China Food & Agribusiness Quarterly – Q1 2023

In 2023, China’s economy is expected to rebound from its 2022 low, as its zero-Covid policies come to an end. China’s fiscal and monetary policies are also on course to stimulate investment and consumption. Zero-Covid-related supply chain bottlenecks will gradually disappear, and pent-up consumer demand may spur a spike in consumer spending, most likely in the second half of Q1 or in Q2.

However, the road to recovery will be bumpy, as high infection rates caused labor shortages across sectors, while unemployment remains high – youth unemployment rates dropped a little, from their peak of 19.9% in July to 17.1% in November, but still reflected challenging economic conditions. It will take time for consumer confidence, which hovered near historic lows in 2022, to reach pre-Covid levels, and in the recovery phase consumer confidence will likely put a lid on medium-term consumer spending. 

The impact of economic stimuli on growth are likely to be suppressed by economic headwinds in China’s largest trading markets, particularly the EU and US, which face significant challenges in their economic cycles. 

The main highlights include:

- Farm Inputs: Domestic fertilizer consumption will remain stable, or register a small increase, in 2023. Export restrictions will remain in place in 1H 2023. The 2H export volume will be subject to trade policy, but growth is expected to recover. Fertilizer prices are projected to decrease in 2023.

- Grains & Oilseeds: Due to lower production and recovering demand, the deficit in China’s corn is projected to widen in 2022/23, calling for imports. Large quantities of Brazilian corn are expected. If the relationship between China and Australia improves, Australian feed barley will also be an option. Assuming normal weather, international soybeans prices will face downward pressure in Q2.

- Animal Protein: A recent plunge in pork prices caused panic selling, which, in turn, will pressure prices downward further in the short term. However, we expect pork prices to rebound when the Covid wave settles. The poultry market experiences similar volatility. Demand is expected to rebound because broiler consumption is associated with foodservice and group dining, which will pick up when consumers resume eating out.

- Dairy: Milk production growth started to show signs of slowdown in Q3 2022, a trend that is likely to continue in 2023, as milk prices weaken, and feed costs remain elevated at least during 1H 2023. Falling imports in 1H 2023 should allow China to work through its excessive inventories. China’s reopening brings hope for demand recovery, with the expectation of more buying in Q2 2023.

- Consumer Foods: In November 2022, the foodservice sector contracted by 8.4% due to Covid. The recovery trajectory will be bumpy and uneven in the initial reopening phase. Food and grocery retail sales grew by only 1.6% YOY in November, below market expectations. Food-only retail sales grew by 3.9% YOY, while beverages retail sales were down by 6.2% YOY.

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  • Chenjun Pan

    Senior Analyst - Animal Protein
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  • Lief Chiang

    Senior Analyst - Grains & Oilseeds, Farm Inputs
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  • Sandy Chen

    Senior Analyst - Dairy
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  • Michelle Huang

    Analyst – Consumer Foods
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  • Dirk Jan Kennes

    Head of RaboResearch Food & Agribusiness - Asia
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