x Abu Dhabi, UAEMonday 22 January 2018

Industry battles for organic growth

The young niche market within China's agriculture sector faces challenges including quality control, past scandals in Chinese produce, several different accreditation systems and high price

Workers package organic foods at an Organic Farms facility north of Beijing. Daniel Bardsley / The National
Workers package organic foods at an Organic Farms facility north of Beijing. Daniel Bardsley / The National

The land north of the Chinese capital of Beijing, managed by a company called Organic Farm, is nothing if not attractive. Chickens scratch in the dirt, greenhouses glint in the sunshine and mountains provide a spectacular backdrop. It is a rural idyll a world away from the bustle and pollution of Beijing.

But the tranquillity of the scene belies the sometimes turbulent development of China's organic food industry. Myriad food scares in the country have bred a cautious consumer population that might be keen to embrace the apparent safety associated with the organic version. Consumers looking to buy organic are faced with quality and authenticity issues, multiple accreditation systems and high prices. These, admit those working in the industry, have acted as a drag on growth.

"Some Chinese [organic food] exporters have made a bad impression," says Li Xiaoxue, the vice general manager of Organic Farms. "There are lots of suppliers and farmers doing the right thing, but it's really hard work because we have to compare [our prices] with the conventional products." China is not an obvious place for growing organic food, beset as it is with severe environmental pollution that affects the air, soil and water supply. It has an agricultural system that relies heavily on the use of phosphate-based fertilisers, often at levels that farmers in some other countries would baulk at.

Yet the country has long been a major exporter of organic food, especially beans and seeds, and by 2006 had reached second place in terms of the amount of land under organic management. Some producers are focusing on the country's domestic consumers who, with their increased disposable incomes thanks to rapid economic growth, may be more likely to buy organic produce than before. Organic Farm is one such company trying to tap into the local market. Founded in 2000 by Ms Li's mother, Conghong Chen, it has six farms across the country, including one each near Guangzhou, Beijing and Shanghai, three of China's "first-tier" cities where the more sophisticated local consumers are thought to be likelier than average to buy food produced without chemical fertilisers or pesticides.

The company sells 60 different vegetables, seasonal fruits and 30 types of grains and beans, some of them grown with fertiliser made from waste vegetables and sheep and chicken manure. Turnover last year was 65 million yuan (Dh34.9m), driven by sales to major supermarket chains such as Carrefour and Tesco. While Organic Farm puts labels on its foods so customers can tell which farm it came from, Ms Li admits that for grains and beans in particular, traceability is difficult and it was easier for unscrupulous suppliers to label non-organic produce as organic.

Indeed, the whole of the authenticity of Chinese organic food has dogged the sector. In a market where fakes are common, it is perhaps unsurprising that the organic insistence on the absence of chemical pesticides and fertilisers has not always been adhered to. Traces of pesticides were found in organic spinach exported to Japan and there have been many cases domestically of conventionally grown crops being labelled as organic.

"Some people, they don't trust the organic produce; not just one product or one company, it's the whole industry," Ms Li says. Tom Wang, the chief media officer for the pressure group Greenpeace in China, says there have been cases of regular produce being bought at markets "put into a different package and claimed to be organic". "You cannot control that or we don't have an established system to control this," Mr Wang says. "It's understandable why consumers are quite suspicious or sceptical."

Linked to the issue of enforcing standards is the problem of defining them. The Organic Food Development Centre (OFDC), a government standards organisation founded in 1994 and based in Nanjing, says it is one of 24 organic certification bodies in the country. But Mr Wang describes the labelling system as "very, very vague". "If we want to talk strictly speaking, there isn't really a national standard or ? certificate," he says.

Despite there being many organisations that offer organic accreditation, Tang Jian from the OFDC says they operate under the government's China National Accreditation Service for Conformity Assessment, which provides comprehensive supervision of the industry. "It's very clear and easy to recognise," Mr Tang says of the logo that identifies food as organic, the use of which, he adds, is "under control".

But Chinese consumers also have to contend with different names for various products, including "Green Food", a name given to food produced with smaller amounts of chemicals, rather than none. Mr Wang says a lack of clarity in terms of labelling has "obviously" held back sales of organic produce in China. He also says subsidies for fertilisers have helped magnify price differentials between organic and non-organic produce.

"Still the government supports the farm [fertiliser] subsidies," Mr Wang says. "That's quite a clear signal from the government - there isn't support." While there have been instances where retailers have apparently moved too fast for the market - such as O Store, an outlet that opened to cater for Shanghai's sophisticated consumers by selling just organic produce, only to close as a result of poor sales - China's organic sector is growing despite the problems it has faced.

Producers say sales of the country's organic produce, which three years ago were valued at 6.17 billion yuan, about one third the level that year of the UK, a country with about a 20th of China's population - are increasing significantly. Organic Farm reports annual growth of between 20 and 25 per cent over the past four years, while analysts have also seen expansion. Marie Jiang, a retail analyst at JLM Pacific Epoch in Shanghai, says organic food is "gaining more and more popularity" in China and supermarkets are keen to stock it.

But Ms Jiang cautions that high prices make it difficult for average consumers to buy organic produce. "The consumers also need more education on the benefits of organic food and packaging so they can see there's more quality," she says. For the sector to progress, Ms Jiang says more rigorous management by supermarkets is required to prevent conventionally grown produce being falsely labelled as organic.

"The quality control for supermarkets will be an important issue to convince more consumers how much benefit they should get from organic food," she says. Ms Li says the degree to which the industry still has to develop in China is illustrated by the range of goods on sale in the company's farm store. There are fruit juices, boxes of breakfast cereal, tea, coffee, honey and even cosmetics. The problem is, nearly all of them are imported. While basic organic fruits and vegetables can be found in the major cities, other organic products are harder to track down.

"There's a very poor product range [made in China]," she says. "There are a few organic products we can find in China, but the things people use every day, you still cannot find. "Definitely we're looking forward to Chinese suppliers [being able to supply the goods], that way we can lower all our costs. It's about making the prices acceptable to the customer and supplying something to the Chinese tastes."