Why you should think about Jack Ma when you think about food in China


Posted By: Selerant RSA

By Dr. Pinghui Xiao (Postdoctoral Researcher at Institute of Executive Development, China Food and Drug Administration)

According to Jack Ma, the founder of Alibaba Group, China’s biggest e-commerce platform, his company is still a baby. At the World Economic Forum in Davos, Switzerland, this year, he talked about his plan to sell goods to two billion consumers all over the world. He wants to help ten million small businesses outside of China to sell into global markets. In 2014, trade volume of Chinese e-commerce already recorded 12.3 trillion RMB (2 trillion US dollar), which is around one fifth of that year’s GDP of China. Sales volume by Alibaba is projected to overtake that of Wal-Mart in 2015. In short, e-commerce in China is growing from big to bigger and food has become part of this business.

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When it comes to food e-commerce, there are 45 million people regularly buying foods online in China. The sales volume is projected to reach 140 billion RMB (around 20 billion US dollar) in 2018. About 400 thousand business operators already sell edible agricultural products via Jack Ma’s platform.

The food e-shopping in China can take various business forms and new models keep appearing. The two most often discussed are the e-supermarket and the third party e-marketplace. Yihaodian, SF-best, COFCO’s Womai belong to the first type whereas Alibaba belongs to the second type. Mixed modes also have developed. JD is an example, which serves as both an e-supermarket and third party e-marketplace.

Of course, that is not the whole picture of Chinese food e-commerce. Now it moves to expand to other areas like catering. Typical examples are so-called O2O (Online to Offline) businesses. Consumers can now order and pay food via an online menu. They can either request a delivery to a specified place or go to the restaurant to eat the meal they have just ordered. These kinds of businesses now attract lots of attention from younger generations and the middle class.

 

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New distribution channels, new food safety challenges?

 

Not long ago, the Chinese government accused Alibaba of the sale of faked goods. The government’s accusations appeared in a white paper made public by China’s State Administration for Industry and Commerce (SAIC), which is China’s main public agency for consumer protection. The day SAIC released its report, Alibaba’s New York-traded shares immediately dropped 4.4 per cent. Though the two sides later said they would work together to stamp out counterfeit goods, it actually demonstrates that it is still a long way to go for Chinese e-commerce to crack down inferior products. This, of course, is especially relevant to food.

The above mentioned e-catering, the rising star in China’s food e-commerce, also poses new challenges from a food safety perspective. In August 2014, it was reported that lots of foods ordered from e-catering platforms were not traceable. In some cases, the addresses of those food service providers that were shown in the e-catering platforms did not physically exist. In November 2014, the city of Hangzhou, where Alibaba is located, shut down and suspended the operation of more than 30 restaurants, which provided catering services online. The restaurants either had no license to operate as restaurants or provided very low quality foods, which could cause food poisoning.

Big e-commerce companies in China like Alibaba and JD are dedicated to rural expansion. This enables farmers from China’s western provinces, for instance, to sell agricultural products online to the whole of China. This poses regulatory challenges. Some traditional food products might suddenly be traded this way on a national level, which are not standardized and for which risk assessments have yet to be undertaken. Regulators need to keep an eye on the rural expansion of food e-commerce in terms of food safety.

In addition, there are food safety issues arising from the transport system behind food e-commerce. This is particularly the case for farm produce and fresh products. Some e-commerce platforms like Benlai and Tootoo have specialized on agri-food. However, cases in which e-commerce platforms failed to provide qualified cold chain facilities to deliver products to consumers have been reported, showing another area for better food safety regulation.

There are is no food safety regulation, laws or rules directly regulating food e-commerce in China to date. However, in the coming revision of the Food Safety Law new provisions have been created to look after food e-commerce. China Food and Drug Administration (CFDA) is ready to tighten regulation in this regard. The CFDA has prepared a Management Method for Internet Food and Drug Regulation which has been made public for public opinions.

This is the first part of Pinghui Xiao’s analysis of food e-commerce in China. The second part, which will be published soon, discusses regulatory changes in China.