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Dairy Exports to China - Market, Regulations and Opportunities for EU SMEs

15th April 2014

Pablo Recio

• Director of the Beijing office of Gold Millennium Group

• Living and working in China since 2005

• Focus on food and beverage import and distribution processes and trade barriers

• Previously worked for public agencies including ICEX (Spanish Institute for Foreign Trade) and Extenda (Trade Promotion Agency of Andalusia) as well as private companies

• Bachelor in Business from the University and Granada and Masters in Quality Management and Business Internationalisation

Our Speaker

Table of Contents

1. Diary Exports to China – General Overview 2. Process Map from the Origin to China

3. Steps to Export to China

4. Points of attention when the product is in China

5. Contact

HS CODE PRODUCT

04.01

Milk and cream, not concentrated nor containing added sugar or other sweetening matter

04.02

Milk and cream, concentrated or containing added sugar or other sweetening matter

04.03.10 Yogurt

04.04.10 Whey and modified whey, whether or not concentrated or containing added sugar or other sweetening matter

04.05 Butter and other fats and oils derived from milk; dairy spreads

04.06 Cheese and curd 19.01.10 Infant Formula

Market definition

21.05 Ice cream is out the scope of this guideline since it is usually excluded from the definition of dairy products used by Chinese Authorities

China Imports (Value) in 2013

0401 0402 040310 0404100405 0406 190110

Market size

China Imports (EUR millions) A strongly growing market

Source: China Customs

1000

2000

3000

4000

5000

6000

2008 2009 2010 2011 2012 2013

0401 0402 040310 040410 0405 0406 190110 Aggregate

Market size

Source: China Customs

52.9%

25.5%

8.5%

4.6% 8.5%

China imports by regions, 2013 (value)

New Zealand

EU

United States

Australia

Others

13.4%

25.4%

1.4% 2.1%

1.6% 1.4%

25.3%

7.4%

11.5% 10.4%

China imports by EU countries, 2013 (value) Germany

France

United Kingdom

Poland

Belgium

Austria

Netherlands

Denmark

Ireland

Others

- New Zealand and Australia are the main exporting countries

- EU is the second exporter

- France: 25,4% main exporter

- Netherlands: 25,3% second main exporter

- Germany: 13,4% third main exporter

Key Barriers

• Need of a bilateral agreement and a health certificate

between the country of origin and China

• Need of registration with AQSIQ (general and specific)

• Unstable, complex and excessive regulation

• Unclear implementation of new regulations (1st May)

• Lack of consistency in Customs Clearance procedure

• Delays at Customs Clearance

Process Map

Tariffs

Customs Clearance

Country Level

Company Level

Operation Level

Step 6

Bilateral Agreement Country of Origin - China Sanitary Certificate

Foodstuff Exporter Registration

Dairy Producer & Exporter

China Customs Inspection

Labelling Quarantine Documents Step 3 Step 4 Step 5

Step 1

Step 2

Process Map

Step 1: Check if You Can Export

On January 2013, AQSIQ published the Decree Nº152/2013, Administrative Measure on Inspection, Quarantine and Supervision of Imports and Exports of Dairy products that establishes the need of a protocol signed between the country of origin and China.

In addition to the protocol between the two countries, it is needed a Health or Sanitary Certificate, which it takes some time to be available, approximately 6 months from the signature of the protocol.

Application to the AQSIQ indicating product info

AQSIQ sends back questionnaire to perform risk assessment (ARI)

Negotiation of the health certificate

If agreement, protocol is signed including all requirements

When ARI is completed, AQSIQ may send draft to be discussed by both parties

After receiving questionnaire, AQSIQ assembles a group of specialists to begin ARI process. May send expert group to check the facilities

Step 1: Check if You Can Export

PROTOCOL PROCEDURE

Step 1: Check if You Can Export

Country Status

Austria AQSIQ sample of the Sanitary Certificate

Belgium AQSIQ sample of the Sanitary Certificate

Bulgaria The Protocol is not signed or the Sanitary Certificate is not available

Croatia The Protocol is not signed or the Sanitary Certificate is not available

Cyprus The Protocol is not signed or the Sanitary Certificate is not available

Czech Republic

AQSIQ sample of the Sanitary Certificate

Denmark AQSIQ sample of the Sanitary Certificate

Estonia The Protocol is not signed or the Sanitary Certificate is not available

Finland AQSIQ sample of the Sanitary Certificate

France AQSIQ sample of the Sanitary Certificate

Germany AQSIQ sample of the Sanitary Certificate

Greece AQSIQ sample of the Sanitary Certificate

Country Status

Hungary The Protocol is not signed or the Sanitary Certificate is not available

Ireland AQSIQ sample of the Sanitary Certificate Italy AQSIQ sample of the Sanitary Certificate

Latvia The Protocol is not signed or the Sanitary Certificate is not available

Lithuania The Protocol is not signed or the Sanitary Certificate is not available

