Meeting the market

A group of Silver Fern Farms supplier shareholders, led by chairman Rob Hewett, recently flew to China, visiting Shanghai, Inner Mongolia and Beijing. Agribusiness reporter Sally Rae joined the group to learn more about opportunities, and challenges, in the country. 

Diverse and complex - that's China.

It's a country of extreme contrasts; travel from Shanghai Pudong International Airport to the inner city on the maglev train and reach a relatively sedate speed of just over 300kmh (it has a top speed of 430kmh).

City footpaths are swept by old-fashioned straw brooms, while latest model cars sweep past, somehow - albeit narrowly - avoiding the melee of ubiquitous scooters, bicycles and pedestrians.

Big-name brands like Gucci, Louis Vuitton and Prada are there in bright lights, as are their rip-off counterparts. Laundry dries strung up in city streets.

For a bunch of New Zealand farmers, some on their first visit to China, the sights and smells are somewhat of an eye-opener.

Live frogs and turtles for sale in supermarkets.

Hens nonchalantly beheaded in a wet market, their heads lined up like dominos.

Sheep heads and livers uncovered on a street stall.

Unbelievably high skyscrapers and stunning architectural designs.

The breathtaking beauty of Shanghai's Bund under lights at night.

Extensive tree plantings, piles of rubbish and building sites that make the Canterbury rebuild look totally insignificant.

The most curious juxtaposition of contrasts at every turn of the head and the complexity that is China is also translated into the market.

It is a land of opportunities, as there has been so much rhetoric about, but, make no mistake, there are plenty of challenges.

For Dunedin-based red meat company Silver Fern Farms, China is an important market - it's biggest by volume and second-biggest by value, worth $350 million - and it wants to increase that figure significantly.

China is also home to Shanghai Maling, which (subject to approval from the Overseas Investment Office) will be Silver Fern Farms' joint venture partner.

Shanghai Maling wants to make Silver Fern Farms' brand the premier red meat brand in China.

It's a big goal and one that Silver Fern Farms chairman Rob Hewett believes is achievable.

But to do it, the company must get the product form right and that means understanding the Chinese consumer.

"It's important to understand the consumer and what they want. It's all about the consumer.''

Understanding the market was going to be fundamental, Mr Hewett said.

That market was more complex than Silver Fern Farms initially thought.

And it was different, he said.

Already, it had been a learning curve and there had been a "bit of a mismatch'' between the retail packs Silver Fern Farms thought would work well and reality.

Historically, Silver Fern Farms has mainly shipped sheepmeat, mostly low-value cuts, to China. Increasingly, more beef was being exported.

Traditionally, Chinese consumers eat a lot of pork and pork consumption was growing about 0.5% a year.

Red meat was growing by about 7%-8% but from a relatively low base.

Overgrazing native pasture in areas like Inner Mongolia had had a significant environmental effect, and there had been a big capital breeding stock kill of domestic sheep.

Reduced sheep numbers meant an interesting opportunity for both New Zealand and Australian producers, both of which are viewed as high quality providers of meat, as there was not the meat being grown domestically, Mr Hewett said.

Primary Collaboration New Zealand (Shanghai) Ltd general manager Kevin Parish believed the potential for grassfed New Zealand red meat was "huge''.

"They [the Chinese] think New Zealand is Utopia. They think it's this place that doesn't exist in the world ... it's a dream-like place.''

And that, he said, was a great place to be.

It was about identifying the right partners to work with and doing due diligence with them.

Silver Fern Farms is a founding company of Primary Collaboration New Zealand (PCNZ), which was born out of an inaugural primary sector meeting at Stanford University in the United States in 2012.

Back then, China was "high on the radar'', having been identified as a key future market but the founding shareholders - Silver Fern Farms, Synlait, Sealord, Villa Maria, Kono and Pacific Pace (a collaboration of three horticulture producers) - realised they did not know enough about the country.

All wanted to gain a better understanding of the complex Chinese market.

