Paul Altaffer & Grant Washington-Smith10.01.12
In 1544, Portuguese Explorers landed on Taiwan and aptly called it “Ilha Formosa” (“Beautiful Island” in Portuguese). Although the Portuguese are long gone as colonists and China’s influence is now undeniable, Taiwan maintains an interesting mix of independence along with economic interdependence, which greatly affect its identity. Taiwan has a rich history, and while it is influenced by occupation from other countries, its strategic position in Asia has made it an important part of the region’s development.
The Ups and Downs of the Global Crisis
Taiwan is the world’s 26th largest economy, but it was hit hard by the global financial crisis. Still, the country has been improving its economic position over the past 18 months with real GDP forecast to increase to 4% and 5% in 2012 and 2013, respectively. This is a faster rate of growth than that forecast for the other major markets in the region, including Japan, Korea, Hong Kong or Singapore, according to the International Monetary Fund’s World Economic Outlook, April 2012. As a result, confidence is returning.
One of the greatest advantages that countries within the Asia-Pacific region (such as Taiwan) have had following the impact of the Global Financial Crisis is the growth in intra-regional trade. This has reduced Asia Pacific’s reliance on demand from the West and has moderated the impact of the economic slowdown that is facing the U.S. and Europe. North America and Western Europe have traditionally been the major consumers of exports from Asia Pacific countries. Now the region has become its own largest export market, accounting for approximately 45% of the region’s total exports. China has been the key destination for Taiwanese exports but other markets such as India and Indonesia are also very important, so continuing success of these markets will be fundamental to the future prosperity of Taiwan.
Taiwan is developing compared to its regional neighbors. In a report published by The Economist (“A Game of Leapfrog,”April 28, 2012), regional economic powers were compared to Japan in their growth of GDP per person (Purchasing-Power Parity). It seems Taiwan has been following a parallel track to other regional superstars like Singapore and Hong Kong, and has also moved ahead of Japan in this important economic indicator. Taiwan also tracks ahead of South Korea. This shows Taiwan’s improvements in productivity and wealth compared to other “newly industrialized economies (NIE),” and especially the highly industrialized Japan.
The Taiwanese Nutraceutical & Health Food Market
The size of the nutraceutical or health food market in Taiwan is estimated at approximately $3 billion and is dominated by imported products and brands that account for around 70-75% of the market; the average annual per capita consumption is around $130.
The majority of imported finished products are either from the U.S. or Japan, but there is a growing trend in Taiwan to import raw materials from around the world and undertake the manufacture of finished products within the country. The main consumers of the Taiwanese nutraceutical market are consumers aged 30 to 40 years.
An interesting aspect of the Taiwanese nutraceutical market is that approximately 70% is sold through the multi-level marketing and direct sales channels, such as internet retailing and direct response TV shows like home shopping networks, which have become more popular in recent years.
Growing Expectations
While economic growth is forecast for Taiwan over the next two years, the country’s retail consumer confidence may take longer to build momentum, according a detailed study of the Taiwanese health food market untaken by Euromonitor in 2011. The report suggests that the Taiwanese health food consumer is likely to remain focused more on the price and taste aspects of health food choices rather than the intrinsic health benefits that these products offer. It is anticipated that a solid marketing campaign for a good tasting product at an affordable price will hit the sweet-spot of the Taiwanese health food consumer, as opposed to some of the more “clinically based” marketing strategies commonly seen and used in the West.
The demand for organic products has followed the general decline from consumer demand typically associated with the global financial crisis and so an increase in demand and broader retail distribution is expected to return with improving economic conditions and growing consumer confidence over the next couple of years.
Ingredients that have gained importance in the mind of the Taiwanese consumer include prebiotics, probiotics, omega 3 fatty acids, CoQ10, vitamins A, D, C, E and K and calcium and iron. Other major ingredients that dominate the health food market in Taiwan include the perennial essence of chicken, ginseng, dairy (including fermented dairy) and oat-based foods and beverages.
Immune health has gained a lot of importance in Taiwan over the past few years. Taiwanese consumers have employed the use of traditional Chinese herbs and medicines, which contain therapeutic compounds helping to curb diseases as well as curing ailments ranging from liver inflammation to metabolic disorders. Medicinal mushrooms like Reishi, Shiitake, Maitake, Cordyceps andAgaricus subrufescens have been incorporated into regular foods and beverages and into dietary supplements to boost immune health. Soy, fish oils, garlic, echinacea, ginseng, ginkgo biloba and green tea extracts are also used in maintaining overall health and vitality.
