Tuesday, 24 June 2008

Organic Market Outlook

The media's fascination with the organics market continues but this time with the focus on how it is faring during the credit crunch.
The question of how a sector which is still less than two percent of total food sales can command so many column inches will be tackled another day. The more pressing issue is whether organic farmers will find a ready market for their produce or will it have to be offloaded at conventional prices.
Here's a round up of the latest news on the state of the market.
Sky News commissioned a special piece of research, and found that total sales of organic produce had been growing until April when for the first time sales dropped below the previous year.
The Telegraph reported that sales of fruit and veg box schemes have fallen sharply. One supplier said that 10% of his customers had cancelled their order, and he reckoned that 20% would have cancelled by the year end. One firm has gone into administration.
Up at the Royal Highland Show, Andrew Gibson of Two Sisters Food Group said that sales of organic chicken had virtually disappeared, and that free range was not growing as fast as it had. The British Poultry Council says that sales of organic eggs are showing no growth year on year, although free range sales were still up.
DairyCo's latest data on the milk market shows flat organic milk sales.
No consumer sales figures have been reported for beef or lamb.
The reason for the slowdown/declines in sales seem firmly to do with price. One Abel and Cole box scheme customer, interviewed in the Telegraph said "I'm afraid the organic box is a bit of an unaffordable luxury"; and another said "It was a luxury, but we never used it up each week. I have no regrets at all that we cancelled." A new mother interviewed by Sky also said that it was price which had made her turn away from organics, especially packaged food.
All of which looks a bit gloomy.
By contrast though ASDA reckons that organics are one of their fastest growing areas, and they plan to add new organic lines this year, Tesco reported that the growth rate for total organic sales had slowed to about 10%, which is not bad, even though it compares with about 30% in previous years, and Sainsbury that organic sales were one of their major growth areas. Grampian Country Foods have said they want to increase organic chicken production from 15,000 birds annnually to 20,000 (and double free range production to 90,000 birds). The Soil Association is projecting sales growth of 10% in 2008, and Nic Lampkin, an academic expert on Welsh organics said in the Western Mail that " There is still room for some growth".
It does look as if the rate of sales growth for organic food will slow whilst the current financial climate continues, which is what we predicted at the start of the year.
Could sales actually decline? Lampkin points out that 80% of organic sales are made to just 20% of all those who buy organic, and he thinks those customers will stay loyal because they buy for reasons of principle. However, should there be a wholesale walking away by the other 80% of consumers then clearly sales will fall substantially. Trying to decide if organics are worth the money is made more tricky by groups such as Which saying that their taste tests showed no difference between standard and organic products, strawberries being cited.
The overall conclusion though is that sales growth will continue in the major supermarkets who want to promote higher priced food like organics, but who will work hard to reduce the differential between organic and conventional food to ensure that consumers will trade up and not be put off by an overly big organic premium.
The outlook for those outside of the supermarket food chain looks bleaker unless they too can reduce the difference in price. At the moment some of the price differences are steep to put it mildly. The Telegraph quotes prices from an Abel and Cole box versus the same items bought from Tesco's organic section. Jersey Royal potatoes are £7.00 a kilo from Abel and Cole compared with £1.99 from Tesco, cherry tomatoes £10 a kilo versus £2.46, Little Gem lettuce £2.18 versus 50p, and even the humble onion at £1.66 a kilo compared with 84p. There's got to alot of added value to justify those differences, and for many thay value just is not there.
As far as action is concerned, organic farmers will of course need to watch costs carefully. Those contemplating a move to organic farming should take a very close look indeed at the overall cost of organic production versus conventional, and be absolutely sure that are still better off even if current premiums are reduced. They should also investigate what is happening to the market for their particular product, as not all organic sectors will perform in the same way.

Monday, 9 June 2008

Consumers,Clones and Concerns

The Food Standards Agency research findings that consumers do not support animal cloning for food have been widely reported, (apart from in the farming press, bizarrely), and both the findings themselves and consumer reactions to the reports merit pause for thought. The research is thorough, and the reports on it were confined to the facts, with no hysterical headlines. Media commentators reactions were also well balanced, with a couple of commentators coming out in support and one asking for a reasoned debate on the subject. The facts are though that consumers are unlikely to buy food from cloned animals.
In the research itself, people were worried about the animal welfare implications of cloning for both the mother who, because of the high failure rate risked becoming a breeding machine, and for offspring who in most instances are born with disease and deformity. People vividly remember BSE and CJD, and so were concerned about whether the food would be safe to eat; and they doubt whether those involved can be trusted, be they biotech companies, breeders, farmers, or retailers. All the worries were compounded by an inability to see any benefits from cloning apart from more profit to those in the cloning chain.
I don't think that this research can be dismissed as the views of a tiny number of people who may have particularly strong views about animal welfare or food safety or the ethics of cloning.Those taking part were screened to ensure they had no extreme ideas about any aspect of food, and findings are in fact very similar to those from America where they have carried out extensive research on the topic.
Reaction to media commentators columns also showed resistance from the public, but with a sizable minority being open minded. Melanie Reid in the Times came out strongly in favour of cloned food. 29 people were moved to respond to her views, of whom 8 said it sounded ok to them. The rest were strongly against, with some saying her piece was an illogical and factually incorrect piece of journalism. The Observer's Tim Haywood sat on the liberal fence saying that whilst he did not like the idea himself, there should be a reasoned debate about it, a point of view endorsed by 6 out of nine people commenting on his article. Hannah Strange also of the Times concluded that the animal welfare issues associated with cloning would mean that UK consumers would not support it.She drew one response saying that cloning needed the same animal welfare safeguards as ant other animal related activity, and one feeling that there was no cause for concern.Many of those reponding to articles, whether for or against,called for clear labelling so that consumers knew what they were buying and could avoid if they wished. The Mail, mouthpiece of middle England, reported the research and of the people who commented half were open minded, particularly if cloning would help feed the world.
At first sight therefore, public response seems more favourable than the FSA research might indicate. However there are two major findings which lead to the conclusion that UK consumers just will not buy cloned food.First, the research shows clearly that the more consumers know about cloning the more alarmed they get. As yet the cloning debate is still in its infancy in the UK, but anxiety will grow with more publicity. Second, there is a striking attitude difference between men and women. 60% of women reject outright the idea of buying cloned food, compared with one third of men. Conversely, about a third of men are prepared to buy cloned food, but only 14% of women.The key point here is that its still women who do most of the food shopping.
So, there are major drawbacks in consumers minds already about cloned meat, and as the debate unfolds there will be alot who will not accept it.
But this consumer unease won't come as a surprise to farmers, many of whom instinctively understand the public's feelings.

