CHINA Ruby News
Ruby Zhu, Assistant Economist of the Hong Kong General Chamber of Commerce. Email: ruby@chamber.org.hk
Vol I, No.4 December 2002
China’s food processing industry offers great potential
hina's food processing industry is expected
to reap substantial benefits from the
opportunities that the country's WTO
membership will bring. As import tariffs on various
goods are lowered, prices of agricultural produce
will also fall, and the sector is waiting to capitalise
on this opportunity to increase its profits and take
the fledgling industry forward.
C
Despite being the world's largest producer of grains,
rapeseed, fruit, eggs and meat, only about 30 per
cent of China's agricultural produce is processed
before reaching markets, compared to about 80 per
cent in developed countries. This reveals that there
is ample room for growth. The graph below shows
the gross output and sales profit of China’s food
processing industry from 1999 to 2001(Source:
China Statistical Yearbook 2002).
100M Yuan
4500
4000
3500
3000
2500
2000
1500
1000
500
0
1999
2000
2001
Gross Output
Sales Profit
As many of China's farmers are peasants,
production costs are far lower than most countries.
For example, the price of Chinese pork, beef and
mutton are about 50 per cent, 80 per cent and 54
per cent, respectively, lower than those available for
sale in the international markets.
Fruit farming is another area where China has a big
price advantage and is a world leader, producing
13.4 per cent of the world’s total. Its production of
apples, pears and peaches ranks first in the world,
second for walnuts and chestnuts and third for
tangerines, while production of speciality fruits, such
as hawthorns, kiwifruit and jujubes, are among the
highest in the world. However, the value of these
fruit crops are not fully utilised, as only a fraction of
produce is processed. For example, with only an
estimated 6 per cent of apple harvests processed,
industry analysts estimate that the total value of
China’s fruit processing industry alone could
amount to billions of Hong Kong dollars if fully
utilised.
In recent years, demand for processed food has
been on the upswing. Widespread concern about
food safety and the over use of chemicals in
farming is also giving rise to interest in organic
produce. People’s eating habits have changed
significantly and they now pay great attention to
food nutrition, hygiene and quality, as well as how
food is processed, which helps explain why organic
produce is growing in popularity. Organic farming in
China follows international standards, which
requires more labour and fewer fertilisers and
pesticides. Despite the relatively higher prices for
produce, organic farming in China offers excellent
potential.
Besides fresh produce, sales of various health
foods aimed at warding off diseases and
strengthening the body are also expected to grow
rapidly and take a larger share of the food market.
Convenience food is also becoming more popular.
At present, an estimated 15,000 varieties of
convenience food are sold worldwide, and many are
expected to become part of the Mainland Chinese
diet. Moreover, frozen foods are becoming more
popular as their variety increases and consumers
discover the convenience of using them.
To increase farmers’ income, the Chinese
Government
strongly
encourages
foreign
investment in the
food-processing sector.
Although the Central Government has not yet
drafted any specific preferential measures for the
sector, enterprises investing in farming regions
generally receive strong support from local
governments. For example, investments in fruit
processing projects in Ningxia, a province in
western China well known for its fruit farms, receive
a seven-year tax concession and a three-year tax
exemption.
For some investors, the sluggish growth of China’s
www.chamber.org.hk
food processing industry could ultimately mean a
vast business opportunity waiting to be tapped.