Chinese beef. Opening the dragon’s appetite

rabobank logoThe story of beef eating in China is one of globalisation, urbanisation and economic growth. And, with beef consumption set to grow by 24 percent in the next decade and outstrip the increase in supply, it is a story that will have global consequences.

Beef remains a niche product in China, generally only eaten on special occasions or when eating out. It accounts for only 8 percent of the meat eaten in the world’s largest economy, dwarfed by the 22 percent share of chicken and 65 percent taken by pork.

But the Chinese are eating more beef as incomes rise, people move to the cities and the middle class swells. China’s middle class, which has reached 300 million, is already bigger than the entire population of the United States, and its taste for beef grew more than any other segment of the population between 1998 and 2006.

 

Opportunities for beef suppliers

The emergence of Western-style fast food restaurants such as McDonald’s and Burger King, which are particularly attractive to younger consumers, is also driving demand, while the simple spread of cold storage has increased the geographical reach of the market and reduced seasonal variations in demand.

But with costs soaring for local producers, China is unlikely to be able to meet its increased demand for beef domestically, and this will create opportunities for other beef-producing nations around the world, including Brazil, Uruguay, Argentina, New Zealand and Australia. Imports from the latter two, in particular, have been spectacular this year, increasing by 2,000 percent and more than 1,000 percent respectively.

While this growth is a boon for antipodean farmers, there are dangers in becoming over-reliant on the Chinese market (Australia accounts for 45 percent of China’s beef imports), as Australian coal miners and iron ore companies caught out by China’s recent slowdown in growth can testify.

 

Risks

Two recent events highlight other risks for producers to be aware of. New Zealand dairy farmers were hit by a scare over bacterial infection of milk products earlier this year, when tests suggested that a batch of whey powder contained botulism-causing bacteria. Even though it turned out to be a false alarm, the company had to issue a product recall and several countries, including China, banned imports of the product. After the toxic chemical melamine was found in Chinese baby formula in 2008, causing the deaths of six infants and kidney disease in 300,000 more, the Chinese are understandably very sensitive about the quality of their milk.

And at the start of the year, it was revealed that many products on European supermarket shelves that were thought to be beef were actually horsemeat. The affair, which led to hundreds of thousands of products being removed from retail outlets, revealed the ever-growing length and complexity of global food supply chains – and the fact that many retailers were unaware of this. Meanwhile, beef from the United States and some Brazilian production remains banned from China as a result of BSE outbreaks.

 

Food safety

Food safety scares and quality scandals have been a regular occurrence in China in recent years and, as a result, regulators and consumers are becoming ever more demanding. To benefit from rising Chinese demand, producers will need to be able to demonstrate strong quality and traceability credentials – indeed, Fonterra, the New Zealand dairy co-operative, is now being lauded because of its swift and transparent response to the botulism scare. In beef production, the new focus on these factors is likely to give an advantage to producers in Australia and New Zealand but also Uruguay.

There are also some less obvious, longer-term risks for beef producers. Researchers from Maastricht University in the Netherlands recently unveiled the world’s first synthetic beef burger, produced entirely in a lab. The burger, which cost €250,000, is no immediate threat to beef producers. But it is one response to the increasing evidence of the environmental costs of the industry. “Globally, the largest environmental impact of agriculture in general is the conversion of natural habitats to farming land,” says WWF. “More pasture is used for cattle than all other domesticated animals and crops combined.”

 

Beef production

It takes 13,000 litres of water to produce 1kg of beef, and the same amount to produce 7kg of grain. For each kilo of beef produced, 27kg of CO2-equivalent is created, and it causes water pollution and uses vast amounts of land – while 4 percent of the earth’s usable surface is used to feed humans directly, some 30 percent is used as pasture for animals and it is a major contributor to deforestation. Beef farming is not just a significant contributor to climate change but is also significantly affected by it. Last year, beef prices soared because poor harvests around the world caused by severe drought and flooding increased the price of the grains and pulses used to feed cattle. Climate change is likely to make such events both more frequent and more severe. The price rises also highlighted the disproportionate amount of food that is used to feed cattle rather than people.

So while some global megatrends such as globalisation, urbanisation and the rise of the middle class have helped the Chinese beef market to grow in recent years – and would seem to guarantee its future health – others such as climate change, eutrophication, deforestation and water scarcity are likely to constrain future opportunities. To benefit from increasing (as well as increasingly discerning) Chinese demand, producers will need to be able to show their sustainability credentials in relation to a range of issues, including the environment, animal welfare and traceability.