Is this the end of China's wet markets?

- Last updated on GMT

Related tags: Supermarket, Retailing, China

Farming in China needs serious investment if domestic food
production is to keep up with rising food consumption. But with a
growing emphasis on food quality and safety, future investment in
the sector looks seems an inevitable route towards the relentless
move from wet markets to modern supermarkets, a market report says.

With most of China's farms remaining small-scale holdings investment has rarely been forthcoming and with farmers generally feeling overtaxed and under remunerated the incentives to invest have been low, the Access Asia​ report says. However, following China's accession to the WTO and the need to both compete more and win export orders the quality of fresh produce is becoming more important.

It is also the case that a rash of food health scares including poisonings, over use of toxic substances, food product piracy, bird flu and SARS have all raised the stakes even higher as domestic consumers also start to demand better quality.

In response to this China's State Council has announced that it will lift restrictions on foreign investment in markets that sell vegetables and other farm produce. The hope is that this will help upgrade stores and outdoor markets plagued by low-quality products and inefficiency. Undoubtedly the greater competition in the food retailing business from supermarkets giants such as Carrefour and Lotus has raised urban supermarket levels immeasurably, the report highlights. The State Council's new guidelines indicate that in future there will be no limits on the location, shareholding and capital requirements for foreign companies opening wholesale markets and farm produce retail outlets. Previously foreign companies have been limited to a 65 per cent stake in joint venture firms in the farm distribution sector. However, Beijing agreed to end that restriction as a condition for joining the WTO in 2001.

There are plenty of markets for foreigners to invest in - China has 4,150 farm wholesale markets and Beijing expects 2,000 of them to meet the new national standards within three years. Despite the rise of supermarkets and hypermarkets, Access Asia says that wet markets are still where most Chinese people buy their daily produce and believe they can best ensure freshness as well as low prices.

However the government would like to see consumers move towards more spending at modern outlets and since SARS and bird flu are now leading to the closure of many local markets in the major cities, consumers are effectively being forced to start using supermarkets. This means that in turn supermarkets will be encouraged to sell more farm produce, filling the gap that the wet markets are leaving behind.

The question now remains that while foreigner businesses have been eager to sell Chinese farmers storage and agricultural machinery and others to invest in modern retailing, it is far from clear who will want to invest substantially in the wet markets. Despite an almost unbeatable array of fresh local produce, the wet markets could well start to look increasingly lack luster next to the polished supermarket aisles stocked with enticingly packaged goods that they are now competing against.

Related topics: Markets, China, East Asia

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