The growth in sales of organic products in the last couple of years has surprised even its most die-hard enthusiasts.
According to the Organic Market Report 2006 published last week by the Soil Association, during 2005 the UK organic market increased by 30 per cent to total almost £1.6 billion in sales - averaging an extra £7 million a week. Two out of three consumers now knowingly shop the fixture and its remit has expanded to include some 50 per cent of lower-income households.
Supermarkets continue to take the lion’s share of sales, accounting for £1.2bn of the total £1.6bn, which claims co-author of the SA’s report, James Cleeton, is largely down to a leap in recognition on the part of the retailers for a need to pay more attention to organics. As a result, all the major supermarkets have invested heavily in the category and significant overhauls have been witnessed in the last year alone.
Tesco integrated its organic offer with the rest of its lines earlier this year in a bid to appeal to a wider customer base, while Sainsbury’s brought its organics firmly into the limelight last September with its So Organic re-branding venture. Both moves seem to have paid dividends for their respective retailers, with targets for growth accelerating just as sharply going forward.
Another reason given for growth is a general improvement in the quality of organic produce available as an increase in sources has given rise to a need to raise the bar. Sainsbury’s potato product technologist, Debbie Winstanley, says she has seen a distinct improvement in the consistency of quality of produce coming through nowadays: “The balance of organic quality has got much better with the introduction of technological advancements. The difference between organic and conventional produce has eroded.”
Meanwhile, SA policy director Peter Melchett warns against setting UK retailers up as a benchmark for consumer perceptions of quality. “People do want, and will go out of their way to buy food that doesn’t meet supermarket standards of quality,” he says, citing the rise in organic sales from non-supermarket outlets as evidence. Farm-gate sales of organic food measured up at £260m last year, with box schemes and mail order services recording a 25 per cent increase to reach £100m, and farmers markets generated £25m.
For the time-poor consumer interested in organics or the complete novice, the multiples are generally still the only viable avenue, however. And, with retailers having set stringent standards concerning the appearance of produce, it will take some effort to re-wire consumer thinking, according to organic potato grower, Jeremy Helme. “Organic consumers are usually buying on the basis of health and nutrition, so appearance is secondary. But I think there needs to be a change in perception from the retailers towards educating consumers that having scabs on the produce doesn’t affect the taste,” he says. Sainsbury’s organic produce buyer, Connor McVeigh, agrees: “More communication is needed about the quality issues of produce and the story about what organic growers do, and why organic produce looks different.”
At Sainsbury’s sales of organic fresh produce account for some 5.5-6 per cent of the total section, rising to 14-15 per cent for some stores. Last year So Organic produce sales reached £100m of a total £254m spend for all organic products. This constitutes a growth rate of 5.2 per cent, which is slightly behind the market average, but Sainsbury’s has set a target of £296m for this year, with produce sales intended to grow accordingly. From its Nectar card data system, the retailer has deduced that 52 per cent of its organic sales are attributable to just three per cent of shoppers, which means there are still 97 per cent of shoppers never or hardly ever buying organic just waiting to be enticed.
Yet, Sainsbury’s, like the SA, is confident that demand will grow, and is enthusiastically making plans to be able to accommodate it when it does. When asked by an organic potato grower why it had taken Sainsbury’s until now to demonstrate such interest, McVeigh replied: “Until now we haven’t really had a good idea about what the demand would look like so we didn’t have the confidence to invest in resources but now we know the demand is there we can, and are giving, an increased degree of commitment.”
SA’s food and farming director, Helen Browning, says that Tesco, which was castigated last year for its less than wholesome treatment of suppliers, has since had a noticeable change of heart. “There has been quite a significant change in tactics and a shift in practice, and Tesco has committed to longer-term supply,” she says.
Studies suggest the organic shopper is more concerned with product origins than those sticking with conventional. Sainsbury’s reports a very positive uptake of its Welsh organic carrots and according to organic buyer, Rhian Jones, the retailer is keen to see regionalisation gain more credence in organics going forward.
Browning says locality has become an important focus in organic processing and distribution outside of the multiple arena, and, while she admits that with the volumes required, this would not be so easy for the retailers, she urges them to give it due consideration.
Processing and pre-packing is an area ripe for development in organics. Jones says this forms part of Sainsbury’s drive to offer an “organic everything” so consumers do not have to substitute their organic shop with conventional versions of anything. The retailer offers carrot batons and has just launched an organic potato mash and broccoli florettes, but admits there is still a long way to go.
These facts suggest the opportunities for organic producers are many and varied, and for those in the UK more than most. However, for growers already in the game the pros are not quite so obvious just now. The SA reports that supermarkets are now sourcing 66 per cent of organic produce from the UK - only four per cent below the Defra Organic Action Plan target of 70 per cent by 2010. But, while it has seen a 42 per cent surge in the number of farmers interested in converting to organic systems, overall UK supply is falling behind demand.
The area of UK land under organic production has fallen from 726,400 hectares in 2003 to 631,144ha today, although according to the SA, most of the decline has occurred in Scotland, with England and Wales actually registering increases in production. According to Cleeton, a number of organic growers have decided not to renew their contracts after a five-year commitment. Browning adds that Scottish growers were misguidedly advised to opt into organics in areas of “bog and rock” which were never going to be conducive to top-quality production.
