Sector Trend Analysis - Inside China Beef Trade

February 2017

Contents

Canadian dollar (C$)

United States dollar (US$)

Compound Annual Growth Rate (CAGR)

Harmonized System (HS)

Executive summary

The purpose of this report is to outline the size of the Chinese beef market, as well as the country's growth as a global importer. This report also provides some analysis of the main suppliers to China by outlining the main beef products provided by each competing country. Finally, this report includes regional analysis on the Chinese districts of entry for beef products.

Canada's performance

China continues to be Canada's second largest export market for agri-food and seafood products, and China's fourth supplier.

In May 2011, Canada gained back Chinese approval for the resumption of trade for boneless, frozen beef from cattle under thirty months of age. Since then and based on Chinese imports statistics, Canada gained 7.4% of Chinese bovine meat market with Chinese imports valued at C$228.0 million and ranked as China's sixth-largest supplier for beef and veal products in 2015.

China's beef production

China is a major player in the world beef industry in terms of production, consumption and, in recent years, trade.

The most current Food and Agriculture Organization of the United Nations (FAO) data, shows that domestic bovine numbers decreased by an average of 1.6% per year between 2000 and 2013, while the bovine heard renewal rate increased by 1.5% per year, up from 31% in 2000 to 46% in 2013.

Similarly, according to the same FAO data source, beef production also increased by an average of 1.8% per year over in the period (to make up 8% of total Chinese meat production), higher than the rate of growth of herd renewal due to increased beef yields (carcass weights, bone-in). However, average carcass weights in China are still low (139 kilograms) by western standard.

Beef production Production 2013 Annual growth, 2000-13 (%) Not applicable (N/A)

Kilogram (kg) Bovine numbers 103.8 million −1.6 Proportion of beef cattle (%) 66 N/A Turnoff numbers (head) 48.3 million 1.5 Beef production (tonnes) 6.7 million 1.8 Formal beef imports (tonnes) 314 thousand 34 Turnoff rate (not accounting for trade) (%) 46 3.2 Average carcass weight domestic cattle (kg) 139kg 0.3

China's trade summary

Compared to the domestic sector, China has historically had a very small beef trade sector for both imports and exports. However, the volume of imports increased rapidly from 2010 to 2015 due to increased consumption and high domestic beef prices.

From a global perspective, the beef and veal products imports were valued at C$56.6 billion, and China was the fourth largest importer of beef and veal products in the world, importing over C$3.0 billion in 2015, an increase of 48.3% from 2014. The country mainly imports its beef and veal products from Australia who has an Free Trade Agreement (FTA) with China, with 33.7% of total imports, followed by Uruguay (22.2%), and New Zealand (15.2%).

China's main imports of beef and veal products from the world in 2015 included boneless, frozen beef (C$2.5 billion), frozen beef with bone (C$358.0 million), and frozen bovine edible offal (C$83.2 million).

In 2015, China also exported just over C$156.6 million in beef products worldwide, a decrease of 6.4% from the previous year. Most of these exports were of processed beef (C$98.6 million), frozen boneless beef (C$56.9 million), and salted or in brine beef (C$0.9 million). Top destinations included Hong Kong (36.3%), Japan (30.0%) and Kyrgyzstan (20.2%).

Top beef and veal products (meat) suppliers to China by value in C$ million, 2010-2015 Rank Country 2010 2011 2012 2013 2014 2015 Source: Global Trade Tracker, 2016

Not applicable (N/A)

No data (n/d) N/A World 106.92 111.40 280.11 1,374.58 1,488.11 3,083.05 1 Australia 40.16 58.55 141.83 773.83 725.14 1,038.55 2 Uruguay 26.03 33.08 60.25 306.59 380.04 683.37 3 New Zealand 7.41 10.96 27.98 165.73 214.58 468.66 4 Brazil 32.86 8.77 37.97 0.00 0.00 382.85 5 Argentina 0.19 0.00 1.04 44.38 92.66 263.67 6 Canada 0.01 0.00 11.02 83.04 65.37 228.05 7 Costa Rica n/d n/d n/d 0.91 10.31 15.87 8 Chile n/d n/d n/d n/d n/d 1.93 9 Taiwan 0.14 0.04 0.01 0.02 0.01 0.02 10 United States 0.00 0.00 0.00 n/d 0.00 0.02

