By Joseph Chaney

XIAMEN, China, March 29 (Reuters) - Chen Wucheng sorts through radishes. Next to him, Cai Minhua scrapes off blemishes and dirt.

Standing all day in their snow-white sanitation suits, they represent China's lurch towards packaged, branded, quality-controlled food.

"I'm helping make the food cleaner," Chen, a 28-year-old worker, said at the China Green (Holdings) Ltd. <0904.HK> processing plant near the port city of Xiamen.

China Green, along with Chaoda Modern Agriculture (Holdings) Ltd. <0682.HK>, is tapping into an increasingly lucrative market for food which Chinese consumers feel they can trust.

A string of scares in the last three years -- from cancer-causing Sudan IV in egg yolk to poisonous malachite green in freshwater fish -- has given birth to a new breed of food company.

China's unique 'green' distinction is a quasi-organic certification dating back to 1990 which limits the use of chemicals and pesticides compared to fully organic foods grown without synthetic fertilisers or pesticides.

Sales of 'green' foods leapt 18 percent in 2005 to about 100 billion yuan ($13 billion), according to investment bank Credit Suisse.

"This is trending upwards," said JP Morgan analyst Karen Li.

"More and more Chinese customers will ask for green or organic products, just like consumers outside of China. They're becoming wealthy and they're going to ask for food with better standards," Li said.

Analysts say industry consolidation -- buoyed by government support -- is helping emerging green and organic players, such as Heilongjiang Agriculture Co. Ltd. <600598.SS>.

"The Chinese government is encouraging the industrialisation of the entire agricultural sector-- the market leaders will benefit," said Chuan Tang, an analyst for Daiwa Institute of Research.

"And in a fragmented market, when you get big, you can benefit more from market inefficiencies," he added.

(To read exclusive interviews with Chaoda and China Green, please click on [ID:nHKG158158] and [ID:nHKG170147])

GREEN MANIA

But industry watchers warn that the green food rush in China may run into problems.

Players in the U.S. organic market -- worth about US$14 billion in 2005 -- such as Del Monte Foods Co. <DLM.N> and supermarket Whole Foods Market Inc. <WFMI.O>, have struggled against competition from cheaper mainstream products.

In China, organic and green foods cost as much as a third more on average, according to the China Green Food Development Center.

Add to this accusations that green companies are not really green.

Last year reporters in Nanjing claimed Chaoda -- which sells both green and organic products -- was sourcing vegetables from unregulated local markets to fill customer orders.

That forced Chaoda to put out a public denial at a time when it was trying to sell more to Wal-Mart Stores Inc. <WMT.N> and others in the region.

But green advocates argue there's room to grow, given that official data showed urban disposable income rose 12 percent in 2006.

The prospects of stellar growth has driven a steep rise in shares of the firms, with Heilongjiang's stock surging 150 percent in the past 12 months. (See share price performance table at the end of the story.)

Some analysts see Chaoda and China Green as complementary. Both are angling for the kind of brand recognition achieved by leading milk producer Mengniu Dairy Co. Ltd <2319.HK>.

China Green is branching out into packaged products such as non-fried instant noodles, while Chaoda is more of an upstream play.

To maintain standards, workers like Chen and Cai act as ad-hoc human inspectors on anything grown on China Green's sprawling fields outside Xiamen: Verdant rows of broccoli, watermelon, and beans stretching to the horizon.

For an interview in Xiamen with the firm, please click on [ID:nHKG21346]. C0MPANY ESTIMATED P/E 12-MTH SHARE PERFORMANCE HEILONGJIANG AGRI <600598.SS> 27.06 +151.7 FIRST TRACTOR <0038.HK> N/A +101.9 CHINA YURUN <1068.HK> 24.54 +49.4 CHINA GREEN <0904.HK> 14.39 +74.8 COFCO INTERNATIONAL <0506.HK> 19.52 +27.9 CHAODA <0682.HK> 8.30 +3.0 DEL MONTE FOODS <DLM.N> 15.52 -3.3 WHOLE FOODS MARKET <WFMI.O> 30.99 -31.8 ($1=7.734 Yuan)

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