*
Brian Henehan is corresponding and presenting author, bmh5@cornell.edu
*
Respecttively, Senior Extension Associate and Professor in the Charles H. Dyson School of Applied Economics and Management, Cornell University.

Market Development for a Chinese Organic Food Company:
The Case of Qimei Agricultural Science and Technology Co. Ltd.
Co-authored by Brian M. Henehan and Dr. Ralph D. Christy
International Food and Agribusiness Management Association, IFAMA
Shanghai, China,
June 11, 2012
Acknowledgements: This case relies heavily on the work of several recent Student Multidisciplinary, Applied Research Teams, (SMART) cases and posters sponsored by the Cornell
International Institute for Food, Agricultural Development. See attachments A. and B.
The CIIFAD SMART Program brings together teams of students and faculty from diverse disciplines at Cornell University and pairs them with firms, organizations, or community groups located in developing countries.
The first SMART team for 2011that focused on the Qimei company included Cheryl Thayer
(CIPA '11), Eric Reker (CIPA '11), Hiromi Shimizu (CIPA '12), and Luke Pryor (AEM '11)
The faculty leader of the team was Dr. Robin Bellinder, Professor of Horticulture in Department of Plant Science at Cornell University. The second SMART Team for 2012 included the following Cornell students: Elizabeth Burrichter, Andrea Carter, Elizabeth Goodwin and Marie
Zwetsloot. The faculty leader was Prof. Jane Mt. Pleasant.
We acknowledge the assistance of Jaron-Alena Porciello with the Albert R. Mann Library for her assistance with a literature review. We also acknowledge valuable input from the Qimei management and staff. Carol Thomson, support staff in the Dyson School, provided valuable assistance in preparing the case document.
Abstract: This case study aims to provide a teaching opportunity for participants and students to learn more about various marketing strategies being considered by an actual organic food company located in Hebei province China. The case is based on data provided by the company,
Qimei Agricultural Science and Technology Co. Ltd., as well as information on the current state of the market for organic agriculture and food in China. The case provides background information on the organic food market, organic agricultural production and food company performance. A number of learning objectives are proposed including: use of the Ansoff Matrix to better understand market growth strategies, an evaluation of various approaches and strategies for increasing organic food product sales in the domestic market of China and a live interactive discussion with managers from the Qimei company itself. The firm’s experience with several marketing approaches described in the Ansoff Matrix during various phases of growth will be discussed and analyzed.
Key words : China, export, organic agriculture, organic foods, organic market i

TEACHING NOTE
Synopsis
As the export sales of the Qimei Agricultural Science and Technology Co. Ltd. leveled off, the company hopes to focus more on the domestic market for organic food in China. This case reviews the strategic marketing decisions that the company faces. The Ansoff matrix is used to help identify optimal approaches for the firm to grow sales. This case would be a useful compliment to a marketing curriculum that includes a discussion of the Ansoff matrix or marketing strategy.
Teaching objectives
The teaching objectives for the Case include:
1.
Increasing the overall understanding of the development of firm-level marketing strategies.
2.
Reviewing the real world situation of a Chinese food marketing firm needing to select an effective marketing strategy to achieve required growth in sales.
3.
Participating in evaluating a set of potential marketing strategies to arrive at the best choice.
4.
Illustrating how the Ansoff Matrix provides an analytical framework for firm decision making to identify marketing growth opportunities
The case refers to several teaching aids that are included in the following Exhibits:
Exhibit A. The Ansoff Matrix
Exhibit B. Constraints to Exporting Chinese Organic Food Products
Exhibit C. Factors Underlying Domestic Demand for Organic Food Products in China ii

Introduction
In mid--
‐
February, 2010, Mrs. Yuqi Zhao, the CEO and co--
‐ founder of the Hebei Qimei
Agricultural Science and Technology Co., Ltd. (Qimei, 企美 ), attended the BioFach World
Organic Trade Fair in Germany to exhibit her business. As she returned home, Mrs. Zhao reflected on how much Qimei had grown since it began in 1999.
