If the news concerned organics, it was usually good news. No other food sector could boast the heady combination of runaway sales growth, government support and increasing consumer following that characterised the organic category during the 1990s and early part of the 21st century. Retail analysts say the total organic food market for the last year has exceeded £1 billion.
Fresh produce has certainly profited. According to the forthcoming Food and Farming Report, the fruit and vegetable category makes up the largest proportion of organic market value and has grown at a faster rate than the overall market. Consumers making their first organic purchase are more likely to choose fruit or vegetables than any other food.
However, the sector has now entered a critical period as previously dramatic growth rates for organic fresh produce become more gradual. Anome Oyetey, Sainsbury's organic produce buyer says: “Over the last two years we have seen growth rates as high as 15-20 per cent. This year, however, the ongoing growth rate for organic fresh produce has slowed to around six-seven per cent.” While no one would suggest this is an insignificant level of growth, there is a feeling that the emphasis is now changing ñ indeed must change ñ to take organic fruit and vegetables successfully into their next crucial phase.
Retailers such as Sainsbury's have now introduced an equivalent to almost every core conventional line, so we are no longer seeing exponential growth in the range of organic lines, and growth is increasingly attributable to the development of year-round continuity in established products.
“It has always been our intention to mirror what we have in conventional,” says Sainsbury's Oyetey, “so much of the growth previously came from extending our organic range. This has now started to reach saturation point.”
The supermarket is turning attention more towards areas where availability has been a problem, notably stone fruit, leafy salads and tomatoes. And, as projects to increase continuity take hold, it is these areas that are showing the most impressive levels of expansion.
“We are working on the continuity of fruit for 52 weeks, so that is still growing at quite a rate,” says Oyetey.
Organic product has risen to an average of between four-five per cent of Sainsbury's' total sales of fresh produce, although there are marked differences between lines. Organic apple and pear volumes appear to have stabilised in line with the growth rates of the overall produce category, thus making up three-four per cent of total sales. Organic grapes, meanwhile, account for just 1-1.5 per cent of total grape sales, but as quality and taste improves, this proportion is expected to grow closer to the average. Organic bananas are a high performer, having already achieved four per cent of total sales, and still displaying a higher growth rate than conventional.
“One area that we have found difficult to grow has been organic citrus, which has a high level of wastage and still represents well under one per cent of total sales,” says Oyetey. “This represents a big opportunity for us to grow.”
There are strong contrasts, too, in vegetables, where growth in certain lines has dwindled as a result of the rock-bottom prices of conventional equivalents but reached up to 12 per cent of total sales in carrots, where consumers perceive the taste of organic to be better. Carrots have remained a key entry point for consumers buying their first organic fresh produce.
Producers seem to have reacted to changes in the market in one of two ways: they have adapted and thrived or left the business altogether. Although the Soil Association says that on balance the total number of organic producers in the country still rises by a few per cent every year, a significant proportion of the speculative growers who converted during the mid-1990s organic rush have found themselves unable to cope and made their exit.
Oyetey says: “Many growers jumped on the back of organics a few years ago as an add-on to their existing business. But the reality is that it can be very difficult to do well. Some have cut their losses and left the business. This hasn't caused us any supply problems yet, although if the process continued then it could. Suppliers need to be in it for the long run with heavy investment required in the initial years. There also needs to be a greater understanding of what customers want and when, rather than growers being supply-led.”
Indeed most flourishing organic businesses are those that have targeted their growth in specific areas. Dan Wiggins, organic manager at G's, says although overall expansion in organics has slowed, the company recognises there are wide variations. “There are products that are still growing at a phenomenal rate,” he says. “We are seeing very good volume growth in leeks, celery and lettuce lines, for example. Meanwhile, while there is still volume growth in lines like onions and garlic it's no longer double figure growth.
He adds: “A lot of people enter organics through baby food. Our job then is to provide the right organic fresh produce to encourage these eating habits from there on, through childhood and into adult life. This means providing the right product, continuity of this product, the right pack sizes and the right price.”
Through its business in the UK and joint ventures in Spain, G's has around 640 acres of organic produce, with more under conversion. Wiggins explains that with core lines established in the supermarkets, the company is working to fill supply gaps by improving crop husbandry to establish longer organic seasons and better quality. Some of the company's organic lines, he says, now rival conventional counterparts in length of season as well as quality.
Daniel Carr, organic account manager at Marshalls, says: “Although the organic market growth rate has slowed, we are still seeing year-on-year growth here at Marshalls. Working closely with our customers, we have been able provide better availability and quality of products throughout the year. I feel that poor availability during some parts of the year was a main problem for the growth in organics ñ you cannot sell what isn't there.
“Overall, we believe that there will be still year-on-year growth although product innovation and competitive retail entries will be needed.”
“There are less and less continuity issues, but there are gaps to fill,” concludes Wiggins. “We extended the leek season by three weeks this year and two weeks the year before, for example. Also, this year we were harvesting organic lettuce within three to four days of the conventional season starting, which was a massive achievement. We still see growth in the organic market and believe that increases in continuity will give the consumer more confidence and encourage more organic purchases.”
RB Organics, part of the Produce World group, was founded just over three years ago and is now a leader in organic root vegetables. The company holds 40 per cent of the UK market for organic carrots.
