AMARJIT SAHOTA2
1 Introduction
The global market for organic food & drink is recovering from the repercussions of the fi- nancial crisis. Single-digit market growth was observed for the first time in 2009 because of the economic slowdown reducing industry investment and consumer spending power. Organic food & drink sales expanded by roughly five percent to 54.9 billion US dollars3
in 2009.
Sluggish growth in 2009 is considered an anomaly in the long-term development of the organic food industry. Global revenues have increased over three-fold from 18 billion US dollars in 2000. Double-digit growth rates were observed each year, except in 2009. Healthy growth rates are envisaged to restart as consumer spending power rises and as more countries come out of economic recession. Demand for organic products is concentrated in Europe and North America. The two regions comprise 96 percent of global sales. Although demand is broadening to other regions, low consumer awareness and low disposable in- comes limit sales to the most affluent coun-
tries. A major challenge for the industry is to ease this over-concentration of demand. Two other challenges the organic food industry face are overcoming the expensive percep- tion of organic products, and managing supply-demand imbalances. The conversion period to organic agriculture, typically two years, causes supply to lag behind demand. Thus, some sectors of the organic food industry face product shortages, whilst others experience over- production. The price premium is the major barrier to wider adoption rates. Some consum-
1 * This chapter has been prepared from the report The Global Market for Organic Food & Drink: Business Opportuni-
ties & Future Outlook (Organic Monitor, December 2010).
No part of this chapter maybe reproduced or used in commercial publications without written consent from Organic Monitor.
To request permission, write to: Organic Monitor, 20B The Mall, LondonW5 2PJ, Tel. +44 20 8567 0788, e-mail [email protected], www.organicmonitor.com
2 Amarjit Sahota is the director of Organic Monitor, a specialist research, consulting & training firm that focuses on the global organic & related product industries. More details are on www.organicmonitor.com
3 1 US dollar = 0.71895 Euros; average exchange rate 2009, Source: http://www.oanda.com/lang/de/currency/average 17 .9 25 .5 40. 2 54. 9 0 10 20 30 40 50 60 2000 2003 2006 2009 Re ve nue s (bil lion US do lla rs )
Figure 19: The global market for organic food and drink: Market growth 2000-2009
Note: All figures are rounded
Source: The Global Market for Organic Food & Drink (Organic Monitor 2011)
ers see organic foods as expensive products that they cannot afford, in spite of the associat- ed environmental, ethical, and potential health benefits.
2 Europe
Valued at 26 billion US dollars, the Eu- ropean market comprises almost half of global organic food & drink sales. The organic products market is considered the largest and most sophisticated in the world, home to international com- panies. It is also characterized by a high degree of competition, with an excep- tionally large number of companies involved in the production and distribu- tion of organic products.
The financial crisis had a negative im- pact on organic product sales. Consum- er spending on organic food & drink was affected as disposable incomes fell and unemployment levels rose. The UK organic food and drink market was the most affected, suffering a 14 percent contraction. The German market stag- nated, largely because of falling prices of organic products. In contrast, other organic food and drink markets, such as those in France and Sweden, showed double-digit growth in 2009.
Most organic food and drink sales are concentrated in Western Europe: Germany, UK, France, and Italy comprise over 70 percent of sales. The largest consumers of organic foods however are in Scandinavian and Alpine countries. The market share of organic products is over 5 percent of total food and drink sales in Denmark, Austria and Switzerland. Danish consumers are the world’s largest buyers of organic foods, spending about 202 US dollars per capita.
Southern Europe has a large number of export-oriented organic food producers. Spain, Portugal, and Greece are important producers, but not large consumers of organic products. Indeed, most organic agricultural products in these countries are exported to northern Eu- ropean countries. Such crops include organic fruits, vegetables, herbs, spices, and olive oil. Organic food production is also increasing in Central and Eastern European (CEE) coun- tries. Like Southern Europe, most production is export-oriented although internal markets for organic products are slowly developing. Important markets are in the Czech Republic, Poland, and Hungary.
3 North America
North America has the largest market for organic food and drink in the world. Worth US 26.3 billion US dollars, the market has become more prominent than that of Europe. Alt-
48% 48% 4% North America Europe Others
Figure 20: The global market for organic food and drink: Distribution of revenues by region 2009
Note: All figures are rounded
Source: The Global Market for Organic Food & Drink (Or- ganic Monitor 2011)
hough the growth rate slowed in 2009, consumer demand for organic food and drink re- mains robust.
The US market is the largest in the world; it also comprises over 90 percent of regional rev- enues. The US is a leading producer and exporter of organic agricultural goods, however many sectors remain import dependent. Domestic supply of organic products is falling short of demand, with products coming in from many continents. Significant volumes of organic fruits, vegetables, meats, beans, seeds, herbs and spices and ingredients are import- ed into North America. Latin America is the main source.
Expanding distribution in conventional grocery channels is the major driver of market growth. Organic products are becoming widely available in supermarkets, discount stores and mass merchandisers. All leading food retailers have introduced private labels for organ- ic foods. “O Organics,” the private label of Safeway supermarkets, is becoming the leading brand of organic foods in the US. Loblaw’s private label “PC Organics” is already the leading organic food brand in Canada.
