As consumer interest in organic foods grows, major food companies are entering this market segment.
Around the world, consumers are expressing greater interest in healthier diets that include more natural and organic ingredients without artificial additives and preservatives. Global sales of organic food have surged 200% over the last decade, according to research institutes, and more than 65 countries – including the United States – have enacted labeling requirements to identify foods containing Genetically Modified (GM) ingredients to consumers.
Major food suppliers are also seeing significant demand for “clean deck” foods featuring labeling that lists only readily identifiable ingredients rather than naming a long string of chemicals. Organic products now account for over 5% of all food sold in the United States, totaling nearly US$50 billion in sales in 2016, according to the Washington DC-based Organic Trade Association (OTA).
This trend can be seen in Taiwan as well, as consumers respond to the seemingly endless stream of food scandals by seeking out healthier, less processed, natural and organic foods from trusted sources. Consumers are also increasingly selecting organic foods that are deemed safer than their conventional counterparts, and this trend is likely to mount as the market broadens to include not only the more affluent but also more young people and middle-income families.
The government estimates the Taiwan organic market to be worth over US$156 million, mostly in locally grown organic rice. The total market size for packaged organic food and beverages in 2015 was US$24.2 million, according to OTA estimates, with per capita spending on organic packaged food and beverages in Taiwan of about US$1.
Green and Safe, a purveyor of organic foods for over a decade in Taiwan, has shifted its business model to keep up with demand as the market has grown. Previously the company sourced organic vegetables from farms for sale in “organic boxes” that were delivered to customers’ doors complete with recipes and meal ideas. The model was aimed at working mothers concerned about the quality of food that they were providing for their families but unable to find the time to seek out quality organic ingredients by themselves.
“Around two years ago we found that our customers’ habits and needs had changed,” explains Peggy Chang of the marketing department of YFY Biotech, the parent company of Green and Safe. Customers are no longer content to wait for a delivery but want to see, touch, and even taste the product before making a purchase, she notes. “Also, we notice that our customers’ age is getting younger and younger, and they don’t cook every day – maybe only once a week – so they don’t need an organic box because it’s too much.”
Now, in addition to continuing offer delivery of its “organic box,” Green and Safe is focused on its five organic grocery stores scattered around Taipei City, three of which are bundled with an organic restaurant. “If you eat something in the restaurant that you like, we will tell you what the ingredients are and how to make it yourself,” Chang says. Frozen prepared foods comprise a sizable portion of Green and Safe’s revenues, as do imported packaged organic food.
Taiwan’s largest food manufacturers, including Uni-President Enterprises and Union Rice Co., have taken advantage of this trend by launching organic lines. At Ying Chuan Food Co., organic packaged foods and drinks account for 8.2% of total sales. The number of organic retailers has expanded, and online sales continue to grow.
Yet, despite these trends and the clear concern among consumers over food safety, Taiwan actually lags behind global and regional markets in the uptake of organic and natural foods. OTA estimates that Taiwan will see growth in organic packaged and prepared foods of less than 6% annually from 2015 to 2020 – trailing the rest of the Asia Pacific region, which is forecast to rise by 13% annually. The association notes that although concerns over food safety are driving sales in organic foods, premium pricing continues to deter many price-conscious customers.
“Because we want to let our customer know us, we have lowered our prices and changed the size of our products to meet the needs of smaller families – and smaller sizes mean cheaper prices,” says Green and Safe’s Chang. “So consumers won’t think that organic is very expensive.”
Nevertheless, the premium pricing attached to organic foods is seen in all markets and in many respects simply reflects the higher costs of producing foods organically, without artificial fertilizers and pesticides. A study by University of California Berkeley researchers, published in the British biology journal Proceedings of the Royal Society B, found that yields from organic farms averaged 19.2% lower than in conventional farming – a smaller difference than previously suspected, but still significant. The lack of preservatives also means shorter shelf life and more complex storage and shipping, likewise adding to costs.
A survey in 2015 of popular retailers in the United States by Consumer Reports noted that organic foods were on average 47% more expensive than their conventional counterparts, although it also noted that the price ranges varied considerably and that in several instances the organic version was actually cheaper. The recent acquisition of organic supermarket chain Whole Foods by online retail giant Amazon has many analysts predicting that prices for organic food in the United States will soon start dropping.
