China International Alcoholic Drinks Expo
Luzhou 17 March 2017
Australian Trade and Investment Seminar
….It is only 13 months since the CHAFTA entered into force yet it is remarkable to consider where we appear to be heading in a relatively short time.
Let me give you one example in this forum that makes it clear the advantage that we are receiving from the free trade agreement between China and Australia:
- French wine entering China currently attracts a 50% tariff;
- Australian wine entering China now attracts not a 50% tariff, but a 5.3% tariff, and this will be reduced to zero by 2019.
The Australian exports in the first 9 months after CHAFTA started, suggests some dramatic improvements. For example:
- Australian bottled wine exports to China grew by one third to $380m in value. China is now Australia’s biggest market for wine, slightly ahead of the United States. The growth in wine exports has been faster than all other food and beverage exports to China from Australia
- Imports of whole milk and skim milk doubled to $111 million
- Fresh and dried Australian mangoes more than doubled
- Exports of non-frozen Australian lobster and crayfish are up more than 3-fold
- Imports of cherries, fresh cheese and table grapes have more than doubled, and
- Together with strong growth in fresh and chilled beef we are seeing a major response in access to fresh, green and healthy farm produce.
Despite these extremely positive signs there are still very few Australian agricultural brands on the shelves of so many of China’s more than 500,000 supermarkets.
We are also witnessing strong activity across aged care, health, education, tourism and resources and energy. But the fastest growth area is a wide range of agricultural products, with the strongest growth accounted for by wine, food, baby and personal-care products.
In combination with the freer access provided by CHAFTA, much of this improvement is driven by Australia’s image as a clean, green and healthy producer of agricultural produce.
A recent study interviewed 2,000 cross-border shoppers in China, they were 1-6 times more likely to associate Australia with health and nutrition than the US, Germany, Japan and South Korea, and 2.5 times more likely to associate Australia with words related to “natural”.
This presents a huge opportunity to clearly differentiate Australian brands from other cross-border leaders.
In doing so it is crucial to have a brand that has first achieved consumer credibility in Australia; the need for authenticity of product is paramount.
In establishing these Australian brands in the Chinese market there are important roles for C ² C platforms, for the diagous, for the use of existing Australian branding (reinforcing that the product simply wasn’t made for China) and an important role for strong relationships with evolving e-commerce and brick and mortar channels.
This boom in demand, and awareness of healthy Australian products is just beginning and is bolstered by sky rocketing tourist growth (up 170% to 1.3 million a year since 2009), consistent 7 percent growth in Chinese students in Australia to 150,000 this year and the presence now of 1 million people permanently living in Australia who speak Mandarin in their home (this represents 5 percent of our population).
So how do we build on this massive and encouraging trend?
Clearly there is a huge complementarity between Australia and China. China wants reliable food and beverage supplies, and Australia wants reliable food and beverage markets.
There are no doubt many business models that can deliver this outcome, but a number of important elements are common to the most successful, namely:
- the prevalence of joint ventures in the production, in the supply lines, in the sales – combining the strengths of companies from both China and Australia
- the importance of both parties to a joint venture sharing the risk, sharing the profits
- the need to invest serious time and effort in identifying the right partners
- the critical need to involve local knowledge and expertise
- maintaining an on-the-ground presence to understand the culture, to build mutual respect and trust, and to manage a variety of relationships
- to invest continually in new technology
- to position products at the premium end of the market – Australia is a high cost country so need the higher margins associated with the sale of premium products, and
- build strong relationships with distribution partners including distributors, e-commerce and retail chains.
While many of these things are starting to happen, much of it is occurring at the level of mid-tier companies.
Yet, if the truly extraordinary potential in Australia to produce many multiples of the quantities of products we currently produce, we need to see the big companies, from both countries, properly engaged:
- especially combining their strengths in supply chain developments.
- we need to see consolidation of uneconomic farms, with the technology, and with long term contracted sales which justify the necessary investment to put our best young family farmers onto bigger and profitable acreages.
- the introduction of 10 to 15 year sales contracts will provide the essential certainty right along the supply chain to see investment in ever improving technology, to see continuing investment in the expansion and quality of production.
Combining the strengths of both our countries with appropriate technology, can see at least a doubling of the output of nearly all agricultural and aqua cultural goods in Australia, and in many cases, a multiple increase in current output.
Ladies and gentleman, our combined future has many extraordinary opportunities.