Mr Parish, previously trade commissioner for New Zealand Trade and Enterprise in Hong Kong, was appointed general manager in March last year and the Shanghai office was officially opened the following month.

The past year had been very much concerned with setting-up and it was now in a good operational rhythm, he said.

PCNZ was like a launching pad or incubator, easing entry for New Zealand businesses looking at China and putting a presence in the market.

Five years ago, there were not many New Zealand companies in China.

Now there were "quite a lot'' and that was a good thing.

PCNZ was something of a "one-stop shop'', leveraging individual brands to identify opportunities for the wider group.

New Zealand food and beverages were held in high regard in China.

As health was becoming more important to the younger millenial set, people desired to eat better quality food and put "better things'' into their bodies; he believed that was going to happen in China as well.

Silver Fern Farms was likely to exit PCNZ some time in the future - such was the nature of the incubator, Mr Hewett said.

Shanghai Maling's head of investment, Henry Gu, said his company knew what customers needed "this month and next month'' and it could match product to those needs, making both the company and the industry more healthy.

The company wanted to supply value-added products in China, providing a stable cash-flow for itself, Silver Fern Farms and farmers.

If farmers produced a premium product, then they would get paid a premium price, Mr Gu said.

Pork was expensive in China this year and consumers had an opportunity to change to chicken or lamb, he said.

There were seasonal problems, he said, as New Zealand meat works closed in winter, which was summer in China, when consumers liked to eat lamb and mutton.

Often New Zealand did not have the supply, he said.

Chinese-born Claire Tan, Silver Fern Farms' China market manager, through PCNZ, had the advantage of valuable first hand-knowledge of both the New Zealand and Chinese cultures.

She arrived in New Zealand in 2002 as an international student, staying on for a further decade after completing her studies and working for national wholesale food distributor Bidvest before returning to China four years ago.

After working for an Australian company, she jumped at the opportunity to work for a New Zealand-based company and was already familiar with Silver Fern Farms from her time at Bidvest.

Meat, she said, comprised a large part of supermarkets' income but it could be difficult to get the product into the cabinets.

Most imported meat was Australian, largely due to the fact the Australians had forked out a lot of money in the market to educate consumers.

"People think about beef, they think Australia.

"People haven't really linked New Zealand with beef yet.''

Consumers were looking for marbled beef, with Wagyu popular, and grassfed beef had a reputation for being lower quality.

"They don't think of free range just yet.''

Chinese consumers shopped frequently and, usually having small freezers at home, did not particularly like frozen product.

Eating out was "quite cheap'' with many options and that appealed particularly to young people working in the hustle of Shanghai.

Dining-in was less appealing because of the time spent in traffic to get home.

And that traffic was another reason for the growth of e-commerce, with a study showing the younger generation spent on average four hours a day on their mobile phones.

On average, she reckoned they probably spent at least two hours a day on public transport, travelling to and from work.

During the commute, they could not do anything - but stay on their phone.

When it came to buying online, price was still one of the most important factors consumers based their decision on.

But country of origin was becoming more important and New Zealand had a good reputation.

"Everything from New Zealand people consider healthy and safe and pure. That's our advantage,'' she said.

She saw Silver Fern Farms' products as starting to change people's perceptions about grassfed beef.

They saw it could be high quality and consistent, while New Zealand lamb had a good reputation in market.

At the moment, food service was a bigger market for Silver Fern Farms than retail.

For quantity, retail was always a bigger market but it was harder to enter.

With food service, it was easier to teach chefs the value of the company's products.

In retail, it was very hard to change people's mentality from grainfed to grassfed beef.

Silver Fern Farms was targeting mainly Western restaurants with its Reserve beef cuts, which were selected using its innovative Eating Quality System.

Chefs were more experienced with Western cuts, they were well-educated and accepted the product better.

Once they had a good reputation, it would make it easier to target Chinese restaurants, she said.

- Sally Rae travelled to China courtesy of Silver Fern Farms.

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