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Q&A: What Consumer Trends are Driving China’s Food & Ag Industry?

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Ping Chew is head of Food & Agribusiness Research and Advisory for Asia at Rabobank. Ping joined Rabobank from Standard & Poor’s where he has spent 16 years in various senior positions with the latest as the firm’s head of Greater China.

We caught up with him to get his thoughts on the growing food startup scene in China.

What consumer trends are driving China’s food and agriculture industry today?

China sits in a sweet spot right now. The country will get old before it gets rich, which is an interesting demographic profile. But generation X and millennials currently account for 55% of the current population.

This Generation X and millennial population has cash, which they are willing to spend, and that’s a key trend that will pick up in the next 10 years before the older population grows.

Urbanization has also accelerated for the last five years both as a natural development and a government policy measure; it was the government’s intent to move another 5% of the population into cities, which creates another key driver of food consumption trends.

Incomes are also rising. McKinsey estimates that over the next 10 years, another 300 million Chinese people will go into the middle-income bracket.

Bearing all of this in mind, we expect another $500 billion worth of food consumption in the next 10 years from the $1 trillion that’s spent today. Consumers are demanding better quality food, not unlike the trends we see in the Western world.

Food safety scandals in China have accelerated consumer awareness of issues in the supply chain and poor business practices making the consumer even more demanding about what they eat.

Another key factor is connectivity. China now has about 600 million people with mobile phones which they use frequently, and that’s drive food consumption and trends not just through information but through online food purchases. These 600 million people are still only about 60% of the total population, so just wait until that gets even higher.

How are the food companies reaching to these trends and changing demands?

I think producers and manufacturers are having a tough time trying to catch up. Chinese consumers are a picky lot with even more rapidly changing tastes than western consumers, so even foreign companies need to keep pace. Foreign brands are competing with each other and with Chinese brands, creating a huge wave of discounts and coupons that consumers take advantage of, showing little brand loyalty. Again this differs from the western consumer who grew up with an affinity for certain products, but the Chinese consumer is a new class of consumer that’s new to everything, will try anything, and will consume a variety of food. This is testing some food companies’ bottom lines, particularly those trying to compete in the food delivery space. Chinese consumers expect same day delivery without paying for it. Someone has to pay for it, but the question is who? Apparently some food companies say that it’s not important to make a profit right now, but instead focus on gaining market share.

In the US, there are a growing number of food companies that have launched their own venture capital arms to help them keep up with new trends. Why have Chinese companies not created corporate venture arms in the same way?

In the western world, many big companies are going to VCs to find innovations outside of their business partly because these small startups are taking market share from them. But in China, the agri market is very fragmented, and you cannot find a few dominant players like in the US and Europe. Many of them are still regional and have regional and fragmented market share. So they’re still thinking about how to grow market share with less motivation to get into the latest tech and innovation. Plus some of the innovation trends are too early for China such as meat alternatives. In the West, there’s a trend away from eating so much meat, and so there are plant-based alternatives popping up to fulfill those demands. In China, meat consumption is still on the rise and overall consumers still want more meat, so the need to find alternatives is not as urgent. It’s also still difficult to generalize China as it’s such a large country with very significant income inequality and a rural, lower class wanting more basic foods juxtaposed with some very rich parts of the population that are wanting trendier food. Nevertheless, there is a class of globalized, wealthy Chinese consumers that are not dissimilar to their western cousins who are pursuing the latest in food trends, consequently driving an emerging food and ag startup scene.

What food startup innovation trends have you noticed?

Beside food e-commerce, Chinese entrepreneurs are creating similar products and services as in the West like mobile apps and IoT, alternative proteins, insect-based food, craft beer, lactose-free ingredients and so on. But there’s just less of it here.

What’s the main challenge you see for food startups and entrepreneurs in China?

The food regulatory regime is still developing in China. How do you come out with a product that’s trusted and certified while the regime is still ongoing? It’s even the case with organic, which is still a developing concept in China. There is an environment where there’s demand for organic and innovative food, it’s just a matter of how to credibly serve that demand.

Food has become a hot sector over the last few years among investors, so I don’t see access to funding being a challenge.

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