Coronavirus: global lockdown to hit China’s supplies of steak, lobster and fine wines

Just over a month ago, supply chains in China were thrown into chaos as trucks and planes delivering goods to the world came to a standstill. Now, China’s economy is moving back towards capacity, while the supply shock from the coronavirus pandemic is beginning to affect many Western countries, as they look to contain the virus’ spread. But this second round of supply shock enveloping countries around the world may mean China’s growing middle classes find themselves strapped for premium overseas food such as meat and dairy products, which are often viewed as being better quality than local options. Over the past week, countries like Spain and Italy have overtaken China to become the new epicentres of the virus, with infections rising exponentially. In Australia and New Zealand, draconian measures such as the closure of borders and public venues have been implemented with people told to work from home or losing their jobs . The pattern is being replicated around the world, with severe economic downturn expected to grip many developed economies. These same countries are key suppliers of high-end pork and lamb, beef, cheese, seafood and milk to affluent Chinese dinner tables and restaurants, and with some airlines cutting flights completely, there could be shortages of such premium food imports ahead, importers and exporters said. Most of the world’s high-end food is transported in the bellies of passenger aircraft, meaning general travel restrictions will have a serious impact on the trade. If things do not get better in supplier countries by May, then we will start seeing supply issues for China William Kerins “Yes, we have already seen Argentinian and Brazilian slaughterhouses forced to close,” said William Kerins, founder of Beijing-based premium meat sourcing and distribution company USource. “Australia has yet to do this, but it is already cancelling bookings, so we are likely to start a reduced schedule next week.” “Furthermore, some Chinese ports have started restricting cargoes from certain countries,” Kerins added. “My guess is by next week, half the world’s slaughterhouses will be closed and the other half will be working on reduced shifts to supply local markets.” USource, which supplies meat to restaurants, has several months of inventory, after they front-loaded their imports in January to take advantage of China’s reset in annual meat quotas. But after that supply has been soaked up, a shortage will not be far off. “If things do not get better in supplier countries by May, then we will start seeing supply issues for China,” Kerins said. A cross-border Australian exporter of food products, who did not want to be named, said aside from a curb in production as factories and processing plants shut to ensure social distancing, products were also disappearing off Chinese shelves as people hoard dried foods such as cereals, one of his main export items. “At the moment there isn’t a huge issue, however we foresee supply chain issues soon,” he said. “And it will be a global problem.” IS Seafood, a Chinese importer of premium Icelandic goods, is seeing processing plants in Europe closing. “Europe is changing rules constantly. The issue that some of our suppliers are facing is for example, there can only be a maximum 20 people in the same space together,” said CEO Biggi Stefansson. Australian company James Tyler ships everything from New Zealand oysters and lobster to Tasmanian cherries and organic yogurt to China. The prices of sea and airfreight have skyrocketed due to a shortage of transport such as planes, said co-founder James Hutchinson. “A lot of cargo gets flown in passenger planes. They have obviously reduced dramatically,” Hutchinson said. The disruption to the flow of luxury food items is happening at a time when many Chinese consumers are experiencing a shift in their spending habits, due largely to the shock of the coronavirus pandemic, which is likely to lead to the first quarterly contraction in the Chinese economy since 1976. Those in the premium industry in big Chinese cities said many consumers have replaced eating out and spending big with buying more basic ingredients and eating in. This softening demand could temper the shortage of imported products, even as a series of scandals cast unflattering light on China’s domestic food supply, including the suspected links between Covid-19 and a wet food market in Wuhan, and the ongoing African swine fever crisis which has killed upwards of 100 million pigs and sent pork prices skyrocketing. The swine fever crisis sent China’s pork imports in the first two months of 2020 surging 158 per cent from a year earlier. With routes to market cut off due to virus-related shutdowns, an inability to source alternative supplies may further hamper China’s supply of pork, by far the most popular meat. “To me, for meat, I can find alternatives, but I am a bit concerned about fruit,” said Jade Zheng, a high-net worth consumer in the affluent Chinese city of Shenzhen. “It's hard to find good fresh fruit in local supermarkets, there are no alternatives.” I honestly do not see a demand for anything premium coming back up right away Spanish wine seller in Shanghai “I don't buy a lot of imported products, but I do buy some meat such as Australian beef,” added Wendy Liu, another well-off shopper in Guangzhou. “At the moment, these foods are still available locally, so I am not particularly worried. If I cannot get these products, I am OK with it. Sure I prefer these premium foods, but I am flexible.” A seller of Spanish wines in Shanghai, who did not wish to be named, said the city was struggling while the streets of Beijing were “practically dead”. “I honestly do not see a demand for anything premium coming back up right away,” she said. “There’s a lot of uncertainty and people are just trying to get by.” Chinese corporations have reported that many functions and client entertainment events had been cut, as have purchases of fine wines and novel gifts. This is another choke point in the market for imported luxury food. “I believe people still want their quality foods from overseas but they are happy to cut back if supply is short,” said a wealthy executive at one of the big four global accountancy firms, living in Shenzhen. Richard Yuan, the chairman of the high-end Australia-China Entrepreneurs Club, said the appetite for luxury goods was also flat among his member base, as more people start to worry about the global economy. “The high net worth [individuals] are still into seafood, but home cooked seafood. We are also cutting down on drinking,” Yuan said. “Mostly down to a bottle of wine a day.” Purchase the China AI Report 2020 brought to you by SCMP Research and enjoy a 20% discount (original price US$400). This 60-page all new intelligence report gives you first-hand insights and analysis into the latest industry developments and intelligence about China AI. Get exclusive access to our webinars for continuous learning, and interact with China AI executives in live Q&A. Offer valid until 31 March 2020.