Would Information Exposure Make Chinese Food Supply Chains Safer?

Would Information Exposure Make Chinese Food Supply Chains Safer?

By Volodymyr Babich (Georgetown University) and Christopher Tang (UCLA)

Americans should be worried about the safety of food originating in China! Very worried! Imported food items from China have tripled since they joined the World Trade Organization (WTO) in 2001. According to the 2011 Food and Water Watch Report (foodandwaterwatch.org), 70 percent of apple juice, 90 percent of vitamin C supplements, 78 percent of tilapia, 43 percent of processed mushrooms, and 22 percent of frozen spinach consumed by Americans came from China. Due to limited budget, limited manpower, and fragmented infrastructure, U.S. FDA food safety inspectors have been overwhelmed by surging food imports from China and inspected only 2% percent of imported food. A multitude of recently reported cases of product safety recalls (pet food, milk, toys, medicine) were for products that came from China. Therefore to improve import food safety, we need to find ways to make food supply chains in China safer.

What can we do? There are traditional operations management approaches for dealing with product quality, for instance supplier certification or product inspection. These work very well if product defects are not intentional. However, if suppliers are determined to adulterate, they also take steps to fool inspections (e.g., melamine is a commonly used element in product adulterations because standard tests do not look for it). As we and other academic researchers have proposed,¹ an alternative approach of deterring payments to suppliers and making those payments contingent on customers not reporting product defects during a pre-specified time interval is a viable alternative for managing product adulteration by suppliers. This is especially true because deferred payments in practice correspond to commonly-used contractual relationships between buyers and sellers called "trade credit". In some circumstances, making suppliers offer product warranties to customers or invoking product liability against suppliers might work.

Unfortunately and fortunately, we in the United States are not alone in our exposure to the risk of bad products from China.

Unfortunately, China itself is also faced with a serious food safety problem. In 2007, an Asian Development Bank estimated that 300 million Chinese might be affected annually by food-borne illnesses caused by the consumption of food contaminated by toxins, pathogenic bacteria, viruses, or parasites. According to a survey conducted in 16 Chinese cities in 2012, over 80% of the respondents stated that food safety is their most worrisome concern in China.² Over the last 5 years, Chinese consumers have suffered from many cases of unsafe food, including imitation soy sauce (made from hair clippings), fake beef (made from pork), lamb kebab (made from cat meat), cabbage (sprayed with formaldehyde), baby formula (containing mercury), and cooking oil (scooped out of gutters). There is an ongoing court hearing that begin in September 2012 regarding a company in Shandong province buying salvaged gutter oil from collectors, mixing the gutter oil with edible oil, and then selling it to food makers as cooking oil and to pharmaceutical companies as an ingredient in antibiotics.³

Fortunately, American and Chinese consumers' interests are aligned and Chinese consumers are taking action. Chinese consumers concern about food safety peaked after the 2008 Chinese milk scandal involving milk and infant formula adulterated with melamine, which resulted in 6 deaths and 300,000 sick babies in China. Over many episodes of unsafe foods sold in China, it became clear that unsafe food products are caused by unethical practices at food plants in China that use unsafe ingredients to improve their profit margins. As a new movement of "social activism" in China that has been implicitly allowed by the Chinese government, we observe some potentially powerful programs with Chinese volunteers using information technology to expose unethical food manufacturing practices in China. Examples include:

1. Zhi Chu Chuang Wei (掷出窗外)

In 2012, a group of Chinese volunteers developed a database to track media reports of food safety issues in 2012. They present the latest news reports about food safety issues across the country by location or food types by setting up a website called "Zhi Chu Chuang Wei" (http://www.zccw.info), which means "throw out of the window."⁴ Within just a few weeks, this website was attracting over two million visits per day.

2. The China Survival Guide (中国求生手册)

In 2012, a software company (Kingsoft) launched a free iPhone app called "The China Survival Guide" (http://tinyurl.com/72orssq) that provides news reports on the latest Chinese food safety scandals (location, food categories, safety issues, etc.). This free app was downloaded over 200,000 times within a week of launching in June 2012.

As mobile phones are ubiquitous in China, exposing unethical food plants in China publicly could create public humiliation, public boycotts, and even public protests (that appear to be somewhat tolerated by the Chinese government lately). So, will unethical food-plant owners in China take corrective actions to improve food safety? You bet!

¹ Babich V., C. Tang. 2012. "Managing Opportunistic Supplier Adulteration: Deferred Payments, Inspection, and Combined Mechanisms." Manufacturing & Service Operations Management. 14(2): 301-314; Rui H., G. Lai. 2012. "Managing Product Adulteration with Deferred Payment and Inspection: The Effects of Procurement Quantity and Lead Time." Working paper.

² Huang Y. August 28, 2012. "China's Worsening Food Safety Crisis." The Atlantic.

³ Wang Q. August 29, 2012. "11 Tried Over Sale of Gutter Oil." China Daily.

⁴ The name of this website was inspired by U.S. president Roosevelt who threw his breakfast sausages out of the window after reading about poor food safety in Chicago's meatpacking industry.