Although the first five years of Qimei’s operations had been difficult, generating no profit, she and the management team stuck it out. Their persistence has paid off, with Qimei turning a profit in 2004, and increasing total sales from 31,850,000 rmb in 2008, to 51,727,000 rmb in 2009,to 61,238,000 rmb in 2010 and then to 84,955,089 rmb in 2011.
Country Background
China has the fourth largest land size of any country in the world and a population of over 1.3 billion people. Over the past 40 years, major economic policy reforms have been implemented aimed at implementing a more market –based economy in the communist country. China has undergone significant economic growth over the past three decades (CIA, 2010). GDP increased rapidly, regularly growing by double-digit rates. In 2010, China overtook Japan in annual GDP becoming the second largest economy in the world behind only the U.S. (CIA, 2010). Average urban incomes are significantly higher than average rural incomes yet despite dramatic growth, the country remains plagued by high levels of poverty. Approximately ten percent of the population lives below the poverty line. Per capita GDP is only $7,400, (CIA, 2010).
China’s Agricultural Industry
Agriculture plays an important role in the rural economy of China. In 2010, China’s agricultural industry accounted for slightly over 10 percent of GDP and 39.5 percent of its labor force (CIA, 2010). The vegetable segment of agriculture accounts for more than 10 percent of total agricultural production (Yuman et al. 2004). Roughly 78 million rural laborers work in vegetable production and an additional 80 million work in vegetable processing and marketing
(Yuman et al. 2004). While production costs of vegetables are relatively low, expenses for labor have been rapidly rising contributing to an increase in retail vegetable prices of 60 percent from
2009 to 2010 (Ministry of Commerce, 2010).
Organic Agriculture in China
Over the past fifteen years, organic agriculture in China has grown significantly. The total sales for Chinese organic food and beverages reached $7.2 billion in 2008, an increase of
140 percent from 2003 (USDA Foreign Agricultural Service, 2010). In 2000, China ranked forty-fifth in the world for the area of organically cultivated land. China moved up to second place for total area of organically cultivated land in 2006 only behind Australia. It is expected that organic acreage and production will increase 20-30% per year through 2017.
As the Qimei began to prosper, farmers eagerly looked to join the company. Capacity was expanding with the development of a five-acre processing facility in the Hebei agricultural capital of Handan City, and more suppliers were needed. 2005 and 2006 were years of intense growth for the company, and the company solidified its export orientation. It supplied goods to a larger number of Chinese exporters who sent Qimei products around the world. In November
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2006, the processing factory was completed and Qimei hired workers dedicated and passionate about furthering organic agriculture in China. The majority of these workers, from factory line workers to upper management, are still with the company to this day.
As of 2011, the Qimei company has developed contractual relations with organic farmers and their villages that account for 3,000 farmers in 11 villages. The relationship with Qimei has yielded higher farm prices, greater farm income security as well as improved production and marketing efficiency. The company handles and transports harvest to the company processing plant.
Organic Certification
The Certification and Accreditation Administration of China (CNCA) promulgates policies and regulations as they relate to the organic agriculture industry in China. All organic products sold in China must have Chinese organic certification and must be in compliance with the China National Organic Product Standards (CNOPS) (Biofach, 2011). Additionally, in conjunction with the CNOPS, all certifiers authorized by the CNCA to grant organic certifications are bound by the “Rule on Implementation of Organic Products Certification
(Bugang, 2005).
As of 2010, 26 agencies, which were comprised of private firms, NGO’s, third-party agencies, and international firms, were authorized to certify organic products in China.
Collectively, more than 4800 organic product certifications have been issued, which account for roughly 2.6 million hectares of organic agricultural land (USDA Foreign Agricultural Service,
2010; Tiandong, 2011). Certification is available for a number of different commodities, which are listed by the proportion of domestic sales they account for (from high to low): field crops, processed foods, wild-plants, aquaculture, honey, livestock, fungus, fertilizers, and pesticides
(USDA Foreign Agricultural Service, 2010).
