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Food industry has a date with China

22-Mar-2004

Food ingredients companies head off to China with agriculture chief Fischler next week on a mission to boost trade relations and create new business opportunities for the food industry.

In the past 25 years EU-China trade has increased more than 40-fold to reach over €129 billion in 2003. But with 1.3 billion potential consumers, a growing middle class and rising disposable incomes, and 9 per cent annual growth, the landscape is rich with opportunities for food manufacturers.

"Europe is tasty! This is the message I will carry to China. Be it wine, cheese, ham or olive oil, the EU has a longstanding tradition of quality food. China and the EU have great food trade potential which has to be further developed," said Agriculture Commissioner Franz Fischler.

 

Bilateral meetings with ministers and round table talks with the industry will focus on pushing the quality and diversity of European food. China's accession to the World Trade Organisation (WTO) and its impact on farm trade, relaunching the stalled WTO talks on agricultural trade liberalisation and rural development will also be aired at the table.

 

At €129 billion, China is now the second most important trading partner for the EU, after the US. But underpinning Europe's drive, and Fischler's visit next week, into this emerging market is the widening deficit between the two trading blocs. Whereas the EU enjoyed a trade surplus with China at the beginning of the 1980s, EU-China trade relations are now marked by a sizeable and widening EU deficit - standing at €57.2 billion in 2003.

 

"The ability of EU agriculture to produce large quantities of excellent food products, and the diversity and quality of those products, means that the EU has become a major exporter of many foodstuffs, being the second biggest exporter globally with agricultural exports worth €61 billion in 2002," said the Commissioner.

 

The EU is currently the world's biggest producer of wine and of olive oil - with 65 per cent and 80 per cent of production respectively, the largest exporter of wine, 70 per cent global market share, and a major player in other markets, for horticultural and dairy products, meats, eggs and sugar.

 

A 25-strong food and beverage trade delegation from across the food chain will accompany Fischler next week, and includes a handful of ingredients firms. Harry Salonaho, the CEO of Finnish functional food ingredients company Valio with a turnover of €1.6bn in 2003, will be present. The CEO of Dutch wheat, tapioca and waxy maize starch company Avebe - Petrus Krijne - will be there. Danish dairy food and milk ingredients co-operative, Arla Foods - one of the largest dairy companies in Europe with a turnover of €5.4bn last year- will be represented by executive vice president member of the board Andreas Lundby.

 

Belgian's giant beverage company Interbrew - turnover €7 billion in 2003 - is also in the delegation, along the Danish Bacon and Meat Council, Greek fruit and olive firm Kronos, and Italian olive oil company Colavita.

 

A recent report from investment bank Goldman Sachs warns that despite the massive potential in emerging markets, increased exports from China threaten profitability in many product areas - notably for ingredients.

 

For the food companies China has not been so problematic, as food production tends to be domestically based. However, we are beginning to see a threat in ingredients, claims the report.

 

According to Goldman Sachs, both global ingredients leader Danisco and UK company Tate & Lyle have commented on increased competition from China as having a negative impact on their ingredient operations.

 

"If China's ingredient industry expands at the breakneck speed of the rest of the economy then we might expect further margin pressure from this area," said the report.

 

In 2003, a raft of ingredients companies - Danisco, Cargill for example - announced moves to lay down roots in China. But as the report reveals, the need to accelerate developments in this burgeoning economy must be a top priority for leaders in the ingredients industry keen to hold onto their market share both at home and away.

 

A massive importer of raw materials - notably wheat, corn and soy - reports in the Chinese press recently suggest that the country will soon start to manage risk through the futures market.

 

The reports claim that corn futures will likely be put on China's commodity futures market as early as April or May.

 

Zhu Yuchen, president of the Dalian Commodity Exchange, one of China's three futures exchanges, was quoted by the Chinese newspaper China Daily as saying that they are preparing for the corn futures trading.

 

"We are not sure of the timetable yet since it needs final approval from the State Council but hopefully it will be in April or May," Zhu said, "Or if regulators need more time, it may be settled in autumn." According to the press report, insiders said the exchange also plans to launch a new soybean contract soon to enrich its soy product series.

 

Earlier this month the Chinese government said that it had invested 4.7 billion yuan (US$566 million) in building 41 large grain production bases capable of providing one third of the country's total output.

 

The State Development and Reform Commission (SDRC), say press reports, has concluded that large bases producing high-quality cereals, including wheat, rice, soybeans and corns, was the fastest and most effective way to increase the grain output.

 

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