The Draft Final Report Licorice Industry in China: Implications for Licorice Producers in Uzbekistan Beijing Office International Food Policy Research Institute (IFPRI) January 13, 2014 1 Table of Contents Acronyms and Abbreviations ............................................................................................. 3 List of figures ...................................................................................................................... 4 List of tables ........................................................................................................................ 5 List of boxes ........................................................................................................................ 6 Acknowledgement .............................................................................................................. 7 Executive Summary ............................................................................................................ 8 1 Introduction ............................................................................................................... 12 1.1 Background ........................................................................................................ 12 1.2 Licorice: Definition, Varieties, and Utilization .................................................. 13 1.3 End markets for licorice ..................................................................................... 14 1.4 Objectives ........................................................................................................... 15 1.5 Method and Approaches..................................................................................... 15 2 Overview of licorice market globally and in China .................................................. 16 2.1 Global market ..................................................................................................... 16 2.2 China market ...................................................................................................... 20 3 Mapping Chinese licorice value chain....................................................................... 29 3.1 Licorice production ............................................................................................ 29 3.2 Licorice processing ............................................................................................ 36 3.3 Licorice wholesalers and retailers ...................................................................... 37 3.4 Licorice imports and exports .............................................................................. 38 3.5 Enabling environment ........................................................................................ 41 3.6 Chain integration, cooperation and coordination ............................................... 46 3.7 Constraints and opportunities faced by Chinese licorice industry ..................... 48 4 Prospects for developing Uzbekistan-China licorice value chain ............................. 51 5 Summary, knowledge gaps and recommendations .................................................... 53 5.1 Summary ............................................................................................................ 53 5.2 Knowledge gaps ................................................................................................. 54 5.3 Recommendations .............................................................................................. 54 References ......................................................................................................................... 56 Annex ................................................................................................................................ 58 Annex 1 List of Tables and Figures .............................................................................. 58 Annex 2 Case Descriptions ........................................................................................... 66 Annex 3. Administration on Export License for the Approved Commodities (2012) .. 75 Annex 4. List of Enterprises Bidding for Export Quota of Licorice and Licorice Products (2013) ............................................................................................................. 81 Annex 5. Overview of various utilization of licorice .................................................... 83 2 Acronyms and Abbreviations CAAS Chinese Academy of Agricultural Sciences CCCMHPIE China Chamber of Commerce for Import& Export of Medicine& Health Products CFDA China Food and Drug Administration CIAT International Center for Tropical Agriculture GAP Good Agricultural Practice GMP Good Manufacturing Practice GSP Good Supply Practice MOA Ministry of Agricultural of the People’s Republic of China MOFCOM Ministry of Commerce of the People’s Republic of China MOFTEC Ministry of Foreign Trade and Economic Cooperation (Former MOFCOM) MOST Ministry of Science and Technology of the People’s Republic of China MOU Memorandum of Understanding NDRC National Development and Reform Commission NHFPC National Health and Family Planning Commission of the People’s Republic of China 3 List of figures Figure 1.World Import of Licorice Roots (1988-2004) ............................................. 17 Figure 2. World Import of Licorice Extracts (1988-2011) ........................................ 17 Figure 3. World Exports of Licorice Roots (1988-2003) .......................................... 18 Figure 4. World Export of Licorice Extracts (1988-2011) ........................................ 19 Figure 5. World price changes of licorice roots and extracts (1987-2007) ............... 20 Figure 6. Structure of licorice products in China 2008 ............................................. 21 Figure 7. Production of dried wild licorice in China (tons), 1950-2006 ................... 23 Figure 8. Import and price of licorice roots by China ............................................... 24 Figure 9. Import and price of licorice extracts by China ........................................... 24 Figure 10 . China share in world total export 1992-2006 .......................................... 25 Figure 11. China’s trade of licorice roots in the world market .................................. 26 Figure 12, China Export Quota 2005-2013 ............................................................... 28 Figure 13. Projection of demand and supply of licorice in China 2012-2016 ........... 28 Figure 14. Flow Chart of Traditional Herb (Licorice Slice) Distribution System .... 30 Figure 15. Flow Chart of Licorice Extract Distribution System --Industrial Material for Food Food/beverage, Tobacco, Cosmetics, and Medicine ........................... 31 Figure 18. Uzbekistan Shares Exporting Licorice Roots to China (2010) ................ 39 Figure 19. Top ten Chinese exporters of saps/extracts 2009 ..................................... 41 Figure 20. Mapping Licorice Value Chain in China ................................................. 50 Figure 21. Import of licorice extract from Uzbekistan to China, 2007-2011 ............ 51 4 List of tables Table 1.Glycyrrhiza acid content between the wild and cultivate licorice ................ 35 Table 2.Comparison of economic benefits betweenlicorice and corn, 2005 ............. 36 Table 3.Major importers of licorice roots/extracts from Central Asian countries. .... 38 Table 4. Top ten Chinese exporters of licorice 2011 ................................................. 40 Table 5.List of Chinese Regulations and Policies for Licorice Industry ................... 43 Table 6.Quality Standards for Licorice ..................................................................... 44 5 List of boxes Box 1. Licorice cooperative farm- BKY Licorice Farmers’ Cooperative ................. 34 Box 2. Licorice seeds and cultivation technology provider- Beijing Shizhen Chinese Herbal Medicine Technology Ltd...................................................................... 35 Box 3. Exploring New Usage of Licorice in Cosmetic Industry - Nanjing Zelang Medical Technology Ltd ................................................................................... 37 Box 4. International licorice manufacturer- ZFTZ MAFCO BIOTECH CO., LED. 41 Box 5. List of Major Chinese Publications for Licorice Production ......................... 46 Box 6. Increasing Foreign Direct Investment in Uzbekistan for Licorice Production ........................................................................................................................... 52 6 Acknowledgement This report is based on research supported under the CGIAR Challenge Research Program – Policy, Institute, and Market: Linking Licorice Smallholders in Uzbekistan with Rapidly Rising Market in China: Environment-friendly Cross Boarder Value Chain Development. The research team consists of Kevin Chen (project leader), Hu Song (food value chain specialist), and Chen Ruyu (Research intern). We would like to thank Karen Brooks for her guidance and support throughout the whole period of research. We also wish to thank the following persons whom we meet in the filed visits: Jin Chun, President, Gansu Fanzhi Biotechnology Co.， Ltd Lei Zhong, Manager in Purchase department, Yuli County Jinxing Licorice Products Co., Ltd, Xinjiang Liu Dong, Manager, Nanjing Zelang Medical Technology Ltd, Jiangsu Lou Meng, Department manager, Beijing Gingko Group Biological Technology Co., Ltd. Ren Fang, Researcher, China Chamber of Commerce for Import& Export of Medicine& Health Products, Beijing Wang Haiting, Manager, BKY Licorice Farmers Cooperative, Xinjiang Wang Zhanyong, Licorice farmer, Xinjiang Wei Shengli, Professor, Beijing University of Chinese Medicine Wu Guoqing, Manager and Analyst, ZFTZ Mafco Biotech Co., Ltd, Jiangsu Zhang Zhonglin, President, Zhonglin Biological Technology Co., Ltd. Xinjiang Zhao Huabi, Director of Licorice Research Institue, Gansu Zhou Chengming, president, Beijing Shizhen Chinese Herbal Medicine Technology Ltd, Beijing 7 Executive Summary Licorice is a perennial plant that grows in southern Europe, Asia, and the Mediterranean. The leaves, roots and stems of the plant have been used as livestock fodder, human food and herbal medicine by many countries including China, for thousands of years. In the past a few decades, extracts of licorice are widely applied as additives by the food and beverage, cosmetics, and tobacco industries. In addition, licorice brings environmental benefit by growing in marginal land such as dry land and Saline-alkali oil resulting in ecological restoration. Both China and Uzbekistan are major licorice producers in the region but with China as a major importer and Uzbekistan as a major exporter. In particular there is an interest from both donors and the government of Uzbekistan to develop Uzbekistan licorice industry for benefiting smallholders and environment. Chins could be major potential market for Uzbekistan licorice. However, developing an effective investment plan requires better understanding of Chinese licorice market and its implications for Uzbekistan. This report attempts to provide an overview of licorice industry in China by mapping out the key actors, the interactions among them, as well as the enabling environment. A special focus is placed on cultivated licorice in China. Based on the analysis of the current licorice trade between China and Uzbekistan, the potential of linking licorice producers in Uzbekistan with Chinese market is assessed preliminarily. Recommendations to improve the licorice value chain development ultimately benefiting the participants of the chain as well as ecological environment are provided. The review of global and Chinese licorice markets is limited by lack of existing data. Apparently there is little systematic effort to collect and disseminate the information on production, consumption, and trade of licorice both globally