food & agribusiness research and advisory (far) group china … · 2019. 1. 14. · china food...

RaboResearchFood & Agribusiness

China Food & Agribusiness Monthly

Outlook 2019

2China Food & Agribusiness Monthly January 2019

Economic outlook: stably unstable

Michael Every, Head of Financial Markets Research,

Asia-Pacific

Our 2018 economic outlook was titled: “The party is over – time for the hangover”. I believe most readers would accept this was a fair

assessment of what came to transpire over the course of the year. For 2019, all the same challenges await, with little sign of how they can be

resolved. Across a broad spectrum of indicators, the Chinese economy is experiencing slower growth: in fact it is hard to point to any data

series as being either positive, or holding out prospects for being positive. Although the government has repeatedly stressed it is aiming for

stable growth, employment, prices, markets, and exchange rate, it is extremely hard to see how these can all be achieved. Indeed, two key

questions loom.

First, will there be a major stimulus package again to prop up growth? Obviously, a major fiscal or lending boost would be a short-term

positive. In fact, many are expecting this to occur at some point. However, that will also ensure that China’s debt problems get exponentially

worse without doing anything to improve underlying poor returns on capital, which is a structural and not a cyclical issue that requires deep-

seated reforms to tackle. Moreover, it is not widely recognised that China’s ability to press ahead with large-scale stimulus is directly limited

by its deteriorating external position and capital-constrained banks. With the current account surplus moving towards a deficit, even before

any trade war impact is felt, and with the PBOC required to backstop Chinese banks directly if they want to lend far more given limits to their

deposit base, any stimulus will lead to a rapid weakening in the Chinese currency as well as short-term higher growth. In short, something

will have to be ‘unstable’ in 2019.

Of course, the second question revolves around the ongoing US-China trade war, which may or may not eventually result in a deal that may

or may not hold. It runs the risk of disrupting Chinese exports significantly in 2019, which will only exacerbate the above-mentioned

pressures. In fact, US tariff action to date is already encouraging a shift in investment out of China and into ASEAN and India, something that

further reduces the Chinese economy’s long-run growth potential. Should we continue to see a broader deterioration in US-China ties, the

outlook will only darken further.


The F&A sector in China will continue to be volatile in 2019. Urbanisation and rural upgrading are still providing a base for growth in the service sector and increasing

food spend. But the F&A sector is facing a slowing economy beset with uncertainties and headwinds, including US-China trade negotiations, tightening consumer

wallets, weak financial and real estate markets, and manufacturing slowdown. The sector is also confronted with potential disruptions from diseases, and ongoing

structural changes as a result of industry consolidation, environmental policies, and rapidly changing consumer trends. Value upgrading is happening in many sectors,

leading to changes in products and business portfolios. Domestic enterprises, especially e-commerce giants and their ecosystems, are beginning to dominate, adding

value and becoming a platform of services and products. There is scope for foreign businesses in China but speed, consumer intelligence, smart alliances, as well as

identifying core appeal and adapting products will be increasingly important.

These are the key trends across the F&A sectors:

• US-China trade relations and the outcome of negotiations remain the biggest millstone around the neck of many industries, influencing prices, supply chains, and

global trade flows. Even with a trade détente, China will seek alternate supplies or use this episode to upgrade domestic operations.

• Production or supply-side reform and upgrading is ongoing in grain- and livestock-farming, either due to policies or a natural progression. Productivity and yield

improvement are the key focus points, and size is increasing as farms and industries consolidate.

• Environmental protection and sustainability efforts will continue. These are mainly state-led, as consumers are aware but not willing to pay for it yet.

• Digitisation and automation march on, not just in the already impressive e-commerce area but also in production, operation, distribution, logistics and consumer-

facing channels. Unmanned convenience stores and robot-baked bread are still in an experimenal phase, but big data collection and usage are more and more

becoming an operational reality. China is probably still the only place in the world where you can go out for a full day of shopping and eating using only your phone

and no wallet.

• Businesses are gearing up to offer more than a single product and change into a platform of services and products both at the production and consumer level. This

better captures value in a price-sensitive market and allows for conglomerate-building.

• China’s massive consumer base is becoming more picky and sensitive to trends, such as health and wellness. The ability of companies to keep track of social media

and use it to influence consumers will separate the winners from the losers.

