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16
AMBER WAVES
ECONOMIC RESEARCH SERVICE/USDA
VOLUME 4 ISSUE 5
FEATURE
Food Safety Improvements
Underway in China
Linda Calvin
lcalvin@ers.usda.gov
Fred Gale
fgale@ers.usda.gov
Dinghuan Hu
dhhu@163bj.com
Bryan Lohmar
blohmar@ers.usda.gov
FEATURE
Adverse publicity about contaminated food exports
and growing domestic concerns have prompted China
to improve overall food safety.
Producing safer food for export is expensive and
reduces China’s cost advantage.
Only a small portion of Chinese production for
the domestic market meets the new government
standards for safer food.
China emerged in the 1990s as a low-cost exporter of food
products such as vegetables, apples, seafood, and poultry. But in
recent years, China’s exports slowed when shipments of vegetables,
poultry, and shrimp were rejected for failing to meet stringent
standards in Japan, Europe, and other countries, revealing a gap
between Chinese and international food safety standards. Problems
with food contamination within China have made food safety a top
concern of Chinese consumers as well, an issue reflected
in recent opinion polls and newspaper articles.
China is in the midst of a campaign to overhaul its food system
and improve safety standards. Numerous challenges face both the
export sector,where food safety efforts are the most advanced,and the
domestic sector, where many food safety initiatives are more recent.
Problems with food safety can influence trade flows, as
evidenced by China’s setbacks for some export products. China must
meet the food safety standards of the developed countries to succeed
in those markets. The increased costs of achieving higher food
standards will dampen the growth of Chinese agricultural exports if
not offset by greater demand in the export market. China’s efforts are
an important case study of a country’s striving to elevate standards in
its food and agriculture sector to international food safety standards.
17
AMBER WAVES
WWW.ERS.USDA.GOV/AMBERWAVES
NOVEMBER 2006
FEATURE
Fred Gale, USDA/ERS
China Faces Challenges in
Providing Safer Food
Implementing a 21st-century food
safety system in China poses a challenge.
It is difficult to standardize and monitor
production practices in a sector composed
of 200 million farm households who typi-
cally have 1-2 acres of land divided into 4-
6 noncontiguous plots. Farmers have only
usage rights to their land, so they lack
ownership incentives to make costly
investments.
Many of China’s food safety problems
can be traced back to the farm level.
Farmers rely on heavy use of chemicals to
coax production out of intensively culti-
vated soils and deal with pest pressures, a
practice that contributes to food safety
problems. China has one of the world’s
highest rates of chemical fertilizer use per
hectare, and Chinese farmers use many
highly toxic pesticides, including some
that are banned in the United States. Farm
chemicals are sometimes mislabeled. The
Chinese government is tackling this prob-
lem by encouraging farmers to buy agricul-
tural chemicals only from approved out-
lets. Some farmers have little understand-
ing of correct chemical use; for example,
they may fail to wait the prescribed num-
ber of days between the last application of
a pesticide and harvest, resulting in exces-
sive residues in the harvested product.
Antibiotics are widely used to control dis-
ease in livestock, poultry, and aquaculture
products. Industrialization and lax
environmental controls have also led to
concern about the potential for heavy
metal contamination of food products.
Untreated human and animal waste in
fields and water raises the risk of
microbial contamination.
China’s fragmented marketing system
also poses problems. Agricultural market-
ing is dominated by millions of small
traders handling small volumes of prod-
uct, often operating on a cash basis, with
no documentation. In modern marketing
systems, products are identified by lot and
traced through the system with a paper
trail. This process is easier in the United
States than in China, since growers and
buyers are fewer in number and deal in
larger volumes. Vertical coordination and
integration between growers and buyers
also makes it easier to produce safe food
and control it through the marketing
chain. Chinese exporters have tried
various approaches to gain greater vertical
control over production, and these
methods are now being promoted within
the Chinese domestic market.
Successful Export Industries
Achieve Safety Standards,
but at a Cost
China has emerged as a major
exporter of agricultural products based
primarily on its low labor costs and
openness to foreign investment. Many of
its exports are produced by companies
with investment from Japan, South Korea,
Singapore, Taiwan, and Europe. Most
operations involve growing and process-
ing fruit, vegetables, livestock, fish, or
shrimp in coastal provinces with easy
access to ports.
