard for the product
• Special contents if there are any (eg. irradiated food)

All imported pre-packaged beverage and wine must be labelled in both English and Chinese (simplified Chinese as used in mainland China) with the general standard for the labelling of pre-packaged beverage and wine (GB10344-2005), the following is an example of minimum information to be listed. Other information maybe required depending on the specific product and it is advised that exporters check with specialist logistical companies or relevant departments prior to exporting products to China:

• Wine name and type (eg. dry red, semi-dry)
• Vintage year
• Grape variety
• Country and wine region
• List of ingredients (including raw ingredient and juice volume and any additives)
• Alcoholic strength
• Name and address of manufacture and local agent or distributor
• Production date, (or bottling date: YYYY.MM.DD), shelf life and guidance for storing
• Net weight and volume
• Code of national standard, or industrial standard, or enterprise standard for the product
• Quality grade
• Production license

Note: Wine and alcoholic beverages over 10 per cent alcohol volume are not required to list the date of minimum durability (use by date/expiry date) on the label.

All imported pre-packaged foods for special dietary uses must be labelled in both English and Chinese (simplified Chinese as used in mainland China) with the general standard for the labelling of pre-packaged foods for special dietary uses (GB13432-2004), the following is the example of minimum information to be listed:

• Food name
• List of ingredients and exact volume of each ingredient
• Nutrient
• Net of weight and volume
• Name and address of manufacture and local agent or distributor
• Production date, use by date and guidance for storing
• Edible method, recommended nutrient intake, and targeted people
• Code of national standard, or industrial standard, or enterprise standard for the product
• Quality grade

Please note that CIQ requirements often change and it is encouraged that exporters re-confirm requirements for labelling and other product certifications prior to dispatch of goods for export.

UPDATE: China Food safety law

China's new food safety law was adopted on 28 February 2009 and was made effective from 1 June 2009. The law has been enacted to improve food safety in China through stricter monitoring and supervision, tougher safety standards, recall of substandard products and severe punishment of offenders. The new laws are applicable to both imported and domestically produced food and cover production and trading of food and food additives; packing materials, vessels, detergents and disinfectants for food and equipment used in food production; food additives and food-related products used by food producers and traders; and safety management of food, food additives and food related products.

Under the Food Safety Law, all imported food products, food additives and food-related products are subject to the national food safety standards of China. No pre-packaged foods may be imported into China without appropriate Chinese labels.

All foreign food distributors and producers that import food products into China are required to register with the state entry-exit inspection and quarantine authorities. Importers must record the foods imported and distributed in China, and must keep the records for at least two years.

There is one change for wine exporters under the new China Food Safety Law. Wine producers are now required to indicate a lot number on the body of wine bottles. The lot number can be either the date of bottling (yy/mm/dd) or a batch code reflecting the production. Prior to the product being imported or distributed, the lot number must be viewable on the body of the bottles processed by China Inspection and Quarantine (China CIQ).

The new food safety law and underlying regulations will have an impact on existing trade, but details of how the articles will be implemented from different Ports could be various.

Marketing your products and services

Market entry

There are a number of market entry strategies worth considering:

• Look for small or medium-sized private trading houses with subsidiaries or contacts in Hong Kong who can arrange payment in foreign currency and with a wide distribution network in your target local market. There are plenty of Chinese traders that have difficulties opening Lines of Credit (LC) and have a poor understanding of international trading practice.
• Don’t exclude all the large buyers, particularly those private trading houses who have been importing foods via Hong Kong traders. Some of them have started to buy directly from overseas suppliers and have gained basic experience in foreign trade. As a consequence it has become easier to do business with these companies directly.
• With the increase of business migrants from China to Australia, potential may exist for Australian suppliers to explore linkages in Australia with registered businesses in Australia which have linkages with China and are focused on Australia-China trade opportunities linked to their investment and migration to Australia.
• Ascertain that you are dealing with a reputable business partner but at the same time take full export insurance.

There are a number of actions that will help you succeed as a supplier:

• Get to know the market – Visit the market, establish a price range for your products, understand the sales and distribution channels, and know customers’ preferences.
• Proper due diligence – due to an increased incidence of scams in China, Australian companies are urged to investigate enquiries from China and consult with Austrade for assistance and referrals to professionals specialising in China due diligence checks and investigations.
• Find a local partner or agent – Choose slowly and carefully, look for a partner with a proven record, and ensure that the partner is able to handle import formalities.
• Test the market – Be aware that everything is different in China between each of the cities and provinces.
• Find your market segment and focus on it – Identify and develop a niche market. Try not to cater for the entire market by diversifying too early.
• Adapt your product to the local market – Adapt your product to local tastes, and make small adjustments to the product if necessary.
• Invest wisely in market promotion – Participate in industry specific trade shows, and make frequent visits to China.

With the rapid growth of Internet use and penetration in China, particularly in major urban centres, e-commerce is seen to offer considerable potential in China.

Although still niche, online trading is gradually expanding in China and there are a number of e-commerce sites and developers. Many sites in China provide a platform for business information exchange, however physical transactions are primarily undertaken offline due to China’s undeveloped online payment system, and difficulties establishing the business credentials of some companies in China.

Please note that for online transactions of food and beverage products, all Chinese quarantine and customs requirements still apply. Online transactions are usually most popular among companies with products already entered into the Chinese market (ie. available in China) and are dispatched from a Chinese warehouse point to the buyer. Two sites that are worth looking at are:

• www.Alibaba.com – a popular e-commerce site for supply and trade leads
• www.8848.net – specialises in the development e-marketplaces, e-solutions and e-distribution

Distribution channels

Distribution channels into China are complex and changing constantly. Exports into China can be handled through a number of intermediaries including Hong Kong traders, private trading houses in China, state-owned trading houses, or a joint venture arrangement.

Only licensed importers can handle import procedures and have the right to import products. Most food distributors or traders do not hold import licenses and very few licensed importers act as distributors.

Different product categories require different distribution channels. Currently, most food and beverage products are handled through Hong Kong traders. However, private trading houses in China have become increasingly more important for the importing of seafood, fruit and meat.

Links and industry contacts

Food–related resources

China Agriculture Science – www.caass.org.cn

Government, business and trade resources for China

China Customs – www.customs.gov.cn
China Ministry of Agriculture – www.agri.gov.cn
China Ministry of Commerce – http://english.mofcom.gov.cn

Media

Beverage – www.beveragechina.org.cn
China Dairy Information – www.chinadairy.net
Wine – www.winechina.com/EN

Contact details

The Australian Trade Commission – Austrade – is the Australian Government’s trade and investment development agency.

Through Austrade’s network of offices in over 50 countries, we assist Australian companies to succeed in international business, attract productive foreign direct investment into Australia and promote Australia's education sector internationally.

For more information on how Austrade can assist you, contact us on:

Australia ph: 13 28 78 | Email: info@austrade.gov.au

A list of Austrade offices (in alphabetical order of country) is also available.