Who is making food (ingredients) in China? – the structure of the Chinese food industry

One of the first things you need to know about a (potential) Chinese partner is to what system it belongs

This is a blog about food, drinks and their ingredients. However, as Chinese society, including its economy, is organized in a very unique way, it is useful to get more insight in its basic structuring. In fact, several aspects of that structure have been mentioned indirectly in various posts, in particular those about Mengniu Dairy and Yanjing brewing.

Economic sectors

An important type of context is the industrial sector. Chinese economy is divided in a number of industries, headed by a central ministry or organization with ministerial status in Beijing. Each province and autonomous region has a Department corresponding with the central organization. Lower administrative regions have, again corresponding, Bureaus. Chinese usually refer to this as the system (xitong) to which they belong. According to the official parlance, a state-owned enterprise is the property of the entire people, but the central administrative organization of its industrial sector has been given the power to manage the enterprise in the name of the people. The central organization will then delegate that power to its corresponding lower level organization. Those organizations also establish and operate schools and colleges related to their sectors.

An example will help clarify the situation: food manufacturing is typically regarded as Light Industry in China. A state-owned flour plant in Suzhou (Jiangsu), will therefore be typically managed by the municipal Light Industry Bureau, which will report to the provincial Light Industry Department, which operates under the China National Light Industry Council in Beijing. This is the reason why so many company names in China start with the name of the city or province in which it is located: it refers to the main governing body. I have mentioned the Changyu Winery in earlier posts. Its official name is Yantai Changyu Wine Group, which indicates that its CEO is typically reporting to the government of Yantai Municipality in Shandong province.

The value of the place name in a Chinese brand name is attested by the story of Yanjing Brewing laid down in an earlier post. Located in Shunyi County, the brand name originally envisioned was Shunyi Beer, but a ministerial official proposed to change it to a name that was related to Beijing. As Beijing Beer already existed, it became Yanjing Beer.

There are also dedicated light industry colleges like the Zhengzhou University of Light Industry. As attested by several posts in this blog, Zhengzhou is located in one of China’s major food producing regions, the home of, e.g., China’s top snack producer Sinian.

This way of organizing creates a kind of matrix structure in which a Chinese company has to account for its activities and results to the local government, but simultaneously to its sector organization. To stick with Changyu, it is accountable to Yantai Municipality and the Light Industry sector. These two merge in the Yantai Municipal Light Industry Bureau, but it can happen that the provincial or national Light Industry organizations contact Changyu for information about its operations.

Personnel

In the current stage of the development of China, this structure does no exercise a huge influence on issues related to production or marketing and sales. Larger state-owned companies are still affected in the field of human resource, in particular in filling the positions of top managers. Leading functions in companies like Changyu are usually appointed by the organization on the Ministry of Personnel, which also has branches in provinces, cities, counties and other administrative levels. The Party organization is also involvement in such appointments. Nowadays, only people with proven expertise and experience in the field will be considered for appointments of top functions in state owned enterprises, but the political aspect remains. This means that the social networks of the top executives of Chinese companies exercise considerable influence on the day to day managed of the enterprises.

Social embeddedness

The combination of the various stakeholders to which a Chinese enterprise is accountable and the social network can be called: the social embeddedness of Chinese companies. Insight in the affiliation of a Chinese enterprise is vital for Western companies who are seeking or have engaged in partnerships with Chinese counterparts. Too often, Western managers believe that their Chinese partner is ‘a company just like we are’ and that the CEO of the Chinese partner has ‘the same responsibilities as I have’. They aren’t and they don’t. Such misunderstandings will certainly play a role in the problems of companies like FrieslandCampina or Fonterra in China recently reported in the media.

Eurasia Consult’s founder Peter Peverelli is an expert in determining the social embeddedness of Chinese companies and the consequences for their Western partners

Food & beverage covers several sectors

The theme of this blog, food, drinks and ingredients, involves a complex situation, as the manufacturing of these three product groups is dispersed over more than one sector. Light Industry is definitely the largest one, but a number of food companies, in particular those using primary agricultural produce as raw materials, are operating under the Ministry of Agriculture. A special type of companies under Agriculture is State Farms. This name is based on the fact that the first of such companies were large state-owned farms established in rougher regions with no existing agriculture or other economic activity. These farms later also established processing plants of their own. A small number is part of the hierarchy of the Ministry of Commerce. The latter is in charge of distributing goods rather than making them, but in the early decades of the PRC, that ministry also established production units. An industry that is very disperses over those sectors is dairy processing. Interestingly, FrieslandCampina and Fonterra mentioned above are both dairy companies.

Light Industry Top 50 2017

As Chinese ministries (try to) keep track of the industrial statics of their respective sectors, the regularly publish compilations like the top 10, 50, 100 manufacturers of a certain product or sector. The China National Light Industry Council recently published the Top 50 Light Industry companies of 2017. I will list the top 10 in this post.

Rank company sector
1 Maotai spirits
2 Wuliangye spirits
3 Yili dairy
4 Mengniu dairy
5 Wahaha beverages
6 Yanghe spirits
7 Xiwang starch sweeteners
8 Bohai soybean oil
9 Hefeng meat
10 Haitian soy sauce

From this list it is obvious that food, drinks and ingredients are the major sector of Light Industry in China. Actually, it covers a broad range of products, like: toothpaste, detergents, brooms, toys, etc. However, the Top 10 and in fact the entire Top 50 consists of food companies. Regular readers of this blog will recognise several of the companies in this list.

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.

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Mengniu – game changer of the Chinese dairy industry

China’s two dairy giants, Mengniu and Yili, are located in the self-styled Dairy Capital of China: Huhhot. What is their relation and the nature of their competition in the Chinese cultural context?

