Voluntary Report - public distribution

**Date:** 2005/3/22

**GAIN Report Number:** TW5008

TW0000

**Taiwan**

**Market Development Reports**

**Taiwan Health Foods**

**2005**

**Approved by:**

![](media/image1.wmf)Hoa Van Huynh, Director

ATO Taipei

**Prepared by:**

Welly Chen, Marketing Assistant

**Report Highlights:**

The relatively small level of per capita of consumption indicates
significant room of Taiwan's upward growth on health food products. it
is estimated that the total value of food supplements consumption
nationwide will reach NT\$20 billion (US\$0.6 billion) in Taiwan.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Taipei ATO \[TW2\]

\[TW\]

# Summary {#summary-1}

The increasingly cosmopolitan Taiwan consumers in 2004 saw a per capita
GNP of US\$13,995 present a strong buying power on consumer goods and
services unimaginable a decade ago. Taiwan is also a high consumption
economy as the average household spends 70 percent of its disposable
income and saves the other 30 percent.

A sluggish global economy, rising currency value, and a slow local stock
market have generally suppressed consumer willingness to spend money.
However, in these difficult times, the nutraceutical industry has
experienced rapid growth for the past five years. Nutraceutical Industry
products defined in this report are functional foods, nutritional
supplements, herbal compounds, and vitamins.

# Abstract of National Income

+-------+-------+-------+-------+---------+-------+-------+-------+
| GNP   |       |       |       |         |       |       |       |
| Nat   |       |       |       |         |       |       |       |
| ional |       |       |       |         |       |       |       |
| I     |       |       |       |         |       |       |       |
| ncome |       |       |       |         |       |       |       |
+-------+-------+-------+-------+---------+-------+-------+-------+
| Year  | A     | A     | Per   | E       | A     | A     | Per   |
|       | mount | nnual | C     | conomic | mount | nnual | C     |
|       | (Bi   | Rate  | apita | Growth  | (Bi   | Rate  | apita |
|       | llion | of    | (     | Rate    | llion | of    | (     |
|       | NT\$) | C     | US\$) |         | NT\$) | C     | US\$) |
|       |       | hange |       | \%      |       | hange |       |
|       |       | %     |       |         |       |       |       |
|       |       |       |       |         |       | \%    |       |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 1993  | 6,032 | 10.48 | 10964 | 7.01    | 5,508 | 10.51 | 1     |
|       |       |       |       |         |       |       | 0,011 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 1994  | 6,571 | 8.93  | 1     | 7.11    | 6,020 | 9.30  | 1     |
|       |       |       | 1,806 |         |       |       | 0,816 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 1995  | 7,129 | 8.49  | 1     | 6.42    | 6,536 | 8.57  | 1     |
|       |       |       | 2,686 |         |       |       | 1,630 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 1996  | 7,788 | 9.24  | 1     | 6.10    | 7,142 | 9.28  | 1     |
|       |       |       | 3,260 |         |       |       | 2,161 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 1997  | 8,395 | 7.80  | 1     | 6.37    | 7,695 | 7.74  | 1     |
|       |       |       | 3,556 |         |       |       | 2,426 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 1998  | 8,968 | 6.83  | 1     | 4.33    | 8,208 | 6.67  | 1     |
|       |       |       | 2,307 |         |       |       | 1,264 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 1999  | 9,335 | 4.09  | 1     | 5.32    | 8,511 | 3.69  | 1     |
|       |       |       | 3,117 |         |       |       | 2,015 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 2000  | 9,752 | 4.47  | 1     | 5.78    | 8,831 | 3.76  | 1     |
|       |       |       | 4,114 |         |       |       | 2,781 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 2001  | 9,640 | -1.15 | 1     | -2.22   | 8,627 | -2.31 | 1     |
|       |       |       | 2,798 |         |       |       | 1,454 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 2002  | 9,978 | 3.51  | 1     | 3.94    | 8,919 | 3.39  | 1     |
|       |       |       | 2,884 |         |       |       | 1,517 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 2003  | 1     | 1.96  | 1     | 3.33    | 9,066 | 1.65  | 1     |
|       | 0,173 |       | 3,139 |         |       |       | 1,710 |
+-------+-------+-------+-------+---------+-------+-------+-------+
| 2004  | 1     | 4.06  | 1     | 5.93    | 9,358 | 3.22  | 1     |
|       | 0,586 |       | 3,995 |         |       |       | 2,372 |
+-------+-------+-------+-------+---------+-------+-------+-------+

Source: Directorate-General of Budget, Accounting and Statistics
(DGBAS), Executive Yuan

Foods which the Taiwan consumer considers healthful include chicken
essence, ginseng drinks and ginseng-based products, lingchi tablets,
calcium tablets, strips and essence, and honey products such as royal
jelly. The target age for these products is 50 and above, which on
Taiwan is a significant number of consumers. According to criteria set
by the World Health Organization (WHO), Taiwan qualifies as a "senior
society" since 1993, 7.09 percent of its people were over 65.

