It started as a week of positive news for food, food labelling, and British farming. The MEP's in Brussels voted for clear country of origin labelling, sweeping aside the ambiguity which meant that food can be labelled British even though it was only packed in this country rather than actually born or grown here. Then the Red Tractor celebrated 10 years of existence and here too clarity is emerging with the symbol accompanied by the Union flag meaning that the product really did start life here. Yes there are still niggles and wooliness. The Tractor without the Union flag can be used on foods which come from abroad but adhere to British standards, and on foods where the main ingredient is only 65% of the finished product. Both could mislead, but progress has been made towards the transparency that today's consumers demand.
Then along comes the GM salmon, coinciding with the GM potato trials just starting, and the ruckus at the Food Standards Agency which stands accused of being less neutral than it should be. The salmon, which grows 2 to 3 times faster than normal, was pictured dwarfing its tiny, conventionally farmed sister, and at a stroke reinforced perceptions of Frankenstein foods.
The last piece of research on GM was done by the Institute of Grocery Distribution in September 2008. It showed that 15% of those questioned strongly opposed GM, and 20% tended to oppose. Just 3% strongly supported the technology and 10% tended to support it. The IGD points out that, despite much publicity, the picture had hardly changed since it's 2003 research where 17% were strongly opposed and 3% strongly supportive.
The issue of course is that consumers do not know what to think, as vested interests rush to defend their corner, and no one has come up with a compelling reason why GM is a good thing. The FSA is reportedly about to spend £500,000 of scarce taxpayers money on more research which will probably show yet again that British consumers don't like the idea of GM.
Indeed, however rational you are, and however much you support science, that salmon is just plain creepy, and will do nothing to further a very controversial cause.
At the very least, should by some combination of genuine benefits from GM and overwhelming pressure from lobbyists GM products appear on our supermarket shelves, the products need to be clearly and unambiguously labelled. No weasel words, no vague statements, and no arguments about the need to mention if the amount of GM falls below a certain percentage. As much effort needs to go into this as on pro farming initiatives like the Red Tractor or country of origin labels.
Like growing numbers of the British public, I want to know exactly what I'm eating.
Sunday, 20 June 2010
Wednesday, 2 June 2010
Seeking White Knight to Rescue Rachel's Organic
Actually, it's just “Rachel’s” now, the company having dropped the organic word from its brand name in April 2009, apparently because of the difficulties faced by the organic sector.
The company has been put up for sale by American giant Dean Foods with a price tag said to be around £20million. Whatever the reasons, this is sad news, putting a respected brand into play, with all the uncertainty and worry this brings to the 125 strong workforce.
Rachel’s is a small company with a turnover of £20million and a profit before tax of £2.3million according to accounts for the year to December 2008. For comparison, nearest rival in the organic dairy sector, Yeo Valley, has a turnover of around £175million of which 40% is organic.
So who might buy Rachel's? And what might they do with it?
At the brutal end of the spectrum, any of the existing dairy companies could buy, paying back the acquisition price by taking a hatchet to costs. They could close the Aberystwyth plant and either make themselves or contract manufacture, and fold all the administrative functions into their existing structure. The current sales and marketing strategies would continue,with Rachel’s sold alongside all the other brands in the acquirer’s portfolio.
There is an alternative and much more attractive strategy, one which would carve out a highly distinctive position in the market. Keep the plant open, continue to buy milk from the dairy farmers who currently supply, and market the brand as 100% Welsh, drawing heavily on Rachel’s Welsh heritage and history. Keep it organic, for this is what the brand is known for, and there is a market there, albeit small and going through a rocky patch, but make the brand the focus, not the organic tag. Instead of getting the product stocked sporadically nationwide, make sure that it is in every food store the length and breadth of Wales. And cut the price. Currently it sells at too high a premium over Yeo Valley, much less supermarket’s own brands
Is this a good enough strategy to pay back the acquisition cost?
It is not without risk. A pessimist would look at Rachel's declining sales,and its number two position in the wobbly organic dairy market and walk away.
The optimist might say here is a brand with potential,and it could be a strong number one in its homeland.
They would think through how to manage the business. Possibly the marketing budget could offer savings and be more effective if put in the hands of a Welsh company who understands marketing on a shoestring, and how to promote through the internet and social media.
They would accept that costs will have to be looked at, but pruned rather than axed.
They would take a forensic look at where the cash in the business is going. Is there for example too much tied up in stock and would a reduction in number of different lines release money. Are haulage costs overly high because of shipping products nationwide.