Top beef and veal products (meat) suppliers to China by metric tonnes, 2010-2015 Country 2010 2011 2012 2013 2014 2015 Source: Global Trade Tracker, 2016

No data (n/d) World 32,858 26,725 70,575 314,437 317,119 494,946 Australia 9,121 11,011 31,513 163,995 141,885 162,173 Uruguay 9,533 10,029 18,488 79,630 99,833 135,114 New Zealand 2,754 3,338 8,181 37,040 42,007 72,968 Brazil 11,376 2,342 8,951 n/d n/d 56,429 Argentina 16 0.0 220 9,220 16,983 42,688 Canada n/d n/d 3,216 24,387 14,724 23,125 Costa Rica n/d n/d n/d 141 1,683 2,192 Chile n/d n/d n/d n/d n/d 239.0 United States n/d n/d n/d n/d n/d 2.0

The medium to long-term demand for beef and veal products in China is predicted to be strong. China's beef imports have grown almost 15 fold in the past five years, from 32,858 tonnes in 2010 to 494,946 tonnes in 2015. The strength of imports reflects the growing imbalance between expanding consumption and domestic production that cannot fully meet the domestic demand. China's total beef and veal consumption reached around seven million tonnes in 2015 and is projected to increase to around eight million tonnes in 2020, according to Euromonitor.

Spending and consumption

Chinese consumer expenditure on meat was US$159.1 billion in 2015. Per capita spending on meat by Chinese consumers was US$116.3 in 2015, up from US$92.0 2011 and it is projected to reach US$160.0 in 2020, representing significant growth.

Market sizes historical retail value sales of fresh beef and veal, in US$ millions Category 2011 2012 2013 2014 2015 CAGR % 2011-15 Source: Euromonitor, 2016

Compound Annual Growth Rate (CAGR) Meat (total) 123,422.8 136,600.7 143,966.3 151,889.3 159,121.5 6.6 Beef and Veal 12,413.1 13,423.0 14,383.0 15,452.9 16,534.9 7.4 Lamb, Mutton and Goat 7,645.3 8,266.8 8,647.8 9,078.7 9,501.2 5.6 Pork 90,621.3 100,637.6 105,937.7 111,539.9 116,502.2 6.5 Poultry 11,414.1 12,847.0 13,517.5 14,274.1 14,982.0 7.0 Other Meat 1,329.1 1,426.3 1,480.4 1,543.6 1,601.2 4.8

Market sizes forecast retail value sales of fresh beef and veal, in US$ millions Category 2016 2017 2018 2019 2020 CAGR % 2016-20 Source: Euromonitor, 2016

Compound Annual Growth Rate (CAGR) Meat (total) 169,258.4 181,041.1 194,231.3 208,788.1 224,714.3 7.3 Beef and Veal 17,985.7 19,696.0 21,660.3 23,894.9 26,431.9 10.1 Lamb, Mutton and Goat 10,108.2 10,821.7 11,629.2 12,530.1 13,538.0 7.6 Pork 123,522.5 131,662.2 140,728.5 150,671.9 161,446.1 6.9 Poultry 15,954.8 17,072.7 18,310.8 19,662.2 21,130.2 7.3 Other Meat 1,687.2 1,788.5 1,902.5 2,029.0 2,168.1 6.5

Beef and veal product saw sales of US$16.5 billion representing 10.3% of total meat sales in 2015 and Euromonitor estimates that the retail sales will reach the US$26.4 billion in 2020. On the consumption side, beef and veal consumption also grew in 2015, reaching 3.9 kilograms per capita, compared to 3.3 kilograms registered in 2011, and it is projected to reach a 4.9 kilograms in 2020.

