Agriculture & Food

In the first quarter of 2021, boosted by factors such as large-scale vaccination and continued bailout policies by governments of various countries, the world economy generally showed a moderate recovery trend, and China's agricultural exports showed double-digit growth. However, since April, major economies such as Vietnam have experienced more severe epidemics than ever before. Coupled with multiple factors such as raw materials, shipping, and exchange rates, the growth rate of China's agricultural exports has gradually declined. Due to the high ocean freight and the low inventory of some overseas merchants, the demand for the international agricultural product market has not been fully satisfied. It is expected that the demand for the fourth quarter will be strong, and China's agricultural product exports will maintain a rapid growth rate.

Exports fluctuated greatly in the first three quarters

In the first eight months of 2021, China's agricultural product import and export trade volume was US$19.942 billion, a year-on-year increase of 27%. Among them, exports were US$52.06 billion, an increase of 8.9%; imports were US$147.36 billion, an increase of 34.9%.

In the first three quarters of 2021, China’s agricultural exports will present five characteristics:

First, the economic recovery of various regions is asynchronous, and the stability of exports to traditional markets is better than that of emerging markets. From 2020 to 2021, the global economy will generally show a "V"-shaped rapid recovery trend. Affected by factors such as the popularity of vaccines, the space of public finance and monetary policy, and the ability of public governance, the economic recovery in various regions of the world is not synchronized and rapid. In the first seven months of 2021, the mainland's agricultural exports to the six traditional markets of ASEAN, Japan, Hong Kong, the European Union, the United States, and South Korea increased by 12.4%, 5.7%, 14.8%, 10%, 6.6%, and 6.8%, respectively. Exports of agricultural products from the six emerging markets of Russia, Australia, Mexico, India and Turkey increased year-on-year by 8.9%, 8%, 2.2%, 35.1%, 15.7% and 2.7% respectively. On the whole, the stability of traditional markets is better than that of emerging markets. The decline in foreign exchange reserves and signs of currency devaluation in some emerging economies are worthy of vigilance.

Second, the international epidemic has returned, and the high level of agricultural exports has fallen. As the new crown pneumonia epidemic spreads again, countries such as India have re-implemented border blockade policies. Affected by this, the growth rate of China's agricultural exports in the second quarter fell from 11.6% in the first quarter to 7.2%, which was 4.4 percentage points lower than in the first quarter.

Third, the rebound of agricultural exports in August exceeded expectations. The export of agricultural products in July and August increased by 3.9% and 12.4% year-on-year respectively. The rebound of exports in August exceeded expectations. First of all, from the demand side, international demand is slowly picking up. In the fourth quarter, foreign demand for “replenishing inventory” was relatively strong. European and American stock markets are still at a high level, and the “wealth effect” makes European and American residents have a strong tolerance for inflation; the economic recovery in Europe and the United States is not synchronized, and the EU’s economic performance is still relatively strong. The EU’s export growth rate increased by 4.7 percentage points); the Christmas season is approaching, but due to high freight rates, foreign customers continue to replenish their stocks due to low inventory. Secondly, from the supply side, the stability of China's export supply chain is relatively good, making up for the supply gap in some countries. China's agriculture has been minimally affected by the epidemic, and most agricultural products are in sufficient supply. The epidemic has led to a chaotic situation in the global shipping market. Due to the scale effect of China's export products, international liner companies give priority to meeting the shipping needs of routes from China to Europe and the United States. Third, the RMB exchange rate appreciated by 6.3% last year. This year, the RMB exchange rate has appreciated by a small margin. In addition, China's labor costs are relatively high, and there is a certain difference in the commodity structure of agricultural exports from Southeast Asia. The order transfer effect caused by the improvement of the epidemic in Southeast Asia is lower than expected.

Fourth, the export commodities showed a trend of differentiation, and the export of products related to the "home economy" performed well. In the first seven months of 2021, the export of vegetables and other products generally showed a trend of "decreasing in quantity and increasing in price". For example, the export volume of garlic decreased by 21.9% year-on-year, and the average export price increased by 14% year-on-year; the export volume of fresh pears decreased by 19.5% year-on-year, and the average export price increased by 12.4% year-on-year. At the same time, the export of aquatic products, condiments, unlisted foods, fresh apples and other products showed a trend of "increasing volume and price". In addition, the export volume of pet food, beer, honey, and active yeast related to the "home economy" increased by 10 to 30% year-on-year. Since the outbreak of the epidemic, the export value of traditional products to traditional channels such as catering and supermarkets has shown a shrinking trend, while the proportion of exports of "home economy" related products and cross-border e-commerce goods has gradually increased.

Fifth, companies actively seek changes to meet challenges. Large enterprises have strengthened their layout of cross-border e-commerce and internal circulation, and their advantages in strong research and development capabilities have gradually emerged. Small and medium-sized enterprises have natural disadvantages relative to large enterprises in terms of technological research and centralized procurement, but they also have the advantage of "small boats make a turnaround". With the increase in inquiries for pet food, gardening products, convenience food, etc. at Ali International Station, some small and medium-sized enterprises are more able to adapt to the short and small orders of foreign customers than large enterprises, and actively occupy the international market through the cross-border e-commerce B2B model .

Exports are expected to grow steadily throughout the year

Looking ahead to China's agricultural exports in 2021, we can see from favorable factors: First, under the background of high inflation, the export of food as a daily necessities will show a certain degree of resilience. Since August, international inflation expectations have heated up again, coupled with the seasonal restocking demand of foreign customers, food exports have returned to a faster growth track. Second, the recent signs of easing of Sino-US economic and trade relations will boost corporate export confidence. Third, some large-scale liner companies voluntarily suspend the increase in ocean freight rates, and more dry bulk carriers enter the container shipping market. Liner companies outside the alliance increase their capacity. It is expected that the shipping pressure of companies may ease in the fourth quarter.

From the perspective of unfavorable factors: First, the prevention and control of the international epidemic is difficult, and inflation has an adverse impact on the profitability of foreign companies, and has led to a gradual decline in international demand. Second, international competition has intensified, and ocean freight currently accounts for 50% to 100% of the value of goods, which has weakened the price competitiveness of Chinese enterprises’ exports. Third, trade remedy measures against China have increased, and there is still a certain degree of uncertainty in exports to markets such as the United States.

In summary, it is expected that China's agricultural exports will grow steadily throughout 2021. Agricultural products export enterprises adhere to the direction of "specialization, specialization, and innovation", focusing on their main businesses, and practicing their internal skills. They are expected to achieve a good start in the first year of the "14th Five-Year Plan".