Country Analysis - I Introduction The organic food industry has been experiencing rapid growth during recent years due to shifts in consumer tastes

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I. Introduction The organic food industry has been experiencing rapid growth during recent years due to shifts in consumer tastes and preferences towards more eco-friendly products. The organic food industry has been booming in China and presents great market potential for US firms to capitalize on. The Chinese are already presented with numerous incentives to make the transition towards green production because it is not only profitable, but it has the government’s encouragement. II. Market Analysis Background The Chinese government has played a large role in the development of the industry within China. With the formation of the Organic Food Development Center of the State Administration of Environmental Protection of China in 1994, over one hundred thousand acres of land have been devoted towards the growing of organic food (Datamonitor 12). Japan and the United States have devoted less than twenty five percent of the acreage that China has towards organic food production (USDA 1, OCA 1). The growth of the industry in China has the support of the country behind it. In the past, farmers have used increasingly larger amounts of chemicals in the growing of crops. It has been realized that the use of these chemicals threatens the fertility of the soil. As a result, the use of these chemicals needs to be phased out so that the country’s growth and sustainability can be maintained (Sanders 204, Galegroup 6). Despite the country’s need to transition away from chemical usage, it remains difficult for independent farmers to enter into the market due to high barriers to entry. The weaning off of chemical use is an expensive endeavor. It takes approximately three years for the land to recover, during which the farmer is unable to produce as efficiently as before and crop yields are low. Even after recovering from this transition to producing green food, the green products do not sell at a premium unless they are certified by an accredited source to be deemed organic. The certification process itself is slow and expensive; many independent farmers cannot afford to make this transition. This has led many independent farms to form collective farms in order to achieve economies of scale and to divide up the costs associated with going green (Sanders 221-3). While these farms are going green, there is still slight chemical usage taking place on the majority of farms in China. Only two percent of crop production in China is one hundred percent, certified organic. The Chinese refer to those crops in which some chemicals are used as being grade A and the latter as grade AA. The levels of organic production for domestic consumption are largely determined by consumer tastes and preferences which are also driven by the income effect (Sanders 222). Consumer Tastes and Preferences
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This note was uploaded on 04/07/2008 for the course OPM 311 taught by Professor Rui during the Spring '08 term at Binghamton University.

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Country Analysis - I Introduction The organic food industry has been experiencing rapid growth during recent years due to shifts in consumer tastes

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