• Aging and weaker-than-expected population growth, despite measures like the relaxation of the one-child policy, are weighing on longer-term sentiment, even

though there are huge opportunities to serve the silver generation as well as younger consumers.

China F&A outlook 2019: navigating the slowdown and industry changes


Sector Summary

Farm Inputs

Consumer foods

• Overall retail growth for packaged food is expected to slow down slightly, but value growth at 6% to 7% in 2019 is still a healthy outlook compared to other non-food categories.

• Total accumulated retail sales of consumer goods registered 9.0% value growth in November, but continue to show a slower growth trend compared to early 2018. Rabobank’s outlook for 2019 is a continued slow-down and a varied retailer performance, with poor performers facing the challenge of net profit loss.

Pork

Poultry

Beverages

Grains & Oilseeds

Dairy

• In 2019, the biggest swing factor will remain the trade dispute with the US. The 90-day ceasefire will end in February. Given the negative margins, Chinese commercial crushers have no incentive to buy US soybeans, unless the 25% punitive tariffs are removed.

• Rabobank expects China’s corn inventories to further drop in the coming years. Policy reforms to boost domestic corn production and increase feed grain imports are required within three years to achieve rebalance and keep the stocks-to-use ratio at a safe level.

• African swine fever (ASF) continues to spread in China, despite various measures taken by the government. The government has adjusted policies to allow some degree of transportation of sows, live hogs, and pork meat. High inventories of frozen meat combined with weak consumption have resulted in low prices. Yet we expect a big supply shortage after Q1 2019 and soaring prices later in the year.

• The poultry market continues its strong performance due to the substitution effect when pork consumption dropped, though prices have softened in December. Grandparent stock imports have increased substantially in the last quarter of 2018, leading to a higher breeding-herd inventory by the year end. So poultry production will likely increase in 2019.

• Consumption diversification, technology adoption, health awareness, and sustainability will continue to shape the soft-drinks industry in 2019.

• Imported alcohol brands, especially in beer and wine, will continue to gain traction and market share in 2019.

• November 2018 imports and January 2019 utilisation of lower tariff-rate quotas on bulk powder from New Zealand grew significantly YOY, in line with Rabobank expectations. Rising feed costs will create downside for milk production in 2019. Rabobank forecasts demand growth to be resilient in 2019, but not without uncertainties. A double-digit import growth rate largely reflects a timing difference in the arrival of imports at the turn of 2018/2019.

• Fertiliser and agrochemical markets showed fluctuations due to unbalanced supply and demand in December 2018. Rabobank expects prices tostay high, supported by the upcoming second round of environmental protection inspections and increasing export demand.

• Slack downstream demand is still the bottleneck for the fertiliser and agrochemical industry. Product- and business-model upgrading will be highest on the agenda.


Fertilisers: Prices will remain high driven by policy support

Source: China Fertilizer Weekly, Rabobank 2018

Source: CRU, Rabobank 2018

China’s urea and DAP export price, Jan 2014-Nov 2018

Source: China Fertilizer Weekly, CRU, Rabobank 2018

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China’s urea and DAP export volume and YOY growth, Jun 2015-Oct 2018Market outlook• The CFCI reached 2282.05 at the end of 2018, up 4.6% YOY. The index is 1.9%

lower than last month due to slack downstream demand.

• From January to November 2018, the total export volume is 22.8m tonnes, down 1.5% YOY. The urea export volume is 1.8m tonnes, down 55.0% YOY, and the DAP export volume is 7.1m tonnes, up 18.7% YOY. The compound fertiliser export volume is 341,100 tonnes, up 731.3 % YOY. The government announced that the export tariff on fertilisers will be abolished as of 1 January 2019, which is good news for compound fertiliser and potash markets. The elimination of export tariffs on potash will enhance the international competitiveness of domestic SOP and drive up MOP prices. However, it is bound to affect the potash contract negotiations, making these more difficult and driving up prices. Compound fertiliser exports will be further promoted in 2019 driven by the cost decrease resulting from the elimination of tariffs. On the other hand, the increase of compound fertiliser exports and demand will indirectly benefit the urea market.

