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Providing more food for thought

08-29-2011 10:36 BJT

China's agricultural sector is preparing to supply markets across the globe

WEIHAI, Shandong - When he worked from dawn to dusk fishing in the sea off Weihai in Shandong province, more than three decades ago, Tang Jude never thought of turning his trade into a business that could reach people outside the East China coastal city, let alone outside the country.

Chinese cabbage ready for shipping to South Korea at a logistics center in Shenyang,
Liaoning province. China has become the fifth-largest global exporter of agro-goods.
[Photo/China Daily]

The 20-year-old fisherman of those faraway days is now the executive vice-president of Homey Group Co Ltd, a top 10 Chinese seafood exporter, with a sales network covering a number of developed nations including Japan, South Korea, the United States and the European Union (EU) trading bloc.

In 1978, Tang and 200 fellow fishermen established the Qiujia Fishing Company, the predecessor of Homey Group.

"It was a small business. We fished everyday and sold to local people, but business was very good," Tang said.

It was around 1990 that Tang's company began to sell overseas, but the volume was quite small, as it was very difficult to promote sales abroad at that time.

The turning point came in the mid-1990s when a delegation from Japan flew to Weihai and visited the company. The team stayed for a couple of days, researching and sounding out local people, and eventually an agreement to establish a joint venture was signed with TableMark Co, Japan's biggest Japanese food processing company by sales.

Now Homey Group's annual exports are $70 million and 80 percent of its goods go to Japan. The company listed on the Shanghai Stock Exchange in early 2004, with total assets of 3.5 billion yuan ($550 million).

"Quality is the lifeblood for the food business," Tang said.

Homey Group is the epitome of thousands of agricultural goods manufacturers and exporters in China, and their evolution and prosperity have helped the country grow into the fifth-largest global exporter of agro-goods.

The exports are projected to be on the rise and the prospects to be promising, but quality and branding will be key to maintaining robust growth, said government officials and company executives.

China's entry into the World Trade Organization (WTO) in 2001 stimulated the nation's exports of agricultural goods. According to the General Administration of Customs, exports of Chinese agricultural goods surged to $48.88 billion in 2010 from $18.03 billion in 2002, registering an annual growth rate of 13.4 percent.

That growth was mainly buoyed by sales of labor-intensive goods, with the three categories of organic aquatic foods and seafood, garden produce, and livestock and poultry products contributing approximately 70 percent of the nation's agro-exports annually over a period of years.

China has the largest population in the world, but it is limited in terms of arable land, so the nation mainly plants wheat, rice and corn for domestic self-sufficiency, importing large amounts of soybeans, cotton, edible oil and sugar.

Last year, the country became the largest destination for US agricultural goods, with imports totaling $17.5 billion. That figure accounted for 15 percent of US agro-goods exports in 2010.

As the world's major agriculture nation with a huge rural population, China is set to see a surge in food-based exports, according to officials.

"We have reason to believe that China's agro-exports will experience rapid growth and the future will be very positive," said Wang Shouwen, director of the department of foreign trade at the Ministry of Commerce.

China's agro-export growth is gaining momentum. Between January and April, exports rose by 34.4 percent from a year earlier to $18.68 billion, compared with annual growth of 13.4 percent during the past nine years.

Shandong province in East China is the country's biggest region for agricultural exports, contributing one-fourth of the nation's total in 2010.

A strawberry farm in Rizhao city, Shandong province. Chinese
farmers have been on high alert to maintain the quality of the
agricultural produce they export.[Photo/China Daily]

Statistics from the Ministry of Commerce show that in Shandong there are 260 agro-companies with exports of more than $10 million last year, including three that had exports worth more than $100 million.

"The Chinese are hard-working and good at intensive and meticulous farming. As they make more of an effort to expand their sales networks, increase their research and development (R&D) capabilities and build brands, there will be great room for the growth of agro-exports," Wang said.

Hu Yumei, deputy general manager of Yunnan Tonghai Songwei Agricultural Product Import and Export Co Ltd, agreed. "The majority of Chinese exporters have limited sales channels overseas, which makes it possible for sales to explode in the future," Hu said.