and in China. The existing literature and media reports makes possible to outline general trends of licorice sector development. The demand for licorice continues to grow in both domestic and international market in the recent years. In addition to the traditional use by the pharmaceutical industry, the increasing demand mainly comes from other sectors such as tobacco, food and cosmetic industries. With research findings with new applications of licorice in combating air pollution and others, the demand for licorice will likely to rise in the next decades. China’s demand for licorice has grown in a much faster rate in the recent years. In the recent years, The licorice value chain in China has being globalized and integrated vertically. China’s entry in WTO in 2001 has boosted its trade with other countries, including licorice. With a rapid decrease of its natural licorice reserve, China has become the net importer of licorice since 2006 due to the reduction of wild licorice reserve. This was a significant development as China used to be the largest exporter of licorice roots accounting for about 90% of the world supply. The rising Chinese demand for licorice is largely fueled by the shift towards value added processing recently. This 8 also creates a great potential for licorice producers from China and suppliers from other countries. The cultivation of licorice has also being also growing to fill the shortage of wild licorice supply in China. The cultivated areas for licorice have gone up fast since 2007 after the price of licorice jumped by almost 30% in 2006 comparing with previous year and its upward trend continues. According to MOFCOM, there were 1,881,122 Mu (or 125,408 hectare) licorice planted in 20111. However, the use of cultivated licorice by the extracts and Licorice ammonium salt processors is rather limited due to the poor quality compared to the wild one. While most cultivated licorice of 2-3 years can meet the national standard on the content of Glycyrrhizin acid (>2%), it is much lower than that of the wild licorice. The contents of other elements such as liquiritin and total flavonoidsfor the cultivated licorice are also much lower than these of wild licorice (Feng Wei, 2007). Most cultivated licorice is used as slice for traditional medicine as well as herbal drinks while the wild licorice is processed for other value added products such as Glycyrrhizic acid. On the other hand, the licorice cultivation farmers are facing two major challenges. First, the production cycle takes minimum 2-3 years which implies to larger investment than regular crops in terms of fertilizers, weeding, pesticides and irrigation. It is difficult to predict the market price in such long period and thus the profitability becomes uncertain. Second, the supply of seeds is inconsistent in terms of quality and quantity as the seeds are all collected from the wild and there is no third party supervision on the distribution of seeds. The inadequate supply of seeds is a bottleneck to scale up the licorice cultivation in China. The Chinese processors intend to stabilize the licorice supply in China and other countries through establishment of corporate managed licorice farm or contracting local licorice producers or cooperatives. The vertical integration is accelerated by a number of government policies, such as the Advice on Supporting the Dragon Head Enterprises for Agricultural Industrialization issued by the State Council in 2000. The policy encourages the specialization, standardization, formalization and intensification led by the large agribusiness firms. Small growers and processors are expected to be included in the value chain by establishing various partnerships with large firms. The licorice processing industry in China is being reshaped to be more domestic market focused, more desired for consistent supply either from contracted licorice farm or imported from other countries, and compliant to GMP standards. Mainly because of the export restriction and growing demand in China, the licorice processors are paying more efforts to develop domestic markets. A lot of previous-export-oriented processors have started establishing long-term relationship with large customers in China. The reduced supply of wild licorice reserve in China makes the processors outsourcing the supply to other countries. Some processors have started to build corporate managed licorice farms or contract local 1Analysis of Distribution for Some Chinese herbal Plants in 2011, MOFCOM 9 licorice farmers in order to secure the domestic supply. As quality control measure, GMP compliance has become compulsory for licorice processors by CFDA since 1999. Many small processors are closed down due to failure passing the GMP evaluation. It is reported that only 597 drug substance manufacturers of the total 4669 are granted GMP certification by November 20122.As a result, there are less but bigger processors left in the industry. The research and extension are backbones to the licorice value chain development. Private sector is playing bigger role in the research activities. The NDRC and MOST jointly conducted a policy to promote the establishment of research facility at private enterprise (29 August 2011). Under the policy, the public research institutions are encouraged to work closely with private sector to address the immediate needs of technology. In the past, there is lack of continuous investment on market oriented research on licorice. Most Chinese researches funded by the government focused on the medical value of licorice, little attentions on the values of licorice applied by other sectors, such as tobacco, cosmetic, and food. Moreover, there was little participation of private business in the research activities. For example, there is limited publication on the cultivation technology of licorice seeds and processing technologies of cultivated licorice, which are challenges faced by the licorice growers and processors. The distribution system of licorice has being changed dramatically in the past 10 years. The major change is that many small traders are disappearing with less supply of wild licorice and more contract farming by the processors. Traditionally, the licorice collected from the field will go through many traders normally at four levels from village, township and county to municipality before reaching the gate of processors or exporters, as showed. Traders have played critical role to secure the supply of wild licorice for the processors. However, the shrinking of wild licorice reserve and contract farming between licorice cultivators and processors has pushed many small traders out of business. Some of them have turned to become licorice cultivating farmers. More recently, the enforcement of Good Supply Practice (GSP) for Drug Distributors effective in June 2013 will likely push more small distributors out of business. In spite of fewer small traders, larger traders with financial capability are playing important role of credibility to bridge the licorice cultivating farmers and processors. The farmers prefer to be paid cash up in front while the processors normally pay suppliers on credit. The government of China has implemented a number of policies to rationalize the licorice value chain development in China since 1990’s. Given the reduction of natural reserve as well as concerning the ecological environment protection, the export of licorice roots and extracts is limited through a quota system, and the collection of wild licorice is restricted by the permit system. Due to the shortage of domestic supply, the 2http://www.fujiepharm.com/cgi/search-cn.cgi?f=news_cn_1_&id=116605&t=news_cn_1_ 10 http://www.fujiepharm.com/cgi/search-cn.cgi?f=news_cn_1_&id=116605&t=news_cn_1_ government encourages the import of licorice through a duty free policy. Meanwhile, the government promotes the cultivation of licorice as alternative to the wild licorice through an agriculture policy portfolio including the supports to the farmer’s cooperative, dragon head (flagship) agribusiness, standardized farming, farming mechanization, green for grain, agricultural products safety and quality, agri-food branding, specialized agriculture, etc. The government supports are often referred to reward or subsidy, low interest bank loan, less or free taxation and land transfer. Moreover, the government has implemented a number of quality assurance regulations to guard the medical material supply chain, such as GAP for the producers, GMP for the processors and GSP for the distributors of herbal medicine including licorice. Generally speaking, the policy environment plays a role to encourage the licorice value chain development toward environmental friendly and economical efficiently production, value added processing, and natural products consumption. Uzbekistan has the potential to increase the supply of licorice to China. Firstly, the demand in China steadily grows in past decades and predicted to continue in the next decade. Second, both farmers and government in Uzbekistan are keen to develop licorice production not just as a means for cash income but the ecological benefit to reclaim the degraded land. Despite of the promising opportunities of linking licorice producers in Uzbekistan with growing Chinese market, there are numerous constraints to be addressed by the government and international donors, such as research and extension, trade policies, and financing. 11 1 Introduction 1.1 Background Licorice is a perennial plant that grows in southern Europe, Asia, and the Mediterranean. The leaves, roots and stems of the plant have been used as livestock fodder, human food and herbal medicine by many countries including China for thousands of years. In the past a few decades, extracts of licorice are widely applied as additives by the food and chemical industry, including cosmetics, tobacco, and beverage. In addition, licorice brings environmental benefit by growing in marginal land such as dry land and Saline- alkali oil resulting in ecological restoration3. China is a leading producer and userof licorice in the world. The annual demand for licorice is estimated around300,000 tons4in fresh for both domestic consumption and export market. Of that, about 1/3 are used by the licorice extracting industry while the rest 2/3for other sectors such as herbal slice5.About 80% of licorice comes from the wild while the rest is cultivated6.The above data is the best guess we can made based on the experts and industry people during the interview as the official statistics are not available. However, natural licorice reserves have sharply dropped to 1 million hectares in 2000’s from 3.2 million hectares in 1950’s due to unregulated and over-harvesting (Zhou, 2008).Such over-harvesting not only causes depletion of wild licorice reserve but also environmental degradation. In order to protect the natural resource, the government of China has started limiting the harvest and export of licorice since 2001. The tightened regulation has reduced the domestic supplies of licorice. As an alternative, China has started to import more and more licorice since 2001. The import continues to grow every year since then. In 2011, China imported 10,659 tons of licorice roots, 123% increase over 2010.Of which, about 80% comes from Central Asia7.Uzbekistan is one of major licorice exporters in the region. For instance, Uzbekistan exported 2281.05 tons licorice roots in fresh or dry to China, accounting for 47.74% of the China total import, ranked the first place of exporters to China in 2010 (No3, Vol.13, Mar 2011, Modern Chinese Medicine). Over 70% of licorice grown and processed in the country is exported abroad8.However, the percentage of its licorice export goes to Chinese market in recent years is unknown during the reporting period. 