Consumer Trends and Organic Regulations – International Perspective

Consumer Trends and Organic Regulations – International Perspective Organic Farming Systems Hort 390

—Whole Foods Market® Organic Foods Trend Tracker 2004 survey, October 2004. • Conducted by Synovate in August 2004, the survey of 1,000 U.S. consumers showed more than half (54 percent) have tried organic foods and beverages, • nearly one in 10 using organic products regularly or several times a week. • Reasons cited for buying organic foods were they are better for the environment (58 percent), better for their health (54 percent), and better for supporting small and local farmers (57 percent). In addition, 32 percent believe organic products taste better, while 42 percent believe organic foods are of better quality.

—The Hartman Group, Organic Food & Beverage Trends 2004: Lifestyles, Language and Category Adoption, August 2004. • Sixty-six percent of U.S. consumers report they use organic products at least occasionally, according to The Hartman Group's report, Organic Food & Beverage Trends 2004: Lifestyles, Language and Category Adoption. • That number is up from 55 percent in 2000. • A surge in periphery organic shoppers—those who buy organic products only occasionally—has been largely driven by increased access to organic products in mainstream markets, heightened concern about health, gradual emergence of organic alternatives in mainstream brands, and an increase in information sources. Lifestyle, rather than demographics, is driving organic purchases.

An online poll of 1,000 U.S. households conducted during the week of Nov. 4, 2002 – CONT.—eBrain Market Research, http://www.ebrain.org • The majority of those buying organic products purchased them from their local grocer or a traditional supermarket chain, • 29 percent cited a farmers' market as the source, and • 21 percent bought organic products at a specialty grocer such as Whole Foods Market or Wild Oats. • Also, 14 percent indicated they bought organic items at their local Wal-Mart or Target super center, reinforcing the fact that organic foods play a role in everyday American households. • Twenty percent said they would pay approximately 20 percent more for organic foods, while 67 percent said that price was a barrier to their buying these products.

An online poll of 1,000 U.S. households conducted during the week of Nov. 4, 2002 —eBrain Market Research, http://www.ebrain.org • found that 58 percent had purchased a food item labeled organic. • Of those participating, 32 percent said it was somewhat or very important that their food is organic, while • 67 percent indicated organic food would become more common in the future. /.

Industry Statistics and Projected Growth(www.ota.com) • Organic farming is practiced in approximately 100 countries throughout the world, with more than 59 million acres now under organic management. Australia leads with approximately 24.6 million acres, followed by Argentina, with approximately 7.4 million acres; both have extensive grazing land. Latin America has approximately 14.3 million acres under organic management, Europe has more than 13.5 million acres, and North America has nearly 3.7 million acres.—The World of Organic Agriculture 2004-Statistics and Future Prospects, February 2004. www.soel.de/inahlte/publikationen/s/s_74.pdf.

“cultural creatives” as a market force: • Defy traditional market segment categories (gender, ethnicity, income) • May be 50+ million in the US or more (some estimate 1 in 4) • Largely invisible, many related interests, not just food

The Cultural Creatives: How50 Million People Are Changing the World,New York: Harmony Books, October, 2000 by Paul H. Ray, Ph.D. and Sherry Ruth Anderson, Ph.D.

Sustainable Economy (green building, industrial goods, renewable energy, alternative transportation) Healthy Lifestyles (organics, dietary supplements, nutritional products) Ecological Lifestyles (home and office products, recycled fiber products, eco-tourism) Alternative Healthcare (holistic disease prevention, complementary medicine, acup8uncture, homeopathy, naturopathy) Personal Development (mind, body and spirit products, CD’s, books, tapes, seminars, Yoga, fitness, weight loss) Also called the “LOHAS” market sector (“Lifestyles of Health and Sustainability”)

Comparison of EU and US Standards US NOP and EU 2092/91Similarities and DifferencesAs of July 2002 • Reprinted from The Organic Trade Association's website at www.ota.com

European Standards - codified • June 1991, the Council adopted Regulation No. 2092/91 on organic production of agricultural products. • In 1999, the Council extended its scope to cover organic livestock production. • Rules are complex, and define a method of production, regulate labeling, processing, inspection and marketing, including import of organic products from non-member countries.

IFOAM (International Federation of Organic Agriculture Movements) set up in 1972, to bring together organizations from all over the world. Adopted basic standards for organic farming and processing in 1998. These are not binding, but provide valuable guidelines. Other European movements have includes “Biodynamic,” in the late 1920’s in Austria and Germany (Rudolf Steiner) “Organic Farming” in England, based on theories developed by Albert Howard in 1940. “Biological” agriculture, developed in Switzerland by Hans-Peter Rusch and Hans Miller. History….

