The Organic Sector in China: An Overview

China has moved since the late 1970s from a closed, centrally planned system to a more market-oriented player. This movement was characterized by fiscal decentralization, private sector growth and foreign trade increase.

This rapid socio-economic development was accompanied by modernization and the industrialization of agricultural food production. To increase land productivity, Chinese agriculture has relied on agricultural chemical products. This dependency not only increases health hazards and environmental issues but also creates opportunities for China as the country enters into the world’s organic food mainstream.

This briefing’s objective is to provide an overview about what is happening in China’s organic sector , as well as to explore the opportunities for and threats to this innovative field. It is important to highlight given the lack of statistical data in  this sector, this report will focus on qualitative research.

Organic Food & Global Market

Before presenting our findings about the organic sector in China, understanding clearly the meaning of “Organic Foods” is important.

Statista clarifies that “Organic Food” includes all products and ingredients that are grown without the use of pesticides and synthetic fertilizers. According to FiBL-IFOAM even though at the end of 2013 only 1% of worldwide agricultural land (43.1 million hectares) was dedicated to organic production, there were other factors that show that the importance of sustainability standards were increasing.

  1. At the end of 2013, there were 170 countries involved with organic agriculture practices.
  2. Oceania and Europe are the regions with the largest areas of agricultural land. The first one has 40% of the world’s organic agricultural land and the last has 27% as illustrated on the Figure 1:

[MISSING FIGURE] Figure 1 – Worldwide distribution of organic agricultural land  

  1. There were almost 2 million organic producers in the globe. More than 80% of the producers (1.7 million) are in developing countries and emerging markets.
  2. Global sales of Organic Food and Drink reached $72 billion in 2013. Since 1999 organic revenues have increased almost fivefold.
  3. In 2013, United States, Germany and France, in this order, were the countries with the largest organic markets as is illustrated on Figure 2

[MISSING FIGURE] Figure 2 – Retail Sales for the ten countries with the largest markets for organic food                                  

The Chinese Organic Industry

The International Trade Centre states that until quite recently The Chinese Organic Agriculture has been mostly export-oriented to Europe, North America and Japan. Soybeans, Honey, Grains, Green Tea and Beans were the main organics products exported to the three countries. According to a study, China’s organic food exports totaled 142 million US$ in 2003 and 200 million US$ in 2004. However, since 2009 the exports have declined slightly for two main reasons:

Economic recession: Chinese economic partners, The United States and The European Union, started to face economic issues, and as a result they decreased their demand for Chinese organic food.

Food Scandals in China: Melamine (a chemical used in producing plastics) was found in domestically produced baby formula in 2008. The scandal sickened 300,000 babies and resulted in six premature deaths. According to the Forbes article the incident not only damaged the reputation of China’s food exports, but also dealt a devastating blow to the booming domestic dairy industry, leading to a series of mergers and consolidations. After this incident, the Chinese Government initiated a number of initiatives, such as inspection, certification, teaching, and training, in the organic sector to reestablish not only the international but also the local confidence over the Chinese organic production. However, it is important to mention that although the Chinese government started to introduce stricter rules and regulations, some consumers still prefer to buy imported products or those with foreign certification because those products are viewed as more trustworthy.

The Organic Market in China

According to Switzerland Global Enterprise, although organic food products in China  present a small fraction of the total food consumption, around 0.5% in 2013, the demand for organic agricultural products is expected to increase rapidly due to a number of policies increasing the food safety and the growing buying. The Guardian pointed that the high level of pollution in China is also increasing the demand of organic food as consumers start looking for good-quality and safe food and organic products are considered a safer option than the traditional food offered on markets. However, Chinese organic production is still quite low. According to Switzerland Global Enterprise, Chinese organic production accounts for less than 1% of total agricultural production and makes the country increasingly reliant on organic imports. For this reason a growing number of overseas and domestic merchants show interest to import organic food to China. According to the China Briefing, foreign food imports have annually increased 15% in recent years and the amount of food imports has more than quadrupled in the last ten year. By 2018, China is expected to become the top importer of foreign products.

Consumer Profile and Behavior

Organic food items are of particular interest among food items for a Chinese consumer with a growing disposable income. As organic foods are enjoying popularity among urban residents, The British Food Journal conducted a study with 211 organic buyers to understand the profile of those consumers and the main findings are:

  1. In general, organic consumers are female who are 31-40 years old.
  2. In general, organic consumers reside on Chinese urban areas, such as Beijing and Shanghai
  3. Organic consumers belongs to the Chinese middle class and expatriate community who have disposable income and are willing to pay a premium for good-quality, safe food
  4. The organic buyers usually can find organic products is available on specialist and boutique food shops specialized on the commercialization of organic foods.
  5. Organic consumers who are established a family, usually have one 1 child and an annual income of U$ 32,000 or greater.
  6. Better for health, No use of chemical residues and good for the environment are the main perceived motives for organic consumers to buy organic products.

When analyzing the results, I was not surprised by the first 3 main motives for organic consumption. However, the fact that the organic consumers belong not only to Chinese middle class but also to expatriate community caught my attention. I found that the general Chinese consumers are not buying organic products for the following reasons:

  • Price: On average, the price of an organic product can be 50-350% higher than the conventional product and non-organic buyers refuse to pay this premium for an organic product.
  • The lack of availability and visibility is also another barrier for the organic food market development among Chinese consumers. As many Chinese supermarkets do not provide a wide selection of organic foods, many consumers end up buying non-organic food products. Even among the organic consumers only 46.9% were satisfied with the range of organic products offered on supermarkets
  • Among the Chinese consumers there is a lack of knowledge about organic products. Gather with that, the absence of advertisement about organic markets also contributes for the percentage of domestic demand for organic products to be low.  Generally in China the majority of people go to outlets or markets through word of mouth. So, unless someone tells a person about an organic store or unless a consumer drives by an organic market, this person will not know where to buy organic products.

 

Conclusion

The objective of this research was mainly to understand about the organic sector in China. Although the market of organic food has risen quickly in the last decade, Chinese consumer confidence among local products remains low providing an expansion of the organic imports in the country. Chinese government still needs to develop actions not only to regain Chinese food consumption confidence but also to create ways to reduce the cost of the organic products and knowledge of this sector among Chinese population.

 

Renata Bloisa Garrido