Tracking Growth in the Chinese Organics Market

China has become the world's fourth-largest retail market for organic food and drink - and analysts say there is still enormous potential for growth.

The Chinese organic market was worth about €5.9 billion in 2016 and accounted for about 7% of all organic sales worldwide, according to the Research Institute of Organic Agriculture (FiBL), behind the United States (€38.9bn), Germany (€9.5bn) and France (€6.7bn). In terms of agricultural area, it is third after Australia and Argentina, with nearly 1% of its total devoted to organic production, according to figures from FiBL and IFOAM*. 

Domestic investment in organic growing

A major factor behind Chinese organic market growth is a government decision to invest in "green development", including organic agriculture. According to IFOAM Asia, new policy has simplified the process of registering a certification body, while also implementing stricter and more frequent checks. By the end of 2017, more than 60 organic certification bodies were registered in China, twice as many as the previous year.

Despite this domestic growth, the European Union's SME Centre says interest in imported food remains strong.

"This complements small but growing interest in imported organic food as there are also concerns regarding locally certified organic products," it said in a recent report**. However, the Chinese government's new focus on ensuring the quality of domestically produced organic products aims to strengthen consumer trust.

Food safety drives demand

Chinese consumers consider imported foods and drinks to be higher quality than those produced domestically, and organic certification adds to this perception, says Thibaud André, senior consultant at Daxue Consulting, a market research firm offering services for companies looking to enter the Chinese market.

"Organic food is a kind of upgraded version of health food for the Chinese consumer," he said. "In the European market, organic food triggers some values about being environmentally friendly and ecological. In China, it's more related to health and food safety."

A spate of food safety scandals has boosted sales of imported foods in recent years, but André says that while this may be a factor for some organic consumers, the main purchase driver for organics is a desire for foods that promote health and wellbeing.

"Baby food is a good example of where food safety is the biggest criterion," he said. "This is a category where imported brands are very successful, to the point where it seems crazy and irresponsible to some middle-class consumers to buy local products."

More generally, younger Chinese consumers aged 20 to 30 are the biggest consumers of organic products, and interest is high across food and beverage categories, from dairy and beverages to ready-to-eat foods, fresh fruits and vegetables, and foodservice items.

"It's more a question of demographic and target audience rather than product categories," he said. 

E-commerce creating opportunities

According to Daxue Consulting, the price gap between organic and conventionally produced food is particularly wide in China, partly because a large share of organic food is imported - and there is already a large price gap between domestic and imported brands. Many organic foods are featured in high-end, import-focused stores, André said, while more traditional supermarkets include organic products within general categories without much in-store promotion.

Meanwhile, e-commerce is an important and growing retail channel in China.

"Within the biggest [online] marketplaces they will have some sections dedicated to organic," he said. "Any products described as organic have heavy promotion."

At the retail level, figures on the rate of market growth are scarce, but André says per capita consumption of certified products is still extremely low. "The potential for growth is still huge," he said. "There's a lot of areas, both geographically and in terms of demographics, that are untapped so far, but oversaturation means it's still pretty closed for foreign brands and local brands will have better access."

He suggests that entering the Chinese market is likely to become more challenging as the next generation matures - a generation that has grown up in an economically developed China with many successful local brands.

"This will require foreign companies to invest more in preparing their brands," he said.

*Source: FiBL and IFOAM, The world of organic agriculture: statistics and emerging trends 2018 
**Source: EUSME, The Food & Beverage Market in China