There exists a general process by which an entity is granted an organic certification; however, each specific certifying entity may have additional requirements above and beyond those stipulated under CNCA, all of which must be in accordance with national standards and must be publicly published (Biofach, 2011).
Despite promising growth, the issue of haphazard organic certification left room for concern as the company aimed to certify its products’ integrity. As a stop-gap, the management decided to secure certifications from well known and respected organizations abroad instead of just Chinese certifiers. After intense scrutiny and numerous site visits over a period of three years, Qimei secured organic certification in 2007 from the United States Department of
Agriculture (USDA) as well as the certification boards in Canada, Japan, South Korea and the
European Union.
Organic Food in China
The Chinese organic food and beverage sales for both exports and imports reached $7.2 billion in 2008, which is more than a 140% increase from 2003 (USDA Foreign Agricultural
Service, 2010). Certain analysts predict that annual organic consumption will increase by 30-
50% over the next decade, positioning China as the fourth largest organic market in the world by
2020. In 2007, domestic organic sales were $1.13 billion; by 2015, they are expected to be as
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high as $8.7billion (USDA Foreign Agricultural Service, 2010). Presently the majority of the organic products produced in country are being exported to Europe, the United States and Japan
(Sheng, et al., 2009). By the end of 2007, China officially recognized approximately 30 categories and more than 500 varieties of organic products including grains, vegetables, fruits, beverage, and dairy products (Sheng, et al., 2009).
Market Channels
Organic products are sold through various channels. The products sold at store-based retailing sites, such as local supermarkets, hypermarkets, or specialty stores, account for 96.8% of sales while other methods include online stores and home delivery. As a recent phenomenon, online shopping and home delivery can sometimes offer less expensive organic products as they eliminate the middleman and shorten the supply chain. For instance, organic choy sum (a green leaf vegetable) in Guangdong is sold for $2.7 per pound in mainstream supermarkets, while it is sold for $0.88-1 per pound online (USDA Foreign Agricultural Service, 2010).
Firm Background
Hebei Qimei Agriculture Science and Technology Co, Ltd. is a privately held corporation headquartered in Heibei, China. Founded in 1999, it is now a leading global organic food manufacturer and exporter and its major market includes Japan and Europe.
The mission of the company identifies food safety as a primary responsibility as well as environment protection. (Qimeiusa, 2012). More information is available at: http://www.hebeiqimei.com/ . The company has developed a U.S. based subsidiary named
Qimeiusa located in the NYC metro area. For more information see: http://www.qimeiusa.com/about-hebeiqimei.html
.
Qimei began to increase domestic sales within China to offset the growing risk associated with China’s food exports. However, Mrs. Zhou recognized a number of marketing challenges in expanding sales to the domestic market including: issues with organic certification, growing competition, low consumer awareness of organic products, and limited market penetration in the small but expanding organic food market in China.
Meanwhile, the company has broken ground in October, 2011 for construction of a new receiving and processing plant to significantly increase processing capacity. Aggressive growth in sales and marketing efforts will be required to best utilize the new, larger value-added capacity. Qimei will need to make critical decisions on selecting the best marketing strategy to achieve the needed growth in sales for the future.
Table 1. Qimei total revenue, 2008-2011
Year
2008
2009
2010
2011
Gross Revenue (10,000 RMB)
Source: firm data provided by Qimei
3,186
5,173
6,124
8,495
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The Renminbi, RMB ( Chinese : 人民币 ) is the official currency of the People's Republic of
China. The denomination for RMB is the Yuan. 1 yuan = 0.1585 US dollar as of April 27,
2012 (source: Google finance)
Vision, Mission and Objectives
While a profit-focused company, Qimei also views part of its mission as having a positive social impact on China and its local communities. Specifically, Qimei’s strong focus on social responsibility is inherent in its mission statement: “Food safety is our responsibility, environmental protection is our mission.” The management of Qimei feels that by producing organic food, they are enacting environmental protection on a local level, and as they scale up, this environmental protection will become more and more widespread. Similarly, the management believes that by producing food without pesticides or genetically modified organisms (GMOs), they advance the cause of food safety in China, working towards preventing repeats of the earlier food scandals. (see Exhibit B.)