A blog needs to renew regularly. Although most of my posts introduce companies, after the post on COFCO I have never written another one featuring a single company. I will make up for that, starting with this post about one of China’s top dairy companies. This post is derived from a case study in one of my academic writings: Chinese Corporate Identity. Readers who are triggered to get a deeper understanding, please read that chapter, or better: the entire book.

Inner Mongolia – a bit Chinese and a bit Mongolian

Inner Mongolia is an administrative region of northern China of the same level as a province, but with a larger degree of political autonomy.

The greater part of Inner Mongolia is a plateau with elevations of about 1000 metres. The Yellow River flows north from Ningxia and forms a loop that encloses the Ordos Desert. Grasslands predominate on the plateau, where they sustain large numbers of grazing animals such as cows, sheep, goats, camels, and horses. Milk from all those animals has been part of the traditional diet of the Mongols. Apart from drinking the fresh product, milk is processed into a number of cheese and yoghurt like products. Horse milk is even fermented into an alcoholic beverage.

The population of Inner Mongolia is approximately 25 million, up from only 6.1 million in 1953. The rapid population growth since the 1950s is a result of better nutrition, increased health care services, and a substantial migration into the region of Han Chinese. More than 80% of the current population is Han. Mongols comprise the largest minority group in Inner Mongolia, and their presence is acknowledged by the government’s designation of Inner Mongolia as an autonomous region.

From orphan to entrepreneur

Mr Niu Gensheng (1956), Mengniu’s founder, is one of the most mythical among present day China’s entrepreneurs; more even than that of Jack Ma, the founder of Alibaba. Story has it that he lost his parents at the very early age of 3 months and was raised by a farmer called Niu (which ominously means ‘cow’). His foster parents gave him the name: Niu Gensheng.

Niu was hired by what was then called the Yili Dairy Factory in Huhhot, as a bottle washer, in 1978. From that humble position, he gradually worked his way up from work shop supervisor, subsidiary director, vice-director of the mother factory to Vice-President in charge of production of, what was then rename into, the Yili Group. Niu’s career did not pass by unnoticed. He has been granted a number of regional awards and was included in the 10 Top Young Entrepreneurs of Huhhot.

Ousted from Yili

For reasons that have never been actually expressed, a conflict developed between Niu and the other board members, resulting his removal from the board in November 1998. The Board issued a statement indicating that ‘Comrade Niu Gensheng no longer fitted his position.’ He was ‘advised’ to find a place to study outside his home region for at least two years. Judging by this ‘advice,’ it could have been that his fellow board members did no longer feel comfortable with a self-made man among their ranks. Niu grabbed this opportunity to enrol himself in the MBA course of the prestigious Guanghua Business School of Beijing University. He left Yili the following year.

Founding Mengniu

Already within the same year, 1999, Niu Gensheng and a group of more than 50 of his old subordinates at Yili and a number of private individuals, raised RMB 1.3 billion to establish Mengniu Dairy Co., Ltd. When asked during an interview how Niu could so easily convince a considerable number of his former colleagues at Yili to not only quit their comfortable positions, but also entrust a considerable amount of their savings to him, Niu’s own rationale was that he had the habit of sharing his income with his subordinates. His last salary as a Vice-President of Yili exceeded RMB 1 million, which he found more than he needed to make a good living. He often shared part of it with subordinates that he believed to have contributed to his success. In Niu’s eyes, he was cashing in on the goodwill thus accumulated during the establishment of Mengniu. This was good leadership in a communitarian culture like the Chinese.

Fastest growing private enterprise

At that point of Mengniu’s early age, the company was still in a situation Niu himself recalls as ‘four deficiencies:’ no raw milk source, no factory, no brand (he had registered a brand name, but it was unknown among Chinese consumers), no market. He contacted dairy plants all over China with a surplus capacity and contracted those to produce for Mengniu. Mengniu provided specifications, a brand name and technological assistance. Mengniu first created a market and only then built its own production facilities.

Mengniu turned out to be the fastest growing private enterprise in China’s history. The company generated a turnover of RMB 43 million in the first year of its existence, which was approximately 4% of Yili’s turnover of the same period. The turnover of 2002 was already RMB 2 billion, exactly half of Yili’s turnover of that year.

Foreign investment

A milestone in the history of Mengniu was its acceptance of foreign participation late 2002. Niu Gensheng himself had repeatedly stated in the national press that he was not in a hurry to follow Yili’s example in seeking registration on the stock exchange and expose Mengniu to the whims of speculators. It therefore was even a surprise to insiders when it was reported that Morgan Stanley, CDH Fund and China Capital Partners had signed an agreement with Mengniu to invest USD 26 million in Mengniu. As a result of that deal, the three foreign investors held a total share of 32%. According to a spokesperson of Mengniu, the Chinese side had attracted foreign participation to better compete with the other dairy giants like Sanyuan (Beijing) and Bright (Shanghai), that were heavily supported by their respective local governments. Morgan Stanley had already invested in a number of Chinese enterprises including Ping’an Insurance Company, Nanfu Battery Company and Heng’an International Group. CDH Fund had invested in 12 Chinese enterprises, also including Nanfu Battery and Sina.com, an important Chinese business Internet portal. China Capital Partners, a UK fund for investment in China, had invested USD 55 million in China since its establishment in June 2000. Following opening its door to foreign influence, Mengniu’s next step was to seek listing on the Hong Kong Stock Exchange in June 2004.

Cultural drivers of Mengniu’s success

Niu Gensheng’s strategy has never been to ‘push Yili from the market’, which would be the typical Western MBA textbook approach. Instead he kept praising Yili in his advertisements of Mengniu, position his company as a faithful follower of leader Yili.

He vouched in media interviews that Mengniu would not try to snatch raw milk sources from Yili and that Mengniu would never buy raw milk that did not comply with Yili’s specifications.

