Companies like CCGL want to take advantage of window to sell products to Asia’s largest economy

29/11/2022

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One year after the first dairy products export to China, the Rio Grande do Sul-based cooperative CCGL received this month a visit from its Asian commercial partners. Due to market conditions — the price of the Brazilian product is not competitive now — new deals have not yet been closed. But, with an eye on the future, the contact has been constant in 2022.

It is understandable. Even though China is on the other side of the globe, and close to New Zealand — the largest exporter of dairy products in the world — the country may increase its imports of dairy products by 80% between 2021 and 2031, when purchases may reach 35.8 million tonnes in milk equivalent. The data are from the Chinese government and were gathered by InvestSP, an agency that belongs to the São Paulo government and promotes business between the two countries.

Brazilian exporters believe that Latin American countries can benefit from business windows in this decade as the Chinese demand is higher, since there is a limit for the New Zealanders to meet it.

According to José Mário Antunes, COO of InvestSP, the increase in dairy products consumption in China results not only from population growth, but also from an adjustment in nutritional recommendations that has been made by Beijing.

Caio Vianna — Foto: Divulgação

As this is a difficult market to conquer because it requires investment and patience, CCGL is committed right now. “When the market changed this year [prices in Brazil went up], we even cancelled a shipment of twenty containers to Brazil. We did this by mutual agreement, to maintain the good relationship,” said Caio Vianna, president of CCGL.

The Brazilian cooperative sent two “small” lots of powdered milk to the Chinese market a year ago. Volume and value were not informed. The milk was used by processors that manufacture dairy products, such as cheese, yogurt, and even sausage.

According to Mr. Vianna, the buyers were not yet familiar with the Brazilian product. “They really liked it,” he said. “But selling to China requires not just thinking about immediate profit.” CCGL knows it will have to invest money, time, and sometimes “even lose something.” “It takes work, but to open a market you need to invest.”

In the view of the exporters, it will be possible for Brazil and its neighbors, Argentina and Uruguay — two milk suppliers already more consolidated in the international market — to gain space in China over the course of the decade, because the rise in Chinese consumption will not be fully supplied by New Zealand.

Mr. Vianna believes that New Zealand has a limit to expand its supply, since the country depends on pasture and is not a producer of grains, used in livestock feed. Observing these features, he says, it will be difficult for farms to increase volumes by “30% or even twofold” to meet a demand much higher than the current one.

However, after New Zealand, the largest suppliers of dairy products to China are the European Union and Australia, important global suppliers of the sector that should also fight for space. The opportunities for Brazilians will happen in “windows” as the Asian demand — adding Vietnam and Indonesia — is bigger, raising international prices.

The ability to take advantage of them will depend on changes brought about by some fronts of efforts, whether individual – as has been done by CCGL –, sectorial, and governmental.

Brazil needs to increase the productive efficiency in milk – since the volumes of the farms practically supply the domestic market –, expand the investment in marketing and relationship, and strive to reduce international trade rates. The sectorial transformation that has been taking place in recent years in Brazil, with the use of technology, may help to increase the efficiency of farms.

However, Brazilian dairy products pay a 10% internationalization tax in China, as do European and U.S. products. Exporters from Australia and New Zealand have advantages in this chapter. New Zealand products, for example, are exempt from paying this tax for 300,000 tonnes, and as of 2024 the quota will be revoked. The dairy products from New Zealand will enter China without the charge. This type of barrier will only be overcome through bilateral agreements.

As for the cost of exports, due to the distance from Brazil, it is not a problem. “Negotiating with the Chinese showed that, differently from what I thought, freight is not a factor that affects our competitiveness,” says the executive.

Considering the scenario of challenges, maybe milk will be the last, among all the agriculture products, to gain exportation status, says Mr. Vianna. Despite that, he believes it is possible not only to become an exporter to China, but also a supplier. “A decade ago, Brazil didn’t export a kilo of beef to the Chinese. Today, that country is the biggest destination for meatpackers,” he says.

Meat and milk are segments with distinct features, but there is a behavioral factor in China that draws similar possibilities in the view of the president of CCGL. He recalled that China has at least 200 million people with high purchasing power in urban areas. It is the equivalent to the size of the Brazilian population among a total of 1.5 billion Chinese.

“There is a Brazil inside China with purchasing power to consume meat and dairy products. If these people taste a cheese made from cow’s milk, there is no way they will go back to tofu,” he said.

*By Erica Polo — São Paulo

Source: Valor International

https://valorinternational.globo.com/