Organic agricultural products may be imported into the EC: • Without additional certification if from a country on the Article 11(1) list: Argentina, Australia, Czech Republic, Hungary, Israel, and Switzerland. • All other countries (including the U.S. and Canada) must provide certification documentation for each shipment. Once in the EC, there are no further barriers.

National Standards in the U.S. became effective in 2002. • Canada has “proposed standards” released for comment Sept. 2006, with implementation goal of Dec. 2006. • Mexico has no national standards yet.

Both systems are similar and share the following: • Third Party Certification • Audit Trails • Annual Inspections • Accreditation • Materials Lists • Defined Conversion Periods • Sustainable Farm Plan

Cultural and political differences are substantial • Cultural – while States in the US use one language and have similar cultures, • EU member States have differing languages and cultures. • Political – Federal laws supercede State laws in the US while the EU consists of 15 sovereign State governments, each of which can grant exceptions to established EU 2092/91 rules and regulations

Some cropping standards differ • Agriculture Conversion Period – Conversion (transition) periods as written in the EU Regulations may be interpreted as shorter than the three-year, no exceptions, rule found in the US. • US – requires a three year conversion period with no exceptions • EU – generally requires two years for annuals and three years for perennials, with some exceptions Buffer Zones – The US requires buffer zones, the EU does not require buffer Zones

Manure Restrictions • The EU has load limits on manure applications for livestock and other organic cropping operations, while the US requires minimum periods prior to harvest. • US – manure must be composted if applied within 120 days of harvest • EU – manure from organic farms is preferred and load limits on a per acre basis are required

Livestock regulations contain potential barriers to US / EU trade • Slaughter- US regulations call for transition from the last third of gestation for slaughter stock and one year for dairy, while the EU regulations contain reduced conversion periods and are species specific. • Livestock husbandry - The US has general requirements for livestock husbandry practices while the EU requirements are highly prescriptive including minimum slaughter ages per species. • Milk production. May be certified as organic in the U.S. after 12 months on 100% organic program whereas EU rules allow for organic production at 6 months. • Organic feedstuffs - In-Conversion allowances (30-60%) of transitional and conventional feedstuffs for organic livestock production in the EU are not found in the US (requiring 100%). • Healthcare - No antibiotics or hormones are allowed in the US, however, the EU does include exemptions for synthetic veterinary medicines and allows for treatments up to 3x per year

Processing • The US observes detailed handling regulations where EU processing regulations are referenced in EU inspection regulations, and the certifier verifies organic compliance.

Labeling requirements are similar • "Organic" - both agree that at least 95% of the ingredients must be organic. • "Made With" – both agree that 70% of the ingredients must be organic. In theEU the remaining 30% must be on published lists of "not commercially available ingredients." This list is subject to interpretation by the certifier or Member State. • "Below 70 %"- EU does not allow organic to appear anywhere on the label. US allows identification of organic ingredients on the information panel in products containing 50% or more organic ingredients. • Percent organic declarations in the US are not mandatory, but in some EU situations declaration may be required. • Under EU regulations, "transition to organic" labeling is allowed. In the US, such labeling is not allowed.

Materials and the materials process • Materials generally must be listed in the EU, while in the US natural materials are allowed unless prohibited and synthetics are prohibited unless allowed • Materials process - the US requires published criteria and is based on a public process including scientific reviews and NOSB hearings. The EU publishes rulings based on Member State requests.

Accreditation • Federal authority dictates accreditation and the USDA accredits certifiers. • Accreditation in the EU is by designated accreditation bodies and peer review. • Each EU Member State is responsible for ensuring that certifiers operate according to the inspection requirements laid down in Annex III.

Import Authorizations • US umbrella certification allows shipping to all of the US. • Under EU rules, Transaction Certificates will be required with each shipment after November, 2002

Access to Markets • US -Federal authority – Access to all states • EU – does not guarantee access to the 15 sovereign States

Figure 1: Acreage under Organic Cultivation in European Countries in 1999 US certified organic area in 2000 was 2,029,073 acres.

Consumer Trends and Organic Regulations – International PerspectivePART II. Organic Farming Systems Hort 390

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. Despite an early start, the organic movement in the UK has been stagnating for a long time, compared to other major European countries. Figure 15: UK Farms and Acreage under Organic Cultivation1997-1999

The Retail Market • 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. In 1997 organics accounted for only 0.7%, in contrast to at least 1% or more in other comparable markets. Per capita consumption ($7.67) was second lowest of comparable EU countries. • 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; • 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. • 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

Organic Retail Sales by Outlet Type in the UKin 1999

Retail Value of Main Organic Product Categories in the UK in 1999 Shares of Imported versus Domestically Grown Organic Products in the UK in 1999 Source: Soil Association [35]

Consumer Buying Patterns and Attitudes toward Organic Products- UK • 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. Study on consumer behavior and attitudes; commissioned by the Soil Association and conducted by MORI in June 1999.