Furthermore, Qimei aims to support what they have termed the “organic cycle”. A feature of the long-term vision of the company, Qimei developed the organic cycle in collaboration with the Nanking Agriculture University Institute of Organic Food Research. The central idea of this cycle is sustainable agriculture. Specifically, the cycle is a model for how to achieve a truly sustainable system in organic food production and is part of the company’s threeyear plan.
In addition to goals oriented around food safety and preserving the environment, Qimei also wants to ensure a better quality of life for the communities in which it works, and thus it has enacted policies and standards for farmers that work toward this end. Once becoming Qimei suppliers, farmers see a drastic change in their lifestyle, which is enacted in three main categories: income, ease of occupation, and security.
Political Relations
A major strength of Qimei is the support that it has attained from the local government in
Handan and surrounding counties. Agricultural and economic development officers are greatly invested in the continued growth of Qimei, and their relationship with the company is not only professional, but personal as well. A reason for this support by the government has been the massive beneficial effects that Qimei has had for the local community. It has increased the quality of life for many farmers and their families, and brought a great deal of business to the province. Furthermore, the company is contributing to food safety and environmental protection in the region, and its status as a supplier to the Olympic Games made local governments believe that Qimei could continue to grow dramatically. The officials remain very vocal about the fact that they want to continue to support Qimei’s growth.
Furthermore, Qimei’s mission is in line with greater national Chinese policies. China is looking to limit its overall environmental impact and have a greater degree of food safety. Local government believes that by supporting Qimei, they can support these national missions. The type of support that Qimei receives from the government is varied but very useful. Specifically, the government has pushed to provide Qimei with low-interest rate loans so that it can continue to develop its business. Furthermore, the government has granted permission for Qimei to go
4

public in the future, so that it can continue to attract investors and have more available capital.
Finally, the government is looking to advertise to consumers the potential benefits of organic food, so that a more educated populace may be interested in Qimei’s products. In the heavily government-controlled environment of China, this support is very valuable and contributes to company success.
Certification and Awards
Qimei has received not only Chinese organic certification but also certification from international bodies recognized in Europe, North America, the European Union, South Korea, and Japan including accreditation from the U.S. Department of Agriculture, (USDA) and the international Organic Crop Improvement Association, (OCIA) and now EcoCert.
See: http://www.ecocert.com/en
A pivotal recognition came when the company was asked by the Chinese National Olympic
Committee to supply food for the 2008 Olympic games held in Beijing. The firm successfully supplied organic asparagus, garlic and peanuts for the games and was acknowledged by the
Olympic Committee for its quality and service.
Marketing Strategies
Since its inception, the company has undergone three general phases of sales growth. (see
Figure 1.). Phase I. of start-up marketing operations relied on export sales, the next Phase II. sales increased primarily by expanding product offerings as requested by current customers, the current Phase III. and future growth are relying more on sales within the domestic market in
China.
Figure 1. Qimei marketing strategies for Three Phases of Growth
Export is primary market
Expanded product line to meet the demands of export customers
Increasing
Domestic Sales in
China
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Export Share of Sales Declines
For a number of reasons including increased competition, food safety scandals in China and a weak global economy, exports as a share of total sales have declined over the past five years (see table 2.).
Table 2. Qimei export sales decline as a share of total revenue, 2007-2011
Year
Past 5 years 2007
% Share of sales 100
2008
98
2009
95
2010
92
2011
85
Source: data provided by Qimei
Export Sales
Much of Qimei’s growth relied on sales through the export market. However, there were some challenges - China’s overall food exports had received increased scrutiny after numerous recalls and food safety incidents.
Marketing Strategies
The case utilizes Ansoff’s Matrix to evaluate market strategy options based on the company’s external and internal environment.
The Ansoff Matrix is used for planning and analysis of alternative approaches for sales growth. This matrix considers existing and new markets and existing and new products for business growth and development. The Ansoff matrix (see below) is a well recognized educational 6resource for evaluating marketing strategies.