• The domestic urea market saw a fluctuation at the end of 2018. The overall utilisation rate is about 50%. The state reserve buying another 4.2m tonnes for winter storage is good news. Urea prices in some main areas have stopped falling and rebounded. But the downstream demand has not fully materialised and compound fertiliser manufacturers maintain low utilisation rates. Rabobank expects urea prices to remain stable in the coming months.

What to watch

• Utilisation rate• Raw material supply• Downstream demand• Overseas demand


Source: National Bureau of Statistics of China, Rabobank 2018

Source: China Crop Protection Industry Association, Rabobank 2018

Nov 2018 MOM (%) YOY (%)

Fungicide 126.00 0.12 15.83

Insecticide 129.90 0.36 11.96

Herbicide 89.97 1.09 5.31

China’s agrochemical production volume, Oct 2015-Nov 2018

China Agrochemical Price Index (CAPI), Feb 2013-Nov 2018

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What to watch

• Raw material prices• Environmental policy• Domestic downstream demand• Overseas demand

Market outlook• In the first three quarters of 2018, active ingredient (AI) production volume

showed a downward trend. In November, the AI production volume was 201,000 tonnes, down 26.6% YOY. From January to November 2018, total AI production was 2.3m tonnes, down 32.9% YOY. In the same period, the export volume was 1.2m tonnes, down 7% YOY.

• Affected by weak downstream demand, the agrochemical price fluctuated. The CAPI was 105.53 in November, up 0.66% MOM and 9.0% YOY. However, the market prices slipped slight at the end of 2018 due to slack demand and manufacturers cutting prices to improve cash flow. Going into 2019, policy pressure is still severe, making it more difficult to resume production and alleviate tension regarding tight supply. AI prices will remain high with the rising cost of raw materials. But the low agricultural product prices will intensify the bearish downstream demand. The market is expected to go into a stalemate.

• With tightening policy, increasing pressure on environmental protection, and intensifying competition, the agrochemical industry is entering a critical period of transformation, from high-speed development to high-quality development. We are more likely to see transformation, upgrading, M&A and reorganization. The market has shifted from providing simple products to providing value-added services for farmers to enhance core competitiveness, which has become an important growth point for agrochemical enterprises.

Agrochemicals: Unbalanced supply and demand leads to market uncertainty

Source: China Crop Protection Industry Association, Rabobank 2018


Source: China National Grains and Oils Information Center 2019

Source: Rabobank 2018

Supply and demand balance sheet, 2015/16-2018/19f

Thousand tonnes 2016/17 2017/18e 2018/19f

Production 222,000 206,000 203,000Import 2,460 2,800 5,000Total supply 224,460 208,800 206,000

Food & wastage 15,600 15,500 15,500Feed 155,600 172,500 175,000Industry 62,200 66,000 69,000Seed 1,500 1,480 1,490Domestic consumption 234,900 255,480 262,990Export 30 30 30Total consumption 234,930 255,510 263,020

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China’s historical domestic and imported corn prices, Jan 2013-Dec 2018

Corn: Risk of inventory depletion calls for policy reforms

• Coming into January, Chinese corn farmers usually speed up the sales because they have a need for liquidity for the upcoming spring festival. However, the pace of sales is lagging a bit lagging this year. More farmers are hoarding for higher prices, as they expect another deficit year for Chinese corn. Rabobank projects that 2018/19 domestic consumption will exceed production by around 50m tonnes.

• China’s corn ending inventories have declined by over 20% since the state stockpiling programme was abolished in 2016. It is projected that state reserves will further drop in 2019, while commercial stock, held by traders and processors, will be relatively stable. In the near term, the Chinese government should consider policy reforms to increase supply promptly and effectively, either through boosting domestic corn production or increasing feed grain imports. Otherwise, China’s corn will run the risk of inventory depletion (see our recent RaboResearchreport Chinese Corn’s Crossroads).

• Ongoing US-China trade negotiations could have a large effect on domestic feed corn usage. If both parties are able to reach an agreement, China may promise to import large quantities of US feed grains, including but not limited to corn, sorghum, and DDGS. Larger imports will substitute domestic corn in feed rations. Moreover, as the ASF epidemic could linger for multiple years, the reduction in hog inventories is set to restrict feed grain consumption.