In the Chinese cultural context, Niu himself, and the Yili employees he had pulled from Yili, would still maintain friendly contacts with their former Yili colleagues. An aggressive strategy would not fit such relations. In the political field, the Huhhot authorities, while welcoming new entrepreneurial activity, would dislike a Western-style life or death fight between state-owned enterprise Yili and private newcomer Mengniu. Commercial competition must never harm the Confucianist ideal of harmonious society.

In short: Niu Gensheng’s entrepreneurial behaviour suited the Chinese communitarian culture and complied with the Confucianist principles of good governance.

Mengniu and Yili outside Inner Mongolia

During the following years and decades, Mengniu and Yili kept growing and expanding into other regions of China. In most regions, either Mengniu or Yili would be the first to enter, but the other would soon follow suit. While Mengniu kept profiling itself as the follower, in their de facto relationship they alternately acted as follower or leader (for concrete case studies see the above-mentioned book).

Mengniu turns SEO

The Chinese business world was shaken by the news that COFCO (see my post that positions COFCO as the next Nestlé) had acquired a significant share in Mengniu in 2009. The media, that had so far regarded Niu Gensheng as a favourite person to interview, now accused him of going against the tide. While privatization was the trend in Chinese economy, China’s most successful private company was now becoming a de facto state-owned enterprise. Niu was not shaken by the fierce criticism, as usual. He calmly replied that the real trend was that the differences between various types of enterprises in China (state-owned, private, foreign invested, etc.) were decreasing. He simply believed that Mengniu would be best off as a subsidiary of the emerging multinational COFCO. History has proven him right.

Food for thought

Mengniu Dairy’s entrepreneurial history provides a large bowl of food for thought. I will leave most of it for you, my readers, to think over. I will restrict to one challenging thought: considering the problems major dairy multinationals like Fonterra and FrieslandCampina are experiencing in China, how much could they learn from Mengniu, to grow roots in the Chinese cultural context? Nestlé, an early Western investor in China, seems to have done a good job in this respect. The key issue in embedding your Chinese subsidiary in the local society is forging valuable relationships, with business partners, but also with competitors.

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.

 

China’s many capitals – regional food chauvinism in China

The leading port of export of canned food from China is Zhangzhou – China’s Canned Food Capital (Chinese news source, 19/7/2016)

I have yet to find out when the first city in China started calling itself ‘the capital of . . .’, where … is a slot for a certain product (group), one of which that city is a national production centre. However, it now has become so important for the local economy, that it has almost become an official designation, bestowed by an industrial association.

Icons are an important aspect of the construction of social identity in Chinese culture. Chinese like to identify a famous person who they would like to become. More than a few Chinese start-up cyber-entrepreneurs are dreaming of becoming China’s Steve Jobs. Some even go as far as to try to emulate their hero’s behaviour, clothing, and speech.

In an analogous fashion, Chinese cities that are leading in a certain industry have started picking a similar foreign city, calling themselves ‘China’s …’ A city with a major car maker may call itself ‘China’s Detroit’. Unfortunately, there are several cities in China that are the home of a major automobile manufacturer, resulting in almost as many ‘Detroits of China’. So far, this has not led to conflicts between the various local governments. Detroit doesn’t care either. The city has lost most of its car-related industry and virtually turned into a ghost town.

Several posts of this blog are introducing the growing importance Chinese local governments attach to their local culinary specialties. A representative post is that about Jinhua ham. Jinhua ham is so typical for that region, that Jinhua has applied for DOC status for this product, meaning that only ham producers of Jinhua are allowed to market their ham as ‘Jinhua Ham’.

A city with a DOC-status food is likely to have a relatively large number of manufacturers of that product, and/or the top producer in that business. Instead of finding its icon elsewhere, such cities endeavour to become an icon themselves, by calling themselves ‘China’s Capital of <their typical product>’. Unlike in the case of China’s multiple Detroits, this has been a cause for chauvinist strive. As societal harmony is a top priority in China, the government has started to regulate such designation through the various sector associations. The most famous issue was giving Huhhot, the capital of Inner Mongolia the status of ‘China’s Dairy Capital’. It was initiated by Mengniu, a well-known company for the regular readers of this blog. Mengniu want Huhhot to be the first city to apply for that status, lest another city would be the first to do so. Huhhot itself was not too keen at first, but gave in at the end. Once the Dairy Association of China had recognised Huhhot as China’s Dairy Capital, no other city in China was allowed to refer to itself in that way. I am not sure if there actually is a penalty for violating this rule, but so far no other city has tried. To mark its status of China’s dairy capital, a large monument was put up in Huhhot.

MilkCapMonument

In the remaining part of this post, I will list a few of the major Chinese food capitals. This list is by no means exhaustive and I will keep adding cities, whenever I encounter them in my scanning of the Chinese information streams. Some of these have a more or less official status, i.e. they are bestowed by the relevant sector association. However, most still seem to be self-assigned. This is probably why there are several capitals for some products.

This list may turn out quite useful. If you want to know quickly were a certain food is produced in China, this list can guide you directly to a/the major region. You will have to look further (e.g. using this blog’s search engine), but this is a good start.

  • China’s ‘Canned Food Capital’: Zhangzhou (Fujian).
  • China’s ‘Dairy Capital’: Huhhot (Inner Mongolia).
  • China’s ‘Chili Capital’: Guizhou
  • China’s ‘Capital of High Quality Maize’: Siping (Jilin).
  • China’s ‘Green Tea Capital’: Emei (Sichuan).
  • China’s ‘Seaweed Capital’: Rongcheng (Shandong), Fuzhou (Fujian).
  • China’s ‘Coffee Capital’: Pu’er (Yunnan).
  • China’s ‘Beverage Capital’: Sanshui (Guangdong).
  • China’s ‘Goat Milk Capital’: Fuping (Shaanxi).
  • China’s ‘Apple Capital’: Qixia (close to Yantai, Shandong).
  • China’s ‘Kiwi Capital’: Pujiang (Sichuan).
  • China’s ‘Flour Capital’: Damin (Hebei).
  • China’s ‘Noodle Capital’: Yiyang (Hunan).
  • China’s ‘Beef & Mutton Capital’: Chifeng (Inner Mongolia).
  • China’s ‘Potato Capital’: Ulanqab (Inner Mongolia).
  • China’s ‘Lemon Capital’: Ziyang, Anqiu (Sichuan).
  • China’s ‘Leisure Food Capital’: Longhai (Fujian).