“The UK organic root vegetables market has not only increased in size over the last five years, but also in maturity,” says Andrew Burgess, agronomy director of RB Organics. “Compared to five years ago, we are much more reliable in our yields and quality, which are improving every year. We ensure that we work with our grower group as a team in a totally transparent way. We work with the best growers, and ensure they are given strong support for development.”
Seed breeding has also helped producers get the best out of an organic regime and companies like Enza Zaden are on the verge of releasing their first products designed first and foremost for organic production. The company's Alan Cresswell says: “We have developed varieties for the organics sector and plan to launch three new ones next year. Before now, people have been growing organically using seed bred for conventional production. But we now have varieties that have been specifically bred for and are better suited to organic production.”
One of the new Vitalis-branded products from Enza Zaden is a tomato variety developed for its suitability to the shorter seasons and soil cultivation under organic conditions. This will be one of the first releases from the new varieties the company is working on specially for the organics sector and selected for their ability to produce good tasting, high quality and reasonable yields, as well as disease resistance, in organic production.
Back at Sainsbury's, Oyetey says that while supermarkets have worked to encourage the organic market and to help growers cope ñ retailers recently made a commitment to Defra to assist UK producers grow their businesses ñ it is down to the government to keep the momentum going.
“The next couple of years will be crucial for organics,” he says. “There is still room for growth but the sector needs a big kick from the government. This is a difficult market for growers and they need help.”
In May this year, Defra announced it will continue to assist the country's organic producers with a replacement for its interim Organic Farming Scheme (OFS), and £5 million additional research funding. The new OFS also gives conversion grants but now also makes maintenance payments to companies after they have achieved full organic status. However, this is still a short-term project and will be used until all agro-environment schemes, including organics, are combined into a single programme based on a points system, in 2005-2006.
The Soil Association's technical information officer, Anna Bassett, concedes that the new maintenance grants, at less than £30 a hectare, won't rescue those farmers who are struggling to profit from organics. Nevertheless she says the Soil Association was pleased they were introduced.
“The grants are certainly not enough to keep people in it, but we're glad they're there for those who have converted and are really committed to organic production. And it shows an ongoing commitment to organics by the government.” Last year, Defra gave the organics sector £23m of funding.
Many companies will be coming to the end of their five-year conversion payments this year and next, making the coming months a telling time for the industry. Bassett says the sectors most likely to see companies abandon organics are those such as dairy, where oversupply has become an issue.
There are certainly some produce lines, potatoes for instance, where oversupply has led to casualties, but in the top fruit sector, where organics are in relatively short supply, Defra has committed further resources. In two years, when the combined points scheme is introduced, growers of apples, pears, cherries and plums will be able to benefit from a total of £1,860 a hectare over five years to stimulate organic fruit production.
Oversupplied organic fresh products have inevitably suffered some price deflation. However, Oyetey says Sainsbury's has managed to keep organic produce at a sustainable level, and that inflation of prices has stabilised at two-three per cent year-on-year, at a time where on certain lines conventional prices are dropping by as much as 15 per cent.
“If you ask customers what they want from organics, they'll always say that they're too expensive,” he says. “However, we ran a store-wide promotion last year on 100 organic lines, including 20 core produce lines such as carrots, tomatoes and potatoes and saw very little uplift on these, suggesting that price is not the only factor. We don't see decreasing prices as a way of growing the market. Instead we are trying to ensure good quality, at sustainable prices. We don't subsidise organics, which a lot of retailers do.”
Wiggins concurs with the policy keeping sensible prices, which he says must be “reasonable and sustainable”, respectively to consumer and customer. However, Wiggins says it is realistic to look for efficiencies, and those will become more obvious as the market expands. “The difference in scale between conventional and organic remains the main differential in production cost because of post-harvest unit cost,” he says. “In addition to the natural economies of scale that will develop as the business grows, he says there are interesting benefits post-harvest, in areas such as box-fill or lorry usage.”
This year's Food and Farming report is expected to show that imports of organic fresh produce ñ at one time a massive 80 per cent of the total ñ have fallen, particularly in vegetables. In addition, more supermarkets are trying to provide as much organic produce from domestic sources wherever possible in season, even if this means higher prices. This year 80 per cent of Sainsbury's' organic cucumbers were from the UK, and the retailer has a target of 100 per cent next year.
In addition organic retailers are working on environment-friendly packaging. All Sainsbury's' tray packs and netting for organic produce are biodegradable and the retailer is looking at similar developments for clear punnets, clingfilms and labels. This, says Oyetey, doesn't necessarily increase sales in itself, but adds value, and gives environment-conscious consumers yet another justification for buying organic.
The store is supporting its organics business with initiatives such as its website service, recently extended to cover all organic produce, where consumers type a number on their pre-pack into the computer to get exact information about where it came from and who the grower is. Sainsbury's is also about to launch an Organic Hero of the Year award in conjunction with the Independent newspaper to highlight the work of its suppliers.
Initiatives such as these can be found throughout the organics sector, but savvy fresh produce suppliers and retailers regularly lead the activity. These companies, those that understand and confront the latest changes in the market, will be the ones that succeed. The next two years are going to be a critical, difficult time for organics. But there is plenty of good news to come.
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