The influx of foreign investment has
also brought foreign technology and atten-
tion to food safety. The importance of
Japan, in particular, as an export market
has compelled Chinese firms exporting to
that country to make major improvements
in food safety. Successful foreign firms
operating in China exert careful control
over raw materials to ensure that products
meet the standards of the export markets.
Exporting companies have been even
more vigilant since 2002 when Chinese
frozen spinach in Japan was found to have
18
AMBER WAVES
ECONOMIC RESEARCH SERVICE/USDA
Importers reject contaminated Chinese products
2001
2001
2002
2002-2003
2002
2005
Ye ar
Product
Country Problem
Shrimp
Poultry
Honey
Frozen spinach
Tea
Fermented
cabbage
European Union (EU)
EU, Japan
EU
Japan
EU, Japan
South Korea
Excessive antibiotic residues
Excessive antibiotic residues
Excessive antibiotic residues
Excessive pesticide residues
Excessive pesticide residues
Parasites
Source: News reports compiled by USDA, Economic Research Service.
FEATURE
VOLUME 4 ISSUE 5
Fred Gale, USDA/ERS
high levels of a pesticide and imports were
banned temporarily (see box, “China’s
Frozen Spinach Exports to Japan Falter on
Food Safety Problems”). New Japanese
rules for residues of agricultural chemi-
cals, feed additives, and veterinary drugs,
implemented in May 2006, will put
further pressure on Chinese exporters.
Firms have used two business models
to impose more control over production:
the first is a fully vertically integrated
model in which the company leases land
and controls production directly; the sec-
ond is the use of production contracts
with growers that specify chemical use
and production methods. The leasing
model ensures greater control over pro-
duction than the contract model, but it
also costs more and is limited by access to
land. Developing a production model that
balances low costs against the risk of a
safety problem is challenging. Exporting
firms sometimes use both methods—
growing the crops that are most prone to
excess pesticide problems, such as leafy
greens, on their leased land and using
production contracts for other crops.
Leases are typically arranged with vil-
lage officials who serve as intermediaries to
aggregate land into a “production base”—an
area that may be as large as multiple villages
and hundreds of acres. Leasing land is sur-
prisingly expensive and involves difficult
negotiations since there is no formal market
for land. Foreign companies often pay rents
comparable to those in developed countries.
Companies post technical experts onsite to
manage production and supervise workers.
These firms may test soil, water, and air for
pollutants; implement good agricultural
practices (GAPs) to reduce the risk of micro-
bial contamination; and use a type of
Hazard Analysis and Critical Control Point
(HACCP) system to minimize risk in pro-
cessing plants. A firm selling to a wide range
of countries might face numerous stan-
19
AMBER WAVES
WWW.ERS.USDA.GOV/AMBERWAVES
NOVEMBER 2006
In the early 1990s, Japanese companies began investing heavily in vegetable
production in China for export to Japan. Exports to Japan soared, and frozen spinach
was gaining ground rapidly. In late 2001 and 2002, private tests organized by the
Japanese National Federation of Farmers’ Movements revealed that Chinese frozen
spinach showed residues of the pesticide chlorpyrifos. At that time, Japan did not have
a maximum residue limit (MRL) for this pesticide on frozen spinach, so it adopted the
MRL for fresh spinach. In August 2002, the Japanese Government advised firms to
voluntarily stop importing Chinese frozen spinach. This adverse publicity affected
imports of all frozen vegetables from China. In February 2003, the market was briefly
reopened before new tests revealed continued problems with chlorpyrifos.
The market was shut again in May 2003.
China worked out a protocol to meet Japanese concerns and the market reopened
in July 2004. Chinese exports were initially limited to 27 firms that the Chinese and
Japanese had both approved. Exporting to Japan is now more expensive than it was
before the problems with chlorpyrifos.All firms are required to use leased land and
cannot use production contracts, which are considered too risky for spinach. Fresh
spinach is also tested for residues before harvest, as well as after processing. Japan
inspects every lot of Chinese frozen spinach, which increases costs and the chance
of product deterioration. While other frozen vegetable exports to Japan have
rebounded, the frozen spinach market has not yet recovered.With heightened food
safety awareness, some Chinese products may no longer be as profitable as others
due to consumer and importer reluctance to purchase products associated
with past problems.
