Voluntary Report - public distribution

**Date:** 3/10/2005

**GAIN Report Number:** CH5805

CH5805

**China, Peoples Republic of**

**Product Brief**

**Shanghai Regional Market Profile: Pork**

**2005**

**Approved by:**

![](media/image1.wmf)Ross Kreamer

U.S. Consulate

**Prepared by:**

Lauren Buckalew

**Report Highlights:**

Exports of U.S. pork to China increased by a whopping 350% in 2004,
underscoring the potential for pork in key markets like Shanghai. This
report profiles the opportunities and obstacles for U.S. pork in the
Shanghai region.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Shanghai ATO \[CH2\]

\[CH\]

Table of Contents

[Pork: It's What's for Breakfast, Lunch and Dinner
3](#pork-its-whats-for-breakfast-lunch-and-dinner)

[The Mighty Yangtze: Affluence in the Shanghai Region
3](#the-mighty-yangtze-affluence-in-the-shanghai-region)

[Behind the Numbers: BSE is an Influence
4](#behind-the-numbers-bse-is-an-influence)

["The Pork Medallions? Excellent Choice, Madam"
4](#the-pork-medallions-excellent-choice-madam)

[These Piggies Are Going to Market: Marketing Assistance in China
4](#these-piggies-are-going-to-market-marketing-assistance-in-china)

[Get Your Products to Shanghai without Getting Shanghaied
5](#get-your-products-to-shanghai-without-getting-shanghaied)

[Import Laws and Regulations 6](#import-laws-and-regulations)

[Useful Contact Information 6](#useful-contact-information)

Shanghai Region Pork Market Profile

# Pork: It's What's for Breakfast, Lunch and Dinner

The word for "meat" in Chinese is almost synonymous with the word for
"pork", and many traditional Chinese foods such as steamed breakfast
buns and meat dumplings use ground pork. Stir-fried pork liver,
soy-braised pork hock, Cantonese sliced roast pork, and spicy pork
hotpot are all common family-style dishes. In a country where
vegetarianism is still uncommon, pork is the meat of choice for China's
some 1.3 billion citizens. In the past, pork was a rare commodity for
mass consumption, but has become freely available in cities within the
last generation. U.S. pork exports to China have grown steadily over the
last few years, and pork composed 79% of U.S. meat exports to China in
2004, partly as a result of a ban on imports of U.S. beef due to BSE
concerns. U.S. pork has the potential for even further growth in the
upscale pork market in the region surrounding Shanghai (commonly called
the Yangtze River Delta), given the area's high incomes and provided
market development efforts for U.S. pork continue.

##### 

# ![](media/image2.wmf){width="2.84375in" height="2.7694444444444444in"}

# The Mighty Yangtze: Affluence in the Shanghai Region

The Yangtze River Delta, which includes Shanghai and the prosperous
cities of neighboring Jiangsu Province to the north and Zhejiang
Province to the south, is a key consumer market. Shanghai residents have
among the highest per capita disposable incomes in China at US\$1,800
per year. Residents of nearby cities are not far behind, with average
annual disposable incomes in major cities ranging from \$1,200 in
Nanjing (Jiangsu) to \$2,070 in Ningbo (Zhejiang). The region is highly
urbanized, and receives nearly half of all China's FDI. As the middle
class expands and incomes continue to rise, the consumption of
high-quality, high-value products is expected to rise as well.

![](media/image3.wmf){width="4.0159722222222225in"
height="2.58125in"}2003 and 2004 have both been encouraging years for
U.S. pork exporters. Exports of U.S. pork to China grew by 350% in 2004,
up to \$51.3M from \$14.0M in 2003. The U.S. surpassed Canada as the top
pork exporter to China. (Factoring in re-exports, the U.S. has been the
de facto primary exporter to mainland China for years). Some products
doubled and even tripled in total value year-on-year, including boneless
butt, a traditional Chinese food cut, and fresh and chilled hams and
shoulders. The volume of pork and pork products exported to China will
most likely increase in 2005, albeit at a more moderate rate than last
year.

Sales of offal were also at record highs in 2004. Offal such as pork
ears, feet, intestines, and tongue are popular for their health
benefits: cartilaginous parts (i.e. snout and ears) are said to
strengthen arthritic joints. Pork intestines (stomach), tongue, feet,
and other offal all sold well in 2004.

