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THE GLOBAL MARKET FOR ORGANIC FOOD AND DRINK

The Global Market for Organic Food and Drink

BY AMARJIT SAHOTA2

Introduction

Organic food and drink sales continue to grow at a healthy rate, with global revenues breaking the 50 billion U.S. dollar barrier for the first time in 2008. According to Organic Monitor estimates, global sales reached 50.9 billion US dollars, doubling in value from 25 billion US dollars in 2003.

The highest growth is occurring in North America where double-digit growth has been occurring for over a decade. Consumer demand remains buoyant in other regions, although some countries have been affected by the economic slowdown.

The financial crisis has had a negative impact on the global market for organic products. Many countries went into recession in the latter part of 2008, reduc- ing consumer expenditure. The credit squeeze has also reduced investment into the organic products industry, with existing enterprises and new entrants unable to finances business growth. A reduction in new product launches and new business start-ups has been observed since.

Preliminary research finds that positive growth con-

tinued in 2009 in spite of the poor economic climate. Higher market growth rates are en- visaged from 2010 onwards as the global economy continues to recover from the financial crisis. Most growth is expected in Europe where countries are slowly coming out of reces- sion.

1 _{This chapter has been prepared from an upcoming report: The Global Market for Organic Food & Drink: Future}

Outlook & Forecasts (Organic Monitor, 2010). No part of this chapter may be reproduced or used in other commer- cial publications without written consent from Organic Monitor. To request permission, write to:

Organic Monitor

20B The Mall, London W5 2PJ Tel. +44 20 8567 0788

E-mail: [email protected]

2 _{Amarjit Sahota, Director, Organic Monitor, 20B The Mall, London W5 2PJ, www.organicmonitor.com.}

Organic Monitor is a specialist research and consulting company that focuses on the global organic and related product industries. More details are on www.organicmonitor.com.

15 .2 23 .0 33 .2 50. 9 0 10 20 30 40 50 60 1999 2002 2005 2008 R e v e n u e s (b illio n U S d o lla rs )

Figure 18: The global market for organic food and drink: market growth 1999-2008

Note: All figures are rounded Source: The Global Mark

et for Organic Food & Drink (Organic Monitor)

THE GLOBAL MARKET FOR ORGANIC FOOD AND DRINK Europe

The European organic food industry is the largest in the world, worth about 26 billion US dollars in 2008. Most sales are concentrated in Western Europe, with Germany, the UK, France, and Italy comprising the bulk of revenues.

The largest consumers of organic foods, however, are in Scandinavian and Alpine countries. Organic products comprise over four percent of total food and drink sales in Denmark, Sweden, Switzerland and Austria. The Danes are the world’s leading buyers of organic foods.

Europe has the largest market for organic foods, but also the most competitive. The region has a very large number of brands and producers of organic foods. Most operate nationally, with few companies managing to develop a regional presence. Hipp is the largest organic food company in Europe; it has several manufacturing bases that make organic baby food. Other companies that have developed a pan-European presence with their organic products include Wessanen, De Vau Ge, Alpro and Arla Foods.

Supermarkets represent most organic food sales in almost every European country. The launch of organic foods under retailer private labels is making large retailers increasingly important. Private label products appeal to consumers, as they represent quality products at affordable prices. Private labels have had most impact in Germany where discounters, supermarkets and drugstores market organic foods under their private labels. Discounters, such as Aldi, Lidl and Plus are very successful in offering basic organic items at exception- ally low prices.

The market for organic foods in Central and Eastern Europe (CEE) is small but growing fast. Demand for organic products is growing in countries such as the Czech Republic; how- ever, production is largely confined to primary organic products. Organic fruits, vegetables, herbs, cereals and grains are grown in many CEE countries, mainly for the export market. These products are mostly exported to Western Europe, which is exporting finished organic products back to CEE countries.

