Digging through China’s bureaucracy

China’s burgeoning middle and upper classes have a big appetite for Western-style food and beverage products, which they associate with an affluent lifestyle.

Due to factors such as geographical proximity, educational ties and a large migrant Chinese community, China’s population of 1.3 billion people is shaping up to be a major export opportunity for Australian food and beverage producers.

However, we’re not there just yet.

To put things in perspective: in 2005 Taiwan imported $850 million of food and agricultural products from Down Under. Last year China imported just $324 million worth of food and live animals. Nevertheless, Austrade figures show that between July 2007 and January 2008, exports of dairy, honey and eggs nearly doubled to over $80.7 million and 12-month meat exports also rose from $30.7 million in the previous year to $49.4 million.

Austrade’s Shanghai business development manager, Stella Cai, has said that “food and beverage exports to China are a stable and steadily growing area. Some products such as wine, dairy and meat are already quite strong and beyond emerging, and there are other areas that are more niche, such as packaged and processed foods.”

As well as the hunger for Western-style luxuries that are apparent among Asia’s affluent classes, Cai said the interest in Australian food and beverages is also being driven by an awareness of healthy eating and a knowledge of the issues about local domestic production versus imported. “Some local product quality cannot compare with imported products” she explained. “For example, consumers know that local honey and milk is not good, so they are keen to import honey and milk from New Zealand and Australia.”

Exporting to China has many advantages for Australian food and beverage companies. Firstly, there’s the opportunity to get in at the start. Being geographically close to the market, there is quicker freighting and logistical times which means that products can be fresher. Although the exchange rate is not as favourable as it once was, Australian products are still less expensive when compared to European imports.

While the reasons for trying to gain a foothold in the Chinese market are compelling, there are also significant challenges. According to Cai, “market access is a major obstacle. There are product categories such as fruit, poultry, and white and game meat (such as kangaroo, emu, etc) that just aren’t allowed in.

“Another one is distribution. China is still developing distribution and cold chain and logistical networks aren’t as sophisticated as Singapore and Hong Kong.”

Other challenges include very strict labelling requirements and formulations. All labels must be printed in Chinese characters prior to export to China — it can’t be done at the distributor. Formulations are more variable. Chinese consumers feel Australian chocolate is too sweet but because volumes are low at the moment it is difficult to change the formulations.

When it comes to processed foods, like chocolate and biscuits, there’s also a preference for smaller packaging. “Chinese consumers often buy imported products as a gift to friends or family members, so packaging is very important. In Australia most packaging is quite simple so it is sometimes very hard to satisfy the Chinese consumer. They think the packaging is not colourful and fancy enough,” explained Cai.

While corruption has been an issue in the past, Cai has said it is much less so now. “The Chinese Government has made a lot of progress in controlling and addressing the whole issue of kickbacks, bribes, etc, and is committed to making the business environment much more transparent. As China is developing, things are becoming more competitive, which is helping address that issue as well. But relationships are still very important. It’s all about mates.”

Coffee anyone?

When master roaster and CoffeeMasters owner, Andrew Gross, decided to expand into the Chinese market he found himself a ‘mate’ — a retired army general’s son who was studying in Australia.

Gross was attracted by the size of the market, the possibilities inherent in being there at the start of the boom, and China’s proximity to Australia. “Shanghai, just Shanghai, has twice the population of Australia all in one place,” he said. “And it’s only two hour’s time difference. I don’t have to stay up till 1am to have a conversation with my business partner.”

Gross’s business partner has been able to simplify much of the work inherent in setting up a business in any foreign country. However, China’s rampant bureaucracy was still unavoidable.

“I was in China, and they said ‘prove that you’re you.’ I said I’ve got a passport where the Australian Government says that I’m me. ‘Yes, but we need something from the Chinese consulate’ they said. I said I have a visa where the Chinese consulate also agrees that I’m me according to my passport.

“I had to come back to Australia, get an affidavit signed off by my solicitor, get it notarised, put it in front of the Department of Foreign Affairs and then put it in front of the Chinese Consulate in Australia and then take it back. If I wasn’t going backwards and forwards frequently, it would have been a nightmare.”

Darren Baguley is a freelance journalist for FOOD Magazine.

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