Japan’s new policy on agricultural chemicals (including veterinary drugs and feed
additives) became effective in May 2006. Japan had a negative MRL list, but the new
policy uses a positive MRL list. With a negative list, Japan rejected any imports with
residues over the existing MRLs. If an import had residues for which Japan did not have
an MRL for that commodity, a case-by-case decision was made on whether it could be
imported.With a positive list (like the system used in the United States), Japan rejects
imported commodities with residues exceeding the MRL or the default tolerance of
0.01 parts per million for those cases where a commodity does not have an MRL for
that chemical. In 2005, Japan had established MRLs for 288 agricultural chemicals for
about 130 commodities.The new regulations have MRLs for 799 agricultural chemicals
and thousands of commodity/chemical combinations. Japan now scrutinizes products
for more agricultural chemicals and testing costs have increased substantially since the
introduction of the new policy.
FEATURE
Chinese frozen spinach exports to Japan lag while other frozen
vegetable exports rebound
1,000 metric tons
250
200
150
100
50
0
1994 1996 1998 2000 2002 2004
Source: World Trade Atlas.
Other Chinese frozen vegetables
Chinese frozen spinach
China’s Frozen Spinach Exports to Japan
Falter on Food Safety Problems
dards; GAP requirements as well as
maximum residue limits (MRLs) for
pesticides vary from country to coun-
try. The exporting firm may even pur-
chase agricultural chemicals abroad to
ensure that they are genuine.
Production contracts are also gen-
erally arranged by village officials who
recruit farmers. The contract typically
specifies inputs, production practices,
price guidelines, and minimum envi-
ronmental standards for air, water,
and soil. Contractors must monitor farm-
ers to ensure compliance. With more
experience, growers may need less moni-
toring, and costs may go down. But the
contracting model does not burden the
company with land and labor expenses.
China’s Government Begins
To Tackle Food Safety
Awareness of food safety issues in
China has been heightened by both the
rejection of exports in overseas markets
and a series of food safety incidents in the
domestic market. The Government has
responded by trying to build a food safety
system for exports that will establish
China’s international reputation for pro-
ducing safe food. China has also been rais-
ing domestic food safety standards and
implementing inspection and testing sys-
tems for consumer products and agricul-
tural commodities. In 2005, officials
announced plans to update a 1995 law
covering consumer food products. In 2006,
the Chinese legislature adopted a law that
establishes a national framework for
building a system that ensures the safety
and monitoring of agricultural products.
Local governments have also been active
in promoting safer food.
All land and packing/processing facil-
ities for exports must be registered with
the Chinese Government. Exporters must
have laboratory facilities to test for pesti-
cide residues (although the sophistica-
tion of the facilities varies with the riski-
ness of the crop). Certain processed agri-
cultural exports—including canned food,
some seafood, meat, frozen vegetables,
and fruit and vegetable juices—must be
produced using HACCP-type systems. The
Government provides basic guidelines on
food safety, but most firms must still hire
food safety experts to fine-tune their
operations to meet the demands of for-
eign buyers. Before export, the
Government tests products to ensure that
they meet the standards of the foreign
country or contract.
Food safety for the domestic market
is regulated by several government enti-
ties. The Ministries of Agriculture,
Health, and Commerce; the
State Administration of Quality
Supervision, Inspection, and
Quarantine; a newly established
Food and Drug Administration;
and other agencies, each with
different and sometimes over-
lapping responsibilities, con-
tribute to food safety policies.
The State Administration of
Quality Supervision, Inspection,
and Quarantine is
responsible for over-
sight and food safety
standards for imports
and exports.
The Ministry of
Agriculture is the lead
agency promoting food
safety at the farm level.
The most visible efforts
are the promotion of pol-
lution-free (also translat-
ed as “no harm” or “safe”) and green food
standards intended to guarantee that food
products are free of dangerous contami-
nants. The pollution-free standard, intro-
duced in 2002, requires that all products
comply with MRLs for agricultural chemi-
cals. The green food program was initiated
in the 1990s with an eye toward improv-
ing the safety and quality of exports,
although most green food is now sold in
the domestic market. The green food pro-
gram is slightly more stringent than the
pollution-free program.
Both programs have standards speci-
fying tolerances for harmful materials in
soil, water, and air as well as MRLs for
pesticide residues. Both also certify pro-
duction base areas, and offer trade-
marked symbols for use on consumer
products. Packaged products carry infor-
mation on the firm, providing a first step
in a traceability system. Compliance is
enforced by regular testing of soil, water,
and air, and random testing of final
products for residues.
While production of safer food is
increasing, little of China’s food currently
meets green and pollution-free standards.
In 2005, about 6 percent of the volume of
agricultural production was pollution free
and 1 percent was green.
