NSW dairy co-operative Norco will more than double sales of fresh milk to China, a sign of how Australia’s reputation for high-quality and safe food is helping it sell produce at premium prices overseas.
Despite its fresh milk retailing for a hefty $9 a litre in Shanghai, Norco has found no shortage of demand. It will increase weekly deliveries from 30,000 to 80,000 bottles under a new distribution agreement with a Chinese importer.
“This is really a great opportunity for the Australian dairy industry,” said Norco chief executive Brett Kelly.
Mr Kelly will be in China this week, as part of a 38-member Australian delegation accompanying Agriculture Minister Barnaby Joyce.
Mr Joyce will be in the country to promote farm exports, which have doubled to $7.3 billion over the past five years, and are set to grow further as Chinese companies look to ink supply deals ahead of a likely trade agreement.
China’s two largest state-owned food companies, COFCO and Bright Foods, have both signed wine distribution agreements with Australian producers in recent weeks. Beijing allowed Australian chilled beef back into the country on a trial basis in July, after stopping the trade 10 months earlier amid concerns about the surge in imports.
The long-awaited trade deal between China and Australia, expected to be signed during President Xi Jinping’s visit to Canberra in November, will be skewed towards agriculture.
Huge interest in agriculture
Products such as beef, wine and seafood are expected to be included and so cost less for Chinese consumers as a result. Less certain are the outcomes for the dairy, wool, rice and sugar industries, while wheat and cotton are also sensitive sectors.
“You’d have to think the Chinese companies are jockeying for position,” one food industry executive said .
The China practice consultant at King & Wood Malleson’s, David Olsson, said there was a huge amount of Chinese interest in Australian agriculture. “There’s no doubt companies in Australia and China who are forward-thinking are making informed judgements about the outcome of the FTA,” he said. “Good commercial decisions are being made.”
While some deals are being stitched together ahead of the trade deal, the announcement is expected to trigger a further round of investment. “The FTA will remove uncertainty and level the playing field with New Zealand and Chile,” the former trade negotiator and Australian Ambassador to China, Geoff Raby said.
“Once it’s signed there’s likely to be a big uptick in Chinese foreign direct investment in Australian agriculture.”
Norco began investigating the possibility of exporting to China in early 2012, just as a milk discounting war between the major supermarket chains, Coles and Woolworths, began to hurt farm gate prices.
It won approval to air-freight milk in March and began with just 1000 (1 litre) bottles a week. This has grown to average 30,000 bottles a week and is set to jump to more than 80,000 following its latest agreement with a Chinese retailer.
Freshness a point of difference
“Our point of difference is we offer 100 per cent pure Australian fresh milk,” said Mr Kelly.
“We are the first people to do this, but we won’t be the last.”
Mr Kelly said Norco’s dairy farmers received a “slightly higher margin” for milk exported to China, compared with the domestic market but there were huge freight and customs costs. The FTA is expected to phase out the 15 per cent tariff on milk imports to China.
Australia and China completed the 21st round of free-trade negotiations earlier this month. In a statement, China’s Commerce Ministry said the two sides would keep in close contact and “were looking to sign an agreement in the near future”.
Australian wine is expected to be one of the chief beneficiaries from an FTA.
Last week the state-owned Bright Foods agreed to distribute wine for Australia’s Beelgara label throughout China.
The agreement was struck between Bright’s Australian subsidiary Manassen Foods and the parent of Beelgara, Wine Insights.
Wei Li, China development executive at Manassen Foods said the FTA would make Australian wine more competitive with New Zealand and South American brands.
“I think the free-trade agreement between Australia and China will be signed this year and that is definitely a good development for trade and will lift our sales by a certain amount,” he said.
“But regardless of the FTA being signed, our products are competitive.”
Winemaker wins wider distribution
On August 25, Australian Vintage, the maker of McGuigan wines, signed a distribution agreement with the state-owned COFCO, China’s biggest food company.
The deal will make McGuigan a “strategic partner” for COFCO’s newly created international wine division and give the label access to a giant distribution network across China.
“The FTA is the cream and the icing,” said Australian Vintage chief executive, Neil McGuigan.
“The cake is what we can offer COFCO at every price point. Then if we get an FTA that will be fantastic.”
These two deals by state-owned giants follow the low key re-introduction of Australian chilled beef to the Chinese market in July.
China allowed 10 approved abattoirs to resume exports to China as part of a trial.
Source: BRW