Luxembourg AQSIQ sample of the Sanitary Certificate

Malta The Protocol is not signed or the Sanitary Certificate is not available

The Netherlands AQSIQ sample of the Sanitary Certificate Poland AQSIQ sample of the Sanitary Certificate Portugal AQSIQ sample of the Sanitary Certificate

Romania The Protocol is not signed or the Sanitary Certificate is not available

Slovakia The Protocol is not signed or the Sanitary Certificate is not available

Slovenia The Protocol is not signed or the Sanitary Certificate is not available

Spain AQSIQ sample of the Sanitary Certificate Sweden AQSIQ sample of the Sanitary Certificate United Kingdom AQSIQ sample of the Sanitary Certificate

source: AQSIQ

Step 2: Register Your Company with AQSIQ

By means of the Notice 55/2012, since October 2012 it is required for both the exporter and the importer to be registered in their system for customs clearance. It is a very simple, free and quick procedure (should be done within 5 days). • Click the following link (it has an English version): http://ire.eciq.cn/ • Click on “Initial Registration” and fill in the form with your company

information. • Once completed, click “Commit” (submit). • You will receive a system message with the filing and query number. These

two numbers are used to login, in order to record change, cancel your registration, enquiries, etc.

• When exporting, make sure you have included your importer information in the system (log in and add it).

Step 2: Register Your Company with AQSIQ

Effective May 1, 2014, producers of dairy products seeking to export to China must be registered with AQSIQ prior to shipping any goods. AQSIQ Notice 62/2013, Decrees 145/2012 and 152/2013.

Chinese Experts might require to inspect the producer plant in order to approve the registration.

For those seeking registration, please contact the relevant authorities of your country.

Step 3: Labelling

All the minimum units for retail are required to comply with the Chinese labelling requirements, mainly regulated by the standards detailed below.

Food Safety National Standards General Rules for the Labelling of Pre-packaged Foods (GB 7718-2011)

• Product name

• Place and country of origin

• Establishment number

• Production date

• Expiration date or best before date

• Storage temperature and conditions

• Net Weight (English). The minimum font height is 2mm for packages under 50 ml/gr

• Producer name and address (English)

• Production Lot number (as defined by exporter)

• Ingredients List

• Shall be in normal Chinese characters (except registered trademark)

• Minimum size of the words, symbols and numerals in the mandatory labelling information shall not be less than 1.8 mm in height

Step 3: Labelling

Food Safety National Standards for the Usage of Food Additives (GB 2760-2011) According to the mandatory standard GB 28760-2011, food additives must be indicated on the label in descending order of their weights added in the process of manufacture or preparation of the food.

Food additives listed in GB 2760 and GB 14880 can be used without prior approval as long as the dosage is appropriate. Lists are constantly changing, however.

Nutrition Labelling of Pre-packaged Food (GB 28050-2011) This standard, in force since January 2013, establishes the mandatory labelling of the nutritional components for all pre-packaged food.

The nutrition components of a food should be indicated in the form of a box table (except in exceptional circumstances) which can be any size and should be perpendicular to the baseline of the packaging.

Implementation Measures for Inspection, Quarantine and Supervision of Imported and Exported Dairy Products (AQSIQ No. 53-2013) Overseas awards, honours and certification marked on the label of the imported dairy products, related certificate documents verified through diplomatic channel should be provided.

Step 3: Labelling

Example

Step 3: Labelling

Examples

Step 4: Documents

On the following table you can find a checklist of the documents needed along the export-import process, although we recommend to take an in-depth look at the Market Access Database (http://madb.europa.eu/) for a clarification on each of these documents.

• Commercial Invoice

• Packing List

• Registration of Foreign Exporters of

Foodstuffs

• Certificate of Origin

• Sanitary Certificate

• Air Waybill, Rail Waybill or Bill of Lading

• Cargo Manifest

• Insurance Certificate

• Registration of the Producer Plant in AQSIQ

• Customs Registration

• Customs Import Declaration

• Automatic Import Licence

• Business Licence of the Importer

• Import and Export Business Licence

• Registration of Importers of

Foodstuffs

• Permit to import Quarantine Material

into the PRC

• Commodity Inspection Certificate

Step 5: China Customs Inspection

Besides checking labelling and the import/export documents, AQSIQ will proceed with the quarantine test report check, which it is regulated by the Decree 152-2013, Decree 25 and the Announcement No. 53-2013.

For products imported for the first time: the importer or its agent should provide the test report on the items listed in the national standard for food safety for corresponding products.

For products not imported for the first time: the importer or its agent should provide the copy of the test report and the quarantine declaration sheet provided during the first time of import as well as the test report on the items regulated by AQSIQ.

Imported for the first time refers to the dairy product with exactly identical information including overseas producer, product name, formula, overseas exporter, and domestic importer which is imported from the same port.