So, why is organic production in the UK not growing faster in the non-barren areas? Browning suggests there is still a lack of confidence in the viability of organics and the level of consumer support for it. But, while growers will readily admit that the fall in returns does not make the extra toil and dedication of growing organically worthwhile, a more practical setback seems higher up the agenda: namely the issue of land, and the sheer lack of it available for organic conversion. According to Organic Works, organic farming is creating 50 per cent more jobs per farm than conventional farming, and attracting younger people, including women. Jones agrees that, in stark contrast to conventional farming, the organic sector is not plagued with supplier rationalisation. In fact, Sainsbury’s has been steadily increasing the number of organic suppliers on its books. Furthermore, she suggests there is a much more joined up approach from organic producers, compared with their conventional counterparts, for whom extreme competition has made each one something of an island.
There is no denying the fact that organic farming is hard work. It gives rise to unavoidable negative yield penalties, and few possibilities for reversing the whims of mother nature. Potatoes are particularly difficult to grow, organically, Greenvale’s agronomist Maarten Fontein explains. “Potato blight can totally wipe out a crop and farmers are extremely limited in what they can do to prevent it,” he says. “Copper is permitted but the allowance for that is going down all the time.”
However, the land factor will ultimately be the limiting factor in UK organic growth, as the openings for even the most entrepreneurial or efficient farmers dry up.
Browning admits that UK retailers and processors are going to struggle immensely in the next couple of years to keep pace with demand and reliance on imports will rise accordingly. “If some of the retailers had invested more three or four years ago they would not be in the position they are now,” she says. “My advice to them would be to invest in long-term contracts now so they don’t go through a boom and bust cycle in producer confidence. And my advice to producers would be, when times are good, invest for the future. We need to collaborate to make sure we have a strengthened position in the marketplace and that we know where our produce will be sold.”
Sainsbury’s has issued Greenvale AP, its potato category manager, with a target to source 12,000t of organic potatoes by 2010, a rise of 4,000t in four years. McVeigh says the department wants as much of this as possible to be sourced from the UK but will look abroad if needs be. Yet, the produce available for import is not as infinite as some seem to suggest. Meanwhile, one distributor who wishes to remain anonymous says the real crux of the issue is not just finding enough produce to import but finding it to a level of quality that consumers will be willing to pay for. Furthermore, the UK is not the only market in the queue for additional organic produce as Germany and Italy are still ploughing ahead in terms of sales, with growth looking strong in other European countries as well.
At the same time, while increasing organic volumes is topping the agenda for most, Browning warns against slackening the strict specifications in place for certified organics or accepting produce at any cost - namely, from money-hungry multinational corporations. “Booming markets inevitably attract those putting profits before principles,” she says. “We welcome the big business because we need the big volumes but a big split between the small-scale producers and the larger operations is not helpful and we must make sure [the MNCs] are doing it for real and not just some marketing spin. We’ve seen that happen in the US, where organic standards have been diluted.”
Melchett is more positive but reiterates the need for caution. “The trends in the UK are different from the US,” he says. “There is greater recognition from retailers in the UK that they need to buy into the values of organic. At the moment we are moving in the right direction, we just need to continue to do so.”
Israel has a reputation for good quality and availability of land is not as limiting a factor for organic producers, according to Amos Orr, manager of Agrexco UK. Organic production still only accounts for some 5-6 per cent of the company’s overall business, however, with the practical difficulties of converting land and growing organically being the most acutely limiting factors. But Orr is expecting to see considerable growth in the next couple of years because the company’s growers are showing increasing faith in the virtues of the concept, he says.
So, just what are the virtues? According to the Soil Association, the connotation of “healthier” food is the biggest pull for new converts to organics, in the wake of the Sudan 1 incident and other recent scare stories. And most agree this factor is only going to get more important to consumers as nutritional value plays a greater part in motivating food purchases. Yet, the jury is still out on whether there are actually any quantifiable health or taste benefits to going organic.
At Sainsbury’s, Winstanley works with both conventional and organic produce, and says if there are any differences they are minimal at best, although the organic movement has had a positive knock-on effect across all products, she says. “There are two perceived concerns to conventional produce: residues and damaging the land, and organic is free from that worry. From a technical point of view, I don’t think conventional is a worry but organic has been a springboard for where we are going. Integrated Pest Management systems have become very robust and producers are all trying to fix problems through other means before reaching for the chemicals. If you balance things properly with respect to field management, and energy, and crop rotations, I don’t see the need for any major concern with conventional produce.”
The benefit debate aside, the simple fact is a growing number of consumers are choosing organic and it is in the interest of the produce industry to respond. Yet, the attraction of being paid accordingly has been heavily diminished. According to the SA, organic shoppers are significantly concerned with ethics and believe in paying a deserved price for the products they want. However, it seems the downside of organics being pushed into the mainstream is they become subject to the same retail price warring as any other commodity.
McVeigh admits that balancing volume against price deflation is no mean feat, when price deflations of as much as nine per cent come into play, but claims he has no intention of needlessly slashing prices to stay ahead. The solution, he says, is eliminating unnecessary expenditure from all sides. “We have a responsibility to be competitive within the marketplace,” he says. “The biggest problem is the waste factor and if we can reduce that we can increase supply options. We are looking at vertical integration within Sainsbury’s to increase the opportunities for organics.”
Agrexco’s Orr is equally philosophical. “If we are not going to see better prices we need to find better ways of supplying organic,” he concludes. “There are all kinds of ideas for improving yields - making root stocks as resistant to disease as possible, and trying to close the price differential where possible, or really looking to see if some products are just not going to get the premiums and decreasing those volumes, or maybe stopping them altogether to concentrate on the products that can work.”
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