Developments in China's infant formula sector encapsulate the key regulatory, economic, trade and business strategies adopted by China's government to improve food safety. It is the model which China's government will continue to use to rapidly improve the safety of foods circulating in its markets.
The progress made in China's infant formula industry has been realised not by any massive improvement in domestic conditions, manufacturing standards, animal husbandry or pasture management, but in savvy foreign trade policies and technical barriers in the form of incrementally stringent regulations.
When the Chinese government talks about focusing on imports, allowing Chinese consumers access to foreign products and letting market forces dictate changes in food safety, it has gone about its business with a strategic plan in mind.
First, it has implemented successively stringent regulatory requirements for domestic producers to force the closure and/or mergers among domestic manufacturers with the lowest technical capacity, while also allowing the fittest companies to survive and consolidate their supplies.
Meanwhile, the world’s biggest international dairy giants have engaged in multibillion dollar deals with their counterparts in Chinese infant formula manufacturing. As the Chinese like to say, this is a “win-win" for all sides.
While international manufacturers get access to the worlds biggest consumer base and a head start on their competition through foreknowledge of pending regulations and changes to market access requirements, Chinese companies get access to raw materials from high value regions like Ireland, New Zealand, Holland, France and Australia. They also gain experience from the worlds major dairy companies and a share in the spoils of international companies’ profits.
Once these first two strategies came into place, the next step for China has been to control supply by introducing technical barriers to trade.
To do so, food authorities authorised the requirement of onsite inspections of all infant formula manufacturers by its certification authority, the CNCA. It then released draft regulations to limit manufacturers to just three product lines and require registration of all infant formulas.
Through such measures, especially in the context of increased access for international manufacturers, the boundaries between what is considered a purely Chinese enterprise and one that is foreign have become increasingly blurred. All players exporting to China now have mutually vested interests with Chinese manufacturers and their partner enterprises in the country.
The food industry is an important sector in China’s economic development and particularly important from a cultural perspective. Its consumption-based economy requires consumer products that are in demand; and from a food industry perspective this essentially equates to the sourcing of imported packaged goods.
The government has earmarked specific high-risk, high-demand sectors for implementation of its food safety improvement strategy starting with infant formula and other "special foods", meats and aquatic products. The country’s national standards also increasingly require dedicated labelling and formulation strategies from manufacturers exporting to China rather than the traditional over-label.
- Paul O’Brien is a food regulations and markets specialist at Chemlinked Food Portal
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Premium brands could boost profitability of China’s high-volume beer market
China’s high-volume, low-profit beer market is set to be transformed, with increased “premiumisation” providing opportunities for imported and licensed foreign beer brands, says Rabobank.
In a new report on the Chinese beer market, the Dutch bank’s analysts claim that the world’s biggest beer market suffers from relatively low profitability, though this will change through increasing consolidation and an influx of premium products will provide a platform for profit growth.
To grasp opportunities, the bank suggests that local brewers could consolidate the mainstream beer segment or expand their super-premium portfolios by importing beers or licensing overseas brands.
Meanwhile, exporters from countries with strong beer cultures would be most likely to succeed in China by forging partnerships with local brewers, says Rabobank, adding that global brewers with international brands could either enter the Chinese market quickly through a partnership with a Chinese brewer with distribution power, or through a greenfield operation.
According to the report, China has been the main driver of growth in global beer consumption, accounting for more than half of total volume increases. However, the profitability of beer in China is relatively low due to two important reasons.
“First, the Chinese market is very fragmented, resulting in fierce price competition among brewers and low levels of selling power,” said Francois Sonneville, who authored the report.
“Secondly, the Chinese beer market is dominated by mainstream beer, which has a much lower profitability than premium or super-premium beer.”
While volume growth has started to slow, and even showed a decline over the past five quarters, growth in profitability per hectolitre has accelerated over the past two years.
Rabobank estimates that the profit pool has grown from US$1bn to US$1.6bn over the past six years, and will rise further as consolidation and premiumisation continue.
“The premium and super-premium segments in China are small in volume, but much more significant in profit terms. A premiumisation strategy can be successful for both Chinese and foreign brewers,” added Sonneville.
Lab reveals worrying levels of mycotoxin contamination in produce
Around 6.2% of China’s annual grain yield is contaminated by mycotoxins every year, according to research by the Chinese Academy of Engineering.
The academy found pesticide and chemical residue to be the major sources of food contamination in the country, with pesticide residue found in samples tested by the CAE lab over the last three years.
Research also revealed antibiotic misuse in animal and marine farming, and that contaminants, including heavy metals and mycotoxins, have hampered the safety of grains.
The heavy metal contamination in grains was severe in some regions, with over 20% of grains being found to have levels in excess of safety standards.
"Despite the progress made, more should be done to further improve food safety in China," Pang Guofang, a researcher with the CAE, told Xinhua.