Dairy Exports to China – Processes and Opportunities

By Richard Hoffmann, ECOVIS Beijing

Over the past three decades the production and consumption of dairy products in China have risen enormously with annual growth rates averaging over 10 percent since 2000. This growth trend is expected to continue and increase China’s domestic dairy consumption by 35 to 40 percent by 2022. With growth in demand also comes greater variety which means that a number of new dairy products, e.g. low fat yoghurts and cheese snacks, have been successfully introduced in China.

Figure 1: Five Stages of Dairy Exports to China

Although the country’s overall production of dairy products has risen, domestic output has not managed to keep up with the soaring demand. In fact, China’s self-sufficiency in milk production declined over the past years as consumers turned to dairy imports. These are expected to increase by roughly 20 percent by 2022. By far the largest exporters are New Zealand and Australia which together account for almost 60 percent of dairy exports to China. This is followed by the European Union with about 25 percent and the United States with just under 10 percent. Within Europe, France has established itself as the main dairy exporter to China but is closely followed by the Netherlands in second and Germany in third place.

What matters is not the country that your company is registered in but rather your ability to manage the exporting process of your dairy products to China. The following sections introduce the main stages of the process (see Figure 1) and give practical tips for a smoother trade experience. Stage 1 is to apply for the Sanitary Certificate at the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) in China. This process can take up to 6 months due to facility inspections that may be necessary depending on the type of dairy product. Upon receipt of the certificate you can proceed to Stage 2 and register your company with the AQSIQ first as a Foodstuffs Exporter and later also as a Dairy Exporter to China. The first registration can be completed online and, according to general experience, should be verified within 5 days while the latter registration may again require an inspection of your facilities. After these formalities are concluded, Stage 3 institutes the actual preparation of your products for export. Only if the labelling of your dairy produce includes all necessary information, e.g. storage conditions and ingredients list, will your exports be cleared to pass Chinese customs.

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Customs control also requires the submission of various other documents which must be prepared during Stage 4. These not only include the certificates previously acquired but also other export related documents such as commercial invoices, the certificate of origin, a customs import declaration and the business licences of your importers. One particularly important document is the quarantine report – it will be checked by Chinese customs officers when passing through the general customs inspection. The quarantine report must be provided for all dairy products entering China for the first time only. Given that your shipment may be declined entrance into China if the documents provided are incomplete, it is important to double check all requirements with the relevant authorities. Stage 5 then concludes the exporting process after the customs inspection is completed whereby Import Duties as well as Value Added Tax and Consumption Tax are levied on the products where necessary. For instance, the Import Duty and Value Added Tax for not concentrated milk lie at 15 percent and 17 percent and in the case of yoghurt at 10 percent and 17 percent of the intended purchase price.

 Figure 2: Relation of China’s Milk Powder Production to Import Volume

There may well be a variety of risks and complications involved in exporting to China. If, however, all five stages are followed correctly, you may well experience the massive market potential for foreign dairy products in China. Besides the fact that this demand is driven by an overall shift towards more nutritious foodstuffs, it has mainly resulted from domestic scandals in milk production. High levels of the industrial chemical Melamine were found in milk and infant formulas in 2008 and in return thousands of people were hospitalized. The loss of confidence in domestic producers that resulted from this misconduct shifted demand towards imported alternatives (see Figure 2). When later on in 2013 another such scandal, this time from New Zealand and Australia based producers of infant formula, was made public, China announced restrictions on imports of milk powder from both countries. Once more China’s demand for dairy products shifted towards Europe creating even greater market potential for Europe based producers. Making the strategic move to export your products and closely following the above five stages may well lead to rapid success in China.

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