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EU
fights for share of China's cheese
market
By Duncan Freeman
BRUSSELS - China's cheese consumption is
booming, but the EU, the most important producer
and trader of cheese in the world, occupies only a
small part of the market. Despite Europe having
the apparent advantage of its large cheese
industry, the export market to China so far has
been dominated by competitors who have managed to
better exploit growing market segments, most
notably in fast food.
As the Chinese
market for cheese has developed in recent years,
consumption, domestic production and imports have
all grown. According to the UN Food and
Agriculture Organization (FAO), in 2003 China
produced 225,000 tons of cheese, while imports
were 23,000 tons. In 1999 China's domestic output
was 186,000 tons, and imports 16,000 tons.
Although a growing producer and consumer, China
still ranks far below the major producers such as
the EU, the US, New Zealand and Australia. On a
per capita basis, consumption in China is very
small. The FAO figures show that annual per capita
supply in China was 0.2 kg in 2003, compared to
24.5 kg in France and 20.2 kg in Germany, which
have among the highest levels of consumption in
the world. Even in Japan, which produced 123,000
tons, imported 202,000 tons, and is the largest
consumer of cheese in East Asia, per capita supply
was much higher than China at 2.5 kg a year.
China is a growing market, but can the EU,
the largest producer of cheese worldwide, take
advantage of the opportunity it offers? EU
statistics show that its cheese exports to China
are growing. Total EU cheese exports to China grew
from 144 tons in 2000 to 937 tons in 2004. This is
an impressive growth rate, but compared to total
imports the absolute amount is small. Despite
efforts to promote European cheese in China by
various exporters, government agencies and even
the EU, the market is actually dominated by
competitors such as New Zealand and Australia. In
2003 New Zealand accounted for 58% of China's
cheese imports, and Australia 30%. Germany, the
top EU exporter to China, accounted for less than
3% of the market.
To some extent, the fact
that Europe exports little to China is a
reflection of the structure of the world cheese
trade. Although the EU, with output of 5.6 million
tons in 2004, is the largest producer of cheese,
most of this is consumed and traded within its
borders. Only 490,000 tons was exported in 2004.
The US is the second largest producer, at 4
million tons in 2004, but it only exported 52,000
tons of this, and is actually a net importer of
cheese. New Zealand produced only 285,000 tons in
2004, but exported an astounding 280,000 tons of
this (over 98% of the total). Australia produced
360,000 tons, and exported 184,000 tons. Although
their output is relatively small, New Zealand and
Australia, which have fundamental cost advantages
due to low pastureland prices, play a
disproportionately large role in the world cheese
trade.
The growth of cheese consumption is
only a small part of a boom in the dairy industry
in China. Surprisingly, China is now one of the
largest producers of milk in the world. After slow
growth throughout much of the 1990s, milk output
in China suddenly rocketed from 7.8 million tons
in 2000 to 17.5 million tons in 2003, making it
the seventh largest producer in the world. Despite
this growth, per capita consumption of milk in the
country remains far below that of developed
Western nations. In addition, there are enormous
disparities in consumption of dairy products:
according to Chinese statistics, consumption is
over 10 times higher in cities than in the
countryside, and urban consumption of dairy
products has been growing at about 25% a year
recently, much higher than in rural areas.
Even in major urban areas, there are
variations in consumption of dairy products.
According to one recent survey by Iowa State
University, a very high percentage (90.4%) of
households in Beijing, Shanghai, and Guangzhou
report purchases of milk. Yogurt is the
second-ranked dairy product, with an average of
58.9% of households reporting purchases, but
consumption is much higher in Beijing than in
Shanghai and Guangzhou. Ice cream is widely
consumed (53.8% of households) in all three
cities, although the level was significantly lower
in Shanghai. Cheese, however, trails far behind
(only 6.7% of surveyed households reported
purchases) even in these urban areas.
The
dairy industry, including cheese, has required
construction from scratch of production,
processing, storage and distribution facilities.
Even within households, the use of refrigerators
is almost essential for the storage and
consumption of dairy products. In many cities
these factors are increasingly in place, and dairy
products are relatively common. But cheese has
proved to be different from other dairy products
which have penetrated urban households. Despite
the availability of cheese in some retail outlets
like Carrefour, by far the most common way to
consume cheese in China, even among the small
minority that does eat it, is through fast food
outlets in the form of pizzas, burgers and
sandwiches.
For the immediate future,
exporting, rather than production in China, is
likely to remain the preferred means for European
companies to enter the market. Significantly, the
dairy industry has not been a great success for
European or other foreign investors; several,
including Friesland, Parmalat and Kraft, have
withdrawn from investments in China recently.
Booming domestic production has brought fierce
competition and price cutting, making business
conditions very difficult for all producers, not
just foreign investors. According to Chinese
reports, a high proportion of domestic producers
in the dairy industry are now losing money.
The success of pizzas and cheeseburgers shows
that the taste barrier, often cited as the main
reason for the reluctance of Chinese to eat
cheese, can be overcome to some extent. The
difficulty will be to find a way to integrate
cheese more fully into the Chinese diet through
the creation of a cheese culture. Other Western
food products such as coffee, wine and even milk
have been relatively widely adopted, and are now
considered acceptable additions to Chinese eating
and drinking habits, especially in cities.
However, it is difficult to see how cheese fits
into the scheme of Chinese culinary art. For
cheese to come out from its hiding place behind
pizzas, hamburgers and sandwiches will be a
difficult challenge.
Therein lies
something of a contradiction for many European
cheese producers. While they may pride themselves
on the superior taste, quality and enormous
variety of their products (France claims to be the
land of a thousand cheeses), the main growth in
the Chinese cheese market will not be for this
type of product. In fact, Europeans do make the
standardized product, but so far they have not
managed to compete with other producers in the
Chinese market, where price as well as quality is
a key factor. In 2004 processed cheese exports
from the EU were 368 tons, just over one third of
the total. Only 12 tons of blue-veined cheese were
exported by the EU to China.
According to
Tony Emms, of the Singapore-based food industry
consulting firm Stanton, Emms and Sia, although
New Zealand and Australia do have advantages in
the China cheese market, it should be possible for
European producers to develop market segments for
products such as brie, camembert and feta, for
instance in the European-style bakeries that are
beginning to spread in some cities. Neverthless,
Emms believes that such markets will only develop
slowly, as they have done elsewhere in Asia. The
China market will take long-term effort and
careful planning by European producers, with the
added difficulty that foreign companies will face
the threat of competition from domestic producers
as the market develops.
The fast food
market is likely to continue to provide the
greatest volume growth for cheese. The experience
of Hong Kong has already shown the enormous growth
potential for pizza in the Chinese dining culture,
and mainland cities can be expected to follow a
similar path. With thousands of pizza restaurants;
over 600 McDonald's outlets already, with plans to
open 100 new ones a year before the Beijing
Olympics; and Burger King just entering the
market, there will certainly be growing demand for
pizza toppings and cheese slices for burgers.
Duncan Freeman is a writer and
consultant based in Brussels. He can be contacted
at duncanfreeman@skynet.be.
(Copyright
2005 Asia Times Online Ltd. All rights reserved.
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