Affluent Chinese, alarmed by a slew of food-safety problems in recent years, are increasingly willing to spend a premium on what is served for dinner. This demand has fueled the growth of the organic-food market.
International practice defines organic food as that which is grown and processed without pesticides or additives. In China, produce can be identified as “organic,” “green” or “non-pollution” depending on its exposure to chemicals.
Investors in the country betting big on the organic concept have poured money into food producers and distributors. Some are wrestling with a conflict between scale and quality, but this has not dampened their enthusiasm.
“Every time a food-safety scandal surfaced, our sales went up,” said Yu Chongzheng, chairman of LohaoCity, a specialty shop that sells organic and other health food in Beijing and Tianjin.
Profits grew fastest in late 2008 and 2009, he said, after domestic dairy producers were found to be using melamine, a chemical that causes kidney problems, in order to fake protein counts in their products.
LohaoCity was still losing money seven years into its operation, but deficits shrank each year, Yu said. He expected the company to break even in 2013.
That would be good news for SAIF Partners, a homegrown private-equity (PE) fund manager that owns 30% of LohaoCity.
SAIF has also invested in the e-commerce platform of state-owned food supplier COFCO Group. The website caters to well-off customers by offering high-end products, including organic foods.
Experts agree organic food has a huge potential in China. Du Xiangge, chairman of the China Federation of Organic Agricultural Movements (CFOAM), a trade group, said the industry could grow ten-fold over the long term.
Only 1.9 million hectares (4.7 million acres) of land are used for growing organic vegetables in the country, he said, less than 1% of all farmable land. It is possible that the ratio could reach 5% over time, he said.
Shao Jun is a partner in DT Capital, a PE firm that invested in Tony’s Farm, a Shanghai-based organic producer. He said the industry’s revenue would grow by 20% to 30% annually in the current stage of development, meaning sales would double roughly every three years.
