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Food sourcing – China

Sourcing and Safety Management of Agricultural Products in China

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Chinese agriculture/food systems are characterized by a large number of small-scale producers, long supply chains, and a lack of effective monitoring systems or traceability. These factors all contribute to the occurrence of a growing number of food safety incidences in recent decades and generate huge concerns among consumers about food safety.

According to China’s 2006 agricultural census, there were 200 million rural households engaged in agricultural operations, of which 135 million had holdings of less than one acre. Household landholding is on average roughly one acre, typically split into six or seven different plots. The large number and small scale of farms make it difficult to standardize production, disseminate technology, and establish traceability systems. Moreover, the small-farm structure is overlaid with an equally diffused network of small traders, brokers, and agents. They fan out into the countryside, using their networks and wholesale markets to assemble products from remote villages and transport them to produce markets and supermarkets.

To address these challenges, a number of alternative sourcing strategies have emerged in recent years. For example, the Chinese government has promoted vertically-integrated organizations for guaranteeing food safety and quality since the 1980s. However, this approach has met with limited success. Companies are reluctant to adopt the vertically-integrated model, such as operating their own farms, because such a model entails huge costs and yet the returns are unclear. More commonly- adopted are loosely coordinated “company plus farmer” approaches in which a processing or trading company purchases raw materials from a group of individual farmers and sells to downstream manufacturers. Another example is the “Farmer/Supermarket Linkage Program” launched by the Ministry of Commerce and Agriculture in 2008. Under this program, supermarkets directly source from farmer cooperatives.

Another growing concern regards the environmental and social impacts of agricultural practices. Facing tremendous financial pressures, upstream suppliers in the agriculture-food supply chains are primarily cost-driven and often ignore the longer-term environmental impacts of their practices.

In collaboration with the Massachusetts Institute of Technology, this two-year project will focus on the dimension of food safety and quality management, while taking environmental and social impacts as constraints. An investigation will be made about supply-chain and market strategies to improve the safety and quality of agricultural/food products in China, while ensuring that the suggested strategies would not have adverse impacts on the environment or society.

For this study, two main research questions will be addressed:

1. When and to what extent do consumers value the traceability of food products?

2. How do various sourcing strategies (e.g. distributed sourcing via intermediaries, contract farming, vertical integration, or a mixture strategy) impact the resulting safety and quality of the agricultural products, and how can a manufacturer innovate its sourcing strategy for further improvement?

A phased approach will be adopted to conduct the research. In the first phase, field visits and interviews will be conducted with identified partners of food manufacturers and their upstream suppliers/farmers to understand their current practices and constraints. In the second and third phases, an empirical approach will be adopted through the design of controlled field experiments to study the market response to increased transparency on agricultural inputs. Based on the empirical results, supply-chain sourcing models will be developed to analyse innovative mechanisms that could improve product quality and safety, while ensuring no adverse impact on the environment and society.

Contact

If you would like to know more about this project, please write to Yuan Zhou