Step 5: China Customs Inspection

Specific standards ruling production and commercialisation for each product (there are more, included in EU SME Diary Products Guideline coming soon):

o GB 19301 Raw milk o GB 19645 Pasteurized milk o GB 25190 Sterilized milk o GB 25191 Modified milks o GB 19302 Fermented milk o GB 13102 Evaporated milk, sweetened

condensed milk and formulated condensed milk

o GB 19644 Milk powder o GB 11674 Whey powder and whey

protein powder o GB 19646 Cream butter and anhydrous

milkfat o GB 10765 Infant Formula

o GB 10767 Older infants and young children formula

o GB 10769 Cereal-based complementary foods for infants and young children

o GB 10770 Canned complementary foods for infant and young children

o GB 12693 Good manufacturing practice for dairy products

o GB 23790 Good manufacturing practice for powdered formula for infants and young children

After the Customs Inspection is concluded, the import duties and taxes will be applied: first the Import Duties and then, VAT and Consumption Tax, if applicable.

You can check the Chinese tariffs on the following link (China Customs, only available in Chinese):

http://www.customs.gov.cn/publish/portal0/tab9409/

Step 6: Tariffs

Step 6: Tariffs and Tax Payment

Import Duty VAT 0401 Milk not concentrated 15% 17% 0402 Milk concentrated 10% 17% 040310 Yoghurts 10% 17% 040390 Other 20% 17% 0404 Whey 10% 17% 0405 Butter 10% 17% 0406* Cheese and curd 12% 17% 190110 Infant Formula 5% 17%

* Except for the HS Code 040640 (blue-veined cheese) in which the import duty is 15% (VAT is 17%).

Process Map

Tariffs

Customs Clearance

Country Level

Company Level

Operation Level

Step 6

Bilateral Agreement Country of Origin - China Sanitary Certificate

Foodstuff Exporter Registration

Dairy Producer & Exporter

China Customs Inspection

Labelling Quarantine Documents Step 3 Step 4 Step 5

Step 1

Step 2

Points to Consider When the Products are in China

Price EXW 100 Price CIF 120 Import Duty 120*1.10=132 VAT 132*1.17=154.4 Importer (20/30%) 154.4*1.25=193 Retailer (25/35%) 185.3*1.30=250.9

1. High Pricing.

Expect selling price to be 100% - 200% higher than EXW

2. Cold chain preservation could be an issue.

3. Size and adaptation of formats is a must, since “on the go” consumption is high.

4. Hypermarkets and superstores account for the biggest share in the dairies market, followed by imported food/gourmet stores and convenience stores.

5. Online retailing is increasing fast.

Points to Consider When the Products are in China

6. Are Chinese lactose intolerant?

Overall, yes, since lactose intolerance is developed very likely in adulthood if lactose intake stops after breastfeeding. Nowadays, habits are changing and new generations are not developing lactose intolerance.

7. CFDA notice 47/2013 ban entrustment and OEM production, or repackaging of infant formula milk powder.

8. Each product may be different from a commercial and customs clearance point of view.

Points to Consider When the Products are in China

9. Trust is an issue. After several scandals involving both domestic and foreign brands, the dairies market is under continuous supervision.

• 2008

• Milk and infant formulas affected

• Products contained Melamine

• 300.000 victims reported

• 6 deaths and 54.000 hospitalized

• Kidney conditions

Points to Consider When the Products are in China

Making it harder in the short term… … to build a competive advantage in the long term

Creating oportunities for those providing solutions for health safety

Effect of the scandal on China’s milk trade

.020.040.060.080.0

100.0120.0140.0160.0180.0200.0

2008 2009 2010 2011 2012 2013

China Imports and Exports of Milk and Cream (HS code 0401, EUR Millions)

Imports Exports

Points to Consider When the Products are in China

• New scandal affecting foreign brands. • Restriction for New Zeland and Australia. Oportunities for Europe?

Points to Consider When the Products are in China

10. Rules Application • Exceptions by the thousands • Customs behaviour, can it change from port to port? • Exporters responsibilities • Where can I find all related information? • What can I do to protect my interests? • Law enforcement • Make your case useful

Points to Consider When the Products are in China

Upcoming Publication

New EU SME Centre Dairies report available soon

Contact Details

Beijing Office 4th Floor, Bldg C, No.1110 Shengshilongyuan, Gaobeidian, Chaoyang District, Beijing, 100022 P.R.China Telephone: (86) 10 5761 2440 Fax: (86) 10 5761 2441 E-mail: beijing@goldmillennium.com

Shanghai Office Room 1902, No. 488, Wuning South Road, Jing’an District, Shanghai, P.R.China Telephone: (86) 21 5118 2481 Fax: (86) 21 5118 2482 E-mail: shanghai@goldmillennium.com

Guangzhou Office Room 510, Yan Qiao Building, No.89, Yanlin Road, Tianhe District, Guangzhou 510000 P.R.China Telephone: (86) 20 3846 6124 Fax: (86) 20 3846 6124 E-mail: guangzhou@goldmillennium.com

Hong Kong Office 15th Floor, Radio City, 505 Hennessy Road, Causeway Bay, Hongkong, P.R.China Telephone: 852 8172 1049 Fax: 852 8120 9538 E-mail: hongkong@goldmillennium.com

Pablo Recio, Beijing Office Director Email: pablo.r@goldmillennium.com

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