Editor’s note: Hope Lee is senior beverages analyst at market research firm Euromonitor International, London.
Asia-Pacific consists of economically diverse consumer markets. When it comes to food and beverage brands and the use of ethical labels, individual markets show distinct characteristics. Clean labels form an important category in China and research shows Chinese manufacturers and consumers value clean labels, particularly GMO-free and no artificial ingredients, more than sustainable sourcing labels. In this article I will highlight key label trends in China and Japan, making comparisons to the U.S. and the U.K.
Clean labels and the global food trend
According to Euromonitor International’s Ethical Labels database, retail value sales of food and beverage brands carrying at least one clean label amounted to $23 billion in Asia-Pacific in 2015, with oils, fats and dairy being the largest contributors. Clean labels are the first displayed by many food and beverage brand owners, showing the added value benefits in making certain labels prominent in order to attract consumers. From a consumer’s perspective, clean labels are fairly easy to understand, at least conceptually. Compared to sustainable sourcing labels (such as fair trade, Rainforest Alliance and UTZ Quality Foods), clean labels appear to be personal, immediately relevant to consumers’ health and well-being. In China, particularly, food safety is an everyday concern and clean labels send a more powerful message, influencing purchase decisions. Regular food safety scandals spreading in the Chinese media have caused widespread concern.
Ian Noble, senior research and development director at Mondelez, summarized the global food trend in a presentation at the Food is Great Business Summit, which referenced Food System 4.0, a classification chart encompassing four steps: provision (first); safe and affordable (second); well-being (third); and sustainability (fourth). In major emerging markets such as China and Indonesia, as well as in rural areas, most consumers are at the first step, provision. As demonstrated by the clean label sales data above, urban consumers are progressing from the second to the third step, while sustainability, the fourth step, is less of a relevant concern for average consumers. In Japan, arguably the most affluent and sophisticated consumer market in Asia, sustainability labels such as Rainforest Alliance have a relatively higher presence than with its neighbors. Food and beverage brands in Japan with the Rainforest Alliance logo fetched retail sales of $1.3 billion in 2015.
GMO-free
Our findings show that brands carrying the GMO-free label generate the most sales in the clean label category in Asia-Pacific overall. Genetically modified organism (GMO) plants are plants with genetic makeup that has been altered to produce desirable traits such as resistance to frost or pests; hardiness for transport; increased nutrition or yield; etc. As GMOs are a regulated practice in terms of agriculture application, different national governments have different approaches, with varying outcomes.
In the U.S., 80 percent of all processed food contains GMOs. Our data shows that China saw food and beverage brands carrying the GMO-free label fetch retail sales of $7 billion in 2015, 47 percent higher than that of the U.S. In China, prominent brands such as Wilmar International Limited’s Arawana and Shanghai Liangyou Group Limited’s Haishi displayed GMO-free labels. In the U.S., Blue Diamond Growers’ Almond Breeze and WhiteWave Foods’ Silk Pure Almond are prominent brands bearing GMO-free labels. Danone’s acquisition of WhiteWave and Coca-Cola’s investment in Suja Life directly endorsed the potential for GMO-free food and beverages.
What is common though, in many markets, is the consumer call for labelling transparency and food traceability. Consumers want to know what their food and drinks actually contain, as well as its country of origin. Consumers need the adequate education on the potential impact of GMO, as the discussion and dispute continues, so they can make informed decisions. This trend represents both a challenge and an opportunity for manufacturers.
Apparently, the Chinese government’s concern for food security does not necessarily match some urban consumers’ food safety worries. Young, urban, educated consumers may not be fully convinced of the safety of GMO products while the majority of rural consumers may have no clear idea of the implication of the GMO agriculture practice. As the GMO debate between the government, scientists and academies continues, some people question if traditional, low-tech farming practices are sufficient and efficient enough to feed the growing population in China.
In terms of labelling, in late 2014, new rules were introduced and terms like “healthier” and “safer” in advertisements for GMO-free products were banned in China. The new advertising rules were meant to educate the public and alleviate concerns about GMOs. GMO-free labelling is also now forbidden if genetically modified versions of the foods do not exist in the country. For example, some peanut oils in China were labeled GMO-free, even though genetically modified peanuts have never been produced, according to a China’s state-owned press.
Exporting ambitions
GMO labelling can be a complex issue and is closely linked to a given government’s inward or outward strategic thinking and pragmatic approach. China’s GMO outlook may change upon the pending ChemChina takeover deal of the Swiss Syngenta by the end of 2016. ChemChina’s acquisition of Syngenta would be China’s biggest outbound transaction. North America accounts for more than one-quarter of the Swiss company’s sales, according to an article published in the Financial Times in August 2016. Nevertheless, if the Syngenta deal finally goes through, China may become the world’s biggest GMO producer. This could in turn create labelling opportunities for brand owners wishing to target consumers interested in GMO-free food.
In contrast, the Russian government has announced plans to ban all GMO agriculture, and is determined to become a major exporter of GMO-free food. In practical terms, China is keen on improving agriculture efficiency to feed its 1.3 billion population, while Russia appears export-orientated given its large-scale export of wheat.
Sustainable sourcing labels
Generally speaking, ethical labels relating to sustainable sourcing have little consumer awareness in Asia as compared to Western Europe and North America. In China, manufacturers and consumers have little awareness of fair trade, Rainforest Alliance, UTZ, Ethical Tea Partnership and various manufacturers’ in-house sustainability programs such as Nescafé Plan. Euromonitor conducted a string of trade interviews and discussions with leading certification auditors, concluding that Chinese suppliers aiming for the export market are keen to get the relevant international certification – they see this requirement as a “green trade barrier” which they must overcome to achieve their exporting purpose. This is particularly true for green tea suppliers, as China is one of the largest green tea producers and exporters.
According to Euromonitor’s Ethical Labels database, in the U.K., green tea brands such as Twinings, Clippers and Tetley have sustainable sourcing labels. Twinings hold a leading position in terms of retail value sales. According to our data, green tea is perceived as naturally healthy in the U.K. and is set to grow by a compound annual growth rate of 14 percent from 2015 to 2020, suggesting a good commercial opportunity. The U.K. has a mature tea market, which fits the sustainability step of Food System 4.0. It is not surprising that some U.K. consumers are consciously making their purchasing decision based on whether products display ethical labels. From the Chinese green tea suppliers’ perspective, it is imperative to get their plantation and produce certified by internationally-recognized labels if the company’s wish to benefit from the global green trend.
In contrast, such labels are not particularly obvious on major green tea brands in either China or Japan, the world’s leading green tea consumers. In China, products aimed for domestic consumption are unlikely to display international ethical labels as consumers, typically, do not yet value sustainability practices. The government, consumer watchdogs and media have not started spreading these sentiments in the same way as is increasingly evident in the West.
The development and evolution of ethical labels is a highly complex issue. It is related to consumer market development, a government’s strategic planning and consumer perception. While the concept of clean labels has arrived in China, the labelling of international sustainable souring has a long way to go to penetrate the Chinese market. Brand owners need to establish trust between the brand and the consumers. Consumer trust has become an intangible asset and clean labels can perhaps help serve the purpose.
Note: Euromonitor International’s clean labels list includes: all natural, no artificial additives, no artificial colors, no artificial preservatives, no artificial flavors, no artificial sweeteners, GMO-free, BPA-free and no monosodium glutamate (no MSG).