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.

Cheese in China – a gargantuan challenge

Most Chinese believe that cheese smells like a kitchen rag, but there definitely is a future for cheese in China.

First of all, you should know that most of the Chinese do not like cheese, or at least the typical cheeses Westerners eat every day. Indeed they think it smells horrible and find hard cheeses such as Gruyere or Emmental outright disgusting.

However, more and more Chinese people would like to try new things and to taste imported products, as is attested in many of the posts in this blog. This also includes cheese, especially in first-tier cities such as Shanghai, Beijing or Guangzhou. However, almost all cheese consumed by Chinese is processed, as this removes some of the most problematic properties (texture and odour). Reliable cheese-related statistics about China are notorious hard to get. According to a usually reliable Chinese soure, the country has produced 27,000 mt of cheese in 2016; 10,000 mt made from domestic raw milk and the remaining 17,000 mt being processed imported cheese. The OECD-FAO and USDA statistics are considerably higher, but I suspect that those figures include some yoghurt, which by some producers, in particular in the South, is named suanrulao ‘sour yoghurt’.

CnProcCheese

Government support

Chinese Vice Agriculture Minister Yu Kangzhen stated on Dec. 13, 2017, speaking at an event to encourage cheese consumption in schools, that efforts should be made to develop dry dairy products like cheese to improve dairy product structure and boost the dairy industry. Chang Yi, chairman of Beijing Sanyuan Food (see below), said at the event that China’s cheese consumption could grow by more than tenfold in future, and that he expected the cheese industry to maintain annual growth of 20% in the next five years.

Imports

While domestic production is growing, most cheese consumed in China is imported. China imported 97,000 mt of cheese in 2016, 6.9 times the volume of 2008.

Region share (%)
New Zealand 42.2
Australia 27.2
USA 18.6

The old world is obviously lagging behind, which is again a result of the Chinese dislike of unprocessed cheese.

Mozzarella is a major item in the list of imported cheese. Fonterra has recently opened a cheese plant in Australia to better supply the Chinese pizza market. According to a Fonterra spokesperson, already half of the Chinese pizzas are topped with mozzarella from Fonterra.  Mengniu and its partner Arla have launched mozzarella in 2018.

China is lowering its cheese tariffs from 12% to 8%, effective from December 1, 2017. This will certainly boost the sales of imported cheese.

Distribution Channels

93% in supermarkets and hypermarkets
4.8% in small independent grocers
1.9% in other food retailers
0.3% small outlets like hotels and upscale restaurants targeting expatriates

The supermarket is the no.1 distribution channel, because it is absolutely necessary to maintain the cold chain for cheese. Many small grocers cannot provide this quality service. With the development of the Internet and new ways of consumption, it is now possible to buy your cheese online.

Imports are still rising significantly. China has imported 16,446.9 mt of cheese during the first 4 months of 2017; up 41.25%.

Demand

Demand for cheese is driven by two factors: Chinese consumers looking for high quality dairy products and safe products prefer major western brands. Lifestyles are moving towards European standards of consumption.

The tastes of Chinese regarding cheese will develop gradually. Traditionally Chinese food is served with several dishes. And unlike us, Chinese don’t eat cold meal. However, pizza has made extremely popular in China after the arrival of Pizza Hut in the Middle Kingdom. Its success has inspired many Chinese entrepreneurs to venture into Italian restaurants, and cheese is an inalienable ingredient of Italian cuisine.

PizzaHutChina

Main brands

The site Manufacturing News has published the following list of China’s top 10 cheese brands of 2015

1 Yili
2 Bright
3 Suki
4 Milkana
5 Anchor
6 Mengniu
7 La Vache qui Rit
8 Sanyuan
9 Arla
10 Tala Eji

Half of these are indeed domestic companies, but most of them import bulk cheese and further process it into processed cheese in various shapes and flavours.

The oldest domestic cheese producer is Sanyuan (Beijing). It imported a Danish cheese production line in 1985, mainly to service the foreign diplomatic community in the Chinese capital. Sanyuan still produces this cheese under the Beijing Cheese (Beijing Ganlao) brand. It now has a capacity of 10,000 mt p.a.

Ingredients: fresh milk, non-fat milk powder, salt, calcium chlorate, rennet, lysozyme, Lactococcus lactis cremoris, Lactococcus lactis diacetyl, Leuconostoc mesenteroides

Strikingly, most domestic companies that actually produce cheese in China are small, often privately owned, enterprises. There is Qishi (Inner Mongolia), China’s first producer of Mozzarella, but the most interesting case is no doubt Le Fromager de Pekin, a company set up by a Chinese, Liu Yang, who learned making cheese in France. Liu spent 7 years in France studying the language, business administration and cheese making. Upon his return to China in 2007, he stumbled through careers in translation and IT sales before opening Le Fromager de Pekin, which sells about 5300 pounds of cheese a year. Although Liu’s mission is to promote cheese to fellow Chinese, almost all of his clients are expatriates living in Beijing. Still, he’s convinced that will change. Watch this video report about his activities.

Case study: Golden Valley: Gouda as only a Dutchman can make it

When Marc de Ruiter’s Yellow Valley business opened up in 2004, it was the first fair trade Gouda cheese producer in China. Known by almost half the expat population in Beijing. Here is a video impression from 2009.