Taiwan's society is increasingly elderly, while couples are choosing to
have fewer children, people are realizing that they have to pay more
attention to their health and take care of themselves in their
retirement. They also recognize that exercise, a proper diet, and the
intake of supplements are the best way to keep a healthy living. Dietary
supplements are the perfect products to fill the need of consumers
looking for a healthy life. We have seen a proliferation of food
supplements to assist with weight loss, cardiovascular health, cognitive
health, eye health, menopause, joint health, healthy blood sugar levels,
cleansing, sleeping, fuelling, beautifying and much more.

According to a survey conducted by the Food Industry Research &
Development Institute (FIRDI), 77 percent of Taiwan consumers have
purchased health food products. The Bureau of Health (BOH) of the Taipei
City Government released a statistics report in August 2004 indicating
that over 30 percent of Taipei citizens regularly purchase dietary
supplements and spend a total of NT\$2,4 billion (US\$ 800 million) on
such purchases yearly. In light of these figures, it is estimated that
the total value of food supplements consumption nationwide will reach
NT\$20 billion (US\$0.6 billion) a year.

Supplements are most popular amongst people who are older, female,
highly educated and have a "normal bodyweight". Certain groups of
Taiwanese with medical conditions use more supplements than others. They
may use supplements to self-treat their health condition, and the
supplements they choose are in line with recommendations published in
the mainstream or medical press.

A study found that women use more supplements overall. Men with medical
conditions such as depression and coronary disease use more supplements
than women do. It means women tend to use supplements more broadly and
for disease prevention, while men tend to choose to use supplements
mainly after finding out they have some health problem.

# Popular Dietary Supplements in Taiwan

The major food supplements in this market include medical nutritional
products, vitamins and minerals, supplements and beverage with health
benefits, and diet aid products.

1\. Medical Nutritional Supplements:

Most patients have poor diets and maintaining their weight is an issue
crucial to lifting their quality of life and enhancing their likelihood
of receiving effective medical treatment. In addition, as the aging
population grows in Taiwan, more and more people with chronic diseases
require special nutritional products.

2\. Vitamins and Minerals:

Our lifestyle often pushes us to eat meals that are quick and
unbalanced, exceedingly rich in fats and refined sugars but poor in
vitamins and with mineral contents very much different from those needed
for proper human health. For instance they often contain excess sodium
and very little or no magnesium or oligo-elements such as zinc, copper,
selenium. Consumers believe that taking multivitamins and mineral
supplements provide real health benefits for people in fighting free
radicals, and most of the people do so a daily basis -- despite the lack
of well-followed research to assure us it is actually doing some good.
Among vitamins and minerals categories, single supplements with most
popular here in Taiwan are vitamins E , B, and C, and calcium.

3\. Functional Supplements:

Products with health functions have grown to hold positions of great
importance as aids for managing stress, increasing athletic sport
performance, improving study ability, as well as helping with the
management of specific body functions. Functional supplements containing
the correct mixtures of ingredients are needed by many individuals who
choose to use them instead of drugs or pharmaceuticals as a remedy for
health problems.

Some herbs are found to carry active compounds allegedly helpful in
curing health problems. Herbal medicines are booming in the global
market. Their production value worldwide is expected to hit US\$26.7
billion by 2005 from a 2002 level of US\$23.3 billion; the U.S. and
Europe continue to be the two largest markets (data provided by the
Taiwan's Industrial Technology Intelligence Services).

Ginseng is one of the most precious herbs in Chinese medicine history,
used for functions such as boosting energy. However, a new technology to
produce a handful of extracted ginseng saponin compounds makes ginseng
very special in Chinese medicine. It has been proven to help battle
cancer. Several Asian countries are aggressively developing anti-cancer
ginseng saponin medicines.