They would take a cautious but sensible look at increasing sales.
And then they would negotiate an appropriate price for the business.
Any of the dairy companies could follow this strategy, but consumers might feel warmer towards Rachel's if it went back to its privately run roots, rather than be yet another small company involved in a huge conglomerate.
Is there an entrepreneurial Welsh wizard out there who could really make something of this rather special brand?
Thursday, 27 May 2010
Is Increasing Beef Retail Prices the Solution to Falling Producer Prices?
The recent drop in finished cattle prices is causing understandable alarm.
The cause appears to be too much supply and not enough demand, as spring calved stock and more dairy bull beef arrive on the market yet beef consumption remains sluggish and exports less strong. Indeed the National Beef Association has recommended that farmers stagger supplies to avoid a spring peak.
Pressure on producer prices regularly ignites calls for retail prices to rise and the additional revenue shared across the supply chain, because, says conventional wisdom, beef consumption is inelastic, meaning that increased prices will have little effect on volumes.
But is the conventional wisdom true?
In 2007 Eblex modelled the effect of a 10% increase in the price paid to producers on the volume of each cut of meat. Adjusting for slippage as prices work through the supply chain, this meant an average increase of 5% at retail, and the findings by cut were as follows.
A 3.2% rise in the price of stewing steak resulted in a volume decline of 1.3%. A 5.9% rise on mince led to a volume drop of 1.7%, a 3.8% rise in the price of steak led to a drop of 2.7%, and a rise of 6% on top quality roasting joints led to a volume drop of 16.1%.
Real figures from the market place confirm that price rises lead to volume declines. In 2008 at the height of retail price inflation what was then TNS Worldpanel (now Kantar) recorded that average beef prices went up by 11% and volumes dropped by 3%. Shoppers shunned the more expensive cuts like steak and roasts in favour of mince and stewing steak, yet this behaviour change could not prevent beef market volumes from declining.
In the 12 months to April 2010 prices were up 2% on the previous year, and volumes were flat. There has been a slight pick up in the last twelve weeks but all the evidence seems to indicate that beef sales are respond to price changes.
Some have suggested that the price of mince should rise, but this needs to be handled with care.
Mince is the cheapest entry point to beef. It is versatile, quick and convenient, and acts as a regular reminder of beef’s excellent taste and nutritional values. Over aggressive pricing risks people dropping out of the beef market completely, for they will not gravitate to other cuts, none of which deliver mince’s unique combination of price and convenience, but instead turn to alternative proteins, the obvious one being chicken.
I do not think that a market where volumes drop year after year does any player in the beef supply chain any favours. And whereas the declines might be just two or three percent in the short term, there is every chance that they will accelerate as consumers get out of the habit of buying beef, and retailers shrink the space devoted to it. This is happening on lamb right now where volumes are still dropping - down 4 % 2008 v 2007 and down a further 9% in the twelve months to April 2010.
The cause appears to be too much supply and not enough demand, as spring calved stock and more dairy bull beef arrive on the market yet beef consumption remains sluggish and exports less strong. Indeed the National Beef Association has recommended that farmers stagger supplies to avoid a spring peak.
Pressure on producer prices regularly ignites calls for retail prices to rise and the additional revenue shared across the supply chain, because, says conventional wisdom, beef consumption is inelastic, meaning that increased prices will have little effect on volumes.
But is the conventional wisdom true?
In 2007 Eblex modelled the effect of a 10% increase in the price paid to producers on the volume of each cut of meat. Adjusting for slippage as prices work through the supply chain, this meant an average increase of 5% at retail, and the findings by cut were as follows.
A 3.2% rise in the price of stewing steak resulted in a volume decline of 1.3%. A 5.9% rise on mince led to a volume drop of 1.7%, a 3.8% rise in the price of steak led to a drop of 2.7%, and a rise of 6% on top quality roasting joints led to a volume drop of 16.1%.
Real figures from the market place confirm that price rises lead to volume declines. In 2008 at the height of retail price inflation what was then TNS Worldpanel (now Kantar) recorded that average beef prices went up by 11% and volumes dropped by 3%. Shoppers shunned the more expensive cuts like steak and roasts in favour of mince and stewing steak, yet this behaviour change could not prevent beef market volumes from declining.
In the 12 months to April 2010 prices were up 2% on the previous year, and volumes were flat. There has been a slight pick up in the last twelve weeks but all the evidence seems to indicate that beef sales are respond to price changes.
Some have suggested that the price of mince should rise, but this needs to be handled with care.