• Growth of industry corn usage is projected to ease in 2019. Rising corn prices will not only depress local consumption but also jeopardise the competitiveness in export markets. 22m tonnes of new wet-milling capacities will come online, adding to existing overcapacity. Besides, corn processors are less likely to receive subsidies this year. Industry margins will trend lower in 2019.

What to watch

• Pace of sales of 2018 new crop corn • Ongoing US-China trade negotiations

Market outlook

https://research.rabobank.com/far/en/sectors/grains-oilseeds/chinese-corn-crossroads.html?utm_source=%20%20&utm_medium=Email&utm_region=&utm_sector=


Source: China National Grains and Oils Information Center 2019

Source: Rabobank 2018

Supply-and-demand balance sheet, 2015/16-2018/19f

Thousand tonnes 2016/17 2017/18e 2018/19f

Production 12,200 15,500 16,100Import 93,500 94,000 90,000Total supply 105,700 109,500 106,100

Seed 580 620 630Food & industry 14,900 16,530 17,320Crushing 88,000 90,000 89,000Domestic consumption 103,480 107,150 106,950Export 150 150 150Total consumption 103,630 107,300 107,100

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China’s historical soybean complex prices, Jan 2013-Dec 2018

Soybeans: China is buying US beans again during trade truce period

• The US and China reached a 90-day tariff ceasefire until the end of February, meant to de-escalate trade tensions. As part of the concessions, China started to purchase US soybeans for the first time since the trade war started. State-owned firms reportedly booked around 5m tonnes of US beans to date, most of which will be shipped from the Pacific Northwest from January to March. It is expected that the beans were purchased to replenish state reserve on behalf of the Chinese government. As the 25% tariff remains in place, the gross margin to import US soybeans for crushing are negative CNY 700/tonnes. Chinese commercial crushers will not have incentive to buy US soybeans until the punitive tariff is abolished.

• As of 1 January 2019, the Chinese government removed the import tariffs on alternative meals used in animal feed, which include rapeseed meal, cotton meal, sunflower meal and palm meal. There is still a chance that the parties will not reach an agreement and a full-blown trade war commences after the 90-day period. Facing potential supply shortages of soymeal to feed its livestock, China plans to import more alternative meals as a substitute, such as sunflower meal from Ukraine and rapeseed meal from India.

• Ongoing outbreaks of ASF are expected to have a profound impact on China’s feed- and livestock-farming industry in the medium term. In 2019, declining hog inventories are expected to limit feed consumption, and thus the usage of soymeal. Meanwhile, the ASF epidemic will speed up industry consolidation and force small-scale farms to exit, increasing the penetration of commercial feed.

• Chinese traders are busy stocking up on consumer packages of edible oil for the upcoming spring festival. Soy oil inventories have started to drop, which helps to stabilise prices. Meanwhile, the global palm oil price is experiencing a rebound on concerns of El Niño, India’s tariff reduction, and lower palm production due to seasonal factors. As a substitute, soy oil prices will get extra support.

Market outlook

What to watch

• Progress of trade talks between the US and China• Weather conditions in South America


• At the end of 2018, we’ve seen over 100 reported cases of African swine fever (ASF) in China. The disease seems to be spreading faster instead of slowing down, despite various government measures. With more cases reported in more provinces, live hog transportation continues to be banned in most regions. On 27 December 2018, the government adjusted policies to tackle the problems caused by transportation restrictions. The key changes: (1) sows and piglets are now allowed to be transported across province lines if they are not from affected regions, (2) restrictions on neighbouring provinces have been partially removed, and (3) restrictions on pork products not from affected regions have been removed. These policies have played a vital role in shaping the market situation of the past months, and these changes will be equally important in months to come. If the policy changes are implemented properly, farming capacity of large-sized companies in the north may survive unscathed.

• With the Spring Festival approaching – the year’s peak pork-demand period –prices have been weak. Rabobank believes this to be largely driven by high inventories of pork meat and declining consumption. Pork meat storage will likely drive prices down further in the coming months. However, due to the culling and herd liquidation in 2018, Rabobank expects pork supply to tighten after Q1 and pork prices to soar after that.

