Putting the Organic Market into Perspective – Small and Likely to Remain So

The Soil Association’s market report for 2010 has been published and as expected shows a big drop in sales over the last year. Equally to be expected it is full of enthusiasm about the sector’s future, and points to a slowing in the sales decline.

But before anyone considering investment in organics plunders the piggy bank it is worth remembering that the organic market always was tiny, even in its heyday, and no amount of zeal will lead it to being anything but tiny.

It is important to remember this, for the whole thrust of the Soil Association report is that the 2009 decline was a blip, that organic farming is the only way to go to minimise carbon emissions, and that by wise allocation of the amount we eat organic farming will be able to satisfy food demand in the future. All that is required, says Peter Melchett, policy director, is money – money from the government both to research the sector and to increase support for farmers converting to organics, preferential treatment for organic produce in the public sector procurement, and money from the EU to bolster consumer demand.

As we know though, money is in short supply now. Whichever government wins the next election there will be swingeing cuts to budgets, with DEFRA being no exception. The little money that is available needs to be spent on projects that benefit the whole of agriculture, not just a particular, noisy sector.

Just how tiny is the organic market?

Sales in 2009 were £1.84bn, and are now below what they were in 2006. This is less than 2% of total expenditure on food and drink.

Performance by individual market varies but even in yoghurts, which, due to splendid branding efforts by Yeo Valley and Rachel’s, have the highest share of organic to standard sales, the organic share is just under 7%.

Organic milk sells 171,000 litres a year compared with a total market of 5 billion. Around 30,000 head of organic beef are killed each year compared with a total of 2.2 million. The figure for lamb is around 174,000 compared with a total kill of 15.8 million.

Producers in the organic market face a roller coaster ride. Farmer premiums for organic meat are rarely high, and often erratic. In 2009, the farmgate price of beef dropped by 3.5%, and the premium dropped from 22% to 9%. The premium for lamb dropped from 8% to 4%. The premium for milk also dropped back even though demand held up fairly well.

We cannot look to other countries and say that in time organics will account for a meaningful percentage of total sales. Even in affluent Denmark, the country with the highest percent of organic to standard sales, organics only account for 6% of the total market (Soil Association 2009 Market report). Not to be sniffed at, but not mainstream either.

All this is not to decry that there is a core of consumers completely devoted to buying organic, and farmers who deeply believe in organic principles. The point is that careful thought should be given to allocation of scarce funds to a small sector when the needs of agriculture in general are extremely pressing, and money is tight.

Local Foods – From Niche to Mainstream in 5 Years

In early 2005, the local food movement was mostly confined to farmers markets, a few intrepid souls selling by mail order or over the internet, one or two up market shops sufficiently different to flourish despite the supermarkets, and funnily enough, ASDA who had just begun to experiment with local foods in its Kendal store.

Now local foods are a feature of every supermarket’s business. ASDA has gone from strength to strength, and now asks its shoppers to write in with suggestions for local foods they want stocked. Tesco says they sold £624 million worth of local foods in 2009, around 2.2% of its sales, and a 30% increase since 2007. Morrisons make a big thing of sourcing local products such as pies, unusual cheeses and the monthly guest ale. Smaller stores are benefitting too, and shopper interest in local foods has played a part in encouraging specialised shops to return to the high street.

Recent IGD research has found that 30% of people purchased locally produced food in the last month, up from just 15% in 2006. This compares with 17% buying organic, also up from 15% in 2006.

This rapid growth comes about because people have a very clear idea about why they buy local food.

The number 1 reason for buying local is freshness. 57% of shoppers perceive local food to be fresher because it has not travelled very far. 54% buy because of a wish to support local producers. About a third buy local because they wish to support local retailers. Other reasons for buying local are environment, naturalness, and the security of knowing where the food has come from and how it has been produced.

The growth will continue. This is a trend, not a fad.

Consumers clearly like the idea of buying local. It is an easy purchase, particularly if prices are similar to a non local version, which is nearly always the case in supermarkets, and will probably need to be in smaller shops unless they are offering something very special.

One challenge is to pin down exactly what local means to consumers in terms of geography. IGD research tells us that in Scotland and Wales, “local” is seen to be from that country. In England, according to some work done by the Food Standards Agency, the definition tends to be based either on mileage (which can be anywhere from 10 miles if a country dweller, to 100 if living in London), or on counties around where the person lives. My view would be that whatever the definition, it is important that consumers don’t feel cheated by a local claim.

It is also important to avoid thinking that being local is either a substitute for strong branding or a passport to a premium price. This is especially true if selling to supermarkets.

The final comment would be that a move from niche to mainstream almost always means a move from high to lower prices.