China, per capita consumption of beef and veal product, historic in kilograms Category 2011 2012 2013 2014 2015 CAGR % 2011-15 Source: Euromonitor, 2016

Compound Annual Growth Rate (CAGR) Meat (total) 43.8 44.0 46.3 47.6 48.3 2.9 Beef and Veal 3.3 3.5 3.6 3.8 3.9 4.0 Lamb, Mutton and Goat 2.3 2.2 2.4 2.4 2.5 5.3 Pork 28.5 28.3 29.8 30.5 31.2 3.0 Poultry 8.9 9.1 9.8 10.0 9.7 2.1 Other Meat 0.8 0.8 0.8 0.9 0.9 3.0

China, per capita consumption of fresh beef and veal, forecast in kilograms Category 2016 2017 2018 2019 2020 CAGR % 2016-20 Source: Euromonitor, 2016

Compound Annual Growth Rate (CAGR) Meat (total) 50.5 51.8 53.0 54.3 55.7 2.5 Beef and Veal 4.2 4.3 4.5 4.7 4.9 3.9 Lamb, Mutton and Goat 2.8 3.0 3.2 3.5 3.8 7.9 Pork 32.5 33.1 33.7 34.2 34.7 1.7 Poultry 10.1 10.4 10.7 11.1 11.4 3.1 Other Meat 0.9 0.9 0.9 0.9 0.9 0.0

China, market sizes historical retail volume sales of fresh beef and veal, in 000' tonnes Category 2011 2012 2013 2014 2015 CAGR % 2011-15 Source: Euromonitor, 2016

Compound Annual Growth Rate (CAGR) Meat 29,958.4 31,402.0 32,204.4 33,077.7 33,904.6 3.1 Beef and Veal 1,568.5 1,602.3 1,671.9 1,750.1 1,834.1 4.0 Lamb, Mutton and Goat 1,040.4 1,062.7 1,082.5 1,107.3 1,135.0 2.2 Pork 22,901.6 24,025.9 24,628.2 25,264.3 25,845.4 3.1 Poultry 4,079.2 4,337.3 4,444.0 4,572.1 4,700.2 3.6 Other Meat 368.8 373.9 377.9 383.9 390.1 1.4

Fuelled by a steadily growing middle-class and rising incomes, Chinese fresh beef and veal consumption, continues to grow steadily. Over the 2011-2015 period, volumes rose by 17.8% compared to 5% globally.

Beef and veal is expected to continue to lead volume growth in the forecast period 2016-2020 with a Compound Annual Growth Rate (CAGR) of 5.1%. The dismal growth in domestic herd and domestic production, imported meat, and beef in particular, are expected to see dynamic growth. In addition, the growing health concerns and the ever-growing number of middle-class consumers have increased demand which is likely to boost the import sales volume of beef, which have a good reputation due to their high nutritional value.

China, market sizes forecast retail volume sales of fresh beef and veal, in 000' tonnes Category 2016 2017 2018 2019 2020 CAGR % 2016-20 Source: Euromonitor, 2016

Compound Annual Growth Rate (CAGR) Meat (total) 34,738.7 35,579.2 36,425.7 37,278.0 38,122.4 2.4 Beef and Veal 1,924.0 2,020.2 2,123.2 2,233.6 2,352.0 5.1 Lamb, Mutton and Goat 1,164.5 1,195.3 1,227.6 1,261.4 1,297.3 2.7 Pork 26,426.9 27,008.3 27,589.0 28,168.3 28,731.7 2.1 Poultry 4,827.1 4,952.6 5,076.4 5,198.2 5,317.8 2.4 Other Meat 396.4 402.9 409.6 416.5 423.7 1.7

Euromonitor also notes that organic meat such as beef and veal increasingly popular in China. Chinese consumers are in great need of organic products, even at much higher prices due to the frequent food safety issues facing the pork sector. The price of organic beef can reach CNY 80 per kilogram (around C$18.00). Even though the price is much higher of those other meats, supply still falls short of the demand.

Consumer foodservice in China

With one fifth of the world's population, China is the largest global market for fresh meat. Euromonitor reports that almost 50% of the meat consumed in China in 2015 was through foodservice and institutions establishments. In China, full-service restaurants are becoming increasingly central to social life, as smaller living spaces are leading consumers to entertain outside the home.

China is seeing the emergence of group buying in consumer foodservice catering. Group buying occurs when a company offers products and services at significantly reduced prices, on the condition that a minimum number of buyers are willing to purchase the same item. This trend began towards the end of 2010. Euromonitor credits the growing popularity of group buying in China to the rapid development of e-commerce platforms such as Alibaba.

