Cold facts about supply chain success in China

However, those hurdles are likely to be pretty insignificant when compared with the regulatory and logistic challenges associated with setting up shop in China.

It may be the hot favourite destination for many farm product exporters, but the tricky logistics involved in delivering Australian-grown food to China’s burgeoning new retail and foodservice markets can turn the most promising deal into total flop if the right distribution facilities are not in place.

Access to good cold storage is particularly important for fresh meat, seafood, horticulture or dairy exports making their mark in offshore supply chains.

Enter the Swire group, whose agribusiness and food service activities include the world’s third largest cold chain logistics business, notably cold storage warehouses in Australia, the US, Vietnam, Sri Lanka and China.

In China, where Swire Pacific Cold Storage has just opened its seventh cold chain site, it services key city clusters representing almost 70 per cent of the country’s population.

Six more cold store complexes will open in the next three years.

“Business is booming, in a particularly Chinese way,” said operations director, and expatriate Australian, Craig Bowyer.

He listed off everything from kiwifruit to boxed meat, chicken nuggets and french fries going into the newest site at Chengdu in western China’s Sichuan Province.

The spanking new facility was inspected by Australian farmers and agribusiness players who joined last month’s ANZ bank’s Opportunity Asia tour to China, as reported here.

The 27,000 square metres of storage floor space rises 20 metres, with enough shelving to accommodate 50,000 pallet-loads of frozen and chilled foods.

The chilled menu includes beef and lamb cuts from Chinese farming and processing giant, New Hope, local and imported retail products for giant French supermarket group Carefour, and fresh and semi-prepared fast food products for KFC.

A new KFC outlet opens every 18 hours in China.

Swire Pacific is one of many subsidiaries of the UK shipping, aviation, property and trading house giant, John Swire and Sons, whose name is behind an array of businesses ranging from Cathay Pacific Airways to marine oilfield operations and China’s Coca-Cola licence.

Until a decade ago the Swire portfolio also included Clyde Agriculture’s big grazing and cropping properties in western NSW and Queensland.  

Swire Pacific opened its first cold chain storage site in China in 2010, importing about two thirds of the equipment and structural requirements for the facility.

Seven years later, the new Chengdu complex was built almost entirely using Chinese-engineering and manufactured products.

Unlike its cold stores in Australia, Swire’s $62 million Chengdu facility also comes with some very Chinese idiosyncrasies, such as nearby dormitory accommodation for workers and a company bus to collect staff for work, on-site meals and technical training (which will make Swire’s skilled-up employees prime candidates for poaching by other businesses).

“We’re taking staff from riding pushbikes to driving $75,000 forklifts and operating computerised inventory systems,” Mr Bowyer said.

Employees were mostly migrant workers from elsewhere in China as local staff were hard to secure.

Although the surrounding area had numerous unemployed farmers whose land was recently resumed to make way for commercial and light industrial buildings like the Swire development, they were well compensated for their loss.

“They’ve got apartments and drive around in their own cars and they’re not too interested in a job here,” he said.

Swire’s ownership lease on the site will last just 50 years, after which it, too, may be pushed out to make way for another wave of redevelopment.

Shanghai-based Mr Bowyer said while most Swire cold stores were wholly owned by the company, some were joint venture projects with state-owned enterprises, which brought some advantages.

“It seems slightly easier to get a program of construction approved and it’s a smoother process to get all the various licences ticked off if you have a state enterprise connection,” he said.

Work on Swire’s fully-owned Chengdu project started 10 months before another JV-owned site which was subsequently completed much faster, opening six months ago.

In Australia Swire Pacific operates the large national Frigmobile transport fleet, but getting Chinese registration for a refrigerated truck can take two years.

That means the company owns just four trucks in the 900-vehicle pool it manages in China.

Freight costs, including hefty road tolls, account for two thirds of Swire’s storage and logistics business expenses.

The new Chengdu cold chain site, and others like it, are typical of the sort of new-generation food storage and distribution services rapidly establishing as Chinese consumer habits catch up with western shopping, dining  and convenience food trends.

The traditional, raw, alternative sites – wet markets – continue to be popular for many shoppers and restaurants, but their antiquated chillers and open air stalls have many limitations, especially for imported products. 

Among the big volume imports handled by Swire’s cold chain network every year are 23 million cartons of Zespree kiwifruit from New Zealand and Europe and “thousands and thousands of tonnes” of french fries.

Mr Bowyer said convenience food markets were generating huge demand for cold storage space, particularly for poultry and locally grown potato chip product lines.

China is the world’s biggest producer of potatoes.