As a leading vegetable exporter, Yunnan province-based Songwei's products are mainly sold to Thailand, and the company is a dominant provider of vegetables there, including cabbage, spinach, caraway and celery. Its sales revenue in Thailand has come in at between $30 million and $40 million annually in the past two years.

The company's export business began in 2001 after extensive research in the Thai market. "China enjoys the advantage of low labor costs and better agricultural techniques, and thus our vegetables in the Thai market are only half the price of those produced domestically," said Hu.

Hu's company gained popularity and market share quickly, becoming a major supplier to supermarkets in Thailand, including those owned by Carrefour SA of France.

Now that the company has gained more experience in marketing and branding, Songwei is considering expanding its sales network.

In 2010, it made its first foray into Vietnam, and it is currently preparing to enter the Middle East. It is also investigating the possibility of selling in Japan and some European markets.

"Our long-term goal is to make Songwei a well-known brand, even in developed markets", which generally set higher food-safety requirements for the inflow of agro-goods from overseas, Hu said.

Traditionally, the major destinations for China's agro-exports have been Japan, South Korea, Southeast Asia, the US and the EU. However, in the past few years, sales have expanded to many emerging markets and the network now covers more than 200 countries and regions.

Historically, China's agro-exports consisted mainly of primary goods, but this has now changed. During a news briefing in June, Yao Jian, a spokesman for the Ministry of Commerce, said local manufacturers are expanding their industry chains to include processing, packaging, marketing and sales. Most importantly, they are improving their R&D capabilities.

Although China is a large exporter, the R&D efforts of its agricultural companies are "far from enough", which makes them vulnerable to "green" trade barriers - environmental protection standards that may hamper trade - by developed nations for a number of reasons, including safeguarding the environment and food safety, said Wang.

After the exchange rate, these green barriers are believed to be the second most important factor influencing foreign trade.

A more promising development is that Chinese companies are trying to make their exports more competitive by increasing investment in R&D.

According to Tang, the Homey Group has built a complete industrial chain, from breeding and fishing to processing and sales.

The company has an aquatic breeding area covering 173.42 hectares, with the largest breeding area for sea pumpkins and jellyfish. It has 15 processing factories in China producing health-oriented seafoods and snacks, with a combined annual output of 100,000 tons.

In 2008, the company set up an R&D center focused on breeding and food processing, the first of its kind in the industry in Shandong.

"R&D decides to what extent we can expand our business. It decides our future," said Tang.

According to Li Jianyu, general manager of Xinjiang Saihu Fishery Technology Development Co Ltd, the R&D investment is significant for both the company and the Chinese aquatic-goods industry.

Despite being the world's largest exporter of aquatic goods, China has limited resources, and 80 percent of the nation's exports of this type of produce comes from imported primary goods.

"We have to build up our own breeding capability. Otherwise, we will have to rely on the imports, because the supply is not always stable," Li said.

Take saltwater eels as an example. East China's Fujian province is famous for its saltwater eel exports, but the eel larvae used by local companies come mainly from EU countries.

However, late last year an EU scientific review group announced the suspension of eel larvae exports for a year to protect the species. The suspension is reported to have badly hit production and exports in Fujian.

Saihu Fishery is China's largest exporter of northern whitefish (Coregonus Peled), a precious type of fish nowadays, selling to a number of European nations, including Finland. And the company is also the only one that raises northern whitefish in China, learning techniques from Russia, one of the few nations that has the species.

With diversifying demand from the EU and company plans to expand to other regions such as the US, Saihu Fishery is considering breeding a wider range of fish species, such as perch and rainbow trout.

"Breeding could create quite a lot of jobs, as well as bringing more commercial benefits for us," Li said.

It is estimated that every batch of agricultural exports worth $10,000 creates 20 jobs every year, and thus China's annual agro-exports have helped provide work for a large number of unemployed rural laborers, said Yao.

The government is also attempting to boost the nation's agricultural exports. China organizes teams for well-known exhibitions such as Anuga FoodTec, the world's largest food and beverage fair held annually in Cologne, Germany. China also allocates 30 to 40 percent of the display area at the Canton Fair - an important exports and imports exhibition held twice a year - to Chinese agro-goods exporters.

The framework of the WTO has provided China with the funds to allow manufacturers and exporters to promote their brands through exhibitions.

