Rabobank: Mind the gap – investment in railway cold chains required to meet China’s demand for perishable food
China’s appetite for fruit and vegetables, dairy and meat is expected to increase by 17% between 2015 and 2025. The country’s growing demand for fresh food offers huge opportunities for imports from Europe’s well-reputed food industry.
The ‘New Silk Road’ - the Yu’Xin’Ou Railway, connecting Chongqing and Rotterdam by rail, provides an exciting new route to market for European exporters as it reduces transport times by over 30 days compared to shipping. However, to build China’s supply chains for fresh, or perishable food, an improvement of its cold chains is also needed. In a joint report Freight Trains and Cold Chains, Rabobank together with the world’s leading agricultural university of Wageningen UR, analyses what building China’s new supply chains for perishables will entail. The report fits perfectly in Rabobank’s Banking for Food vision that encompasses all links in the food chains, in and outside the Netherlands, and tackles global food security challenges such as accessibility to food, food waste and balanced nutrition.
You can read our entire vision here.
The report was handed over today by Wiebe Draijer, Chairperson of the Executive Board, to Minister for Agriculture Dijksma in Rabobank’s “One Belt, One Road” conference in Shanghai. This unique conference took place during the State Visit of King Willem-Alexander and Queen Maxima to China and was attended by more than 300 participants from Dutch, Chinese and international business, research and government.
“China’s demand for fresh, safe and high-quality food is outstripping its capacity to produce and deliver domestically. Europe is able to address this need,” says Paul Bosch, F&A Supply Chains Analyst at Rabobank. “However, the growth in consumption of perishable food in China will only continue if supply chains deliver on quality and safety. To a large extent this depends on the proper cooling of products during storage handling and transport.”
"The ‘New Silk Road’ provides tremendous opportunities for Sino Dutch agricultural trade”, says Wiebe Draijer. The role of Rabobank is to connect the relevant people across the ‘new silk road’ journey by providing access to knowledge, our networks and financing. With 20% of the world population, but only 10% of its arable land and 6% of its water, China faces enormous,challenges on food security and safety. That’s why Rabobank has to be here!"
Increasing consumption in China is being driven by continued economic growth and urbanisation. China’s economy is expected to grow by 6-7% annually in the coming years, pushing a further 38 million households into the upper middle class. Fresh or perishable food is increasingly reaching Chinese consumers through modern distribution channels, including supermarkets, hypermarkets and online. Food safety is one of the driving forces pushing shoppers away from traditional wet markets and it is expected to remain one of the biggest concerns for the Chinese population.
The demand for fresh safe food, bought through convenient modern channels is driving the country’s investment in cold chain infrastructure. Over the past five years, storage capacity has grown from 12 million cubic meters in 2007 to roughly 100 million cubic meters in 2015.
However, China’s cold chain sector is still lagging and needs to improve in terms of both quality and capacity. The associated investments are huge: an estimated USD 85 billion is needed in the next ten years. The country’s cold chain sector will be able to improve once cold chain companies start adapting their business models into higher-value strategies in response to the higher service needs of their clients.
The benefits to China of an improved cold chain sector can hardly be overestimated. The presence of a high-level cold chain sector would:
- reduce the waste of perishables by 14%: a worth of USD 7.5 billion
- create a 10% reduction in food prices and hunger: Rural income would also increase as farmers transport their crops in refrigerated trucks.
- reduce healthcare costs: improved cold chains would reduce the 90 million annually recorded cases of food-borne diseases
- 10-20% reduction of emissions: modern, energy efficient technologies and new refrigerants can reduce emissions of both vehicles and warehouses by 10-20%.
The ‘New Silk Road’ can be a strong driver of improvements to the cold chain industry, as it brings Chinese cold chain providers in contact with high-standard products. The reduced transportation time has several advantages for exporters with respect to product quality, pricing, and distribution options. Once matured, the ‘New Silk Road’ has the capability to stabilise China’s food system by enhancing international trade and reducing the vulnerability to regional events, such as crop disease and extreme weather. In time, it also has the potential to enhance competition, changing the competitive positions of current trading partners like the US, Brazil and Australia, as well as improving the price stability of the food system.