Tuesday, 2 January 2018

How Australian agribusiness can win greater rewards from China’s growth

Australia’s agribusiness suppliers will need more than a reputation for being clean and green to win a much larger slice of trade with China.

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China’s appetite for Australian agricultural produce has increased dramatically in recent years, and conditions are favourable for exports to rise even higher.

The value of Australian agricultural and food exports to China jumped from $6.6 billion in 2011 to $10.3 billion in 2016. The Australian wine industry is one of the sectors benefitting from that trade, recording a 40 per cent increase in exports to China last year.1 Milk, cream, whey and yoghurt exports grew by 60 per cent over the same period2 while exports of beef, grain and citrus products have also risen.

In November 2017, agricultural producers and market analysts at HSBC’s Australia-China Conference in Sydney discussed the increasingly promising prospects for Australian exporters to China.

Under its Belt and Road Initiative (BRI), China is supporting construction of infrastructure – including railways, industrial parks and refineries – that will open new trade routes through neighbouring countries.

At the same time, the China-Australia Free Trade Agreement is significantly reducing Chinese tariffs on imports of Australian beef, sheep meat, dairy, citrus fruits and vegetables, among other produce.

Industry analysts predict Chinese consumer demand will continue to increase as incomes in the nation rise. They also expect that China’s aging population and concerns about food quality will lead to accelerating sales of vitamin and mineral supplements as well as organic food.

While Australian producers enjoy a reputation in China for being ‘clean and green’, they will need to do more if they want a much larger slice of the Chinese export pie.

Agricultural exporters doing business in China encounter challenges ranging from food safety concerns to import rules and changing Chinese tastes.

Suppliers at the HSBC conference discussed methods Australian agribusinesses are using to overcome these challenges.

Some are investing in supply chains that will enable them to develop new and higher value Chinese revenue streams. This is important to capture growing demand as China acquires a taste for a wider variety of Western produce.

While sales of Australian milk to China have decreased, dairy companies have been able to sell more cheese, yoghurt and other dairy products.

New Zealand dairy company Fonterra has reported that demand for its products from the Chinese food service industry has grown by more than 30 per cent over five years.3 It attributes increased sales of its mozzarella to the growing popularity in China of pizza.

Fonterra trains chefs in China to use dairy products, including cheese, and has also established farms in the country. During 2017, it opened a $140 million cheese processing plant in Victoria, Australia, which will help it supply China and other markets.

It has also put in place systems that allow it to trace the origins of its products faster. Managing Director of Fonterra Australia, René Dedoncker, told the conference that Fonterra can quickly trace the supply chain for its formulated infant nutrition products, which can combine products from different factories. “We’ve now got a system that does that in less than three minutes,” Dedoncker said.

Capabilities like this will help producers move faster during a crisis and Dedoncker recommends Australian producers attach QR codes to all products they sell in China, providing fast access to information about their origin.

Changing Chinese demand for Australian produce means agribusiness companies will need to pay even closer attention to sales figures and other data. For example, Chinese demand for cheese might be growing, but its declining beer consumption has reduced malting barley exports from Australia, says the General Manager of Marketing & Trading for Australian grain exporter CBH Group, Jason Craig.

The data generated by China’s huge e-commerce market could shine more light on these consumption patterns. A key challenge will be gaining wider access to the data and making better use of it.

Australian agribusiness companies may need investors to fund these strategic initiatives. Collaborative investment between Chinese organisations and Australian producers is one approach to sourcing these funds. For example, Chinese conglomerate New Hope Group told attendees it was looking to invest in Australian companies with connectivity, management expertise, intellectual property and brands that can help it access offshore markets.

Nick Dowling, New Hope Group Managing Director and CEO, Australia and New Zealand, said other Chinese corporations operating in Australia are following a similar strategy.

“I think we’ve moved through the resources phase. We’ve moved through the real estate phase, and we’re now settling into the next phase, which is going to be collaborative investment,” says Dowling.

This is a crucial time for Australian agribusinesses. Assessing the current opportunities and challenges will better place producers to reap the rewards as China grows.

1 The Guardian, “Australia’s wine exports boosted by 40 per cent growth to China, says report”, 27 January 2017, www.theguardian.com/australia-news/2017/jan/27/australias-wine-exports-boosted-by-40-growth-to-china-says-report.

2 Brett Worthington, “Winners and losers from first years of free trade agreements with China, Japan and Korea”, ABC, 29 November 2016, www.abc.net.au/news/2016-11-28/winners-losers-free-trade-agreements-agriculture/8053336.

3 Fonterra, “Fonterra’s new $140 million cheese plant sends Stanhope cheese to the world”, 18 August 2017, www.fonterra.com/au/en/news-and-media/announcements/fonterra-new-140-million-cheese-plant-sends-stanhope-cheese-to-the-world.html.

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