Consumer Buying Patterns and Attitudes toward Organic Products- UK • O 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 better, 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. Study on consumer behavior and attitudes; commissioned by the Soil Association and conducted by MORI in June 1999.

Germany:Development of Organic Agriculture • Germany is one of the countries with the longest tradition in organic farming, with its earliest roots dating back to the end of the 19th century. During this time, the so-called "Reformbewegung" (reform movement) developed its philosophical view of the connection between the health of the soil, the growth of plants and the health of mankind. • Reformhäuser" or reform shops were established where it was possible to buy the goods that were grown according to this view. In 1924 Rudolf Steiner outlined the principles of biodynamic agriculture and in the mid-thirties the Müller-Rusch biological-organical method gained ground. However, all these movements remained marginal and the reform shops were the only places where organic products were to be found. • In the early seventies, organic farming became more popular, and a plethora of small, independently owned Bioläden and Naturkostläden (organic food shops and natural food shops) spread throughout the country. They were solely dedicated to selling organic products, and their customers were mostly dedicated, even zealous supporters of organic farming and alternative sales structures. The mostly independent Bio- and Naturkostläden continue to be the main force in terms of selling and promoting organic products.

Number of Organic Farms and Acreage under Organic Cultivation Until 1990, the number of farms devoted to organic agriculture remained below 1,000. The enactment of the EU rule 2092/91 for organic agriculture in 1991 triggered an rise in the number of farms and the acreage under organic cultivation that is still going on today. Since 1994, Germany has experienced a steady increase in organic acreage and number of farms. In fact, the number of organic farms increased almost tenfold during the last decade and is now in the area of 9,500 farms, the third largest number of organic farms in any European country (see figure 10). The total organic acreage is more than 1,000,000 acres, second only to Italy.

Sector Shares of Retail Outletsin Germany in 1999 -- This figure clearly demonstrates that specialist organic shops (Bioläden and Naturkostläden) account for the lion’s share of sales; together with Reform shops and farm gate sales they hold 64% of the retail sales.In the last decade, however, a substantially new development has taken place: large supermarket chains have entered the organic marketplace. Pioneered by the smaller companies Tegut (Alnatura) and Tengelmann (Naturkind), gradually most of the major multiples either created their own private organic labels or started selling a wide array of organic products or both.

Consumer Buying Patterns and Attitudes toward Organic Products A study was conducted to probe consumer attitudes and behavior towards organic products by the Sinus Institute in 1995. The study found that: • 44% of consumers came from a liberal-technocratic environment • 27% came from an alternative environment • 6% came from a conservative environment • 9% belonged to a variety of backgrounds

In a study conducted for the CMA in 1996 with updates in 1999: • 74% of customers claimed that health reasons for their key influence for purchases of organic food, • followed by environmental considerations (51%), • higher nutritional value (29%), and • better taste (20%). • The same survey found that 56% of consumers were prepared to pay a price premium of more than 15%, 33% a price premium less than 15% and 11% did not want to pay any premium for organic goods.

A more comprehensive survey of the GfK, Germany’s biggest market research company, revealed that the earlier classifications of organic consumers is not valid any more. • It rather appears that organic consumers display an apparently contradicting behavior. For example, food miles are given as a consideration for purchase decisions with preference for locally grown produce, but a keen interest in ethnic dishes is also displayed; • the demand for best possible quality is not directly in line with the desire for low prices, and health considerations are not necessarily compatible with the drive for convenience food. • "For example, it would not seem absurd for an individual consumer to have a healthy breakfast with muesli, yogurt and fruit, a fast-food lunch, and a celebratory dinner with lobster and champagne."

The Netherlands: Development of Organic Agriculture • Traditionally a major agricultural producer for a wide range of conventional produce, processed food and flowers for the European market. • Also known for its extremely intensive cultivation methods with an unparalleled density of greenhouse cultivation. • Major gateway for the import of agricultural commodities with a sophisticated network of importers, packers and re-exporters. • The scale of organic production, however, is small, currently accounting for only somewhat more than 1% of the total agricultural land (figure 13). The Netherlands nevertheless plays a major role in manufacturing, packing and importing and exporting organic products. Distributors operating on a European scale are most likely to be found in the Netherlands.

