Saturday, July 22, 2017

Distrust Breeds Food Adulteration in China

Widespread fraud and adulteration has caused a breakdown in China's food marketing system, according to a July 4 report from Xinhua News Service posted on numerous Chinese news sites.

The Xinhua report describes a fundamentally failed market in which Chinese consumers are willing to pay high prices for quality food, and producers are willing to produce such items, but distrust raises an "integrity barrier" between consumers and producers that undermines the market process.

Consumers have come to expect products to be adulterated or fake as the default. They have learned not to trust brands, packaging, or logos. Xinhua authors point out that consumers have to rely on friends, acquaintances or expensive verification methods to authenticate the food they buy. Consumers in Beijing and Shanghai wishing to buy a type of rice from an area in Heilongjiang Province known for its quality ask friends living there, "Where can I buy authentic Wuchang rice?" Consumers meeting an official visiting from an agricultural province ask him, "Can you tell me how can I buy real ginseng?"

On the supply side, producers must expend considerable energy and expense to prove "I am who I am," the Xinhua writers say. Even if a company spends a lot on advertising, the prevalence of fraud makes consumers distrust the authenticity of the product when it reaches the shelf in the supermarket.

A rice cooperative manager in Heilongjiang's Jiamusi Prefecture explains that their efforts to convince consumers their rice is authentic raise the cost of the rice far above the actual cost of growing it. Grain Bureau officials from Heilongjiang Province holding promotions in southern cities are frequently confronted with questions like, "How do we really know this rice is from Heilongjiang?" and "How do we know government-sponsored sales promotions are for real?"

A production manager at a rice mill in Wuchang acknowledges that integrity issues are the biggest problem in the production, processing and sale of rice. This has been a long-term headache for Wuchang's rice industry since it markets itself as a premium-quality product, but imitators and fakes abound.

A rice producer in Heilongjiang Province's Wuchang City prints on packages of rice: "I am a demobilized soldier; quality food is getting more and more scarce; please believe in farmers' quality; integrity is better than a brand."

The Xinhua authors report on an expensive verification method prompted by the "integrity barrier." A researcher purportedly from a company-sponsored research institute in Zhejiang Province has been sent to Heilongjiang to live in a village and observe, photograph and report on the entire rice production process. The Zhejiang researcher says he came to search for "food with integrity, grain with virtue."

Farmers in Inner Mongolia explained to the Xinhua reporters that 500g of millet sells for only about 2 yuan, but old, stale grain is commonly mixed with the fresh millet so they can make a profit at that price. Farmers told the Xinhua reporters that many organic and grain products are adulterated because otherwise they could not make any money. The farmers say the mindset of most people in the business is that cheating can yield immediate benefits and there is little to be gained from honesty. The Xinhua authors compare the prevalence of adulterated foods to "Gresham's Law," in which bad money drives out good.

The Xinhua reporters explain that mutual distrust has created a vicious circle of adulteration. Farmers feel their weak position in society gives them a right to cheat customers. Their products are frequently downgraded or refused by unscrupulous companies when prices fall. The legal system rarely gives them any protections and companies know the farmers have no recourse. Farmers see a wide gap between living standards in the countryside and city.

In this environment of distrust, Chinese farmers and traders feel no compunction about reneging on contracts or adulterating products. The manager of a major company's rice mill says his company's 60-percent compliance rate for production contracts with farmers is actually quite high for China.

The remainder of the Xinhua article morphs into a promotion of Heilongjiang Province's rice industry and an obligatory nod to "supply side reform." The authors claim that Wuchang rice could meet Chinese consumers' demands for quality and safety at a price just a fraction of the cost of imported Japanese or Thai rice, and they calculate the income that could flow to producers in Heilongjiang. However, the authors offer no practical suggestions for filling the trust deficit other than posting motivational slogans on the wall.

Ironically, the Xinhua article itself breeds the cynicism and distrust that it purports to uncover. The article is presented as investigative journalism, yet it appears to be a veiled promotion of rice produced in Wuchang City, Heilongjiang Province. The references to "supply side reform" and the large number of sites posting the article suggests that propaganda authorities have ordered this to be disseminated. Journalists who pose as purveyors of information but are actually shills for companies and government policies are themselves dishonest in the way they present their work--another source of information that cannot be trusted.

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