Driving Growth in China
Bord Bia (the Irish Food Board) Chief Executive, Tara McCarthy, outlines the obstacles and opportunities for Irish food and drink producers in China.
It has been over 12 months since China declared victory over Covid-19 virus and opened up again, and although the virus has almost left the country, its impact has not. Unlike any other market in the world, food exporters are facing challenges unique to China.
In 2020, the Chinese economy was the only major world economy to grow, with further GDP growth of between 6 and 8 per cent expected in 2021. Real GDP in quarter four of this year is expected to be just 1% below pre-pandemic projections. By 2028, China is expected to overtake the US as the world’s largest economy.
Irish exports to the region overall fell by 5%, but when you look deeper, the performance is quite varied, both by sector and by region. To the mainland, we had a record year, €737m, making it our fourth global market. Pork and dairy both performed particularly well, and China is now our second and third largest export market for these sectors, respectively. However, seafood had its worst year in many, after the global sector was linked with Covid outbreaks in China. In Hong Kong, a huge market for dairy, and particularly infant formula exports, Irish dairy exports fell by more than €51m, and beef and offal exports dropped by more than €12.5m.
China is an increasingly sophisticated and demanding market – consumers have money, and they are willing to spend it. The range of foods we export to China has widened significantly over recent years. In dairy, significant growth opportunities are emerging for powders in the dairy for health space, adult nutrition, child nutrition and sports nutrition, and equally for cheese, cream and butter in foodservice and bakery.
China has already proven its value to our pork industry, and we are looking to replicate that success with beef and, in time, lamb and poultry. China has transformed from a market for cheaper cuts and offal, to an incredibly sophisticated market for high-value products with ample opportunity for differentiation.
Seafood has emerged as a major category despite a difficult 2020. While we export pelagic species to China, the real opportunity to capture value lies in shellfish. Alcohol exports are starting to take off in China, they have tripled to the mainland in the last two years driven by the emergence of whiskey as a category in China. This market has huge potential.
INSIGHTS AND INNOVATION
The speed of change in China is staggering. China has begun transitioning into a leader of food innovation, resulting in significant growth potential for high value exports. However, what worked three years ago will not necessarily work today. If we are to successfully make this transition, and seize these opportunities, insights will be critical. Last year we expanded our insights capability with the launch of the Bord Bia Thinking House services in our Shanghai office. We have hired a dedicated Insight Specialist for Asia, Evelyn Chiang, and she has already delivered a wide range of projects including a Chinese future proofing toolkit, grass-fed research, several bespoke client projects, and our most recent piece, the Covid Attitudes Tracker.
To some extent Covid is over in China. We have been running trade events, trade shows, and much more since June of last year, with only the occasional disruption. By December, China’s foodservice industry had completely recovered to pre-Covid levels and has resumed growth again.
But Irish exporters are still feeling enormous impacts from Covid. On top of increased shipping costs and backlogs at ports, Covid testing and disinfection procedures and disjointed traceability systems across the provinces have increased the cost of doing business in China, both financially and administratively. In addition to supply chain complexity, Covid has introduced challenges to market access and seen a shift in consumer sentiment towards imported food. These challenges may be temporary in nature and Bord Bia is monitoring them closely and engaging with the market.
One of the most significant challenges for imports, is how connections to Covid cases has transformed consumer attitudes to imports. Imported food has been associated with strong food safety credentials for more than a decade but perceptions have completely changed. To explore how deep this problem goes, we have launched a monthly tracker of Chinese consumers attitudes to imports. This will give us a timely snapshot of both the mood and whether confidence is returning. We received our first results in March and the results are dramatic. A staggering 82% of consumers have reduced their purchases of imported food as a result of concerns about Covid. There has been a substantial reduction in both the frequency and value of purchases.
