"For-profit" approach to food safety complements regulation - Gilmore

"For-profit" approach to food safety complements regulation - Gilmore

As the Chinese government moves to step up regulation of the country's food industry, China's domestic brands are developing a for-profit food safety model that aims to restore battered consumer confidence in the quality and reliability of the country's foodstuffs, according to Rick Gilmore, chairman of the Global Food Safety Forum (GFSF). David Green caught up with Gilmore in Beijing to find out more.

Chinese food manufacturers must resolve a number of issues if China is to make progress in instituting a food safety regime compatible with its wider goal of fulfilling the 'China Dream' - a political motif for goals being pursued by the new administration in Beijing that took power in March, the Global Food Safety Forum's Rick Gilmore suggests.

Chief among these is the need to regain the confidence of Chinese consumers following scandals ranging from melamine in infant formula, to rat meat sold as lamb and cadmium-tainted rice, among many others.

Beijing is taking action in a top-down approach that has seen the Chinese government step up food safety regulation. In March, the central government elevated the country's food and drug administration to a body with ministerial power and it, along with government partners, has since begun to develop policies indicative of an orchestrated drive to improve food safety.

Reform has included an overhaul of the food and drug regulatory system, leaning on local governments to improve procedural oversight and beginning with a special operation focused on the baby formula industry.

Chinese authorities have moved to tighten regulation of baby food production, while also pushing for consolidation of the highly fragmented domestic sector. At the same time, regulators have launched a highly publicised probe of pricing practices of international firms, which has prompted multinationals including Mead Johnson, Danone and Nestle to drop prices.

"Top milk formula brands [in China] are mainly foreign brands, only a few like Beingmate are domestic. The anti-trust case by the Chinese government aims to bring down the soaring price of infant milk powder and close loopholes like the black market in Hong Kong and manipulation of formula import quotas from New Zealand. This is one step to restore consumer confidence by making top-brand milk formula more affordable to Chinese people and restore consumer confidence in a troubled sector/product," Gilmore suggests.

"Presumably, the underlying assumption in the policy shift is to introduce competition in the industry, thereby forcing the middle market producers to raise their quality and safety standards. Aside from the outliers, I think the strategy and expectation is Chinese producers will try to meet the competition head on with cost-effective, quality product rather than through fraud."

More broadly, China is reviewing the national food safety law that will probably stipulate harsher penalties for food safety violations, Gilmore continues, while earlier this month saw the launch of a pilot system to track meat and vegetables from farm to the supermarket shelf. 

Gilmore suggests the elevation of the food and drug administration "is in part designed to bring about a more uniform system" but argues its key test will be whether it has the clout to bring powerful provinces into line if food safety violations occur on their watch.

"They've got the architecture as far as I'm concerned - they have really tried to match a hybrid of the US and UK system, but it's always been a top-down approach and it is the enforcement and compliance, and the de-incentivisation for fraud that are critical," Gilmore observes.

Significantly, Gilmore says private business is making strides to improve food safety through a "bottom-up", "for profit" approach. Gilmore points to the prospective US$4.7bn buyout of US-based Smithfield Foods by China's Shuanghui International as a case in point. "It's an interesting model," Gilmore says.

A keynote speech from Shuanghui chairman Wan Long at the International Food Safety Summit staged in Beijing last month (co-hosted by the GFSF and the new, elevated China Food and Drug Administration) offered unique insight into the takeover process, Gilmore continues. 

"Mr Wan made it very that part of the valuation for the Smithfield price tag is that they have a quality guarantee system and brand recognition, but they also really took account of the technologies in food safety and meat processing," he says. Some valuations of the company's food safety monitoring systems are exceeding US$2bn," Gilmore adds.

Gilmore favours this commercial approach. "I'm very attracted to this model, towards the short-cutting of food safety problems in China. I think this idea of importing food safety and brands that have an identified quality of food safety is a bottom-up approach that is complementary [to the top-down approach]."

However, there remain areas of Chinese food production that are likely to present a challenge. "The trouble zones lie with the medium-sized and small-scale enterprises. It's not exemplary in that regard."

As a result, consolidation of various food-related industries, particularly meat processing, remains a priority for the Chinese authorities.

With medium and small companies getting bigger and relying on their reputation and brands to grow, such takeovers could pull Chinese companies into the for-profit brand model very familiar in the West, whereby the assurance of quality and safety come at a premium price and a targeted growth strategy, Gilmore suggests.

Recalling a visit late last year to the operations of China's New Hope Dairy in Chengdu, the capital of China's south-western Sichuan Province, he says the company had accepted it had compliance issues at supplier farms it did not directly control, but aimed to surmount them by purchasing farms in New Zealand.

Such investments have become viable due to an increasing demand for food safety assurances - and a growing section of the population with the will and means to pay for such assurances.

"The demand side has evolved. Look at [the] formula shenanigans - the middle class can afford some of that... But I think what has also changed is not only consumer readiness to pay for quality and safety assurances, but also to seek it out more proactively."

The GFSF wants to better link all players across the food industry chain in China that have an interest in boosting food safety. And to this end, it recently signed a mandate with Longcom Internet of Things Co. Ltd, a Chinese company that offers logistical tracking services that help companies to better manage and track their supplies, Gilmore reveals.