THE announcement made on February 24, 2017, that South Africa and China signed a memorandum of understanding, allowing South African beef to be exported to China, could not have come at a better time for South Africa’s beef industry.
The news comes at the fall of a dreadful drought in 2016.
Furthermore, the recent increase in beef prices in December 2016 shows that the worst could be over for the industry, and the exposure into a market of China’s magnitude is another positive boost.
The declaration in 2014, by the International Animal Health Organisation that South Africa is foot and mouth disease free has played an integral role in increasing South African exports into more lucrative markets such as Vietnam, the United Arab Emirates and countries in Africa.
In 2015, the production of beef amounted to approximately 740000 tons, from 3 million slaughtered cattle, of which 25000 tons was exported at the value of $28m.
The signing of the protocol is something worth celebrating; however, this is just the beginning.
A new and big opportunity has arrived for the beef industry in South Africa and the road to success depends on three factors; understanding the Chinese market, competitive positioning and the ability to navigate the regulatory environment.
Understanding the Chinese Market
Chinese consumers are currently demanding products that are associated with what Jeffrey Towson, a professor of investment at Peking University, has termed as “premiumisation”.
These are products that Chinese consumers describe as exclusive and healthy.
Beef falls into this category because it is the kind of meat that not all Chinese people can afford. Beef is commonly known in the streets as Kuo ren de rou, which when loosely translated means rich man’s meat.
The growing middle class and the desire for exclusivity have driven the growth in demand for exported meat.
Chairman of the Sino-Australia Top Beef, Mr Zhang Yong, said the average beef consumption of China’s 1.3bn population is approximately 3kg per person. He’s further estimated that beef consumption could rocket to 20kg per person by 2025.
In order to satisfy this predicted increase in beef consumption, Rabobank believes that China’s beef demand will continue to grow in the next decade and that an additional 2.2 million tons will be needed by 2025 in order to meet this demand.
The gap in production will need to be closed by importers, as local production is likely to meet 80% of the demand, leaving a 20% gap for import suppliers to fill.
Australia, Brazil, Uruguay, New Zealand and Argentina are China’s leading suppliers.
This means South African beef will be entering into a market with stiff competition.
Therefore, understanding how a country such as Australia has positioned itself as the premium supplier of beef is essential.
Australia has managed to capture the market so well that restaurants specify that their beef is an Australian Angus fillet or Australian rump.
Marketing the product according to the wants of the Chinese is a strong determining factor in how South African beef performs in China. The beef industry must use government entities such as Brand South Africa and South African Airways to promote their products, as that will provide credibility.
Navigating the Regulatory Environment
China’s lack of sufficient cold storage facilities and a series of food scandals, such as the 2008 melamine contaminated milk debacle, which resulted in the death of six babies and thousands more falling ill, has resulted in the Chinese government implementing a complex regulatory framework in June 2009 to mitigate these risks.
This poses a major barrier to entry for any meat exporter and more so those with little or no export experience. The Chinese consumer is also very unforgiving to anything they feel compromises the quality and safety of a product. The case of beef exports to China from the US being banned since 2003 should drive this point across very well. South African beef exporters looking to export to China will have to register with the Certification and Accreditation Administration of the People’s Republic of China (CNCA).
This process includes submitting a formal written application to local authorities using the template provided on the CNCA website. Local authorities carry out the process of preapproving prospective exporters.
The process requires patience and in certain instances the CNCA may send an inspection team to the exporting country. Upon approval, the CNCA assigns a registration number to each approved exporter.
In 2013, a food supplier provided products containing expired meat to McDonalds and KFC. This resulted in public backlash among China’s 600 million internet users as the information was quickly shared over social media platforms such as Weibo and WeChat.
KFC responded by terminating all meat sourcing from the food supplier. This highlights the importance of exporters ensuring that they choose the right importing partner who has the capacity to meet the required standards.
Constant and effective monitoring and evaluating of the supply chain is also crucial in maintaining regulatory compliance. China’s recent banning of red meat imports from Brazil following allegations that companies have been selling unsafe produce for years should provide warning to South African exporters on the hard stance that the Chinese government takes on issues affecting food safety.
While the EU has said it would stop buying from the companies implicated in the scandal, China has implemented a ban on all red meat imports from Brazil.
The prospect of exporting beef to China from South Africa is exciting. In order to fully realise this opportunity, farmers and commercial role players will have to collaborate, with the government acting as the enabler.
A strategic partner with knowledge of both the Chinese and South African market is imperative, not only to assist with complying with China’s complex regulatory framework, but to also help identify reliable import partners and to ensure they do not cut any corners that could damage the reputation of South Africa as a quality beef exporter.
Better days are ahead for the industry, if – and only if – things are done correctly on a consistent basis.
Buyambo Mantashe, China Agricultural University, MSc agricultural economics and managment, firstname.lastname@example.org Botlhale Seageng, Renmin University, MSc economics, email@example.com