• Pork imports will increase in 2019, but to what extent will depend on changes in both production and consumption. We expect that 2019 China imports may reach 2016 levels. In the first eleven months of 2018, pork meat imports reached 1.09m tonnes, down 0.7% YOY. Pork offal imports in the first ten months of 2018 were 0.82m tonnes, down 20%. This means that imports may increase by 50% in 2019.

Pork: African swine fever will be a game-changer for 2019

Source: Chinese Ministry of Agriculture, Rabobank 2018

Source: Chinese Customs, Rabobank 2018

China’s monthly pork imports, Jan 2013-Oct 2018

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• ASF spreading in the coming months• Consumer response to ASF

Market outlook China’s hog, pork, and piglet prices, Jan 2011-Dec 2018


Poultry: Prices are softening in the run-up to Spring Festival but demand remains strong in 2019

Source: Chinese Ministry of Agriculture, Rabobank 2018

Source: Boyar, Rabobank 2018

China’s monthly imports of breeding stock, Jan 2010-Nov 2018

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What to watch

• US-China trade talks• Results of anti-dumping investigation into Brazilian poultry

• China’s white-feathered broiler prices dropped from the record high in December, but remains in the range of historically high levels. The day-old-chick (DOC) price dropped to CNY 5.5 per bird in the last two weeks of December, reflecting a normal seasonal pattern as farmers usually stop farming for the Spring Festival. But this also indicates that farmers are hesitant to pay such a high price to avoid market risks. The prices of some poultry cuts, particularly related to group dining, have softened somewhat, but are still stronger than in previous months. Aside from white-feathered broilers, other poultry species have also benefited from the ASF situation.

• Grandparent (GP) stock imports turned out strong in 2018. Imports increased substantially after September, making total 2018 imports likely to reach 700,000 sets. The total new stock, including domestically produced GP stock, was around 900,000 sets, up strongly by 35% YOY. The fact that the new stock mainly came in 2H 2018 suggests that white-bird production will increase in 2H 2019.

• Poultry imports in the first eleven months of 2018 increased by 12% YOY, to 458,000 tonnes. China granted Russia and Ukraine market access, following Thailand and Poland in 2018. The results of anti-dumping investigations into Brazilian poultry will come out in February 2019. But what really matters for China poultry imports is the trade talks between the US and China. If China allows US poultry imports, the international poultry trade flow will change accordingly. The US used to be the largest poultry supplier and the largest GP provider to China prior to the 2015 ban. A US return will impact the position of Brazilian poultry in China’s imports, and then impact the trade flow from Brazil to other countries.

Market outlook China’s monthly live-bird/DOC prices, Jan 2010-Dec 2018


Dairy: Import growth in 2019 will move into double digits, but uncertainties abound

Source: China Customs, Ministry of Agriculture, USDA, Rabobank 2019

Source: Ministry of Agriculture, Rabobank 2019Note: Production data have yet to be adjusted in line with the latest round of downward revisions by China Statistics Bureau

China monthly milk production trend, Jan 2015 – Nov 2018

• Average farmgate milk prices closed 2018 at a four-year high of CNY 3.60, only 6.8% above the low seen in Q3 2018. Regardless, this has brought the average 2018 milk price down 0.5% YOY.

• The milk production index by the Ministry of Agriculture saw a 4% YOY production increase in November 2018. This has resulted in a 2.4% YOY production growth between January and November 2018, slightly ahead of expectations. We forecast a 1% production growth in 2019, but with rising prices of corn, corn silage, and other feed prices (US alfalfa for example), an absence of a sustained milk price increase should impart downside on production in 2019.

• We forecast a resilient (LME) consumption growth of 1.5% YOY in 2019. Demand growth in 2019 is uncertain due to the potential slowdown in the general economy.

• We have lifted our import growth forecast in 2019 to 11% YOY while revising down estimated import growth in 2018 to 8% YOY. This largely reflects a timing difference in the arrival of imports at the turn of the year. As discussed during the past six months, low inventory levels in China required more significant imports in Q4 2018, but some of the increased imports moved into January 2019, as importers are taking advantage of lower-tariff rate quotas on products from New Zealand. Indeed, the import situation has played out as expected, with November bulk-powder imports growing 43% YOY. In the meantime, bulk-powder import volumes from New Zealand going through customs grew by 38% YOY when the quotas on this category were filled as early as 2 January 2019.

