The market for organic products is relatively new in China. As the fourth largest organic market in the world and the first in Asia, China is an increasingly important buyer of organic products and offers interesting business opportunities with a large potential for growth. According to Renub Research, China’s organic food market size will reach US$ 30.88 billion by 2028.
Since there are no clear regulations or one organic certification that can be seen as a guideline to what is or isn’t bio, 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.
The perception of organic/natural/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 or bio.
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 ‘natural’ term because for them the concept is wider. The Chinese concept of ‘natural’ is bigger and basically, whatever is naturally grown is perceived as healthy and organic, without the need for special labels or government regulations.
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.
According to the report titled Organic Product Certification and the Development of Organic Industry in China 2022, released by the State Administration for Market Regulation, the sales of organic products in 2021 reached US$ 14.2 billion, an increase of 18.3% over 2020, ranking fourth in the world.
Between 2018 and 2021, the number of people buying organic food at Hema Fresh 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.
China’s organic food market reached US$ 14.57 billion in 2022. The country continues to show organic growth above the regional and global averages, and a positive pattern is expected to continue, with China averaging a CAGR of 7.1% the forecast period 2021-2026.
Looking at the evolution of the market, organic food in China has huge potential in international and domestic markets.
Organic farming continues to show a rapid development globally. China is one of the world’s largest agriculture producers and consumer of the agriculture products. Agriculture is one of the most important economic sectors in China, which employs over 295 million farm workers.
Despite the large agricultural output in the world, less than 7% of the world’s land area can be cultivated in 2023, feeding over 18% of the global population.
China is the 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.
The attention of Chinese consumers towards physical health, food safety and its benefits on the maintenance of a healthy physical condition increased dramatically in the past few years, especially since the COVID-19 pandemic. This is one of the main factors driving the popularity of organic products.
More than 2.95 million hectares of land were farmed organically by the end of 2022 in China. Over the past few years, a series of episodes of contaminated food motivated Chinese consumers to look for foreign imported products, even at higher prices, to better satisfy their need for quality and safety.
Given its enormous potential, China has become a gold mine for organic food producers from all over the world. Organic food is the fastest-growing market in Asia-Pacific's region and China is among the biggest consumers of these products.
Organic food is cultivated naturally with manure or compost and is treated only with natural pesticides and insecticides. The demand for organic produce such as fruits, vegetables and milk is growing day by day.
In China, organic agriculture follows traditional sustainable farming like many other Asian countries. Chinese farmers use green manures, animal manures, and crop rotations to fertilize the soil. Most organic produce is cultivated by organized systems, not like other countries where they are supplied by individuals.
There are three main organic food production models in China: the first one is that big company leases land from 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 the organic producer association. Farmers set up an association by themselves to conduct large-scale organic food production.
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.
Through several brands, major groups such as Johnson & Johnson, Bellamy’s Australia and Danone are now firmly established in the country. Consumers buy infant formula and newborn supplements both in physical stores and online, through cross-border platforms such as Tmall (Alibaba) and JD Worldwide.
Similarly, the organic dairy industry in China has been growing steadily in recent years, driven by increasing demand for healthy and safe food products. It also represents most of the organic food market segment.
The increasing demand for organic dairy products in China can be attributed to several factors, including the rising awareness about the use of fertilizers, pesticides, and bovine growth hormone in conventional dairy farming practices, which has led consumers to opt for healthier options.
These dairy products are known to have higher levels of beneficial nutrients such as vitamins, omega-3 fatty acids, antioxidants, and conjugated linoleic acid (CLA). Additionally, the growth of the organic dairy market in China is being driven by factors such as rapid urbanization, rising disposable incomes, and concerns about food safety.
China’s organic fresh products industry, which includes fruits, vegetables, meat, poultry, and seafood, has 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 fertilizers. The Chinese government has been promoting the industry’s development by providing subsidies for organic farming and encouraging sustainable agriculture practices.
Regarding distribution, China’s organic food industry has been divided into hypermarkets, supermarkets, independent small grocers, internet retailing, direct selling, forecourt retailers and others. The market for organic food products in supermarkets has experienced significant growth in recent years, fuelled by consumers’ health awareness, rising disposable incomes, and concerns over the environment.
Leading supermarkets in the country, including Walmart, Carrefour, and Alibaba’s Hema Fresh, have responded to the increasing demand for organic products by expanding their offerings.
China represents the largest internet retailing market as well, with O2O models being the most efficient sales channels for organic food. 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.
Geographically, the consumption of organic products is mainly concentrated within the high-tier cities, such as Beijing, Shanghai, and Guangzhou. Moreover, online grocery shopping platforms like JD.com and Taobao have also entered the market, making organic food products more convenient and accessible.
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.
Chinese consumers' rise in disposable income is one of the primary drivers for the growth of a healthy diet. The Chinese people are interested in changing their food habits from heavy oil-tasting food to vegetarian-based, light, organic meals.
The organic food industry in China is skyrocketing, and there is a huge potential for organic food among Chinese people. However, producers must pay attention to consumers' needs and the unique characteristics of the Chinese market.
Physical health has risen to the top of Chinese consumers' interests, particularly since the COVID-19 pandemic. More and more customers are looking to feed their families with healthy, fresh, and organically grown 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, as 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 young Chinese Gen Z and millennials.
According to Statista, the market value of natural cosmetic products reached U$S 2.79 billion in 2022 and is projected to reach U$S 3.24 billion in 2023. Though the segment is relatively small in comparison to other countries, it presents great opportunities for international companies.
The use of natural products in cosmetics requires organic brands to go through formulas and regulations to assure customers that the product is safe. In China, there is no central agency that issues an organic certification, as it 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.
Millennials and Gen Z consumers, who are taking over this growing trend, are well-educated, open-minded, and care more about appearance and health. They are also becoming more aware of the environment and sustainability. The income of young people has also been rising, allowing them to spend more on luxury products.
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. Many are adopting healthier, plant-based diets and prefer organic cosmetic brands.
The natural and clean-label cosmetic products category has grown in popularity due to consumer awareness of the side effects related to animal-derived ingredients. A larger demand from mainstream consumers across the country for vegan-certified products is expected to push the revenue generation in the China market.
The natural cosmetics market includes all types of vegan, clean-label, organic, 100% plant-derived, non-GMO, and minimally processed beauty products.
The adoption of sustainable packaging of natural cosmetic products by larger players 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 Brazil’s 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.
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 environment-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, 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 the underlying products can be considered fraudulent. Analysts speculate that these rejections have something to do with China’s concerns over greenwashing.
Green trademarks play a significant role in environmental protection. Though some of them may not be registered as such in China due to the descriptive nature of the words used for the products, they can try an alternative strategy that indicates the quality of the product. Consumers should be able to rely on companies that manufacture organic, eco-friendly goods and promote sustainable development.
In 2020, a national standard on organic products covering mandatory requirements for production, processing, labeling, 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 standard also changed the requirements for the labeling of organic conversion products.
The new organic certification rules appear to have streamlined some certification practices. For example, an overseas organic production site which 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 organization 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, wolfberry has 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 end of 2022, were certified as organic in China, compared to more than 14,000 local products.
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