Organic Agriculture Investment: Only Looks Nice in China?

"China's market capacity of organic agriculture produces will reach USD7.94 billion (RMB50 billion) in 2015." Professionals predicted at Organic Expo Beijing 2011 held during 17-19 November 2011. "The global demand for organic agriculture produces has been increasing with a CAGR of 20%-30%." a responsible official of the Organizer of Organic Expo Beijing 2011 estimated, according to CCM’s February issue of AgriChina Investor.

 

According to CI Consulting, a leading professional institution in the field of industry research in China, certified organic farmland in China reached 2.45 million ha. in 2010. The sales value of organic agriculture produces was USD2.15 billion (RMB14.54 billion) in 2010, and the export value was USD95 million that year.

 

The expectation of USD7.94 billion (RMB50 billion) in domestic market indicates an over 28% year-over-year growth of the sales value of organic agriculture produces in 2011-2015, based on the estimated sales value of organic agriculture produces in 2010.

Chinese organic agriculture is based on traditional sustainable farming practices which started thousands of years ago. In China, records of sustainable farming dating back 4,000 years mention several organic practices including crop rotation, composting and diversified production. Chinese modern organic agriculture began in late 1980s, initially driven by environmental concerns and later by export opportunities.

Domestic market of organic products began developing in mid-2000s and has expanded very rapidly, especially in recent five years when some food scandals have been disclosed.

The significant growth of organic agriculture produce market is attributed by the following reasons:

First, the steady and rapid growth of China's economy in the past decades has led to the increasing number of rich people who have higher demand on food quality.

Second, media reports about food scandals and risks on GMO foods help to promote the consumption of organic produces in China.

Third, China's depressed export of organic produces in the past few years has led to significant investments in developing domestic market, accelerating the growth of domestic organic produce market.

Because of the high expected growth potential in China's organic food market, organic agriculture projects have attracted more and more PE/VC investors.

 

Shanghai Tony Agriculture Development Co., Ltd. ("Tony's Farm"), now Shanghai's largest organic produce player, acquired a VC investment of USD10 million from Tsing Capital in November 2010. In late 2011, Tony's Farm has successfully achieved the second round capital-raising from four PE bodies (DT Capital, Delta Capital, KPCB and HTO Capital). It's reported that Tony's Farm has screened out the final four investors from more than ten interested investors in the second round capital-raising.

  

YMT Organic Farm Co., Ltd., an organic vegetable producer found in Shanghai in 2008, has successfully raised a capital of USD3.17 million (RMB20 million) from PE bodies in late 2011.

However, the high growth potential in domestic demand for organic agricultural produces, predicted by many professionals, can't cover the plight of current organic food market.

 

There were many reports on the depressed market that organic agricultural produces encountered at supermarkets. The main reason for the depressed sales is the high price. The price of organic agricultural produces is usually 1.5-3 folds of that of traditional products, and it can't be afforded by most residents.

 

Another key reason is that some of the marked "organic products" with high price may be not real organic products, and there are some reports on that. The key reason for the false mark of organic product is the loose certification supervision system in China.

 

According to the data from the Certification and Accreditation Administration of the People's Republic of China, up to 23 February 2012, there are 23 active certification bodies who own the authority of offering organic product certification service. There are 7,934 active certifications, of which 7,877 are achieved by domestic companies and 57 achieved by overseas ones.

 

Many professionals disclosed that some certification bodies of organic agricultural produces haven't strictly followed the certification principle and process.

Food scandals and false labels of "Green food" or "Organic food" have had a serious and negative impact on the trust of Chinese consumers in domestic food safety and guarantees, such as certification.

 

Some consumers, especially those high-end consumers, prefer to buy imported products or those with foreign certifications which are viewed as more trustworthy. And committed organic food consumers pay greater attention to certain product brands and suppliers.

As to most local producers of organic agriculture produces, sales of products is the biggest problem, and thus it's hard for them to get investment return within a normal payback period as traditional agricultural investment does, let alone the expansion of capacity.

With citizen's increasing concern on "food safety" and enhancing purchase power, more and more Chinese residents will choose organic agricultural produces. However, the contribution of increasing demand to China's organic agriculture industry is mainly determined by residents' disposable income, the cost-effectiveness of organic agriculture produces and residents' confidence in the quality of organic agriculture produces. Besides, the convenient use and accessibility are also important factors that impact consumers' purchase.

 

Chinese government should regain consumers' confidence by introducing stricter rules and regulations, focusing on production management supervision and certification body supervision, etc.

 

Meanwhile, producers of organic agriculture produces should rely more on quality control, brand consolidation and sales mode improvement in the future.

Source: AgriChina Investor

http://www.cnchemicals.com/Newsletter/NewsletterDetail_192.html

Content of AgriChina Investor 1202:

Multinational companies eye coffee market in China

Pengxin seeks overseas expansion in dairy industry

Xinjiang Chalkis and Yihai Kerry failed in further cooperation

Who will be the RMB10 billion pesticide player in China

2011 Import of agricultural produces surges in China

Scale breeding to play more important role in China's pig industry

Chinese rapeseed industry confronting serious loss

Profits of Chinese dairy industry up 34.70% in 2011

Pesticide demand expected to increase by 4.37% in 2012 

China raises grain purchasing price in 2012

2011 trade of aquatic products maintains fast growth in China

Brand value of Yantai apple rises to USD1.46 billion

Organic agriculture investment: Only looks nice in China?

China released Draft of Grain Law to safegurad grain security

China instructs development of potato industry till 2015

Agricultural insurance in China to be promoted by policy support

Agricultural logistics' problems become increasingly prominent

……

AgriChina Investor, periodically published on 25^th every month, offers timely update and close follow up of agriculture investment in China, analyzing market data and trends, as well as related policies. Major columns include investment environment, investment dynamics, market watcher, market review etc.

If you are interested in AgriChina Investor, please do not hesitate to contact us by +86-20-37616606, or email us at econtact@cnchemicals.com.

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