Overview

  • Mainland China’s beef imports have experienced exceptional growth recently, jumping from 61,300 metric tons (MTs) in 2012 to 579,800 MTs in 2016, and totaling more than 327,000 MTs during the first half of 2017.
  • In June 2017, China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) formally approved US beef imports after a 13-year-long ban.
  • US beef has traditionally been shipped to Hong Kong, but will likely now be diverted to the major import cities of Tianjin and Shanghai where it will compete against supplies from Brazil, Uruguay, and Australia.

Beef. It’s What’s For Dinner

All across the globe, the dinner table has long been a traditional venue for family and friends to come together and bond over a well-prepared meal. This has proven especially true for China and the USA, where the dinner table has served as the diplomatic venue for finding common ground on sensitive political and trade issues. Formal state dinners have been the cornerstone of US-China relations ever since President Richard Nixon’s visit to China in February 1972. During his visit, Nixon toasted China’s Premier Zhou Enlai during a dinner stating that “there has been a wall between the People’s Republic of China and the United States of America” and “we have begun the long process of removing that wall between us.” To ensure a smooth first impression, the Chinese hosts served their American counterparts a culinary medley of duck-based dishes including “Treasures of Duck”, “Roast Duck” and “Duck Bone Soup.” Having practiced off-and-on for months prior to his visit, Nixon skillfully used his chopsticks to the delight and surprise of both his hosts and the American TV audience back home. Nixon, once a fierce anti-Communist who stood for the “silent majority”, had set the tone for peaceful relations with China through his own version of “chopstick diplomacy.”

Following in the footsteps of 1972, in January 2011, President Obama hosted a state dinner for his Chinese counterpart, Hu Jintao. The White House chefs were tasked with delivering the most quintessential All-American meal for the visiting dignitary. At the time, US beef, a staple of American cuisine, was banned in mainland China over concerns from a 2003 detection of mad cow disease (aka bovine spongiform encephalopathy or BSE) in Washington State. A show of culinary diplomacy was on tap as the menu’s main course was “Dry Aged Rib Eye Steak” which was paired with a Cabernet wine from Washington State. Although the dinner was a great success, it failed to persuade the Chinese government to lift its import ban. In September 2015, President Obama hosted a state dinner for Hu Jintao’s successor, Xi Jinping, though this time grilled Colorado lamb, not beef, was on the menu. Beef would not return to the menu until April 2017 when President Trump offered Xi Jinping the democratic choice of “Dover Sole” or “Dry Aged Prime New York Strip Steak” (both paired with Californian wines). This was a far cry from the “double size [sic.] Big Mac” then candidate Trump boasted in 2015 he would serve the Chinese leader. Despite the bombasticity of previous statements, the state dinner was a definitive success. In May 2017, just a month after the dinner, China announced it would finally be lifting its 13-year-long import ban on US beef.

American Beef Sold in China

On June 20, 2017[1], China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) formally announced that US beef could be exported to mainland China. Soon after shipments from meat packing plants in Omaha and elsewhere were on their way to markets in Shanghai and Beijing. The initial list of approved meat packing plants[2] included those based in Nebraska, Iowa, Kansas, Colorado, Texas, and Washington. Interestingly, an approved abattoir in Washington was located just 20 miles from the original BSE detection site that led to the 2003 Chinese ban. In the months that followed additional meat packing plants located in California, Michigan, Illinois, Ohio, and South Dakota were added to the list of approved suppliers. As of September 2017, Omaha was home to the largest number of approved meat plants, while Cargill Meat Solutions (a division of Cargill Inc. which is based in Kansas) operated the most geographically diverse set of approved plants (spread across four states).

Chinese e-commerce platforms such as Womai.com, JD.com, and Yiguo.com were quick to offer a selection of US beef steaks and ribs in Beijing (Womai.com and JD.com) and Shanghai (Yiguo.com). Womai.com, an e-commerce platform owned by China’s agribusiness giant COFCO Group, offered customers US top blade steak (i.e. flatiron steak), rib eye steak, and ribs. At the same time, JD.com, an e-commerce company backed by the Shenzhen-based tech investment company Tencent Holding, sold US rib eye steak and short ribs. As of early October 2017, the rib eye steak was the highest priced item sold on Womai.com and JD.com, with the former selling it at CNY 88 (USD 13.35) per 180 grams while the latter offered just CNY 79 (USD 12.00) per 180 grams.

China’s Evolving Beef Market

Over the past five years, Chinese beef imports have seen rapid expansion thanks in part to rising domestic beef prices. From June 2012 to December 2013, retail beef (leg) prices in China rose from CNY 49.23 (USD 7.49) per kg to CNY 65.77 (USD 10.28) per kg, a 34% increase. The rapid price increase was the end result of a decade’s long slide in China’s cattle and buffalo herd population. From 2000 to 2012, this population decreased an average of 2% annually from 123.5 million heads of cattle to just over 103 million heads of cattle. From 2012 to 2013, the floodgates opened and mainland China’s beef imports skyrocketed 379% from roughly 61,300 MTs to 294,200 MTs. Australia was the largest beneficiary of this jump as it comprised more than half of the mainland’s 2013 imports.