More positively for Ireland, we and other European countries are considered more favourably than markets like US, Australia, Japan and Brazil. Consumers appear less willing to buy from countries with widely publicised Covid issues like Italy and Brazil or their perceived geopolitical rivals like Japan, Australia and the US. Most compelling though is that just 13% of Chinese consumers are happy with the domestic substitutes that they have been buying since Covid. There is evidence that consumers are looking forward to buying imports again and we have seen that attitude reflected in our demand for Irish seafood which has tended to bounce back quickly whenever Covid concerns have eased.
With all of this volatility combined with opportunity, the key question is now what? Physical travel to China will remain out of reach to most in 2021, based on the progress of global vaccine rollouts and China’s extremely stringent controls for inbound passengers. We are ready for this scenario in two ways. We have a team on the ground, and we will continue to innovate in how we connect with customers in China. China is our largest overseas office outside the UK, with a cross-functional team.
The opening of an Asian branch of Bord Bia’s The Thinking House has dramatically increased our ability to deliver impactful insights quickly. In the last year alone, we have conducted a wide range of internal projects helping us to better understand the opportunities in China for lamb and whiskey, the opportunity for grass-fed beef and dairy. We have also been able to navigate Covid with our China version of our future proofing toolkit as well as the attitudes tracker. Furthermore, with the insights staff on the ground, we are able to support more clients with bespoke projects. There is an appetite for insights in China from the Irish food industry.
Customer engagement is an absolute priority for us across Bord Bia. In China, strong partnerships are critically important. This is a market where Ireland’s reach is restricted by our size and the size of our resources. To unlock the highest value opportunities, to reach the best customers, and to get the best insights, we need to work with partners who are willing to co-invest to grow their business with Irish food and drink. As our engagement with China has evolved, we are increasingly walking two parallel paths. Finding new customers for those that need them, while also supporting our clients to strengthen their partnerships with their best existing customers.
China is one of the rare markets in the world where we have been able to continue physical events. They are as relevant and effective as ever, particularly for the food industry. We are at seven trade shows in China this year, supporting four sectors. In the last 12 months we have run a wide range of trade and consumer promotions, restaurant promotions, chef demonstrations, and technical seminars and these will continue.
Across Bord Bia, we have been developing a wide range of tools to engage with customers virtually. China’s rapidly evolving digital landscape has transformed not just how we market Irish food but also how we communicate with trade through hybrid virtual events. China is so far ahead of the curve in terms of digital marketing and ecommerce that what we have learned in China will inform the future of our digital evolution elsewhere, too.
In addition to our now well-established marketing campaigns across Chinese social media, using WeChat and Weibo, through KOLs, marketing and ecommerce promotions, we are embracing trends such as personalised advertising and short-form video to ensure that we can continue to reach Chinese consumers in the most impactful way. At the same time, we are improving our capability development services to help Irish companies more effectively build their brands and reach trade and consumers in China through digital channels. The potential of these new digital routes to market are staggering. Last November 25 million Chinese viewers tuned into the Bord Bia Chef Masters livestream from Beijing, leaving 25,000 comments on one platform alone. Three master chefs developed 10 new Chinese infusion recipes using Irish beef and cooked them live. The relationship with Ireland shone through throughout.
China has been an extremely difficult market in recent months. Even without Covid, it is often a volatile market: prices fluctuate and market access can be challenging, but there is no doubting the long-term opportunity. China’s wealth and influence is only going one way. Its enormous middle-class population is only getting bigger and the demand for quality is rising. Investment in advanced food manufacturing and food innovation is thriving in China. Ireland is well positioned for the long game.
China’s government is serious about sustainability. We’ve seen from the attitudes tracker that in a post-Covid China, trust will be more relevant than ever, and the proof points that Ireland can offer through our quality standards, through Origin Green, and through the grass-fed standard will really help us to stand out. We have no doubt that China will continue to provide outsized returns for Irish food exporters and continue to assume an ever more central role in the Irish food industry. China is a challenging market and to meet these challenges, we will need to rely on our knowledge of the market, the strength of our relationships with customers, and our adaptability to meet the needs of this constantly evolving market. Bord Bia will continue to support you on this journey.