China Becomes World’s Largest Food Market

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China has become the world’s largest food market, passing the U.S. in yet another measure, according to UK research firm IGD. The group offered three reasons for this: rapid economic growth, an increase in population and food price inflation. One missing reason is the rise of the Chinese middle class, as well as the fact that most of these people have moved from rural areas to cities.

The numbers from the report are impressive:

The Chinese grocery sector was worth £607bn at the end of 2011, while the US market came in at £572bn over the same period — the second largest in the world. By 2015, the Chinese market is forecast to be worth £918bn compared to a US value of £675bn.

Inflation is a reasonable measure for sales growth of companies that market groceries in China. It is not a reasonable measure for Chinese food consumption compared to that of other nations. China’s food price inflation has been in the double digits in most recent months. By contrast, the number has been lower than 2% in the United States. Because of this, actual food consumption in China may be rising hardly at all.

Not many years ago, most of China’s population was rural. Grocery sales do not capture the food consumption of farm dwellers or the inflation level of prices they must pay for food. That cuts two ways when consumption in China is measured. The urban population has grown quickly and will continue to. Grocery numbers include most of these people. On the other hand, the total count is low because hundreds of millions of Chinese have not left farms. Taken together, rural consumption and grocery sales in cities are well above the IGD figures. China’s food consumption is therefore much larger than it is in the U.S.

Despite a slowing in Chinese manufacturing and PMI activity, the cities of the People’s Republic will continue to grow. Grocery sales — already a good business — will swell, perhaps more rapidly than IGD believes because of the rise of China’s large urban middle class.

Douglas A. McIntyre