North America

Organic food and drink sales continue to expand at a fast pace in the U.S. and Canada. Market revenues are estimated to have increased by 16 percent to 23 billion US dollars in 2008. Over 90 percent sales are from the U.S. market, the largest in the world. Organic products now comprise about three percent of total food sales in the country.

Organic food production is still lagging behind demand in North America. Large volumes of organic foods and ingredients are coming into the U.S. and Canada from Latin America, Europe, Australasia and Africa. Organic food production is not increasing, partly because of farmers growing crops for bio-fuels. Many American and Canadian companies are investing in organic farming projects in Latin America to ensure that supply levels remain adequate. Others are setting up offshore operations in which subsidiaries are opened in countries such as Argentina, China and the Philippines.

Conventional grocery channels comprise most organic food sales. Mass merchandisers such as Wal-Mart and supermarkets like Target and Loblaw’s are becoming prominent as they

THE GLOBAL MARKET FOR ORGANIC FOOD AND DRINK

focus on organic products. Wal-Mart has encouraged many of its suppliers to adopt organic practices, while other retailers are entering long-term contracts with organic producers. Supermarkets are playing such an important role that the private label of Safeway USA has become the biggest brand of organic foods. O Organics has over 300 products and gener- ated about 400 million U.S. dollar sales in 2008, making it the world’s number one organic brand. Safeway has increased distribution of O Organics to other retailers and started ex- porting to Asia.

The organic food industry in North America is more concentrated compared to Europe. Large companies dominate the supply-side and retailing. Hain Celestial is the world’s lead- ing natural & organic food company, generating over 1 billion US dollars sales. Other im- portant organic food companies are WhiteWave Foods, Stonyfield Farms, Organic Valley, Eartbound Farm and SunOpta. Some of these companies are developing an international presence by acquiring European companies; SunOpta bought Tradin in 2007, whilst White- Wave Foods bought Alpro in 2009.

With over 280 stores, Whole Foods Market is the leading retailer of organic and natural foods. It strengthened its position when it acquired Wild Oats in 2007. A unique character- istic of many of these North American companies is that they are publically listed, unlike organic food companies in other regions.

Asia

The Asian continent has an organic food in- dustry that is divided in terms of consump- tion and production. Very large producers and exporters of organic foods are in the region. China, with over one million hectares of or- ganic farmland, has become a global source of organic ingredients. Other countries like In- dia, Thailand, Indonesia and Vietnam are also becoming large growers of organic foods. However, these countries have small internal markets for organic products.

The largest markets for organic foods are in the most affluent countries, notably Japan, South Korea, Taiwan, Singapore and Hong Kong. These countries generally have very low domestic production levels, with imports com- ing in from Europe, North America and Aus- tralasia. There is little intra-regional trade of organic foods since mostly primary crops are grown in Asia, whereas processing mainly occurs in other regions. Thus, Asia is unique in that it is both a large exporter and importer of organic foods. 46.0% 3.0% 51.0% Europe North America Others

Figure 19: The global market for organic food and drink: distribution of revenues by region in 2008

Note: All figures are rounded

Source: The Global Market for Organic Food & Drink (Organic Monitor)

THE GLOBAL MARKET FOR ORGANIC FOOD AND DRINK Since most Asian growers have an export focus, many adopt organic standards of Europe, the US and/or Japan. Thus, Asian organic products such as fruits, vegetables, cereals, beans, herbs and spices are usually dual, if not triple, certified.

The Asian market continues to show healthy growth. Rising consumer awareness of organic foods and widening availability are driving market growth. A growing number of conven- tional food retailers, especially those in the big cities, are introducing organic products. The number of dedicated organic food shops is also rising, with many new stores opening in countries like Singapore, Malaysia and Taiwan. Some large food companies are also coming into the market and introducing organic lines.