Market outlook

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China milk powder import (WMP & SMP, RHS)Estimated cost of landed WMP import cost (C&F, cum-tariff & VAT) (LHS)Estimated cost of making WMP in China with average raw milk (LHS)Estimated cost of making WMP in China from corporate farm milk (LHS)

What to watch

• Signs of renewed interest in farm investment• Disruptions to end-demand, amendments to national product standards

for UHT milk (which may impact WMP imports)• Supply-side disruptions (weather, animal diseases)

China WMP import parity analysis, January 2008 - December 2018


Source: Globaldata 2019, Rabobank 2019

Beverage sectors retail sales volume growth, Q3 2014 – Q4 2019f

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Beverages: Diversification, raw material prices, big data, and taxes will influence soft drinks in 2019

China soft-drink retail sales volume and growth, Q3 2014 – Q4 2019f

Source: Globaldata 2019, Rabobank 2019

• We expect soft drinks to maintain a stable and healthy volume growth in 2019. Four key factors will impact the soft-drink industry in 2019:1) Consumption diversification will remain a major trend. Further product

segmentation and a increasing variety of sales channels will spur this development. The next move for major players is to further enrich their product portfolio and develop new business, like Coca-Cola’s engagement in the coffee segment and Nestlé setting its sights on dietary supplement drinks.

2) The price of most raw materials, like sugar, cardboard, PET, and aluminium, has decreased since 2H 2018 and we expect it to stabilise or decline even further, which would be favourable for soft-drink players in 2019.

3) Supported by big data technology, precision marketing will allow beverage companies to allocate advertisement resources more efficiently, improving operating margins.

4) Given comparatively weak demand, the Chinese government did not impose sugar taxes and plastic taxes on both manufacturing and retail in the short term. However, consumers are growing more health aware and conscious of the environment, and are willing to pay more for healthy and sustainable products, which will become more common. Manufacturers are more likely to drive investment in this segment by adjusting their product portfolio, adopting environmentally-friendly packaging materials, and cooperate with stakeholders along the supply chain.

Market outlook

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60%

80%

100%

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

Q4

2015

Q1

2016

Q2

2016

Q3

2016

Q4

2016

Q1

2017

Q2

2017

Q3

2017

Q4

2017

Q1

2018

Q2

2018

Q3

2018

Q4

2018

Q1

2019

f

Q2

2019

f

Q3

2019

f

Q4

2019

f

grow

th

Enhanced Water Energy Drinks Carbonates Bottled Water

What to watch

• Offshore M&A opportunities • More investments in dietary and supplement industries • Increasing costs in R&D


Beverages: Imported alcoholic beverage brands are gaining ground

• Beer – We reckon that Chinese beer production volumes will continue to decline, given the leading breweries’ ongoing production optimisation by divesting overcapacity and improving the proportion of mid-to-high-end products. Imported beer and craft beer are key drivers, as the expanding young and middle-class consumer segments are demanding more premium product offerings. That also implies that the M&A in China’s beer industry will remain vibrant in 2019.

• Spirits – Baijiu will continue to dominate Chinese spirits in 2019. Meanwhile, we expect that premium western spirits will gain from China’s growing middle class, who will become increasingly sophisticated and globally oriented in the coming years. Major distilleries, including Diageo, LVMH, Penrod, and Rémy Cointreau will benefit from the premiumisation trend and also step up investment in this market, especially in travel-retail and duty-free shops.

• Wine – The Chinese wine sector will see steady and continuous growth in 2019, underpinned by consumption shifting from gifting and business occasions to personal use. Imported wine will gain more share in 2019, on the back of a continuous shift towards online wine-purchasing which gives consumers easy access to imported wines. Among importing countries, EU wineries could face intensifying competition from wine countries with favorable customs duties due to FTAs, such as Chile, New Zealand, Australia, and Georgia. Also, due to the increased competition for entry-level wines, e-commerce giants like Tmall and JD are expected to seek partnerships and cooperation with large wineries to increase profit margins and differentiate themselves.

