The market for organic products is relatively new in China. However, as the fourth largest organic market in the world and the biggest in Asia, China is an increasingly important buyer of organic products and offers interesting business opportunities with a large potential for growth, writes Kristina Koehler-Coluccia, Head of Business Advisory, Woodburn Global
The perception of terms like ‘organic’, ‘natural’ or ‘bio’ is different in China. People in the West are already used to natural ingredients and have a clear understanding of what is considered organic. Those products are also well defined and described, with organic certification always added to the label.
In general, Chinese consumers are more pragmatic in using the term ‘natural’ because the concept is wider; basically, whatever is naturally grown is perceived to be healthy and organic, without the need for special labels or government regulations.
Regardless of naming or certification, the desire for these products is growing as a part of a wider trend of better awareness of healthy diets and concerns about food safety. According to a report released by the State Administration for Market Regulation, in 2021, sales of organic products in China reached US$ 14.2 billion, an increase of 18.3% over 2020, ranking it fourth in the world.
Between 2018 and 2021, the number of people buying organic food at Hema Fresh (a brick-and-mortar grocery outlet owned by Internet giant Alibaba) quadrupled, with a penetration rate of nearly 30%. Many customers start by buying organic vegetables and gradually expand to various organic foods and products, among which female consumers with children are the main buying group.
Looking at the evolution of the market, organic food in China has huge potential in international and domestic markets.
Organic agriculture in China
China is one of the world’s largest agriculture producers and consumers of agricultural products. Agriculture is one of the country’s most important economic sectors, employing over 295 million farm workers.
China is the world’s biggest producer of rice and an important source of wheat, corn, tobacco, soybeans, peanuts, cotton, potatoes, sorghum, peanuts, tea, dairy, millet, barley, oilseed, pork and fish, which provide the country with a small portion of its foreign trade revenue.
More than 2.95 million hectares of land were farmed organically by the end of 2022 in China. Organic crops are usually cultivated naturally with manure or compost and treated only with natural pesticides and insecticides.
There are three main organic food production models in China. In the first, a big company leases land from a farmer and pays them. The second model is that under the permission of local governments, big companies sign an organic food production contract with farmers. The third one is organic producer associations. Farmers set up an association by themselves to conduct large-scale organic food production.
What kinds of organic food products are popular in China?
Organic formula and other baby food products are increasingly in demand. Several food scandals have had an impact on this change in buying habits, including melamine-contaminated milk in 2008, which sickened 300,000 children. Online retail platform JD – China’s second largest e-commerce platform behind Alibaba – reports that sales of organic infant food supplements grew 6.6% in 2019 and 11.2% in 2020.
For foreign brands, there is a real opportunity to import their products and establish themselves in China by meeting the specific expectations of this market, especially as they are seen as exemplary from a health point of view.
Similarly, the organic dairy industry in China has been growing steadily in recent years, driven by increasing demand for healthy and safe food products. The increasing demand for organic dairy products in China can be attributed to several factors, including rising awareness of the use of fertilisers, pesticides, and bovine growth hormones in conventional dairy farming practices, which has led consumers to opt for healthier options.
Organic dairy products are thought to have higher levels of beneficial nutrients such as vitamins, omega-3 fatty acids, antioxidants, and conjugated linoleic acid (CLA).
Dairy aside, organic fruits, vegetables, meat, poultry, and seafood have all experienced significant growth in recent years due to increasing demand for healthy and safe food. There is also a rising awareness of environmental sustainability and animal welfare concerns among consumers. Organic fruits and vegetables are particularly popular, accounting for over 70% of the market share.
In general, consumers are willing to pay a premium for organic products that are free from harmful pesticides, herbicides, and synthetic fertilisers. The Chinese government has been promoting the industry’s development by providing subsidies for organic farming and encouraging sustainable agriculture practices.
How are organic food products in China purchased and distributed?
China’s organic food industry is divided between supermarkets, independent small grocers, internet retailing, direct selling, and more. The market for organic food products in supermarkets has experienced significant growth in recent years, fuelled by health awareness, rising disposable incomes, and concerns about the environment.
Leading supermarkets in China, including , have responded to the increasing demand for organic products by expanding their offerings.
Nevertheless, as the largest internet retailing market in the world, online-to-offline (O2O) models are often the most efficient sales channels for organic food in China. As the biggest consumer market for organic packaged foods and beverages, and the fastest-growing organic food market in Asia, China’s organic market offers many opportunities for foreign B2B investors.
There are several key market players in the industry, including China Mengniu Dairy Company Limited, Abbot China, Ausnutria Dairy (China) Company Ltd, TINGYI (Cayman Islands) Holding Corp, and WH Group Limited.
