U.S. ORGANIC EXPORTERS HAVE A GROWING MARKET IN

UNCLAS SECTION 01 OF 04 TAIPEI 003606

SIPDIS

USDA FAS FOR CMP/PPD/TRINGE
STATE FOR EAP/TC, EAP/EP
PLEASE PASS AIT/W

E.O. 12958: N/A
TAGS: ECON EAGR PINR EINV TW
SUBJECT: U.S. ORGANIC EXPORTERS HAVE A GROWING MARKET IN
TAIWAN


1. (U) Summary: U.S. exporters of organic products will see
a growing market in Taiwan. In the past, inadequate
labeling rules have made it difficult for consumers to
determine whether a product was truly organic. Three new
changes could increase consumer confidence in organic
products. First, a new Agricultural Safety bill is expected
to consolidate regulations of organic products under one
government agency. Second, new labeling rules for organic
products are scheduled to go into effect in January 2006.
Finally, new retail opportunities are opening up in the form
of upscale supermarkets that specialize in organic/natural
foods. End Summary.

Taiwan's Organic Standards
--------------


2. Organic rules in Taiwan are similar to USDA organic
standards. Taiwan's organic standards distinguish between
"organic" and "adjusted organic." Organic crops use no
chemical pesticides, herbicides or chemical fertilizers.
Organic methods must be used for three years before a crop
can be certified organic. For "adjusted organic," there is
limited use of pesticides. The adjusted organic standard
allows for pesticide use only during certain times of the
year. Organic livestock and poultry must be raised on
organic feed. They cannot be fed antibiotics, animal by-
products, growth hormones or genetically modified organisms
(GMO).


3. Currently, the government has licensed four non-profit
entities to certify organic farmers. Farmers can apply to
any of the four entities for certification. Once the
farmer's land passes inspection, the farmer can label all
products with a seal from the organization that inspected
them. The seal can only be applied on certain products:
vegetables, fruits, tea and rice. This seal lets consumers
know that the product has been grown in accordance with
Taiwan Organic standards. The four certifying entities: FOA
(Formosa Organic Association),TOPA (Taiwan Organic
Production Association),TOAF (Taiwan Organic Agriculture
Foundation) and MOA (Mokichi Okada Association). Based on
an AIT Officer's personal observations, MOA is the most
widely recognized label in Taiwan. MOA is an international
organization based in Japan that promotes organic farming.

Lack of Labeling Regulations Inhibit Organic Market
-------------- --------------


4. Although the organic standards are stringent, confusing
labeling laws have prevented the market from growing. "Many
people want to buy organic products but don't know who to
trust. Anyone can use the word 'organic' without penalty."
said James Su, president of FOA.


5. There are three reasons why labeling regulations are
confusing to customers. First, compliance is voluntary.
Farmers do not have to be certified to claim they are
organic. There is no restriction on using the word
"organic" to promote one's product. Some producers have
developed their own organic standards instead of going
through the expense of being certified.


6. Second, there are a several different organic labels
available to farmers. The four official certifying entities
each issue their own seal. This creates confusion for
customers inundated with a myriad of different seals on
organic products.


7. Third, the current certification seals can only be used
on vegetables, fruits, tea and rice. Products such as meat,
poultry or processed foods cannot be certified in accordance
with Taiwan organic standards. Selena Bai, an official from
the Council of Agriculture, Taiwan's equivalent of the USDA,
told AIT/T that certifying livestock and poultry requires
additional investment because of the training required. Bai
also said that no certifying entities have applied for the
required additional training. For products that cannot be
certified, consumers have to rely on the claims of the
manufacturer.

New Agricultural Food Safety Bill in October 2005
-------------- --------------


8. COA officials admitted that the lack of strict organic
labeling rules is an impediment to developing a robust
organic market. Selina Bai, said "All of these concerns are
addressed in the new Agricultural Food Safety Bill we are
introducing to the Legislative Yuan in October 2005."
According to Bai, the main problem is that responsibility
for organic products is spread out over many different
divisions within the COA. For example, meat products are
regulated by an animal husbandry division while product
labeling is regulated by food products safety division. The
new law will give one division within COA broad powers to
regulate all aspects of the organic market. In addition,
the new law will no longer make compliance voluntary.
Organic products will need to be certified in accordance
with Taiwan organic standards.


9. Two COA officials contacted by AIT would not predict when
the bill would become law. But the officials said that
there was pressure on COA to have the bill completed by
October 2005 in order for it to be introduced in the current
session of the Legislative Yuan. The current session ends
in January 2006.


Uniform Organic Seal Slate for January 2006
--------------


10. As a stopgap measure, until the Agricultural Safety bill
becomes law, COA will introduce a new organic seal in
January 2006. This new seal will replace the four different
certification seals that are currently being used. The four
official certifying entities will begin issuing the seal
instead of their own seals in January 2006. COA officials
hope that consumers will place more confidence in this seal
because it will be the first seal approved by the
government. COA plans to begin educating the public about
the new organic seal in December 2005.


