Industry Trend Analysis - Taiwan Dietary Shifts: Premiumisation Across Meat Categories, Beef One To Watch - APR 2018

BMI View: Dietary spending shifts by the Taiwanese consumer are showing a premiumisation trend underway, characteristic of an affluent and ageing consumer base. Consumer spend levels on meat and poultry will ensure it remains the top food spending segment over our forecast period, with poultry being the meat of choice. We forecast that in growth terms beef will witness the strongest growth within the meat sector, as it develops from a low base.

We estimate household spending in Taiwan to expand by 2.6% year on year (y-o-y) in 2018, up from a downtick of 4.4% y-o-y in 2017. In local currency terms that removes the fluctuations in currency, we forecast household spending to average an annual increase of 4.8% between 2018 and 2022, with total household spending forecast to rise from TWD7.2trn (USD244.8bn) in 2018 to TWD8.8trn (USD313.7bn) in 2022. We expect household spending to be supported by accelerating economic growth with Taiwan's economy growing by 3.3% y-o-y in Q417, a pickup from 3.1% y-o-y in Q317 on the back of strong export performance.

A PickUp In Household Spending
Total household spending, real growth (USDbn) and real growth, % y-o-y
e/f= BMI estimate/ forecast. Source: BMI/National Statistics

Spending on essentials will continue to hold dominance in total household spending over our forecast period and we estimate food and non-alcoholic drink spending to be one of the leading categories in essential spending (after housing and utilities), forecast to account for 13.8% of total spend in 2018. Although Taiwanese consumers will begin to allocate a slightly smaller share of their total spending to food and non-alcoholic drinks (13.4% of the total spend by 2022), we forecast the segment to still witness strong growth of an average 4.2% annually over 2018 and 2022. The increased spending in Taiwan's well-developed and saturated food sector is indicative of a wealthier consumer base willing to spend on more premium products.

Shifts In Diets To Be Minimal

Further analysis into Taiwan's food and drinks sector, specifically consumers' dietary preferences, indicates minimal shifts on spending in food segments. The top three spending food categories, meat and poultry, fish and breads and cereals, are forecast to remain the same between 2012 and 2022. Meat and poultry ranks as the top spending food category with the segment accounting for 21.5% of overall food spending in 2022, rising up from 20.4% in 2012. Taiwanese consumers are not just allocating more of their food budget to meat and poultry but are also spending more on it as we estimate spending by the Taiwanese consumer meat and poultry to grow by 5.7% annually over 2018 and 2022. Meanwhile, staples, such as bread, rice, cereals and pasta products, will continue to account for a considerable share of food spending, rising from 16.6% to 18% between 2012 and 2022. Sugar and confectionery will also grow in terms of proportion of food spending, rising from 8.3% in 2012 to 10.0% in 2022.

Minimal Shifts In Dietary Preference
Taiwan - Food Segment Sales, % of total
f= BMI forecast. Source: BMI

The proportion of the consumer budget spent on staples is understandable, as diets in Taiwan tend to be based around rice and noodles with rice porridge being a common breakfast meal while fried rice noodles and noodle soups are popular for bigger meals. The growth in spending on these staples shows a consumer base that is retaining their preference for traditional diets, but we do highlight that the Taiwanese consumer is seeking more alternatives to their traditional diet and this can be viewed in the uptick of spending as a percent of total on sugar and confectionery. We believe this increase is in part due to the growth in the coffee shop culture in Taiwan, which is leading to higher consumption of cakes and sweets as accompaniments to hot drinks.

Meat To Maintain Its Lead

As previously noted, we estimate meat and poultry spending as a share of total consumer spending on food to rise between 2012 and 2022 by 1.1 percentage point. This can be attributed to both consumers buying more meat products and also consumers purchasing higher quality meat products. We highlight that meat and poultry consumption is on the rise in Taiwan, with the three categories in meat and poultry of Pork, Poultry and Beef and Veal forecast to show an uptick in consumption between 2018 and 2022, while per capita consumption in kilograms is also rising for poultry and beef and veal. The Taiwanese consumer is also prepared to spend more on higher quality meat cuts with the latest data from Trade Map indicating a premiumisation trend developing. The value of meats imported, in Taiwan is witnessing stronger growth in comparison to growth for the quantity imported, with imported meats' value growing by 20.5% in Q317 compared to 8.5% for imported meat by quantity in the same period.

