Organic food sales took off in the late 1990s after food scares from BSE to salmonella hit consumers’ faith in conventional production. But growth has slowed sharply. Chris Lyddon asks whether this is the end of an over-hyped bubble or a sector entering a more stable growth phase.
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In 1999/2000, UK organic food sales grew at 55%, according to the Soil Association’s Organic Food and Farming Report. In 2000/2001 it slowed to 33%, falling further to 15% in 2001/2002.
The trend is the same in other European countries. According to Bio-Suisse, sales of organic food in Switzerland rose by 13% in 2002, breaking, it proudly announced, the billion franc barrier. But an International Federation of Organic Agriculture Movements (IFOAM) report reminds us that Bio-Suisse put Swiss growth at 17.5% the year before.
The Netherlands managed 20% growth in organic sales, said the IFOAM report, “The World of Organic Agriculture Statistics and Future Prospects”, “although growth is said to have slowed down in 2002”.
“The Danish market for example, largely stagnated in 2001 and, as a whole, actually declined somewhat in 2002,” wrote Rudy Kortbech-Olsen of the International Trade Centre in the report’s market section, noting that the fall was mainly caused by the dairy sector. “In Germany, the market has likewise stagnated and even declined periodically during the last couple of years, he said, although he noted growth in some areas.
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By GlobalDataAccording to Italy’s ISMEA (Istituto Di Servizi Per Il Mercato Agricolo Alimentare), the volume of organic food sales in Italy actually fell in 2002 by 1.6%, compared with a 17.6% rise the year before, although the value of sales did rise by 20.7% in 2002.
Slowdown was bound to happen
Food and Drink Federation organic food specialist Dominic Dyer said the slowdown was bound to come. “It’s fair to say that the market is slowing. But it is still growing at a sustainable rate,” he told just-food.com. One reason was that the sector had got its message across. “Most people now know about organic,” he said.
“The sector has got its message across” |
Dyer was happy to predict continued growth at a, by normal standards, fast rate. “We will probably see rates of 5-7% over the next few years, rather than the 20-30% that we have seen,” he said. “Compared to other sectors of the food industry it is still going very well.”
Simon Wright, founder of The Organic Consultancy, quotes a recent survey of food processors. When asked if they would be producing their first organic product in the coming year, 81.3% of food processors said no. Just 6.6% said yes. “The survey’s right,” he told just-food.com. “The vast majority of companies who are not already in won’t enter in the next 12 months. But there are an awful lot in already.”
“I don’t think the bubble has burst,” Wright said. On the whole, slower growth was good news for the sector. “I’m extremely relieved that we’re not having to cope with 55% growth any more,” he said. Super fast growth had strained the supply chain, and stretched the capacity of the certifying bodies, for example, to their limits. It had also brought in some people who were jumping onto a bandwagon and perhaps should not have been involved. “At its height all sorts of people were rushing into organics,” he said.
Supermarkets have a key role
Supermarkets have led organic sales, and they remain key to the sector’s continued growth, Wright said. “As long as their enthusiasm for organic remains, which it will as long as their customers’ enthusiasm remains, there’s no sign of the bubble bursting,” he said.
Dominic Dyer made the same point. “The supermarkets have a key role,” he said. He could see them withdrawing some products, out of the large number of lines which have been put into supermarkets. “But there are also interesting new growth areas, like wine, where people are already interested in achieving quality,” he said.
According to supermarket chain Sainsbury’s, growth in organic food sales has stabilised at around 15%. “The organic market is still growing but it has levelled off slightly,” Sainsbury’s Rachel Allen told just-food.com, adding that Sainsbury’s was committed to the market and to reducing imports.
Tesco is also committed to the sector, its spokesman Greg Sage told just-food.com. “Our customers continue to demand more agricultural products, which is why we continue to supply more,” he said.
The FDF’s Dominic Dyer also highlighted the need to cut imports, but said a significant proportion of organic food would always be imported. “It’s always going to be an issue for retailers and manufacturers to supply products all year round,” he said.
The low-hanging fruit’s all been picked
According to Simon Wright, companies are going to have to be a bit cleverer about how they approach the organic market from now on. “There’s that terrible phrase about the low hanging fruit having been picked,” he said “From here on in we’re looking at initiatives that are more difficult to do.”
An example was trying to widen the scope of organic food sales, particularly into the vast public and institutional catering sector. “If you want to sell to supermarkets, you’ve got to talk to five people,” he said. “To get into hospitals and schools and local government caterers, which are very diffused and centralised, you’ve got an awful lot of people.”
“Being organic, on its own, is no longer enough” |
“The honeymoon period is over. That’s not a bad thing,” Wright said. Sainsbury’s for example was not prepared to make allowances for poor quality products just because they were organic. “That’s exactly right and proper,” he said. And in a sector where taste dominates customers’ reasons for buying, the quality of organic food on offer had improved beyond all recognition. “Being organic on its own is no longer enough,” he said.
But the sector is still worthwhile. “The companies I work with are all showing good sales growth at the moment,” he said, adding that fewer companies would be entering the sector and they would need good reasons to do it. “Large companies are only going to come in if it fits in with other things they are doing,” he said.
The FDF’s Dominic Dyer expects to see some exit the sector. “Those that haven’t yet made good quality products and connected with customers will withdraw,” he said. “You can do very well in the sector but you have to get it right.”
Out of the niche
Organic food has succeeding in getting away from the accusation that it was nothing but a tiny niche area of food production. “It’s not really a niche now. It’s quite a mainstream production sector,” he said. “It’s a good sector to be in for many retailers and manufacturers.”
Maybe the organic sector would not change the way all the world’s food was produced, but the good work done by retailers, processors and farmers in developing high quality products did mean that organic food would remain a mainstay of consumer choice in the long term, Dyer added.