Consumer awareness of organic foods is rising because of the high incidence of health scares in recent years. The scares, some involving foods, are raising consumer awareness of health issues and stimulating consumer demand for organic products. The melamine scare led to a surge in demand for organic food in Hong Kong and neighboring countries in 2008. Previous health scares were Avian flu and Severe Acute Respiratory Syndrome (SARS) and those involving foods included cola drinks (India) and tofu (Indonesia).

Oceania

Although Australasia houses almost 40 percent of the world’s organic farmland, the market share of global organic food and drink sales is less than one percent. The low market share is partly because of the small consumer market in this region. Another reason is that most of the organic farmland is used for grazing by livestock farmers. Also, a significant portion of the organic foods grown in Australasia are exported.

Australia and New Zealand are important exporters of organic products. Significant vol- umes of organic beef, lamb, wool, kiwi fruit, wine, apples, pears and vegetables are exported from the region.

As has happened in Europe and North America, large food companies and retailers are com- ing into the organic food market. Woolworths became the leading retailer when it acquired the Macro Wholefoods chain of organic food shops in summer 2009. It is re-branding these stores under Thomas Dux Grocer, the name of its organic food retail network. Retailer pri- vate labels are also becoming important for organic products. However, distribution of organic foods remains low compared to the other regions. The range of organic products in mainstream retailers remains low.

Other Regions

Production and consumption of organic products is also increasing in other regions. In Latin America, organic food production is increasing at a fast rate, albeit for export mar- kets. Large amounts of organic fruits, vegetables, herbs, spices, seafood and meat products are exported to northern hemisphere countries. Internal markets are, however, slowly de- veloping, especially in the major cities such as Santiago and São Paulo.

In Africa, organic food production is almost entirely for the export market. The region is a major exporter of organic products to Europe. In the Middle East, high demand for organic products is leading dedicated retailers to open in big cities such as Dubai and Riyadh.

THE GLOBAL MARKET FOR ORGANIC FOOD AND DRINK Conclusions

Global sales of organic food and drink continue to increase at a healthy rate, with revenues reaching roughly 51 billion US dollars in 2008. Growth continued in 2009 in spite of the financial crisis. Demand for organic foods has been most affected in countries that are in a lengthy recession, such as the UK. In most other countries, demand was only temporarily affected by the economic climate.

The major challenge the organic food industry faced up to 2008 was supply shortages. De- mand for organic foods was outpacing supply, with many farmers not converting to organic farming because of food inflation. Prices of agricultural products reached record highs be- cause of rising fuel costs and growth in production of bio-fuel crops. The global economic slowdown has put an end to food inflation, however high interest in bio-fuel crops like sugar beet and corn remains.

With slowing demand, oversupply could once again become a major concern for the or- ganic food industry. In Europe, some growers of organic fruits, vegetables, grains, meats and dairy are already experiencing overproduction. Developing countries have yet to be adversely affected, mainly because demand remains robust in North America.

However things could quickly change. If production levels of organic foods do not increase significantly and demand takes a major upturn in 2010 then another bout of undersupply is envisaged. One thing is for certain however, supply-demand imbalances will remain a feature of the global organic food industry.

THE GLOBAL MARKET FOR ORGANIC FOOD AND DRINK

Market information in The World of Organic Agriculture, 2010 edition:

- Global market: see chapter by Amarjit Sahota, page 54;

- Africa market: see section on the African market in the chapter on Africa by Hervé Bouagnimbeck, page 59;

- Asian market: see chapter on organic farming in Asia by Ong Kung Wai, page 123;

- European market: see chapter on the European market by Diana Schaack and Helga Willer, page 141;

- Latin American market: see chapter on Latin America by Salvador Garibay and Roberto Ugas, page 163;

- North America: see the US Chapter by Barbara Haumann, page 184 and the chapter about Canada by Matthew Holmes and Anne Macey, page 193.

- Oceania: see the chapter on Australia by Els Wynen, page 200, and the chapter on New Zealand by Seager Mason, page 203.

Organic Crops: