With the average consumer’s disposable income decreasing and fuel, energy and housing bills soaring, will shoppers start tightening their belts when it comes to the little luxuries in life?
This is the question that has been plaguing organic fruit and vegetable players over the last quarter, and it is a dilemma that seems here to stay, at least for the foreseeable future, as the financial screws keep turning. A plethora of national newspaper reports have fuelled intrigue around the future for organics, leaving many unsure what the next few months may bring.
The Soil Association is reporting no dip in demand, and says demand is actually outstripping supply - despite talk that has now been raging for months of organics being one of the first things to be cut from the weekly shopping list in a period of financial difficulty. In fact, analyst Mintel is predicting the market will grow by 44 per cent by 2012.
Soil Association director Patrick Holden said recently: “It’s a myth that organic food is always dearer. As oil prices increase, organic will become cheaper, relatively, because nitrogen fertilisers and pesticides are made from oil. Organic uses 26 per cent less energy than non-organic per kilogram of food, which should give organic food a competitive advantage.”
But others are less optimistic. A report recently published by forecasting group Ernst & Young ITEM club said people who previously paid up to 50 per cent more for organics could soon decide to stop as they cut down on household bills.
No retailer has yet to report a drop in sales of organics, but the group is warning it is only a matter of time. Joel Segal, head of consumer products at Ernst & Young, says: “Higher-end consumers will have to make a trade-off. Either they stick to their principles, or they may decide that they can live without Fairtrade or organic food in order to avoid cutting back in other areas.”
Many shoppers are already using cheaper supermarkets, as reported on freshinfo and in FPJ in the last month, with discounters Aldi, Netto and Lidl gaining market share.
“There has definitely been an impact on organic sales over the last few months,” one insider tells FPJ. “There is real resistance to the higher prices, and we are struggling to make the sales for organic. We are really finding pressure as well from the discounters, because they are pushing as well. We are finding that if the price goes too high they are now de-listing the product. Consumers are becoming more cost-conscious and won’t pay the money [for organics]. We have also noticed a lot of the stores are pushing promotions on other things.”
Marketing and information company Organic Monitor expects the impact of the financial situation on the market to vary, believing fresh produce should be able to weather any storms.
In Organic Monitor’s report entitled The European Market for Ethical Fruit & Vegetables, it said sales of ethical fruit and vegetables surpassed the €5 billion (£3.96bn) mark for the first time in 2007. Fairtrade fruit and veg reported the highest growth, thanks to UK retailers like Sainsbury’s and Waitrose converting their entire banana stocks to Fairtrade.
Northern European countries are leading the ethical drive, with more than five per cent of all fresh produce sold in countries like the UK, Germany and Finland now certified organic and/or Fairtrade. In Switzerland, market share has already exceeded 10 per cent.
The largest ethical fresh produce category is organic vegetables, valued at €2.5bn in 2007. However, organic fruit sales are expected to overtake organic veg sales with the introduction of more exotic and tropical varieties to the marketplace, says the report.
However, the findings corroborated the fear that organic food production in Europe is not keeping pace with demand, and several European countries are reporting declining areas of farmland. Farmers are being put off converting to organic due to the rising prices of agricultural production. “The organic fresh produce industry continues to be dogged by supply shortages,” says a summary of the Organic Monitor report. “Supply-demand imbalances are expected to continue as consumer demand for ethical and ecological products rises.”
But the Soil Association is sticking to its guns that organics is the future for agriculture, claiming recently that soaring oil prices and climate change are “exposing fertilisers as economically and environmentally unsustainable”.
With the price of nitrogen fertiliser doubling over the past year to around £330 a tonne, and the cost of fertilisers expected to hit £500 a tonne, the Soil Association is adamant the efficiency of industrial farming will collapse. Robin Maynard, campaigns director at the Soil Association, says: “Rising oil and gas prices and the imperative of cutting greenhouse gases to curb climate change expose industrial agriculture’s dependency on artificial fertilisers as both economically and environmentally unsustainable. Farmers here in the UK and in developing countries would do better for themselves and the planet by shifting to sustainable organic farming, that builds fertility using the sun’s energy and nature’s own fertiliser factory, clover.”
