When it comes to the market and where to invest your cheddar, few know better than our business experts at DezanShira. Maybe the health food kick is the place for your bread.
Are organic products safer than other products? Are foreign imports really worth paying two to three times more? These are questions conscientious Chinese consumers may ask when in one of the international supermarkets that dot the top tier cities. Given the food scandals and distrust towards domestic products, many middle class Chinese consumers have shown to be willing to shell out extra cash for health foods and imports to quell anxieties over domestic food safety. This has created opportunities for foreign investors, especially those in organic and health foods.
China’s New Food Safety Law
For some, China’s harsh new food safety law, which officially takes effect October 1, can’t be implemented too soon. Politicians hope it will signal a new direction for the food industry by holding manufacturers accountable for food additives and introducing harsh fines for safety violations. For investors in food business, the law means more stringent requirements for product regulation and certification, especially for organic and health food products.
Food Imports: A Growing Market
The increased demand for foreign food imports brought on by domestic food scandals is expected to grow. Foreign food imports increased annually by 15 percent in recent years, and the amount has more than quadrupled in the last ten years. By 2018, China is expected to become the top importer of foreign food products, with the total value of food imports set to reach RMB 480 billion. Edible vegetable oils, cereal and milk products account for roughly half of all food imports.
Organic Food Items
Of particular interest are organic food items. Once seen as a luxury item, imported organic foods are an increasingly accessible option. The organic food market in China has tripled since 2007 to currently account for 1.01 percent of total food consumption, which is still lower than the 5 to 8 percent of the market in areas like Europe and the U.S. Current rough estimates for the market value of organic imports are around US$20 million, with consumers typically middle and upper class Chinese with children. In a consumer study carried out on 204 Chinese organic consumers in Beijing and Shanghai, 71 percent were ready to pay a premium of 20 to 50 percent for organic products. The top five reasons were all related to food quality assurance.
China’s harsh new food safety law … can’t be implemented too soon.
To meet growing demand, a number of high-end specialty stores have opened across major cities. Ole Supermarkets, a new high-end supermarket chain with imported goods accounting for over 70 percent of its products, is expected to reach 50 stores next year. Supermarket chains like Wal-Mart and Carrefour have also been banking on demand and have even taken measures to assure quality of products distributed. Carrefour invested RMB 5 million to establish a food safety lab to test before distribution, and Wal-Mart’s green and organic products come directly from its own farm cooperatives in China, through the Direct Farm Program it established in 2007.
Online Retailers and O2O Platforms
Chinese consumers are increasingly turning to online retail and O2O (online to offline) platforms for food and beverage demands. There have even been a number of online retailers specializing in organic products, like FieldsChina.com and KateandKimi.com, that have opened up to meet growing demand for natural and organic products. Fields China has delivered to over 200 cities in China so far, showing that demand for health foods reaches far beyond the scope of China’s top tier cities along the east coast. Online distribution platforms are seen to be particularly promising for organic and specialty foods, as they can help cut product costs and can provide more product guarantees—two of the biggest hurdles that organic products face in becoming more widely consumed.
Despite the new food safety law’s harsh penalties for safety violations, the government may find it difficult to reduce food safety concerns that sometimes go beyond harmful food additives and manufacturing malpractice. In June 2014, a national five-year soil survey revealed up to 40 percent of rivers and 20 percent of land is polluted. Consumers are all too aware of these harrowing facts.
Since its establishment in 1992, DezanShira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.
For inquiries, please email us at email@example.com. Further information about our firm can be found at: www.dezshira.com.