Why China Should Open Its Market to More Food Imports

This article was originally published on this site

In 1979, less than a year after China declared it would “reform and open up” to the outside world, Coca-Cola made its first officially sanctioned shipment to the Chinese mainland since the founding of the People’s Republic in 1949. The company’s sodas would remain exceedingly difficult to find throughout the early 1980s, but the reintroduction of such a prominent Western brand sent a powerful message about the country’s future.

Nowadays, news of another international food or drink brand hitting Chinese shelves merits little more than a press release, if that. Over the past 40 years, imported foodstuffs have gone from novelty to necessity for many Chinese families, as a series of quality scandals and regulatory missteps have caused shoppers to start viewing imports as safer and healthier options than their domestic counterparts.

According to an industry report, China imported $73.6 billion worth of food in 2018, up from roughly $4 billion in 1997. Although the majority of this was meat, dairy, and seafood, there are also signs of broad consumer interest in imported processed foods and alcoholic beverages, among other items. In 2015, more than 96% of Chinese households in large urban areas reported buying imported foods or drinks, and the average such household made as many as 15 import purchases a year. Even in smaller cities, more than 80% of families said they’d bought imported foodstuffs in the past year.

Over the past few decades, an increasing variety of imports has been matching Chinese shoppers’ growing appetites. In 1992, the country imported just 108 types of food or drinks from the United States; by 2015, this number had jumped to 391. Smaller, but geographically closer countries have also found a market for their goods: The types of products China imported from Thailand grew from 61 to 292 over that same period.

Rising incomes and changing tastes aren’t the only trends driving China’s embrace of imports, even if they are far and away the most important. Over the past decade, domestic consumers have been rattled by a series of food safety scandals, ranging from fake meat to contaminated milk. In response, shoppers have turned to supposedly higher quality foods from abroad — the most famous example probably being the country’s outsized demand for imported baby formula.

China’s limited agricultural resources have also played a role in boosting demand. Despite repeated government directives to preserve farmland, the country has only about 0.09 hectares of arable land per capita, according to the World Bank. This is less than half the global average. Water is equally scarce: China’s per capita water resources amount to roughly one-quarter of the worldwide average.

Over the past few years, (food) imports have taken on added political significance.

Although policymakers remain resolved to ensure the country can feed itself, as a result, imports have become an important means of relieving the pressure on domestic agriculture. This is particularly true of soybeans, which are primarily imported for animal feed.

Over the past few years, such imports have taken on added political significance. As highly visible symbols of China’s sometimes contested commitment to openness and market inclusivity, food imports could potentially play a key role in the country’s stated plans to link itself more fully into the global economy.

This is especially true in the developing world. Unlike luxury goods, which are largely imported from developed countries, my research shows that China imports much of its foodstuffs from countries with income distributions similar to its own. In other words, food imports offer China a chance to forge closer ties with countries across Asia, Africa, and Latin America.

But to take full advantage of this fact, policymakers must explore options for improving trade relations with developing countries, whether through free trade zones or international projects like the Belt and Road Initiative. This means reflecting on the current high cost of trading with China, and perhaps cutting some of the red tape that plagues the country’s food import and inspection process.

Officials can start with goods that China doesn’t or cannot produce easily. For example, they could give special consideration to new trade agreements regulating fruit imports from tropical countries.

As for the foodstuffs China imports from developed countries, these tend to be of higher quality, at least in theory, but they are also typically more expensive. This is partly a natural outcome of the so-called Alchian-Allen effect, in which increased transportation and other external costs — which are generally fixed within product categories — have a less noticeable impact on the price of expensive goods than on their cheaper counterparts. In other words, if you add $5 dollars in logistics costs to the price of both a bottle of $10 wine and a bottle of $20 wine, the latter becomes more competitive, relative to the former.

While good for importers of high-end goods, this limits consumer choice and pushes shoppers to accept higher prices. For non-processed foods, such as fruits and vegetables, high, fixed import duties and inspection delays can act as a perverse incentive for consumers to purchase produce from further afield, despite the environmental and other costs involved in long-distance shipping.

To address this problem, China should give thought to tailored free trade agreements, especially at the regional level, with partners such as ASEAN. This is especially true of agricultural goods, which are often left out of broader trade agreements from a desire to protect farmers. And for truly high-quality products from distant countries, it should invest in trade infrastructure and shorten the inspection process, allowing goods to reach their destination as quickly and efficiently as possible.

Imports aren’t just about international politics; they’re an important means of increasing consumer choice and improving product quality. Liberalizing China’s food import regulations will benefit the country not just on the national or international stage, but also at the individual level, by giving ordinary Chinese a taste of the best the world has to offer.

Translator: Kilian O’Donnell; editors: Lu Hua and Kilian O’Donnell; portrait artist: Zhang Zeqin.

(Header image: A couple shop at a super market in Luoyang, Henan province, May 26, 2014. VCG)