SPC Ardmona and the cheap Chinese food challenge

Those of us in China recognise that outbound China FDI is about Food Safety more than it is about Food Security or Food Sovereignty – which are domestic issues.

State Owned Enterprises and their corporate offshoots will invest outside of their core industries but there is a barrier  to invest none the less where off take is disadvantaged where  some of  the finished product is exported back to China and is subject to a trade barrier because no Free Trade Agreement exists between China and Australia and nor does a Double Taxation Agreement exist between Hong Kong and Australia – which cretaes an impediment for the repatriation of interest or dividends .

Not only does the new China Food and Drug Administration highlight and endorse  the food safety issue but recent ( December) relaxation of regulatory barriers in China by the NDRC – removing many impediments for both the approval of Chinese Foreign Direct Investment and for the actual outbound remittance of funds make it easier for Chinese to invest in Australia.

If SPC can replicate the precedent where Woolworths and Coles have each signed three-year deals with the US owned Simplot Group to buy Australian grown and processed frozen vegetables at prices above what Woolworths and Coles can buy overseas the outlook for attracting an investor looks a little more rosy.

In that precedent it has been reported that  the condition is that Simplot must invest the additional cash to modernise some of its plants and/or make the required changes to its operation so that when the contracts expire in three years Australia can compete with New Zealand and China in frozen vegetables.

The following article appeared in The Conversation.Its a little off base ?

SPC Ardmona and the cheap Chinese food challenge

By Hans Hendrischke, University of Sydney and Wei Li, University of Sydney

The political lobbying accompanying yesterday’s government decision to withhold financial support from SPC Ardmona has overshadowed the big structural issues facing Australia’s preserved food industry.

The two major issues are the shift of market demand towards fresh food and the role of Chinese imports.

The decline of SPC Ardmona’s cannery business is not an isolated event. Heinz closed its cannery business in Goulburn Valley in 2012, Windsor Farm closed in Cowra, and only a few small players remain, mainly in NSW and WA.

Imports, mainly from China, have been singled out and demonised as “cheap, dumped and frequently contaminated”. This is a short-sighted perspective.

China is a big global player in international agribusiness. Chinese importing of fresh food provides opportunities for Australian exporters, but at the same time Chinese exports of canned food compete with Australian products in the local domestic market and in traditional export markets.

The “cheap, dumped and frequently contaminated” label will not stick for long.

China is stepping up consumer protection

While China’s canned food will remain cheap because of economies of scale and because canning technology is not much different in Australia and China, contamination is being addressed more seriously in China with new laws and regulations expected. The flow-on effect will mitigate Chinese consumer dissatisfaction with local food standards, but also improve the quality and safety of Chinese export products.

In January, China’s Supreme People’s Court announced an 18-clause guideline on how to handle civil disputes regarding food, drugs, cosmetics and dietary supplements.

The new guideline, together with an updated version of the consumer protection law, will come into effect on March 15, World Consumer Rights Day, and signal a new wave of regulatory action from the government to tackle China’s food safety problems. It gives consumers backing from the courts to sue manufacturers and retailers of unsafe food. Advertisers and publishers can be sued even before any actual harm is inflicted. Celebrities who endorse substandard products can also be sued if consumers feel they have been misled.

Since the milk powder scandal of 2008, much as been done to alleviate public anxiety and improve practices in the food industry. The Food Safety Law, replacing the outdated Food Hygiene Act, came into effect in 2009 and includes provisions on risk assessment methods, unification of food safety standards, improving supervision, and imposing tougher penalties on violators.

In March 2013, China’s State Food and Drug Administration (SFDA) was renamed to China Food and Drug Administration (CFDA) and elevated to a ministerial-level agency directly under the State Council, in an attempt to consolidate power and streamline regulation of food and drug safety.

The new guidelines change the balance of power between consumers and producers and rely less on local government enforcement. One challenge facing China in food safety regulation is that law enforcement and implementation at the local level do not match the original intent of the law and central policies. With clearer procedures on how to protect their rights, consumers are given more say on food safety. This will increase food producers’ opportunity cost as consumers are now more willing and able to participate in the monitoring process.

Previously, producers and manufacturers had an incentive to sacrifice quality in order to maximise profits, because the chance of being caught and penalised was low. But consumers and social media now play a much more active role in monitoring food safety and have successfully put pressure on the government to enforce food safety standards

Australia has a head start

While enforcement will work for the corporatised food export sector, China’s highly fragmented food industry will continue to face problems because of the scale of monitoring required. Almost 80% of the half a million food companies in China are classified as “cottage industry” with ten or less employees.

Like in Australia, there are social reasons to keep small producers afloat. Along this complex supply chain there is a need to balance the interests of producers, markets and consumers. China’s first policy document of 2014, the No.1 Central Document, underscored the importance of rural reform and the development of modern agriculture.

For Australian agribusiness, this entails opportunities and challenges. Chinese producers will for the foreseeable future not be able to satisfy the demand of urban middle class consumers for top quality food. Australia, in competition with New Zealand, has a head start in this market with an enviable and hard to replicate reputation for clean and fresh food.

On the other hand, Chinese exports will become more competitive in the preserved food market, in particular in such traditional segments as canned food, putting more pressure on Australian producers in those market segments. For SPC Ardmona and its supply chain, the farming communities in the Goulburn Valley, this will require a radical rethink of traditional products and a switch to new product lines.

This article was originally published at The Conversation.

Read the original article.



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