3http://www.xzbu.com/2/view-4179848.htm 4China Producing Area Information Platform, March 9,2012.http://www.chandi.cn/chandi/detail/2088.html 5Interviewed with Zhang Zhonglin, the chairman of Xinjiang Zhonglin Bio-tech Ltd, and Dr. Zhou Chengming, the general manager of Beijing Shizhen Chinese Herbal Medicine Technology Ltd, 8 November 2013 6http://www.mofcom.gov.cn/article/wtojiben/t/200406/20040600241330.shtml 7http://news.pharmnet.com.cn/news/2012/06/21/361448.html 8http://www.uzbekistan.or.kr/bbs/board.php?bo_table=news&wr_id=1365 12 http://www.xzbu.com/2/view-4179848.htm http://www.chandi.cn/chandi/detail/2088.html http://www.mofcom.gov.cn/article/wtojiben/t/200406/20040600241330.shtml http://news.pharmnet.com.cn/news/2012/06/21/361448.html http://www.uzbekistan.or.kr/bbs/board.php?bo_table=news&wr_id=1365 Licorice harvested in Uzbekistan is all wild up to present. The lands growing licorice are typically owned by small farmers who collect and sell licorice or lease out. With a strong recent demand for licorice, it could become an issue whether or not the current practices are sustainable. Like in China, there has been a growing interest on the cultivation of licorice in Uzbekistan. CIAT, for example, has successfully cultivated licorice on a pilot base at NUKUS Karakalpakistan, Uzbekistan (Nobel and Zafar 2013). The World Bank and the Government of Uzbekistan are exploring a possible loan program to support development of cultivated licorice sector. To have a commercially viable licorice sector, it is critical that markets (both international and domestic) are there to support increasing licorice production. Given apparent importance of Chinese market, it is critical to have a good understanding of the licorice sector in China and to assess the opportunities to develop China-Uzbekistan licorice value chains. 1.2 Licorice: Definition, Varieties, and Utilization Liquorice or licorice is the root of Glycyrrhiza glabra from which a somewhat sweet flavor can be extracted. The liquorice plant is a legume that is native to southern Europe and parts of Asia. Licorice grows best in deep valleys, well-drained soils, with full sun, and is harvested in the autumn, two to three years after planting.It is grown to 1 m in height, with pinnate leaves about 7-15 cm (3-6 inches) long, with 9-17 leaflets. The flowers are 0.8-1.2 cm (½–⅓ inch) long, purple to pale whitish blue, and produced in a loose inflorescence. The fruit is an oblong pod, 2-3 cm (1 inch) long, containing several seeds.The roots are stoloniferous9.The most common varieties in China include three kinds of G.uralensis, G.glabra and G.inflata that are approved by the Chinese Pharmacopeia10. The Licorice contains phytochemical compounds that have biological and physiological effects on most mammalians. These components can be classified toa) flavonoids and iso-flavonoids, b) terponoids and saponins, c) vitamins, d) volatile oils, e) minerals, f) coumarins, and g) others11. Licorice cultivation started in early 1500’s, but commercial cultivation did not start until 1950’s in many countries including China. However, the licorice processing industry prefers to use wild licorice due to higher content of effective elements such as Glycyrrhizic acid and liquiritin. The majority of licorice traded in market today is still collected from the wild. Given the fact that wild licorice resource is becoming less and less, cultivation has been given a growing attention to address the shortage of licorice supply. The quality of cultivated licorice needs to be improved significantly in order to be able to compete with that of wild licorice. 9http://en.wikipedia.org/wiki/Liquorice 10Chinese Pharmacopoeia (a),China Pharmacopoeia Commission, Beijing: Science Press, 1977:3 11http://www.uobabylon.edu.iq/uobcoleges/fileshare/articles/Licorice or Liquorice.pdf 13 http://en.wikipedia.org/wiki/Liquorice http://www.uobabylon.edu.iq/uobcoleges/fileshare/articles/Licorice%20or%20Liquorice.pdf The licorice is primarily used by the tobacco, food, pharmaceutical, and cosmetic industries. Licorice provides tobacco products with a natural sweetness and a distinctive flavor, also making it easier to inhale the smoke by creating bronchodilators. Licorice flavor is found in a wide variety of licorice candies, sweets, soft drinks where it provides a sweet aftertaste. Chinese cuisine uses licorice as a culinary spice for savory foods where consumers can find licorice at the supermarkets today. It is often employed to flavor broths and foods simmered in soy sauce. For example it is used extensively in the production of bacons. Licorice has a long history of medicinal use in both Chinese and Western systems of medicine. It is used as medical remedy for bronchitis, peptic ulcers, eczema, dyspepsia, upper respiratory infections and weight loss. Licorice extracts and many glycyrrhizin derivatives are widely used in the preparation of cosmetics owing to their skin-whitening, anti-sensitizing, and anti-inflammatory properties (Yokota et al. 1998).Various utilization of licorice is provided in Annex 5. China is the major licorice producer, growing 18 of the 29 major varieties in the world. Different countries include different varieties in its pharmacopeia. For example, Chinese pharmacopeia only approves three varieties including G.uralensis,G.glabra and G. inflate as shown in Ttable-2.American and European pharmacopeias use G.uralensis and G.glabra. Japanese pharmacopeias only accepts G.glabra. 1.3 End markets for licorice Licorice is widely used in pharmaceutical, tobacco, food, cosmetic and other industries. The root of licorice is the most common ingredient of traditional Chinese medicine. As a medicinal herb, licorice is known as “the king of Chinese medicine” providing therapeutic effect to asthma, cough, inflammation, rheumatism, gastritis, peptic ulceration, and arthritis (Gao, Wang, and Wei 2009). Moreover, its extract is much more widely used in modern medicine with functions of antiviral, anti-allergic, anti-tumor and immune regulation.. More recently, it has also used in anti-cancer formula due to the recently discovered cancer treatment effect (Liu, 2010).It is estimated the pharmaceutical industry in China accounts for 50% of the national licorice use. In addition to the medical purpose, the chemical constituents of licorice have been extensively studied with regard to isolation of glycyrrhizin as well as many triterpene saponins and flavonoids (Nomura and Fukai 1998).The flavonoids extracted from licorice are also used in the preparation of cosmetics with functions of anti-inflammation, skin- whitening and anti-sensitizing. Glycyrrhizin and other licorice extracts are used as food flavoring additives and sweeteners in a variety of foods, such as snacks, instant noodles, sauces, ice creams, sherbets. The tobacco manufactures also use it as flavor improvement and reduction of tar and nicotine contained in cigarettes. The major international companies representing various industries are listed in Table A1. 14 1.4 Objectives This project intends to assess the opportunity to link licorice smallholders in Uzbekistan to growing Chinese market through value chain development. There are six specific objectives: i. To examine the changes taking place in the functioning and organization of China’s licorice industry and to identify challenges. ii. To identify patterns of licorice imports and exports in China. iii. To examine evolution of licorice cultivation relative to wild licorice in China iv. To identify business practices for linking licorice producers with markets in China. v. To identify how the government and international organizations can facilitate the development of licorice industry in China, with due attention paid to smallholders. vi. To identify lessons from experience to date in China for the design and implementation of licorice value chain development in Uzbekistan. 1.5 Method and Approaches The major challenge for the project is that there is little systematic, reliable data available for licorice industry globally and in China. This study is a qualitative appraisal comprised of desktop review and field visits. The desktop review scanned the literatures and publications available in scientific journals, internet and bookstores. The field visits included meetings with various stakeholders of Chinese licorice value chains, including government officials, scientists, business associations, producers, traders, processors, and importers/exporters. The research team also paid visits to the licorice production and processing sites in Beijing, Jiangsu, and Xinjiang. Persons met and their affiliations are listed in the Acknowledgement. The interview is guided by the following basic questions: i. What’s the scope of licorice industry in China? ii. What roles China and Uzbekistan play in global licorice value chain? iii. Who are the stakeholders and key players of the licorice value chain in China? And how they interact with each other? iv. What are the driving force for the change of demand and supply? v. What role does the government play to develop the licorice value chain? vi. What are the motivations for China to import licorice from Uzbekistan? And how that can be sustained? vii. What are the opportunities and challenges to link the licorice smallholders in Uzbekistan with Chinese market? 15 2 Overview of licorice market globally and in China 2.1 Global market 2.1.1 World demand The world demand for licorice roots and extracts had been reported to steadily risen in the past decades. However, the reliable estimate of the world demand for licorice is rarely available. One source12, for example, reported that the global consumption of dried licorice roots has been ranged from250,000 tons to 280,000 tons per year during the recent four years from 2009 to 2012 (Qi 2012.Since data on world demand of licorice is not available, this project relies on the world import data from UN statistics to partially reflect the world demand. Comparing with that of 1988, the import of licorice roots was tripled in 200413, and the import of licorice extract was increased by nine times in 2011 (Figures 1 and 2).There appears a strong and continuous demand for licorice roots in global market. For example, China has dramatically increased its import of licorice roots to 13,960 tons in 2011 from 1,008 tons in 2004 according to data from China Customs. The increased import in China is mainly driven by: 1) the significant shortage of domestic supply of wild licorice due to over harvesting, 2) duty free policy for imported licorice since 2008, 3) rising price of licorice in both domestic and international markets since 2003 because of the growing demand by the new products (i.e. anti-cancer medication) using licorice as ingredient. The major importing countries for licorice roots and extracts include United States of America (USA), Japan, South Korea, China, Egypt, EU-27, France, Germany, Denmark, Netherland, Indonesia, India, Malaysia, and Israel (Figures 2 and 4). Of those countries, USA, EU, Japan and Korea are leading importers for licorice roots. During 1998 and 2012, EU and USA are leading importers of licorice extract according to the accumulated import value (Figure 5). Netherlands and China have substantially increased their import of licorice extract since 2010. 2.1.2 World Supply Licorice has mainly grown in China, Central Asia, Mid-East, and Eastern Europe for thousands years. Licorice was largely self consumed with national boundaries. With rapid development of licorice processing industry in recent decades and changing endowment of natural licorice reserve, the export of licorice became common. Originally, the licorice supply all comes from the wild and mainly traded in the form of fresh or dried licorice roots. Due to the decline of wild resource similar to Chinese situation observed today, many countries in Europe started licorice cultivation. For example, France, Italy and Spain started cultivating licorice as early as 1800’s. However, 12http://www.chandi.cn/chandi/detail/2088.html 13The import figures for licorice roots are available only until 2004with the United Nation Statistics as these after 2006are either incomplete or unavailable for most years. 