Shaun Rein, managing director of the China Market Research Group, is the author of the new release “The End of Cheap China,” which addresses, among other things, food safety and food supply issues in China.
Rein’s research shows that China is having an increasing impact on global food supply and that the Chinese taste for imported Western food is growing as is demand for a reliable and safe food system in that country.
Based in Shanghai, he writes for Forbes and Bloomberg Businessweek. I spoke recently to Rein about his book chapter dedicated to food safety issues in China.
How is the consumer power of the average Chinese changing?
The book is meant to dispel a lot of myths about China’s economy. The first is that Chinese consumers are price-sensitive and cheap. I have a chapter on food safety, where I explain that they’re willing to spend money on healthy and safe food, so if you’re a producer, it’s worth selling into China. For example, Yum! Brands makes over 40 percent of its global revenue in China. So the Chinese consumer is a great consumer for Yum!, McDonald’s, Kraft and any company trying to sell finished products into the country.
It’s also a great country for the agricultural sector: sales of pork and soy are going up 300 to 400 percent a year.
How is this affecting the way the Chinese eat? How has that changed in recent years?
Meat consumption was very low. Meat consumption in China is only about 35 percent that of the United States, So, Americans eat a lot more meat, but that is changing. Chinese doubled (their average per person) meat consumption in the last 30 years. As Chinese consumers are getting wealthier, they’re eating more meats, and (the country’s wealthiest consumers) are actually willing to spend more per capita on meat than (their counterparts do) in the United States.
Are they domestically producing different kinds of foods to meet those demands?
Yeah, what you’re seeing now is massive investment on the domestic side when it comes to beef, when it comes to wine … all kinds of things. But the reality is that China’s food system has a problem: There’s not enough arable land, and the water is heavily polluted. So China is actually going to have to rely on food imports, from the United States especially, and they’re becoming a massive importer of pork, chicken feet, soybeans, pistachios, all kinds of products. These consumers trust American-produced food products more than they do stuff from China. So it’s really a boom for all different industries involved in the food sector. On the lower end and higher end.
Arable land is only 7 percent (of that available around the world), so it’s a serious problem, and it’s only going to get worse going forward.
What are you noticing in terms of the impact on health in the way Chinese are changing their food consumption behaviors?
Right now, consumers are not worried that much about food when it comes to “is it healthy?” towards their overall diet. They’re eating meat, they’re eating fatty food, and they’re not overly concerned about long-term illnesses, which is why you’re seeing rates of heart disease and diabetes skyrocketing.
But people are worried about being healthy from a toxicity standpoint. We interviewed 2,000 consumers in eight cities last year, and the majority said they feel that KFC, for instance, is healthy. They know it’s not healthy in the traditional sense, but people are worried about eating cooking swill oil [that is old, used oil which is filtered of solids and then re-used for cooking] on the streets, and dying right away.
What are the food safety concerns Chinese have, beyond swill oil?
We interviewed 5,000 consumers in 15 cities last year, and their biggest concern in life, ahead of being able to pay for their kid’s education or for medical costs for the family, is actually food and product safety. People are really worried. That’s why brands like Mengniu Dairy are winning, because they’re positioned as higher priced over Nestlé, they’re about 20-30 percent more (expensive), and consumers are willing to fork out the money because they think it’s going to be safe. So Dannon and Nestlé had to shut their factories in Shanghai this year, because they were competing on price and consumers didn’t want their cheap stuff anymore. Consumers find a correlation between safety and price, and feel higher price will be safe. Now I’m not sure that’s necessarily true in reality, but that’s how they equate it.
In your opinion, how are China’s consumption trends affecting the world beyond?
[They are affecting the world] in a few areas. First, China’s become the market to sell into, so a lot of brands need to think about how they’re going to sell to Chinese consumers, especially women, because women are the decision-makers when it comes to food purchases, predominantly, in families.
It’s also going to mean that there’s going to be inflation. In the last three decades, China has really been a deflationary force on the global economy. But because everyone’s getting fat, and wanting to eat more, better quality foods, you’re going to see a pricing strain on global commodity markets. So the world needs to be prepared for global inflation. American consumers better get used to higher prices at Shaw’s, or Tesco or Carrefour or Walmart, around the world.
Will the Chinese agricultural and food production systems have to change?
They absolutely will have to change. It’s an absolute mess, it’s a disaster, and an embarrassment for China to have such a poor food supply system. Though it’s being changed by two things.
The first is, the government understands it needs to do a better job of oversight. So what they’ve done is shut 50 percent of the nation’s dairies last year, for example.
The real change is going to take place by people willing to spend money when they feel that they’re safe. So brands are going to fix their supply chain and cater to these consumers and make money. The scope of the problem is enormous.
Zester Daily contributor Manuela Zoninsein is a Brazilian-American reporting on sustainable food, travel and business from Shanghai. A former dining editor for Time Out Beijing, her work has appeared in Condé Nast Traveler, ClimateWire and Newsweek. She writes about her passion for healthy, interesting and sustainable food at manuelasweb.com.
Photo: Author Shaun Rein. Credit: Courtesy of Shaun Rein