MARKET SNAPSHOT l BEEF & SHEEPMEAT Despite being the most populous country in the world, the proportion of Chinese consumers who can regularly afford to buy Greater China high quality imported meat is relatively small in comparison to more developed markets such as the US and Japan. However, (China, Hong Kong and Taiwan) continued strong import demand for premium red meat will be driven by a significant increase in the number of wealthy households. Focusing on targeted opportunities with a differentiated product will help to build preference in what is a large, complex and competitive market. Taiwan and Hong Kong are smaller by comparison but still important markets for Australian red meat, underpinned by a high proportion of affluent households. China meat consumption 1 2 Population Household number by disposable income per capita3 US$35,000+ US$75,000+ 1,444 13% million 94.3 23% 8% 50 kg 56% 44.8 China grocery spend4 10.6 24.2 3.3 5.9 million million 333 26 3.0 51 16.1 Australia A$ Australia Korea China Korea Australia China US US China US Korea 1,573 per person 1,455 million by 2024 5% of total households 0.7% of total households (+1% from 2021) (9% by 2024) (1% by 2024) Australian beef exports to China have grown rapidly, increasing 70-fold over the past 10 years, with the country becoming Australia’s largest market in 2019. Australian beef Australian beef Australia’s share of Australian beef/veal exports – volume5 exports – value6 direct beef imports7 offal cuts exports8 4% 3% 6% 6% 3% Tripe 21% 16% Chilled grass Heart 9% A$ Chilled grain Chilled Australia Tendon Other Frozen grass Frozen 10% 65 71% Tail 17% countries million Frozen grain 84% Kidney 67% Other Total 303,283 tonnes swt Total A$2.83 billion Total 29,687 tonnes swt China has rapidly become Australia’s single largest export destination for both lamb and mutton. Total sheepmeat exports have registered an eight-fold increase over the last 10 years. Australian sheepmeat Australian sheepmeat Australia’s share of direct Australian sheepmeat exports – volume5 exports – value6 sheeepmeat imports7 cuts exports 9 4% 1% 6% 6% Breast & flap 7% Carcase 49% 36% Chilled lamb Chilled lamb Australia Manufacturing 11% Frozen lamb 49% Frozen lamb Other Leg 45% 46% Frozen mutton Frozen mutton countries Shoulder 50% 14% Neck 22% Other Total 142,229 tonnes swt Total A$1.24 billion Key outlet: Hot pot restaurants 1 2 3 Data source for charts: Fitch Solutions 2021, Fitch Solutions 2021 (disposable income = earnings after taxes and social security charges), Fitch Solutions, GIRA (China data only per person per year in 4 cwt excluding fish/seafood) 2020 and 2021, IGD 2021 (It is defined as the total annual grocery retail market turnover in a given year, divided by the population for the same year. Grocery retail market 5 6 7 8 data excludes VAT/sales tax), DAWE (FY 2019–20), ABS/IHS Markit (FY 2019–20), IHS Markit (most recent 12 months due to data availability), DAWE 2019–20 (China, Hong Kong, Macau and Taiwan 9 combined), DAWE, IHS Markit 2019–20 (Lamb and mutton combined). MLA MARKET SNAPSHOT BEEF AND SHEEPMEAT GREATER CHINA September 2020 1 China – Beef CONSUMERS • In China, beef comprises a small proportion of dietary protein • Beef and beef offal are used in a variety of slow-cooked, stir fry, intake compared to pork, fish and chicken. However, with rising soup, dumpling and hot pot dishes. In urban upper middle class incomes and continued urbanisation, national per capita beef households, there is increasing exposure to western-style consumption is forecast to increase from 6.4kg in 2018 to 7.0kg steaks, sausages, pasta dishes and burgers, both at home and in 2024f (Source: GIRA). via foodservice. • The impact of African Swine Fever (ASF) on higher pork prices • A growing number of affluent consumers seek higher quality in China is likely to result in a permanent increase in branded beef products offering higher safety, more consistent consumption of other meat proteins, particularly fish and quality, more nutritional value and better eating quality. Australia poultry, but also beef. is well-positioned to meet this demand as a widely recognised and well-regarded supplier of premium beef. China beef consumption in context Affluent* Chinese consumer perceptions of Australian beef 180 Oal 160 Meat is usually tender 44% 140 SheepmeatGuaranteed safe 43% 120 Beef More nutritious 42% 100 PoultryThe most superior beef 40% 80 Animals are well-cared for 40% 60 Pork ‘000 tonnes swt Sustainable industry 37% 40 FishThe fat is nicely marbled 35% 20 My family’s favourite 31% 0 2010 2011 2012 2013 2014 2015 20162017 20182019e 2020f 2024f Source: MLA Global Consumer Tracker, 2019. % Agree. Fish Pork Poultry Beef Sheepmeat Offal *Consumers living in households earning >RMB200,000 p.a. in Beijing, Shanghai, Guangzhou, Shenzhen, Chengdu and Chongqing cities Source: GIRA 2019 • Busy urban consumers are increasingly seeking convenience • Chinese consumers consider beef a superior protein, making it