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Export Study - Chapter 3.5 United Kingdom - Organic Trade Association
Organic Trade Association
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Export Study - Chapter 3.5 United Kingdom

 

3.5.1.Development of Organic Agriculture

The United Kingdom has a long tradition in organic farming, with the foundation of the Soil Association in 1946 being a major milestone. Throughout the decades, the Soil Association has retained its status as the leading organization in the country’s organic movement.


Figure 15
: UK Farms and Acreage under Organic Cultivation 1997-1999


Despite an early start, the organic movement in the UK has been stagnating for a long time, compared to other major European countries. In 1997, the number of organic farms was only 828, with a total acreage of 173,000. This number has almost doubled within two years and the acreage more than tripled because of larger farms converting to organics (figure 11). Especially the impact of some large Scottish farms turning organic in 1998 resulted in dramatic increase of average farm acreage to 378 acres, the highest within the EU. State support has been low or non-existent, and as the current federal support program has been exhausted, there is no program in place until April 2001. This fact has been a strong incentive for the soil association and other environmental organizations to launch a campaign for the Government to adopt a target of 30 percent of agriculture (the agricultural area) and 20 percent of food consumption in the United Kingdom to be organic. It had the support of a third of the Members of Parliament in April 2000 and would clearly represent a gigantic leap forward for the organic industry, as current organic food consumption in the UK is only 0.5%-1% of the total food consumption.


The Soil Association remains the main producers association in the UK, spearheading nation-wide promotion and marketing campaigns as well as policy shaping and lobbying efforts.

Among domestic production, fruits are specifically underrepresented with about 2,000 acres in 1998, mostly apples and pears, while the conversion of grasslands increased disproportionate to land suited for plant production.


3.5.2 Infrastructure of the Organic Industry

3.5.2 .1 Processing, Distribution, and Wholesaling

Organic food manufacturing and processing in the UK is mostly in the hands of small companies, and according to the Soil Association, there are more than 400 certified organic. [35] Just recently some of the bigger players like Unilever, a manufacturer of processed foods like margarine (Becel), tea (Lipton), frozen foods (Igloo) are getting into the organics business. Unilever has recently launched an organic line of its Lipton tea brand. Tate & Lyle, a major sugar manufacturer and Napier Brown, who claims to be the biggest European sugar producer, will start to sell organic sugar in the fall of 2000. Kraft Foods has also recently entered the organic hot beverages market with its Kenco Purely Organic brand. Under the "Libby’s" brand name, Gerber Foods Soft Drinks, which licenses the brand name in the UK and Republic of Ireland from Nestlé, is offering organic orange and tomato juices. However, the large vegetable and fruit processors Birdseye, Geest and Del Monte have shown noticeable interest in organic food, although Del Monte launched an organic product line in Italy in 1998. Unilever, apart from its Lipton organic tea, claims to have a substantial commitment toward Integrated Crop Management (ICM). This commitment is very difficult to keep though, as Unilever buys the majority of its raw materials from the general market where it does not have special relationships with its raw materials producers.


One of the earliest manufacturers and distributors of a wide range of organic food is Whole Earth Foods; its daughter company Green & Black’s is Europe’s leading organic chocolate manufacturers with an annual gross turnover of $12 million in the fiscal year 1999-2000.


Relatively few distributors dominate distribution in the UK. Some of them distribute to smaller wholesalers, which serve rather the independent retailers and the health food shops. Generally, distributors tend to specialize in sectors like fresh produce, nuts, etc. One of the better known companies in the produce sector is Organic Farm Food of Wales. It has branches throughout the country and links to Continental companies, notably the French distributor Arcada, Eosta in the Netherlands, the baby food manufacturer Hipp of Germany and a packing subsidiary in the United States. Organic Farm Food employs about 100 people. It is said to have more than 60 suppliers. Organic Farm Food sells pre-packed to all possible customers from large supermarket chains including Tesco, Saintbury’s, Waitrose and Safeway to independent retailers and even operators of box schemes. Other major players are Chesswood, (which belongs to Tomkins) Congelow Produce, Briess & Co. and the Organic Marketing Company, which is currently emphasizing distribution for box schemes. [9,35]


Most probably the leading distributor and wholesaler (and importer) in the pre-processed foods sector is Community Foods, with organics accounting for approximately 10% of its gross turnover. According to the Soil Association’s 1999 Report there were more than 450 distributors and packers (presumably including wholesalers) in the UK, the vast majority small companies (a list can be ordered through the Soil Association, address see Annex 1 UK).


