Demand for chilled dairy products and fruit juices, as well as frozen foods, is growing rapidly in China, especially among urban consumers who increasingly shop at the numerous supermarkets opening up in cities.

But international companies importing chilled products can only reach the biggest cities like Beijing, Shanghai and Guangzhou, which are close to ports. Even those firms already manufacturing in China are unable to create national brands without a national distribution system and well-established cold chain.

US consultancy AT Kearney wants to fast-track the development of a national cold-chain network by setting up a consortium of logistics providers, cold chain equipment suppliers, and major food and beverage firms that will share the risk and benefits of the project.

"If we left it to natural evolution, it would take decades and decades," said Bing Zhang, principal of operations at the firm's Shanghai office. "You could expect a long period of time with people hesitant to invest in economically viable capacity without sufficient customer interest."

China currently has 'one-function, high-cost logistics service providers that typically operate in 'silos'. Only 15 per cent of products that should be temperature-controlled are handled in this way, estimates ATKearney, compared to the 85 per cent compliance in Europe.

"Chinese companies tend to set up manufacturing facilities locally and try to develop a cold chain themselves. But they suffer from the fact that they can't capture the market further away," Zhang told AP-Foodtechnology.com.

One domestic company, Bright Dairy, has succeeded in building a strong presence throughout eastern China, by using its own warehouses, trucks and a local distribution chain that reaches as far as the communities' people's committees.

"But no multinational is able to do this, and it isn't going to have the appetite for it either," added Zhang.

ATKearney has worked with fresh fruit suppliers who wanted to import fruit into China but could not get further than its port cities without a chilled distribution system. Another client was unable to launch its well-known chocolate brand in China without an established cold chain.

"The national distribution network is just not there and at a local level, there is a general lack of qualified distribution. Products that are supposed to be chilled are often taken out of trucks and put onto the back of a tricycle before going back into a fridge"

On a national level, the industry needs a long-haul distribution capability that gets products from the north to the south in a chilled, but economically viable, environment. From there a big distribution centre would supply several layers of local distribution, he said.

"The technology is available but the challenge is to find a company willing to invest in developing the whole network. Without initial sufficient volumes, this would be very expensive unless you decide to take a long-term view, setting your prices so that you suffer losses for the first three to five years."

A consortium could share the risk and the benefits, believes Zhang.

"Foodmakers get reliable distribution capability and can expand geographically. By participating upfront, they also get a say in how they want the cold-chain infrastructure to be set up," he said.

ATKearney has run a series of conferences over the last year in China, the UK and the US to bring interested parties together, mostly international food companies who want to expand distribution in China or 3PLs.

The group has also seen strong interest from the ministry of health and the ministry of commerce, as the Chinese government becomes increasingly concerned about food safety, ahead of the Olympics.

The next step is to pull the parties together and formally launch the consortium. It will aim to write an industry standard alongside government bodies that would compel others to participate in the cold-chain.

"The final enforcement of standards is certainly going to take a while, but at least the programme has started and we have five or six companies who definitely want to be involved," said Zhang.

Technology will be a key issue for the group, with communications and IT systems in China still limited in scope, depth and effectiveness. Throughout the logistics process, transactions are primarily paper-based and there is limited technology to support distribution facilities, receiving functions, inventory management and in-store product movement.

Local administration and bureaucracy also tends to add extra distribution layers, with state-owned companies distributing products to provincial distributors before they reach local retailers.