16 http://www.chandi.cn/chandi/detail/2088.html cultivation continued until the 19th century, when it finally phased out because of the competition from cheaper sourcing countries such as China and Central Asia. Figure 1.World Import of Licorice Roots (1988-2004) Source: UN Comtrade Statistics Figure 2. World Import of Licorice Extracts (1988-2011) Source: UN Comtrade Statistics 1988 1992 1996 2000 2004 Import Weight (tons) 12280.3 24564.1 35998.7 39609.1 40911.6 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 W ei gh t ( to n) 1988 1992 1996 2000 2004 2008 2011 Import Weight (tons) 5359 13613 17656 26120 28786 37143 49994 0 10000 20000 30000 40000 50000 60000 W ei gh t ( to ns ) 17 Similar to the world demand situation, the data of licorice supply by countries is not available during the reporting period. As such the report uses the export data to partially reflect the world supply. The world export of licorice roots had increased by fourteen times in the past 15 years. By 2003, the export volume of the root exceeded over 20,000 tons per year. There was a big jump observed between1988 and 1992, as showed in the trend every 5 years since 1988 (Figure3). The export volume of licorice roots was increased 9 times within 5 years, which was largely driven by the high price of roots in international market. The price reached the peak around 1993 (Figure 5). During the period of 1998-2006, the top 12 exporting countries for licorice roots include China, Hong Kong (China), Azerbaijan, Pakistan, Iran, Germany, France, EU-27, Indonesia, Syria, Turkey, and Kazakhstan (Figure A5). More recently after 2006, Afghanistan, India, Kyrgyzstan, Turkmenistan and Uzbekistan have increased their exports to the world market, mainly to China. The export of licorice extracts was also dramatically increased during 1988 and 2011. There was also a big jump between 1988 and 1992, increased by 9 times (Figure4). The price of extract climbed from 1989 and reached the peak in 1991, then up and down in the next decade (Figure 5). The top ten exporting countries are USA, Iran, China, Hong Kong (China), Germany, France, Japan, Belgium, Netherlands and Israel (Figure A6). Figure 3. World Exports of Licorice Roots (1988-200314) Source: UN Comtrade Statistics 14The export figures for licorice roots are available only until 2003 with the United Nation Statistics as these after 2006 are either incomplete or unavailable for most years. 1988 1992 1996 2000 2003 Export Weight (tons) 1445.3 13437.3 13798.8 14101.0 20572.9 0.0 5000.0 10000.0 15000.0 20000.0 25000.0 W ei gh t ( to ns ) 18 Figure 4. World Export of Licorice Extracts (1988-2011) Source: UN Comtrade Statistics 2.1.3 World Price The interaction between unstable global demand and supply makes the price of licorice roots and extracts in the world market fluctuated greatly in the past decades, mainly affected by the government policy and market fundamentals. Since the actual prices of licorice in different countries and international market are not available during the reporting period, the report computed unit price based on the trade value and amount published on the website of UN Statistic Division during 1987-2007 (Liu and Sawson2009). The unit price had changes significantly over the period from 1993 to 2007. The unit price of licorice roots soared in the early 1990's when the United States began importing large quantities, recorded 16,083 tons in 1991 15).After reaching its peak in 1993, the price began declining largely because China increased the production and export in 1994 (Figure 9). Following several fluctuations in the mid and late 1990's, the unit price has steadily risen since 2000 after China restricted the collection of wild licorice and export, signaling the shortage of the worldwide licorice supply relative to the increasing demand (Sawson 2009). In contrast, the unit price of licorice extracts has kept dropping from the peak in early 1990’s, mainly because of the increased supply. The private sector had invested significantly on licorice extracts processing plants especially in China. According to the UN trade data, the world export of licorice extract had increased eight times between 1988and 2008 (Figure4).After touching the bottom, the extract price has started picking 15UN Comtrade Database: comtrade.un.org/db/ 1988 1992 1996 2000 2004 2008 2011 Export Weight(tons) 2662.5 11726.9 14951.0 18100.5 20736.7 21895.6 26772.5 0.0 5000.0 10000.0 15000.0 20000.0 25000.0 30000.0 W ei gh t ( to ns ) 19 up after 2008, mainly because China, Japan and Republic of Korea increased import of licorice from central Asia and other countries, thus pushed up the price of extracts. For example, the price of extracts was jumped to Euro 4.98/kg in 2011 from Euro 3.25/kg in 200816. Figure 5. World price changes of licorice roots and extracts (1987-2007) 2.2 China market China has been the major country for licorice production and consumption for centuries. Licorice is traditionally used as herbal medicine in China. In the recent decades, the extracts from licorice have been widely used by food, cosmetic, tobacco and other industries. With the growing demand for licorice in domestic and international markets, China has emerged to play significant roles in global licorice value chain as major consumer, producer, and also trader. It is estimated that China produced 23,106 tons, imported 10,659 tons and exported 3,300 tons of licorice roots as well as 1,000 tons glycyrrhizic acid in 201117. In 2012, the domestic extract production is about 2500 tons.18 2.2.1 Market demand The demand of licorice in Chinese market was stable and trended up over the past decades. Traditionally, licorice is sliced as preparation for Chinese herbal medicine or cooking spice. With the development of plant extracting technologies, the active components of licorice are wildly used by other sectors such as tobacco, food and cosmetics. Majority of licorice roots (65%) are processed into extracts (Figure 6). The 16http://www.cnfood.cn/npage/shownews.php?pno=2&id=12725 17http://web.yyjjb.com:8080/html/2012-12/05/content_181492.htm 18Personal interview with Fanzhi president 20 http://www.cnfood.cn/npage/shownews.php?pno=2&id=12725 http://web.yyjjb.com:8080/html/2012-12/05/content_181492.htm new demand pushes up the price. For example, the price of dried wild licorice (ungraded) went up to 12 RMB/kg in 201319 from 0.3 RMB/kg in 198820. However, there is no official data to estimate the actual demand for various licorice products. The number differs largely from 60,000 tons to 800,000 tons based on different sources. For example, one anonymous report estimates the annual demand for licorice in China as about 60,000 tons21, but there is no supporting reference to show how the data is estimated. Moreover, according to our various interviews with licorice farmers, processors and traders, the number of 60,000 tons is far below the real demand. For example, the annual demand for dry licorice roots was about 25000 tons in Fanzhi Company, one of the large scale licorice processers in China. 22 Another report estimates the domestic and export (excluding processing) demand for dry licorice as 400,000 tons23. By reducing the export quantity according to the export quota, the domestic demand for dry licorice roots is about 300,000tons. This data is corresponding with the first hand data collected from interviews with licorice farmers, processors and traders in Xijiang. Therefore, the research team decides to use the 300,000 tons as the domestic market demand. It is said Xinjiang processes about 80% of the national licorice extracts while about 30% of the Xinjiang volume come from Korla area. Of that, about 125,000 tons are used by licorice extracting industry and the rest is used by other sectors. Figure 6. Structure of licorice products in China 2008 Source: C & G Consulting Ltd,.according to National Statistics Bureau 19Interviewed with Wang Haiting, licorice farmer in Bole of Xinjiang, Nov 6, 2013 20P52, Licorice Cultivation, Zhou C.M 21http://www.3156.cn/news/201203/91128.shtml 22Personal interview with Jin Chun, president of Gansu Fanzhi Biology Tech. Ltd,. 23Zhao Huabi, lecture in China Licorice Website Congress, November 11, 2011. http://www.zhgc.net/a/jishujiaoliu/20111113/17.html 15% 20% 65% Market shares by product Roots (fresh and dry) Slice Extracts 21 http://www.3156.cn/news/201203/91128.shtml 2.2.2 Market supply The supply of licorice in China is relying on three sources, wild, cultivation and import. China used to have abundant domestic endowment of wild licorice, estimated to be 3.2- 3.5 million hectares or 4-5 million tons of wild licorice root reserves in 1950’s 24 .. However, the unregulated harvesting, land reclamation and change of weather sharply reduced the growing areas of wild licorice in the past 50 years (Figure 7), less than 1 million hectares in 2004 (Zhou 2008). As a result, the yield of wild licorice is dramatically dropped from 1950 to 2006. During the period of 1950’s and 1960’s, the annual yield of wild licorice is between 19,500 tons and 22,500 tons. In 1980’s, the yield is largely increased to 42,500 tons due to the over-digging. Since then, the natural reserve of wild licorice started declining. In 2006, it is reported 4,500 tons a year. Besides the reduction of growing areas in wild, another important factor causing the drop of yield is the degradation of environment. For example, some rivers are drying out and the licorice grown along the river bank disappeared too. It is estimated to be much less now. However, there is no reliable survey data. The variables of different information sources are big. For example, the local government reported 200,000 mu licorices while the farmer/trader said only about 60,000 mu during the interview in Korla City of Xinjiang on 7 November 2013. Nevertheless, the reduction of wild licorice is obvious. As supply potential substitute for wild licorice, licorice cultivation has been promoted after the policy was introduced to restrict the collection of wild licorice in 2000. However, the production of cultivated licorice is limited by lack of quality licorice seeds. The licorice seeds are all collected from the wild and cannot produce by specific seed cultivation. The quality is inconsistent as there is lack of quality regulation and standard governing the wild licorice seeds. Although there is no national standard for the licorice seeds quality, but there are local and corporate standards in place.