3.5.2.2 The Retail Market

Among the substantial organic markets within the EU, for a long time the United Kingdom has been one of the countries with the lowest percentage of organic sales in relation to overall food sales. In1997 organics accounted for only 0.7% organic sales a portion of the overall food consumption, in contrast to at least 1% or more in other comparable markets. Per capita consumption ($7.67) was second lowest of comparable EU countries. Due to the huge growth of organic sales per capita consumption is speeding up substantially, but as the basis was so low, it still appears that there is ample room for fast growth within the years to come.


Figure 16
: Retail Value of the Organic Market in the UK 1994-1999


Figure 16 demonstrates the dramatic growth rate of the UK retail market since 1996, presently at 40% annually, by far the highest among the countries of the European Union. This growth is expected to continue at the same pace for the next several years. Some industry sources predict organic retail sales to increase to $10 billion within the next ten years. This seems overly optimistic, though. Nevertheless, it appears that because of this unprecedented growth the British organic market has reached a volume comparable to that of France and Italy.


In contrast to many other major European organic markets, in the UK health food shops and specialist organic and natural food stores have never played as significant a role as, for example, in France and Germany; neither in terms of active involvement nor in terms of sales power. This is emphasized in figure 13: health food shops and independent specialist retailers contribute not more than a combined 18% of retail sales. Also in contrast to other countries, where introduction of organics in supermarket chains was perceived by the specialist and reform shops as unwelcome competition, in the UK their involvement was taken much more favorably and seen as helping the independents to get the word on organic food.


In the seventies and eighties, farmers had to sell their products mainly through direct on-farm sales. Today, the more direct sales activities like farm gate sales, farmers markets and box schemes account for 15% of the retail sales. This is a distribution channel which still continues to grow considerably, and box schemes especially have become very sophisticated in recent years with the involvement of bigger companies like the Organic Marketing Company. It is estimated that there are 50,000 subscribers to organic box schemes in the UK [35]. Organic farmers markets, almost unknown in 1997, have grown from two in March 1998 to thirty within three years.


Figure 17
: Organic Retail Sales by Outlet Type in the UK in 1999



In 1981, Safeway, a major multiple, began to sell some organic products. By 1993 the four biggest supermarket chains Tesco, Sainsbury’s, Safeway, ASDA, as well as the smaller multiple Waitrose, sold some organic groceries and produce, very early in comparison to most other European countries (see figure 18). However, the very restrictive product specifications and the requirements in terms of steadiness of supply and uniformity in outer appearance could in many cases not be met by an immature organic supply chain. Therefore, in several instances supermarket chains canceled orders because of unmet product specifications. Consequently, the relations between the domestic organic industry and the supermarket chains have often been stormy. For example, ASDA, one of the big chains, had begun selling organic products in 1993 but stopped this activity in 1997. A second attempt to test organic food was made in 1998, but again ended after a short period because of unmet product specifications by its supplier. Despite the fact that the relationship between the organic industry and the major multiples has not been easy, supermarkets actually helped foster the organic trade much more than in any other country, simply because of the relative weakness of other retail opportunities.


Figure 18
: Total Market Shares of Supermarket Chains in the UK in 1999



The nature of this relationship, however, has changed substantially within the last few years. Not only do supermarkets still dominate with 70% market share as the No. 1 retail sellers of organic products in the UK (see figure 13), which did ten years ago too, but now there are sitting at the same table with representatives of the organic agriculture and the organic industry. Almost all of the major retailers have taken a proactive stance and, together with the Soil Association, have created the UK Multiple Retailers Organic Working Group (members are ASDA Stores Ltd., Booth Supermarkets, Iceland plc, Marks & Spencer plc, Safeway Stores, Saintsbury’s Supermarkets, Somerfield Stores Ltd., Tesco plc, Waitrose plc). [35]


3.5.3 Breakdown of all Organic Products Sold

A breakdown into product categories (figure 19) reveals that the largest category by far is the fresh produce sector (fruit, vegetables and herbs), followed by multi-ingredient products, dairy and cereals. The fastest growing categories, though, are organic meat, dairy and baby foods, which with a current growth rate of 50% accounts for 6% of the overall baby food market in the UK.


