Tom Williams
Posted on 4 Oct 2017

UK-China pork export deal highlights global opportunities for UK Agriculture

The pork road to China

Agribusinesses and farmers are likely to benefit from a major new export deal with China, concluded by the UK Government, as demand in China for UK produce grows. On 11 August 2017, the Department for Environment, Food & Rural Affairs (“Defra”) formally announced the new deal, following which seven businesses in England and Northern Ireland have secured access to export pork to China.

Introduction

Meat has been one of the top-performing areas in the agricultural sector, thanks in part to the growing demand for protein around the world. Pork is the most widely consumed meat worldwide and China accounts for over half of this.

Opportunities in China

China only opened its doors to UK pork imports in 2011, but has now overtaken Germany and Ireland as the largest importer of UK pork products (including offal). China is one of the key markets in the International Action Plan for Food and Drink 2016-2020, which will see the UK Government and industry working together to boost food and drink exports over the next five years. With increasing levels of urbanisation in China leading to increased incomes, demand for previously luxury items, such as meat, is growing rapidly. At 63kg per year, the annual meat consumption of the average Chinese is mid-table in the global rankings, but pork has a higher market share than other countries. It is estimated that China will import three million tons of pork this year.

Buoyed by an expanding and increasingly globally-minded middle-class, demand for UK food and drink is growing in China, with the total value of exports from the UK rising by a third to £438m in 2016. The UK pork industry’s (and the wider UK meat industry’s) reputation for high-welfare, quality-assured and sustainably produced products puts it in a strong position in China, which is widely predicted to remain the world’s largest importer of meat.

The deal

The deal involves approval to export from five sites in Suffolk, Lincolnshire, Derbyshire, County Antrim and County Tyrone. It also includes three producers who, in a first for the UK, will export pig trotters. Nine producers already export pork products to China with sales of such products worth £43 million last year. It is envisaged that the deal will bring a £200 million boost to the UK food industry and support 1,500 jobs. Food Minister, George Eustice MP, said in respect of the deal:

“China is a hugely important market for our world-class food industry and by opening up access even further; more UK businesses can take advantage of the growing appetite for our food and drink.”

“British food is produced to the very best standards of welfare, quality and safety and this growth in exports to China is creating more jobs and opportunities for our premium pork producers who can guarantee quality from farm to fork.”

UK pork industry

The deal represents a positive for the UK pork industry, which has had a difficult few years. There has been a contraction of the industry, with a fall in breeding herd numbers from nearly 800,000 in the late 1990s to fewer than 400,000. The industry is also still recovering from a downturn, caused in part by Russia’s invasion of Crimea in 2014, the subsequent sanctions and the countersanctions imposed by Russia on EU produce, including meat. This led to a substantial surplus of pork in the EU (countries such as Germany being significant exporters of meat to Russia) and an inevitable fall in the price of pork, including in the UK. However, it appears the tide (for now) has turned, and global pork export prices are now at their highest since January 2015.

Demand for pork in China

The deal also highlights the potential for increased efficiency in food production, as it involves the exporting of pig trotters, which are a delicacy in China. The Chinese market’s appetite for such animal-by-products (“ABPs”) (or “fifth quarter” products - this relates to the fact that many animals slaughtered for food are split into four quarters as part of the butchery process) will enable less waste and potentially higher revenues. Currently, ABPs are predominantly used for such applications as animal feed or for renewable energy, including anaerobic digestion.

Aside from the deepening pockets of the Chinese middleclass, another key driver is the high domestic pork price in China. Recently, China has overseen a push to modernise its own pork industry. This restructuring has not been wholly without issues. The uncertainty has led to a fall in production of Chinese domestic pork and consequently, higher prices. Concomitantly, China has seen pork imports rise sharply. Self-sufficiency is no longer a practical policy for China and its population to ensure food security. The high levels of urbanisation, construction projects and land degradation in China in recent years have led to a reduction in the availability of farmland. China now has around 20% of the world’s population with approximately 7% of the world’s arable land. Further, based on domestic production alone, it is expected that China may face a meat production deficit by 2020.

