Supermarket Development in China Implications for USChina Trade in Food Products

1、supermarket development in china: implications for us-china trade in food productsfred gale invited paper prepared for “supermarkets and agricultural development in china: opportunities and challenges,” may 24-25, 2004, shanghai, china. the author is a senior economist, u.s. department of agricultur

2、e, economic research service.many factors are affecting chinas foreign trade in food products. they include reduced tariffs and reduced import licensing requirements, liberalization of domestic wholesale and retail markets, foreign investment, growing tourism, the growth of hotel and restaurant chai

3、ns and the increasing dominance of supermarkets in the retail food sector. the effect of supermarkets on chinas agricultural imports and exports is subtle and difficult to detect, but it is important. while supermarkets may not alter the basic structure of chinas food trade with the united states, t

4、hey are likely to make it easier for u.s. products to enter the china market. at the same time, supermarkets may make china a stronger exporter of food products.imports mainly raw materialschinas food market has historically been difficult for exporters to penetrate. by some estimates, less than 5%

5、of products on supermarket shelves are imported (xian). agricultural and food products account for only 4% of chinas imports and chinas agricultural exports exceed its agricultural imports in most years (gale and hansen). it is even more striking that very few of those agricultural imports are “cons

6、umer-oriented” food productsproduce and packaged foods that are ready to be placed on supermarket shelves. most of chinas agricultural imports are raw materials and intermediate products such as soybeans, raw grain, edible oils, cotton, rubber and animal skins that are manufactured into foods or oth

7、er products in chinas factories. usda figures show that only 9% of u.s. agricultural exports to china during the period 1994-2003 were “consumer-oriented” food products, one of the lowest shares of any country. overall, 39% of u.s. agricultural exports were “consumer-oriented,” and the average for e

8、ast asia was 38%. chinas “consumer-oriented” share is lower than that of neighboring developing countries like indonesia and vietnam.it is also important to point out that china is a major exporter of food products. in most years, china has a trade surplus in food products. china is a large net expo

9、rter of consumer-oriented food products. in particular, it exports consumer-oriented finished food products and imports raw materials. china has been hugely successful at exporting a wide range of food products, including fish, shrimp, vegetables, mushrooms and processed foods. during 1994-2003, chi

10、nas consumer-oriented food imports averaged only about one-fourth of its exports in that category. china imports raw materials like soybeans, raw grain, other feeds, animal parts and food ingredients that it processes into finished food products in china or overseas. the basic economics of low cost

11、and geography make china a good place to manufacture food products. china has low labor and facilities costs, access to capital, relatively lenient environmental and other regulations, good access to lucrative markets in neighboring countries, and a large share of asias cultivable land. just about a

12、ny crop can be grown somewhere in the country. since china is such a large, potentially lucrative market, multinational food manufacturers find it attractive to build local processing facilities rather than import finished products. the decision to produce in china is aided by chinas eagerness to at

13、tract foreign investment. many multinationals use china as a base to export to other countries. its competitive advantage in food processing makes china a promising exporter of food. low domestic costs also make it difficult for imported foods to compete in the china market. table 1consumer-oriented

14、 share of u.s. agricultural exports, by destinationdestination of exports10-year average, 1994-2003percentchina9indonesia11thailand13philippines23taiwan24vietnam28south korea30malaysia31japan49singapore70hong kong71east asia38world39note: “consumer-oriented” includes meats, poultry, eggs, fruit, veg

15、etables, nuts, processed foods and beverages.source: calculated by ers using data from /ustradeimports start to take offthe good news for imports is that many policies that impeded imports are being rolled back as china liberalizes its economy. historically, imports were imped

16、ed by high tariffs, licensing requirements, an inefficient closed distribution system, and local protectionism (bean; sternquist, chen and wang). china has drastically cut tariffs on food products from an average of 33.5% in 1996 to 15% in 2004 (gale and hansen). this average tariff excludes grains

17、and edible oils that are now under tariff rate quotas. import licensing requirements will be eliminated in 2005, and restrictions on operations by foreign retailers will be eliminated by 2007 as part of chinas wto commitments (bean). protection of local companies seems to have receded quite a bit an

18、d a recent survey of chinese enterprises shows food and retail enterprises report fewer problems operating outside their home province than do companies in other industries (gong, xu and tan). this statement does not apply to cigarette and alcohol industries, which are still vigorously protected by

19、local authorities. this has facilitated the geographic expansion of both chinese and foreign-invested supermarket chains all over the country. the opening of the chinese economy is providing new opportunities for consumer-oriented food imports. during the past decade, u.s. consumer-oriented food exp