(Table ) For example, the Gansu government developed local standard for licorice seed (DB 62/T-2010). Shizhen Chinese Herbal Medicine Technology Ltd develops corporate standard (QB), as showed in annex: case 2.The main quality traits are purity, cleanness, germination rate and moisture. Meanwhile, the quantity of wild licorice seeds is in short of supply due to the reduction of wild licorice reserve and increasing demand by cultivation. It is estimated that the annual supply of licorice seeds is only about 200-400 tons, mostly coming from Inner Mongolia (IMAR), Ningxia and northern areas of Xinjiang. Most cultivated variety is G. Uralensis which is commonly used as Chinese herbal medicine slice while the extracting industry hesitates to use it due to concern of quality. Those seeds can meet the demand for planting about 300,000-500,000 mu every year, meeting about 20-30% of the annual demand 400,000 tons dried roots or 900,000 tons fresh roots 24China conducted three census on endowment of Chinese herb medicine in 1960-62, 1969-73, and 1983-87, respectively. However these figures are not publicly available yet. 22 for both domestic and export markets. The gap has to rely on the importation from other countries (Zhao 2007). Figure 7. Production of dried wild licorice in China (tons), 1950-2006 Data source: Pharmacoeconomics Report, 2012-12-10. http://www.cinic.org.cn/site951/yypd/2012-12- 10/611049.shtml 2.2.3 Import market China started importing licorice from other countries since late 1990’s due to the shortage of domestic supply (Figures 8 and 9) and restrictive policy over collection of wild licorice. In 2000, the State Council’s Notice on Prohibiting the Collection and Sale of Hair-Like Seaweed, and Restrictions on Excessive Digging of Licorice and Ephedrine was implemented. In 2001, the State Economic and Trade Commission enforced a permitting policy25 governing the harvesting, purchasing, and transportation of licorice. Those policies widened the gap of domestic demand and supply. During 2003-2008, the annual demand went over 50,000 tons while the domestic supply is not much improved and hovered around 20,000 tons (Figure 13). The shortage is over 30,000 tons per year which has to rely on importation over years. The import volume for licorice roots and extracts has gone up since late 1990’s and reached peak in 2011. The duty free policy for imported licorice effective in 2008 might be one of the factors for the increase. However, the increased import adds up the supply and subsequently pushed down the price. For example, the import price for roots and extracts started declining after hitting the peak around 1998. During the period, China imported licorice from many more countries. Central Asia is the major source of licorice export to China, accounting for 80% of China total import (China Customs 2011). The major exporters are Uzbekistan, Turkmenistan, 25Notice on the Protecting Medicinal Resources of Licorice and MaHuangCao, Organizing and Implementing the Management System of Permit and Specialized Operation 19500 22500 42500 4500 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 1950s 1960s 1980s 2006 23 Azerbaijan, Kazakhstan, Afghanistan, Tajikistan, and Pakistan. The import of licorice extracts from Uzbekistan to China was increased by sixty-five times in terms of value, thirty times in volume between 2007 and 2011 (Figure 21). Figure 8. Import and price of licorice roots by China26 Figure 9. Import and price of licorice extracts by China 2.2.4 Export market 26 Note: The data is combined from the UN Comtrade Statistic (1988-2006), 21food.cn (2009), and the CCC (2010-2011). The import quantity in 2007 and 2008 is inaccessible. 24 China has been one of the major exporters of licorice roots and extract in the international trade for centuries. Export of licorice from China dated back to Qing Dynasty in 1600’s, significantly increased to meet the growing demand from America and Europe in early 1990’s. However, the export from China has started declining since 1994. According to data from United Nations Statistics Division, China’s share in the world’s export market was more than half in 1990’s but was only around one third in 2000’s on average (Figure 10). After reach the peak in 1994, the export from China has kept declining (Figure 11). The drop in licorice export has been largely because China started export permit system for licorice in 1994.Thequota policy intends to limit the export of licorice in order to assure the supply to the domestic pharmaceutical industry as a priority. Given the severe shortage of supply in domestic market, other non-pharmaceutical sectors such as food, beverage, and tobacco are restricted to use wild licorice27. After that, the export volume is up and down but fluctuates around 4,000 tons for dried licorice roots, 2,000 tons for saps/extracts, and 1,000 tons for Glycyrrhizic Acid Powder and its derivatives during 1995-2013 (Figures10, 11 and 12). Figure 11 is particularly interesting as it indicates China has become a net exporter of dried licorice roots in 2006 and also the fact China is still quite large players in both importing and exporting. Also unit prices for imports and exports appeared to change dramatically. For example, earlier on import prices are much higher than export prices, crossed, and then move to the opposite direction in the more recent years. Much higher import prices are likely due to the fact that there are very small quantity to be imported in the earlier period. In the recent year after 2006, much cheap licorice from Central Asia are imported. Figure 10 . China share in world total export 1992-200628 27http://www.sxnw.net/sxgy/open7.asp?id=441 28The data of licorice roots from UN statistic is only available till 2006 25 http://www.sxnw.net/sxgy/open7.asp?id=441 Figure 11. China’s trade of licorice roots in the world market 2.2.5 Projection of Licorice Demand and Supply in China Various sources of information indicate the demand for licorice will increase steadily in the future29. The increased demand mostly comes from the new markers, such as new drugs(i.e. anti-cancer), healthy food and drinks30,tobacco31, etc. However, there is no data on the overall demand by various sub-sectors of licorice industry. According to the CCCMHPIE,32 both demand and supply of licorice slice will steadily grow in the period of 2012-2016 (Figure 23). The licorice supply looks growing faster than the demand. The main reason is that cultivation is expanding fast. In the recent years, several provinces including Xinjiang, Inner Mongolia, Ningxia and Gansu have been promoting licorice cultivation as alternative cash crop to increase farmer’s income as well as beneficial plant for ecological restoration. For example, the recent survey by the MOFCOM reported that the total planting area for licorice (mainly G.uralensis) reached about 1.9 million mu and the total yield of fresh licorice was 120,700 tons in 201133. The survey covers 29 key Chinese herbal plants including licorice with an intension to guide the production and distribution in order to balance the demand and supply. The gap of demand and supply is 29http://info.zyc.hc360.com/2012/04/05161245.shtml 30http://www.wlj.com.cn/sunview.aspx?tid=132&id=3853 31http://www.yltryy.com/cpzx/gxcp/269506.shtml 32China Chamber of Commerce for Import & Export of Medicine & Health Products is the leading and most influential national trade association in China with a mission to promote the international trade and cooperation in medicinal and health products. ( http://www.cccmhpie.org.cn/English/EShowListAll.aspx) 33Analytical Report on Distribution of Key Chinese Herbal Plants 2011, MOFCOM 26 http://info.zyc.hc360.com/2012/04/05161245.shtml http://www.wlj.com.cn/sunview.aspx?tid=132&id=3853 http://www.yltryy.com/cpzx/gxcp/269506.shtml predicted to be narrowed by 2016. The trend of licorice import is predicted growing stably according to the historic data as showed in Figures 13. This is backed up by a report that is done by the Xinjiang Customs34. The licorice import has been encouraged by the government. For example, duty free policy for imported licorice was introduced in 2008. Meanwhile, the export quota is tied up with the import. For example, a licorice exporter can add 5% of the annual import of licorice on the bidding volume for export market according to the Bidding Committee for Export Quota of Commodities. As a result, the importation from Central Asia such as Uzbekistan, Iran, Afghanistan, and Ukraine have significantly increased since 2011. According to Xinjiang Customs, China imported 26,000 tons licorice roots (dried or fresh) in 2012, increased by 1.5 times than that of 2011. Of which, the import value of dried roots from Uzbekistan is US $ 9.9 million, increased by 2.7 times than that of 2011. The export of licorice originated from China is limited due to the binding export quota. In the future, the export quota of licorice roots might be increased if the domestic supply either from the wild or cultivated is increased. In terms of the export of licorice saps and extracts as well as other deep processed products, the current quota system will continue to limit the export volume of those using wild licorice produced in China as ingredients. However, the wild licorice imported from other countries and processed in China for re- export purpose is not included in the quota system. This is why the processing tradeoff licorice has increased significantly in recent years. For example, the value of processing trade through Xinjiang port reached US $ 11.6 million during January to August 2013, increased by 1.2 times than the same period of last year35. As showed in Figure 12, the export quota for licorice roots has kept dropping since 2005, until reached the bottom in 2009. The export quota has been stable around 3,600 tons per year during the period from 2008 and 2012, but increased significantly in 2013. The latter was partially because of the increased yield of licorice production in 2013.Regarding the export quota for saps and extracts, it has continued to decline since 2005. The export quota for glycyrrhizic powder and others is up and down around 900 tons per year slightly. According to interview with an undefined processor in Korla of Xinjiang (Nov 8, 2013), licorice processors prefer to use wild licorice to make saps, extracts and glycyrrhizic acid salt and its derivatives. This is because that the cultivated licorice cannot meet the same quality standards of wild licorice yet. The quota system is supposed to reduce the 34http://www1.customs.gov.cn/wulumuqi/tabid/61971/InfoID/418860/frtid/61950/Default.aspx 35http://www.askci.com/news/201311/04/04155740144327.shtml 27 http://www1.customs.gov.cn/wulumuqi/tabid/61971/InfoID/418860/frtid/61950/Default.aspx http://www.askci.com/news/201311/04/04155740144327.shtml collection of wild licorice thus protect the vulnerable environment in China, though, to our knowledge, no evaluation has been done for it. Figure 12, China Export Quota 2005-2013 Figure 13. Projection of demand and supply of licorice in China 2012-2016 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 2005 2006 2007 2008 2009 2010 2011 2012 2013 W ei gh t ( to ns ) Year Roots Saps/extracts glycyrrhizic acid powder and others Data: complied from MOFCOM Public 0 10000 20000 30000 40000 50000 60000 70000 80000 2012 2013 2014 2015 2016 W ei gh t( to ns ) Year Demand Supply 28 3 Mapping Chinese licorice value chain The licorice value chain in China is developed with various values adding stages. The leaves of licorice are normally used as livestock folders. The roots are processed into different types of product, commonly categorized as licorice slice, extracts/saps, Glycyrrhizic acid ammonium salt and its derivatives. The slice is mainly sold as ingredient to make formulated Chinese herbal drinks or Chinese patent medicine or cooking spice. The extracted products are widely used as ingredient or additives by pharmaceutical, food, cosmetic, and tobacco industries. The licorice roots come from two sources: either imported from other countries or produced locally in China. The majority of traded licorice roots is mainly collected from the wild in both China and other counties. The cultivated licorice has not fully replaced the wild one. The value chains for three different products are briefly described in Figure 14-16. 3.1 Licorice production 3.1.1 Wild Licorice Licorice root is mainly produced in Inner Mongolia, Gansu, Ningxia, Hebei, Shanxi, Qinghai, Xinjiang, and western region of Northeast China, as showed in Figure A12. Of which, G.uralensis is the most popular one in China in terms of growing areas. 