Root of problem

China has been using ginseng medicinally for centuries. During the first years of the Qing Dynasty, smallpox was rampant and for the victims ginseng was thought to be the only cure. As a result, thousands began making the trip to the northeast of the country to try their hand at finding the oddly-shaped roots in the wild.

Today ginseng is farmed commercially, and is suited to sandy soil and colder, drier climates. Jilin province remains the biggest source of the Chinese variety of the plant (also often referred to as ‘Asian Ginseng’), which is said to have a variety of benefits including stress relief, energy enhancement and even improved potency.

But despite China being the oldest ginseng producer, South Korea has long dominated the global market for ginseng products. Though China produces nearly 70% of the world’s ginseng, its export revenue is only a tenth of that of South Korea, says the China Economic Weekly.

Both at home and abroad, Chinese ginseng struggles to compete. In 2010, Korean ginseng cost Rmb100 per kg, compared to only Rmb15 per kg for Chinese varieties. Chinese consumers are some of the biggest customers of Korean ginseng, bringing it home by the suitcase.

To cater to growing demand, KT&G, Korea’s largest ginseng and tobacco company, even opened a flagship store in Shanghai in 2010.

Though widely disputed, Koreans claim that their own ginseng is the only true variety. Some experts say there are some medicinal differences between Korean and Chinese ginseng. As cited in Chinese Herbal Medicine: Materia Medica, Chinese ginseng is said to have milder energy-boosting effects, so it is usually better suited for young children, the elderly and the ill.

Korean ginseng, on the other hand, is often said to be more potent and not as well suited for everyday use.

But why the price difference? The challenges facing China’s ginseng producers are the same as those facing a host of other domestic industries: questionable product quality, excessive competition, weak branding, low pricing power and meagre earnings abroad.

All of these are an outcome of an extremely fragmented market: one report says there are over a thousand registered ginseng processors in China (which means the actual number is a lot higher in all likelihood).

South Korean firms are also much more conscious about ginseng’s business value. Companies like KT&G have developed advanced technology to process the ginseng plant into a range of health supplements and skincare products. The Koreans also promote their own ginseng as a luxury product, with more attention to packaging and distribution.

They have been so successful that demand for Korean ginseng is far exceeding supply. That’s leading to some Korean firms quietly importing from China to meet the shortfall. Last year the Changbai Mountain, a region in Jilin province that is the world’s biggest producer of ginseng, exported over 3,000 tonnes of the herb to Korea. Industry observers say the import volumes are much higher than officially stated: a lot more is smuggled out of the country to avoid duty.

Last year KT&G also announced that it is investing Rmb800 million ($126 million) in a ginseng processing plant in Changchun city, the capital of Jilin, to process 2,000 tonnes of ginseng annually, with an annual output value of Rmb1 billion.

The Chinese farmers aren’t always enthusiastic about Korean interest in their domestic crop. In 2010, when ginseng prices reached their historic high, a number of Korean buyers who had made advance payments to Jilin farmers refused to accept delivery and cancelled their orders, contributing to price drops in the following months. “They [the Koreans] have a great understanding about the ginseng business in China. To a certain extent, you can say they control the ginseng market here. But they don’t follow the rules of doing business in China,” one ginseng dealer lamented, adding that Korean buyers are usually “sneaky”.

Still, the Securities Times admits that Chinese producers have a long way to go before the local ginseng industry reaches requisite scale, and can start to invest in brand and product.

For that to happen, widespread consolidation will have to happen, the newspaper concludes.

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