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17/04/2017

All eyes on China

  • The Spanish agri-food sector remains focused on gaining a foothold in China

Ricardo Migueláñez. @rmiguelanez

As things stand, Spanish agri-food trade is best understood when looking at the overall situation in China. The Asian giant, home to more than 1.3 billion people, has become a priority destination for Spanish companies, trailing "natural" markets in the European Union and the US. Russia, on the other hand, is on the sidelines at the moment due to a sine die trade ban, which affects several of Spain's most popular products abroad, and to its very slow economic recovery.

Although China is not a particularly easy market for Spanish agri-food companies, last year Spain ranked second (after Brazil) in terms of increasing its exports, with meat and pork offal, wine and olive oil leading the way as the most exported products, accounting for 83% of the total value, followed by other items like cured ham, dairy products, beer, and citrus and stone fruits.

In accordance with data from China's Customs Administration, agri-food sales from Spain were valued at 1,169.5 million euros in 2016, up 48% year-on-year, according to a report from Spain's Economic and Commercial Office in Beijing. In terms of relative value, Spanish food and beverage exports have expanded the most compared with other European Union countries, with France increasing by 15%, Germany by 30% and the Netherlands by 31%. France remains the leading EU exporter in terms of value, with revenues of 2.421 billion euros, slightly more than twice those obtained by Spanish companies.

Spanish agri-food sales in China have grown exponentially. Sales amounted to 80 million euros in 2008 and 1.170 billion euros in 2016, a 17-fold increase in that period. Spain still ranks 11th among countries that export food to China, but in barely four years it has moved up the ranks by 4 spots.

According to the Spanish Economic and Commercial Office in Beijing, pork ranks first in terms of Spanish agri-food exports to China, accounting for 59% of the total, 686.7 million euros in revenues for a total of 410,000 tons, at an average price of 1.68 euros/kilo. That's 165,000 mt and 300 million euros more than in 2015. Moreover, pork ranks second in terms of goods and services exported to China, and not just in terms of agri-food exports.

On a more sobering note, it's worth noting that China imported 5.300 billion euros in pork products in 2016, mainly from the EU, the US and Canada, up 90% compared with the previous year. Spain accounted for almost 13% of those imports, despite the fact that it's is one of the world's leading producers.

It's still impressive that Spain is the third-leading exporter of meat and pork offal to China, trailing just Germany and the US, having surpassed Denmark and Canada in recent years. In 2011, Spanish pork exports to China amounted to 40 million euros, and have increased 17-fold in just five years. Currently, there are around 30 slaughterhouses authorized to export to China, after 7 new establishments joined that list in 2016. The Spanish Economic and Commercial Office believes that "growth may be sustainable and long-lasting," while there was also an increase in sales of medium- and high-end pork with greater added value (hams, shoulders, loin and shank) in recent months.

Spanish wine

The second-most exported Spanish agri-food product to China is wine, although it lags behind pork and there is considerably more sales competition with other producers. Spanish wine fetched 144.2 million euros in revenues in 2016, up 23% year-on-year.

That accounts for slightly less than 7% of total wine imports in China, which amounted to 2.140 billion euros last year. France is the clear leader in this segment, followed by Australia and Chile, countries with very favorable free trade agreements with China. Those three countries account for 80% of all wine imported by China (6.4 million hectoliters), of which 5 million (2.040 billion euros) was bottled wine and 1.4 million (22%) was bulk wine, valued at 100 million euros (5% of the total).

It's worth noting that 93% of Spanish wine exported to China in terms of value is bottled, with sales of 720,000 hectoliters, at a price of 1.79 euros/liter; however, bulk wine still accounts for 20% of the total volume, with 180,000 hectoliters, a value of just 9.4 billion euros and an average price of 0.52 euros/liter. In total, 900,000 hectoliters, which represent slightly more than 14% of the total volume of wine imported by China.

Around 14% of the volume and 7% of the value of all wine imported by China still fall short of the expectations that a county like Spain should have, as it's home to the largest surface area of vineyards in the world and is the third-largest global producer and exporter in terms of value, ranking either first or second in volume exported depending on the year, neck-and-neck with Italy. This segment's export potential is even bigger, considering that China will be the world's leading consumer of wine in a few years, dethroning the US and France.

Olive oil

In contrast with wine, Spain is a leader in Chinese olive oil imports, with a historic share of 80% of the total, outstripping Italy (14%) and Greece (3%). Sales in 2016 from olive oil amounted to 139.3 million euros, up 15% year-on-year, with a volume of 31,000 tons (80.3% of the total), ahead of Italy (5,400 mt) and Greece (900 mt).

China imported 158.8 million euros worth of olive oil, 11% more than in 2015, with a volume of 38,600 and an average price of slightly more than 4 euros per liter. Strong prices allowed for Spanish orujo oil sales to China to increase by 25%, to 5,500 mt, valued at 15.4 million euros, at an average price of 2.80 euros/liter.

Average global production in 2015/16, which was preceded by a scant harvest during the previous season, curbed the entry of olive oil from rival countries such as Australia, Morocco, Tunisia and Turkey into China. They lost 7 percentage points of market share there compared with 2014, when they accounted for 10% of the total.

Since Spain is the world's leading producer of olive oil, with average exports of 800,000 to 1,000,000 tons in recent years, exports heading to China, though significant, could be considered quite moderate given the size of the country, with the result that Spain should strengthen its export potential in the coming years.

Other products

Export expectations for other foods and beverages are also notable, considering the 2016 performance, with percentage increases that the Economic and Commercial Office in Beijing have described as "spectacular." That's the case with beer, especially craft beer, which expanded by 45% to 50.8 million euros, ranking 4th among Spanish food exports in China and, most notably, ranking 3rd among export countries worldwide, trailing Germany and the Netherlands and ahead of countries with more tradition and brands with more prestige, such as Belgium, Mexico and France.

As for cured ham, Spain exported 150 tons to China, up 50% in 2016 in year-on-year terms, worth 3.8 million euros and at an average price of 26 euros/kilo, due to the greater proportion of Serrano ham, which currently accounts for 80% of total ham sales to China. In this sub-sector, this year may be decisive if exports of bone-in ham to China are definitively approved, which could increase sales by 15-20 million euros, according to the Economic and Commercial Office.

Spanish citrus fruits are another extremely popular export to China. A total of 12,600 tons were exported in 2016, of which 10,000 mt were oranges, 2,200 mt were mandarins, 200 tons were lemons, and a smaller number were grapefruit. The total value was 14.5 million euros, reflecting spectacular growth of 300% compared with 2015. Chinese consumers love Spanish orange varieties such as Navel Late, Lane Late and Powell, which are sent between March and May, when prices are at their peak, even more expensive than Sunkist oranges from California.

Lastly, after the bilateral export protocol was signed, Spain became the first country in the world authorized to send peaches, nectarines and saturn peaches to China (Chile and the US had already been exporting plums there since 2005), with a volume of 45,000 mt last year. During the last season, Spain exported 700 tons of plums and 200 mt of peaches, nectarines and saturn peaches to China worth a total of 1.8 million euros. There are high expectations for the new season in 2017, which will begin in the final months of spring, for the performance of Spanish stone fruit exports to China during the full season.

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