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Takehome:
- There are over 150 million pets in China.
- In 2016 the pet food market was valued at 53 million Yuan and is expected to reach 150 million yuan by 2020
- Current regulatory compliance requirements usually take 12-18 months. Under the new system market access is expected to be shortened to just 6 months.
- Products available through the new pet food CBEC system will be 10-20% cheaper than traditional trade channels.
Pet owners in China can now expect safer, cheaper and higher quality pet food sourced from overseas after a pilot special business zone was established in Jianggan district of Hangzhou on 27 March 2017, which has adopted a CBEC-like operation model in order to facilitate cross-border trade of pet food products.
The special zone, formerly known as the “universal trial base for pet industry crossborder trade”, is the first official channel for individual consumers to purchase foreign pet food. The initiative is backed by an alliance of key regulatory and government bodies, such as AQSIQ, Ministry of Agriculture, Zhejiang CIQ, Zhejiang Agriculture Office, Hangzhou Custom and Hangzhou CIQ. Its opening has been prompted by the growing demand for foreign pet food from an ever-expanding population of pet owners at a time when domestic brands have repeatedly failed to meet consumer expectations.
An exploding pet food market
2015 statistics show that there are over 150 million pets in China. Take dogs for example. In Hangzhou alone, there are now over 30,000 dogs registered as pets according to Hangzhou canine association.
The market value for pet product consumption jumped from 19.32 billion Yuan in 2013 to 53.5 billion Yuan in 2016, and is projected to reach 150 billion in 2020. By then, China will become the world’s third largest market for pet food.
Compared with domestic brands, foreign pet food is seen as superior by Chinese consumers. According to Li Yuan, deputy governor of Jianggan district, consumers are often attracted to foreign pet food because of better management systems, better technical capacities, increased reputation and perceived superior quality and safety. Premium brands such as Royal-canine and Imperial Paw are extremely popular despite difficulties purchasing these products.
Pet Food CBEC: The pros
The majority of pet foods on sale in shopping malls are produced domestically, forcing many consumers to resort to the so-called “grey channel”, such as overseas buying agents, which pose higher risk of quality, hygiene and epidemic issues.
“Because most pet food contains animal-derived ingredients, people and animals in contact with the food could potentially contract infectious disease, which will bring critical harm to their health and safety.” Said Chen Jie, a local CIQ director at Jianggan district of Hangzhou.
“Grey market channels are subject to lax supervision by authorities due to a lack of regulatory support”, Chen added, which has also resulted in loss of tax revenue, price variability and other problems in the supply chain. The situation is worsened by a complicated pet food import license procedure, which takes anywhere from 12 to 18 months. “It is imperative to control these ‘grey channels’ and reduce the risk of epidemics.” Added Li Yuan.
An oasis for pet food trade
The newly established pet food special trade will attempt to incorporate new features like traceability while reducing the burdensome review procedure associated with traditional trade channels and the associated regulatory compliance requirements.
The pet food special trade zone will use a risk-control center with an IT system and programs based on complex algorithms and a big-data analysis to manage product sourcing, monitor the supply chain and build post-sale traceability. A QR code will be affixed to every bag of qualified pet food. Scanning it will instantly reveal a series of key information, such as production date, quality guarantee date, logistic information, third-party quarantine report, enabling consumers to have complete knowledge of the product at different stages of the supply chain.
The review period preceding market access will be significantly shortened to 6 to 8 months by simplifying review procedure such as allowing sample inspection to be conducted on-site instead of Beijing.
The participation of major industry leaders such as Alibaba and Zhejiang Zhongda Group will allow consumers to immediately enjoy the benefit of the government’s foray into pet food CBEC. “Using this ‘sunshine corridor’, more and more premium foreign brands will be able to sell their products on Tmall easily and securely,” Said Xing Yue, Deputy Manager of Tmall International., Tmall has also formed a strategic agreement with the office where the special zone is based.
A total 40,000 square meters of operation space have been assigned for this project backed by a robust infrastructure and supporting systems able to cater to all crossborder trade activities, such as product display, custom clearance, inspection and quarantine. “According to our calculation, pet food imported through a CBEC-like model would be 10 to 20 percent cheaper than through regular routes or purchasing overseas.” Said Wu Junqi, CEO of a local conglomerate—Forchn Holding Group, an operation partner for bonded warehouses.
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