Typically when imports of an agricultural commodity spike in China, the government often steps in to tamp down on those imports in order to ensure that the domestic suppliers are not pushed out of their own market. This is particularly true for strategically important and government-controlled commodities such as corn, sugar, and pork. Beef apparently did not qualify for protection consideration as China’s Deputy Minister of Commerce noted in January 2014[3] that imports were “appropriate” as international beef suppliers have an advantage in comparison to domestic producers. With this green light, mainland beef imports jumped again from approximately 297,900 MTs in 2014 to 579,700 MTs in 2016, a 95% increase. The bulk of 2016’s imports, more than 76% by volume, entered mainland China via the port cities of Tianjin (~81 miles from Beijing) and Shanghai. The remaining share of imports were primarily shipped to the cities of Dalian (7% of all imports), Qingdao (4%), Shenzhen (4%), and Nanjing (3%). Also by 2016, Brazil and Uruguay had supplanted Australia as the top beef supplier for mainland China. In the run-up to Chinese approval of US beef, from January to June 2017, mainland Chinese beef imports totaled 327,000 MTs. This was a strong indicator that mainland import demand for beef had yet to hit its ceiling.

The Hong Kong Connection

Prior to AQSIQ lifting the ban, US beef shipments to the region could only be shipped to the Port of Hong Kong since the SAR’s[4] Centre of Food Safety still permitted imports under their regulations. Under the “one country, two systems” agreement the ban in mainland China did not necessitate an equivalent ban in Hong Kong. As a free port with a world-class logistics network, Hong Kong acts as a transshipment hub for a variety of agricultural goods that are distributed through Southeast Asia and mainland China. Agricultural goods destined for the mainland are either re-exported directly across the border into Guangdong Province (this occurs with durian, grapes, and other fresh fruits), or transshipped to Vietnam first before entering the mainland via a southerly transit route (this occurs with macadamias, pistachios, and other edible nuts). The latter trade route through Vietnam[5] was an important channel if Chinese buyers wanted to obtain US beef. This circuitous route took advantage of January 2010’s ASEAN–China Free Trade Area agreement (Hong Kong was excluded), which allowed Vietnam to re-package and re-export agricultural goods as a “Product of Vietnam” for a nominal fee. In addition to transshipments, smuggling US beef directly into China was a known practice[6]. However, the subterfuge required falsifying shipping documents and occasionally bribing customs officials, making it a high-risk endeavor.

Despite the opaque nature of the trade, US beef shipments to Hong Kong were substantial and often mirrored the beef trade flows of mainland China. From 2012 to 2013, during the same period when China witnessed a sharp uptick in imports, Hong Kong’s imports of US beef rose 136% from approximately 48,800 MTs to 115,300 MTs. The rise was due to a combination of Hong Kong’s February 2013 decision to lift its ban on US bone-in beef, as well as high beef prices in neighboring China. In 2014, Hong Kong imports of US beef peaked at 137,000 MTs, which may have influenced the mainland’s flat import demand for that year given the scope of Hong Kong’s transshipments[7]. From 2015 to 2016, Hong Kong imports progressively declined (dropping to ~98,600 MTs in 2016) while mainland imports increased. In the coming years, it is unknown whether or not Hong Kong imports of US beef will rebound above the 100,000 MT benchmark or continue to fade. In theory, the June 2017 opening of the mainland market to US beef should have a deleterious effect on Hong Kong imports and transshipments. However, Hong Kong and ASEAN FTA negotiations were concluded in September 2017. This could bolster beef imports now that Hong Kong will be on equal footing with ASEAN member states such as Vietnam. Lastly, Hong Kong’s location next to southern China’s beef-deficient Guangdong Province, home to 8% of the Chinese population but only 1% of the country’s beef output, should keep demand steady.

Beef Consumption Outlook

In the lead up to Nixon’s February 1972 visit to the People’s Republic of China, the US’s Central Intelligence Agency published a general information report to inform the visiting diplomatic team on what to expect during their tour. Up to that point, virtually little was known about the country since it had been closed off to the West for more than two decades. Contained within the report were snippets detailing the differences between the Chinese and US diets, in which a section an animal protein (i.e. beef, fish, eggs, etc.) consumption was included. The report noted that only 8% of the Chinese citizen’s average daily caloric intake originated from animal protein, while the equivalent percentage in the USA totaled 35%. It is highly likely that beef comprised a statistically insignificant share of this 8% since the Han people, China’s dominant ethnic group, primarily consumed (and still do) pork and chicken meat instead of beef. Traditionally, beef consumption in China was more popular with the country’s smaller Muslim and Mongolian minority groups due to their cultural dietary norms and relative abundance of grazing land in western (home to the Islamic Hui and Uyghur peoples) and northern (home to the Mongol people) China.