without having to compromise on quality and freshness, leading a family favourite due to its high nutritional value and great to growth in premium food and meal solutions. This trend has taste. Barriers to more frequent consumption, apart from price, been further accelerated as a result of COVID-19 lockdowns. are driven by perceptions that beef is more difficult to prepare, less fresh and less tender compared to other proteins. FOODSERVICE • As a comparatively less familiar but premium protein, estimates • Australian beef has a strong, established presence in China’s are that about two-thirds of the beef in China is consumed premium western-style foodservice sector, as well as some outside the home (Source: GIRA), where consumers are upscale hot pot restaurant chains, where differentiation based increasingly enjoying trying different cuisines that involve beef, on quality and country of origin is important to diners. such as western-style, Japanese and Korean. • Developments in the foodservice sector such as the growth in • MLA estimates that in 2019, some 80% of Australian beef in popularity of steakhouse restaurants, Korean and Japanese China was sold in foodservice channels, with a proportion cuisines are presenting more opportunities for Australian beef going into further processing of items such as hot pot rolls, – particularly grainfed product. burgers, meatballs and sausages, and a higher value product • Despite the short-term challenges of COVID-19, the foodservice going into more premium full-service restaurants. sector is forecast to see long-term growth and premiumisation, driven by expected strong affluent population growth. Foodservice consumption of beef by affluent* consumers 80 70 74% 60 50 48% % 40 30 33% 31% 20 24% 22% 21% 19% 10 0 Full- Full- Hotel Leisure/ Full- Bar/ QSR/fast QSR/fast service service (4-Star entertainment service nightclub food food restaurant restaurant or above) venue restaurant (Western (Local (Mid tier) (Top tier) (Lower tier) chains) chains) Growing popularity of western and other Asian cuisines has increased Source: MLA China Attractive Cities Study, 2016. Consumed beef in the past month at. beef consumption. *Consumers living in households earning >RMB80,000 monthly. Top tier: >RMB300/head. Mid-Tier: RMB51-300/head. Lower Tier: <RMB50/head MLA MARKET SNAPSHOT BEEF AND SHEEPMEAT GREATER CHINA September 2020 2 RETAIL • As the world’s largest grocery market by total sales, the share China affluent* consumers’ beef purchase considerations of modern retail in China is forecast to increase from 54% in Freshness 45% 2019 to 61.5% in 2024 (Source: IGD). This shift away from 75% traditional channels has been accelerated by the impact of Safety 45% COVID-19, with more consumers turning away from wet markets Quality 40% 56% and using more online retail. Balanced nutrition 36% 35% 50% • Retail sales of beef have seen significant growth in 2020 so far Cow breed 34% due to both higher pork prices encouraging more beef Boost immunity 50% Country of origin 33% consumption as a result of ASF, as well as a shift from dining- 44% out to at-home consumption due to COVID-19. Flavour 31% 31% • When buying beef for home consumption, Chinese consumers Certified organic 29% prioritise naturalness, safety and markers of quality such as Tenderness country of origin. As a result of COVID-19, both safety and Source: MLA China COVID-19 Consumer Impact Survey, March 2020 *Average monthly household income RMB28,000. Base: frequent imported beef consumers nutritional benefits have become even more important. Hence, at home in Shanghai, Beijing, Guangzhou and Chengdu. Australian beef has seen strong demand growth for chilled and grainfed product in big cities, where affluent consumers seek the benefits of premium Australian product. Where affluent* Chinese consumers buy Australian beef • Affluent urban consumers are driving growth in branded beef products as a marker of not only the important ‘basics’ of quality and safety, but as a source of meaning that contributes to their consumption experience via factors such as provenance. Hypermarket 38% Quality beef products are also given as gifts at important Supermarket 28% celebration or occasions such as Spring Festival. Butcher 22% Online retailer 10% • China’s grocery retail sector is undergoing significant change, Wet market 4% with new business models and payment systems being trialled, presenting new opportunities for Australian beef. Retail sales value growth for beef is forecast to be fastest in the e-commerce channel in the coming years, as significant Source: MLA Global Consumer Tracker China, 2019 investments are being made in improving refrigeration capacity *Consumers in Beijing, Shanghai, Guangzhou, Shenzhen, Chengdu and Chongqing. Living in along the supply chain. households earning >RMB200,000 p.a. COMPETITIVE LANDSCAPE • The competitiveness of the China beef market is intensifying as China direct beef imports by supplier more countries are granted market access.