From wet market to supermarket

China’s sprawling “wet” markets dominate the sales of fresh produce – but they are not where the opportunity for primary producers lay. Growing wealth is sending Chinese shoppers to supermarkets. Packaging, distribution and marketing are critical challenges if Australian and New Zealand companies want to grow their role in “feeding the dragon”. As a China-Australia Free Trade Agreement becomes more likely, new strategies are required.

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Wander around any sizeable Chinese city and you’ll stumble upon a “wet” market. Large, rambling produce halls where the locals buy their fresh produce – including meat and seafood. They’re fascinating places, frantic, noisy, colourful, a wonderful tourist destination.

They are also where two thirds of the pork, three quarters of the poultry, beef and mutton and four fifths of the seafood consumed by the Chinese is purchased. China’s “wet” market is massive and growing in volume terms as Chinese citizens become more affluent and eat more protein.

But more familiar markets – to outside eyes at least – are growing even faster: super and “hyper”-markets. As China modernises, pork sold in wet markets will drop from 67 per cent in 2010 to 40 per cent of the total market by 2020, beef from 76 to 31 and mutton from 75 to 32 per cent. Seafood and poultry wet market share will also fall significantly, according to forecasts in ANZ’s Feeding The Dragon report into the modernisation of China’s food industry.

The shift will be to those more “modern” emporia, so-called “organised retail”, the generic term for supermarkets and similar merchants. Pork sold from these merchants will grow from 17 per cent in 2010 to 38 per cent in 2020. Poultry from eight to 33 per cent. And for beef, seafood and mutton the shift is even more dramatic: from two to 40 per cent for beef, four to 38 per cent for seafood and five for 43 per cent for mutton.

These are profound shifts. Not just in the daily habits of Chinese but for the way Australian and New Zealand primary producers and supply chain specialists need to think about the Chinese market. It will require a radically different mindset for the agricultural sector in general.

At wet markets, while there may be individual relationships with store holders, the product is relatively undifferentiated. The cuts sold are different. On the supermarket shelf packaging and marketing become far more critical. A carcass needs to be broken down differently to showcase the produce. The brand is paramount.

Increasingly the Chinese consumer will be looking at presentation and brand as a mark of not just quality but food safety and status. China’s wealthiest households spend as much as five times more on dairy and seafood products than those in the lowest income levels. For Australia, its higher cost base and reputation for quality and food safety clearly point in the direction of premium branded, higher margin product.

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*Sources: ANZ, Nielsen Shopper Trends

The opportunity for the Australian industry however extends back from a well packaged, enticing array of Australian lamb racks on the meat shelf. Distribution channels and supply chains are crucial if sustainable sales to an affluent market are to be achieved.

Outside of China’s major metro areas, the cold chain distribution is still unreliable and it is estimated just 15 per cent of food, meat and vegetables in China are transported via the cold chain, compared with 90 per cent in more developed countries.  The ongoing development of China’s cold chain logistics will effectively reduce food wastage during transportation and improve food safety.

The resulting impact on consumption patterns is staggering, particularly for inland cities, where consumers will be able to access all types of new products that require refrigeration.

Moreover, the total growth in food distribution, including wet markets, organised retail, fast food chains and hotels, restaurants and catering represent such a shift in the nature and quantities in the industry that it will require far more resource intensive production in terms of land and water, which also suits Australia (despite the recent droughts in major productive areas) and New Zealand.

With just seven per cent of the world’s fresh water and 10 per cent of the agricultural land but nearly 20 per cent of the world’s population, China has some challenging policy decisions to make on self-sufficiency and food security. Australia and New Zealand are very well placed – but so too are nations like Brazil and Argentina.

The work to be done in Australia is not so much inside the farm gate, our product is often world class. The challenge is managing the packaging, the marketing, the distribution. It may mean more joint ventures with Chinese partners to ease market access challenges. It will certainly mean understanding how the emerging Chinese consumer responds to the presentation of the product and the brand. That requires intimate knowledge of the intricacies of specific markets and their supply chains – and there are many in China.

Read the report: Feeding the Dragon: The Modernisation of China's Food Industry

Tania Motton is ANZ's General Manager, Regional Business Banking, including Regional and Small Business Banking and Esanda. She brings more than 20 years experience in financial services, natural resources and consulting to the role.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.