3.1.2 Licorice cultivation Before regulations protecting environment and natural resources were introduced in 2001, the licorice was collected freely by individual farmers or traders or companies. Such practices were resulting in reduction of the natural reserves and desertification of the habitats of licorice. Since 2001, the Chinese government enforced restrictions on the collection of wild licorice, leading to a shortage of licorice in the marketplace. The shortage of licorice supply has induced the development of cultivated licorice in China. Licorice cultivation can be done through underground stems or sowing seed. Stems based cultivation is more labor intensive comparing with seeding as mechanic planting cannot be applied, thus not favored by large scale operation. Seeds should be pre-soaked in water and sown in the autumn. In late spring, plants can be planted out in the open, but care should be taken to protect the new shoots from slugs. Alkaline, sandy but moist soil is preferable. Plant growth is initially slow, but once established the species can become weedy and difficult to remove if not kept under control by regular harvesting.In commercial situations, the whole plant is dug up after three to five years to harvest the rhizomes, which are cleaned, trimmed, sorted and dried before being pressed into bales for shipping. Increasingly licorice is harvested with machine which is designed to collect the tuberous herbal plants, such as licorice roots, the root of straight ladybell, Scutellariabaicalensis, etc. The roots harvesting machine is pulled by the tractor in the 29 Figure 14. Flow Chart of Traditional Herb (Licorice Slice) Distribution System Small factories (Cleaning, cutting,drying, purifying, weighing, packing) Brokers Licorice slice process companies (Cleaning, cutting,drying, purifying, weighing, packing) Brokers Company planting basement Individua l growers Wild licorice (G.uralensis ) collectors (80% of thetotal Fertilizers, Chemicals, and G.uralensis seeds, 17 national herb medicine wholesalemarke ts Small drugstores Export to Japan(60%), Korea(30%), and other Asian countries(10%) (Dry licorice roots, licorice slice). Online marketing Supply Process Transport Wholesale & export Retail End consumers for licorice sliceas medicine and daily End consumers for licorice sliceas medicine and daily beverage 30 Figure 15. Flow Chart of Licorice Extract Distribution System --Industrial Material for Food Food/beverage, Tobacco, Cosmetics, and Medicine Wild Licorice in Central Asian countries (G.glabra &G.inflata) Wild licorice in China (G.glabra&G.inflata ) Medium/large extract process companies (Cleaning, grinding, cooking, filtering, concentrating, cooling, malting, shaping, testing, packing) CHANNEL1: Export Brokers CHANNEL2: CHANNEL3: Domestic manufacturers of food, beverage, cosmetics, and medicine Brokers End consumers for food, beverage, tobacco, cosmetics, and medicine at home and abroad International manufacturers of tobacco, food, beverage cosmetics, and medicine Import& domestic supply Transport Process Wholesale & export Small extract process companies Retail Export 31 Figure 16. Flow Chart of Glycyrrhizic salts Distribution System - Industrial Material for Food/beverage, Cosmetics, and Medicine Wild Licorice in Central Asian countries (G.glabra &G.inflata) Wild licorice in China (G.glabra&G.i nflata ) Medium/large glycyrrhizic salts process companies (Cleaning, grinding, percolation, sediment, acidification, drying, grinding, packing) CHANNEL1: Export Brokers CHANNEL2: CHANNEL3: Domestic manufacturers for Food, Beverage, Cosmetics, Medicine Brokers End consumers for food, beverage, cosmetics, and medicine at home and abroad Foreign manufacturers for Food, Beverage, Cosmetics, Medicine Import& domestic supply Transport Process Wholesale & export Small glycyrrhizic salts processers Retail Export Licorice extract from other domestic processers Import Brokers 32 front. The working depth is 65 CM, width from 0.7 to 1.4 meters, harvesting 0.6-2 mu per hour, using Dilong branded machine as an example36. Licorice cultivation has been promoted to compensate the reduction of wild licorice in China. In 2001, the size of newly planted licorice was 6,700 hectares, far more than previous years. In 2004, the newly planted size was dropped to 3,300 hectares due to introduction of direct subsidies to grain producers.(Zhou 2008) During the period from 2005 to 2006, licorice market took a better turn and the price was higher, making growing licorice more profitable. Better profitability stimulated more licorice planting among farmers or licorice companies. Many companies joined in this upsurge and set up their own planting farms in Northeast provinces of China. During the period from 2006 to 2008, about 7,500 hectares of licorice is planted in each year. Nowadays, Xinjiang, Ningxia, IMAR and Gansu are the major licorice planting areas in China, estimated 150,000-300,000 Mu in total37. Xinjiang covers about 60% of the total planting in China. However, the development of licorice cultivation is constrained by technical and economicfactors. At present, about 80% of the licorice in market isstill collected from the wild in China or other counties38. There are three major types of licorice cultivating farms in China observed. The first type is called corporate farm.The farm lands are leased from the small farmers or village for licorice farming purpose by the corporate. The size of farm is at an average of 10,000- 100,000mu. The rent is around 400 yuan per mu per year depending on the location and soil quality. The tenancy is normally for 30 years as allowed by government. The abandoned land can be cheaper subject to negotiation. The inputs such as seeds, fertilizers, herbicides and irrigations are provided by the corporate. The planting and harvesting are operated by machine. Farmers in the village might be hired as seasonal workers. The entire production is managed by the corporate. Xinjiang Kanglong Agro- tech Development Ltd is an example 39 . The Company is a vertical integrator of agricultural products value chain including licorice. There are about 100,000 mufarm land designated for both herbal plants and crops such as corn, cotton, pepper and sunflower, etc. The licorice roots are processed into slice and extracts. The second type is called cooperative farm. The licorice farm land is managed by individual members of the cooperative. However, the cooperative coordinates the purchase of inputs, training, and sharing the cost of mechanical planting and harvesting. The marketing of licorice is optional, either done by individual farmer or through the cooperative. In many cases, the leader of cooperative is also trader or processor who has better access to markets. The licorice processors prefer to contract the cooperative instead of individual farmers. The 36http://xxfljx.15877.cn/picshow_8_99.html 37Personal interview with Wang Haiting, president of BKY Licorice Farmer Cooperative, interviewed Nov 6, 2013 38http://health.sohu.com/20080514/n256840880.shtml 39http://www.xjklny.com/about.asp 33 http://xxfljx.15877.cn/picshow_8_99.html http://health.sohu.com/20080514/n256840880.shtml http://www.xjklny.com/about.asp average size of the cooperative farm is ranged from 1,000-10,000 mu. The Case 3 included in appendix of this report provides more details of this type of farming. The third type is called household farm. The licorice is planted and managed by individual farm household. The size of farm land varies around 10-100 mu. The land is either owned by the household or rented from others. The smaller scale farmer will likely follow the practice of larger scale farmers in terms of inputs supply and farming technology. It is also being observed that some licorice farmer households join the contract farming with the processors or traders. Box 1. Licorice cooperative farm- BKY Licorice Farmers’ Cooperative The Baikangyuan (BKY) Licorice Farmers’ Cooperative is located in Jinghe County at Bole Prefecture of Xinjiang Autonomous Region with 159 members. The Cooperative owns about 8,000 mu (equivalent to 533 hectares) farmland specialized in licorice (G.uralensis) cultivation, while the initial land is about 300 mu at the starting year 2009. The cooperative has successfully overcome a series of constraints from farming technology to finance access. Now they accounts for 80% of the total planting areas of licorice in Bole Prefecture. The cooperative is also actively involved in the processing (slicing) and marketing of licorice. For details please refer to Case 3 in Annex 1. Cultivating licorice faces two technical constraints. Firstly, the content of Glycyrrhiza acid in cultivated licorice is much lower than the wild one, as showed in Table 1 below. The variation may be caused by the grown time as the cultivate licorice is normally harvested less than 3 years to make it economical while the wild licorice is grown much longer. However, cultivated licorice can normally meet the minimum standard2% of Glycyrrhizin acid as required by the Chinese pharmacopeia. Nevertheless, the processing industry still prefers to the wild licorice due to the higher content of Glycyrrhizin. Secondly, the seeds for cultivation is all collected from the wild mainly in IMAR due to better quality in terms of variety consistency (all are G. uralensis in red skin) and size. In contrast, Xinjiang produces mixed seeds with G. uralensis in red skin, G. glabra in black skin, and G. Infaltain yellow skin, which leads to inconsistent licorice roots with different color, size and shape leading to low market price. With the reduction of wild licorice reserve, the seeds supply also falls behind the seed demand. For example, it is estimated that China needs seeds in the amount of 12 million kg annually, while the supply is only about 200,000-400,000 kg on annual basis40. On the other hand, the current technology does not enable production of seeds under cultivation. There are also no professional licorice seeds reproducers in China yet. This might be a potential area for investment but commercial feasibility needs further investigation. 40Zhao Huabi speech at the Licorice Network Meeting In Lanzhou, September 12-15, 2007 34 Box 2. Licorice seeds and cultivation technology provider- Beijing Shizhen Chinese Herbal Medicine Technology Ltd Beijing Shizhen Chinese Herbal Medicine Technology Ltd was registered as a private company in Daxing District, Beijing in 2005.The Company is actively involved in the planting technology research and extension of Chinese herbal plants including licorice. In recent years, Shizhen has spent great efforts developing the licorice (G. Uralensis) value chain through the quality control of licorice seeds and cultivation technology services, benefiting thousands farmers in Xinjiang, Inner Mongolia and Gansu provinces. Shizhen sells about 50 tons seeds (G. uralensis) on annual basis, accounting for 10% of the national sales. The current price of seeds is about 200 RMB per kg, dramatically increased from 120 RMB per kg in 2011. For details please refer to Case 2 in Annex 1. The economic constraint is about the comparative benefits of licorice against other cash crops and grains. As showed in Table 2 below, growing licorice requires largererand longer investment. Since it takes at least 2 years to harvest the licorice, the farmers have to invest time and money for two years before seeing any revenue from the harvest and sales of licorice. The investment per mufor licorice is about 3.5 times higher than corn in the same period. As a result, the net profit from growing licorice is less than corn on annual basis. Although the comparative benefits between licorice and corn or other crops might be changed depending on the market price, butitisstill a challenge for licorice farmers to predict the price of market in such long period. In addition, the licorice price is affected by the quality grades which are normally graded 7 levels in terms of length, head diameter, end diameter and moisture41. Table 1.Glycyrrhiza acid content between the wild and cultivate licorice Samples Grown time Source of smaple Glycyrrhiza acid (%) Cultivated licorice 2 years Daxing, Beijing 2.035 Baotou, IMAR 2.112 Houma, Shanxi 2.189 Chengde, Hebei 1.973 Binxiang, Heilongjiang 1.852 3 years Nong’an, Jilin 1.878 Daxing, Beijing 2.683 Wild licorice Perennial Baotou, IMAR 3.819 Houma, Shanxi 4.312 Chengde, Hebei 2.988 Binxiang, Heilongjiang 2.246 Nong’an, Jilin 2.940 