-50.0%

0.0%

50.0%

100.0%

0

15,000

30,000

45,000

60,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f

grow

th

mill

ion

litre

s

Imported volume of beer (LHS) Production volume of beer (LHS)

Production volume growth of beer (RHS) Imported volume growth of beer (RHS)

China wine & spirits total volume 2013-2019f

China beer total production and import volumes, 2013-2019f

0.0%

5.0%

10.0%

15.0%

20.0%

0

5,000

10,000

15,000

20,000

2013 2014 2015 2016 2017 2018 2019f

grow

th

mill

ion

litre

s

Wine total volume (LHS) Spirits total volume (LHS)Wine volume growth (RHS) Spirits volume growth (RHS)

What to watch

• M&A opportunities• Trade flows of beer and wine sectors• Profitability improvement

Market outlook

Source: Globaldata 2019

Source: China Customs


Source:

Packaged food in China by segments

• Packaged food-retail value growth is expected to slow down slightly in 2019, at 6.5% YOY. Though slightly slower, overall growth at 6% to 7% is still a healthy outlook compared to other non-food categories. Packaged food sales seemed to be relatively resilient amid a weakening economy, as these products are needed daily.

• Rabobank expects a few key themes to impact packaged food in 2019: 1) Consumers in China will continue to look for a fresh, healthy, and nutritious diet. This trend is likely to impact the packaged food industry in 2019, with categories perceived to be unhealthy like confectionary recording lower growth rates 2) The increasing penetration of e-commerce, especially through cross-border e-commerce platforms, will continue to boost imported packaged food sales. This also includes imported health food and dietary supplements sales in China; 3) The growing Chinese consumer preference for western cuisine will drive retail value sales of western-style packaged food products such as baked goods.

• Baked goods will continue its dynamic growth trend in 2019, with artisanal/fresh bakery sales going mainstream. However, bakery shops offering fresh products, especially those smaller to medium-sized ones, have been faced with increasing operation costs. As such, frozen dough can be a potential growth engine in the future, as it can supply bakery shops requiring freshly baked products at a lower cost. Meanwhile, consumer demand for high-quality and diverse baked goods remains high. This leads to product diversification. To get in on this trend, upstream players (such as manufacturers of baking oils/fats and frozen dough suppliers) will need to upgrade production techniques and, more importantly, provide a one-stop shop for its target audience in the downstream bakery industry.

Market outlook Packaged food retail value sales and growth, 2009-2019

Consumer foods: Expect a slight slowdown in growth in 2019

Source: Euromonitor, Rabobank 2019

Source: Euromonitor, Rabobank 2019

0%

4%

8%

12%

16%

0

500

1000

1500

2000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f

% re

tail

valu

e gr

owth

CN

Y b

illio

n

Total retail value sales (CNY bn) Retail value growth%

0%

3%

6%

9%

12%

15%

0

50

100

150

200

250

valu

e gr

owth

CN

Y b

illio

n

2019 retail value sales 2018/2019 growth

What to watch

• Increased importance of health and nutrition in diets• M&A opportunities within cross-border imported foods, especially in

health food and dietary supplements• Upstream players opportunity in baked goods through product

innovation and providing one-stop solution in 2019



Online retail goods sales, accumulated Feb-Nov 2018

• Total accumulated retail sales of consumer goods registered 9.0% value growth in November, continuing the trend of slower growth from early 2018. The accumulated online retail sales of physical goods grew by 25.4% in November, slightly lower than October. Overall retail goods consumption in 2018 was impacted by the global economy. Uncertainty caused by the US-China trade war undermined business and consumer confidence, impacting private consumption and investment.

• Retail sales of consumer goods of enterprises above designated size recorded an even lower accumulated value growth rate, at 6.1% in Nov. The lower growth is mainly impacted by non-food categories like automobiles (-1.6%). Food, drinks and tobacco sales seemed to resilient to comparatively weaker economic growth, registering 9.4% accumulated value growth in Nov 2018.

