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Foodservice fuels China’s demand for cheese imports

Editor’s note: Passport to Cheese is Cheese Market News’ feature series exploring the dairy industries of nations around the world. Each month this series takes an in-depth look at various nations/regions’ dairy industries with coverage of their milk and cheese statistics and key issues affecting them. The nations’ interplay with the United States also is explored. We are pleased to introduce our latest country — China.

By Rena Archwamety

MADISON, Wis. — Cheese may be an unlikely find among traditional Chinese cuisine, but across China, restaurants are adding cheese to the menu as Western-style foods like pizza, burgers and even tacos are gaining popularity among a growing urban, middle-class and young consumer base.

“Consumption of cheese has grown exponentially, and we expect this trend to continue in the foreseeable future,” says Merle McNeil, director of market research and analysis, U.S. Dairy Export Council (USDEC). “Most of the growth is driven by foodservice — pizza cheese, cream cheese, or cheese for making processed slices for use in foodservice.”

Though it is growing, cheese remains a tiny part of people’s diets in China. According to the International Dairy Federation’s World Dairy Situation 2016, total cheese consumption across China is estimated at 75,000 metric tons a year, or 0.1 kilogram per capita. Butter consumption is only slightly more, while milk consumption is much more prevalent at 18.7 kilograms per capita.

Processed cheese slices by far are the most consumed type of cheese in China, followed by the categories “other non-specified” and “processed cheese other” according to USDEC data. USDEC projects consumption of most cheese types, especially processed cheese slices, to grow through 2020.

“Growth is driven mainly by economic growth and the westernization of Chinese diets,” McNeil says. “However, the Chinese are still eating Chinese food. They still maintain mostly a Chinese diet, but if a small proportion of people start eating Western foods, it makes a big difference.”

• Cheese production

According to USDEC’s 2015 estimates, China produces about 25,000 metric tons of cheese a year, and most of this is processed cheese slices for foodservice as well as other processed cheeses. There are four cheese processing companies in China that make most of the processed cheese. USDEC projects that by 2020, there will be about 37,000 metric tons of cheese production in China.

Bongrain (Tianjin) Foods Co. Ltd. is the leading cheese company in China with a 25 percent value share and the largest increase in value sales in 2016, according to a September 2016 Euromonitor report, Cheese in China. This company was established in Tianjin, China, in 1997 by France Bongrain Group (now Savencia) as the first manufacturer of European and American cheese in China at the time. Currently, Bongrain (Tianjin) Foods Co. Ltd. has more than a dozen lines with more than 50 varieties, sold mainly under its popular Milkana brand.

Milkana products are sold both to consumers at retail and to domestic food companies.

Bongrain has maintained its leading position through effective promotional campaigns, helping to establish stronger recognition among Chinese consumers and drawing attention to the wide variety of products it offers, Euromonitor says. The report notes that another Chinese cheese manufacturer, Milkland (Tinajin) Foods Co. Ltd., also saw an increase in value sales in 2016, especially in Mozzarella.

Euromonitor says robust volume and value growth for cheese in China can be attributed to an initially small consumer base and the developing habit of consuming cheese, especially among the youngest consumers.

“Cheese is perceived to contain more protein and calcium than drinking milk, thus more and more Chinese, especially younger parents, are tending to be more open to cheese consumption than their own parents’ generation,” Euromonitor reports. “According to trade sources, cheese is being added to school lunch menus in many primary schools in Shanghai.

In addition, the popularity of cheesecake is growing among younger consumers, with many young women starting to make cheesecake themselves, boosting the consumption of cheese.”

• Import opportunity

China’s cheese imports represent about a third of the country’s total market requirements, according to a 2015 Hoogwegt report.

“Leading Chinese dairy companies have large stakes in the processed cheese market, but there is little or no local natural cheese production,” Hoogwegt says, adding that industry estimates suggest that domestic production of processed cheese has not kept pace with cheese market growth. “The cheese consumption mix in China is also dominated by processed cheeses, which are more suited to the local palate. Chinese consumers, in general, do not favor the strong tastes and scents of many natural cheese varieties. Furthermore, processed cheese is easier to handle when used in hamburger and pizza preparation.”

McNeil notes that China’s cheese imports are growing faster than USDEC’s current projections.

A Cheese Database USDEC compiled in 2015 projected all cheese imports to China would reach 95,000 metric tons by 2020, but this number now looks to have been reached in 2016.