20、orts to china rose by a factor of 10, from just $48 million in 1994 to $439 million in 2003. most of the growth has occurred in the last four years. consumer-oriented exports to china surged 55% in 2003 alone. the consumer-oriented share of u.s. agricultural exports to china reached 14% in 2001 and

21、2002, up from just 4% in 1994. the consumer-oriented share fell to 9% in 2003 because of a surge in soybean and cotton exports. a close look at the data shows that the gains in u.s. consumer-oriented exports to china have been concentrated in just a few categories. table 1 summarizes the structure o

22、f chinas food imports from the united states over the past four years. soybeansa raw material for the edible oil and feed industriesare clearly the dominant food-related export (in fact, one of the single largest u.s. exports to china), with gains of $1.7 bil. from 1999 to 2003. meats, including por

23、k, poultry, chicken feet and other animal offal, account for most of the gains in consumer-oriented exports. chinas meat imports rose by $300 million during 1999-2003 and the u.s. share of chinese meat imports rose from 59% to 78%. imports of miscellaneous food preparations increased by $142 million

24、 and also doubled their share of chinas imports in this category. the united states provides only 7% of chinas seafood imports, but the dollar value doubled in 4 years. soybean oil imports fell sharply during the 1999-2003 period as china switched from importing oil to raw soybeans. u.s. citrus, gra

25、pes, apples and preserved potatoes made modest gains in the china market from a small base. china imports very few vegetables and its imports from the united states consist mainly of frozen potatoes and sweet corn, largely for fast food restaurants. imports from the united states in other major food

26、 categories were under $15 million, but some large percentage gains were made by a few products such as meat preparations, syrups, sweeteners, coffee and flavored tea. there are clearly some large percentage gains being made, but they are modest in dollar value and spread over numerous products.tabl

27、e 2china food-related imports from the united states, 1999-2003hs codedescriptionimports from united states, 2003growth, 1999-2003share of china imports from u.s.specific products19992003million dollarspercent12oilseeds 2,2491,6903440soybeans02meat5943025978pork, poultry parts21miscellaneous food171

28、1422455unspecified food preparations03fish and seafood1337867frozen fish and mollusks23animal feed and food waste12381919animal feeds, meals, additives05other of animal origin97613244animal guts; dead animals15fats and oils81-133163soybean oil08edible fruit and nuts79461316citrus, grapes, apples20pr

29、eserved food46274334preserved potatoes, frozen10grains39379wheat04dairy, eggs, honey319139whey13vegetable saps, extracts167293107vegetables15-5246frozen potatoes and sweet corn19baking related1412910infant cereal, flour preparations18cocoa1422212cocoa powder, paste; chocolate17sugars12545syrups, swe

30、eteners, confections16prepared meat742325bovine preparations; sausages22beverages5042whiskey; wine09spices, coffee, tea32710roasted coffee; flavored green tea; pepper; spices11milling; malt; starch2-5102wheat flournote: table includes only major food categories, hs 02-23. excludes live animals (01),

31、 live plants (06) and other vegetable products used for nonfood purposes (14). these data are reported by china and are not necessarily the same as u.s. export statistics. source: china customs statistics reported by world trade atlas.how supermarkets could boost exports to chinathe “supermarketizat

32、ion” of chinas food marketing system will not change the basic structure of chinas food trade. most food products sold in china will still be made in china. however, there are several ways that supermarkets might encourage exports of u.s. food products to china. small food retailers tend to sell foo

33、d procured locally, but supermarkets often procure food from a wide geographic region, including overseas. in fact, supermarkets in developed countries have been widely criticized for selling imported products. in the united kingdom, supermarkets are being criticized for importing organic food inste

34、ad of buying it locally. small farmers in the united states often complain that they cannot find markets for their produce because local supermarkets refuse to deal with small local suppliers. supermarkets in china are also broadening the geographic scope of food procurement as they seek out supplie

35、rs with the right combination of price, quality, and other product attributes that satisfy their customers. they will find those suppliers whether they are in distant chinese provinces or overseas.the large volume, centralized purchasing and greater efficiency in supermarket procurement reduces the

36、number of hurdles facing a potential exporter to china and gives him/her a larger target to aim for. in the past, entering the chinese market required getting the product into hundreds, if not thousands, of small, independently-operated stores and shops. (this is still true in rural areas and in les

37、s-developed markets.) products had to be imported by a licensed importing entity, then had to pass through multiple wholesalers and a network of small distributors, each one taking a mark-up (bean). if a vendor can concentrate efforts on a supermarkets centralized purchasing office he may instantly

38、have regional or national distribution through a chains stores. with shipments going to fewer retail outlets in larger lots, the number of entities handling the product between the border and the retail shelf is reduced and the supplier can maintain better control over how his/her product is markete