#  

# Behind the Numbers: BSE is an Influence

A major factor in the rise in demand for U.S. pork and pork products in
2004 was the sudden absence of many other meat products. For over 14
months, China has suspended imports of U.S. beef due to concerns over
BSE. Imports of U.S. poultry were suspended for much of the year (from
February to December, 2004) due to concerns over avian influenza (AI).
AI outbreaks in China and Southeast Asia also dampened poultry
consumption during the year. As a result, demand for pork increased,
raising domestic prices and narrowing the gap between the price of
domestic and imported pork. This has allowed U.S. pork to play to its
natural advantages: according to consumers, U.S. pork simply tastes
better. One consumer noted that the U.S. product needs no MSG---a common
flavor enhancer in Chinese cooking. In addition, a rash of food
adulteration and contamination scares in China has strengthened the
common perception among consumers that imported foods in general are of
higher quality and safer.

# 

# "The Pork Medallions? Excellent Choice, Madam"

The hotel and restaurant industry is U.S. pork's primary market. These
venues prefer high quality meat for both western-style and Chinese
dishes, and are thus very receptive to U.S. pork. Last year's increase
in pork demand most likely came from the HRI sector, as food receipts
were up 20%. HRI will continue to be an important market sector as China
develops and more consumers dine out in better restaurants.

![](media/image4.wmf){width="2.28125in"
height="2.513888888888889in"}Sales direct to consumers through
nationwide or multinational super and hypermarket chains are a second,
smaller but growing, market. Savvy consumers concerned with taste and
quality will choose American pork, but this market is small today as
consumers lack education on how to best prepare U.S. pork. At the point
of sale, they cannot distinguish the advantages of U.S. from domestic
pork and pork products, which can be priced similarly. Marketing
campaigns targeting consumers in restaurants is the best way to promote
a good image of U.S. pork.

One point to note is that super and hypermarkets are not the largest
source for fresh food purchases among Chinese, even in most urban areas.
Many consumers still prefer to buy pork at local wet markets, which are
conveniently located within walking or biking distance and welcome
bargaining (supermarkets, of course, do not). Also, wet markets allow
consumers to have meat specially cut to their needs. However, wet
markets are a headache to local authorities because of the lack of
sanitation and regulation, and their importance is waning as modern
retail outlets continue to displace them.

# 

# These Piggies Are Going to Market: Marketing Assistance in China

The Agricultural Trade Office/Shanghai is one of four FAS offices
located in China to provide marketing support for U.S. companies. The
U.S. Meat Export Federation (MEF) is more specialized, and also has
several representative offices in China working to support and develop
U.S. meat exports to China. ATO provides general market development
support, conducting a wide variety of activities designed to build
distribution channels for U.S. agricultural products. ATO works closely
with MEF to ensure that U.S. meat products are an integral part of these
development activities, and also provides official support for MEF's
activities and issues. MEF in turn supports ATO activities, bringing
experts to speak on handling and use of U.S. meat products, and using
their well-established networks of supplier and distributor contacts to
ensure that products are available for ATO-sponsored activities. Two
recent market development activities that have featured U.S. pork were
the Chengdu Menu Promotion & Chef Seminar, and the American Festival
Gift Basket Promotion in Shanghai.

In fall of 2004 ATO Shanghai and USMEF, along with other USDA
cooperators, jointly conducted a market development activity in Chengdu,
Sichuan Province that included development of sourcing and distribution
channels, chef training programs and menu promotions in local
restaurants. Chengdu is an inland city deep in the heartland of China's
pork producing region. As a result of the distant location, the activity
involved extensive work piecing together distribution channels for U.S.
pork. The success was immediate and remarkable: pork products sold out
several times during the activity. Within one month of the menu
promotion and seminar, eight restaurants that had never used U.S. pork
before became regular customers. The seminars highlighted U.S. pork's
advantages: superior taste, product quality and safety, and price
relative to up-scale local brands; and introduced American pork recipes.
The menu promotion served to build demand among restaurants that a) put
the newly established distribution channels to work, and b) allowed the
chefs to put the seminar training into use.