Foodservice catering operators launched a combination of dishes with discounted prices that can be purchased through group buying e-commerce platforms. Currently, there are many group buying websites in China, similar to the popular North American services Groupon and Dealfind.

China, market sizes historical distribution of meat in foodservice and institutional in ‘000' tonnes Categories 2011 2012 2013 2014 2015 % CAGR 2010-15 Source: Euromonitor, 2016

Compound Annual Growth Rate (CAGR) Meat - Foodservice 17,125.3 17,440.1 18,049.3 18,515.0 19,137.0 2.7 Meat - Institutional 11,969.0 13,600.1 14,208.2 14,063.5 14,461.0 3.0

China, market sizes historical distribution of meat in retail, foodservice and institutional by format in (%) Category 2011 2012 2013 2014 2015 Source: Euromonitor, 2016 Retail 50.7 50.3 50 50.4 50.2 Foodservice 29 27.9 28 28.2 28.4 Institutional 20.3 21.8 22 21.4 21.4 Total 100 100 100 100 100

The foodservice sector continues to be the dominant user of beef and veal products, as Chinese middle class consumers are less used to cooking beef compared to pork, and with busy lifestyles, they tend to choose beef over other proteins when they eat out.

Note: This foodservice section of the report was originally included in the Inside China Pork Trade prepared for participants in the Food & Hospitality China show in November 2016. Please see the complete report on foodservice in china, which highlights the opportunities that the food and hospitality sector may hold for Canadian beef and Pork industries.

By the numbers

In 2015, there were 10 different cuts and products imported into China. Major cuts by volume were frozen boneless beef (368,381 tonnes), frozen cuts with bone (98,111 tonnes), frozen edible offal excluding tongues and liver (20,112 tonnes). These major cuts accounted for approximately 98.4% (487,204 tonnes) of the total export volume of 494,948 tonnes.

China, top iImported beef products by volume in tonnes HS Code Description Metric tonnes (MT) Source: Global Trade Tracker, 2016

Harmonized System (HS) Total Total Beef and Veal Products Imports 494,948 020230 Frozen, boneless meat of bovine animals 368,981 020220 Frozen bovine cuts, with bone in 98,111 020629 Frozen edible bovine offal 20,112 020130 Fresh bovine meat, boneless 5,988 020621 Fresh with bone in 965 020120 Frozen edible bovine tongues 704 020210 Frozen bovine carcases and half-carcases 52 020622 Frozen edible bovine livers 34 160250 Prepared meat or offal of bovine animals 1 021020 Meat of bovine animals, salted, in brine, dried or smoked <1

Australia is clearly the market leader in terms of beef, with a market share of 33.7 %. Australia's main competitors in this market are Uruguay, with 22.2% market share, and New Zealand with 15.2 % market share.

China, imported beef products by value in C$ and top suppliers HS Code Description 2015 Supplier #1 Supplier #2 Supplier #3 Source: Global Trade Tracker, 2016

Harmonized System (HS)

Not applicable (N/A) N/A Total Beef and Veal Products Imports 3,083,053,902 Australia (33.7%) Uruguay (22.2%) New Zealand (15.2%) 020230 Frozen, boneless meat of bovine animals 2,571,877,888 Australia

(32.2%) Uruguay (20.2%) New Zealand (15.0%) 020220 Frozen bovine cuts, with bone in 358,060,686 Australia

(48.9%) Uruguay (30.3%) New Zealand (20.1%) 020629 Frozen edible bovine offal 83,240,207 Uruguay

(60.3%) Australia (26.6%) New Zealand (11.7%) 020130 Fresh bovine meat, boneless 57,324,031 Australia

(100%) N/A N/A 020120 Fresh with bone in 6,769,398 Australia

(100%) N/A N/A 020621 Frozen edible bovine tongues 5,506,912 Uruguay

(100%) N/A N/A 020210 Frozen bovine carcases and half-carcases 175,130 New Zealand (100%) N/A N/A 020622 Frozen edible bovine livers 66,508 Australia

(70.5%) Uruguay (29.5%) N/A 160250 Prepared meat or offal of bovine animals 31,344 Taiwan

(77.9%) United States (10.8%) Italy

(7.2%) 021020 Meat of bovine animals, salted, in brine, dried or smoked 1,798 United Sates (100%) N/A N/A

According to Euromonitor, there is also increasing interest in shelf ready packed beef product, as Chinese consumers call for products with attributes such as ease of use, ease of storage and recyclability of packaging.

