From a burger slice to a $20bn industry: How China can stay stocked with cheese

They might all be American fast food brands that have been capturing the hearts and minds of Chinese consumers since they arrived in the country in the late Eighties and Nineties. They are also credited for bringing cheese to a wider audience of consumers.

When these first fast food restaurants opened, they brought with them food items unknown to many Chinese at a time when most dairy products were unheard of, like milk shakes and cheese strips.

At the time, staples such as fresh milk and butter were hard to come by even in the major cities. Cheese was almost unheard of.

Only expats and Chinese who had lived or studied abroad were acquainted with cheese, though it was a luxury that most could only have imported from America or New Zealand. The alternative was to shop for wheels of brie or blocks of cheddar in upmarket stores that would charge exorbitant sums for such niche products.

World's biggest dairy importer

Three decades after most consumers had tried their first cheese slice or milk shake, fortunes have changed dramatically for dairy in China.

The country is now the world’s biggest importer of dairy products, with a younger, more mobile generation ravenous for cheeses from overseas. With a market value of US$12bn today, cheese sales are expected to grow by US$4bn over the next year, according to Mintel.

In just two years the number of Chinese cheese-eaters has grown from 15% to 17% in 2017, with the market researcher anticipating further rises of 13% annually until 2021.

But Chinese dairy consumption trends are far different to those in the West, according to Lin Ruohui, a postdoctoral researcher for the Australia-China Joint Research Centre in Future Dairy Manufacturing, based at Monash University.

“The first contact of cheese for Chinese consumers could be traced back to the very first KFC store​. Therefore typical Western foods of cheeseburgers, pizzas, sandwiches and salads are the main sources of cheese consumption, instead of eating cheese from the block,”​ she said.

Perception changes

Whereas, in the past, when those who were at least familiar with cheese saw it as a “luxury food​”, perceptions have changed fast. Rising incomes, growing consumer awareness and healthy lifestyles, as well of its nutritional benefits, have combined to bring prosperity to the market.

The growing consumer influence of the younger and youngest generations are now starting to show.

Market research from China suggests that 91% of consumers now believe that cheese is "healthy​" and can "deliver required nutrition for the body​”.

It also found that 47 per cent of cheese consumers are aged under 30 years old, eat it twice-weekly. Mozzarella and blue cheese are most recognized varieties, while cheesecake is the most preferred cheese-based product, ahead of sliced cheese.

Cheese is also being added to school lunch menus in many Shanghai primary schools. The kids’ cheese market dominates at 55% of total share, with that number expected to grow. Out of 113 new cheese products launched in the past three years, 42% target children.

Entering the market

Monash has been working with compatriot Queensland University, as well as Soochow University and food major Cofco in China, on a programme to help Australian farmers and manufacturers enter the Chinese market.

Part of the project involves working with Australian producers to innovate and improve processing quality and capacity to meet growing Chinese demand.

“The challenge and opportunities are especially acute for Australia as the fourth-largest dairy exporter in the world​,” said Dr Lin.

“Australia is seen as the ideal export market due to its high-quality milk origins, quality and safety standards, and overall good produce. But in order to grow, the industry needs to modernize​.”

Fei Guo, director of consumer insight and market research at Cofco, which carried out the research into younger-generation consumers, said that despite the billions in revenues it has been generating, the cheese category is still very small.

Most consumption takes place in the major cities, where people have higher incomes and are more exposed to better diets. Elsewhere, there is still a lack of knowledge about cheese among most consumers, she said.

“For example, a mother purchasing cheese for her child might not know whether the product is hard or soft due to processing, or the protein content. She might not know that she can use it in different scenarios, such as in a sauce​.

“Furthermore, we wouldn’t commonly use cheddar cheese in a cheesecake or cream cheese on a pizza​,” she added.

Wealth connections

The snobbery value of cheese in China’s strict hierarchical society shouldn’t be discounted either. Foreign products are often seen as markers of wealth, power and cultural sophistication for older Chinese people, and this viewpoint is now rubbing off on subsequent generations, according to Giovanni Di Lieto, a Monash lecturer and expert on Australia-China trade relations.

“Chinese consumers tend to identify products with their perception of the country of origin​,” he said. “Thus Australian products are seen by the Chinese as the quintessence of Western standards: clean and of high quality​.

“This perception is heightened and reinforced by the personal experience of the younger Chinese cohort who have been able to travel to Australia for tourism and study purposes​.”

Dairy innovation

The next generation of dairy innovation is also impacting one of Australia’s biggest exports to mainland China – powdered milk and infant formula.

Roughly 40% of fresh milk in Australia is spray-dried to create products such as milk powders, whey powders and milk protein concentrates, which collectively make up half of Australia’s dairy export industry.

Prolonged storage and continued exposure to temperature and moisture during transportation can lead to the browning or caking and spoilage of dairy powders. Above all, this can impact the solubility of dairy powders which, in the case of infant formula, can cause choking.

Monash recently developed world-first so-called “smart-drying​” technology to help optimize the current industry-standard spray-drying conditions and their effect on the final powdered dairy products.

This is a method of producing a dry powder from a liquid or slurry through rapid drying with hot gas.

With a growing demand for dairy products across Asia, the university hopes the research will help define the right processing conditions to produce these powders and also help extend their shelf life.

As most infant formulas are exported overseas, it's important that the quality is maintained during the transport and storage period. This could take several weeks or months before the customer uses the product.

“Milk powder production is the most energy-intensive dairy manufacturing process, with Australian producers under increasing pressure to improve efficiencies and to reduce the cost of bulk powder production​,” said Cordelia Selomulya, a professor of chemical engineering who developed the process.

“The key is now to be able to increase efficiency in manufacturing by decreasing the chances of producing dairy powders with poor-quality shelf life​.”

The Australian dairy industry’s world-class reputation won’t be enough to circumvent any trade bans arising from geopolitical issues between governments in Australia and across Asia, however. The government must also ensure that no rogue exporters are allowed to taint the reputation of other firms.

“Chinese consumers are particularly active in the social media environment, and just one isolated incident could spread quickly and viciously. Trademark protections and strict adherence to food safety standards are key for Australian exporters​,” added Dr Di Lieto.