Figure 13: Number of Organic Farms and Acreage under Organic Cultivation in the Netherlands

Government programs to stimulate organic ag conversion • The overall development of organic agriculture in the Netherlands during the last years has been fairly slow. • In acknowledgment of this fact, the Dutch Ministry for Agriculture in 1996 launched a plan (Plan van Aanpak Biologische Landbouw) to stimulate organic agriculture. It included the allocation of $27 million in subsidies and tax benefits for conversation, marketing and related purposes, one of which is a national educational campaign on organics. • In spring 2000 an extension of this plan with an additional allocation of $8 million was announced, with major emphasis on demand stimulation, creation of reliable supply chains and the broadening of the available organic assortment.

Figure 14 needs to be taken with a grain of salt. What is clear is that with the entry of Albert Heijn the market share of the multiples is soaring, with a market share increase of approximately 10% in the year 1998. Most of the 380 health food and specialist organic shops are run independently, with only one franchising scheme in place, Natuurwinkel/De Groene Winkel/ Gimtel. Together they account for about 70 stores. In 1999, there were approximately 20 major organic farmers markets and the number is still, if slowly, increasing. Figure 14: Shares of Organic Food Sales by Retail Outlet Typein the Netherlands 1998-1999

Consumer Buying Patterns and Attitudes toward Organic Products - Netherlands • One major difference between the Netherlands and most other European organic markets where spending for organic products has increased much faster has been that occasional and selective buyers have not increased their organic purchases at the same rate as in comparable countries. In a study of the Landbauw-Economisch Institut (LEI) of the Netherlands consumers were categorized in five segments: • Heavy buyers of organic food (1%) • Selective purchasers of organic food (4%) • Occasional purchasers of organic food (34%) • Non-purchasers aware of organic quality represented by EKO-label (55%) • Non-purchasers of organic food unaware of organic quality as represented by the Eko-label. (6%) • The heavy buyers are dedicated to buying at farmers markets, at farm gates or in health food shops, while selective purchasers buy some organic products on a regular basis, but their purchasing decision is strongly influenced by convenience, availability, and price. Occasional purchasers who are well aware of the differences between organic and conventional agriculture tend to exclusively shop at supermarkets, therefore, their selection is restricted to what the preferred supermarkets have to offer.

Development of Organic Agriculture in France • The organic movement in France established itself in the early seventies, carried by a strong philosophical and ideological background. The first organic standards in France were published by the producers association Nature et Progrès in 1972. In 1980 approximately 40% of Europe’s organically cultivated land was located in France.

After 1980, France’s position as a leader in organic agriculture deteriorated steadily until the mid-nineties, owing to virtually non-existing government support, stagnating demand, an inefficient manufacturing and processing sector and an immensely splintered and professionally poorly developed distribution system. At the same time there was a pronounced rise of organic agriculture in Germany, Italy and Switzerland, Austria and Denmark due to substantial subsidies for organic producers in those countries. The "Plan Pluriannuel de Developpement et la promotion de l’Agriculture Biologique", launched by the French Ministry of Agriculture in 1997, calls for the conversion of 2,47 million acres (1 million hectares) of farmland and increasing the number of organic farms to 25,000 by the end of year 2005. thus quintupling the number of farms and acreage within 8 years. The plan calls for subsidies in the amount of approximately 10 million EURO to advance organic farming, distribution and sales. Number of Organic Farms and Acreage under Organic Cultivation in France

Figure 8: Organic Food Sales by Retail Outlet Channel in France in 1999

Figure 9: Sector Shares of Organic Food in France in 1996 In contrast to most other European countries, where produce and dairy tend to play a larger role, cereals dominate as the main product category in France (figure 9). Apart from consumer preference this is mainly attributed to the widespread availability of bread, baked goods and cereals in health food shops, more than 4,000 small bakeries, and the supermarkets, which initially emphasized this product category. The next important product category with 25% is vegetables.

Consumer buying patterns - France: In a study in 1995 an INRA-Crisalide study [19] in France determined four major customer groups for organic products: • "Nostalgics", a rather conservative and mostly elderly part of the population preferably concerned with foods produced according to "our ancient standard" and who tend to grow their vegetables in their own backyard • "Ideologists", zealously idealistic to "revolutionary militants" (the politically correct of the organic movement) for whom the purity of the standards has to be held above all else and any deviation is regarded as almost a crime • "Health conscious", among them a large number of young mothers who are especially concerned for their babies and young children, who have severe time restraints and wish to buy all their foodstuff in one place, but are only willing to pay a limited premium for organic food • "The fashionable crowd" with the highest amount of disposable income, looking for high-end products in every regard (healthy, organic, good taste, first-class appearance, hip). While there are no exact numbers with respect to those four categories of customers, it is undisputed that the first two categories of customers are rapidly diminishing and the second two categories even more rapidly increasing.

Consumer Trends and Organic Regulations – International Perspective