China’s expanding cold chain brings greater choice

China’s expanding cold chain brings greater choice Investment in cold chain brings ever greater possibilities for both China’s producers and consumers. By Coco Liu Coco Liu is based in WATT’s China bureau. Wu Ping, an internet bar owner in Chongqing, once bought pork from a farmer on the

Expenditure of food is rising in both rural and urban areas.
Expenditure of food is rising in both rural and urban areas.

Wu Ping, an internet bar owner in Chongqing, once bought pork from a farmer on the street. On arrival home, she discovered that it was already bad. Now, she checks meat more carefully before she buys it.

“If I can wring water out of the meat,” Ms Wu says, “I know that something has been injected to add weight.”

This cautious approach has allowed her to avoid repeating her mistake, but of late she has been able to relax her approach.

“I always buy meat from the supermarket now,” explains Ms Wu. “Meat there is not that expensive, and much safer. Actually, I think that anyone with a monthly salary of more than 2,000 yuan (US$290) can afford to buy meat at the supermarket.”

Growing wealth

Traditional open-air “wet markets” still account for 85 percent of meat purchases in China. However, consumers such as Ms Wu are increasingly turning to higher end options due to rising incomes and greater concerns over health and hygiene. At the same time, the market is responding to this shift and offering products with higher profit margins.

And sales of refrigerated meat in particular are benefiting from this change. For example, sales of refrigerated pork in china increased by 282 percent from 340,000 metric tons in 2002 to 1.3 million tons in 2006. Over the same period, sales of frozen pork grew by 289 percent to reach 3.5 million tons.

The joint drivers of convenience and food safety have resulted in China’s wealthier citizens increasingly buying refrigerated meat, especially ready-to-cook products.

UK research firm Access Asia Ltd reports that more than 92 million households in China will be earning 40,000-120,000 yuan annually by 2015, and leading meat producers are getting ready for this rising middle class.

Jiangsu Tyson Foods Co Ltd, for example, is scheduled to produce 50 million broilers annually from next year, and is expected to distribute refrigerated chicken meat to supermarkets in South China.

According to Sichuan-based Gao Jin Food Co Ltd, most households can afford to buy refrigerated meat when per capita income in a region reaches US$2,000 per annum. Many major cities in western China, including Chengdu, Chongqing, and Xi’an, reached this level in 2005.

As a result of passing this income level, per capita annual consumption of refrigerated meat in Chengdu, where GDP per capita reached US$2,502 three years ago, is expected to increase from 38.3 kg in 2005 to 45 kg in 2010, the company predicts.

Not so long ago, China’s meat producers were only able to distribute refrigerated and frozen meat to urban retail outlets, but things have changed. Ever more options are now available, including hotels, restaurants and rural chain stores, all of which are contributing to the growth of China’s refrigerated and frozen meat trade.

Chen Jianhua, a spokesman for Fujian-based Sumner Development Co., Ltd., a supplier to KFC, notes that, during the 1990s, his company mainly sold frozen chicken meat to retailiers, but that now, the company also distributes frozen meat to food service companies, school and corporate canteens.

With the emergence of these new channels, the company’s daily production has climbed from 10,000 birds in 1992 to 220,000 birds now, and its annual output could reach 120 million birds as KFC expands its presence in China.

Improved cold chain facilities are not limited to the large centres of population, and the government has been encouraging the development of cold chain infrastructure in smaller towns and villages. Demand for refrigerated and frozen meat products is expected to rise in these areas too.

For example, Sichuan province’s Xinjin county gave between 1,000 and 2,000 yuan last year to stores selling refrigerated pork. Additionally, the government has been offering subsidies to individual rural households to buy refrigerators. According to China’s Statistics Bureau, this has helped to increase the number of refrigerators per 100 rural households from 1.22 units in 1990 to 26.12 units in 2007, an increase of 2,041 percent!

Although both refrigerated and frozen meat sales have been growing in China, sales of refrigerated meat are growing at a faster pace as it better fits with Chinese lifestyles and offers higher profit margins.
According to analyst Guo Huiyong, higher returns may drive producers to change their product mix. “The gross profit rate of chilled pork and frozen pork is 10 percent and 5 percent, respectively,” he explains.

This variance in growth rates is clearly illustrated by the change  in income streams at Jaingsu-based China Yurum Food Group Ltd., a leading pork producer, turnover of refrigerated meat increased from 49 percent in 2007 to 58 percent in 2008, while turnover from frozen meat decreased from 29 percent in 2007 to 21 percent in 2008.

Purchasing habits in China reflect a preference for refrigerated meat that is consumed quickly after purchase. Unlike in the US, where one shopping trip a week can be common and where perishables are stored in large refrigerators with spacious freezer compartments, Chinese consumers are more likely to pick up only as many groceries as they can comfortably carry as they walk or take public transport home.

Regional per capita food expenditure rural households 2005-2007 (Yuan)

Year Eastern Central Western Northeastern
2005 1,435.92 1,094.07 1,007.17 1,009.58
2006 1,542.15 1,151.37 1,019.44 1,043.43
2007 1,736.39 1,317.31 1,178.02 1,204.18
Source: China’s Statistic Bureau.

Regional per capita food expenditure urban households 2005-2007 (Yuan)

Year Eastern Central Western Northeastern
2005 3,521.29 2,491.89 2,655.33 2,477.65
2006 3,761.92 2,703.10 2,770.24 2,651.22
2007 4,249.53 3,099.00 3,295.45 3,119.96
Source: China’s Statistic Bureau.

Page 1 of 32
Next Page