The organic food industry in North America is more concentrated compared to that in Eu- rope. Large companies are dominating the production, distribution, and retailing. Large conventional food companies have a strong market presence; they include Dean Foods, PepsiCo, Danone and Hersheys. UNFI has become the dominant distributor of organic products, whilst Whole Foods Market and Trader Joe’s are the frontrunners in natural food retail.
The Catering and Foodservice Sector (CFS) is becoming an important channel for organic products. A growing number of foodservice outlets are serving organic products, whilst catering establishments are increasingly using organic ingredients. Some companies are specifically targeting the CFS sector. For instance, Organic To Go Food Corporation oper- ates organic cafés and serves organic meals to a number of catering establishments. Other foodservice establishments, such as Pizza Fusion, are using organic ingredients in its chain of pizza restaurants.
4 Asia
Asia has a two-tier organic food industry. The first-tier comprises producer countries that have large agricultural sectors. China, India, Thailand, the Philippines, and Vietnam are in the first-tier. These countries mainly grow organic products for the export market. Im- portant organic agricultural products include fruits, vegetables, herbs, spices, rice, tea, and other ingredients.
The second-tier countries are large consumers of organic foods but not important produc- ers. The most affluent Asian countries are in the second-tier; they include Japan, South Korea, Taiwan, and Singapore. Demand for organic products is concentrated in these coun- tries, although relatively few are produced here.
Organic food & drink sales are growing at a steady rate in Asia. The Asian market was val- ued at just over 1 billion US dollars in 2009. Rising consumer awareness of organic foods and increasing distribution are the major drivers of market growth. A growing number of mainstream retailers are introducing organic products, some under their private labels. Asian consumers are demanding organic foods as they become more aware of food safety and ecological issues. Food scandals, especially those involving Chinese products, are mak- ing consumers concerned about food safety.
The Asian market has many impediments to market growth. The lack of standards in the region is hindering trade of organic products. Few Asian countries have introduced manda- tory standards for organic agriculture and foods; most countries either do not have national standards or have voluntary standards. Consumers therefore cannot distinguish between legitimate organic products and competing products that are often marketed on similar attributes such as “chemical-free” or ”low pesticide.” There is also an absence of equivalency between national standards. Producers and importers therefore have to get multiple certifi- cations for their organic products.
5 Oceania
Although the continent has about one third of the world’s organic agricultural land, it has a relatively small market for organic products. Retail sales of organic food & drink were about 0.8 billion US dollars in 2009.
As in other regions, market growth slowed because of the economic slowdown. Healthy growth rates are envisaged as consumer demand for healthy and nutritious foods strength- ens. Increasing distribution is a major driver of market growth; organic products are making inroads in supermarkets, convenience stores, department stores and catering and foodser- vice outlets.
The Australasian market is characterized by limited availability of organic products. Alt- hough organic food & drink products have made inroads in mainstream retailers, the prod- uct ranges remain low. The price premium and perceived value of organic products are also major barriers to higher adoption rates. Consumer confidence in organic products remains low partly because of the voluntary nature of organic standards.
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 export- ed 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 2009. It has integrated these stores under the Thomas Dux Grocer banner. Large food companies, such as Fonterra and Sanita- rium, are taking up strong market positions as they expand their organic product ranges. 6 Other Regions
Consumer demand for organic products is also increasing in other regions. Although most production in Latin America is for export markets, internal markets are slowly developing. Brazil is poised to have the largest market for organic food & drink in the region, as many producers focus on the domestic market as well as exports. Organic foods are grown in almost all Latin American countries, however few are important consumers.
Almost all organic food production in Africa is for the export market. South Africa has the largest market in this continent. Internal markets are also developing in Egypt, Saudi Ara- bia, United Arab Emirates, and Kuwait. Israel has the largest market in the Middle-East region.
7 Conclusions
The global market for organic food & drink is recovering from the economic slowdown. Growth slowed to single-digit—five percent—for the first time in 2009. The European
market was the most adversely affected, with the UK market contracting because of the poor economic conditions. Healthy growth continued in North America, making the region overtake Europe in terms of importance. Although other regions—including Asia and Aus- tralasia—are showing strong demand for organic products, they comprise just 4 percent of global revenues.
Market growth rates were recovering in 2010. Healthy growth rates are resuming as the repercussions of the financial crisis slowly subside. With food inflation looming and market growth rates continuing to rise, increases in organic product prices are envisaged. Although many sectors of the organic food industry were experiencing overproduction in 2010, rising demand is expected to alleviate excess capacity in the coming years. The major challenge for many organic food companies and retailers will then become scarcity of supply and / or high prices.
Growing demand for organic products in regions like Asia and Latin America is also ex- pected to make sales less concentrated. The emergence of India, China, and Brazil as eco- nomic superpowers is leading to a burgeoning middle-class; as this section of the popula- tion becomes more educated and affluent, they are demanding organic products. This de- velopment is expected to transform these organic food producer countries to important consumer countries. As demand becomes more evenly spread, the organic food industry will become truly global.