Fish oil contains omega-3 fatty acids that may lower the risk of heart
disease in older adults. There have been a number of clinical trials
assessing the benefits of fish oils. Fish oil in chronic inflammatory
diseases reveals significant benefit, including decreased disease
activity and a lowered need to use anti-inflammatory drugs.

Chondroitin and Glucosamine are very popular among older people, helping
to lubricate, cushion and support joints, and helping to maintain the
structural integrity of joints and connective tissues. This type of
product is currently dominated by domestic production, as the domestic
products are very expensive, consumers are turned to source imported
products. Canadian and U.S. brands are most common in this market.

The Brazil mushroom has recently become an increasingly popular health
food. It is rich in polysaccharides, which can enhance the immune system
and can also be used in the production of cancer-fighting drugs. In the
past, only imported dried Brazil mushrooms or liquid extracts were
available in Taiwan, since 2003 the local farmers have successfully
grown the Brazil mushroom in Taiwan, with technical assistance from an
university research team.

4\. Functional Beverages:

Health-oriented drinks are based on carriers that have an intrinsically
healthy image with consumers. What's more they offer convenience. The
successful brands are usually also ultra-convenient, single-serve,
on-the-go products, which you can grab for a morning or afternoon snack
and which don't require consumers to alter eating habits.

5\. Diet Aids:

In Taiwan, the prevalence of obesity is a developing public health
problem. Instead of taking doctor's advice on taking weight control
pills, most people prefer self-treatment to lose weight before seeking
out a doctor. Women who are weight-conscious, or slightly overweight in
particular like to take diet aid products such as digestive formula and
fiber supplements.

The Taiwan consumer enjoy the wide variety and benefits of health food
offers and rising incomes make health food more affordable. There are
three main directions in which this market is growing:

1.  Liquid breakfasts: Breakfast is already established in many
    countries as the one meal occasion of the day when most consumers
    will make at least a gesture in the direction of eating healthily. A
    "healthy start to the day" has become a common marketing message for
    nutritional products.

2.  Enhanced water: The bottled water market is expanding across the
    world, driven by the universally-recognized message of the
    importance of drinking 8 glasses of water a day, coupled with
    convenience, portability and an image of healthy. But if you don't
    already own a well-known brand, it's hard to make headway in a
    market that is increasingly consolidated into the hands of a few
    major players. But the makers of enhanced waters have proved that
    they know how to ride the water trend. Enhanced waters are a logical
    progression from flavored waters, achieving brand differentiation by
    delivering healthy ingredients and zero-calories.

3.  Liquid dietary supplements: An increasing number of ingredients
    which have been previously found only in the dietary supplement
    aisle are beginning to find their way into beverages. Consumers look
    for the better-tasting, more fun and more convenient (as compared to
    pills/capsules) delivery systems for health-enhanced nutrients.

# 

# Local Production

Increasing consumer awareness of the role of healthier living provides
opportunities for innovative manufactures and the profit levels for
health food producers have outperformed the general food product
industry. Several Taiwan food giants have moved into the health food
sector as well as into food biotechnology, by establishing biotechnology
research centers to research and develop health foods with major
functions including strengthened immunity, lower blood lipids, and
improved gastrointestinal functions.

The Wei Chuan Food Corporation, a food manufacturer with 47 years of
experience in Taiwan established a biotechnology research center in 2004
including a well-equipped facility, which is partly supported by Esukimo
in Japan. The center manufactures a wide variety of health food based on
functional fermented products, natural vegetable materials, and advanced
bacteria cultivation. One example of an especially successful product is
the immunity booster produced from a special breed of mushroom: agaricus
blazei murill. Wei Chuan anticipates its biotech center to earn a profit
of NT\$200 million (US\$6.6 million) in three years.

Taiwan Sugar Corporation (TSC) is a state-owned company under the
supervision of the Ministry of Economic Affairs. Between 1952 and 1964,
long before Taiwan became a manufacturing workshop for the world market,
TSC had the distinction of being Taiwan's number-one foreign exchange
generator. Sugar was then Taiwan's leading export commodity, at one
point accounting for as much as 74% of total foreign-exchange earnings.
Despite its past glory, TSC went into serious decline in the 1980s. The
economy's swift transition to concentration on higher-valued
manufactured goods, coupled with a sharp drop in international sugar
prices, delivered a double blow to the once flourishing corporation.
Since then, TSC sought to improve its fortunes by diversifying into
several new areas of business.

