China’s growing food imports from the EU

This paper examined China’s agricultural imports in regard to income growth, import price changes, and tariff reductions due to China’s trade liberalisation. More specifically, it attempted to model behavioural relationships in the agricultural trade between China and the EU by using annual trade data from 1986 to 2005. Econometric models were constructed for six agricultural products exported from the EU to China – frozen pigmeat, frozen fish, whey, barley, beer, and wine. The results indicated that China’s agricultural imports on a product basis are insensitive to absolute price changes. Therefore, the examination of the price elasticities confirmed the expectation that demand for Chinese agricultural imports is relatively inelastic to absolute price changes. However, Chinese importers are sensitive to relative price changes on a product basis due to price competition among suppliers. Chinese importers will seek for the cheaper products among the foreign suppliers. The estimations indicated that relative price changes affect significantly China’s import demand from the EU, implying that the exporter’s market share in China is influenced by price competition. China’s import demand analysis suggested that income growth effects play a dominant role in determining China’s import demand for agricultural products, both in the short and long term. Rapid income growth has fuelled most of China’s increased appetite for imported agricultural products. Strong economic growth is the major force behind the increasing buying power of the Chinese consumers.