These issues have been in conjunction with concerns over consumer safety over domestically produced food in China after a number of scandals. Imported food is often seen as a safer, higher quality alternative, particularly the UK with its strong reputation for welfare, quality and safety. A new railway is being constructed from Rotterdam to China (dubbed the “new Silk Road”) as part of a new network of rail routes that are being built between east and west, which will help to ensure food safety en route. It is expected that this new railway will shorten the transportation time to fifteen to twenty days by land, from forty by sea.

UK response

In the past, the UK has lagged behind other countries such as Germany and Denmark in recognising the potential of the Chinese market. It is essential that both UK agribusinesses and UK policy-makers understand what drives Chinese consumers. “Guanxi”, best described as the relationships individuals cultivate with other individuals, is a central concept in Chinese society. Those looking to benefit from the vast potential of the Chinese market must develop the necessary trust and long-term relationships that are required to establish themselves in a market characterised as being notoriously difficult to enter. The responsibility falls on not just the UK Government, but on UK agribusinesses to forge the necessary relationships to establish a foothold in the market.

New Zealand approach

An example of a country taking advantage of the Chinese market is New Zealand, where the abolition of subsidies in 1984 helped to catalyse a transformation in the agricultural sector, which has largely driven New Zealand’s economic growth since the 1980s. However, the abolition of subsidies was only one component of New Zealand’s agricultural revolution. Equally vital was the effort made by the political and industry leaders to secure access to growing markets such as China, which is now one of New Zealand’s largest export markets, accounting for nearly 20% of exports. Of course, such comparisons are often nebulous and lacking context. New Zealand is a large net exporter of agricultural products, compared to the net importer status of the UK. Further, unlike New Zealand, which has generally ensured that agriculture is near the top of its agenda, the UK is a predominantly a services driven economy, in which agriculture does not have such primacy. What is clear is that developing such links will be as essential to the future of the agricultural sector in the UK, as they were for boosting the competitiveness of New Zealand’s agricultural output.

Philippines and Hong Kong

The deal follows the UK signing a beef export deal with the Philippines worth over £34 million (following the lifting of restrictions imposed in relation to bovine spongiform encephalopathy (BSE)). The UK pork industry has already experienced some success in the region, increasing pork offal shipments by 40% between 2015 and 2016. Hong Kong is another growth market for UK meat exports in the region, with figures demonstrating a significant increase in demand for beef, lamb and pork products from the UK.

Conclusion

The fates of agribusinesses are inextricably linked with the profitably of farmers. The deal represents an opportunity for pig farmers in the UK to revitalise their businesses. The key for farmers, farm business consultants and agents will be to ensure that any added value from such a deal is distributed fairly along the supply chain. It is in the interests of those involved at all levels of the supply chain to ensure that suitable agreements are in place to achieve this. Such agreements will provide much needed certainty in key areas such as payment and how disputes are resolved between the parties.

On a higher level, the most pressing responsibility must be for the UK Government to decide what kinds of farms and food it wants to develop and market globally, and then to protect and enhance those interests. The latest deal represents a step forward for the UK in recognising the globalisation of the food market and the potential benefit of such arrangements to UK agribusinesses and the agricultural sector generally. The UK Government has committed to driving exports for UK produce and increasing the already strong reputation for quality of UK produce globally. Defra’s “GREAT” campaign is designed to play a key role in this. Economies such as China and its voracious appetite represent a huge opportunity for the agricultural sector in the UK. There may be further opportunities in emerging markets elsewhere in Asia and Africa. In the climate of uncertainty caused by Brexit, such opportunities must be taken.

For more information please contact Tom Williams on tom.williams@michelmores.com or 0117 906 9334.