The American Holiday Gift Basket Promotion took market development to an
entirely different type of venue: Shanghai's upscale Superbrand Mall.
This event was used to test-market U.S. pork products with affluent,
younger consumers. As in Chengdu, the event discovered that many Chinese
consumers recognize the high quality of U.S. pork products, and are
often willing to pay a premium. At the event, promoters offered
suggestions for uses of American pork in Chinese-style dishes, and
introduced U.S. pork to shoppers through taste tests of pork grilled
on-site. The taste tests proved so successful with the consumers that
all of the pork products for sale at the promotion sold out.

Detailed contact information for ATO and MEF offices is included at the
end of this report.

TABLE I. Positives and Negatives of Exporting Pork to the Chinese Market

  ----------------------------------- -----------------------------------
  Positives                           Negatives

  China is a developing country;      Improved living standards are
  improving living standards means a  encouraging people to move away
  growing and high potential market   from the traditional pork to newer
  for high quality goods              flavors such as beef and seafood

  Import tariffs on frozen meat and   Labeling and other standards are
  offal were systematically reduced   often unclear, often change, and
  7-8% between 2001-2004 per WTO      continue to constitute a barrier to
  commitments                         imports

  The Euro has become inflated        EU members such as Italy and
  relative to the USD, to which the   Ireland are working with China to
  RMB is pegged, making US imports    establish positive trading
  relatively less expensive           relationships for pork (USMEF Hong
                                      Kong)

  Distribution channels for super and Distribution channels remain
  hypermarkets, where high-end        underdeveloped outside the major
  consumers tend to shop, feature a   cities, and mass market shopping is
  high degree of transparency and     still dominated by wet markets
  reliability                         

  Taste superior to Chinese pork;     While taste is paramount for HRI
  adding MSG for flavor not necessary and high-end shoppers, the mass
                                      market is still price-driven
  ----------------------------------- -----------------------------------

# Get Your Products to Shanghai without Getting Shanghaied

In the past, significant quantities of U.S. meat were transshipped to
mainland China via Hong Kong, avoiding both restrictions on certain
products and evading high tariffs. Since China's entry into the WTO,
however, direct shipments of pork have become legal, and direct shipment
is slowly replacing transshipment as the primary means of supplying the
market. Exporters have learned that products that are transshipped may
be tampered with during the process and that, in addition to losing
control over the quality of their product, they also lose the
opportunity to make contact with and learn the needs and interests of
their end buyers. Recent government crackdowns on illegal transshipments
have further helped to ensure that this channel continues to decline in
importance. Most recently, in November, 2004, the government announced
that all meat arriving in Hong Kong for re-export to the mainland must
be pre-inspected by the China Inspection Company, Hong Kong at an
additional cost of roughly \$475 per container.

# 

# Import Laws and Regulations

Pork imports are subject to tariffs ranging from 12% for frozen meat to
20% for fresh/chilled meat and offal. In addition, pork is subject to a
12% VAT, calculated on the value after the duty has been included. The
combined total places U.S. pork at a slight price disadvantage to
domestic product in Chinese markets. ATO experience indicates, however,
that the quality advantage of U.S. pork is recognized even in Chengdu,
the heart of China's pork producing region. Labeling requirements for
imported pork are complex and subject to change. An experienced
importer/distributor should be able to walk an exporter through the
current requirements for containers and packaging.

# 

# Useful Contact Information

# 

# U.S. Agricultural Trade Office

# Ross Kreamer, Director

# Suite 331, Shanghai Center

# 1376 Nanjing West Road

# Shanghai CHINA 200040 

# Tel: +86 (21) 6279-8622

# Fax: +86 (21) 6279-8336

# atoshanghai@usda.gov

#  USMEF Shanghai

# Ms. Gina Gao

# Central Plaza Room 1010

# 227 Huangpi Bei Road

# Shanghai CHINA 200003

# Tel: +86 (21) 6249-4640

Fax: +86 (210) 6249-5810

USMEF Guangzhou

# Mr. Steve Mo

# Room A, 19th Floor, Junhui Building

# 7 Tiyu West Road

# Guangzhou CHINA 510620

# Tel: +86 (20) 3889-1812

Fax: +86 (20) 3889-1920

# 

#  

Table II: Pork products with the largest volumes, 2002-2004

# 

  --------------------------------- --------- --------- --------- -----------
  Products (simplified USDA export  2002      2003      2004      \% change
  names)                                                          2003-2004

