TRADE:Chinese retailers face challenges as organics wins more consumers

July 2011

Organic and natural food in China is a small sector that is benefiting from the middle-to upper-income, health-conscious consumer and overseas returnees, while misinformation, lax regulations and questionable business practices are major stumbling blocks, according to a report published by the Hong Kong TDC in May.

Sales have been growing at an average rate of 35 percent year-on-year for Beijing’s LohaoCity Organic Store. There are eight outlets in Beijing, six in Shenzhen, four in Chengdu, and one each in Guangzhou and Tianjin, with plans to expand in different parts of China. However, it's a daily challenge to ensure all produce from its suppliers is free from chemical and other life-threatening ingredients.

Our position is clear. We require our suppliers to be certified by the central government agency (China Green Food Development Center). We do not accept certification by municipal or provincial governments," said Terry Wu, general manager at LohaoCity Organic Store.

Foods from suppliers are put through stringent quality control by LohaoCity's purchasing department, which will also ensure clear labeling in accordance with local and international standards. A clause in the purchase contract also ensures suppliers sign a guarantee to comply with China's organic regulations.

If they (the suppliers) can carry out this commitment, we'll stand beside their products. As retailers, we have to be responsible to our consumers," said Mr Wu. "If there's no real policy at the national level, where should consumers go? Retailers, suppliers and consumers have to develop trust. There's hope, however.

Food safety scandals have helped to divert more sales to organic and natural produce. Despite this, China's organic food market faces an uphill challenge in a country where farmers are used to pesticides and chemical fertilizers to beef up production and to keep weeds at bay. It is still uncommon to find organics in the marketplace and difficulty locating reliable organic farmers or suppliers is affecting supply and demand.

Baby formulas are a major market due to ongoing quality scandals with domestic baby formulas. A report from the China International Mother-Infant Child Products Fair held in Beijing in April said traditional manufacturers from Australia, France, Holland and New Zealand took up nearly 70% of the baby formula section. Sales of baby formula in China reached Rmb50 billion a year, while baby formulas are the second most popular product for online shoppers.

Source: Organic Advantage