Chinese Market for U.S. Confections Blooming
Thursday, April 1, 1999
filed under: Utilization/Trade
With a population of 1.2 billion people, China represents a very promising market for U.S. food products. The middle and upper classes alone represent about 200 million people - almost equal to the total population of the United States. Overall population growth in China is about 1.1 percent per year.
Currently, the average person in China spends about 30 to 35 percent of his or her income on food. Each year, consumers are earning more money and spending it on better-quality foods. Restaurants and bars are opening to cater to consumers who have enhanced buying power. People also are shopping more often in supermarkets rather than the traditional wet (street) markets.
National Sunflower Association staff recently traveled to China to explore the possibility of expanding the market for U.S. confection sunflower seeds. Up until about two years ago, China did not import any confection sunflower seeds from the United States. In fact, China was a major competitor in most markets.
This scenario has changed due to the Chinese government's policy of increasing production of "staple" foods. Other contributing factors to this turnaround are a growing population, more people entering the middle and upper classes, and increased disposable personal income. China is no different than most countries, i.e., when personal income increases the first thing consumers want to do is upgrade their diet with better-quality food.
In an average year, China produces about 1.25 million tons of sunflower seed on 1.85 million acres of land, for an average yield of almost 1,500 pounds per acre. Sixty to seventy-five percent of the crop is crushed for oil, with the remainder used for snack food and bird food. China's main sunflower growing areas are concentrated in its northern provinces.
The Chinese Ministry of Agriculture expects sunflower production to remain stable in future years. The reason for this projected stability is China's emphasis on producing staple foods such as wheat, corn, rice, soybeans and rapeseed to feed its large population. The Chinese
government subsidizes the production of these crops; but it does not subsidize sunflower production. Farmers grow sunflower primarily to improve soil fertility and remove alkaline. They also plant it to provide borders to each field.
- Chinese Love Eating Snacks -
Popular Chinese nuts and seeds include peanuts, almonds, walnuts, pistachios, pumpkin seeds, watermelon seeds, pine nuts and sunflower seeds. Chinese consumers spend approximately 10 percent of their total grocery bill on snacks.
October through April is the highest consumption period for seeds and nuts. As the weather becomes warmer (May through September), consumption decreases.
People from all social and income levels within China eat sunflower seeds. The main reasons for their popularity are that they enjoy a long tradition of consumption and their price is economical in relation to other available nuts.
American sunflower seeds do not, however, compete directly with local sunflower seeds. There is a significant difference in quality when you compare U.S. confection sunflower seeds to locally produced sunflower seeds. The U.S. seeds have their own market niche, with the main consumers tending to be in the middle and upper classes. They like the quality and are willing to pay a higher price for them.
Chinese roasters prefer U.S. sunflower seeds as well, mainly due to the quality. They like seeds that are large (22/64 size), have a dark black color and no scuffs on the shell. Roasters process sunflower seeds either by dry roasting or steaming them. The seeds are sold salted or
seasoned with different flavors.
Sunflower seeds are available in supermarkets, state-run stores, snack shops and "mom & pop" stores. Seeds can be purchased in retail packages of various sizes or in bulk. Increasingly, Chinese consumers are purchasing snack foods in retail packages versus bulk.
The Chinese primarily consume sunflower seeds at home. Most are eaten while watching television, one seed at a time. (This consumption pattern is similar to the Spanish market.) The highest consumption periods are during social events and holidays, such as Chinese New Year. Sunflower seeds also are consumed while traveling.
One reason for the high level of spending on snacks is due to China's "one- child" policy. Most families have only one child due to government policies that make having two or more children financially impossible. This has prompted the "Little Emperor" phenomenon in China. One child receives the exclusive attention of both parents and two sets of grandparents. So the child frequently receives money to purchase snack foods.
Also, as personal income increases, affluent Chinese consumers are demanding higher quality snacks and are willing to pay higher prices to purchase them. American products have an excellent image in China, and consumers in all social classes recognize them as being of high quality. During the past three years, roasters have profited from the favorable
image and quality of American pistachios and almonds. They believe this will be the case for U.S. seeds as well in the future. The U.S. sunflower is packaged in retail bags which prominently display the American flag, U.S. origin, and red, white and blue colors. This allows roasters to promote the U.S. quality and image to consumers.
Chinese consumers are not familiar with sunflower kernel. Importers and roasters do not think that kernel has great potential for use as a snack food. For the Chinese, one of the main pleasures of eating sunflower seeds is cracking the shell and eating the kernel; so having just a kernel eliminates a good share of the fun! In the future, however, it might be possible for kernel to be used in China's bakery industry.
- Dynamic Market for Confections -
Chinese roasters buy U.S. sunflower seeds in two ways.
The first is buying directly from U.S. processors, with the product being shipped directly to ports in China. The second scenario employs a partner in Hong Kong. This partner could
be a joint venture company, a trader or a Chinese roaster's Hong Kong buying office. The partner's role is to handle shipping logistics, documentation and product payment. In most cases, the Hong Kong partner is essential due to the roaster's lack of knowledge about importing and his limited access to financial resources. Also, letters of credit can be difficult to obtain in China.
Imports presently account for only a small percentage of overall sunflower seed consumption in China. But demand is growing, and the Chinese have dramatically increased their imports from the United States within the past year. From October 1997 through September 1998,
the United States exported 6,100 metric tons of sunflower seed to China. This compares to 300 metric tons in 1995/96 and 900 metric tons in 1996/97.
From discussions with roasters and importers, it appears Chinese imports may approach 10,000 metric tons during the current marketing year.Spain, our largest in-shell customer, imports about 20,000 metric tons of U.S. sunflower per year. If China does end up importing 10,000 tons during 1998/99, it would represent about 25 percent of total U.S. in-shell exports.
Currently, only minimal media or advertising campaigns are being conducted to promote U.S. sunflower seed in China. To remedy this, the National Sunflower Association has applied for market development funds from USDA's Foreign Agricultural Service to begin promoting U.S. confection sunflower seeds to Chinese consumers. If funding is approved,
promotion activities would start this fall.
China is a growing, dynamic market for U.S. food products. The foreseeable future for exports of U.S. confection sunflower seed to China looks bright and sunny as well. Middle and upper-income consumers like the quality of the U.S. product, and local production does not meet their demands. Unless China begins producing premium-quality seeds, the
United States will continue to dominate the high-quality sunflower seed market niche.