What other organic products are popular in China?
Physical health has risen to the top of Chinese consumers’ interests since the Covid-19 pandemic. Beyond food, this philosophy is also reflected in the consumption of other products, such as beverages and cosmetics.
The organic cosmetics market in China is still considered a niche, but Chinese buyers are slowly starting to show interest in using more organic and natural products. This shift is visible mostly in first-tier cities, among Gen Z and millennials.
The use of natural products in cosmetics requires organic brands to go through formulas and regulations to assure customers that the product is safe. However, in China, there is no central agency that issues an organic certification, as is common in other countries. For this reason, Chinese consumers trust foreign organic certified products more than local brands, as they are believed to be better.
As the green trend continues to grow in an expanding market, more companies will invest in green technologies for higher efficacy and better safety performance. Chinese beauty consumers from first-tier cities are more connected to global trends and want to follow them, resulting in a change in their shopping behaviours.
The adoption of sustainable packaging for cosmetic products by larger players has further bolstered the market growth. For example, Procter & Gamble recently announced a significant shift to plant-derived packaging for some of its leading China cosmetic brands and is using sugarcane-derived plastic from Brazilian company Braskem.
L’Oréal recently helped reduce the environmental impact of its packaging by introducing two new assessment tools, namely Sustainable Packaging Scorecard (SPS) and Packaging Impact Quick Evaluation Tool (PIQET), to its package design process.
Organic product certification and other legal issues
A major problem in China is the proliferation of brands that sell fake organic products. This trend has been responsible for a practice called “greenwashing”, which refers to a company that provides false or misleading information about their products being eco-friendly to gain market share.
The use of words such as ‘green’, ‘eco’ and ‘sustainable’ to describe products that are not environmentally-friendly are a form of greenwashing.
Foreign enterprises can register their green trademarks in China and market organic goods and services. Green marks used by companies give them a way of advertising and promising consumers to provide 100% organic and biodegradable products which are free from causing any harm to the environment.
A few countries, such as the European Union, the United States and China, accept the registration of green trademarks. But recently, in China, companies interested in registering green trademarks have been encountering difficulties and facing the rejection of their applications.
China’s Trademark Law prohibits the registration of deceptive trademarks. A brand that greenwashes its underlying products can be considered fraudulent. Analysts speculate that these rejections have something to do with China’s concerns over greenwashing.
In 2020, a national standard on organic products covering mandatory requirements for production, processing, labelling, and management came into effect in China, as well as the revised organic certification rules.
China’s Certification and Accreditation Administration (CNCA) released a catalogue of products eligible for organic certification. China classified this new standard and the accompanying new certification regulations as voluntary, and on this basis, did not notify either to the World Trade Organization (WTO).
However, if products are to be marketed in China as organic, compliance with this standard and accompanying regulations is mandatory.
The new organic standard includes changes to production and processing inputs, such as adding microbial preparations for control and prevention of animal diseases, adding detergents and disinfectants in plant production, adding requirements for packaging materials for feed products, adjusting lists of food additives, processing aids, and feed additives eligible for organic production and/or processing.
The new organic certification rules appear to have streamlined some certification practices. For example, an overseas organic production site that has acquired organic certification for at least four years (inclusive) can be waived from a 12-month organic conversion period before being certified to the Chinese organic standard.
If an organic product is produced or processed overseas, the product sample can be tested by a local testing agency. Under the new regulations, field inspections will take place on a limited number of farms if the organic production organisation consists of multiple farmers, instead of inspecting each individual farm.
Likewise, if the certified organic product is harvested multiple times a year, site inspections will be reduced to once a year. The 2019 organic certification catalogue has been modified to include all products in the supplementary catalogues released between 2012 and 2018. Notably, goji berries have been added to the new catalogue, but honey has not.
China has taken significant steps to try and increase the level of consumer trust in the organic industry. The CNCA mandates that all organic products have a 17-digit organic code, which consumers can input on the CNCA website to verify its authenticity. This has made traceability technology a crucial element of the Chinese organic industry.
Only 220 foreign brands, as of the end of 2022, were certified as organic in China, compared to more than 14,000 local products.
Conclusion
Since there are no clear regulations or one organic certification that can be seen as a guideline to what is or isn’t organic in China, it is essential for natural brands to educate their potential customers about the benefits of their products. Foreign companies cannot just assume that consumers are familiar with the terms already used in the West.
Most Chinese consumers are price-sensitive and look for value when buying organic products. China’s demand for organic food has grown at a fast pace in the past decade and it is expected that both production and demand will continue to grow.