Chifeng, IMAR 6.149 41Table 5-4, quality standard of planting G. uralensis, Licorice, Zhou Chengming, etc. 2010 35 Yuanping, Shanxi 6.149 Yanchi, Ningxia 4.325 Kuerle, Xinjiang 3.948 Source: table 3-40, page 197, Licorice, Zhou Chengming and Gong Xiaojie, first edition by China Agricultural Press, January 1, 2010 Table 2.Comparison of economic benefits between licorice and corn, 2005 Licorice Corn Item Value (RMB/kg) Item Value (RMB/kg) Land rental for 2 years 200 Land rental for 1 year 100 Seeds 600 Seeds 100 Water use for 2 year 100 Water use for 1 year 50 Fertilizer for 2 years 200 Fertilizer for 1 year 100 Machinery for 2 years 300 Machinery for 1 year 30 Labor for planting 50 Labor for planting 20 Management fee for 2 years 100 Management fee for 1 year 50 Weeding labor for 2 years 200 Weeding labor for 1 year 50 Harvesting labor for 2 years 200 Harvesting labor for 1 year 50 Total investment 1950 Total investment 550 Yield with 2 years (kg) 1000 Annual yield average (kg) 800 Unit price (RMB/kg) 2.8 Unit price (RMB/kg) 1.5 Total Revenue (RMB) 2800 Total Revenue (RMB) 1200 Net profit/year (RMB) 450 Net profit/year (RMB) 650 Data source: producers in Hetao plain of IMAR, Zhao Huabi’s presentation in Lanzhou, September 2007 3.2 Licorice processing There are three types of processors in the licorice industry. The first one is called slice processor which is a primary processing. The processing technology and equipment are simple. The second one is called extracts processor which involves both physical and chemical processes. Liquorice extract is obtained from the roots by grinding them (physical process), after which they are cooked in water at over 85⁰C, followed by evaporation, separation, sediment and crystallization (chemical process), etc. Ethyl alcohol and sulfuric acid are used as chemical reagents. The third one is called glycyrrhizic acid processor which includes more complicated chemical reaction. Both extracts and glycyrrhizic acid processing are considered deep processing.. There is no available data to show the number of processors by different products. Based on the field visits and interviews, there could be thousands of small processors for licorice slicing, hundreds for saps/extracts processing and a few key ones for licorice ammonium salt and 36 its derivative processing. The higher value processing requires larger investment on technology and facilities as well as license. Most processors particular those using G.glabra as ingredient are located in Xinjiang. It has a few advantages including (i) Xinjiang is the only G.glabra production area in China, (ii)Xinjiang customs is the entry point of imported licorice from central Asia and (iii)The cost of land and labor is relatively lower than that of other provinces. According to the Chinese Drug Administration Law effective in 2001, the processors for Chinese herbal extracts must have Pharmaceutical Production License issued by CFDA. In reality, many small processors without Pharmaceutical Production License have to work with large processors which have the license on entrusted basis. To improve the quality control, CFDA implemented another regulation called the Management Measures of Quality Control Certification for the Drug Manufacturers issued in 2005 and revised in 2011. This regulation essentially requires drug processors to meet GMP standards developed by CFDA. The criteria of GMP assessment was developed in 1999 and revised in 2008. Box 3. Exploring New Usage of Licorice in Cosmetic Industry - Nanjing Zelang Medical Technology Ltd Nanjing Zelang Medicial Technology Ltd. is a private company established in 2004, it focused in production and wholesale of natural plant extracts. The main licorice product is Glabridin, a highly processed extracts from G.glabra. It is either white or yellow powder and is used in high-end cosmetic product as cream, paste, water solution and emulsion. The price of G.glabra of 90% purity is about 150 thousand RMB per kg. Over 95% products are exported to America, Europe, Japan and Korea. For details please refer to Case 4 in Annex 1. 3.3 Licorice wholesalers and retailers The licorice and its derived products are distributed through different channels. Traders including both wholesalers and retailers play important role of distribution, as illustrated in Figure 14-16. There are 17 national wholesale markets for Chinese herbal medicine approved by the government in China, located in various provinces mostly in the south. The wholesale market provides services to the dealers in the market through banking, quality testing, storage, e-commerce and logistics. There are three types of dealers in the market, including household based small dealer with one or two booths, the medium size dealer and large corporate (Zhou 2008).The small dealer normally sells locally produced medicinal materials and the distribution network is limited to local area. The medium and 37 large wholesaler, especially those glycyrrhizic acid/salt wholesalers, have national distribution network, outsourcing the ingredients from various production sites through local trader sat village/township/county levels and wholesale to the manufacturers or users across the country. All the distributors no matter for wholesale or retail business must be certified by GSP (Good Supply Practice) according to the Drug Management Measures for the Certification of Quality Control Standards issued by CFDA in 2003. 3.4 Licorice imports and exports 3.4.1 China’s import Due to the shortage of domestic supply and duty free policy effective in 2008, there are noticed increases of importing licorice products from other countries. In 2010, there are 14 enterprises importing fresh or dried licorice with a total amount of 4,778 tons worth US $ 3,891,200.Almost 100% of imported licorice roots come from Asian countries. Of that, Uzbekistan accounts for almost 48% as showed in Figure18. 16 enterprises imported saps/extracts with a total 1,627tons valued at US $ 8,326,100, However, about 98% of that is for re-export after further processing. 67 enterprises imported Glycyrrhizic acid salts and its derivatives with 511 tons valued at US $6,551,330. Almost all of that is for re-export market after further processing.42The major importers of licorice from Central Asia are listed in Table 5 below. Table 3. Major importers of licorice roots/extracts from Central Asian countries. Name of Company Province China Meheco Corporation (under the central administration) Beijing Beijing Gingko Group Biological Technology Co., Ltd. Beijing HebeiShenglun International Industry Group Co., Ltd. Hebei ZFTZ Mafco Biotech Co., Ltd. Jiangsu Zhejiang Medicines & Health Products Imp.& Exp. Co., Ltd. Zhejiang Northern International Group Tianjin Medicines and Health Products Imp &Exp Tianjin Gansu Fanzhi Biotechnology Co.， Ltd Gansu Xinjiang Alar Xinnong Licorice Industry Co., Ltd. Xinjiang Yuli County Jinxing Licorice Products Co., Ltd Xinjiang Xinjiang Tianshan Pharmacy Industry Co., Ltd. Xinjiang The Chinese importers must provide two key documents when importing licorice from other countries at the border. The first one is the Drug Import Customs Clearance issued 42http://health.people.com.cn/GB/200501/14063431.html 38 http://health.people.com.cn/GB/200501/14063431.html by the China Food and Drug Administration. It covers the products of traditional Chinese medicine, slice for Chinese herbal drinks, and Chinese patent medicine listed in the Catalogue of Imported Drugs43. However, the drugs for bonded warehouse, bonded zone and processing for re-export are free of the formalities for import records keeping and port inspection. The second one is the Customs Clearance of Entry Commodities issued by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ). The imported licorice must be compliant with the Catalogue of Inspection and Quarantine Law. Among the various licorice products, the fresh/dried licorice, sap/extract, and Glycyrrhizic acid salts are included in the Catalogue while Glycyrrhizicacid powder and Glycyrrhetinic acid and its derivatives are not on the list44.Besides the quarantine inspection on weeds and pests, the residues of pesticides and heavy metals will also be inspected. Noncompliance will be returned. Risk assessment is required for the first importation of fresh or dried licorice (HS 1211903600)originated from Azerbaijan, Kazakhstan, Uzbekistan, Pakistan, Afghanistan, the United Arab Emirates, Kyrgyzstan, Turkmenistan, Tajikistan, Russia and Iran45. Figure 16. Uzbekistan Shares Exporting Licorice Roots to China (2010) 3.4.2 China’s export The licorice products are exported to different countries. Asia is still the major destination of fresh and dried licorice products as well as Glycyrrhizic acid salts and its derivatives. Europe is the major importer of sap and extracts, according to an analysis by China Customs in 201046. 43 Appendix 4, No.9 Public Notice by China Food and Drug Administration and the General Administration of Customs. 44http://www.17025.org/hs.php?srchtxt=%B8%CA%B2%DD 45http://www.xmciq.gov.cn/zfxxgk/xxgkml/dzwjyjg/jysp/201307/t20130726_101357.htm 46http://web.yyjjb.com:8080/html/2011-03/23/content_138111.htm 48% 52% Uzbekistan Other Countries Data: complied from MOFCOM Public Notice 39 http://www.17025.org/hs.php?srchtxt=%B8%CA%B2%DD http://www.xmciq.gov.cn/zfxxgk/xxgkml/dzwjyjg/jysp/201307/t20130726_101357.htm http://web.yyjjb.com:8080/html/2011-03/23/content_138111.htm The fresh and dried licorice roots from China are exported to 13 countries and regions. Of that, Asian countries are the main markets, accounting for 81.95%, followed by EU with 15.51% and North America 2.54%. In terms of saps and extracts, 18 countries and regions were identified as the destination, with EU as the majority of importation as much as 54.26%, followed by Asia as the second largest market with 34.33%, North America with 8.59% and 2.37% from the others. Regarding Glycyrrhizic acid salts and its derivatives, Asia still dominates the import of Chinese products as 88%, followed by 9% for Europe and 2% for North America. The top 10 Chinese exporters for licorice in 2011 are listed in Table 6 below. Figure19 shows the top ten Chinese exporters for saps/extracts in 2009, which accounts for 97% of the total export. Table 4. Top ten Chinese exporters of licorice 2011 Ranking Name of Company Province 1 China Medicine and Health Products Co.,Ltd Beijing 2 Jilin Lincun Chinese Medicine Development Ltd Jilin 3 Xi’an Miaoxiangyuan Medical Ltd Shaanxi 4 Anhui Xiehecheng Medical Drinking Slice Ltd Anhui 5 Ningxia HeAnyuan Import and Export Ltd Ningxia 6 Hangzhou Huiyuan Industrial Ltd Zhejiang 7 Tianjin Yuansheng Medical Ltd Tianjin 8 IMAR Dadihong Trade Ltd IMAR 9 Tianjin Ruixin International Trade Ltd Tianjin 10 Anhui Tianhe Chinese Medical Materials Development Ltd Anhui Note: ranking is based on the trade value from high to low. Data source: CCCMHPIE, Licorice Import Analysis report 40 Figure 17. Top ten Chinese exporters of saps/extracts 2009 Box 4. International licorice manufacturer- ZFTZ MAFCO BIOTECH CO., LED. MAFCO Worldwide in the United States has been the world leader in quality licorice products since 1850. The Company specializes in manufacturing licorice extract and other derivatives for use as flavoring in various consumer products, including candies, pharmaceuticals and tobacco products.ZFTZ MAFCO is a branch of Mafco worldwide established in 1985 in the bonded area of Zhangjiagang, Suzhou, Jiangsu. With the advantage of export in bonded area and the cheap cost in China, ZFTZ focus on processing and export. The licorice value chain is highly vertical integrated in MAFCO. They have established a stable international value chain of sourcing material in Central Asia, processing in China, and marketing in Europe and America. For details plrease refer to Case 1 in Annex 1. 