In the 45 years since Nixon’s visit, particularly in the years following the PRC’s embrace of capitalism, beef consumption in the mainland has steadily increased across the country. From 1990 to 2016[8], Chinese beef and veal consumption rose 5-fold from 0.65 kilograms (kg) per capita to 4 kg per capita. The primary driver behind this rise was the country’s staggering economic growth which saw its GDP per capita (current USD) rise by a factor of 25 over the same period. Recently though, China’s declining cattle population and resultant beef price increases have overtaken economic growth as the key factor affecting consumption. From 2012 to 2016, China’s real GDP annual growth rate slowed from 7.86% to 6.7%, while Chinese beef consumption averaged 4% annual growth. This consumption growth was spurred on by rising domestic prices. From June 2012 to December 2016, Chinese domestic beef (leg cuts) prices increased 36% while Australian beef export prices[9] (FAS, to USA) actually declined by 2%. Domestic beef prices will likely remain high going forward due to government mandated ecological reclamation and land restoration projects[10] that will diminish China’s grazing areas for cattle. In the short and medium term, affordable and high quality beef imports will be needed to buoy supply and fuel consumption.

With an ample supply of certified beef and top-notch logistics, the USA is well positioned to become a market leader in mainland China. Brazil, the USA’s primary rival in the mainland, has been embroiled in a food safety scandal since March 2017 when it was discovered that dozens of meat packing companies violated food safety regulations (i.e. masking rotten meat with chemicals, falsifying expiration dates, injecting water in poultry meat), as well as bribing food inspectors and export officials. In the immediate aftermath, mainland China suspended imports, while Hong Kong issued a food recall. Australia, another major beef supplier, also witnessed significant setbacks. The first was nature-made when a drought decimated the country’s cattle grazing areas in Queensland and New South Wales (NSW) from 2013 to 2015. The second, man-made, occurred after Australia’s Foreign Minister criticized China’s South China Sea operations in July 2017. Later that month, China’s AQSIQ banned beef imports from six Australian processing facilities located in Queensland and NSW owing to non-compliant product labeling. If US beef suppliers are to succeed in the mainland, they must be able to take advantage of these high-profile mistakes by their beef selling rivals. Lastly, the US will have to build on Nixon’s chopstick diplomacy and implement an updated “knife and fork” strategy of ensuring food quality while maintaining smooth diplomatic ties. After all, one can’t use chopsticks to cut into a well-prepared steak. With the July 2017 detection of mad cow (BSE) disease in an Alabaman cow[11], China has already had a pro-forma opportunity to reinstitute its ban on US beef. It remains to be seen whether the US will achieve beef supremacy in the mainland or fall back into the shadows of only supplying the Hong Kong market.

[1] AQSIQ, “质检总局关于进口美国牛肉检验检疫要求的公告”; June 2017: http://www.aqsiq.gov.cn/xxgk_13386/jlgg_12538/zjgg/2017/201706/t20170620_491216.htm

[2] Certification and Accreditation Administration (CNCA), “美国肉类生产企业在华注册名单”; September 2017:  http://www.cnca.gov.cn/ywzl/gjgnhz/jkzl/imports-list/meat/America20170926.pdf

[3] China People’s Daily,” 进口牛羊肉在国内消费量中占比5% 补充春节供应“; January 2014: http://politics.people.com.cn/n/2014/0123/c70731-24210266.html

[4] Upon its handover from the United Kingdom to mainland China in 1997, Hong Kong immediately became a Special Administrative Region (SAR), a status designed to ensure business would continue to thrive under China’s new governing policy of “one country, two systems”

[5] Reuters, “’Huge Amounts’ of Beef going to China Despite Ban -U.S. official”; March 2015: http://www.reuters.com/article/beef-exports-transship/huge-amounts-of-beef-going-to-china-despite-ban-u-s-official-idUSL2N0WL2B820150319

[6] In February 2015, China arrested 33 individuals who were illegally smuggling beef (~6,000 MTs) from the US into China. Anti-smuggling authorities based in Dalian, Beijing, Shanghai, Shenzhen and Guangzhou participated the nationwide crackdown.

[7] Out of the 401,200 MTs of frozen beef Hong Kong imported in 2014, roughly 54,000 MTs was re-exported to Vietnam

[8] OECD, “Meat Consumption; 1990 to 2016: https://data.oecd.org/agroutput/meat-consumption.htm

[9] FAO-GIEWS, International Bovine Meat Prices: http://www.fao.org/giews/food-prices/tool/public/#/dataset/international

[10] In July 2017, China announced it would spend CNY 25.5 billion (USD 3.77 billion) to complete the reclamation of 740,000 hectares of farmland to forests.

[11] USDA-APHIS, “USDA Detects a Case of Atypical Bovine Spongiform Encephalopathy in Alabama”; July 2017: https://www.aphis.usda.gov/aphis/newsroom/stakeholder-info/sa_by_date/sa-2017/sa-07/bse-alabama

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