Fixing China’s Food Safety Issues will Require a $100 Billion

Friday, July 6, 2007 4:46
Posted in category Uncategorized

With all the recent news surrounding the safety of Chinese produced goods, many are looking for answers and I would like to thank my friends at A.T. Kearny who turned me onto a recent report entitled Fixing China’s Food Safety Issues will Require a $100 Billion Investment (PDF Report Here).

Supported by a detailed powerpoint presentation and video (see below), AT Kearney recently reported their findings at CIES World Food Business Summit in Shanghai whereby they found:

China’s food safety process is broken and fixing it will require a $100 billion investment in improved food safety standards, warehousing, transportation and training

China Food Safety

With over 1500 interviews conducted in Beijing, Wuhan, Chongqing, Shanghai, and Shenzhen the findings of the report are interesting, relevant for everyone doing business in China, and unlike a number of recent reports they offer their ideas on some solutions and where the investment should go.
The reported statistics:

  • The middle class spends 150 Billion USD on food now, and that will increase to 650 Billion by 2017 (17% CAGR)
  • 95% of respondents say food safety is important to them (73% in 2005), and nearly 85% of respondents said they would pay a premium for safe foods

The reported problems:China Food Supply Safety

  • Fragmented supply chain
  • Lack of standards
  • Inadequate audit and enforcement
  • Reliance on trust and visual inspection

These problems are hardly a surprise to anyone living in China, and while working for a starch firm last year to understand the quality of Chinese products we found a number of the same issues (Supply chain fragmentation is something I have written about a lot). What was interesting though, and more applicable to the last three issues, was that we found that the average consumer did not believe in many of the labeling programs in China.

For example, the green labels that you will find on a number of products now are supposed to indicate the the products are organic, but few people are willing to pay more for these products as everyone knows that the inspections are one off inspections.. and are not really all that fine combed. In one interview with a foreign food processor, the very definition of “organic” is different in China from that in the west as the Chinese definition does not consider the quality of the soil. At the same time, there is no ongoing audit system, so firms that may have been organic 5 years ago could change their processes and still retain the green label.

Following this the report skims the Cold chain issue, and give a few testimonials on how consumers got food poisoning .. and how they reacted as a consumer after that. From a logistics perspective, I would have like to have seen more on the cold chain options, particularly how the conditions change as you go farther inland. No doubt there are pockets on the east coast that still do not have cold chain, but that changes as one goes farther inland, and with an opaque regulatory environment it would have been interesting to see what percentage of cold chain is controlled by foreign companies.

In fact, one logistics firm I spoke to recently dumped several million into a state of the art cold chain warehouse, but due to the approval process, this warehouse can only be used for dry goods. Apparently, the parties responsible for approving applications are the very firms that control the largest chunks of cold chain in China…

To fix the problems, ATK suggests:

  • Agree on common standards with industry and government

While working on another agriculture project (2 years ago), I got a great inside view of this issue. I was amazed by the various standards that could be found on a local, provincial, national, and international level. My client was in beans, and what was interesting to see was that a single co-op would have beans that met different standards, and if they were lucky they would meet the export level where they could be sent to other developing countries (at the time very few farms were sending beans to U.S. or E.U. market).

  • take responsibility to ensure joint enforcement for all participant

As everyone has seen recently, this will really need to become the biggest area of focus. There needs to be an all party meeting with producers, processors, consumers, governments, and other agencies to develop a single set of standards as well as quality management system

  • develop high quality national supply chain in collaboration with third party providers

This is the only area that I have seen a lot of movement as foreign investors see this as an opportunity and begin investing in the warehousing and trucks needed. Ports are replacing refer container stacks with cold warehousing, more and more trucks can be seen on the road, and this will only improve as more centralized purchasing occurs by group like Lianhua, CArrefour, Walmart, etc.

  • attract private sector infrastructure investment of about 100 billion USD (OUCH!!)

100 billion USD is A LOT OF MONEY, and while I can see a few billion being invested, 100 BILLION USD IS A LOT OF MONEY.

The presentation wraps up with the slide below, which really speaks for itself. In my opinion, this report is one of the most timely reports I have seen in a while, and I am sure it was well received at the CEIS show last month. Food safety is always a concern, but the last several weeks have ignited a fire under the issue that has moved from the economic arena into the political arena

China Food Safety

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4 Responses to “Fixing China’s Food Safety Issues will Require a $100 Billion”

  1. University Update - Yahoo - Fixing China’s Food Safety Issues will Require a $100 Billion says:

    July 6th, 2007 at 5:51 am

    […] Link to Article yahoo Fixing China’s Food Safety Issues will Require a $100 Billion » Posted […]

  2. Laura says:

    July 8th, 2007 at 10:58 am

    That’s a good article. Thanks

    I kinda like the posts about China here. It’s talking fair

  3. nanheyangrouchuan says:

    July 8th, 2007 at 5:23 pm

    Tally that with the very conservative estimate of $150 billion USD to clean up China’s environment.

  4. Rich says:

    July 9th, 2007 at 1:03 am

    @ Laura

    Glad you like the site and the article!

    @ Nanheyangruochuan

    Even at 150 billion for the environment and the 100 billion for food, that still leaves 750 billion or so in reserves.