The compound annual growth rate (CAGR) of cheese imports since 2010 was 27 percent, McNeil says.

“If imports continued at this 27-percent CAGR, it could reach 250,000 metric tons in 2020,” McNeil notes. “But with supply and access limitations we are taking a more conservative approach estimating imported volumes of between 150,000 metric tons to 200,000 metric tons in 2020.”

The top types of cheese imported in China include Pizza Mozzarella, regular cream cheese, Cheddar for processing and processed cream cheese, according to USDEC’s 2015 Cheese Database.

Cream cheese and pizza cheese (grated Mozzarella) are the main types of cheese the United States exports to China, though U.S. cheese exports are relatively small compared to other dairy exports. According to USDEC, total U.S. dairy exports to China in 2016 are estimated to be about 230,000 metric tons. In 2015, whey products represented 77 percent of all U.S. dairy exported to China, while milk powders represented 16 percent. Cheese represented 6 percent.

People in China’s trade industry view U.S. cheese products favorably, especially cream cheese and pizza cheese, McNeil says, though consumers are not as familiar with U.S. cheese since they consume it mostly through foodservice and not retail.

“We’ve conducted numerous trade missions and one-on-one meetings between suppliers and distributors, processors, foodservice and retail industries,” she says. “We participate in numerous trade shows every year. A lot of this business is well-established — our industry knows the key players.”

One challenge to exporting cheese and other dairy products to China is tight competition — especially against Australia and New Zealand. New Zealand’s Fonterra, for example, boasts that more than half of all pizzas in China are topped with Fonterra cheese, and it is in the process of developing its own farming hub in China that will eventually milk about 15,000 cows a year. China imports the most cheese from New Zealand (US$161.7 million worth in 2015), followed by Australia (US$64.8 million) and the United States (US$53.4 million).

“(U.S. dairy imports) often feed into the domestic dairy industry as ingredients which is a highly competitive market, so you will see from the numbers that we are the No. 3 import market for China but lag far behind New Zealand and Australia in terms of volumes,” McNeil says, adding that another key challenge is a duty disadvantage vs. New Zealand and Australia.

“We do not have a trade agreement with China,” she says, adding that the United States pays a 12 percent duty on cheese exported to China. “New Zealand cheese enters China duty free, and Australia currently pays 10.8 percent which will eventually go down to 0 percent.”

• Partners in dairy

While the United States does not have a trade partnership with China, there are plenty of business partnerships on a smaller scale. Among these, the U.S. dairy industry has formed a partnership with Yum! Brands to help bring more dairy into its restaurants in China as well as other international locations. (See “Dairy checkoff partners with Yum! to grow sales overseas” in the Nov. 4, 2016, issue of Cheese Market News.) Initially, the dairy checkoff is working to grow U.S. dairy sales by co-leading a pilot program with Pizza Hut to reach customers in the Asia Pacific, where the company sources 100 percent of its String cheese used in stuffed crust pizzas from the United States.

Yum! Brands also was in the news earlier this year when it announced the opening of its first Taco Bell restaurant in China, which will include a number of items with cheese and cheese sauces. The menu will feature the brand’s favorites adapted to local tastes, such as the Shrimp and Avocado Burrito. The Crunchy Taco Supreme will be loaded with Taco Bell’s signature Nacho Cheese Sauce, and the Volcano Chicken Burrito will feature spicy Sriracha sauce.

All this will serve to further fuel the demand for cheese, according to market research firms.

“The increasing penetration of Western foodservice outlets, such as McDonald’s and Pizza Hut, provides the opportunity for Chinese people to taste cheese, and many have developed a taste for it,” Euromonitor says.

Hoogwegt also notes that while the fluctuation in milk powder demand from China has been well-chronicled over the past years, the steady build in cheese imports has gone relatively unnoticed. The report adds that Yum! Brands is growing its current network of restaurants in China by 700-800 per year; McDonalds and Subway plan to add several hundred stores per year combined; and the large Chinese fast-food chains that offer cheese-friendly options also are planning future growth.

“The steady expansion of fast-food restaurants across China will continue to create growing demand for processed cheese product,” Hoogwegt reports. “Eventually Chinese palates will also develop, increasing demand for natural cheeses. This will ensure an even greater reach for cheese products across all market channels over the next decade.”

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