Figure 19
: Retail Value of Main Organic Product Categories in the UK in 1999



Fresh Produce

Almost all major multiples carry fresh produce, as demand and sales are growing fast. This increase is highlighted by the following recent development: supermarket Iceland Group Plc, which had recently acquired Booth Supermarkets, announced on June 14th, 2000 it is investing $13.58 million in an initiative to bring organic produce to customers at prices similar to conventional food. Iceland, the first supermarket chain in the UK to ban genetically modified food from its stores, said it had secured nearly 40 percent of the world's organic produce and set up long-term contracts with suppliers, 80% of them overseas. [30]


The Fresh Fruit and Vegetable Information bureau of the UK estimates that the share of the organic vegetables and fruits currently accounting for somewhat more than 1% will more than triple to approximately four to five percent of the total market within the next three years.


Dairy

Milk and yogurt are the main stays in the UK dairy sector, and sales have tripled in the period from 1993 to 1997. Comber [7] attributes this largely to the low price differential between conventional and organic milk and yogurt and their conventional counterparts. For example, a pint of milk at Waitrose is sold at the same price as that delivered by the milkman, and Yeo Valley organic yogurt at $1.50 for 200 mg retail is the same price as for Waitrose own conventional natural yogurt. Organic ice cream and frozen yogurts are becoming increasingly popular, with Waitrose offering three different ice cream lines, Yeo Valley selling a full range of frozen yogurts and Rocombe Farm a full range of ice creams.


Cereals

The market for cereals and baked goods is showing an increased production range and therefore rising demand for raw products. More and more supermarkets are incorporating organic bread in their in-shop bakeries. Also increasing are pre-packed sliced bread and specialty products such as Duchy’s Brown Sunflower Seed and Honey bread.


Other significant areas are breakfast cereals, biscuits, flour, and pasta. In early 1998 Doves Farm Foods introduced a new line of five organic cookies, and shortly thereafter Grano Vita launched four new different kinds of breakfast cereals. Waitrose is now offering Dellugo’s three fresh pasta lines Organic Ricotta Cheese and Spinach Tortelloni, Organic Ricotta Cheese and Mushroom Tortelloni, and Organic Garlic and Herb Tagliatelle.


Meat

Meat is the market segment that profited most from the BSE food scare, which originated in the UK. There is a sharp price differentiation between organic beef and lamb meat and pork and chicken. The first ones can be produced at almost the same price level as conventional beef and lamb with the price premium for organic usually being 25% or less. Pork and chicken production relies partially on imported grain for feed. Therefore, the price premium often ranges between 50% and 100%. Beef, which is the most important meat sector, is 95% home-produced. According to a University of Wales report, poultry is the least developed organic sector in the UK, partially due to the fact that consumers are unable to differentiate between conventional free-range and organically produced chickens.


Other foods

Organic baby foods, which account presently for an astonishing 20% [351] of the total baby food sales in 1999, is still a booming area, with the German baby food manufacturer Hipp and Baby Organix plc the market leaders.


Organic juices are undergoing a fast development, with more than 100 new products introduced within the last three years. Among them are the carbonated soft drink lines of the German juice manufacturer Voelkel and the Danish manufacturer Natur Frisk, whose range encompasses two organic colas, with and without sugar, ginger ale, lemon and orange squeezers, and "Quick Sport with Guarana" without added sugar. Multivitamin juices have also been introduced recently.


Organic chocolate and candies, although presently niches within a niche market, reportedly experience strong growth. By far the biggest UK organic chocolate manufacturer is Green & Black’s, whose sales have been growing more than 25% annually in the last three years.


Underserviced Product Areas

Underserviced product for the UK areas can be derived from figure 16 on the next page. As demand still far outstrips domestic supply, the product categories with the highest import share will remain so for the near future. A specifically fast growing product category is fresh fruits, as domestic supply is extraordinarily low and demand fast growing.


3.5.4
Infrastructure and Characteristics of the Import Market

3.5.4.1 Channels of Entry and Imported Products

According to the Organic Food and Farming Report 1999, there are 225 licensed organic importers in the UK. The best known is probably the aforementioned Company Organic Farm Foods, who has a wide internationally operating network of suppliers believed to consist of more than sixty cooperating partners. Other companies active in importing fruits and vegetables are Congelow Products Ltd. and Infinity Foods. English Villages Salads imports fresh salad products and distributes them to multiples, while Windmill Organic Foods imports ingredients in bulk for sale to food manufacturers. A large importer for processed foods is Community Foods, while Hider Food Imports preferably imports dried fruit, pulses, grains, rice, and herbs.


Reportedly, some of the big conventional supermarket suppliers like Mack Multiple, Sapphir and Wealmoor are attempting to increase their involvement in organics because they are an experienced trusted source to their large customers, who increasingly demand organic products. It is not clear, however, if this will become a serious involvement, as it requires a very specific skill and organization to deal with more seasonal, smaller volume organic items.