A bigger problem for Taiwan, however, is simply that “there’s not enough organics in the market,” says Louie Silveira, regional general manager for Costco Taiwan. He notes that in the United States, organics comprise some 20% of sales, while in Taiwan “we’re lucky to get 1%.” A major reason for the low number, he says, is “because we aren’t able to get foods in on time.”
Currently, less than 1% of Taiwan’s total agricultural land of 830,000 hectares is considered organic. The Executive Yuan has submitted a bill to the legislature that would seek to increase the amount of farmland certified as organic to 2% by 2020 by offering advice and subsidies to the nation’s mostly small organic farmers. Many of these farmers lack the marketing savvy to get their products to market, and the special requirements of organic food – shorter shelf life, for one – make moving the product that much more challenging.
Green and Safe supplies roughly half of the vegetables available in its stores – mostly green leaf vegetables, as well as white and sweet potatoes, and taro – from its two organic farms in Yilan with a combined area of 50 hectares. But for the remainder of its locally sourced products, it works with a network of around 400 organic farmers scattered throughout Taiwan who rely on Green and Safe to provide the channel for getting their produce to market.
“There are a lot of retail channels in Taiwan but farmers often aren’t able to connect with them, maybe because they don’t know the right person to contact” or the price offered is too low, observes Green and Safe’s Chang.
Silveira says that Costco has been working with local farmers to make more organic foods available to consumers. “We are in the infancy in Taiwan in terms of organic,” he says. “We do organics events a couple of times a year in which we will put as many organic foods as possible in the store at one time. The idea is to wake up the consumer to the fact that they can get organic oolong tea, organic honey, and many other choices.”
Certification of organic farms is done by the Tse-Xin Organic Agriculture Foundation (TOAF) under the auspices of the government’s Council of Agriculture (COA), which stipulates that a farm must cease using synthetic pesticides and fertilizers for three years before becoming certified. Supporting these farmers during this transition is considered critical for their success. “If they cannot get through this three-year transition period, then they will never go organic,” says Chang. Costco likewise takes pains to support farmers during this stage.
Adding to the lack of available organic product on the market are regulatory restrictions that importers complain are overly rigorous and out of step with global standards. AmCham’s Retail Committee, for example, notes that the Taiwan Food and Drug Administration has set permissible maximum residue limits (MRL) for organic imports at zero. Deeming this policy “an impossible standard” that ignores “background contamination in organic products,” the committee has urged the TFDA to follow the more reasonable U.S. standard of MRLs below 5% of the limit for conventional products.
Dealing with the GM issue
Government policy has had more of an impact on the acceptance of GM foods and ingredients in this market than on promoting organic foods. In late 2015, urged on by a campaign by the civic group Homemakers United Foundation and several legislators, an amendment was passed to the School Health Act that banned all foods containing GM ingredients from school lunches, which constitute a big business in Taiwan. The ban was opposed by many of the major food importers and manufacturers on the grounds that it flies in the face of scientific evidence that GM foods are safe, and therefore acts as a trade barrier. Taiwanese are heavy consumers of soy products, including tofu and soy sauce, and due to the insufficient agricultural land in Taiwan, nearly all of its soybeans are imported, particularly from the United States, where up to 94% of the total soybean crop is GM, according to the U.S. Department of Agriculture.
The anti-GM sentiment extends to the general consumer market, and the government now forces producers to prominently label foods that contain at least 3% GM ingredients. Even foods that use genetically modified soy as a processing agent or blended ingredient must label their products as GM, even if no trace of GM can be found in the final product.
Kimlan Foods Co., one of Taiwan’s leading soy sauce makers, consequently changed its entire production line from a mix of both GM and non-GM to entirely non-GM. “We were one of the first to test out non-GM, and then we were the first to switch the entire production line to non-GM,” notes Min Chung, the company president. He says that the move was motivated both by customer requests and the new labeling requirements enacted by the government.
Whether these shifts in the market away from GM foods and towards organics will actually result in healthier consumers remains an open question. Many studies indicate that organic foods are no more nutritionally advantageous than conventional foods, while GM foods are often indistinguishable from non-GM foods, although advocates can cite other studies that link both non-organic and GM foods to increases in allergens and cancer rates. Regardless, the focus on safe foods hopefully will at least minimize the incidence of food scandals in the market.