By Josef Brinckmann, VP of Research and Development, Traditional Medicinals® (California)
(Reprinted from the MNS Medicinal Plant and Extracts report, issue 24, Sept. 2007 with permission by the International Trade Centre/Market News Service - www.intracen.org/mns)
I had initially intended to report on this market situation as a news story but decided instead to write an editorial on the topic based on my personal observations of this developing trade crisis between China and the U.S. that is continuing through the summer months.
U.S. companies in all sectors, including those who trade in natural ingredients as well as finished natural health products, are continuing to receive highly emotional phone calls and e-mails from consumers who are upset about all things Chinese, in part, due to the highly publicized quality control problems in recent months. For others, there are additional political and social reasons for their concerns about China adding fuel to their fire. These consumers want to know specifically which ingredients in the natural products originated in China, so that they can make personal purchasing decisions to boycott such products in the future. Consumer trust in raw materials and finished products from China is at an all-time low in the U.S. Some legislators are even talking tough on potentially limiting or restricting certain imports from China altogether.
But perhaps this grassroots consumer backlash against Chinese goods oversimplifies a much greater problem and thereby scapegoats one supplier country, China, when the problem itself may be homegrown. While there are certainly many quality-focused herbal companies in the U.S., there are also many U.S. buyers who are known the world over for demanding the lowest prices and they help drive the low-cost market by implementing the least strict ingredient and product specification requirements. Some U.S. companies market themselves as ―price leaders without disclosing that one cannot really be a price leader without offering the lowest quality goods that are brought to market under the lowest quality assurance standards, if any. In many companies, buyers are only rewarded for shrewd price-buying and some purchasers are under heavy pressure to lower the cost-of-goods. There is generally no incentive for a buyer to make a quality-based decision that might increase the cost-of-goods. But these companies behave this way, in part, because they are responding to the American consumer who also demands the lowest prices. Americans love bargains and cheap prices but at the same time they live in a mysterious contradiction by believing that they also want quality assurance and safe and effective products. Products, however, that come to market with solid evidence of quality, safety and efficacy come with a (higher) price.
I have first-hand experience visiting natural ingredient suppliers around the world who generally export their highest quality raw materials and extracts to European buyers, particularly in France, Germany, Italy, Spain and Switzerland. Materials that the Europeans reject on the basis of quality problems are often earmarked for export to the U.S. market where the standards are often lower and fewer questions are asked by the buyers. Just this week I received an ingredient price list that included some Chinese-made extracts at (almost) unbelievably low prices, green tea leaf extract standardized to minimum 50% polyphenols for USD $5.90/kg and ginkgo leaf extract standardized to 24% ginkgo flavones glycosides and 6% terpene lactones for $16.50/kg (about one-fifteenth the price of European made extracts by the same name). Based on my experience working with herb farms, processors, extraction houses, and traders, I don‘t know how any quality-tested standardized extract can be available in-stock in the U.S. for only $5.90/kg, unless numerous critical quality control steps were missed or ignored, unless the material is economically adulterated, unless the company is going out of business and this is just a fire sale, and/or unless all of the workers in the supply chain are independently wealthy and therefore do not need to be paid for their labor hours. Maybe the costs of raw materials, production, labor, quality control testing, sales and marketing, and transport are so significantly lower in the People‘s Republic that the days of production in European or North American countries are numbered. Who knows? But any buyer who is offered such a low price for a standardized extract should ask many tough questions and conduct many rigorous quality control tests before even considering such a purchase.
In any case, if Americans were to boycott goods from China, but at the same time they continue to demand the lowest prices, all that will happen is that the production of the lowest quality goods will shift from China to another supplying country. And the trade flow of low quality, adulterated or contaminated ingredients and products into the U.S. will continue unabated. After all, the Chinese suppliers are merely giving the customer what the customer wants, cheap. If American buyers are willing to pay for higher quality ingredients and are also willing to pay for the costs of strict quality assurance throughout the supply chain, Chinese suppliers will be just as interested in - and certainly capable of - supplying higher cost ingredients and products to the U.S. market. When buyers of ingredients ―price buy‖ instead of ―quality buy,‖ one or more of the following takes place: (1) the buyer promotes the sourcing of ingredients from regions that may lack adequate environmental protections and/or labor standards; (2) the buyer helps to establish a market for inferior, sub-standard and/or adulterated raw materials that would otherwise be rejected on the basis of quality defects; (3) the buyer is specifying that he/she is unwilling to pay for the costs quality control at all critical control points throughout the supply chain; and (4) the buyer is willing to gamble on consumer safety and product liability exposure.
An effective and transparent quality assurance system costs real money. When American consumers understand that quality assurance has a monetary value and when they demonstrate that they are willing to pay the higher costs of quality control throughout the supply chain, then the serious adulteration problems that have plagued the market will begin to resolve. If Americans continue to demand cheap products, Americans will continue to be harmed on occasion by adulterated products, even if China is boycotted.
Finally, making a decision to boycott Chinese natural ingredients may be easier said than done. Table 1 provides the total quantities of selected natural ingredients imported by the U.S. in 2006, in metric tons (MT), along with the % of the total that was supplied by the P.R. China and/or Hong Kong Special Administrative Region (SAR) of the P.R. China. The table clearly shows that China is a major supplier of natural ingredients to the U.S. Turning that boat around wouldn‘t be easy and it wouldn‘t necessarily diminish the high demand for low quality. Americans may need to demand greater quality assurance and then be willing to pay the price.
Note: Monographs providing quality standards and tests for most the above listed Chinese herbs are published in the Pharmacopoeia of the Peoples Republic of China (PPRC English Edition 2005). Many are also published in the Japanese Pharmacopoeia (JP XIV, English Edition 2001), available on-line at: http://jpdb.nihs.go.jp/jp14e and/or in the Korean Herbal Pharmacopoeia (KHP 2002 English Edition), available on-line at: http://www.kfda.go.kr/open_content/english/board/board_view.php?av_seq=19&av_pg=1&board_id=ENG_NEWS&textfield=herbal&keyfield=v_all