Organic Market Outlook

[S.Annadana]

Organic Market Outlook
The media's fascination with the organics market continues but this time with the focus on how it is faring during the credit crunch.
The question of how a sector which is still less than two percent of total food sales can command so many column inches will be tackled another day. The more pressing issue is whether organic farmers will find a ready market for their produce or will it have to be offloaded at conventional prices.
Here's a round up of the latest news on the state of the market.
Sky News commissioned a special piece of research, and found that total sales of organic produce had been growing until April when for the first time sales dropped below the previous year.
The Telegraph reported that sales of fruit and veg box schemes have fallen sharply. One supplier said that 10% of his customers had cancelled their order, and he reckoned that 20% would have cancelled by the year end. One firm has gone into administration.
Up at the Royal Highland Show, Andrew Gibson of Two Sisters Food Group said that sales of organic chicken had virtually disappeared, and that free range was not growing as fast as it had. The British Poultry Council says that sales of organic eggs are showing no growth year on year, although free range sales were still up.
DairyCo's latest data on the milk market shows flat organic milk sales.
No consumer sales figures have been reported for beef or lamb.
The reason for the slowdown/declines in sales seem firmly to do with price. One Abel and Cole box scheme customer, interviewed in the Telegraph said "I'm afraid the organic box is a bit of an unaffordable luxury"; and another said "It was a luxury, but we never used it up each week. I have no regrets at all that we cancelled." A new mother interviewed by Sky also said that it was price which had made her turn away from organics, especially packaged food.
All of which looks a bit gloomy.
By contrast though ASDA reckons that organics are one of their fastest growing areas, and they plan to add new organic lines this year, Tesco reported that the growth rate for total organic sales had slowed to about 10%, which is not bad, even though it compares with about 30% in previous years, and Sainsbury that organic sales were one of their major growth areas. Grampian Country Foods have said they want to increase organic chicken production from 15,000 birds annnually to 20,000 (and double free range production to 90,000 birds). The Soil Association is projecting sales growth of 10% in 2008, and Nic Lampkin, an academic expert on Welsh organics said in the Western Mail that " There is still room for some growth".
It does look as if the rate of sales growth for organic food will slow whilst the current financial climate continues, which is what we predicted at the start of the year.
Could sales actually decline? Lampkin points out that 80% of organic sales are made to just 20% of all those who buy organic, and he thinks those customers will stay loyal because they buy for reasons of principle. However, should there be a wholesale walking away by the other 80% of consumers then clearly sales will fall substantially. Trying to decide if organics are worth the money is made more tricky by groups such as Which saying that their taste tests showed no difference between standard and organic products, strawberries being cited.
The overall conclusion though is that sales growth will continue in the major supermarkets who want to promote higher priced food like organics, but who will work hard to reduce the differential between organic and conventional food to ensure that consumers will trade up and not be put off by an overly big organic premium.
The outlook for those outside of the supermarket food chain looks bleaker unless they too can reduce the difference in price. At the moment some of the price differences are steep to put it mildly. The Telegraph quotes prices from an Abel and Cole box versus the same items bought from Tesco's organic section. Jersey Royal potatoes are £7.00 a kilo from Abel and Cole compared with £1.99 from Tesco, cherry tomatoes £10 a kilo versus £2.46, Little Gem lettuce £2.18 versus 50p, and even the humble onion at £1.66 a kilo compared with 84p. There's got to alot of added value to justify those differences, and for many thay value just is not there.
As far as action is concerned, organic farmers will of course need to watch costs carefully. Those contemplating a move to organic farming should take a very close look indeed at the overall cost of organic production versus conventional, and be absolutely sure that are still better off even if current premiums are reduced. They should also investigate what is happening to the market for their particular product, as not all organic sectors will perform in the same way.