  Fresh swine meat                  6,484     6,210     11,153    80%

  Fresh pork intestine              239       237       8,770     3,600%

  Fresh/chilled swine meat (butt)   371       3,489     6,481     86%

  Salted, dried or smoked swine not 0         3         8,022     267,300%
  elsewhere specified (nesoi)                                     

  Other frozen swine offal          2,279     1,595     4,664     192%

  Frozen tongue                     2,300     364       4,413     1,112%

  Frozen feet                       390       771       4,041     424%

  Unprocessed frozen ham shoulders, 74        595       1,762     196%
  bone-in                                                         
  --------------------------------- --------- --------- --------- -----------

Source: U.S. Trade Data

TABLE III. Swine & Pork Products by Harmonized Code (HC) Import Code
System

+-----------+----------------------------------------------------------+
| **HC**    | **Description**                                          |
+-----------+----------------------------------------------------------+
| Swine &   | Carcasses and half-carcasses of swine, fresh or chilled  |
| Pork      |                                                          |
|           | Hams, shoulders and cuts thereof, of swine, bone-in,     |
| 0         | processed, frozen or chilled (kg)                        |
| 203110000 |                                                          |
|           | Hams, shoulders and cuts thereof, of swine, bone-in,     |
| 020       | except processed, frozen or chilled (kg)                 |
| 3121000\* |                                                          |
|           | Meat of swine, nesoi, processed, frozen or chilled (kg)  |
| 0         |                                                          |
| 203129000 | Meat of swine, nesoi, except processed, frozen or        |
|           | chilled (kg)                                             |
| 0         |                                                          |
| 203192000 | Carcasses and half-carcasses of swine, frozen            |
|           |                                                          |
| 0         | Hams, shoulders and cuts thereof, of swine, bone-in,     |
| 203194000 | processed, frozen (kg)                                   |
|           |                                                          |
| 0         | Hams, shoulders and cuts thereof, of swine, bone-in,     |
| 203210000 | except processed, frozen (kg)                            |
|           |                                                          |
| 0         | Meat of swine, nesoi, processed, frozen (kg)             |
| 203221000 |                                                          |
|           | Meat of swine, nesoi, except processed, frozen (kg)      |
| 0         |                                                          |
| 203229000 | Bacon                                                    |
|           |                                                          |
| 0         | Hams, shoulders and cuts thereof, of swine, bone-in,     |
| 203292000 | salted, in brine, dried or smoked (kg)                   |
|           |                                                          |
| 0         | Meat of swine, nesoi, salted, in brine, dried or smoked  |
| 203294000 | (kg)                                                     |
|           |                                                          |
| 0         | Offal of swine, edible, fresh or chilled (kg)            |
| 210120020 |                                                          |
|           | Livers of swine, edible, frozen (kg)                     |
| 0         |                                                          |
| 210110000 | Offal of swine except livers, edible, frozen (kg)        |
|           |                                                          |
| 0         | Edible offal, of swine (pork), frozen, tongues           |
| 210190000 |                                                          |
|           | Edible offal, of swine (pork), frozen, hearts            |
| Pork      |                                                          |
| Variety   | Edible offal, of swine (pork), frozen, feet              |
|           |                                                          |
| 0         | Edible offal, of swine (pork), frozen, headmeat          |
| 206300000 |                                                          |
|           | Edible offal, of swine (pork), frozen, skins             |
| 020       |                                                          |
| 6410000\* | Edible offal, of swine (pork), frozen, other             |
|           |                                                          |
| 020       | Pork intestine, frozen                                   |
| 6490000\* |                                                          |
|           | Hams and cuts thereof, of swine, containing cereals or   |
| 0         | vegetables, prepared or preserved (kg)                   |
| 206490010 |                                                          |
|           | Hams and cuts thereof, of swine, boned and cooked and    |
| 0         | packed in airtight containers (kg)                       |
| 206490020 |                                                          |
|           | Hams and cuts thereof, of swine, nesoi, prepared or      |
| 0         | preserved (kg)                                           |
| 206490030 |                                                          |
|           | Shoulders and cuts thereof, of swine, boned and cooked   |
| 0         | and packed in airtight containers (kg)                   |
| 206490040 |                                                          |
|           | Shoulders and cuts thereof, of swine, nesoi, prepared or |
| 0         | preserved (kg)                                           |
| 206490050 |                                                          |
|           | Offal of swine (except liver) prepared or preserved (kg) |
| 0         |                                                          |
| 206490090 | Meat of swine nesoi, not containing cereals or           |
|           | vegetables, prepared or preserved (kg)                   |
| Stomach & |                                                          |
| I         | Meat of swine prepared or preserved, including mixtures, |
| ntestines | nesoi (kg)                                               |
|           |                                                          |
| 0         |                                                          |
| 504000080 |                                                          |
|           |                                                          |
| Processed |                                                          |
| Pork      |                                                          |
| Products  |                                                          |
|           |                                                          |
| 160       |                                                          |
| 2411000\* |                                                          |
|           |                                                          |
| 160       |                                                          |
| 2412000\* |                                                          |
|           |                                                          |
| 160       |                                                          |
| 2419000\* |                                                          |
|           |                                                          |
| 1         |                                                          |
| 602422000 |                                                          |
|           |                                                          |
| 160       |                                                          |
| 2424000\* |                                                          |
|           |                                                          |
| 160       |                                                          |
| 2491000\* |                                                          |
|           |                                                          |
| 1         |                                                          |
| 602494000 |                                                          |
|           |                                                          |
| 1         |                                                          |
| 602497000 |                                                          |
+-----------+----------------------------------------------------------+

