I had a long conversation with a celebrated food writer recently about how Shanghai’s 50,000 restaurants manage to safely source the meat, vegetables, fish and other perishable foods that make up the bulk of their dishes. The answer I gave was that the vast majority of these foods are not handled in a manner that would be acceptable a developed country.
Broad estimates sit awkwardly in China where scale and highly varied development patterns almost always mean big spikes and troughs in data. But in the interest of getting across just how far the cold chain sector has to go, here are a few opening numbers, with a heavy parental guidance warning.
Government officials and overseas parties with an interest in cold chain development generally agree that barely 25% of perishable foods currently consumed in the country are properly handled.
Close to 70% of domestically produced pork, the most popular meat in China by a wide margin, reaches consumers through grocery and agricultural trade markets that are not part of any structured cold chain. In better cases, goods in transit may have a few buckets of ice thrown over them – but they are often delivered in open-top trailers with no effective temperature control involved.
Aside from serious food safety hazards, lack of cold chain processes means up to 30% of China’s entire annual perishable food harvest goes to waste.
Too many standards
The main problem is lack of an integrated national cold chain standards and regulation system. There are currently hundreds of standards that affect handling of perishable foods issued by a variety of government bodies – the Ministry of Agriculture, Ministry of Communications, State Council, local governments and so on.
But without coordination and build-out in areas such as market access, measurement and enforcement, they cannot adequately support development of the cold chains required to keep perishable foods reasonably safe and unspoiled.
Of course, there are numerous food brands and food retailers in China that do a very good job of delivering fresh, quality produce to consumers. Big fresh food retailers such as Tesco (TSCO.LSE) and Metro (MEO.FWB), for instance, have the interest, expertise and money to find solutions to ensure the integrity of their perishable produce.
Yum! (YUM.NYSE), meanwhile, has developed cold chain systems in China to a level where it can reasonably be referred to as the company’s core business. Yum! China operates 3,500 KFC and 400 Pizza Hut outlets with an integrated cold chain that reaches all regions except Tibet.
It sources all ingredients bar cheese and half of its french fries from 600 suppliers whose produce is transported to and from 16 cold storage warehouses nationwide by temperature-controlled GPS trucks. Farmers are taught to limit the antibiotics fed to chickens and Yum!-commissioned laboratories conduct random tests for levels of heavy metals and pesticides.
Waiting on demand
Yum! has proven the case for profitable investment in cold chain in China. The expectation is that as consumers become more concerned about food safety and variety, there will be more private-sector interest.
A per-capita income of US$8,000 is normally cited as the tipping point for returns on the heavy investment required in cold chain systems and processes. China doesn’t come close to this level, but the scale of the market and uneven patterns of development mean there are already pockets of wealth large enough to sustain investment.
As a result, major players in industrial property are highlighting the potential of the market and more refrigerated distribution centers are under construction. In March, China Merchants Group and giant US firm Americold announced a new joint venture that plans to use best-in-class technology to develop a national cold chain network.
Even the lack of integrated cold chain standards is finally being resolved. A government committee established in 2008 is working on architecture for a new standards and regulation system that will include provisions for market access, measurement and enforcement. This should create a better environment for private investment.
In the meantime, my suggestion is to patronize restaurants and retailers for whom delivery of high quality foods is a core business principle.