Food supplement products developed with nanotechnology have generated
NT\$200 million (US\$6.6 million) in one year in Taiwan. Cordyceps, also
known as winter worm summer grass has long been treasured as a powerful
medicine to regain strength, resist asthma, and prevent heart diseases.
Ganoderma, or "*linchi*" in Chinese, is another rare plant widely
believed to have many medical properties for strengthening the immune
system. Both have been certified by the FDA. According to TSC, the
healing part of these two herbs lay in their mycelia. The biotech center
of the company therefore focused on the incubation of cordyceps and
ganoderma mycelia, effectively reducing the cost but still retaining the
essence of the plant.

# Health Food Labeling

According to Taiwan Health Food Control Act, local or foreign food
manufacturers can apply for permission to make health food claims based
on the functionality of their product ingredients by submitting relevant
reports that describe and demonstrate how a specific ingredient (or
ingredients) works to achieve a specific effect. This limited list of
specific effects include: moderating lipid level, moderating stomach and
intestinal functions, improving of osteoporosis, benefit to dental
health, moderating of the immune system, moderates blood sugar level,
protect the liver, anti-fating, anti-ageing, and helps promote weight
loose. Food products containing ingredients with Department of Health
(DOH) recognized health benefits may submit an application. It is a
mandatory requirement that any nutritional claims carry nutritional
labeling and comply with the restrictions prescribed by the Department
of Health (DOH) and the nutritional information is required to be listed
on the packaging.

Taiwan does not apply specific requirements for food products imported
as dietary supplements unless the imported products want to apply for
local health food claims. All imported supplements must follow the
inspection and quarantine rules that apply to their regular food peers.

**Sales Channels for Nutritional Supplement Products**

Direct Sell:

80 percent of dietary supplements are sold through the direct sell
channels. Direct sales marketing offers the most vigorous growth with a
target audience between the age of 20 and 40. According to the
statistics of the Taiwan Direct Selling Association, a trade group that
represents 264 companies, the 2003 sales of nutritional food/supplements
account for NT\$20.4 million (US\$6.4 million -- up from NT\$16.5
million (US\$5.5 million) in 2002 and NT\$13.3 million (US\$4.4 million)
in 2001. The nutritional supplement products sales average about 35
percent to 40 percent of member companies' total sales revenues.

It's all about the relationship. People want to buy from people they
like and know. The sales consultants, mostly women motivated by sales
incentives and flexible work schedules, have been turning social
gatherings into big business. Despite the convenience of Internet
retailing, most Taiwan customers do not feel comfortable shopping and
releasing their credit information over the Internet. However,
multilevel merchandisers fulfill the need of shoppers who want see and
taste the products before purchasing.

Pharmacies:

Health and beauty are the strongest areas in terms of sales in this kind
of store. In addition to products, consultancy services are also
important elements for consumers who shop at pharmacies, as people are
more conscious about health and beauty issues and this is a place for
people to look for advice in the early stages of an illness, rather than
to go to the doctor for help. This type of pharmacy has a positive role
to play in Taiwan. The most prevalent pharmacies on the island are
Watsons, Cosmed and branded druggist chain stores.

TV Shopping Channels

Currently, the lucrative TV shopping market is led by the Eastern Home
Shopping Network, which runs five shopping channels established in 1999.
Fubon Financial Holding Company also launched a TV shopping channel at
the end of 2004. Both Easter and Fubon are very optimistic about the TV
shopping services. Another interested party is Uni-President Corp.,
Taiwan's largest food maker and the dominant player in the retail
sector. Uni-President announced plans to tap into the TV shopping market
last summer, although it has since decided to put this project on hold.
The TV shopping market has become widely accepted as a way to purchase
products, with women age between 25 and 50 constituting the main
customer base.

# Opportunities

Health food products are dominated by domestic production. The local
products tend to be expensive. The majority contain Chinese medicine
ingredients. Affluent Taiwan consumers are becoming increasingly
cosmopolitan in their life styles as evidenced by the recent surge in
health foods and supplements taking. As a result, quality U.S. products
are readily accepted here and are becoming a growing part of the Taiwan
supplements market. Whether they are vitamins, fish oil, lecithin, join
strengthener or dietary control pills, Taiwan consumes are looking for
variety and appreciative of quality.

Packaged supplements may help to promote U.S. brands and product
innovations to Taiwan market. There is a way which can help U.S.
manufacturers increase exports and save package cost for Taiwan
importers and distributors. Depending on the needs/desires of Taiwan
importers, U.S. manufacturers should export capsules and tablets in bulk
as some local health food companies want sell their products with their
private labels.