Figure 16 underscores the import-dependent nature of the UK organic market in a drastic manner. Except for eggs and meat, all product categories are largely dependent on substantial imports, including the main product categories dairy, cereals, vegetables, and fruit. The UK imports 80% of it organic vegetables and fruits, the highest percentage of organic imports of any main food category in any country of the EU. It is expected that this dependency is going to continue for the foreseeable future, as demand for organic products still far outstrips supply and the conversion rate of fruit and vegetable farms is not specifically high.


Figure 20
: Shares of Imported versus Domestically Grown Organic Products in the UK in 1999


Source: Soil Association [35]


3.5.4.2 US Organic Products Imported

The United Kingdom Register of Organic Food Standards (UKROFS), the responsible authority for granting import permits of organic commodities from third countries into the UK, does not publish statistics with regard to imports of organic products. As the Soil Association’s Organic Food and Framing report does no differentiate between the countries of origin, no specific data are available for US organic imports in the UK. [46]


3.5.5 Consumer Buying Patterns and Attitudes toward Organic Products

The UK is the country where the BSE (bovine spongiform encephalopathy or mad cow disease) scandal had the most profound impact on consumer attitude, as the disease originated in the UK. During the height of the BSE crisis, the Soil Association reports of 12,000 incoming calls per week by concerned consumers. This is certainly the single most powerful event to have influenced the organic industry anywhere and certainly largely responsible for the upsurge of the organic industry in the UK.


The following paragraphs give a summary of results of a study on consumer behavior and attitudes, which was commissioned by the Soil Association and conducted by MORI in June 1999. Not surprisingly, of the 641 organic consumers sampled, more than half (53%) state as the main reason why they buy organic health/better for me, while the absence of chemicals/pesticides is perceived by 48% as imported. A high percentage of organic consumers (43%) believe that organic foodstuff tastes batter, and for one third the absence of genetically modified organisms (GMO’s) is cited as the overriding reason to buy organic. Environmental concerns are only for 25% a major incentive, the same percentage of consumers who cite animal welfare as a reason to buy organic.


Interestingly, the main reasons that would consumers animate to buy more organic foodstuffs are decrease in price and increase in availability and range (57% and 56% respectively), while UK or locally produced would only motivate 16% to buy more organic food. Better information is important for 21% in a decision to increase purchases of organic foodstuff. According to the study, there is much support in the general public (83%) for organic farmers receiving grant support, and 20% believe the amounts should be increased.


There is an interesting disparity in awareness of where organic food is available and where organic food is actually bought. Sixty-eight percent of all consumers believe that they are most likely to find organic food in specialist organic food shops. However, leading the preferred outlets for actually buying organic foods are the multiples Tesco (39%) and Saintbury’s (33%), followed by ASDA (14%), Safeway (12%), and then the independent specialist organic food shops (10%), with Waitrose the next important outlet (9%).


In conclusion, consumers are primary influenced by health and food safety issues when buying organic food. Environmental concerns and animal welfare are an important reason for one quarter of the organic consumers.


The main obstacles for further increase of organic sales are price, availability and product range. The main retail outlets are the multiples, with Tesco and Saintbury’s leading the pack.

In a more general view, interest in food and food safety as a topic in the public debate has risen substantially. As an example, the Soil Association has been mentioned in more than 1,000 articles in the first three months of 1999 alone. Cookery programs and new magazines have sprung up and countless other press articles have been published.


3.5.6 Trends and Conclusions

It is very clear that in the UK the rising demand, to a large extent fueled by food scares and the concern over the genetic engineering of food, has found its response by an increased availability of organic products in supermarkets. At the same time, farm gate sales, organic framers’ markets, and specialist organic and health food shops are increasing their sales substantially, the latter mainly drawing informed, highly aware customers wishing to deal directly with producers. Independent retailers and specialist organic chains like Planet Organic are emerging or strengthening their market presence, which in the long run might even be able to impact the supermarkets market share, a development that would run counter to what the rest of Europe is currently experiencing.


The same reasons that are fueling demand have also led to a new level of public discussion about food issues in general, and especially a heightened consumer awareness of food safety issues. This is likely to play in favor of the organic industry in the years to come and hence continue to fuel demand for organic products.


Regarding prospects for imports into the UK, it is not likely that the import situation will change dramatically in the next years. While conversion to organic agriculture is rising, it cannot keep up with demand. As Great Britain is a relatively easy market to tackle because of existing trade relationships and the non-existence of language barriers, it is will stay a main target for US organic exporters.

 
 
2014 Annual Fund

Research and Promotion 2012

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