39、d. the high mark-ups in chinas old multi-layered distribution system were like high transportation coststhey favored local suppliers over distant competitors, whether foreign or in other parts of china. marketing to supermarkets is costly since they charge “slotting fees” to carry a product (sternqu

40、ist, chen and wang; xian), but exporters and domestic competitors both have to pay the same fees. the reduced layers of distribution from the port to the large supermarket retailer probably “levels the playing field,” making it easier for foreign companies to compete with local suppliers. supermarke

41、ts, by wringing inefficiency out of the supply chain and reducing distribution costs, may allow imported products to compete with domestic products on a more equal footing.supermarket chains are expanding to many cities, making it easier for imported products to get regional or national distribution

42、. until now, food retail markets have been highly localized, a legacy of chinas planned economy. there are costs in entering each market. imported food is still mostly limited to the big coastal cities of beijing, shanghai, shenzhen, and guangzhou where incomes and education levels are high and the

43、presence of an expatriate foreign community tends to create awareness of foreign foods and brands. supermarkets and restaurant chains are now expanding outside their home provinces and into second-tier interior cities and even some rural areas. this geographic expansion may increase the potential ma

44、rket for imported food products by extending awareness of foreign brands and new tastes beyond the big coastal cities. supermarkets, restaurants and convenience stores are also conditioning chinese consumers to pay more for food products. consumers in china have a reputation for frugality in food pu

45、rchases. the food share of urban consumer expenditures has fallen sharply as income has risen, suggesting that chinese consumers prefer to spend their extra income on nonfood items. however, there now seems to be a rising preference for foods that are convenient, safe, and good quality. in fact, the

46、se new demands are sometimes cited as reasons for the growing popularity of supermarkets. as people become more accustomed to paying more for foods that have these qualities, they may be more willing to purchase relatively expensive imported foods. while the link is harder to establish, supermarkets

47、 may indirectly promote imports of agricultural raw materials. the basic economics of low costs still favor local production over imported products, but raw materials cannot always be supplied locally. in some cases, supermarkets are creating demands for new food products that increase the demand fo

48、r imported raw materials. for example, the rising consumption of refined salad oil in branded plastic bottles has coincided with the emergence of supermarket shopping. this oil is mostly processed and bottled in china, but it has fueled the increased demand for imported soybeans. consumption of hamb

49、urger buns, western-style bread, cookies and crackersalso linked to supermarket and restaurant chainshas increased the demand for imported wheat that has protein and gluten content different from that typically grown in china. supermarkets may shift consumer tastes to include more consumption of mil

50、k, cheese, beef, poultry, and pork or other livestock products, increasing the demand for animal feed beyond chinas productive capacity. palm oil imports have also risen to support the growing demand for processed foods.supermarkets may boost chinese exportssupermarkets may also aid chinas developme

51、nt as a food exporter. i pointed out earlier that u.s. consumer-oriented food exports to china have risen dramatically, a trend that is reflected in figure 3. chinas exports of “consumer-oriented” foods have risen even faster since 1999. supermarkets did not have a direct role in this increase in fo

52、od exports, but supermarkets may have an indirect effect on exports in the future by raising product quality, reducing costs, developing national brands, and thereby helping china develop an internationally competitive and market-oriented food sector. supermarkets are increasing the general competit

53、iveness of chinas food industry. foreign-invested chains have shaken up the domestic industry and the competition has pushed chinese chains to raise efficiency, cut costs and offer new services. the prospects of supplying the lucrative supermarket business may stimulate new investment in marketing i

54、nfrastructure such as refrigerated storage and transportation equipment. in their search for lower costs and competitive advantage, supermarket supply chains may reach further into chinas central and western provinces. supermarkets may use their market power to increase and standardize the quality a

55、nd safety of chinese food products. this will help chinese food exports to break through the quality and safety barriers they have encountered in foreign markets. supermarkets may also facilitate the development of strong nationally-recognized food brands that can compete internationally.chinese ret

56、ail chains are also looking to expand overseas, which will provide more export opportunities for chinese food products. chinas largest supermarket chain, lianhua, established operations in europe during 2003, partly to serve as a conduit for chinese products into the european market. in a china dail

57、y news report, a lianhua official said that the company planned to follow the wal-mart model of simultaneously selling chinese products in the retailers host country and sourcing products for sale at home.while most of chinas consumer-oriented food exports go to nearby markets in asia, the united st

58、ates is a surprisingly large and robust market for chinese exports. japan remains by far the largest overseas market for chinas consumer-oriented food products, but the share of chinas consumer-oriented exports going to the united states doubled from 6% in 1995 to 12% in 2003. the united states is now the second-largest market for