Discussion Questions
A number of questions can arise when reviewing this case that can yield a useful discussion for learning about marketing strategies. Some suggested discussion questions include;
1.
How would the initial marketing efforts of Qimei be described in terms of the Ansoff
Matrix? Which quadrant would the firm’s initial strategy be located?
2.
How would the current and future marketing efforts to grow sales be described in terms of the Ansoff Matrix? In which quadrant would the firm’s current or future strategy be located?
3.
Using Exhibit 3. For discussion, which segments of Chinese consumers might exhibit the highest demand for organic food? How might Qimei best reach the ideal target consumers?
The four quadrants of the Ansoff Matrix (see Exhibit 1.) can be summarized as follows:
(1) Business Growth with Existing Products in Existing Markets. This approach is a market penetration approach where the business is growing with its current product / service offerings in
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the current markets.
(2) Business Growth with Existing Products in New Markets. This strategy is a market development approach where the business is growing with its current product / service offerings in new markets.
(3) Business Growth with New Products in Existing Markets. This strategy is a product development approach where the business is growing with new product / service offerings in its current markets.
(4) Business Growth with New Products in New Markets. This strategy is a diversification approach where the business is growing with new product / service offerings in new markets.
The Ansoff Matrix is a well recognized educational resource for evaluating marketing strategies. Thorough background information on Qimei’s internal and external situation will be discussed in relation to the options presented in the matrix. The presentation of the case will allow time for participants to read and discuss the case. A discussion will then focus on how the participants might advise Qimei management on identifying the best strategy to pursue. Mrs.
Yuqi Zhao, CEO of Qimei and senior management will be invited to participate in the case presentation and review for the session in Shanghai in June, 2012.
Challenges
There are a number of marketing challenges that could be further discussed by participants:
•
Consumers may be confused by the meaning of various certification programs such as: organic, green, or “no harm”.
•
Consumers may need to be re-assured that organic labels are valid.
•
Growing number of “fake” organic products on the market
Opportunities
There are a number of opportunities that could provide further discussion by participants :
•
The growing Chinese consumer disposable income
•
Increasing consumer interest in assuring food safety
•
Consumer’s interest in supporting the linkage with farmers and rural villages practicing organic agriculture
Summary
This case offers an excellent learning opportunity to actively involve participants in selecting an optimal set of marketing strategies for an actual Chinese food marketing firm. The case provides insight into the challenges being faced by an operating food company in selecting the best marketing strategy given the internal and external situation of the firm.
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References
CIA: The World Factbook, 2010. China. [online} available at: https://ww.cia.gov/library/publications/the-world-factbook/geos/ch.html
Yuman, L. Jinsong, C. Zhang, X. and Kamphuis, B. 2004. The Vegetable Industry in China:
Developments in policies, production, marketing and international trade.
The Hague
Agricultural Economics Research Institute.
Ministry of Commerce. 2010. China’s vegetable prices up 62.4% year on year . [online] available at http://english.mofcom.gov.cn/ article /newsrelease/commonnews/201011/20101107246664.ht
ml
Pryor, L. et al. 2011. Achieving sustainable growth in the Chinese organic industry: A case study of Qimei A gricultural Science and Technology Co. Cornell Institute for Food Agriculture and
Development, Cornell University, Ithaca, New York available at:
Sheng, J. et al. 2009. Market trends and accreditation systems for organic food in China.
Trends in Food Science & Technology, 20(9), pp.396-401.
Qimei Co. (2012) http://www.qimeiusa.com/about-hebeiqimei.html
, site visited on April 27,
2012.
Qimei financial data (2012) interviews with senior managers, April 2012.
Hebei Qimei Agriculture Science and Technology Co., Ltd
No 52 Jian East Street
Yongnian, Hebei,
China Telephone: +86/3106606296
Fax: +86/3106606719
Thayer, C. et al. (2011) “Field of Dreams: The Qimei Story” poster available at: http://ciifad.cornell.edu/downloads/China.pdf
CIIFAD, Cornell University (2012) Summer Internships blog at: http://files.campus.edublogs.org/blogs.cornell.edu/dist/b/1582/files/2012/03/China_internship
_flyer-1sjtlxh.pdf
USDA Foreign Agricultural Service. 2010. GAIN Report: Organic Report . Beijing: USDA, FAS.
