IMPACT on Trade
Food, super centers, and China
Delivery time at a rural market in China. Photo by Thomas Wahl
The dominance of large retailers and super centers in the U.S. retail food market is a hot topic of discussion. Their influence on the food supply chain has forced companies to either meet their demand for efficiency or fall to the wayside. Information on all aspects of supply and the ability to integrate into the supply chain is critical to meet these demands of efficiency. While the supply chain in North America and Europe has evolved to wring out efficiencies, how does the supply chain for food products function in the most populous country in the world?
Super centers are opening in many of the major cities in China. Most of the major players, including the United States, Europe, Japan, Taiwan, and China, are planning massive expansions to meet the growing demand by increasingly affluent Chinese. Traditionally, Chinese consumers have purchased their food in open-air farmers’ markets, and many, especially in rural areas, continue to shop in these traditional markets. Supermarkets and super centers are rare outside of large cities, but they are growing increasingly popular in urban areas despite products being more expensive.
Chinese consumers are concerned about food safety as well as quality. Food sold in supermarkets is perceived to be safer and more wholesome since it is generally considered to be of higher quality with lower levels of chemical residues such as pesticides and heavy metals. China has implemented a grading system that includes normal, no harm, green, and organic classifications. Due to concerns of chemical residues, no harm, green, and organic foods have become increasingly popular and are the fastest-growing segment of the market.
The demand for safer and higher-quality foods is part of the driving force behind the expansion of large supermarkets and super centers. Chinese consumers are concerned about the safety of the food they eat and are willing to pay a higher price for it. So, why don’t producers respond by producing fruit with less pesticides and chemicals if they can earn a higher price? The underlying problem is past overuses and industrial pollution that have contaminated much of the suitable growing area.
The growing demand for safe food by Chinese consumers may provide an export opportunity for fruit producers in the United States. While China is the world’s largest apple producer, U.S. apple exports to China continue to increase. Part of this increase is due to the quality of our fruit, but, perhaps more importantly, our ability to meet the demands of the supply chain in China. U.S. producers are able to consistently provide safe, high quality fruit in large quantities.
Virtually all of China’s fruit is produced on small farms of less than two to three acres. Producers must aggregate their output with others in the village to obtain quantities large enough to ship to major markets. These small lots lead to inconsistent levels of quality, size, and chemical residues. Further along the supply chain, sorting and packing operations are usually primitive, and cold storage capacity is limited.
These factors create export opportunities in the short run. In the longer run, China’s ability to improve its own supply chain must be considered. Over the next decade, it is very likely that fruit producers and marketers will be able to improve the consistency and quality of their products in the marketplace through consolidation of production, improvement of production practices, distribution, and storage. It is likely that they will be able to provide consumers with large quantities of fruit that meet international standards. While improvements in the quality of Chinese fruit over the next decade might limit the market potential for U.S. fruit, the demand for high-quality fruit in China will continue to grow and will expand market opportunities.
China’s middle class will grow from its current 200 to 300 million to perhaps 600 to 800 million. If China’s income continues to grow by even 6 to 8 percent per year, it will soon have the largest economy in the world. By 2050, China’s current population of 1.3 billion is projected to grow to 1.6 billion—an increase about the size of the U.S. population.
In urban areas, the vast majority of families own a refrigerator. In rural areas, where about half of China’s population resides, only 16 percent have a refrigerator. As China’s economy improves and prosperity reaches rural areas, demand for more and better quality food will expand, increasing demand for higher quality and safer fruit. However, urban encroachment, limited water supplies, and heavy metal residues will limit China’s ability to expand their fruit production.
While China is the largest producer of some fruits and a significant player in the world market for apples and other fruit, it is likely that its own rapidly expanding market will soon prove to be its best market. In the future, China may prove to be an excellent market for the high-quality, safe fruit produced in the United States.