Higher profits when organic meets 'green'

The organic foods market is the fastest growing food sector both internationally and locally with 20+% annual growth recorded in Europe, the US, Australia and New Zealand. The meat, dairy, bread and grains, fruit and vegetables and snack foods sectors all showed 20+% growth in the US according to the Organic Trade Association's 2007 Manufacturer Survey. While beverages, packaged and sauces sales grew at more than 12% in the same survey.

No longer the sole domain of specialist 'health-food' stores, all of the major supermarket chains have extensive brand-name and 'private-label' organic food ranges. Coles already offers more than 300 organic products and is steadily increasing this number.

The growth in the organic sector has been almost entirely consumer driven. Traditionally, researchers have focused on the perceived food safety aspect as the motivation for consumers choosing the higher priced organic foodstuffs. However, consumers usually mention improved flavour, texture and quality as the basis for their purchasing decisions.

Increasingly, consumers are melding environmental concerns into their decision to go organic. They link environmental sustainability with organic farming practices and social responsibility through the Fair Trade movement to make food purchasing decisions.

Currently, the organic segment accounts for only 2-5% of the food market but it is the segment with the fastest growth and is predicted to continue to grow rapidly. Fruit and vegetables are still the most frequently purchased organic items and also the most likely access point for consumers entering the organic sector.

A recent Mintel report into the British organic food market predicts that organic meat will grow at 71% in the next five years in the UK. This growth rate will probably not be mirrored in Australia and New Zealand because our meat industry is not carrying the burden of Bovine Spongiform Encephalopathy (mad cow disease).

Growth in organic food in the US and the UK is currently being limited by availability. Once the farming sector decides to 'go organic' there is a couple of years' gap before the produce can be certified and sold as organic. As more and more primary producers move into the organic marketplace, the availability will increase, prices will moderate and growth will escalate.

The take-up of organics is greatest in larger cities and among the tertiary educated and wealthier consumers. When the price differential between organic and non-organic moderates it is reasonable to assume that consumers in lower income brackets will also purchase more organic foods.

In the meantime, the public perception that organic promotes sustainability and is better for the environment can only enhance the attractiveness of organic choices.

Food producers can reinforce this perception and increase the appeal of their organic products by selecting packaging materials that complement the clean, green organic image. Natural packaging materials and starch-based packaging films are more expensive but they are more appealing to consumers who have already demonstrated their willingness to pay a higher price for organic products and to demonstrate their environmental responsibility.

Ultimately, the growth in total food sales in Australia and New Zealand cannot be higher than the growth in the population. People are simply not going to eat more but they will make changes in what foods they choose to eat. So, if you reformulate your product to meet the requirements of organic certification, you may end up finding your market share being undermined by your savvy competitor, who is responding to consumer preferences.