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Exhibit A. The Ansoff Matrix
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Exhibit B. Constraints Limiting Increased Exports:
•
Increased Competition from organic food exporters and traders
•
Undermining confidence in Chinese Food Product Safety (see table below)
•
Weakening Economy in Key Importing Countries: U.S., Japan, and the E.U.
•
Increasing organic agricultural production in importing countries
•
Growing organic food processing capacity in importing countries
•
Increased Interest in “Buying Local” in importing countries
•
Increasing transportation costs (energy, etc.)
Food Safety Issues Affecting Chinese Food and Agriculture
Year
2001
2002
2005
2008
Incident Ensuing Effects
Antibiotic residues detected in poultry and shrimp
EU and Japan ban products
Antibiotic residues in honey, pesticide residues in frozen spinach and tea
Parasites in red cabbage
EU, Japan ban products
S. Korea bans product
Melamine contamination in infant formula 6 infants die, estimated
300,000 people suffer from related illnesses
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Exhibit C. Underlying factors for increased domestic demand for organic food products
As in many other countries, Chinese consumers who purchase organic food are typically “well-off” families with higher levels of education. Recent research identified eight main groups of potential consumers (see table below)
Group
1.
“White collar families”
2.
Families with Young Children
3.
Families with health issues
4.
Overseas returnees
5.
Consumers from Taipei and
Hong Kong
6.
Government Officials
7.
Young people
Characteristics
A major group of organic consumers in China representing about 40% of organic consumers. Have increasing concern about their own health and some are interested in environmental protection and conservation
Group has about a 10% market share. Increased number of “one child” families. In these families, as many as six adults – father, mother, two grandfathers and two grandmothers – look after only one child resulting in more resources available for food purchasing. Highly educated, Young Parents tent to be more knowledgeable about potential benefits of organic food. They may only be temporary consumers of organic food (such as baby food) as their children grow up.
This group includes families with members, often elderly, who have health issues such as high levels of cholesterol, blood pressure, or blood sugar. They typically prefer to purchase organic food at specialty shops or natural foods shops. They comprise about 10% share of the organic food market.
Between 1990 and 2009 about 500,000 young people who studied or worked abroad returned to China. During their stay abroad, they were exposed to western lifestyles, including knowledge of organic food.
There were about 1 million people from Chinese Taipei and Hong
Kong (China) working in mainland China in 2009. Most worked for private companies owned by people from Taipei or Hong Kong. This group is concerned about recent food scandals in China and is keen to purchase safe food products.
There are about 10.5 million government officials in various levels of administrative or party offices. If all employees paid by the public budget including teachers, professors and those working in research institutes, are taken into account, the number could reach 40 million.
These officials receive various benefits and bonuses. In some government offices, employees receive organic food as a bonus.
Although this is not very popular yet, the large number of government officials makes the market share an estimated 10%.
Young, trendy Chinese people are quick to adopt healthy and environmentally friendly lifestyles such as buying and consuming
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8.
Foreigners Living in China organic food. The organic share of this group is estimated at 3%
This group of consumers is mainly from Europe, the U.S., Japan and the Republic of Korea. There are about 2 million foreign people working in China and concentrated in major cities, with more than
300,000 foreigners working in Shanghai. They comprise around 7% of the market, primarily shopping in specialty shops and supermarkets.
Source: “Organic Food Products in China”. (2011) Technical Paper, International Trade Centre, Geneva.
Company Name: Hebei enterprises Agricultural Science and Technology Co., Ltd.
Address: No. 52, Jian'an East Street, the Pro Minghe Chengguan Town, Yongnian County,
Hebei Province, China Zip: 057150
Phone 0310 -6606296
Fax :0310-6606719
Web site: http://www.hebeiqimei.com
E-mail: qimei@hebeiqimei.com
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