Barley deal to help UK brewers gain inroads in China

The United Kingdom has signed an up to 100 million pounds ($151 million) deal to export barley to China over the next five years, tapping into a fast-growing market for premium beer, a British minister said.

China, home to a 486 billion yuan ($76 billion) beer market that is the world's largest by volume, currently buys about 8 million tons a year of the grain, mainly from Australia, Canada and France.

The deal marks the first time that Beijing has approved barley imports from the UK, and will involve purchases of around 150,000 tons a year, Elizabeth Truss, British secretary of state for environment, food and rural affairs, told Reuters.

"British beer hasn't been the front-runner so far, but is growing in profile. So I think there is a massive opportunity for us to take more market share," Truss said in Shanghai, where she is promoting British food and drink exports to China.

The barley export deal comes as UK lobbies to forge closer trade ties with China, sealing around 40 billion pounds of deals last month in sectors ranging from cruise ships to nuclear power.

Premium or craft beers are more likely than regular brews to use imported barley, and industry experts say demand in China for these high-end drinks is surging as more people trade-up, even as growth in the overall beer market stalls amid a slowdown in the world's second largest economy.

China's premium beer market grew around 20 percent last year compared to a paltry 0.5 percent gain in the wider market, according to consultancy Euromonitor.

Craft beer, however, still remains a niche product, accounting for less than 1 percent of a market dominated by products from local firms Tsingtao Brewery Co Ltd and CR Snow, a joint venture between China Resources Enterprises and SABMiller.

Low levels of funding and limited expertise are also crimping growth, as are so-far sceptical consumers, said Jack Zhou, 40, who runs craft beer bar Jackie's Beer Nest in Shanghai.

"Government policy currently is more supportive of big beer producers, while legislation for small, craft producers has not yet been properly put into place," he added.

Michael Jordan, brewmaster at Boxing Cat Brewery, which makes and sells craft beers in Shanghai, however, expects the market share of craft beer to increase in China as disposable incomes rise.

"There's a huge price difference between a local beer and a craft beer, so as the market matures then it does become a bit more affordable," he said.