The European organic food industry has been the subject of much interest in recent years. It is regarded to be the most dynamic sector of the food industry. However, says Amarjit Sahota of Organic Monitor, it is facing many challenges.
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Industry overview
The European organic food industry was valued at €13bn in 2001. The market is estimated to have expanded by up to a third last year due to high growth observed in markets like Germany, Italy, France and the UK. The highest growth was in Germany where the major retailers significantly widened their range of organic foods in 2001 in response to rising consumer interest in organic foods. Strong state support and the launch of a national logo for organic foods, the Bio-Siegel, have also been major drivers of market growth.
Although Germany has the largest market for organic foods, representing 26% of European market revenues, the Scandinavians spend the most on organic foods. Organic foods have been widely available to Danish and Swedish consumers since the early 1990s. Many organic products have exceeded 20% market share of the conventional food products. For instance, organic milk represents a third of all milk sales, and organic eggs about 25% of all egg sales in Denmark.
The highest amount of organic farmland is in Southern Europe with the four countries of Italy, Spain, Portugal, and Spain accounting for 40% of organically managed land in Europe. These countries are large producers of primary organic products like organic fruit, vegetables, vegetable oils and wine.
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By GlobalDataThe alpine countries have the largest percentage of organic farmland in Europe. Over 8% of all farmland is certified organic in Austria, and Switzerland has 9% of all its agricultural land certified organic.
The British organic food industry is the second largest in Europe in terms of revenues. Although the market remains largely import dependent, the amount of organic farmland has become the third largest in Europe. British consumers have access to the widest range of organic foods with British multiples accounting for the largest sales of organic foods in Europe.
Key facts
- There were 3.7 million hectares of European organic farmland in 2001, representing 2.8% of European agricultural land
- The organic food market was estimated to have grown by up to a third to be valued at €13bn in 2001
- Germany has the largest market for organic foods, worth roughly €3.4bn
- Danish consumers spend the most on organic foods in Europe with per capita expenditure being over three times as much as German consumers and over five times as much as British consumers
- Italy has the highest amount of organic farmland in Europe, 1 million hectares, accounting for 28% of organically managed land in Europe
- British consumers have access to the widest range of organic foods in Europe
Major challenges facing the european organic food industry
Industry challenge | 2002-03 | 2004-05 | 2006-07 |
Successful transition from niche to mainstream status | High | High | Medium |
Prevention of fraudulent business practices | High | Medium | Low |
Continuing political support required for industry development | Medium | High | High |
Protection of price premium | High | High | Low |
Limiting fragmentation at standards / certificate level | Medium | High | Medium |
Source: Organic Monitor
Successful transition from niche to mainstream status
The major challenge the organic food industry faces is the successful transition from niche to mainstream status. Although organic foods are becoming more visible in European food retailers, they have yet to acquire broad appeal with consumers.
Organic foods are not considered to have mainstream status since a small amount of consumers account for the majority of purchases in most countries. For instance, consumer research shows that 61% of organic foods in the UK are purchased by 7% of consumers. In Denmark, 1% of consumers account for 80% of purchases.
Although many consumers are now buying organic foods in European countries, a small consumer base is responsible for the bulk of purchases. This is responsible for slowing growth rates in countries like Denmark and the UK.
Organic foods need to have broader consumer appeal if they are to take mainstream status in the European food industry and the major challenge faced by many organic food companies is how to expand the loyal consumer base.
Prevention of fraudulent business practices
A number of cases have been reported in the last couple of years of non-organic food being labelled and sold as organic food. For instance, in May 2001 it was discovered that 20,000 tonnes of non-organic grain was imported and sold as organic grain to unsuspecting British organic farmers and producers.
This is a major threat to the industry for consumers purchase organic foods because of the belief that it has been grown according to organic farming principles. The continuation of these fraudulent cases risks undermining consumer confidence in organic foods. Consumer demand for organic foods, especially imported products, could collapse if this type of fraud continues.
Continuing political support required for industry development
There is growing pressure to reform the European Common Agricultural Policy (CAP) and changes are likely in the short term. There is a need for political representation of organic farming.
The last year has seen the influence of two large supporters of organic farming – the Danish and Italian agricultural ministers – reduced due to national elections. Renate Kunast, the German minister for agriculture and consumer protection, is a major advocate of organic farming. She announced within a month of her appointment in January 2001, that she plans to have organic farmland in Germany reach 10% of farmland in ten years. With national elections due later this year and a change in government expected, it is not envisaged that she will exert influence on Brussels agri-policy after this year.
Organic farming needs to be promoted at the ministerial level as a sustainable form of agriculture. The question is: who will take the lead with political change happening on a regular basis due to the growing trend of coalition governments?
Protection of price premium
Organic foods, because of their nature of production, have a price premium over conventional foods. This can range from 15% for organic milk to over 100% for some organic exotic fruit and specialty cheeses.
There is growing pressure for organic food growers and producers to reduce production costs. This pressure comes from retailers, which attempt to narrow the price premium as low as possible in order to encourage consumer demand. The major barrier to product adoption in many European consumers is the high price.
The concern is that this pressure could translate into a compromise in organic standards and the method of production. For instance, organic farmers can be tempted to produce to the lowest standards of organic production in order to cut costs. This is likely to erode consumer confidence and promote divisions in the organic food industry on the lines of organic standards.
Limiting fragmentation at standards / certificate level
Although the EU has uniform regulations for organic food production, there are differences in national standards between member countries. EU Regulation 2092/91 is now perceived to be the minimum standard for organic food production in Europe with many countries adopting higher national standards.
This is creating divisions in the organic food industry in terms of organic standards and certificates. A divide is occurring in which there are European countries on one side that have organic standards of production that conform to EU Regulations, and others that are adopting higher standards. The latter are increasingly having their organic standards accredited by the International Federation of Organic Agriculture Movement (IFOAM), which is deemed to be the gold standard for organic production.
Countries with higher standards prefer to import organic products that are certified by an IFOAM-accredited certification. For instance, the Swedish government has appointed KRAV to inspect and certify organic foods in Sweden. It has IFOAM accreditation and this leads Swedish retailers to prefer to import organic products that are certified by an IFOAM-accredited body similar to KRAV. In the UK, the Soil Association is IFOAM-accredited and one leading supermarket, J Sainsbury, plans to only market organic products that are certified by an IFOAM-accredited body in the future.
These divisions are occurring within countries as well as between countries. The challenge is to attempt to maintain uniform high standards of organic production, otherwise certificate and / or standards could easily become trade barriers, as is being observed in parts of Europe. Certain supermarkets are expressing a preference to only import organic products that are certified by an IFOAM-accredited body.
Future outlook
The future continues to look bright for the European organic food industry. Demand for organic foods is expected to continue to rise in Europe due to the ‘safe and nutritious’ image of organic foods. Concern for the environment and animal welfare, and opposition to biotechnology foods, are also to be drivers of consumer demand in some European countries.
Another high profile food scare is almost certain to elevate consumer demand, as has been the case with BSE, dioxin scare, and foot & mouth, which have all caused a significant rise in sales of organic foods.
Consumer demand is to remain strong in part of northern Europe whereas Southern Europe will maintain its position as a major source of primary organic products. As the organic food industry develops, the growth of product categories is likely to emulate that of the conventional food industry. For instance, the industry is currently observing a large increase in Greek and Spanish organic olive oil, Italian organic speciality cheeses, Danish organic pork and German organic sausages.
By Amarjit Sahota
Amarjit is the director of Organic Monitor, a strategic research & consulting company that specialises in the international organic food industry.
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