11. Bai explained that until the new Agricultural bill is
passed, COA cannot require that organic farmers be
certified. The hope is that consumers will vote with their
dollars and buy only organic products that carry the COA
seal. She hopes that if the public identifies the COA seal
with organic products, organic farmers will have to apply
for certification to continue selling their products.

Private Investors see Potential
--------------


12. Private investors see the organic market as ready to
take off. In August, Lawrence Hsu, owner of Mother Nature,
the largest wholesaler of organic foods in Taiwan, told AIT
that he will open Taiwan's largest organic/natural foods
supermarket in Kaohsiung in September 2005. Hsu has been
importing organic food products for the last ten years; his
main business is selling organic soybeans to stores that
then process it into tofu and soymilk. Now he wants to
process and sell the food products directly to the customer.


13. Hsu spent USD 10 million to build the 34,000 sq ft.
store named Lohas. A second store is being built in
Taichung. Mr. Hsu plans for 90 more store locations over
the next two years.


14. Mr. Hsu believes the image of an upscale organic
supermarket will appeal to customers. "When I go to the
U.S. I notice that organic supermarkets like Whole Foods can
charge a premium and still be very popular." Mr. Hsu hopes
to have the Lohas name carry the same cachet with Taiwan
shoppers.


15. A supermarket chain will bring big changes to the retail
market in organic products. Currently, the retail market
for organic products in Taiwan is fragmented. There are
about 800 stores that specialize in natural foods. Most of
these stores are individually owned and about the size of a
typical convenience store. A large supermarket chain will
force smaller stores to consolidate and may also attract
more customers to organic products.


16. In addition, a larger retail market will push the Taiwan
government to regulate the market more effectively. Hsu
hopes the Lohas supermarket chain will lead to the creation
of a trade group to lobby for stricter laws on organic
products.

Demand for organic growing
--------------


17. Precise statistics on organic food sales are impossible
to determine because the COA does not differentiate between
organic products and regular food products in their records.
Some estimates can be made based on imported organic food
products. Mother Nature for example, purchased USD 6
million in U.S. organic products in 2004. The company
imports approximately 1.3 millions tons of organic food
grade products a year. Based on his company's imports, Hsu,
the owner of Mother Nature, estimates that Taiwan consumers
spent USD 36 million on organic products in 2004. He
estimates that the total organic market in Taiwan has been
growing 7-10% a year.


18. An indication of the market's potential can be found in
sales of industrial food processing machines for organic
products. These machines are sold to supermarkets and
restaurants. They turn wheat or soybean into noodles,
bread, tofu and soymilk. Mother Nature, in addition to
selling the machines, also supplies the raw materials for
the machines. Hsu's explains that stores would not be
investing in these machines if the demand was not there.
Hsu said "Over 500 stores are using the machines to process
organic products. I estimate machines sales are growing 10-
20% every year."


19. Another indicator is the amount of certified organic
farmland. More farmers are applying to have their farmlands
certified as organic. COA statistics show that in 2004
Taiwan had 1246 hectares of certified organic farmlands.
This is an increase of 39% from five years ago when there
were 898 hectares of organic farmland.


20. James Su of FOA, believes the actual amount of organic
farmland is much greater. Many organic farmers do not see
the need to be certified. According to him, many of these
farmers are small producers and sell to customers based on
word-of-mouth and through local produce delivery
organizations.

U.S. Exporters can Benefit from Taiwan's organic market
-------------- --------------


21. U.S. exporters should benefit from Taiwan's growing
organic market. In Asia, many U.S. organic exporters have
been focused on Japan and Korea for their products.
However, the Taiwan market is ideally suited for U.S.
organic exporters. Unlike Japan and Korea, organic products
do not have to be re-certified before they enter Taiwan.
U.S. organic products can display the USDA organic seal in
place of Taiwan certification. However, the new
Agricultural Safety bill may change this. COA official
Selena Bai said that they are considering different methods
for how imported organic products will be treated. Since the
bill is still being drafted, it is uncertain what the final
decision will be.


22. In addition, many Taiwan consumers consider U.S. food
standards to be more reliable and safe. They may give more
weight to an organic product from the U.S. than a similar
product from Taiwan. This is a fact that is apparent to
Hsu. Sixty percent of the products in his Lohas supermarket
will be of U.S. origin.


23. Comment: The new Agricultural Safety Bill and the new
COA organic seal are steps in the right direction for the
organic market in Taiwan. Questions remain about when the
COA Agricultural Bill will become law and what impact this
may have on the current status of the USDA organic seal. It
is also uncertain what impact the new COA organic seal will
have if the Agricultural Bill is not passed. Without the
new law the organic seal will still only be voluntary. A
new upscale supermarket chain specializing in organic
products will provide new retail opportunities for U.S.
organic exporters. All of these developments are
indications that the organic/natural foods market in Taiwan
is on the rise. End Comment.