Seven reasons to include China in your organic market expansion
Posted - May 3, 2009
Seven reasons why China is worth exploring
By Robert Bell
China is one of the most exciting emerging organic markets in the world. Its rapid population growth, rising affluence and unique market conditions present opportunities for foreign companies to develop their own “China strategy.” Here are the most compelling reasons for considering the Chinese market, according to industry insiders, field visits and market figures.
1) Double digit market growth
Although the organic market in China represents only 1.2 per cent of the total domestic food market, it is growing rapidly by 30 to 50 per cent each year, with an estimated $750 million US in sales 2006.
China has one of the largest areas under organic management, along with Argentina, Brazil, India and Uruguay. While overall consumption is still relatively low, China is poised to become the fourth largest consumer, after the United States, Germany and Japan. An estimated 1.6 million hectares of farmland are under organic cultivation, with production mainly for exports. In 2006, over $350 million U.S. worth of food products were produced according to the organic standards of the US, Japan and Europe. Over one-third of the organic soybeans used by European food processors come from China. Many producers are expanding into animal products for export, including meat, milk, fish and eggs.
2) Food safety scandals and increased consumer awareness
Increased demand for organic foods in China has been mainly driven by recent food scares and raising consumer awareness for health and food safety issues.
Rising urban incomes and the emergence of an affluent middle class and expats looking for quality goods are other key factors driving domestic demand for organic products. Consumers are also looking for imported brands that may provide safe and healthier alternatives.
Leading retail chains in affluent cities like Beijing and Shanghai have been introducing organics. Foreign retailers with a presence in China such as JUSCO, Carrefour, Metro and Wal-Mart are all offering organic products. They must import most of their organic lines from overseas to meet domestic demand. A growing number of specialized shops is selling not only fresh organic certified fruits and vegetables, tea, rice and honey, but also some imported processed foods.
According to the Organic Food Development Center (OFDC), total sales of organic products in China reached $500 million in 2007.
3) Changing lifestyles
Consumers want more options and products and more exposure to other cultures, with an increased number of international events taking part in China (the Olympics 2009, the World Expo 1010).Many are adopting western lifestyles, such as drinking coffee and wine.
China has also witnessed a rise of LOHAS consumers (acronym for Lifestyles of Health and Sustainability). The trend Nong Jia Le, or “Vacation in the Countryside” has urged City dwellers to visit the countryside on weekends and short holidays. Touring local farms, harvesting fruits and vegetables and enjoying an organic meal have become popular “Nong Jia Le” events.
Media campaigns to increase awareness on environmental and sustainability issues have contributed to changes in attitudes and behaviour. As of June 1st 2008, free plastic bags were banned in retail stores, shopping malls and wet markets. More consumers are now bringing their own bags when shopping and retailers are offering environmentally friendly bags instead.
4) Limited domestic processing
In spite of increased demand, Chinese consumers currently still have few choices for organic food. The local organic food market is currently underserved by domestic production. Very little organic meat is available, and there is not enough organic sugar, a key ingredient in processing and canning. Not enough organic palm oil and flour are available to develop the market for added-value foods. There are not enough organic certified Chinese processors. Those in business must import these and other key ingredients from international sources. It is estimated that 90% of the total sales of organic food products come from produce, while 5% comes from domestically processed foods and the other 5% come from imported products. Processed organic food or value-added organic foods are not often found in big-box retailers yet. Milk, grains, fruit spreads and juices, vegetables and poultry are the most popular products.
Foreign brands are seen as safer than domestic brands. One area of rapid expansion is baby food and milk. After the San Lu milk scandal, sales of imported brands of milk and powdered milk increased 60 per cent despite being on average 3 to 5 times more expensive. Australia is the region’s leading supplier of organic milk. With the one child per family rule, Chinese parents are willing to pay a premium for high-quality foods for their offspring .
And in China’s high-end and foreign dining service industry, raw ingredients are often imported because of domestic options do not meet their quality expectations. In 2008, Australian exporters of lamb and beef sought export opportunities in Shanghai.
5) Government support of organics
In 2005, the Chinese government established a national standard for organic foods consistent with international standards. This included special packaging and labeling on retail packaging, allowing consumers to clearly identify organic food. Many provinces and municipalities have also reduced costs for certification under the national standard to encourage producers and processors in the Chinese market.
The Chinese government has set internal goals for each province for increasing their production of organic food by 5 to 10 times by 2010-2015. These internal goals include tea, grains and vegetables, some of the most popular Chinese organic export products. A 2006 USDA report estimates that by 2010, as much as one-third of the total agricultural land in production will be producing organic food.
6) Trade shows as gateway to the market
Trade fairs offer a cost effective opportunity to introduce and promote new-to market organic products and imported organic products are no exception. In China, there are three events for promotion of organic products: Organic & Natural Products China, ONP-CHINA, the Organic China Expo, OCEX and Biofach China. This sister event of Biofach in Germany, the most international organics fair, is enjoying a steady increase in both local and foreign exhibitors and trade visitors, and has established itself as the main fair in the sector.
7) Opportunity to cooperation and joint ventures
Chinese producers are typically smaller companies or farmers that are looking for foreign expertise to develop and expand their operations. Expertise in organic processing and packaging to foreign standards is in particularly high demand. Producers, processors and retailers in the Chinese market are looking to develop better inspection capabilities for their supply chain to ensure consumer safety. Many producers and processors are also looking to partner with foreign companies to export overseas.
An increasing number of expats, plus a groundswell of international events such as last year’s Olympics and the upcoming World Expo, mean better global exposure and add to the appeal of China. The vast opportunities for growth in this vast country makes it one of the most important emerging organic markets in the world today.