Supermarkets and hypermarkets are expanding rapidly, and led sales among various distribution channels, while internet retailing registered the fastest growth in 2015. Modern grocery outlets according to Euromonitor usually have a developed cold chain system and storage facilities, ensuring the storage conditions required for beef and veal products.

Sales of processed meat by category: value in US$, 2011-2015 Categories 2011 2012 2013 2014 2015 CAGR % 2011-15 Source: Euromonitor, 2016

Compound Annual Growth Rate (CAGR) Total Processed red meat (total) 9,083.5 9,553.4 10,556.3 10,253.6 10,032.5 2.9 Shelf stable processed red meat 5,145.8 5,372.2 5,970.0 5,679.6 5,473.0 1.6 Chilled processed red meat 3,350.1 3,561.2 3,913.7 3,837.5 3,756.4 2.9 Frozen processed red meat 587.6 620.0 672.6 736.5 803.1 8.1

Top Chinese beef imports by district of entry

China, imports of beef and veal products from the world by top 10 districts of entry, C$ million Port of Entry 2011 2012 2013 2014 2015 Source: Global Trade Tracker, 2016 Shanghai 32.9 73.4 316.1 407.6 1,114.9 Tianjin 36.3 105.1 486.8 580.6 1,006.3 Dalian 20.9 50.5 326.7 222.6 229.5 Qingdao 3.1 4.3 30.5 62.6 123.1 Shenzhen 11.5 16.7 31.4 40.0 122.6 Xiamen 0.3 4.0 8.8 16.8 77.4 Nanjing 1.4 5.8 60.4 61.7 71.3 Guangzhou 0.2 2.5 5.6 5.7 34.2 Ningbo - 0.2 2.6 4.5 17.2 Shijiazhuang 1.9 3.4 2.3 1.9 11.3

China, imports of beef and veal products from Canada by top 10 districts of entry, C$ Port of Entry 2011 2012 2013 2014 2015 Source: Global Trade Tracker, 2016 Nanjing 0 0 0 2,907,835 89,930,991 Tianjin 0 2,997,419 17,961,529 21,910,247 70,396,533 Dalian 0 6,351,230 63,943,869 32,933,628 40,369,362 Shenzhen 0 0 0 0 11,779,236 Guangzhou 0 0 611,165 6,582,158 5,594,764 Huangpu 0 1,067,157 0 0 3,075,770 Shanghai 853 670,340 270,866 1,068,993 735,591 Beijing 0 0 27,429 0 40,190 Nanning 0 0 0 103,708 0 Qingdao 0 0 0 76,101 0

Conclusion

Chinese demand for food, and meat in particular, continues to rise both in quantity and quality, and with local beef supply constrained by land, feed, water and supply chain issues, China will continue to need to import a significant proportion of the beef it consumes.

Canadian beef is not new to China, but only in the last five years have imports from Canada sustained significant traction. Canada re-entered the market in 2011, but by the end of 2015, China's cumulative imports from Canada totaled over C$220 million, a testimony to the high quality product offered and the ever-growing opportunities offered by the Chinese market.

For more information

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found under Statistics and Market Information at the following link, arranged by sector and region of interest:

For additional information on Food and Hospitality China (FHC) 2016, please contact:

Ben Berry, Deputy Director

Trade Show Strategy and Delivery

Agriculture and Agri-Food Canada

ben.berry@canada.ca

Resources

Euromonitor International, 2016. Meat in China in China.

Euromonitor International, 2016. China Country Profile

Euromonitor International, 2016. Consumer Shopper Types

Food and Agriculture Organization (FAO): China Agriculture Sector Profile

Global Trade Tracker, September 2016.

Sector Trade Analysis: Inside China Beef Trade

Global Analysis Report

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