• Rabobank expects that the uncertainty from the trade war may impact the retail and consumer goods industry. We see these key themes: 1) Sales of consumer goods in rural and lower-tier cities’ retail will be higher than in first-tier cities 2) With simultaneous trading up and trading down, consumers will become more rational. As China is such a huge country, consumption in different tier cities will be uneven 3) Further consolidation of the retail sector aims to accelerate operational efficiency 4) Performance of ‘new retail’ players (see our publication Hema: Bringing New Retail to a Broader Industry) will vary. ‘New retail’ players may face net profit loss pressure if they can’t achieve high sales efficiency 5) Super-tech giants like Alibaba/Tencent/JD will play an increasingly important role in grocery retailing. Rabobank expects that technology and data will be key to driving retail supply-chain efficiency.

Market outlook Total accumulated retail trade sales of consumer goods,July 2016-Nov 2018

China retailer watch: Growth is slowing down, and retailer performance varies


8.0%

9.0%

10.0%

11.0%

0

10,000

20,000

30,000

40,000

grow

th

CN

Y b

illio

n

Total Retail Sales Accumulated growth rate%

0.0%

10.0%

20.0%

30.0%

40.0%

0

1800

3600

5400

7200

Feb2018

Mar2018

Apr2018

May2018

Jun2018

July2018

Aug2018

Sep2018

Oct2018

Nov2018

grow

th

CN

Y b

illio

n

Online Retail Sales, Goods Accumulated growth rate%

Online sales% in total retail sales

What to watch

• Slowdown of retail sales of consumer goods in 1H 2019• ‘New retail’ players’ performance will vary and players failing to produce

high sales efficiency may face profit loss challenges in 2019• Data and technology assets will be key for retailers to win in 2019

https://research.rabobank.com/far/en/sectors/consumer-foods/hema-bringing-new-retail-to-a-broader-industry.html


Sandy Chen

Senior Analyst – DairyRabobank Nederland Shanghai Branch

Telephone: +86 21 2893 4691

Email: [email protected]

Ping Chew

Regional Head, RaboResearch Food & Agribusiness Asia

Telephone: +65 6230 6714


This document is issued by Coöperatieve Rabobank U.A. (“Rabobank”). This document has been prepared solely for information purposes. This document is not, and should not be construed as, an offer or a commitment by Rabobank or any of its affiliates to enter into a business transaction withyou. This document does not constitute financial or investment advice and any information provided is not intended to be sufficient for you to rely on to make a decision. The information should not be construed as legal, tax, financial or accounting advice. We recommend that you considerthe appropriateness of the information having regard to your specific circumstances, and obtain financial, legal and tax advice as appropriate. The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no representationor warranty, express or implied, is made as to their accuracy, completeness or correctness. References to any prices or market data are indicative only. Market conditions may change without notice and no warranty is offered by Rabobank in connection with the information provided herein andcannot therefore be relied upon. To the extent permitted by law, neither Rabobank nor its affiliates accept any liability whatsoever for any direct or consequential loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. This documentis not intended for distribution in the United States (“US”) or to or for the account of US persons and the distribution of this document in other jurisdictions may be restricted by law and recipients of this document should inform themselves about, and observe and such restrictions. Thisdocument may not be reproduced, distributed or published, in whole or in part, for any purpose, except with the prior written consent of Rabobank. By receiving the contents of this document you agree to be bound by the foregoing restrictions. This document is governed by Dutch law. Thecompetent court in Amsterdam, the Netherlands has exclusive jurisdiction to settle any dispute which may arise out of, or in connection with, this document and/or any discussions or negotiations based on it. This report has been published in line with Rabobank’s long-term commitment tointernational food and agribusiness. It is one of a series of publications undertaken by the global department of RaboResearch Food & Agribusiness.©2019 - All Rights Reserved

Chenjun Pan

Senior Analyst – Animal ProteinRabobank Nederland Hong Kong Branch

Telephone: +852 2103 2430


Lief Chiang

Analyst – Grains & OilseedsRabobank Nederland Shanghai Branch

Telephone: +86 21 2893 4670


Jingyan Sun

Analyst – Farm InputsRabobank Nederland Beijing Branch

Telephone: +86 10 5695 1089


Stacie Wan

Analyst – Beverage & Supply ChainRabobank Nederland Shanghai Branch

Telephone: +86 21 2893 4620


Michelle Huang

Analyst – Consumer FoodsRabobank Nederland Shanghai Branch

Telephone: +86 21 2893 4677


Rabobank: Your financial link in the Food & Agribusiness chain

mailto:[email protected]



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