Xinfadi's future

A dealer from Zhoukou city in Henan province packs cabbages at Xinfadi after a journey that can take 16 hours. He is a member of a team of 10 that uses eight trucks to bring produce to the market. [China Daily]

What does all this mean for Xinfadi? Is China ultimately heading for a Western-style system in which giant supermarkets deal directly with farmers in order to improve their control, consistency in produce and cost-effectiveness? Not any time soon, according to Xing Mengyu, vice-manager of Xinfadi.

He points out large supermarkets such as Walmart, Auchan and Hualian buy many of their products at the market. Xinfadi tomato dealer Dong Jianrong from Zhangjiakou in Hebei province estimated one-third of the produce went to supermarkets, with two-thirds going to small retailers.

According to a 2008 study by Elsevier into the production and procuring of horticultural crops in northern China, not one farmer sold to a supermarket or specialized supplier but used small trading groups. The same survey suggested supermarkets got two-thirds of their vegetables from local wholesale markets and one-third from other sources.

The paper, to which Scott Rozelle contributed, concluded: "Although we showed the rise in horticultural crops was paralleled by a surge in the emergence of supermarkets in urban areas, there has been almost no penetration of modern wholesalers or retailers into rural communities. Since China's horticultural economy is almost completely unregulated and since China's road and communication networks have improved remarkably over the past 10 years, small traders working with a limited amount of capital and using extremely large amounts of low-cost labor (while utilizing the relatively efficient road and communication infrastructure) appear to be out-competing all other types of would-be procurement agents."

The survey found competition between traders was so fierce and profit margins so thin there was little to attract new, more innovative entrants. It showed consumers wanted their food produce cheap and the existing system was the cheapest, adding: "It may be that, at least now and in the immediate future, China will still be relying mostly on traditional wholesale channels. If this is true, food safety in China's food system may suffer.

While this may be bad news for the quality-conscious consumer, it is good news for small, poor farmers. It should be recalled, however, how fast China is changing in so many areas.

"If any one (or perhaps several) of these characteristics changed, we might expect to see China's horticultural economy - from both the supply and procurement side - change. The change, like so many other things in China, could be very rapid."

If the Carrefour chain of supermarkets is anything to go by, that change may have already begun. It introduced its Carrefour Quality Line (CQL) to China last year, said Chen Bo, corporate communications manager of Carrefour China. The company says it now controls every step from farm to store including growing, processing, packaging and delivering in an effort to ensure taste, safety and traceability to consumers while also guaranteeing added-value, including higher income for farmers and environmentally friendly practices. The company also set up direct partnerships with farmers.

Producers and growers must follow strictly Carrefour's specifications to ensure that those commitments are respected. It says it cut out all the middlemen in the supply chain, which allows the stores to pay more farmers and keep prices competitive.

However, Xinfadi's Xing Mengyu said Carrefour was still buying produce at the wholesale market.

(China Daily May 31, 2010)