Premiumisation Trend Apparent
Imported Quantity Vs Value Of Meats, % y-o-y
Source: Trade Map

In terms of imported meat by value, Taiwan's main import partners are the US, Australia and New Zealand, but we highlight that the growth in this segment is stemming from the value of meat imported from Spain and Paraguay. According to the latest data from Trade Map, the import value for meats from Spain and Paraguay rose by 61% and 57% y-o-y in 2016 respectively.

Within the meat and poultry segment (made up of pork, poultry and beef and veal), pork is set to remain the clear meat of choice for Taiwanese consumers. We estimate pork consumption to reach 39.5 kg consumption per capita in 2018 and maintain its lead although dipping slightly to 39.4kg per capita in 2022. This is a significant lead compared to poultry and, beef and veal with consumption levels estimated to reach 28.1kg and 6.5kg per capita respectively in 2018 and are projected to reach 30.2kg and 7.3kg per capita in 2022. The popularity of pork is due to the variety of typical Taiwanese food dishes that use pork such as steamed dumplings and buns ( Xiao Long Bao and Bao Zi), minced pork rice ( Lu Rou Fan) and Taiwanese sausages.

Pork A Clear Favourite Among Taiwanese Consumers
2018f- Meat Sub-Segments, Consumption, kg per capita
f= BMI forecast. Source: BMI

Beef and Veal Market To Experience A Boom

Total consumption of beef and veal will be a growth outperformer compared to the other meat categories over our medium-term forecast (2018-2022), growing by a modest 3.0% annually over this period. This is in contrast to poultry and pork consumption which will rise by 2.0% and 0.2% annually over the same period. We expect the consumption of beef and veal to grow on the back of rising domestic consumption, expanding tourism market, an increasing use of beef in Taiwan's food services and also the potential for the price of beef to decrease, thereby increasing its appeal to a wider consumer base.

Beef and Veal Total Consumption Rising
2018f-2022f Average Growth, % y-o-y
f= BMI forecast. Source: BMI

We note that beef consumption in Taiwan has historically been low due to the majority of the Taiwanese population practicing Buddhism or Taoism, at around 68% of the total population according to the latest census in 2006 by the Taiwan Government Information Office, which eschews the consumption of beef. As such, Taiwan's consumption of beef is lower than other categories of meat, standing at 6.5kg per capita in 2018, in contrast to pork and poultry which is estimated at 39.5kg and 28.1kg per capita respectively. Of the beef consumed in Taiwan, over 95% of it is imported. In 2016, the US was Taiwan's biggest exporter of beef in both value and quantity terms, followed by Australia and New Zealand.

US The Biggest Exporter Of Beef
2016 - Imported Value and Quantity, USD '000 / Tonnes
Source: Trade Map

Although the majority of Taiwanese do not consume beef, over 30% of the population is not Buddhist and so offers a consumer base for beef consumption. We note that the strong demand for beef is coming from a low base with beef consumption in per capita terms being the lowest out of all the meat sub-segments. We continue to believe that religious reason will hold back growth in volume terms, as per capita consumption of beef will continue to be lowest meat sub-segment, reaching only 7.3kg per capita in 2022, compared to 39.4kg and 30.2kg per capita for pork and poultry respectively in the same period.

The analysis thus far provides a domestic consumption outlook for beef. We believe that another contributor to the growth in beef demand is the expansion of Taiwan's tourism sector. We forecast arrivals into Taiwan to grow from 12.1mn arrivals in 2018 to 14.1mn in 2021, with strong growth in tourist arrivals from Europe and North America. Taiwan is famous among tourists for its night markets selling street foods and popular dishes are beef noodle soup and flamed and diced beef cubes. Another popular dish driving the consumption of beef is Shabu-Shabu, a hotpot dish which uses thinly sliced meats including beef.

Furthermore, we expect an increase in supply of beef to bring the prices of beef down and therefore boost demand among Taiwanese consumers for beef products. Taiwan announced plans to raise its quota of beef imported from Paraguay from the current 10,000 tonnes permitted per year. This is part of Taiwan's efforts to build stronger ties with Paraguay under the Taiwan-Paraguay Economic Cooperation Agreement (ECA) signed in July 2017, which allows beef exported to Taiwan within the set quota to be free of tariffs. Paraguay was the fourth largest beef exporter to Taiwan in quantity and value terms in 2016, according to Trade Map. Furthermore, as Taiwan conditionally lifted its 16 year-long import ban on Japanese beef imports in July 2017, we forecast demand for premium beef to surge particularly for high-cut Wagyu beef from Japan. This is in line with the premiumisation trend in the meat segment previously noted.