Yellow Valley is located near Taiyuan (Shanxi). It is a small production facility on the premises of a dairy farm. Here, Marc de Ruiter, a Dutch agriculturist, produces his original Gouda cheeses. He is supported by two full-time employees – one cheese maker and one who handles marketing and sales. Two part-time employees take care of the online sales activities via China’s e-commerce platforms. The small Gouda cheese making business grew more successful over the years and the Yellow Valley products were widely known in China’s largest cities. After China was hit by the melamine milk scandal, Yellow Valley had to close down, like many small dairy-processing businesses.

YV

After the close-down from 2011 to 2015, Marc found a way to restart. “Producing ‘farmhouse based cheese’ was the loophole I needed. It requires a lot less licences and permits. The cheese can only be sold directly and online – not in stores.” The Yellow Valley ‘new style’ offers a wide range of traditional and special products, like the original Cheese, the Aged, Herbs de Provence and Cumin varieties and even with local cheese favourites with onions and garlic. There is even a spicy variation red Currently, nearly 90% of its sales go through WeChat, Weidian and Taobao channels.

After the reopening of Yellow Valley in mid-2015, Marc aims to increase production. The company is expanding its facilities to 65+ square metres of production space, a ripening chamber and an exhibition space.

What is missing?

So the Chinese are surely developing a taste for cheese, but what would it take to bring this market to maturation? One problem is that cheese is hard to integrate in Chinese cuisine. You can try to design a recipe for cheese-filled dumplings, but this may make them taste more like an Italian dish than a Chinese snack. The same would happen, if you would sprinkle grated cheese over a bowl of Sichuan-style dandan noodles. It may actually be tasty, but I wonder if it would ever become a hit. One solution could be to do tests with adding molds like those used to produce furu (fermented bean curd) to cheese and develop an indigenous moldy cheese. Huangshan Tianfeng Foods Co. produces a version of the traditional Chinese rice cake niangao flavoured with cheese.

Another problem is that the little natural cheese that is actually produced on Chinese soil is not linked to the local food tradition, the local terroir. When I first lived in China in the 1970s, we could buy cheese from Heilongjiang province (the home region of Mr Liu Yang), close to the Russian border. That was real natural cheese. However, production seems to have halted; pushed from the market by imported cheese and locally produced processed cheese. An idea for Mr Liu Yang would be to promote his Beijing-produced cheese as the ideal companion of Beijing’s famous baijiu (distilled liquor): Erguotou; a beautiful marriage between the old and new local tradition.

Cheese has set a firm foot on Chinese soil and it certainly there to stay and to grow.

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.

Yoghurt in China – innovative but old is still hip

Yoghurt is the most widely acceptable dairy product among Chinese consumers.

Yoghurt has always been one of the more popular dairy products in China. The value of the Chinese yoghurt market for 2017 is estimated at RMB 89 bln. An important reason is that it is easier to digest by people with lactose intolerance. Yoghurt is also less ‘creamy’ in taste that liquid milk, and lacks the alien smell of most Western cheeses.

The Chinese yoghurt market is dominated by the two Inner Mongolian giants Yili and Mengniu and their Beijing cousin Sanyuan and Shanghai-based Bright as the Benjamin. The following table shows the yoghurt market shares of the major companies in January 2018.

Company Share (%)
Mengniu 28
Yili 27
Sanyuan 21
Bright 15
Tianrun 3
Junlebao 3
Yiguo Fresh 1
Weiquan 1
Others 1

Old yoghurt newly formulated

However, even though a large variety of yoghurts is available in the local supermarkets, Chinese consumers have started to grow bored with the relatively sweet and rather liquid products.

To counter the demand for a new type of yoghurt, a number of Chinese dairy companies started launching more viscous products a year and a half ago, resembling products like Greek yoghurt or quark. In fact, Yili (Inner Mongolia) has launched a Greek yoghurt early 2016 (see photo). They are market as ‘old yoghurt’, trying to create a ‘traditional’ image; yoghurt as it originally used to be.

YIliGreek

 

Huishan Dairy (Liaoning) has launched a type of Russian yoghurt early 2017, branded Wolingka.

After so many food safety incidents, an investigative journalist of the Beijing Evening News purchased old and regular yoghurt of three leading brands, to compare the ingredients used in each product, as listed on the packaging. He has furthermore interviewed a number of experts in this field.

The results allow us to have a look into the kitchen of the present day top producers in this industry in China, and one with a rare degree of detailedness. We will start with offering a translation of the information of the 8 products (4 brands of Old Yoghurt and 4 types of normal yoghurt of the same brands). For each product, the following information will be provided: brand and product name, ingredients, and price. I will then summarise the judgments of the journalist and the experts and end with some comments from my side.

 

Junlebao

Traditional Old yoghurt Raw milk, sugar, whey protein powder, streptococcus thermophilus, lactobacillus bulgaricus additives (HPDSP, gelatin, pectin, monoglyceride, aspartame, acesulfame-k) RMB 2.48/139 gr = RMB 0.018/gr
Yoghurt Raw milk, streptococcus thermophilus, lactobacillus bulgaricus, additives (HPDSP, gelatin, pectin, aspartame, acesulfame-k) RMB 10.50/800 gr = RMB 0.013/gr

 

Bright

1911 100 years Old Yoghurt Raw milk, sugar, whey protein powder, streptococcus thermophilus, additives (HPDSP, gelatin, pectin, agar, food flavors) RMB 4.90/160 gr = RMB 0.031/gr
Yoghurt (sugar free) Raw milk, whey protein powder, streptococcus thermophilus, additives (HPDSP, gelatin, pectin, agar, food flavors) RMB 8.80/800 gr = RMB 0.011/gr

 

