While in our Agricultural Sector more and more voices are saying that China is becoming important, I answer differently. “China is important”, says Oliver Huesmann, CEO of Fruit Consulting Hong Kong and representative of EUROFRESHPRODUCE, an international initiative of European producers for the promotion of our fruit and vegetable products in non-European markets.
The Chinese fresh fruit import market has grown in recent years and continues to grow and develop faster than ever. The next five years will bring changes in the supply and distribution channels. International and national retailers will play more important roles, take more market shares and popularise direct purchases from producers.
Retailers are becoming more influential. “The Chinese fruit import market is traditionally dominated by wholesale markets and their importers, with local stores and greengrocers. At first, foreign retailers such as supermarkets faced fierce competition from local stores and supermarkets. In some areas, foreign supermarkets had no floor space at all. Originally, Chinese retailers were one or two steps behind international standards. They often did not use direct purchase plans and could not buy from foreign producers. Wholesalers have discovered this gap by helping foreign producers in China and supplying local and international retailers.”
Direct reference to grow!
The market situation is beginning to change. Although it is not yet alarming and there is still a lot of market to discover. Profit margins are starting to fall under the influence of a weak yuan and more competition in some regions, such as Shanghai or Guangzhou. As profit margins shrink, retailers increasingly cut out the middle man and start working directly with the producers. This is a trend that we will see more often in the coming years. International retailers will be the first to make this change. These players have greater knowledge of international markets, stronger international networks and are often looking for contact with producers. This means that Spanish producers can become global suppliers that work with importers, wholesalers or retailers, like supermarkets in China or even in all Asian markets; this is my opinion as an expert for Asia-Pacific.
Sales channels reorganise their percentages in the market!
“Domestic Chinese supermarkets are still lagging behind, but they are moving fast. Both local and international supermarkets are backed by the growing demand for imported fruit, which accounts for up to 60% of their total consumption. In China, another type of retailer has developed. These are specialised chain stores that sell quality fruit and vegetables. These Stores, like Pagoda, have become important market players. Both national retailers and chain stores are constantly improving and are able to accept direct purchases from the producer.”
Awareness of demand and the market is the key!
For wholesalers the problem is that they sometimes have large quantities of products abroad that they have to transport quickly. Retailers are better equipped to understand and meet demand and can avoid similar situations. Retailers can control and understand the situation by the day, week, or by product. They are better prepared to plan ahead and make smart purchasing decisions, like in the weeks leading up to the Chinese New Year. In the next five years, I hope that the retailers increase their share in the fruit industry. Walmart, Carrefour and other international players are invading China, investing in refrigeration facilities and opening new branches. They will face greater competition from local supermarkets like Olé and Vanguard, which are improving their game and becoming ever more professional. The wholesale segment will also advance. Smaller wholesalers will have less chance of surviving. Having a national presence in several wholesale markets in the country will be necessary to understand and meet demand and to be able to transport large quantities rapidly. I predict there will be fewer but stronger wholesalers, with key presences in Greater China.”
Foto: Eurofreshproduce promotion Hong Kong
What are the current business opportunities in China?
The lack of confidence in their own food products due to contamination and their great acceptance of European producers, throws the food sector’s doors wide open for us. Rising workers’ salaries in China and the growth of purchasing power are changing the business opportunities in favour of the sale of our products. This market is now a true opportunity, especially for the fruit and vegetable sector.
Although at the moment we only have protocols for plum, peach and citrus, we have a lot of work ahead to be prepared to enter these markets and become an international supplier. In China, everything seems fast and is growing enormously, but only with its internal system and friendships or connections. Making such friendships needs time and investment. The first step for a Spanish producer is to internationalise and adapt their products and ways of working to distant shipments. China is not Barendrecht, Düsseldorf or Paris, which we can reach in 2 or 3 days. China is 30-40 days by ship, in a shorter time by plane with a high cost, but only for premium products.
The second step is to get to know the market and the friendships, which they call Guanxi. Without friendship nothing works in this country with more than 100 cities of over 5 million inhabitants, adding up to around 1.4 billion consumers. The opportunities for Spanish companies are immense: export, direct production in China itself, opening a logistics platform for fresh fruit with refrigerated lorries. We always find a great demand with up to 70% of the market volume. To be able to participate in supplying the 280,000,000 tonnes of fruit imported into China, however, one must be well prepared and have infrastructure, partners and knowledge. The simple “I am looking for a Chinese buyer” does not work and is a sure recipe for failure.
What should we change to improve our access to the Chinese market?
The first thing would be to change our business mentality to a more united one. In China, or rather throughout Asia, we are not competitors and we should become partners or co-players. For example, “even if we sent all European fruit and vegetable production to China, we would only supply a small percentage of the total demand in this country”. But if we all go for the same customers in Shanghai or Guangzhou, we sabotage our own chances of high prices and continuous sales. Remember, there more than 100 cities of over 5 million inhabitants. We do not all need to sell on the Huizhan Wholesale Market.
With a union we would have more weight in calling for results from governments on new agreements and export protocols, or the modification of existing ones so they become more viable, such as for stone fruit. Australia has shown us that the farmers’ union has renegotiated the protocol for stone fruit and, since last January, has been freed of the “Cold Treatment” of 15 days for exporting to China.
How large does a company have to be to be able to export?
In theory, companies of all sizes can gain access. But depending on the product, a minimum volume of between 200,000 and 500,000 kilos of exportable products would be a realistic figure to justify the costs involved. One important fact is that recently it is the producers and farmers who are those most favoured in China, to the detriment of agencies or marketers.
How can we start internationalisation to export to China?
Internationalisation is not just about exporting, and those who think they can start doing good business with just a list of email contacts are wrong. Nothing works like in Europe. The success or failure of the international venture is indeed based on having a valid business model in the country of origin, the assignment of key people, a well-prepared and well-formed organisational structure, an exportable business model, knowledge of the international client, allocation of economic resources, and adaptation to the cultural framework.
That is to say, the process begins precisely with preparation, which is then followed by exporting, but this is not the only objective. The second phase is the introduction of direct commercial offices in the country of sale, and finally the installation of a productive infrastructure in the country where the product is sold well.
Is it difficult to take all these steps?
To become international, you have to be an active visionary, and in this sense the journey is long, but don’t give up just because you find an obstacle in your path.
If we respect an Asian rule that says everything is “Investment – Discipline – Time”, we almost automatically get in with a good footing.
We have to recognise that our experience is based on our work in recent years in the environment of a European market. We still lack knowledge in intercontinental exporting. It can be costly not to master the rules and requirements, such as the Incoterms, exchange risks, container preparation for long trips, or forms of payment, etc.
Particularly at the beginning of an internationalisation, I always recommend joining with knowledgeable professionals who accompany, advise and guide to avoid the mistakes made by having not seen an obstacle or trap due to lack of knowledge, experience, language, etc.
The consultants know the markets and cultures; they have their “Guanxi” network and can teach you where to look and where to be careful to ensure a beneficial project.