This seems to add up to a slight paradox: While Taiwanese consumers, especially during the economic downturn, seem price sensitive and prefer flavorful products, they also have a deep interest in functional and even medicinal supplements as witnessed by their interest in immune health and other premium areas of the market.
Regulatory Requirements in Taiwan
In Taiwan, nutraceutical and dietary supplement importers and manufacturers wishing to make health claims need to obtain a “Health Food Certificate” from the Taiwan Department of Health (DOH). However, this process has been criticized for its over-rigid requirements, lengthy application procedures and high fees.
Health Food certification, which began in 1999, is required by law for companies that want to make substantial health claims about their products. Certification remains a key means for manufacturers, especially in larger companies, to differentiate their products from the competition because it allows producers to make qualified health claims. These health claims can be used both in marketing and on packaging to attract consumers. At the end of 2010, there were 186 products certified to display the official Health Food logo from the Taiwanese Ministry of Health. (See Table 1 for the requirements of the Health Food Control Act.)
Allowable Claims
The major areas that a health claim can be made for a product in Taiwan includes the following:
• Supporting immune health
• Prevention of fatigue
• Management of blood lipids
• Delay of the aging process
• Bone health and prevention of osteoporosis
• Regulation of blood sugar levels
• Support of stomach and intestinal health
• Management of blood pressure
• Support for oral and dental health
• Management and support of hypertension
• Support of liver function and protection from chemical damage
The certification of Health Foods in Taiwan offers a channel for manufacturers to legally and responsibly inform consumers of the health benefits for their products. In addition, this system is believed to benefit consumers through the process of independent review of researched health claims and helps the Taiwanese government monitor the extent of marketing claims directed at consumers.
Growing Opportunities
The Taiwanese government believes that the process of Health Food certification will continue to enable companies to facilitate innovation and product differentiation; however, manufactures claim that the process limits innovation because it is overly burdensome and expensive. With a strengthening economy, greater consumer spending power and increasing concerns around immune health and metabolic diseases, Taiwanese consumers will be in a good position to purchase health foods carrying the certification logos even when the prices are above those of similar products in North America.
A significant focus on “condition specific” products and away from overall general health has been observed over the past few years. The primary area of interest—beyond generic immune support is in the area of metabolic syndrome, with several supplements making claims around weight control, blood pressure control, blood sugar control, metabolic syndrome prevention and osteoporosis. It is expected that more dietary supplements and health food products will be launched making claims around metabolic syndrome and type 2 diabetes mellitus.
Who’s the Fairest in the Land?
A strong sense of independence mixed with Chinese influence, along with economic interdependence, especially within the region, relatively strong economic growth, rising incomes, a fairly robust nutraceuticals and natural products market, as well as a possible gateway to China make Taiwan a place consider investing in. Taiwan might not be the “fairest” of the growing NIE (newly industrialized economies) in the Pacific, but it certainly has the growth record, history in nutraceuticals as well as strategic positioning that make it a “beautiful” opportunity for sure.
Paul Altaffer is on the product and business development team at RFI Ingredients, Blauvelt, NY, a manufacturer of innovative natural ingredients and custom formulations for the functional food and dietary supplement industries. He was previously the founder and president of Nat-Trop, an ingredient company now operated by RFI that develops and trades primarily in South American products. He can be reached at 510-337-0300; E-mail: paulo@rfiingredients.com.
Paul Altaffer is on the product and business development team at RFI Ingredients, Blauvelt, NY, a manufacturer of innovative natural ingredients and custom formulations for the functional food and dietary supplement industries. He was previously the founder and president of Nat-Trop, an ingredient company now operated by RFI that develops and trades primarily in South American products. He can be reached at 510-337-0300; E-mail: paulo@rfiingredients.com.
Grant Washington-Smith has over 17 years of experience across a variety of businesses in the natural products industry. He previously worked in business development and brand management for Alticor Inc. Prior to arriving in the U.S., Grant was involved in marketing and business development throughout New Zealand, Australia and the Asia/Pacific region. His focus has been on the commercial development of the novel and the innovative. He can be reached at gwashin@me.com