BRICs and beyond: Organic food's identity problem in China
By Mark Godfrey | 9 February 2012
A sign that a branded food market is maturing is the growth of niches and demand for certified-organic products in China is starting to rise. However, as Mark Godfrey reports from Beijing and the south-eastern city of Xiamen, in China's fledgling organic sector, there are no common labelling requirements, leading to consumer confusion over what is truly organic, which could hinder development in the long term.
Organic food is taking hold in China but it is, relatively speaking, early days. The market is forecast to have grown by 25% in China last year but, if Euromonitor's estimate is accurate, sales would have reached CNY329m - or just over US$52m.
The Euromonitor data shows that packaged food accounts for the bulk of sales: a projected CNY252m in 2011, although, perhaps unsurprisingly in a country synonymous with the stuff, tea companies make up the majority of the top five organic companies in China.
Based on the value of retail sales in 2010, the key players are a local company, Qingdao Changshou Foods, followed by US natural and organic food group Hain Celestial and Huangshan Guangming Tea Industrial Co. The fourth and fifth placed firms are also tea makers.
Euromonitor data is collected on "food and beverages that are certified organic by an approved certification body". It adds: "For organic products to be included under Euromonitor definitions, the organic aspect needs to form part of positioning/marketing of the product." However, the rise of organic foods in the country hides the fact that, in China, no common certification exists and producers without formal organic certification carry 'green' labels, leaving consumers confused over what products are organic. And, with the price premium for organic food, the uncertainty could hold back the development of the sector.
Products carrying internationally recognised organic logos are rare in China. There are 23 organisations in China authorised to certify organic products, with the China Organic Food Certification Centre (COFCC), the best known. Another high-profile mark is the Chinese Organic Food logo issued by the Organic Food Ratification Committee, run by the State Environmental Protection Administration.
While all the organic labels in China are governed by the China National Organic Product Standard (CNOPS), which came into force in 2005, Chinese organic certification bodies are allowed to inspect and certify against their own private organic standards as long as certified products adhere to the national regulation. "Thus organic products might be labelled with the national Organic Products Seal and the logo of the private certification body," explains Martin Weinschenk-Foerster, a director of international business at Germany-based certifier Ceres, which has clients in China.
Bureaucratic territorialism, a common trait among Chinese ministries, is also partly to blame for the multiplicity of logos. The so-called Green Food standard that preceded the CNPOS is still in use in China and the state-controlled China Green Food Development Center (CGFDC) oversees two Green Food standards outside CNOPS: 'Green Food A' (which allows some use of synthetic agricultural chemicals) and 'Green Food AA', which is more stringent, allowing fewer chemicals. As a result, explains Weinschenk-Foerster, the 'AA' label is less popular with agricultural producers who prefer to use an A standard, which still attracts 'organic' consumers. However, he adds: "Since both Green Food standards are allowing chemicals they have nothing or only little to do with organic standards… many people might get confused about the difference between 'Organic' and 'Green Food' in China."
The country requires both its national organic logo and the logo of the third-party certification body to be displayed on packaging. In a filing to the International Task Force on Harmonisation and Equivalence in Organic Agriculture (ITF), Liu Zenhui of the China Product Certification Centre has explained how Chinese standards are based on IFOAM [International Federation of Organic Agriculture Movements] and EU organic criteria in order to "promote the international organic trade". While the China Organic Food Development & Certification Centre (OFDC) is accredited by IFOAM and is allowed to certify, only two other bodies have been accredited by the China National Accreditation Board for Certifiers (CNAB): the independent WIT Assessment and the semi-state China Organic Food Certification Centre (COFCC). The latter leads the field in terms of market share.
Despite the number of organic labels in China, securing a quality one legitimately is not easy as the government heavily subsidises fertiliser and pesticides. Wonder Milk, a brand operated by the US-invested local Huaxia Dairies, has opted not to seek organic certification, explains marketing manager Karen McBride. "Given China's farming it would be very hard to guarantee that nowhere along the feed chain the cow feed and grass has been produced according to strict organic standards," McBride says.
She adds it is too easy for the certification process to be corrupted or faked. "It's too easy to put some cling film or a sticker on a product." On its packaging, Wonder Milk is said to be produced to 'organic principles'.
Given recent milk safety scandals in China, local dairies clearly want to be seen as clean and green. Yet Chinese milk producers seeking international organic certification have not been successful. Last year, Ceres turned down a Chinese dairy project that applied for certification. It would not elaborate on names or specifics.
Despite, or perhaps because of the number of different labels, visits to supermarkets in Beijing and Xiamen showed retail staff could not quickly point out organic foods. However, staff questioned in Tesco and Carrefour outlets did, however, concur that customers had begun to seek organic produce, particularly around key gift-giving times such as Chinese New Year. There was also a consensus that organic products cost 30% more.
Despite the growth seen in the sector, demand for organic goods has not been helped by food inflation, which ran at 5% a year up to 2011, dampening demand for more expensive products.
A straw poll of young professionals in five cities showed consumption depends on wages, age and overseas experience. One executive on a CNY13,500 salary from a multinational human resources firm in Beijing said she liked organic food because of worsening pollution in China and because she had purchased organic during her university days in the US. A 25-year-old female earning CNY2,500-a-month from a sales job in Zhengzhou said she does not trust organic certifications. Based in the coal-mining hub of Taiyuan, a 28-year-old male salesman earning CNY3,500-a-month said while willing to try organic products he was not aware where to buy them. And a 25-year-old in office worker in Wuhan on CNY8,000 said while she appreciated the health benefits of organic foods, they are "too expensive".
Indeed food prices and safe supply chains are bigger priorities for major retailers in China than expanding organic offerings. Asked about the prospects for organics, a senior European retailer told just-food he is more focused on extending the firm’s own-brand lines in China to exploit twin local concerns over food safety and price inflation. Organic food lines are a secondary concern. "Right now we’re concentrating on getting a more free spending kind of consumer into our stores, the one we have right now is pretty price conscious," the executive said.
Other companies are seeking organic sales without bothering to certify their goods. Xiamen Jiaqi Organic Food Co uses a large 'Green King' label on it packaging. Yet the firm, which packages vegetables, fruit and seafood, does not have recognised certifications – the Green King logo was devised in-house, a salesperson contacted at the firm says.
Similarly, a producer of eggs, Hubei Shendi Agricultural Science and Trade Co., Ltd, a firm with battery-style operations themes itself an 'Enterprise Engaged in Eco-Agriculture'. It also boasts a 'Green Food' certificate, which is not a formal organic certification.
And, also having it both ways, China National Cereals Oils & Foodstuffs (COFCO), a state-controlled conglomerate with ambitions to be a Chinese version of Cargill, sells a 'Lohas' range of foods with green-tinged marketing. An 'I Love Lohas' marketing campaign 'yue huo' (beautiful life) rolled out in local print media pledges: "Our raw materials come from good ecological protection area, and through advanced processing techniques try to keep the nutritional content of raw material itself."
The sales data shows China's organic sector is growing but the lack of common rules on labelling could confuse consumers, holding back the development of the sector.
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