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China's Food Safety Issues Will Require a $100 Billion Investment
added: 2007-06-27

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, according to research by global management consulting firm A.T. Kearney.

The analysis, presented at the CIES World Food Business Summit in Shanghai, forecasts China's growing middle class will spend more than $650 billion on food by 2017, a combined annual growth rate of 17 percent from current spending of $150 billion. More than 75 percent of this demand will come from second and third tier markets.

"Reaching these consumers will require an effective national distribution network that does not exist today and that no single company can build," said Jim Morehouse, senior partner at A.T. Kearney and leader of the study. "It can only be accomplished with a cooperative effort among all the major manufacturers, retailers, restaurants and distributors. These groups need to agree on common standards with government support, ensure enforcement and attract private sector investment to build a national end-to-end supply chain for China."

The A.T. Kearney research found that food safety concerns have increased significantly among Chinese consumers in the last two years and more than 80 percent are now willing to pay some sort of premium for food safety (up from 57 percent in a 2005 survey). This trend is driving shoppers to modern retail formats and away from the traditional wet markets.

But China's fragmented and inadequate standards and supply chain make it difficult to get safe food to these consumers. There are no consistent standards for food quality and safety, and there is inadequate inspection and ineffective enforcement. Produce and most meat are not required to go through a cold distribution chain. Seventy-nine percent of retailers do not monitor temperature of products during shipping and two-thirds do not check temperature upon receiving.

A.T. Kearney estimates that to serve the growing middle class demand for food with effective safety levels by 2017, China will need 365,000 refrigerated trucks and 5 billion cubic feet of cold storage. Today the country has 30,000 refrigerated trucks and 250 million cubic feet of cold storage.

"This lack of infrastructure poses significant safety risks to Chinese consumers and reputation risks to food retailers and manufacturers," Morehouse said. "While the estimated $100 billion cost to create an effective food distribution network in China is significant, the benefits from reduced distribution costs, reduced waste and premium pricing for food safety should equal $160 billion annually by 2017."


Source: PR Newswire

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