\* Has not been exported to China for the past 5 years.

  ------------------ ------------ ---------- ---------- ----------- ----------- ----------- ----------- ------------- --------
                     HS 10-DIGIT  VALUES IN                                                             \%            2005
                                  1000                                                                                TARIFF
                                  DOLLARS                                                                             

                     EXPORTS      1999       2000       2001        2002        2003        2004        CHANGE        RATE (%)

  SWN CRC,FR,CH      203110000    0          35         0           0           0           0           \--           20

  HM/SH X PC,FR,CH   203129000    0          0          0           0           0           38          \--           

  SWN MT,PRC,FR,CH   203192000    0          26         279         333         0           18          \--           

  SWN MT,FR/CH       203194000    0          77         157         371         3489        6481        85.76         

  SWN CARC,FZ        203210000    0          0          0           0           0           341         \--           12

  HM,SH,PRC,FZ       203221000    0          30         38          0           0           0           \--           

  HM/SH,X PRC,FRZ    203229000    73         1232       0           74          595         1762        196.13        

  SWN MT,NE,PRC,FZ   203292000    99         116        1371        377         462         446         -3.46         

  SWN MT, FR         203294000    2919       2069       8270        6484        6210        11153       79.6          

  SWN OFL,ED,FR,CH   206300000    0          0          542         0           40          107         167.5         20

  SWN OFL,FZ,TNGUE   206490010    43         668        2115        2300        364         4413        1112.36       12

  SWN OFL,FZ,HEART   206490020    0          14         1525        239         63          943         1396.83       

  SWN OFL,FZ,FEET    206490030    54         0          644         390         771         4041        424.12        

  SWN OFL,FZ,HDMT    206490040    0          0          0           0           0           74          \--           

  SWN OFL,FZ,RIND    206490050    0          0          0           8           0           0           \--           

  SWN OFL,FZ,OTHER   206490090    781        742        1401        2279        1595        4664        192.41        

  HM,SH,ST,DR,SMK    210110000    0          9          103         82          153         0           \--           25

  BACON              210120020    10         0          0           0           7           0           \--           

  SWN NE,ST,DR,SM    210190000    179        9          0           0           3           8022        267300        

  PK INT,FZ,X SSGC   504000080    10         106        340         239         237         8770        3600.42       

  SH,CT,BND,CK,CTR   1602422000   0          0          3           9           0           0           \--           

  SW MT NE BND/CK    1602492000   0          0          0           0           0           20          \--           

  SWN NE,PRP,PRS     1602494000   0          48         0           0           44          0           \--           

  SWN MT PRP,PR,NE   1602497000   89         0          0           0           0           0           \--           

  **TOTAL**                       **4257**   **5181**   **16788**   **13185**   **14033**   **51293**   **265.517**   
  ------------------ ------------ ---------- ---------- ----------- ----------- ----------- ----------- ------------- --------

Table IV. USDA Data for Swine and Pork Products Exports to China,
1999-2004

Note: '05 tariff rates are from [Customs Import and Export Tariff of the
People's Republic of China.]{.underline}