Mince is the cheapest entry point to beef. It is versatile, quick and convenient, and acts as a regular reminder of beef’s excellent taste and nutritional values. Over aggressive pricing risks people dropping out of the beef market completely, for they will not gravitate to other cuts, none of which deliver mince’s unique combination of price and convenience, but instead turn to alternative proteins, the obvious one being chicken.
I do not think that a market where volumes drop year after year does any player in the beef supply chain any favours. And whereas the declines might be just two or three percent in the short term, there is every chance that they will accelerate as consumers get out of the habit of buying beef, and retailers shrink the space devoted to it. This is happening on lamb right now where volumes are still dropping - down 4 % 2008 v 2007 and down a further 9% in the twelve months to April 2010.
Thursday, 20 May 2010
Dairy Crest v Wiseman – Where Would You Put Your Money?
Dairy Crest and Robert Wiseman Dairies have just announced annual results. Both process huge quantities of milk (2.1 billion litres for Dairy Crest and 1.6 billion for Wiseman) but their business models could not be more different.
Wiseman supplies only fresh milk, sold mainly under a retailer’s own brand name. Dairy Crest is diversified, selling fresh milk, plus cheeses and spreads. It owns well known brands such as Cathedral City and Country Life, it also processes for retailers' own brands, and is present in France as well as the UK.
A glance at this years results might suggest backing Wiseman. Its sales were up 4.5%and profits up by nearly 60% although this is flattered by some one off benefits. It has very low debt, and strong cash flow.
Dairy Crest saw sales fall 1%, with profits before exceptional items up 5%. Debt is being paid down but is still £337m.
Investors responded by marking Wiseman’s shares down 1.8p to £481.5, Dairy Crest’s shares rose 8.9p to close at £362.5p. Those into share movements will know that Wiseman sells on a higher multiple than Dairy Crest, but even so, it’s an odd reaction.
Backing a company is not about the past though, it’s all to do with likely future performance.
So, if you like the sound of a diversified portfolio where poor performance in one segment can be offset by better news in another, or if you feel that brands are best, despite requiring huge advertising and promotional spend, because they give you more control than being at the whim of a retailer contract renegotiation, and debt does not scare, then Dairy Crest is for you.
If on the other hand you are confident that the company supplying retailers’ own brands is the lowest cost producer in the market place and so cannot be undercut on price, that it has the management talent to read the market place and anticipate where the major retailers are likely to want to introduce own label versions of a product, and the company has sufficient cash to invest in the new technology required, then Wiseman is the way to go.
Both companies have been successful with their chosen business model. Dairy Crest announced a 9% rise in sales of their 5 major brands, and chief executive Mark Allen, being interviewed about the results, made a point of stressing that diversification is good as the cheese division had a very difficult year whereas dairies performed well, conversely he reckons that over the next year cheese will recover but dairy struggle.
Wiseman competes effectively in the own label supply market, having increased share of liquid milk from 28% to 31%. It seems to be valued by retail partners, winning several “best supplier” awards, and chosen by Tesco to process its filtered milk competitor to Cravendale.
However, there are issues with both. Having already got 31% of a low growth market it is difficult to see how Wiseman will continue to expand its revenue, and Arla’s billion pound processing plant may mean that Wiseman loses it lowest cost supply status and struggles to defend what it already has. The company acknowledges the challenge of growth but feels the way through is to supply higher margin, more profitable products.
Dairy Crest’s 9% growth in sales for its key brands disguises the very heavy costs of advertising and promotion. The issue of costly promotions was addressed in my blog post in January, and work done by Bidwell’s Agribusiness on behalf of Dairyco shows that in the year to March 2009, 73% of Cathedral City was sold on promotion, 52% of Clover, and 60% of Country Life. They too face stiff competition from global dairy processors.
Despite the issues there is room for both business models in the short term, and longer term too, possibly helped by sensible pursuit of mergers and acquisitions.
Wiseman supplies only fresh milk, sold mainly under a retailer’s own brand name. Dairy Crest is diversified, selling fresh milk, plus cheeses and spreads. It owns well known brands such as Cathedral City and Country Life, it also processes for retailers' own brands, and is present in France as well as the UK.
A glance at this years results might suggest backing Wiseman. Its sales were up 4.5%and profits up by nearly 60% although this is flattered by some one off benefits. It has very low debt, and strong cash flow.
Dairy Crest saw sales fall 1%, with profits before exceptional items up 5%. Debt is being paid down but is still £337m.
