Chinese cheese consumption growth is a mouth-watering prospect for dairy producers

McDonald’s is famous worldwide for its Big Mac; the 11 secret herbs and spices of KFC’s renowned fried chicken have stumped (and satisfied) patrons for decades; and Pizza Hut’s "all you can eat buffet" has for a long time sated appetites.

The collective contribution of these franchises to the restaurant industry has been profound, with hundreds of thousands of locations worldwide.

But these fast food behemoths are also credited with introducing cheese to the Chinese.

While this might not seem like a big deal to Western consumers, cheese – and, in fact, most dairy products – was rather foreign to China and most of its one billion-plus people until quite recently.

In fact, basic staples such as fresh milk and butter were hard to come by, even in the major Chinese cities of Beijing and Shanghai.

Those who could get their hands on a block of cheddar or a wheel of brie, imported from either the US or New Zealand, had to do so from an upmarket store at eye-watering prices.

Fast-forward to 2019 and China has become the world’s largest dairy importer, with image and health-conscious consumers hungry for high-quality overseas dairy products.

Valued at about $12 billion today, the Chinese dairy market is expected to nudge $16 billion by 2020. Underpinning this growth is cheese consumption, which has jumped from 15 per cent in 2015 to 25 per cent in 2017.

According to a report by global market researchers Mintel, retail sales of cheese in China is expected to rise by almost 13 per cent each year until 2021.

“The first contact of cheese for Chinese consumers could be traced back to the very first KFC store,” said Dr Lin (Ruohui) Lin from Monash University’s Department of Chemical Engineering.

“Therefore, typical Western foods of hamburgers, pizza, sandwiches and salad are the main sources of cheese consumption instead of eating it from the block.

“Traditionally, China is not a cheese-consuming country, as pure cheese or cheese-related products were considered ‘luxury food’.

“Today, though, along with the rising family income, growing consumers’ awareness of healthy eating lifestyles, as well as the nutritional benefits of cheese, more Chinese consumers have been attracted to dairy products.”

Say cheese, say Chinese

Monash University is partnering with China National Cereals, Oils and Foodstuffs Corporation (COFCO), Suzhou’s Soochow University and the University of Queensland to help Australian farmers and manufacturers enter China’s rapidly growing cheese market.

On the back of the hugely successful Cheese Symposium in Beijing in October last year – where some of Australia’s biggest cheese producers, including Bega and Fonterra Australia, showcased their goods to thousands of Chinese consumers – Monash’s Food and Dairy (Graduate Research Industry Partnership (GRIP) is working with Australian producers to innovate and improve processing quality and capacity to meet this growing 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 modernise.”

Part of this also comes down to understanding and educating the consumer market.

A recent presentation by the acting director of consumer insight and market research at COFCO, Fei Guo, shows that 91 per cent of Chinese believe that cheese is "healthy" and can "deliver required nutrition for the body".

Roughly 47 per cent of cheese consumers are aged 20-29, and do so twice-weekly. Mozzarella and blue cheese were the two variations most recognised by Chinese eaters. Cheesecake is the most preferred cheese-based delicacy for Chinese consumers, 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 per cent of total share, with that number expected to grow. Out of 113 new cheese products launched in the past three years, 42 per cent are targeted towards children.

“The category is still very small, said Ms Guo. “Most consumption still occurs in Tier 1 cities where people have higher incomes, and are more exposed to Western diets. Beyond that, there’s still a lack of knowledge among most consumers about cheese.

“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.”

One of the main drivers of change in consumer behaviour is a combination of social status dynamics and healthier lifestyles, particularly in wealthier and highly educated Chinese consumers.

Dr Giovanni Di Lieto, a lecturer in the Monash Business School and expert on Australia-China trade relations, said the consumption of foreign products has been seen as a marker of wealth, power and cultural sophistication for many older Chinese people – a trait that's rubbing off on subsequent generations.

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

“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.”

Baby steps

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 per cent 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/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.

Professor Cordelia Selomulya and her team from Monash University’s Department of Chemical Engineering have recently developed world-first "Smart Drying" technology to help optimise the current industry-standard spray-drying conditions and their effect on the final powdered dairy products.

Spray-drying 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 Southeast Asia, Monash University research will help to define the right processing conditions to produce these powders and also help extend their shelf life.

“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 Professor Selomulya.

“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.

“The Australian dairy industry has the reputation of producing high-quality products, and Australia has one of the highest food safety standards in the world. 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.”

While the reputation of Australia’s dairy industry is world-class, it won’t be enough to circumvent any trade bans arising from geopolitical issues between governments in Australia and across Southeast Asia.

Dr Di Lieto says it's essential for domestic firms to bank on the reputation of Australia as a producer of high-quality exports, while the government needs to ensure that no rogue exporters are allowed to taint the reputation of other firms.

“The 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,” Dr Di Lieto said.

Monash is working with a number of national and international industry partners in the food and dairy sectors. For more information, visit monash.edu/fdgrip