3.5 Enabling environment 3.5.1 Policy and regulations China has enforced a number of regulations to protect the natural reserve and assure the quality supply of licorice. In 1994, the Ministry of Foreign Trade and Economic Cooperation (now called MOFCOM) carried out the Bidding Guide for Export Quota including the Implementation Details of Bidding on Export Quota for Ginseng/Licorice Products. As a result, the number of exporting companies is reduced to around 40 from over 1,000 (CCCMHPIE). Later on in 2000, the State Council issued the Regulations on the Prohibition of the Collection and Selling of Hairy Grass and Unregulated Collection 25.18 24.44 14.04 10.78 5.58 4.33 3.93 3.56 2.65 2.34 3.17 11.72 Xinjiang Tianshan Med. Tongyong Meikang Gansu Wode Weili County Jinxing Beijing Green Kingko Gansu Qinghai Lake Med IMAR Hengdu Trade Data source: CCCMHPIE 41 of Licorice Roots and Chinese Ephedra. In 2001, the Ministry of Agriculture implemented the Administrative Regulations on the Collection of Licorice and Chinese Ephedra, as well as MOFTEC developed the Detailed Rules of Bidding for Export Quota of Industrial Products. China Drug Administration Law was effective in 2001, governing the medical purpose of licorice. In 2004, the China Seeds Law was implemented to regulate the seeds production and distribution including the cultivation of wild licorice seeds. Furthermore, the MOFCOM conducted the Measures for the Administration of Licenses for the Export of Goods in 2008. For those exporters to USA, they also have to meet the GMP Standards for Health Food as ingredients supplier required by FDA effective in 2007. To promote the import of licorice, the government of China has reduced the tariff from 6% to zero since 2008. In June 2013, CFDA published the new version of Good Supply Practice for Drug Trading Enterprises (revised from version 2000).All the drug trading enterprises must be certified by GSP in order to assure the safety and quality of medical ingredients. Of above regulations, it is the most challenging one to implement the Administrative Regulations on the Collection of Licorice and Chinese Ephedra. The regulation requires any individual (farmers or other individuals or firms) who intends to dig and collect licorice roots need to apply for the collection permit from local Grassland Administration Station under the Provincial Animal Husbandry Bureau. The permit specifies the name of collector, quantity of collection, location of licorice, variety of licorice and agreement of the land contractor.The permit is issued once a year and not tradable. A 5-10% of the resource values are charged by the Grassland Administration as resource fees. The application goes to county level Grassland Monitoring and Supervision Station (GMSS, hereafter) first and finally approved by the Provincial Department of Animal Husbandry. Despite the strict design of the permit approval system, the implementation faces the challenges of monitoring and enforcement. No-permit-collection, out-of-quota collection and cross-border collection are commonly reported during the interview. Besides the restrictive policies for wild licorice collection, the government also encourages the cultivation of licorice. However, the national supporting policies are normally not licorice-specific, but cover all the traditional Chinese medicinal materials. At local government level, licorice cultivation is usually promoted as additional income source for the poor, or beneficial plant for environmental protection. The licorice cultivators may enjoy a policy portfolio including the supports to farmers cooperative, standardized farming, grain for green, national key leading enterprise (Dragon Head), agriculture mechanization, etc. The major policies related to licorice industry are summarized Table 5. 42 Table 5. List of Chinese Regulations and Policies for Licorice Industry Name of Regulation/policy Responsible Authority Effective Date Bidding Guide for Export Quota MOFTEC(MOFCO M) 1994 TheImplementation Details of Bidding on Export Quota for Ginseng/Licorice Products MOFTEC (MOFCOM) 1994 Regulations on the Prohibition of the Collection and Selling of Hairy Grass and Unregulated Collection of Licorice Roots and Chinese Ephedra State Council 2000 Grain for Green Project State Council 2000 The Drug Administration Law of the PRC CFDA 2001 Administrative Regulations on the Collection of Licorice and Chinese Ephedra MOA 2001 The Adjusting of Administrative Regulations on the Collection of Liquorice and Chinese Ephedra NDRC 2004 Detailed Rules of Bidding for Export Quota of Industrial Products MOFTEC(MOFCO M) 2001 Notification about the Income Taxation on National Key Leading Enterprises for Agriculture Industrialization 2001 China Seeds Law MOA 2004 (revised 2013) Subsidies to the Purchase of Agricultural Machinery MOF & MOA 2004 The Amendment of Administrative Regulations on the Collection of Liquorice and Chinese Ephedra NDRC 2004 Management Measures for Demonstration Area of National Agriculture Standardization SAC& MOA 2007 China Farmers Cooperative Law MOA 2006 Measures for the Administration of Licenses for the Export of Goods MOFCOM 2008 Duty Free for Imported Licorice Products China Customs 2008 Good Supply Practice for Drug Trading Enterprises CFDA 2013 (revised from version 2000) Support Farmer Cooperative Development and Promote Innovation of Agricultural Production and Operation System MOF 2013 Good Manufacture Practice NHFPC 2013 (revised from version 1995) 3.5.2 Quality Standards There are four types of quality standards applied by the licorice industry, namely national standards (GB), industry standards (HB), enterprise standards (QB) and export standards 43 required by different destination counties. The national standard is the minimum compulsory standard. For example, the content of Glycyrrhizic acid must exceed 2% otherwise it cannot be used as medical ingredient. This standard applies to G.uralensis, G.glabra and G.inflata. The industry and enterprise standards could be higher than the national standard. The export standard varies among different countries. For instance, the Japanese Pharmacopeia requires minimum 2.5% glycyrrhizin for medicinal licorice to be included in Kampo medicines. Kampois the Japanese herbal medical system and diagnosis adapted from traditional Chinese medicine47. Table 6. Quality Standards for Licorice Parameters National standards(GB) Industry standards(HB) Enterprise standards (QB) Export standards Reference Chinese pharmacopeia (2005) Industry standards for licorice as medicine Quality standards of planting G.uralensis by (Shizhen co.) Standards of long and diagonal slice of G.uralensis for export to Korea (Shizhen co.) Length 25-100cm 20-50cm ≥20cm A: 8-10cm B: 6-7cm C: 4-5cm D: 3-4cm Diameter 0.6-3.5cm A: >1.8cm B: 1.2-1.8cm C: 0.9-1.2cm D: 0.5-0.9cm A: 1.5cm B: 1.3cm C: 1.1cm D: 0.9cm A: 1.5cm B: 1.2-1.5cm C: 0.9-1.2cm D: 0.5-0.9cm Bottom diameter A: ≥1.2cm B: ≥0.9cm C: ≥0.5cm D: ≥0.3 cm A: 1.3cm B: 1.1cm C: 0.9cm D: 0.7cm Moisture ≤12% ≤12% ≤14% ≤14% Ash ≤7% ≤7% Acid-insoluble ash ≤2% ≤2% Glycyrrhizic acid ≥2% ≥2.5% ≥2% ≥2% Liquiritin ≥1% Pesticide residue BHC≤200mg/g DDT≤200mg/g PCNB≤100/g BHC≤20mg/g DDT≤5mg/g BHC≤200mg/g DDT≤200mg/g Harmful Pb≤500mg/g Pb≤50mg/g 47http://en.wikipedia.org/wiki/Kampo 44 http://en.wikipedia.org/wiki/Kampo elements Cd≤300mg/g As≤2000mg/g Hg≤200mg/g Au≤2000mg/g Cd≤20mg/g As≤30mg/g Hg≤100mg/g 3.5.3 Research and Development Research on licorice cultivation has started in early 1960’s, there are some successes on trial basis but the commercial success didn’t emerge until late 1990’s. The research is focused on analysis of chemical components, extraction technique, medical functions, and artificial planting methodology. The research funding comes from both public and private sector. The universities and research institutes have conducted some research in the past decade, such as the research on the varieties of licorice by the Grassland Research Institute, synthesis and antitumor activity of Glycyrrhetic acid derivatives by the Wuhan University, the Effects of Drought Stress on Glycyrrhizic Acid Accumulation Systems by the Beijing University. More recently, research with DNA technology aiming to improve production and clone has been initiated since 2008. The private sector is active in the applied research. For example, Beijing Shizhen Chinese Herbal Medicine Technology Ltd has done extensive research on the cultivation technology and achieved some success on commercial scale. One of its customers reported high yield at 1,300 kg per mu in Bole City of Xinjiang during the field visit. Another example is that the Beijing Gingo Group which is a large processor and exporter based in Beijing developed more efficient and environmental friendly technique to extract saps from licorice roots in September 2013. Internationally research has been done by foreign universities and multinational companies as well. For instance, MAFCO the world leading licorice processor has developed various techniques to enhance productivity, though most of the results are kept within the company. Moreover, Japanese researchers successfully cultivated 4-year-old licorice with glycyrrhizin levels conformed to the Japanese Pharmacopeia standard (not less than 2.5%) - (Yamamoto et al. 2003, Yamamoto and Tani 2005). The DNA sequences of the enzymes involved in glycyrrhizin biosynthesis have been reported. The possibility of using bio-engineering technology to generate glycyrrhizin-producing plants or microorganisms seems promising in future (Hayashi et al. 2001, Seki et al. 2008). In 2006, the CASS and Japan Jincun Joint-stock Corporation conducted a joint research on medical utilization of licorice plant resources in Xinjiang, aiming to improve the quality of cultivated licorice through DNA sequencing technology. To address the technical constraints faced by licorice farmers, both public and private sectors are providing extension services to the licorice farmers. From the public sector, 45 the Ministry of Agriculture and the Ministry of Science and Technology as well as their provincial branches are the key funding agencies and service providers. Various training and demonstration program are organized by multiple government departments in licorice production regions. Meanwhile, the private sector such as the licorice seeds and processing companies provide technical training and consultation to the licorice farmers. Since 2000, there are many technical materials published by various institutions available for sale on internet and book stores as showed in below box. This reflects the increasing interest in licorice cultivation technologies. Box 5. List of Major Chinese Publications for Licorice Production i. The Chinese Licorice (English version), authored by Fu Yujie, published by the Science Press, ISBN9787030125477 ii. Licorice, authored by Zhao Yonghua, published by the Beijing Kehai Press, 2001- 01-01, ISBN: 9787899990193 iii. Chinese Licorice, authored by Qiao Shiying, Cheng Shuchun, and Wang Zhiben, published by China's Agricultural Science & Technology Press, 2004. iv. Standardized Production Technologies for Licorice, authored by An Wenzhi& Lin Haiming, published by Jindun Press, 2008, ISBN：9787508250465 v. Licorice Research, authored by Jiang Qi and Wang Yinghua, published by the Ningxia People Press, 2009-05-01, ISBN: 9787227040354 vi. Licorice, authored by Zhou Chengming& Gong Xiaojie, published by the China Agriculture Press, 2010, ISBN：9787109138766 vii. Cultivation Methods for Licorice, authored by the Training and Education Centre of Technologies for Farmers at the Ministry of Agriculture, published by the Agricultural Education Audio and Video Publishing House, 2011, ISBN：978-7- 88098-123-0 viii. Practical Technologies to Increase Licorice Productivity, authored by Wang Wenquan, pubished by the China Forestry Publishing House, 2011-04-01, ISBN: 9787503860966 ix. Licorice Cultivation and Processing, authored by the Training and Education Centre of Technol