Investors responded by marking Wiseman’s shares down 1.8p to £481.5, Dairy Crest’s shares rose 8.9p to close at £362.5p. Those into share movements will know that Wiseman sells on a higher multiple than Dairy Crest, but even so, it’s an odd reaction.
Backing a company is not about the past though, it’s all to do with likely future performance.
So, if you like the sound of a diversified portfolio where poor performance in one segment can be offset by better news in another, or if you feel that brands are best, despite requiring huge advertising and promotional spend, because they give you more control than being at the whim of a retailer contract renegotiation, and debt does not scare, then Dairy Crest is for you.
If on the other hand you are confident that the company supplying retailers’ own brands is the lowest cost producer in the market place and so cannot be undercut on price, that it has the management talent to read the market place and anticipate where the major retailers are likely to want to introduce own label versions of a product, and the company has sufficient cash to invest in the new technology required, then Wiseman is the way to go.
Both companies have been successful with their chosen business model. Dairy Crest announced a 9% rise in sales of their 5 major brands, and chief executive Mark Allen, being interviewed about the results, made a point of stressing that diversification is good as the cheese division had a very difficult year whereas dairies performed well, conversely he reckons that over the next year cheese will recover but dairy struggle.
Wiseman competes effectively in the own label supply market, having increased share of liquid milk from 28% to 31%. It seems to be valued by retail partners, winning several “best supplier” awards, and chosen by Tesco to process its filtered milk competitor to Cravendale.
However, there are issues with both. Having already got 31% of a low growth market it is difficult to see how Wiseman will continue to expand its revenue, and Arla’s billion pound processing plant may mean that Wiseman loses it lowest cost supply status and struggles to defend what it already has. The company acknowledges the challenge of growth but feels the way through is to supply higher margin, more profitable products.
Dairy Crest’s 9% growth in sales for its key brands disguises the very heavy costs of advertising and promotion. The issue of costly promotions was addressed in my blog post in January, and work done by Bidwell’s Agribusiness on behalf of Dairyco shows that in the year to March 2009, 73% of Cathedral City was sold on promotion, 52% of Clover, and 60% of Country Life. They too face stiff competition from global dairy processors.
Despite the issues there is room for both business models in the short term, and longer term too, possibly helped by sensible pursuit of mergers and acquisitions.
Wednesday, 12 May 2010
Higher Welfare Products Grow Despite More Shopper Focus on Price
Last week’s blog post mentioned Institute of Grocery Distribution research which found that price is becoming even more crucial as shoppers decide what and where to buy.
But rock bottom prices are not always the driving force. The IGD analysis pointed to some growth in premium ranges, provide they are seen to be worth paying for, support for fair Trade, and continued demand for local food.
Consumer interest in animal welfare can also be added to the list.
The RSPCA has published research supplied by Kantar Worldpanel, respected grocery trade auditor, which indicates that in the year to March 2010 sales of Freedom Food chicken more than quadrupled - from £16million to £72 million, whereas those for standard, intensively reared chicken dropped by £27million. Of course we need to see the figures in context. The total chicken market is worth just over £2bn, so the numbers are small. Part of the growth will be due to shoppers dropping down the hierarchy of better welfare products. We know for example that sales of organic chicken are down about 28% year on year as organic buyers switched to free range. And no doubt some free range buyers will have bought ranges like Freedom Foods where the birds although indoors have more room. But the fact that the standard range has dropped in sales even though total chicken sales have grown, does suggest a conscious consumer switch to improved welfare chicken, despite the price premium.
The other piece of data is that, according to the British Free Range Egg Producers Association, sales of free range eggs now account for 53% of the market compared with 47% 12 months ago. Again growth has come despite free range being more expensive.
Interest in animal welfare has always been a factor in the British psyche, and it does seem that for the humble chicken and her eggs, interest has been translated into shoppers' continuing willingness to vote with their purse.
But rock bottom prices are not always the driving force. The IGD analysis pointed to some growth in premium ranges, provide they are seen to be worth paying for, support for fair Trade, and continued demand for local food.
Consumer interest in animal welfare can also be added to the list.
The RSPCA has published research supplied by Kantar Worldpanel, respected grocery trade auditor, which indicates that in the year to March 2010 sales of Freedom Food chicken more than quadrupled - from £16million to £72 million, whereas those for standard, intensively reared chicken dropped by £27million. Of course we need to see the figures in context. The total chicken market is worth just over £2bn, so the numbers are small. Part of the growth will be due to shoppers dropping down the hierarchy of better welfare products. We know for example that sales of organic chicken are down about 28% year on year as organic buyers switched to free range. And no doubt some free range buyers will have bought ranges like Freedom Foods where the birds although indoors have more room. But the fact that the standard range has dropped in sales even though total chicken sales have grown, does suggest a conscious consumer switch to improved welfare chicken, despite the price premium.
