While seeing sales slide in certain markets, globally, the organic sector has largely proved resilient amid the worst economic conditions for a generation. Euromonitor International's Diana Cowland looks at the likely drivers behind the continued steady growth in the sector.

Global organic packaged food and beverages has shown resilient growth over recent years and in 2010, was valued at US$27bn, up from US$18bn in 2005. Global and regional opportunities for brand expansion and company acquisition both within food and beverages and beyond are numerous.

Global sales of organics increased in at double-digit rates between 2006 and 2008 but growth slowed during the recession due to products being more expensive than their conventional counterparts. Nevertheless, a constant CAGR of 7% was posted over 2006-2010 and growth of organics during the crisis of 2008/2009 remained positive at 1%. Euromonitor International forecasts that growth will not return to pre-recession rates but will maintain healthy year-on-year growth of 4% over 2011-2015. 

The majority of retail sales in 2010 occurred in developed markets; however, emerging markets, particularly Latin America and Asia Pacific, are witnessing strong growth, albeit from low bases. 

While emerging markets represent just 5% of global organic retail sales, with rising disposable income, increased health and environmental awareness, and unsaturated markets, they hold the potential for strong growth within this sector. For example, Latin America posted a constant CAGR of 32% over 2005-2010, over five times the global growth rate and growth is set to remain high with a constant CAGR of 15% for 2010-2015. 

With expansion opportunities aplenty, companies looking to move into these markets have to target their products towards local consumers. In developed markets, dairy, ready meals and baby food drive sales due to consumers wanting health and convenience satisfaction. However, in Brazil, it is organic sauces, dressings and condiments that registered the highest sales thanks to the good performance of Amazonias Indústrias Alimentícias SA and its brand King of Palm. 

In Asia Pacific, China recorded a constant CAGR of 32% over 2006-2010, somewhat larger than Japan's 4% even though the latter recorded 68% of all regional organic sales in 2010. This large growth in China is due to increased spending power combined with recent health scares and greater awareness about organics. Interestingly, the largest contributor to China's strong growth was the arrival of organic vegetable and seed oil onto the market in 2007, and Qingdao Changshou Foods Co Ltd holds the leading position in this category with sales of US$2.5m in 2010. As cost is an issue for consumers, oil and fat products that last longer compared to other organic products, such as rice, are witnessing strong growth. 

Organic baby food contradicts other trends seen within organics as it is considered to have strong health-related benefits compared to its conventional counterparts. Consumers are willing to spend more money, even in times of recession, to ensure their children have good quality and safe produce. Over 2008/2009 year-on-year growth was 8% for both organic and conventional baby food, however, for milk formula, dried and prepared baby food organic posted higher rates than conventional categories, according to Euromonitor International's packaged food data. 

Organic baby food is growing globally. Recent health scares such as the melamine contamination of milk formula in 2009 have led to strong growth in China; organic baby food sales of US$13m were recorded in 2010 and globally, 16% of absolute growth for organic milk formula is to come from emerging markets over 2010-15. Organic baby food is set to continue posting strong growth. Having recorded a constant CAGR of 7% over 2006-10, it is set to see absolute growth of US$477 over 2010-2015 globally. This growth is driven primarily by two companies, Hipp and Hain Celestial, which together hold a 44% share of global retail value sales. 

The top two players in organic baby food are also the largest brands in organics globally; combined they have a retail value share of just under 5% of organics packaged food and drinks. Yet multinational FMCG companies' organic offerings remain minimal; according to Euromonitor International's data, Nestle, the world’s largest packaged food company, takes just 0.2% of its total retail sales from organic products. Yet this has not stopped companies seeing the benefits of acquisitions. Since 2005, Euromonitor has recorded ten important acquisitions of organic brands; for example, when Kraft Foods bought Cadbury in 2010 it acquired organic confectionery brand Green & Black's, allowing the US food giant to tap into a new category. 

However, with a high proportion of organic sales occurring through large retailers, such as supermarkets and hypermarkets, private-label sales of organics have grown by 93% between 2005 and 2010. Private label from premium retailers, such as Whole Foods Market through to discounters such as Aldi, has made organics more accessible to mainstream consumers. Prices are more competitive and concerns over reputation and consumer trust that normally act as a barrier for private label are relatively weak as products still have to be certified by an organic regulation body.

The most important trend being witnessed in organics today is the creation of functional organic products. In a health and wellness market worth US$601bn, the potential to link organic products to other health trends such as "fortified/functional" or "better for you" are infinite. This not only provides differentiation from the growing "naturally healthy" segment, worth US$241bn, but also creates added value, an important selling point for a product in today's market. 

North American and Western Europe, which accounted for 90% of organic retail value sales in 2010, will remain a priority to most companies. Only three of the world's 15 largest contributors to organics are located outside these regions, in Japan, Russia and Australia. The global organic market is set to increase from US$27bn in 2010 to nearly US$33bn in 2015; nearly 90% of this growth will be driven by organic packaged food. However, organic beverages is by no means a small category; Euromonitor estimates that it will generate nearly US$700m in additional value over the same time period. However, organics is not just limited to packaged food and beverages. 

Euromonitor's research shows that organic products are present, and growing, in other industries including alcoholic drinks, tissue and hygiene, apparel, beauty and personal care and pet food. Those companies, such as Hain Celestial, with brands including Avalon Organics and Orjene Organics, which have branched away from organic food and beverages into the likes of beauty and personal care are posting strong growth. 

Therefore in order to retain a credible position in a growing market, companies looking at expansion should not limit themselves to organic as a single functionality when developing products and should potentially look beyond food and beverages.