Chinese food safety efforts at the
farm level are primarily concerned with
chemical residues; to date, less attention
is paid to the potential of microbial con-
tamination. Statistics from China’s
ECONOMIC RESEARCH SERVICE/USDA
VOLUME 4 ISSUE 5
20
AMBER WAVES
FEATURE
Fred Gale, USDA/ERS
Fred Gale, USDA/ERS
Ministry of Health, however, indicate that
food poisonings and deaths from micro-
bial contamination exceed those from
farm chemical exposure. China is develop-
ing good agricultural practice guidelines,
ChinaGAPs, which will address minimiz-
ing the risk of microbial contamination.
Initially, these guidelines are intended to
aid exporters.
Government Plays a Strong
Role in Implementation
Chinese consumers now commonly
voice concerns about food safety, and var-
ious safety-related labels appear on food
products. However, the degree of con-
sumer understanding and confidence in
food safety labels is uncertain, as is con-
sumers’ willingness to pay higher prices
for these products. Consumers in China
are primarily concerned with freshness,
appearance, and taste.
The green and pollution-free stan-
dards are implemented in a “top-down”
process by the Ministry of Agriculture and
local agricultural bureaus working with
local officials, villages, and agribusinesses.
As in the business model used by
exporters, domestic enterprises contract
with farmers, using village officials as
intermediaries. Some domestic enterpris-
es also control production by leasing land.
Some of the vertically integrated enter-
prises are large, former state farms that
have been converted to private compa-
nies, while others are newly established
Chinese corporations.
The decision to produce green or
pollution-free food is usually made by
local officials or agribusiness enterprises
rather than individual farmers. It is not
clear whether farmers find green or pol-
lution-free food more profitable. Farmers
reportedly earn price premiums of 20-30
percent for pollution-free vegetables, but
they may also have to purchase more
expensive chemicals and incur costs to
attain certification.
Safety Standards Influence
China’s Agricultural Trade
Foreign safety standards pose an
important challenge to China’s exports of
horticultural, meat, poultry, and aquatic
products. Exports of more vulnerable
products come chiefly from foreign-invest-
ed companies in coastal areas. Widespread
pollution, pest and disease pressures, low
domestic food safety standards, and the
difficulty of ensuring product safety
throughout the marketing chain may pre-
vent export-oriented production from
expanding to inland provinces and domes-
tic companies.
Chinese officials have resolved to
improve the quality and safety of food in
China. Initial efforts were aimed at export-
oriented production, which has traditional-
ly had much higher standards and often
completely separate production and mar-
keting chains
from products
destined for the
domestic mar-
ket. The gap
between export
and domestic
standards is
vast although
beginning to
narrow, but
China faces stiff
challenges in
producing food to higher safety standards
and maintaining a credible inspection and
monitoring system. Building consumer
confidence in the safety of its food
products will largely determine the
competitiveness of China in both the world
market and its own domestic market.
China’s Rising Fruit and Vegetable
Exports Challenge U.S. Industries
, by
Sophia Huang and Fred Gale, FTS-320-01,
USDA, Economic Research Service,
February 2006, available at:
www.ers.usda.gov/publications/fts/
feb06/fts32001/
“A New Marketing Model: Supermarket
and Processing Companies and Farm
Households,” by Dinghuan Hu, Fred Gale,
and Tom Reardon, in
Issues in
Agricultural Economy
, No. 1, 2006
(Chinese language, published in China).
“Produce, Food Safety, and International
Trade: Response to U.S. Foodborne
Illness Outbreaks Associated with
Imported Produce,” by Linda Calvin, in
International Trade and Food Safety
,
Jean Buzby (ed.), AER-828, USDA,
Economic Research Service, November
2003, available at: www.ers.usda.gov/
publications/aer828/aer828g.pdf
The ERS Briefing Room on China,
www.ers.usda.gov/briefing/china/
This article is drawn from . . .
You may also be interested in . . .
21
AMBER WAVES
WWW.ERS.USDA.GOV/AMBERWAVES
NOVEMBER 2006
FEATURE
Fred Gale, USDA/ERS
Microbial contamination caused more illness in China
than agricultural chemical contamination in 2005
Source
Unknown
Poisonous
animals
or plants
Micro-organisms
Persons (1,000)
Agricultural
chemicals
0 2 4 6 8 10 12 14 16
Source: China Ministry of Health, data compiled by USDA, Economic Research Service.