Mengniu

Inner Mongolian Old Yoghurt Raw milk, sugar, whey protein powder, thin cream, streptococcus thermophilus, lactobacillus bulgaricus, additives (gelatin, agar) RMB 3.80/160 gr = RMB 0.024/gr)
Yoghurt Raw milk, sugar, lactobacillus bulgaricus, streptococcus thermophilus, additives (HPDSP, agar, aspartame, acesulfame-k) RMB 8.00/800 gr = RMB 0.01/gr

 

 

Yili

Old yoghurt Fresh milk, sugar, streptococcus thermophilus, lactobacillus bulgaricus, additives (gelatin, diacetyl tartaric acid ester of mono(di)glycerides, HPDSP, pectin, acfesulfame-k, aspartame) RMB 3.95/15o gr = RMB 0.026/gr
Probiotic plain yoghurt Fresh milk, sugar, whey protein powder, streptococcus thermophilus, lactobacillus bulgaricus, bifidus, lactobacillus acidophilus, additives (HPDSP, pectin, gelatin) RMB 10.90/800 gr = RMB 0.014/gr

 

Sanyuan

Old Beijing plain yoghurt Raw milk, sugar, streptococcus thermophilus, lactobacillus bulgaricus, additives (gelatin, diacetyl tartaric acid ester of mono(di)glycerides, pectin, xanthan) RMB 3.80/180 gr = RMB 0.021/gr
Plain yoghurt Raw milk, sugar, streptococcus thermophilus, lactobacillus bulgaricus, additives (gelatin) RMB 9.50/800 gr = RMB 0.012/gr

 

The journalist’s findings

Retailers generally like the Old Yoghurt, which they describe as ‘selling itself without any marketing effort’. Most consumers interviewed while buying it state that Old Yoghurt has an ‘original’ taste and ‘reminds one of the past’.

The price difference is significant. It is smallest for Junlebao, but for the other brands, the Old Yoghurt is on the average twice as expensive per gram as the regular variety.

However, these differences in price are not reflected in the lists of ingredients. Actually, these are remarkably similar for the Old and regular varieties. Moreover, the differences between the various brands are also very small. Even more peculiar is that an ingredient that is typical for Old Yoghurt in one brand is typical for the regular variety for competitive brand.

Apparently the only real difference between these two types of yoghurt is that dosage rates of thickeners, giving Old Yoghurt the thick mouth feel that traditional yoghurt used to have.

The experts’ opinion

The journalist has interviewed a number of dairy scientists on this topic. All agree that Old Yoghurt is a ‘concept’ rather than a real product. Real traditional yoghurt was a solidified milk, produced by fermenting raw milk with certain bacterial cultures in stone jars. There is nothing mysterious about it.

All brands of Old Yoghurt described by the journalist contain gelatin; and so do even some of the regular yoghurts. The thicker mouth feel is thus emulated by means of additives. The current Old Yoghurts are certainly not healthier than the average yoghurts.

My comments

This is a fascinating discussion. Actually, in European regular media we rarely find such detailed reporting on the use of food ingredients to ‘construct’ images of food products. Evidently, the food safety incidents that have taken place in China during the past couple of years have sensitised the awareness of Chinese consumers to an extent that consumer associations in Western countries can only dream of.

The issue revealed here by a Chinese journalist is by no means a typically Chinese phenomenon. One can buy semi-finished muffins and other types of cake in Europe, than can be baked at home to enable consumers to serve hot freshly baked muffins to their guests. TV commercials advertise these products showing people in the street smelling that (grand-)mother is baking cake. We are not aware of protests by consumers or consumer associations about such commercials. What European consumers seem to miss is how it is possible to smell a cake being baked from such a large distance.

Our ‘(grand-)mother’s apple pie’ is also emulated with premixes containing artificial flavours. These are further combined with emulsifiers and other additives, to ensure that even the most inexperienced person can bake such a pie or muffin. These additives are all approved for use in food, but so are the ingredients of Old Yoghurt in China. The Chinese journalist is not exposing excessive use of ingredients or the use of illegal additives. He is simply pointing out that consumers need to be aware of the fact that current Old Yoghurt is not related to the traditional thick yoghurt that Europeans use to eat when they were young. In this respect, Chinese consumers and media seem to be a step ahead of their European counterparts.

A few days after this publication on Old Yoghurt, another article appeared interviewing two more dairy experts. Their judgment was significantly milder. Old Yoghurt was first launched by a relatively small company in Qinghai, a region where people are traditional consumers of dairy products. Once that product became a success, it was imitated by dairy companies all over China. However, these companies lacked the skills to produce a thick type of yoghurt in the traditional way. The move to thickeners is then easily made.

The experts further point out that gelatin, starch and most other thickeners are natural products that are used in a large number of foods, and even in the kitchens of many consumers. Their use as food ingredients has been approved and there even is no maximum dosage rate for this kind of ingredients. The dairy experts do point out that there are better ways of producing a thicker kind of yoghurt, like lowering the water content of the milk. This requires more technical skills than adding thickeners. The current problems of Old Yoghurt in China are therefore directly related to the large number of relatively small companies, lacking skilled staff.

Recent developments

The most recent development is that the more and more producers are replacing the term ‘old yoghurt’ with other fancy names. Yili has launched a ‘Pureday Clotted Yoghurt’ and Junlebao a ‘Laojuezhuang European Sour Cheese’ (laojuezhuan literally means ‘cheese estate’. The names and design of the packaging shows that the basic proposition, that these are traditional European products, is now emphasised even more than before.

