Robust Growth for Organic Food Sales

27 Oct 2016 --- Organic food sales are forecast to grow at three times the rate of non organic as Europe and US consumers continue to be concerned about sustainability issues like food safety, environmental impact and animal welfare. As the trend for organic gathers pace, food producers need to up the ante in terms of new products and brands to appeal to health conscious and informed consumers.

According to a Rabobank report, organic sales will continue to thrive until at least 2025 and food producers should ramp up the focus on organics and increase efforts to position themselves as a responsible business by developing new products and brands as well reformulation of existing products to help grow their top lines. 

“Until 2025, organic food sales in Western Europe and the US are forecast to grow (CAGR) by 6.7 percent and 7.6 percent, which is roughly three times faster than overall food consumption growth,” says John David Roeg, senior consumer foods analyst at Rabobank. “Food producers should increase their focus on organic, through new products and brands, or through the reformulation of existing products to help grow their top lines. This will also help them to position themselves as responsible businesses.”

FoodIngredientsFirst has a copy of the report which says that while organic food consumption is not a new phenomenon, an acceleration in the way consumers are being informed - through social media and other online channels - is and will continue to impact on sales. 

“Increasing supply chain transparency and new scandals are all resulting in a changing zeitgeist, the result of which is ongoing robust growth in organic food sales,” it says. 

Roeg and de Roij van Zuijdewijn told FoodIngredientsFirst: “Growth rates are different in every market, depending on many factors including GDP growth, GDP/capita, structure of the trade and culture. We see growth picking up in some countries, but also trending down slightly in some others.

Increased focus of important retailers can help to have a temporary growth spur. In general, organic is not a hype, it is a trend that has been going for over 20 years and we think it is here to stay.”

Rabobank found (by combining the outcome from eight international studies) that perceived health benefits are the main reason consumers buy organic food with concerns about the environment coming in second, followed by perceived better taste, fewer pesticides, better animal welfare and a desire for natural and unprocessed foods. 

Organic food is certified by controlling bodies and regulations are laid down in law, for instance in Europe. It is produced using environmentally and animal-friendly farming methods, while GMO crops, and synthetic fertilizers and pesticides are forbidden. Farmers should rotate crops and organic farm animals should have access to fields and have more space and be fed an organic diet. Animals cannot be cloned or given drugs and hormones for growth. It can take a farmer up to three years to convert to organics and usually they will receive support from government or contract buyers to diversify into the organic space. 

Over the last decade (2005 to 2015) organic sales were worth €38 billion (US$41 billion) and were not damaged when the recession hit in the late 2000s. The growth rate of organics was substantially above overall food sales growth rates, which were particularly low in Western Europe, due to the financial crisis. 

“And while consumers were trading down because of the financial crisis, they did not cut back on organic food spending. In all markets, with the exception of the UK, organic food penetration rose during the recession,” it says. 

There is a marked difference in the uptake of organics between northern and central Europe compared to southern European regions. Rabobank says this is likely because the diet in southern countries is already perceived as being healthy.

Meanwhile, France and Germany have the largest markets and Denmark, Sweden and Switzerland are leading in terms of per capita consumption. Britain has a “sizeable organic consumer base, despite a low penetration rate” and while growth in the Italian market is being driven by sales of organic dairy and pasta. The US organic food market is a similar size to that of Western Europe and growth rates are noticeable in fruit and vegetables, baby food, dairy, juices, coffee and tea. 

Staying with the US, the report says changes are necessary to make sure organic is also carbon dioxide friendly. 
 
“The country with the biggest mismatch in terms of organic consumption and production is the US. More than 90 percent of all corn and soy produced is GMO, and thus not suitable. Only wheat is non-GMO. Essentially, the US imports the bulk of its organic raw materials, but also finished products, from all over the world—in particular from South America, Europe and Asia. Cattle held for the organic market are fed corn that can originate from Eastern Europe. With the above in mind, it’s not difficult to see that, sooner or later, this behavior could result in consumer concerns with regard to the CO2 footprint of ‘environmentally-friendly’ organic foods. Local organic foods are certainly a future trend, although scientists might calculate that more remote (GMO) production could have a better CO2 footprint.” 

The report also says that organic could become mainstream in some categories in certain markets, with the highest potential in baby food, egg, fruit, vegetables, tea and pasta, compared against low potential in categories like ready meals, snacks, baked goods, biscuits and poultry. 

In Western Europe and the US, organic baby food is becoming mainstream, while there is increasing demand for organic coffee, although there are issues with production being limited to a few South American regions such as Peru and Mexico, while in Brazil producing organically is not economical for farmers, according to the report. 

It also predicts a low potential for organic rice as it is much more labor intensive and has lower yields. Similarly, penetration rates for poultry could remain “modest” because of the difficulties of valorization of the entire animal and strong competition from other animal-welfare labels like “cage-free”. 
 
The report concludes: “In the next ten years, organic food sales will grow roughly three times faster than overall food sales. In a low-growth environment, food producers should increase their focus on organic via new products and brands, or reformulation of existing products to help grow their top lines. An additional benefit is that an increased focus on organic will help them position themselves as responsible businesses. In order for growth to continue, the supply chain must overcome certain constraints—something it has been capable of in the past.”

by Gaynor Selby