China has an appetite for foreign animal products, but western companies' ability to satisfy that demand will rest on their ability to team up with better positioned local partners and to use diversification to manage risk, Rabobank said Monday.
In a new report on the Chinese trade climate for animal protein, the bank says western companies have previously struggled to profit in China due to infrastructure and cultural differences.
"However, as the industry accelerates the consolidation and modernization process that is underway, more opportunities are opening and this is likely to continue," said Rabobank analyst Chenjun Pan.
In China, the animal protein supply chain can be inefficient and is underdeveloped, Rabobank said, leading some western companies to opt for a vertically integrated model. However, the VI model is only a temporary solution due to higher capital investment, the report said.
"Foreign companies need to clearly differentiate themselves by bringing great value additions, such as new products, western culture or better services, to justify these higher operation costs," it said.
Connecting with local suppliers, distributors and government can be a good move, Rabobank notes, because of the connection to culture in China.
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"Political goodwills" are also an option, the bank said. "Local authorities expect foreign companies to establish best practices regarding food safety, traceability and technological improvements. Acknowledgment of these practices will often help establishing political goodwill and help simplify bureaucratic procedures."