PuredayLaojuezhuang

The formulations have not changed dramatically:

Yili’s ‘Pureday Clotted Yoghurt’ Sugar, whey protein, fresh milk, butter oil, egg yolk powder, additives (gelatin, DATEM, HPDSP, pectin), flavours, streptococcus thermophilus, lactobacillus bulgaricus RMB 5.50/138 gr = RMB 0.039/gr
Junlebao’s ‘Laojuezhuang European Sour Cheese’ Sugar, whey protein, fresh milk, condensed milk, additives(gelatin, DATEM, HPDSP, pectin, xanthan), lactic acid culture RMB 4.70/139 gr = RMB 0.034/gr

Organic yoghurt

Organic yogurts are proving popular for health-conscious office workers and young parents. Discerning shoppers seem willing to pay that little bit more for the right products as supermarkets start stocking an array of upmarket brands. Classy Kiss, a yogurt rolled out from Green’s Bioengineering (Shenzhen) Co Ltd, posted significant sales growth in third and fourth-tier markets. It recently launched an organic brand, which sells at around RMB 14, one of the most expensive products from its dairy range. Earlier, it also launched a yogurt designed to help improve the digestive system after a meal. The company hopes it will be able to cash in on the growing demand for healthy products. Sales of functional and fortified yogurts in China are expected to rise 23% to RMB 43 bln in 2017 compared to 2016. By 2022, sales are expected to surge 56% to RMB 75 bln.

Drinkable yoghurt for the young

Younger Chinese consumers have taken a fancy to creamy, sweet, flavored yogurt and yogurt-based drinks. Category sales have surged about 20% annually since 2014 to reach RMB 122 bln in 2017. Chinese consumers perceive yoghurt as “nutritious”, “helps to boost immunity”, “easy to digest” and “suitable for children and the old”. Yogurt has become a leading product in the domestic dairy market. But compared to other countries, yogurt consumption in China is relatively low at 3.43 kg per person per year (Japan leads with 9.66 kg and the figure for the United States is 4.92 kg). The recent uptrend in yogurt sales in China has positive implications for the larger dairy market. Overall dairy sales in China are expected to exceed RMB 480 bln by 2022 on a compound annual growth rate or CAGR of 6.6%.

Le Pur yoghurt

A noteworthy new arrival on in China’s domestic yoghurt industry is Le Pur. The name embodies the company’s simple and down-to-earth ambition of providing pure and delicious, quality yoghurt. With its dairy imported from countries such as the UK and New Zealand, and other ingredients, such as freshly-picked blueberries sourced from Shandong Province, hazelnut jam from Germany and vanilla from Madagascar, Le Pur aims to provide only “genuine ingredients.” Le Pur’s founder and CEO Denny Liu, a graduate of the Wharton School and a former employee of the Blackstone Group. Liu was also a special adviser to world leading industrial companies like PepsiCo. In late 2014, Liu gave up his career and started to make dairy from scratch. Within a year, he started Le Pur and gained over 40,000 fans on Le Pur’s official Sina Weibo and WeChat public accounts. So far, the number of fans has grown to around 320,000. Just a few months after launching Le Pur, Liu branched out into online to offline operations, and the company’s daily sales volume grew to around 1,000 bottles, according to cyzone.cn, a news platform for start-up businesses in China, on May 10, 2015. One of Le Pur’s marketing strategies is its down-to-earth interaction with consumers. In their concept store in Sanlitun, they showcase the yoghurt’s production line in a 30-square-meter room. The store has never lacked visitors. Le Pur also involves its customers in the choice of flavour and package design.

 

Related items in this post:

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.

 

 

Protein drinks – the Chinese alternative for dairy

In previous blogs on dairy (traditional dairy, formulated dairy), I have pointed out that in spite of the rapid development of this industry in China, the taste of milk is still inhibiting for most Chinese. Especially the formulated products are meant to address this problem by creating a host of products that deliver the nutrition of milk, while disguising the creamy flavour that so many Chinese still find hard to get used to.

However, there is an alternative group of products that have a nutrition profile more or less like milk, but lack the problematic flavour, because it is plant based: protein drinks. While soy-based drinks have made considerable progress in Europe recently, as life style products, they have been popular in China for ages.

Traditional products like soybean milk have appeared in various modernised versions, and other protein drinks from almonds, peanuts, or coconuts have been added. Their popularity is evident from the large variety of products available in Chinese supermarkets. The total turnover for protein drinks in 2015 exceeded RMB 100 bln, and is expected to 258.3 bln by 2020.

The main technical problem to crack in these products is maintaining a proper emulsion. Protein gel is combined with an oil-in-water emulsion, which results in a non-heatstable liquid, which can only be countered with a mix of emulsifiers. Most recipes use sucrose ester, combined with monoglyceride, alginates, etc.

Let’s have a look at the most representative types, according to source.

 

Soybeans

Soybean milk is a traditional product in China. The earliest records of it date from the West Han period (2nd Cent. B.C.).

The process requires soybeans with a sufficient water content (10% – 14%). After the hulls have been removed, the beans are pressed and water is added. In the modern production process, a chelating agent like EDTA is added for stabilisation. The raw soy milk is cooked for about 10 minutes. After centrifuging, nutrients like fat, sugar, or vitamins and minerals (e.g. calcium to create the perfect alternative for milk) can be added. Flavours can be added too, either to strengthen the typical soy flavour, or adding new flavours, typically those of fruits.

China’s top producer of soybean milk is Weiwei, located in Xuzhou (Jiangsu). The company’s main product is instant soybean milk, which make it the most convenient of the protein beverages introduced in this blog. The other drinks are only available in liquid form.

Image

 

Soybean milk is so popular in China, that KFC has decided to add it to their breakfast choices in their Chinese outlets.

KFCsoy

Weiwei continued on this development by launching soybean milk in a bottle that resembles the classic Coca Cola bottle late 2017, even stronger suggesting that soybean milk can be consumed as a healthy alternative for soft drinks.

Another recent innovation by Weiwei is launching a range of canned soybean milk with various flavours, including coffee.

