China’s farms need investment. With most being small-scale holdings this investment has rarely been forthcoming and with farmers generally feeling overtaxed and under remunerated the incentives to invest have been low. 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 retail supermarket end of the food retailing business from giants such as Carrefour and Lotus has raised urban supermarket levels immeasurably.

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% 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, wet markets are still where most Chinese 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 have stated to close many local markets in the major cities effectively forcing many people to start using supermarkets. In turn supermarkets will be encouraged to sell more farm produce.

However, the question remains that while foreigners have been eager to sell China’s farmers storage and agricultural machinery and to invest in modern retailing, it is far from clear who exactly will want to invest substantially in wet markets.