The following information is extracted from USDA Foreign Agricultural Service GAIN Report that focuses on China's Cold Chain Logistics:
Food Production
In 2006, total production of all perishable foods was approximately 700 million tons. The total expenditure of urban residents on perishable foods was 51 percent of total food expenditures. China has more than 2,500 meat enterprises that produce over 60 million tons of meat, an amount that is increasing by five percent annually. There are more than 2,000 frozen food enterprises that produce 8.5 million tons of frozen products and more than 4,000 beverage enterprises that produce 1.5 million tons of products. Beverage production is increasing by seven percent annually. There were 1,500 dairy enterprises, producing overeight million tons of dairy products. Until the 2008 diary scandals, the industry was growingby 30 percent annually. Total aquatic product production was 44 million tons, and is increasing 4 percent annually.
Food Demand
It is estimated that the Chinese middle class of approximately 500 million will spend more than $650 billion on food annually by 2017. About 75 percent of that market is in second and third-tier cities located outside the wealthier cities such as Beijing, Guangzhou and Shanghai. Demand for chilled dairy products and fruit juices, as well as frozen foods, is growing rapidly in China, especially among urban consumers who increasingly shop at the numerous supermarkets opening up in the cities. All of these changes are leading to high demand for cold chain logistics in China. Reaching those consumers will require an efficient nationwide distribution network that still does not exist yet today.
China’s Cold Chain Industry
China’s cold chain was first introduced in 1950s to export meat products. Promulgation of “Food Safety Law” in 1982 marked the start-up of the modern cold chain logistics industry in China. For over 20 years, China’s cold chain logistics has developed slowly. The result has been a rudimentary cold chain system established with a number of key food processing enterprises creating systems for their own products. This includes firms handling frozen food, meat processing and dairy products as well as a large number of fast food chains and supermarkets. Despite the ongoing development, China’s cold chain is still highly fragmented -- with few companies having reach outside their home cities. The logistics industry is growing rapidly. In the first half of 2007, total cargo transportation reached 10.59 billion tons, an increase of 11.9 percent from the same of period in 2006.Total value-added of logistics industry was 750.3 billion RMB, an increase of 17.2 percent compared with the first half of 2006. Although there were no separate statistics for coldchain logistics, industry sources believe it is growing much larger than for the industry as a whole.
Cold Chain Issues
Although the cold chain logistics industry has continued to develop rapidly, China still faces a lot of problems and challenges. Insufficient infrastructure and poor management are regarded as significant obstacles to the development of the cold chain logistics. As a result, every year cold chain problems in China result in massive product losses. This is largely because only 15 percent of all perishable products are transported by refrigerated vehicles compared to nearly 90 percent in developed countries. Currently about 90 percent of meat products, 80 percent of aquatic products and a large amount of dairy products are managed without cold chain logistics. It is estimated that the total output value of food was about $30 billion and that more than 20 percent of this total is lost because of poor storage. Some products have even larger losses. For example, about 25 – 30 percent of fruit and vegetables are lost in the process of harvesting, transportation and storage. Because of China’s size and large scale food production, the country has a huge need for storage and transportation of perishable items. Infrastructure problems are the result of inadequate facilities and equipment. Cold storage capacity in China covers only about 25 percent of total output, compared to 70 to 80 percent in developed countries. China currently has 30,000 refrigerated vehicles, which is only 0.3 percent of total cargo transportation. Meanwhile, there are only 6,970 refrigerated railcars, which is only 2 percent of the total 338,000 railcars. Only about 25 percent of perishable food is transported with the refrigerated railcars, which is only 1 percent of total railtransportation. The total cold storage capacity is about 7 million square meters, which is mainly used for the storage of meat and aquatic products. Most cold storage facilities are significantly out of date. As a result many products need to be moved manually and handstacked.The location of storage compounds the problem for Chinese producers: coldstorage warehouses generally are in major port cities or first-tier markets such as Beijing, but few are close to production areas and second-tier cities are very underserved.
The Need for Cold Chain Services
The need for capable third-party logistics services providers (3PLs) is acute in China. The country has more than 510,000 such companies but most only offer basic transportation and storage services in a limited area. Most perishable food logistics is provided by the enterprises themselves with little involvement of 3PLs. This increases costs and diverts the enterprises from focusing on their core business. In the major cities, this pattern is shifting because of the recent financial crisis and increasing competition in the food production, food service and retailing sectors. More and more food production, service and retailing enterprises are starting to outsource cold chain logistics services to better focus on their core business. This has greatly increased demand for the professional third-party logistics services.
One example is the Beijing East Friendship Food Supply & Delivery Co., LTD (BEFFSDC), the largest food cold chain logistics company in Beijing. According to Mr. Yuan Zonghao, the deputy manager, the BEFFSDC has maintained an annual growth of more than 100 percent since the opening of the company in 2004 and is expected to ma intain this high growth in 2009. To keep up with the demand, the company is looking to establish cooperation with an international strategic partner that can provide capital and help them further improve management of the business.
Source: Pei, Z. 2009. China’s Cold Chain Logistics – The View from Beijing. USDA Foreign Agricultural Service GAIN Report.