Foreign investors are also eager to become involved in the nation's agricultural industry, actively partnering local players and providing investment for joint ventures.

In 2010, six investors, including Atlantis Investment Management Ltd, Blackstone Group, Capital International Funds and Warburg Pincus, International LLC, each invested $100 million for a combined 30 percent stake in the China Shouguang Agricultural Product Logistic Park.

Situated in Shandong province, Shouguang is China's largest center for vegetable transactions and logistics, and it was listed in Hong Kong earlier this year.

According to the Ministry of Commerce, between January and May, the foreign direct investment flowing into China's agricultural sector grew by 28.16 percent to $814 million, outpacing that of the manufacturing sector (20.63 percent) and the service industry (27.68 percent). By working with foreign partners, Chinese companies are able to obtain capital and improve their management and technology. Meanwhile, some key manufacturing and export bases have come into existence, including a vegetable base in Shandong, and an aquatic goods facility in Zhejiang. Meanwhile, a base for tomato exports has opened in the Xinjiang Uygur autonomous region and an apple and apple juice base in Shaanxi province.

Quality is key

In the wake of a series of scandals, including cucumbers contaminated with E coli in Germany and food polluted with nuclear radiation following the March 11 earthquake and tsunami in Japan, people have become much more aware of the problem of food safety.

However, in China, the food for export has been generally proved safe.

"China's agro-exports are fairly good, with 99 percent of the food for export meeting all the safety qualifications," said Zhong Shan, vice-minister of commerce.

As part of the country's efforts to transform its economic development mode and adjust the economic growth structure, the ministry has launched initiatives to improve the quality of exports and add value , and agricultural goods play a major role in the program.

"We have to be on high alert about the quality of agro-goods, as that issue concerns the health of people both at home and abroad," said Zhong.

Shandong province has set up 24 experimental areas for the export of agro-goods in selected cities, including Weihai and Anqiu. The provincial government has invested 130 million yuan to build quality-testing centers and a complete producer-tracking system to ensure the safety of exports.

Shandong's agricultural producers mainly export their goods to Japan, a nation that has the strictest rules on agro-imports worldwide.

Since 2009, the Japan Refrigeration and Air Conditioning Industry Association has sent eight delegations to Shandong to check the quality of the goods produced there. The teams praised the quality-guarantee mechanism. "Shandong has set a good example in ensuring the quality of agro-exports. We must promote its successful methods in other regions and businesses," said Zhong.

As a top 10 food manufacturer and exporter and the nation's largest exporter of the famous sauce brand, Pearl River Bridge, Guangzhou Food Import and Export Group Co Ltd has registered double-digit growth in overseas sales annually since 2008.

In 2010, the company's exports were worth $230 million and the prospects look good, said Wu Wei, Guangzhou Food's deputy general manager.

"The confidence comes from our quality and efforts in improving the brand," he said.

In 2000, the company established an R&D center, which accounts for 5 percent of its annual sales revenue. The center mainly studies methods of producing high-quality, value-added sauces at a comparatively low cost.

As a means of further promoting the brand at home and abroad, the company is preparing for a public listing on the Shanghai Stock Exchange later this year, Wu said.

In common with many other labor-intensive sectors such as footwear, luggage and clothing, China's agricultural industry has few strong global brands and the majority of the exporters are Original Equipment Manufacturers (OEM) - meaning that their products are purchased and retailed overseas under the brand names of the purchasing companies - despite the fact that some of them have robust sales.

Analysts said establishing a brand will be a hard nut for the Chinese agro-industry to crack, if companies expect to expand rapidly.

Yu Jianyang, director and general manager of Rongcheng Taixiang Food Products Co Ltd, agreed.

As a Chinese leading producer and exporter of pork products, including pork cluster, pork cakes and pork balls, Taixiang's goods are sold to Japan, South Korea, the US and in the EU.

In 2010, the company's overseas sales reached $100 million and are set to hit $130 million this year, Yu forecast.

"We have strict requirements on quality. We regard quality as the soul of our business," said Yu.

"But the real pity is that Taixiang has been an OEM. We are planning to create our own brand for overseas markets, but it really takes time," Yu said.

Editor:Yang Jie |Source: China Daily

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