Speaking in Shanghai, China, this week EU Trade Commissioner Pascal Lamy confirmed that China officially became the EU's second largest trading partner in 2003, falling behind the US, while the EU falls second to Japan for China. "EU-China relations have never been in better shape," said Lamy, prior to raising concerns over trade issues, such as raw materials.
Lamy drew attention to China's policy on raw materials, where the growing number of market distortions to control access to valuable commodities 'risks undermining the economic viability of some EU industry'.
While the Commissioner quoted EU shortages in metal scrap as an example, the case for wheat trade would be equally pertinent. Suffering from a 30 year low in global wheat stocks, the EU has seen prices explode in recent months, exacerbated by a massive growth in demand from China.
An agressive and defensive move rolled into one, in 2003 a steady stream of major ingredients players began to set down roots in this burgeoning country to benefit from the $275 billion spent annualy on food and drink products by the 1.3 billion Chinese consumers.
Eager to defend existing markets and carve out new positions, Danish ingredients giant Danisco, for example, linked up with with one of the largest xanthan gum suppliers in China, the Henan Tianguan group.
Again in the area of gums, US agri-giant Cargill will expand gum manufacturing capabilities in China. Working with its joint venture partner Shandong Huanghelong Group, the company recently announced a significant capacity increase at its Zibo production facility in Shandong province.
In a recent bolt on acquisition, US firm Hercules bought Quantum Hi-Tech, a Chinese CMC producer. CMC - carboxymethylcellulose - is an ingredient sourced from cellulose fibres and used by the food industry in a wide variety of applications including ice cream, yoghurt and bakery products.
Last year cultures leader European firm Chr Hansen cut the ribbon on a new cultures facility in Beijing. The company claims to have captured more than 40 per cent of the market for dairy cultures in China and expects continued growth, also within cultures for wine production.
According to investment bank Goldman Sachs, this defensive move is crucial to the ingredients industry as China's steadily increases its exports, threatening profitability in many product areas - notably for ingredients.
For the food companies China has not been so problematic, as food production tends to be domestically based. However, we are beginning to see a threat in ingredients, claims the report.
According to Goldman Sachs, both Danisco and UK sugar firm Tate & Lyle have commented on increased competition from China as having a negative impact on their ingredient operations.
"If China's ingredient industry expands at the breakneck speed of the rest of the economy then we might expect further margin pressure from this area," warned the report, referring to the current squeeze food manufacturers and retailers are imposing on their supplier base.
Next week food ingredients suppliers and stakeholders in the Chinese food and beverage market will gather at the Fi Asia-China exhibition in Shanghai from the 23-25 March 2004.