Almonds

Almond milk is not really an alternative for dairy, as milk is used as an ingredient. The recipe I consulted for this blog lists almonds and Chinese yam (shanyao) as the main ingredients and milk and honey as auxiliary ingredients.

The almonds are roasted, crushed and cooked with the milk and yam. The honey is added after the milk starts boiling.

Almond milk has been made popular in China by Lulu, a company based in Chengde (Hebei). The typical thin cans of Lulu have been on the market for more than two decades, as an alternative for milk, as well as a drink for those who cannot drink alcohol during a banquet. Lulu realised a turnover of RMB 2.112 billion in 2017.

It is thicker than soybean milk and quite sweet. One Dutch friend called it ‘liquid marzipan’ after his first sip. With ups and downs, Lulu is still a serious player in this market.

Image

Lulu’s turnover started to slip in 2017 and the company is trying to recoup market share by launching special protein beverages for children, like Xiao Lulu (‘Littel Lulu’).

Coconuts

Coconut milk will not be a new product for most readers. It is a traditional product of Southeast Asia, and that is the region from which it gradually conquered China. Those with 1.5-2% fat content have been very popular in China for many years, and the market continues to grow. The top producer of coconut milk in China is Yedao (literally: ‘coconut island’), located in the tropical island province Hainan.

Coconut milk is pressed from the flesh of unripe coconuts. Only some water and sugar are added.

Like Lulu’s almond milk, Yedao’s canned coconut milk quickly appeared in Chinese restaurants as the drink for drivers and other people who were unable to drink alcohol, but wanted something with a more stimulating taste than water or chemical laden soft drinks.

CoconuM

Walnuts

Walnut milk is made from walnuts and water. Walnuts are ascribed a number of medicinal properties, which are prominent in the marketing stories of the various manufacturers. Unlike the protein drinks introduced above, there is not ‘leading player’ in this market yet. Still, a National Quality Standard (GB/T 31325-2014) has been promulgated for walnut milk in on Dec. 5, 2014.

Image

An interesting development is that one Chinese coffee maker (Hogood) has launched a new type of coffee creamer made from walnut milk, marketed as Walnut 007.

Peanuts

Peanut milk, like the almond variety, is using the real thing as an ingredient. It is made from peanuts and milk, and even more than almond milk, peanut milk is more peanut-flavoured milk, like the ginger milk introduced in an earlier blog. It enriches the already nutritional milk with linoleic and arachidonic acid. And it covers the creamy taste of milk with a soft peanut flavour.

Yinlu in Xiamen (Fujian) is a major producer of peanut milk. The company is now under the control of Nestlé, which makes Nestlé the first foreign player in this market. Recently, Nestlé has announced that it is looking at updating its Yinlu peanut milk brand to satisfy consumers who prefer fewer additives and alternative ingredients.

Image

Yinlu has launched two products with multiple raw materials in 2017: red beans + peanuts and Job’s tears + peanuts.

The growing popularity of protein beverage has attracted the attention of the recently revived beverage brand Beibingyang. The company has launched a peanut drink of its own trying to create synergy between its well known brand name (including the polar bear logo) and the current interest in protein beverages.

Hickory

The latest addition to this growing range of beverage is the hickory protein drink from Tiannie Hickory Food Co., Ltd. (Guangyuan, Sichuan). The product has been launched in 2014. The raw materials are grown locally.

Tiannie

Sesame

Nanfang Food (Nanning, Guangxi) produces black Heiheiru brand sesame milk, a protein drink made from black sesame. Its ingredients list:

Water, black sesame, sugar, milk powder, starch, peanuts, sodium caseinate, sodium tri-polyphosphate, xanthan, CMC, carrageenan, monoglyceride, sucrose ester

This list shows that Heiheiru is not really a ‘sesame drink’, but a compound protein drink flavoured with black sesame. It partly owes its popularity to the colour black that is associated with a high anti-oxidant content.

Compounds

Compound protein beverages have also appeared, like the walnut peanut milk produced by Taigeili in Chengdu (Sichuan). This company is known for innovative products like rose vinegar.

Image

Not so natural

Although these drinks are all marketed as healthy beverages (not health beverages, that is another category in China), the ingredients listed on the label of Hengyi Yinxue walnut beverage includes an impressive number of additives:

Water, walnut kernels, crystal sugar, additives (xanthan, polyglycerin fatty acid ester, sodium tripolyphosphate, sodium pyrophosphate, sodium d-isoascorbate, sodium dihydrogen phosphate), food flavour

This way of listing additives is presecribed by Chinese law. Interestingly, flavours are not regarded as additives in this regulation and therefore not listed within the brackets.

 

Foreign interest

The Reignwood Group, the Chinese distributer of Red Bull, has acquired a 25% stake in Vita Coco, a US producer of coconut juice, in July 2014. In China, through Vita Coco’s own feet on the street along with the approximately 2000 employees of Red Bull China, the brand will be available about 130,000 stores soon.

Minutemaid has launched its own range of protein beverage in China mid 2017.

The dairy empire strikes back

China’s top dairy companies have adopted an ‘if you can’t beat them’ strategy. Mengniu and Yili, the top 2, have launched their own protein beverages recently. Yili announced its plans during a public meeting at the end of 2014. Mengniu has entered into a joint venture with US-based WhiteWave Foods Company, a leading consumer packaged food and beverage company in North America and Europe early 2013. The jv is marketing WhiteWave’s Silk brand protein drinks in China. This product is common in the US and is an affiliate of Alpro, a brand in Europe, though its positioning in China is quite unique. With its convergence of flavours, Silk’s positioning as a 100% natural solution, targeting those that are lactose intolerant, could spell success for Silk in China, especially as consumers become ever more sceptical regarding the origin, nutrition, safety and environmental impact of the food and beverages they buy.

SilkAlmond

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.