Food safety in China: expanding the insurance sector's contributions

For example, the 10 years to 2021 saw notable gains in output (in volume terms) of grains (up 12%), fruit (36%), vegetables (19%), meat (6%), eggs (18%), milk (14%) and from marine agriculture (22%). At the same time, food safety and quality has improved with the "pass rate" as according to Ministry of Agriculture's grading of agricultural product quality and safety testing, remaining above 96%. Nevertheless, and although China's ranking in the Global Food Security Index (GFSI) comprised of 113  untries improved to 25 in 2022, up 12 places from 2012, it ranks 46^th in the GFSI's sub-index for Quality and Safety. The latter suggests that there is still scope for improvement.

Food security index of China and five other major economies, 2020-2022

Strong economic growth has yielded higher incomes and improved living standards in China. With this progress, when making buying decisions, and although price remains an important consideration, consumers typically place increasing weight on factors like quality and diversity of agricultural produce on offer. Another factor of change has been the rapid development of digital distribution channels and e-commerce, which have disrupted the traditional supply chain. As a result, consumers have more choice of foodstuff and also more options from which supplier to buy from. Online, in some cases, they can communicate directly with farmers/food producers. This can be a competitive advantage: producers and suppliers who are able to reach millions of consumers online could benefit from significant economies of scale.

However, there are downside considerations also. For instance, producers and suppliers could face greater reputational risk when transacting online, if their products are of poor quality, more so than with conventional channels. To this end, quality of produce is key to establishing and sustaining brand recognition, and also for producers and suppliers to maintain their competitive advantage.

Digital channels with embedded functions can allow users, including suppliers, producers, distribution managers and customers, to track the quality of agricultural goods based on data collected from IoT devices and uploaded onto the internet. The revised Law of Agricultural Food Quality and Safety came into effect in 2023, setting clearer criteria and stricter requirements with respect to the measures that need to be taken to ensure quality of agricultural food. We expect that in this environment, stakeholders along the agricultural supply chain will make quality a priority. Not least because the law provides consumers with easier recourse in the event of purchasing poor quality produce.

Insurance can play an important role in supporting improved food safety in China, along all stages of the agricultural produce value chain. Risks below can be covered by insurance and related innovations:

• Production stage: risks include over- and mis-use of chemicals such as fertilizers and pesticides in food production. These chemicals can damage the environment, such as when there are spillage accidents.
• Manufacturing stage: the main risks relate to the misuse of additives in manufacturing, with food becoming contaminated by metals, high-density plastics, bone, glass, etc.
• Storage: key risks are poor temperature and humidity conditions, which could see stored produce  start to go bad.
• Logistics and distribution: risks include contamination during packaging and shipment/transport of the produce, and poor temperature control in storage facilities and vehicles.

Risks and insurance in agricultural food supply chain, with technologies and services

The range of insurance products available in China to cover food safety risks are limited. Most common are liability covers to protect producers and suppliers against the risk of consumers' health being harmed by consumption of food produce¹. To date, there has been limited data on the take-up rate of this type of insurance. However, local governments in many provinces have launched pilot programs both to support and promote insurance uptake².

In advanced markets, the breadth of insurance products on offer is much wider, targeting different stakeholders or specific risks. The gap suggests that the market for food risk management processes in China, which would include insurance, can be developed further. To this end, we propose three action steps to increase the contribution of insurers to improve overall food safety in China:

• Develop a holistic insurance package based on the monitoring and tracing of food quality through the entire supply chain. This would help protect stakeholders against the many potential mishaps involved in the production of food, while also reducing the frequency and severity of accidents.
• Offer customised insurance products with flexible features, targeting specific risks or phases of the supply chain, such as insurance specifically designed for food contamination risks occurred in shipping.
• Together with local governments, develop inclusive food safety insurance products, meaning solutions customised to the needs of local consumers and stakeholders in supply chains while leveraging digital distribution channels to extend the reach to broad population.

Read the full report, available in Chinese only, to find out more.