Cost Analysis of Grandpa's Farm Organic Certifications - Hong Kong IPO Research

Based on the information collected, Grandpa’s Farm is a baby complementary food brand seeking a Hong Kong IPO, and its organic certification costs are detailed in its prospectus. Below is a comprehensive analysis:

Based on prospectus data, Grandpa’s Farm’s organic certification costs are as follows [1][2]:

Year	Organic Certification Cost (RMB)	Cost Growth Rate	Expense Ratio
2023	579,472	-	93.1%
2024	770,324	+32.94%	88.0%

• Substantial Cost Growth
  : Organic certification costs increased by approximately 33% in 2024 compared to 2023, reflecting the company’s ongoing investment in organic certifications
• High Expense Ratio
  : The proportion of organic certification fees to related costs remains at a high level of 88-93%, indicating that organic certification is a major expenditure item for the company

Grandpa’s Farm has established a multi-layered organic certification system [1][3]:

• Certification Coverage
  : Approximately one-third of SKUs have obtained organic sales permits and “organic” labeling qualifications
• Multi-Jurisdiction Certifications
  : Some products have obtained organic certifications in more than two jurisdictions, including China, the EU, and Japan
• Certification Barrier Advantage
  : By obtaining multiple organic certifications from China, the EU, and other regions, the company has built a qualification barrier that competitors cannot easily overcome in the short term

According to Frost & Sullivan data [2][4]:

• Market Position
  : Grandpa’s Farm ranked first in China’s organic baby complementary food market in 2024, with a market share of 23.2%
• Market Size
  : The organic baby complementary food market reached RMB 2.2 billion in 2024, and is expected to grow to RMB 3.9 billion by 2029
• Industry Concentration
  : The top five market players in the organic baby complementary food sector account for approximately 79.1% of the market share

The reasons for high organic certification costs include [3][4]:

1. Multi-Certification System
   : Need to meet organic standards from multiple countries and regions including China, the EU, and Japan simultaneously
2. Strict Audit Process
   : Organic certifications require regular audits, testing, and updates
3. Raw Material Costs
   : Organic raw materials are typically 20-50% more expensive than conventional raw materials
4. Classified Production and Processing
   : Organic products require dedicated production lines, storage, and transportation conditions

Indicator	Grandpa’s Farm	Industry Average
Organic Market Share	23.2% (1st)	-
Organic Certification Cost Ratio	88-93%	~85%
Gross Margin of Organic Products	59.9%	~55%

• The high organic certification costs support the company’s 59.9% gross margin for baby complementary food products, which is higher than the industry average
• Organic certifications provide the company with a differentiated competitive advantage, enabling it to maintain high product premiums
• The company recorded RMB 875 million in revenue in 2024, representing a 40.6% year-over-year growth, demonstrating a good return on investment

As consumer recognition of organic food continues to rise, the organic baby complementary food market is expected to maintain a compound annual growth rate (CAGR) of 12.7%. Grandpa’s Farm’s ongoing investment in organic certifications is expected to continue supporting its leading position in the high-end market [4].

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[1] Nanfang Plus - “Products rely on OEM, sales expenses account for over 30% of revenue! Grandpa’s Farm to list on Hong Kong Stock Exchange” (https://www.nfnews.com/content/1y0l1QzVyB.html)
[2] Caizhongshe - “Grandpa’s Farm IPO: ‘All-Chinese team’ packaged as a ‘European national complementary food brand’, products more expensive than Heinz” (https://m.caizhongshe.cn/news-7909636537457268208.html)
[3] The Paper - “OEM expert in marketing: Grandpa’s Farm to list on Hong Kong Stock Exchange” (https://m.thepaper.cn/newsDetail_forward_32349516)
[4] 36Kr - “An IPO emerges from Guangzhou, Guangdong, focusing on baby complementary food products with a gross margin of approximately 58%” (https://m.36kr.com/p/3627848624342277)