F&B Supply Chain Strategies for China
The Chinese food and drink market presents growing opportunities for Western brands. Emma Rowlands, UK sales director for Kerry Logistics (UK), explains.
Chinese consumers are rapidly developing a taste for Western food and drink, and the opportunities for international brands to grab a piece of the world’s largest grocery retail market, worth GBP607 billion at the end of 2011, and forecast to grow to GBP918 billion by 2015, are huge.
The barriers to entry, from bureaucratic challenges, to the sheer geographical diversity and size of the country, make finding a partner with local knowledge essential.
Establishing a slick supply chain using an experienced logistics partner with long-term relationships with the authorities, proper facilities, and an effective distribution network is key to success.
But with the right team in place to deliver to the marketplace, the rewards are great.
One of the biggest issues companies face selling food products into China is the bureaucracy around China Customs, China Inspection & Quarantine (CIQ), and food regulations. Before a product can go to market, there is a lengthy process of testing and approval, which can take up to 12 months in some cases. The ingredients are often unfamiliar to the authorities and that can cause hold ups.
It is a good idea to team up with a partner who can act in a consultancy role to look into ingredients and make sure they comply.
There are three major regulatory areas to consider when importing food into China, including Chinese Label Registration, Sanitary Certificates,Certificates of Origin and Health Certificates of Origin.
Import Food Regulations vary, but before any food is imported into China, the government requires a copy of the Ingredients List, which then needs to be checked with the China Food Standards and China Customs HS Code Book to identify whether import will be allowed, and which documents need to be prepared in advance.
For example, for wine, information to be provided in advance includes, the alcohol percentage, the harvest year, and the country of origin, whilst milk imports need to pass Chinese Label Registration and Food Registration in China. Seafood has to be checked to establish whether it belongs to a country which has been blacklisted by the authorities.
China has been rocked by some alarming food scandals in recent years, including baby formula contaminated with melamine, bean sprouts tainted with sodium nitrate, and rice containing high levels of heavy metals.
Unsurprisingly, food safety of imported goods, once they arrive in China, is centre stage. CIQ, which deal with Chinese label registration, food registration, and sanitary certificates, have strict processes in place, and these are in constant development.
All food needs to have a Chinese language label and, as of January this year, labels for every SKU (Stock-Keeping Unit) need a registration number issued by CIQ.
Some foods considered high risk, such as milk powder, must have a Food Registration Certificate as well. All imported food needs sampling by CIQ, which is a pre-condition to issue Sanitary Certificates, and the lead time for this is normally 20 working days, at least. For milk powder it is even longer.
Any warehouse used for finished food storage has to hold a Food Circulation Permit, and all operators must have Health Certificates, regardless of whether or not the food is being stored in an air-conditioned environment.
For semi-finished-food, the facility must have ISO/HACCP (Hazard Analysis Critical Control Point) licenses and be even more aligned with Government regulations for different kinds of food.
Customs deal with matters relating to duty rate, price audit, and random inspection.
Duty is due at varying rates on food imported into China, and the CIF (Cost Insurance and Freight) Value depends on the HS (Harmonized Commodity Description and Coding System) code, which in turn depends on the main ingredients of each food.
For high-value foods, Customs always asks for the original invoice or other related documents for proof of price.
With so many regulations in place, it is important to have a trusted import agency to work with, who is very experienced for any regulation changes from government.
Because all imported food needs to have Chinese language labels, sampling and comply with Customs’ safety and duty regulations before it can be distributed, a bonded warehouse (a Customs- controlled facility for holding goods until duty is paid) is a good option.
The main seaports include Shanghai, Qingdao, Yantian, Xingang, and Xiamen, and Kerry Logistics, which works in China with KerryFlex, has built both bonded and non-bonded warehouses, which can be air-conditioned, to deal with demand.
Kerry Logistics has also invested in key developing areas including Chengdu, Chongqing, and Kunshan, which are important hubs for China’s growing markets.
Once Customs and CIQ are satisfied, the challenge is to distribute the goods over China’s huge and geographically diverse market.
In the north east of the country, where temperatures reach -40o C, warm air conditioning is needed for chilled food, whilst in West China, which is very mountainous, lead times are longer and delivery costs are higher.
Land transport is the main model for food distribution, and poor infrastructure means that high quality packaging can be needed for fragile foodstuffs. There are restrictions on liquids and dry ice travelling by air.
Choosing a partner with a number of regional distribution centres and the right spread of vehicles is important. Kerry Logistics has eight regional distribution centres in Beijing, Chengdu, Guangzhou, Jinan, Shanghai, Shenyang, Wuhan and Xiamen.
The Chinese market presents its own unique challenges, but with the right partner to tackle the barriers to entry, the potential rewards are great.
Kerry Logistics provides supply chain solutions and has a strong focus on China. Based in Hong Kong, it has offices in 32 countries and regions with 19,000+ employees and a transportation fleet of 8,000+ vehicles. www.kerrylogistics.com