Tuesday, 3 June 2008

From the Farmer's Mouth - More Farmer Views on Diversification

DEFRA's startling statistic that 19% of farm profits come from diversification compared with 5% from core farming has prompted a regular look at what farmers who have taken the diversification plunge are saying about the good, bad, and ugly of stepping along this path. Information is collected from farmers featured in the farming press.

Over the last twelve weeks there have been 16 diversification stories, covering adding value to beef, lamb, pigs, poultry, dairy, and vegetables, plus a milk round, 2 farm shops, marquee hire, property development, and, in a sign of the times, eco farm holidays, and an eco friendly visitor centre and restaurant.

Once again there is a high level of agreement about what makes a diversification successful. Most speak about the need for a top quality, great tasting product. Peter Willes, producing cheeses from Higher Alminster Farm near Bideford in Devon, says " Milk must be a particular quality, 4% butterfat and 3.5% protein", adding that he favours cow condition and a moderate yield over pushing too hard, so that quality is maintained. Ian Burdess, who farms with his wife Zoe at Dottril Farm in the Yorkshire Wolds, says " I think its very important for flavour that lamb has been on grass. Our customers tell us that it is superior to lamb that has never been outside." Peter and Henrietta Grieg of Piper's Farm in Devon say that their aim is to sell " pre packed meat of high quality, meat that is wonderful to eat". James Hague of Lyde Green Farm Rotterwick in Hampshire who has a milk round says " The key is providing good service, and above all good quality milk". Malcolm Sutton and his wife Kate of Postern Lodge Farm Belper sell ice cream, and Malcolm talks about the need for a top quality product, "no additives, just milk, cream, eggs and sugar, with natural flavours."

Product consistency is important too. Zoe Burdess sells to restaurants, and says "Chefs want consistency both in terms of quality and weight". Peter Grieg says " What drives this business is absolute consistency so that the customer always gets the same food to the same high standard."

Another common theme is to understand what customers want not just at the start of a project but regularly, by doing market research. Peter Grieg spent hours in Marks and Spencer watching how people shopped and what they bought. Rod Smith of Beal Farm near Lindisfarne, who has opened the eco friendly visitor centre, spotted the eco trend, and noted that 500,000 people pass by the front door annually. He is now "Inviting constructive criticism and suggestions about our menus and facilities in order to improve them". Richard Scoles who farms with sister Rachel on Railton Farm near Driffield Yorkshire has started growing speciality vegetables like chicory, squash, pumkins, flageolet beans and kohlrabi, and their sales manager Mark Southwell says " We have a strong emphasis on attention to detail, listening to our customers requirements, and making sure we supply what they want and deliver when they want it." Hugh and Sascha Grierson from Newmiln near Methven Perthshire started by selling organic meat but were constantly asked by customers for organic chicken.

All the farmers sell their produce under a brand name, sometimes the name of the farm, sometimes something completely different, but all with the objective of setting themselves apart from competition. Scott Milligan from the Ballathie estate near Stanley Perthshire sells beef direct and says " We see branding as very important so that Ballathie is associated with high quality". Malcolm and Kate Sutton have two brand names for their ice cream, the upmarket Cowhouse Dairy brand, and Udder Stuff for younger consumers. George and Pat Booth who farm near Ellon in Aberdeenshire developed "The Store" as the name for their farm shop, but it now goes onto a range of products. Ian and Zoe Burdess registered the name LUST (Lamb U Can taste) so that no one else could steal it.

There is much similarity in where farmers sell their produce.Farmers Markets are usually the start point, followed by local shops, delicatessens, catering outlets, and even cinemas and garden centres. Some sell to supermarkets.

Most regularly publicise their products. Free samples to taste are popular, as is attendance at food fairs and local events, often offering cooked food, getting stories published in local newspapers, compiling a list of customers and sending them newsy updates. Two farmers had entered local food competitions with James Hague the milkman really landing on his feet when Antony Worrall Thompson, one of the judges decided to use the milk in his restaurant.

The farmers also give good advice about the downsides of diversification. Four of the meat sellers warn that selling the whole carcass is vital to making a profit. Some dealt with the forequarter by making beefburgers, some sausages, and one did ready meals. Two warned about the time it takes to become profitable with one being honest enough to say that the first year was bad and the second worse, and then it turned around. As Malcolm Sutton said "Diversification is easy to say, but it is not a cheap or easy option. You have to be interested and live the dream."
Overall though diversification does seem to work. DEFRA's analysis says that only 1.5% of diversification projects fail to make a profit, meaning that 98.5% contribute positively to farm earnings.
(See blogpost of 12/2/08 for further analysis of DEFRA's diversification report, and blogpost of 28/2/08 for the first in this series of reviews about farmers' thoughts on diversification).