The other piece of data is that, according to the British Free Range Egg Producers Association, sales of free range eggs now account for 53% of the market compared with 47% 12 months ago. Again growth has come despite free range being more expensive.
Interest in animal welfare has always been a factor in the British psyche, and it does seem that for the humble chicken and her eggs, interest has been translated into shoppers' continuing willingness to vote with their purse.
Monday, 3 May 2010
The Food Buying Consumer – More Focused on Price Today Than in the Depths of Recession
Whether the recession has permanently changed food buying behaviour remains a favourite topic among industry observers, with some commentators are saying that purse strings are loosening, trading up is becoming more prevalent, and the worst is behind us. It would seem though that this optimism is misplaced.
The big issue is confidence, and, despite a slow crawl out of recession, consumer confidence is dropping. The latest Nationwide Consumer Confidence tracked by TNS Worldpanel shows a fall in consumer confidence driven by concerns about employment prospects, worry about the state of the economy, and a view that earnings are likely to fall in the next few months.
The Institute of Grocery Distribution says Britain is out of recession, but that things will continue to be volatile. They predict that the return to buying quality products will continue, provided of course that they justify the price, and that sales in discount stores like Aldi have peaked. They highlight the increased demand for local food and think it will continue to grow. They suggest that Fairtrade products will continue to grow too.
However, their generally upbeat take is tempered by a couple of sobering realities. They have found that shoppers are even more focused on price today than they were either when the recession was at its deepest, or when food inflation roared away in 2008.
And they expect promotional activity, which in blunt terms means cutting prices, to continue because shoppers are now specifically choosing to buy in stores which feature promotions and loyalty schemes. Whilst strong brands will continue to be important, they say a “famous name alone is no longer enough to command loyalty”.
The other thing to bear in mind when trying to assess what consumers might do is that the recession so far may have been grim for many but millions have hardly been impacted. This will change as unpleasant economic medicine is administered by which ever party wins on Thursday.
The fall in consumer confidence illustrates that whilst technically Britain may be emerging from recession, psychologically it certainly is not. If economic conditions get tighter, and it is difficult to believe that they won’t, we can expect shoppers to focus even more heavily on price and promotions. Already grocery sales growth is slowing, to 3% in the latest twelve weeks from 3.6% previously.
Where the shopper goes, the big supermarkets will not be far behind. Expect price competition to be savage, profit margins to be slashed, and demand to be sluggish.
The big issue is confidence, and, despite a slow crawl out of recession, consumer confidence is dropping. The latest Nationwide Consumer Confidence tracked by TNS Worldpanel shows a fall in consumer confidence driven by concerns about employment prospects, worry about the state of the economy, and a view that earnings are likely to fall in the next few months.
The Institute of Grocery Distribution says Britain is out of recession, but that things will continue to be volatile. They predict that the return to buying quality products will continue, provided of course that they justify the price, and that sales in discount stores like Aldi have peaked. They highlight the increased demand for local food and think it will continue to grow. They suggest that Fairtrade products will continue to grow too.
However, their generally upbeat take is tempered by a couple of sobering realities. They have found that shoppers are even more focused on price today than they were either when the recession was at its deepest, or when food inflation roared away in 2008.
And they expect promotional activity, which in blunt terms means cutting prices, to continue because shoppers are now specifically choosing to buy in stores which feature promotions and loyalty schemes. Whilst strong brands will continue to be important, they say a “famous name alone is no longer enough to command loyalty”.
The other thing to bear in mind when trying to assess what consumers might do is that the recession so far may have been grim for many but millions have hardly been impacted. This will change as unpleasant economic medicine is administered by which ever party wins on Thursday.
The fall in consumer confidence illustrates that whilst technically Britain may be emerging from recession, psychologically it certainly is not. If economic conditions get tighter, and it is difficult to believe that they won’t, we can expect shoppers to focus even more heavily on price and promotions. Already grocery sales growth is slowing, to 3% in the latest twelve weeks from 3.6% previously.
Where the shopper goes, the big supermarkets will not be far behind. Expect price competition to be savage, profit margins to be slashed, and demand to be sluggish.
Sunday, 25 April 2010
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.
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.
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