Food safety has been high on the agenda for Chinese consumers for a number of years now following a spate of high profile food scandals where huge numbers of Chinese consumers have fallen ill and even died due to tainted food products. Among the more notorious scandals of recent times has been melamine tainted infant formula in 2008, exploding watermelons due to the use of a growth accelerator chemical, 15,000 dead pigs found floating in the Huangpu River in Shanghai, the sale of frozen meat that was found to be more than 40 years old and the scandal surrounding the supplier to KFC and McDonalds who was found to be reusing meat that had fallen on factory floors, as well as mixing fresh and expired meat.
Not surprisingly, many Chinese consumers have lost confidence in the supply chain of domestic food products and turned to foreign imports. This has prompted significant regulatory reforms in food safety law in China, with the Chinese government hoping to increase consumer confidence in domestic products and stimulate consumption. The tightening of the regulatory food safety regime has also had flow-on effects for imported products who have not been saved from food safety scandals. The recent changes discussed below have significant implications for both domestic and foreign firms involved in the food business in China.
New regulatory framework
The China Food and Drug Administration (CFDA) was established in 2013 to oversee food manufacture, distribution and consumption, and to manage regulation processes for food and drug safety. It works closely with the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), which manages the import and export of foods at domestic and international levels.
The Food Safety Law of the People’s Republic of China came into effect on 1 June 2009, consolidating hundreds of regulations and standards. On 24 April 2015, the Standing Committee of China’s National People’s Congress revised the 2009 Food Safety Law, imposing more stringent controls on food safety risks and ensuring greater government accountability towards consumers. The revised law (Food Safety Law) came into effect on 1 October 2015. More than 90% of the original articles were amended and 49 new articles were added to the existing 2009 Food Safety Law. The new law imposed much heavier civil, administrative and criminal penalties for offenders and their supervisors. To implement and enforce the changes in the new Food Safety Law, the CFDA also released the draft Regulation on the Implementation of the Food Safety Law (Regulation) on 9 December 2015 while this is not yet in force in China. It is expected to be officially issued before the end of 2016.
Some of the key food safety changes in China relate to:
- Infant formula – New Registration Measures for infant formula were officially published by the CFDA on 6 June 2016. These Registration Measures have their genesis in the Food Safety Law 2015 and will become effective on 1 October 2016. Under the new Registration Measures, the formulas of all infant formula products manufactured and/or sold in China must be registered with CFDA. The same requirements will apply for all infant formula sold in China, regardless of whether it is domestically manufactured or an imported product. In addition, the new Registration Measures state that a single company can only apply for a maximum of nine formula products within three series, which is much stricter than what was initially proposed in the draft regulations. Complying with the new Registration Measures for infant formula can be time consuming and administratively complex, with each registration application subject to time limit of 170 working days for completion from acceptance to issuance. The registration requirement will become effective from 1 October 2016 for products imported through general trade and will apply from 1 January 2018 for products that are sold through cross-border e-commerce. We recommend that infant formula producers start registration procedures as soon as possible. The new Registration Measures are aimed at reducing the number of brands for infant formula products sold across the country and tightening quality control.
- Food imports – The Food Safety Law established a new management framework for imported food and requires importers to establish an auditing system for foreign food exporters or producers.
- Food labelling – More stringent requirements will be introduced in relation to food labelling for imported food products sold through cross-border e-commerce, with various information such as the product name, origin and exporter’s information required to be listed in Chinese. The draft Regulation also proposes to prohibit the use of stickers on certain food products (mainly infant formula products), so that Chinese labels must be directly printed onto all packaged food before they are imported to China. However this regulation is not yet in force.
- Cross-border e-commerce – A series of new rules were issued in April 2016 aiming to further regulate the food business conducted through cross-border e-commerce. Higher tax rates were imposed, and a positive list was issued so that only food products on the list can be sold through online platforms that are connected with PRC Customs. However, full implementation of the rules was deferred until 11 May 2017.
- Online food imports – With the increasing popularity of online shopping and cross border e‑commerce food imports, Chinese consumers are able to access overseas food products in a quicker and less restricted manner. As a result, the Food Safety Law, among other things, requires providers of third-party online food trading platforms to review a trader’s permit and register the real name of the food trader. This enables consumers to more easily seek redress where food products purchased online are damaged or tainted.
- Increased penalties – The Food Safety Law also imposes higher penalties for any breaches in relation to food safety. For example, food traders who engage in food production without a proper permit will be subject to an administrative fine of up to 20 times the value of the food product. The Food Safety Law also provides for mechanisms linking administrative law enforcement to the judicial system, to increase the accountability of food traders. In one of the more high profile food safety scandals, the Shanghai Jiading People’s Court recently sentenced 10 employees of the American food supplier OSI Group LLC to prison and fined two of the company’s units RMB 2.4 million over claims that it reused returned food products and doctored the production dates of meat products. Among those charged in connection with the incident was Mr Yang Liqun, an Australian citizen and a general manager at OSI China who was sentenced to three years prison followed by deportation.
Implications for Australian companies
With the Chinese appetite for imported food products on the rise and food safety scandals remaining unabated, it is predicted that the food industry in China will be subject to further regulation in the future, driven by consumer demand for better quality products. Given that Australian food imports to China have risen from less than AU $1 billion in 2005 to AU $5.5 billion in 2015, Chinese regulatory reform in the food safety sector has significant implications for Australian companies. Keeping abreast of regulatory changes, including Food Safety Laws and product compliance measures is critical for Australian companies seeking to do business in this increasingly competitive area. Better food safety is likely to be a win-win for Australian companies with high quality products. However, it is essential for Australian companies to stay informed and proactive about registration and filing measures, as well as compliance regimes to reap the benefits of an industry that is sure to undergo further regulatory changes to better protect Chinese consumers.