The Soil Association says: “The environmental imperative of cutting greenhouse gas emissions by 60 to 80 per cent across all sectors to curb dangerous climate change makes intensive agriculture’s dependence on nitrogen fertiliser unsustainable.
“Contrary to the claims of the agrochemical and GM lobby, many farmers in developing countries are increasing their yields and building fertility without expensive, environmentally damaging artificial fertilisers. Farmers in Ethiopia have achieved fivefold increases in yields, by supplementing traditional methods with modern organic techniques, such as composting.”
One area of the organic market expected to feel the squeeze more than most in the near future is the vegetable delivery box scheme industry which, with its ethical credentials and accompanying price tag, may fall foul of the credit crunch sooner than its supermarket counterparts.
Thousands of orders have been cancelled, claim national newspaper reports, with the supermarkets’ organic veg aisles picking up the shortfall. It could spell bad news for smaller firms, with one of the oldest schemes, run from the North Yorkshire farm Low Leases, already going into administration over the last quarter.
One insider concludes: “There are two schools of thought on the impact of the credit crunch on organics. Either consumers will see they are paying a premium for organics and will stop buying them, or they will actually stop eating out as much, and therefore buy more luxury items to consume at home instead, which could include organics.
“In a recession, people like to keep their little luxuries, so even in a downturn we could find ourselves in a strong position.”
BROWN FEELIN’ GOOD AT POLLYBELL
Our family has farmed at Pollybell for the last 15 years, but has been involved in the industry for 120 years, says James Brown, fifth-generation director of Pollybell Organic Farm. The farm measures 5,000 acres and is based in North Lincolnshire, on the border with Nottinghamshire and Yorkshire.
In 1997, we embarked on the conversion process, a decision we came to purely by talking to our customers. We used to grow more than 1,000a of potatoes for the processing industry, and then we had a strategic re-think about whether that was what we wanted to do long term. After discussion with our customers, we decided to try organics. My father saw it as a better opportunity for us to connect with the end consumer.
Now 3,000a of the farm - 60 per cent - is under conversion, and we were awarded Organic Grower of the Year at the Grower of the Year Awards 2008. We have recently re-branded with a new company identity, website and media relations campaign.
It was a customer-focused decision to convert, and there is potential for Pollybell Farm to become completely organic in the future. We grow a wide range of vegetables, including bunched beetroot, bunched carrots, broccoli, pointed cabbage, Savoy cabbage, red cabbage, white cabbage, cauliflower, celeriac, Lady Balfour potatoes and spring greens, as well as cereals and pulses.
Our main customers are the multiples, who we supply via packers including Lincolnshire Field Products, Manor Fresh and Marshalls, part of Produce World. We are in talks with nationwide box schemes, and supply some specialist wholesalers and local farm shops. We are also in early stage talks to supply the public sector.
We have noticed a huge difference since converting - our crop rotations have to be much better planned, and we have had to learn a whole new set of protocols. It has been a huge challenge, but we have turned to new technologies to help us - for example, we have invested in camera-guided hoes.
Labour has also been a challenge - we plant by hand and to date we weed and harvest by hand, so finding good sources of labour has been tough. However, we are lucky not to face the issues of strawberry growers, as we can offer workers a longer term of labour than just the summer months.
Around 50 years ago, farming went down the chemical route, so now we are at the forefront of developing a different way of farming. One of the big issues with organics is that the crops have lower yields, but we are addressing that. We come from a conventional background, so our learning curve has been to find out the rules on organics and how we can apply them in different ways.
Conversion is a very personal decision and a big change in philosophy for any company. There is no pot of gold at the end of the rainbow. Nothing is successful by chance - if you have the right skills and the necessary attention to detail, you can succeed. You cannot mend any problems with chemicals, so you have to really focus to achieve a continuity of supply for the multiples.
Organics is a very exciting industry to be in, offering huge potential - but there are bound to be pitfalls along the way. It will be an interesting time ahead, and certainly not a bed of roses.
We are always talking to customers about demand and are slightly worried about the impact of the credit crunch, but believe we can maintain our position. Some consumers may cut back on organic spend, but others may cut back elsewhere. The organics market has potential, and people have realised it is more than a fad. There are big challenges, but the simple fact is, people seem to want to buy organic food.
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