A Call to Action: Ensuring Food Safety in China

China’s role in the global economy is changing. The country is no longer merely a source for inexpensively produced goods but also a rapidly growing consumer market—and one that looks especially lucrative for food companies. As the growing Chinese middle class spends more money on food, sales of branded food products (currently at $150 billion per year) are expected to reach $650 billion within 10 years.

Also, food safety is becoming a big issue. More than 95 percent of Chinese consumers rank food safety as a very important criteria for their purchase behavior. As a result, shoppers are moving toward modern retail formats and away from the traditional wet markets. Most middle-class consumers are also willing to pay premium prices to ensure safe food. That means they’re willing to pay a premium for traits such as meat that is guaranteed to be fresh and uncontaminated (see figure) .

The problem is that in China food safety standards are not consistent, enforcement is not very effective, and there is no real integrated distribution capability. For instance, there is no cold chain system of refrigerated trucks, warehouses and retail space that can guarantee cool temperatures for meats, vegetables, vaccines and similar products. If you are, say, a dairy product manufacturer, you can’t simply make a few phone calls and get someone to start distributing your products. With 75 percent of the future market expected to exist in second- and third-tier cities such as Shanghai and Beijing, capitalizing on this market will require a national distribution network.

Our research reveals that improving food safety and distribution in China boils down to the following four steps:

Set the right food safety standards. Manufacturers, retailers, restaurants and distributors need to agree on common standards. Governmental agencies need to be involved, not only to provide valuable perspectives on local and cultural issues but also for effective enforcement.

Take responsibility to enforce the standards. These standards must be self-enforced at every point along the supply chain. The collaborative nature of development ensures that each stakeholder takes ownership.

Establish an efficient national supply chain. A modern supply chain can serve the country’s expanding middle class while also supporting safe exports. Note that the effort to build this infrastructure comes after establishing the standards because it must be built to meet those standards.

Attract private-sector investment. Our research shows that these steps will require more than $100 billion in investments over the next decade. One should not expect that money to come from the Chinese government. It must instead come from the companies that will benefit from this new food safety infrastructure. Our estimates show that annual benefits by 2017 should reach $160 billion per year.

Quick and Decisive

Gaps in the Chinese food distribution infrastructure represent a huge threat—to the health of the Chinese people, to the reputation of global brands in China, and to the expansion of the Chinese market. Although individual brands can be particularly hard hit, our research shows that all providers suffer when one is tainted. Recent headlines regarding food scares in China represent a call to action. The action need not be big—it can be as small as gathering with like-minded people to start setting some common standards—but it will be most effective if it is quick and decisive. The possibilities of the Chinese market are too vast not to begin the effort.

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