China’s Growing Bakery Sector – Opportunities For Palm Based Fats

China’s population stood at 1.4 billion in 2020. With the large population size demand for bakery products is huge. In 2020, China consumed close to USD50 billion worth of bakery products.

There is potential for the consumption of bakery products to grow attributed to the country’s rising middle class and the ongoing Westernization of lifestyles and diets.  The low per capita consumption is another factor that could drive China’s bakery demand growth in the future. Based on Euromonitor research, the current per capita consumption of bakery products in China is low at 7.2 kg per year, compared to 22.5 kg in Japan and 40.2 kg in the United States. A growing variety of bakery products and expanding presence in retail outlets such as supermarkets and hypermarkets are other factors that could drive higher consumption of bakery products.

Pastries and cakes are the major kinds of bakery products consumed in China.  The pastries sector grew at 10.5% per annum during the 2015 – 2020 period. USDA reported that growth in the pastry sector in China is concentrated in products with fillings such as biscuits with dense cream. During this period, retails sales of cake saw a compound average growth rate of 8.3%. Bread consumption grew at an average rate of 9% p.a. 

Bread is only popular among young urban consumers. (Source: Euromonitor) This segment of consumers thinks that if the bread is consumed with fresh milk, it is better than traditional breakfast items such as rice porridge.  To this segment of the consumers, milk, and bread requires little preparation, thereby making them attractive to a large class of office workers who seek convenience due to the fast pace of daily life. Whole wheat and white bread are the main product varieties supporting China’s bread consumption growth. The varieties of bread that are commonly consumed are soft and springy. It is preferred by the Chinese over the harder ones such as bagels and baguettes. Whole wheat bread is preferred among the Chinese who are health conscious.

Source: Euromonitor and MPOC Estimation

Palm Based Fats For China’s Bakery Market

The market for palm-based fats for the bakery market can be divided into 2 categories namely margarine and shortening.  Although China produces its margarine and shortening, it still has to depend on imports to satisfy its requirement. The uses of margarine in the bakery sector are small as it is used mainly in high-end bakery products. In 2019, China imported only 18,848 MT of margarine. China’s imports of its shortening are mainly from Indonesia. 

Source: General Administration of Customs, China & MPOB

Malaysia’s shortening selling price is uncompetitive in China. Based on feedback from Indonesian and Malaysian exporters, Indonesian exporter is offering 10% to 15% lower than the price offered by Malaysian exporters. For example, for shortenings with 30o C – 390C in carton packing, Indonesia can offer 10% -15% cheaper than Malaysia whose price is around RM3,500 per MT f.o.b. currently. Due to the uncompetitive price, Indonesia can export more to China. From 2015 to 2019, Malaysia accounted for less than 5% of China’s total shortenings import.  Some Malaysian companies are said to source from Indonesia to export to China as the shortening price in Indonesia is more competitive.     

Imported shortening account for only 20% of the shortening used in China. (Source: ACKI research). Locally produced shortenings account for the other 80% of the bakery sector used. Locally produced shortenings are said to be more popular compared to imported shortenings as the delivery time is shorter, it allows users to purchase when it is needed and it is easier to fall back on suppliers for problems and issues.

China produced approximately 800,000 MT to 900,000 MT of shortenings a year currently. The high production of shortenings produced in China offers the Malaysian palm oil industry the opportunity to sell more palm oil to China’s shortening manufacturers. The main palm fractions use to produced shortenings are RBD palm stearin and RBD palm oil.

Major producers of shortening in China are COFCO East Ocean Grains & Oils Industry Industry ( Zhangjiagang) Ltd and Zhangjiagang Commission Clear Foods Company with an annual capacity of production of 100,000 MT and above a year.

Table 1: List of some major shortening manufacturers in China

No Company Estimated Annual Production Capacity (MT/year)
1 COFCO East Ocean Grains & Oils Industry (Zhangjiagang) Ltd. 300,000
2 Zhangjiagang Commission Clear Food Company                   100,000
3 Cargill Agri (Nantong)  Ltd 12,000
4 Yihai Kerry Group 12,000

    Source: MPOC Market Intelligence

The average composition of shortenings present in pastries, cakes, and bread manufactured in China is 8.9%, 12.7%, and 1.3% respectively. (Source: Euromonitor). With the size of production of pastries, cakes, and bread estimated at 5.5 million MT, 2.6 million MT, and 3.6 million MT in 2019, it is estimated that 489,500 MT of shortenings is used in pastries production, 330,200 MT in cakes production, and 46,800 MT in bread production in 2019.

Exports of palm-based shortenings for the bakery product sector are mainly through bakery fats distributors. The problem of selling directly to the producers of bakery products in China is that some of these producers are small. These small producers may not have the import license and may not have the foreign exchange capability to import direct.

List of some major distributors of bakery fats in China

No Company
1 Guangzhou Puratos Food Co. Ltd
2 Shanghai Hiroad Food Technology Co. Ltd.
3 Namchou Food Group (Shanghai) Co. Ltd.
4 Rich Products (Shuzhou) Co. Ltd.

Conclusion                                                                                     

China’s bakery market is growing. The growing market offers palm oil players the opportunity to sell more palm-based fats to the bakery products producers in the country. It also offers palm oil players the opportunity to sell more palm oil and fractions to the local producers of palm-based fats. MPOC has initiated several programs to enhance the prospects of Malaysian palm oil players to sell the higher amount of these products. Please read the article “ China Palm Oil Market – Improving Malaysia’s Market Share at http://mpoc.org.my/china-palm-oil-market-improving-malaysias-market-share/ to know more about MPOC’s program to promote more palm oil use in China.

Prepared by:  Lim Teck Chaii 

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