MAIN FINDINGS AND IDENTIFIED OPPORTUNITIES FOR DEVELOPING COUNTRIES

Growing organic sales volumes and values...

The highest values of total organic food sales in 2000 were found in the United States (US$8 000 million), followed by Germany (US$2 100 million), the United Kingdom (US$1 000 million) and Italy (US$1 000 million). Other high sales values were found in France (US$850 million) and Switzerland (US$450 million). The United States and European markets have roughly the same size. Sales of certified organic products in Japan were estimated at only US$350 million in 2000, but total sales of "green" products (produced with less but not necessarily without chemicals) are estimated at US$2.5 billion. Table 1 gives the estimated sales values of all markets surveyed for this study.

...but still a small share of the total food market

Nevertheless, the organic sector is still a niche in the total food sector. Market shares of organic foods were found in most countries to be around one percent of total food sales. Somewhat higher figures are found in Austria and Switzerland with estimated organic shares of respectively, 1.8 percent and 2 percent. The organic market share in Denmark is estimated at almost three percent of total food sales, probably the highest in the world (Table 1).

Table 1: Value and shares of organic markets (2000) (figures rounded)
Organic markets in 2000
	Value of total organic sales (in US$ million)(*) (estimates)	Estimated share of organics in total food sales (in %)	Value of organic fruit and vegetable sales (in US$ million)(*) (estimates)	Estimated share of organic in total Fruit (F) & vegetable (V) sales (in %)
United Kingdom	986	1	300	5 - 10
Germany	2 128	1.25-1.5 (**)	378	2.6
Italy	978	1 (**)	264	2
France	846	1	169	-
Netherlands	210	1.2	-	-
Belgium	138	1	34	-
Austria	195	1.8	29	3 F and 5 V
Switzerland	457	2	-	5 F and 10 V
Denmark	372	2.5 - 3	-	-
Sweden	175	0.9	31	1.7
USA	8 000	1.5 (**)	1 450	-
Japan	350 (***)		-	-

(*) Based on average exchange rate 2000.
(**) Source: ITC (2001)
(***) US$2.5 billion for "green" labelled products.

High growth rates of organic fruit and vegetable sales during the last few years...

The market surveys carried out for this study indicate fast growth in sales of organic fruit and vegetables in most of developed countries. Sales values were found to increase in most markets at annual rates generally ranging between 20 and 30 percent during the last years of the 1990s. Particularly high growth rates have recently been observed in the United Kingdom and in Italy. For example, in Italy, organic fruit and vegetable retail sales have grown at an annual rate of about 85 percent during the period 1998-2000, while in the early months of 2001, after the detection of the first case of BSE in Italy, growth rates moved even higher, as concerns about safety of conventional food (mainly meat products) triggered a strong extra demand for fruit and vegetables in general and organic produce in particular. Although such high growth rates are not likely to persist, the market survey of Italy shows increased public awareness of and demand for organic fresh produce. Sales of organic fruit and vegetables in both the United States and Japan are rising, but precise growth rates could not be obtained. Annual growth of organic fruit sales in Germany is estimated at eight percent and for organic vegetables at fifteen percent.

...although growth seems to have come to a halt in some markets

On the other hand, in Austria and Denmark, both countries with a well established organic market and a relatively high organic market share, organic food sales were found to be in a low or no-growth rate situation.

Organic share in fruit and vegetable sales higher than organic share in total food sales

The share of organic sales in the fruit and vegetable sector is somewhat higher than the share of organic sales in total food sales. In most countries, organic shares in fresh fruit sales are estimated at about three-five percent, whereas for vegetable sales the organic shares are estimated at up to ten percent in the United Kingdom and Switzerland for example, partly due to the high sales volume of domestically produced organic vegetables through direct sales and box schemes.

The importance of supermarkets as organic sales outlet varies among countries

This publication also shows the difference in importance of the various distribution channels through which fresh certified organic fruit and vegetables are sold. The role of the supermarket, the fastest growing organic sales outlet in virtually all countries studied, is found to vary significantly among the different countries. In the United Kingdom an estimated 70 percent of all organic fruit and vegetables are sold by supermarkets. Similar percentages are found in Switzerland and in Denmark. In Germany and the Netherlands, however, supermarkets account for, respectively, 24 percent and 30 percent of sales of organic fresh produce (in the year 2000). In Austria less than a quarter is sold by supermarkets and in France, only 20 percent.

No uniform European market for organic fruit and vegetables

From the observed differences between the various countries, it can be concluded that despite ongoing market integration in the European Community (EC) and the existence of the common EC regulation 2092/91 on organic agriculture, there does not seem to be a uniform EC market for fresh organic horticultural products. Although certified organic fruit and vegetables can circulate freely across EC countries, potential exporters to these markets should continuously be aware of the differences and study precisely the specific characteristics of the market in the targeted country, the trends, consumer profile, distribution channels, etc.

Significant intra-EC trade of organic fruit and vegetables

Market surveys have shown a significant intra-EC trade of organic fresh fruit and vegetables. For example the Netherlands, France and Italy export large amounts of fresh produce to net organic importing EC countries, including the United Kingdom, Denmark and Belgium.

Organic production is increasing in developed countries

The leaders among certified organic producers in developed countries covered in this survey are Italy, with an estimated area of about 1 million hectares in the year 2000, followed at a distance by the United States (544 000 ha in 1997), Germany (546 000 ha) and the United Kingdom (472 000 ha). However, as the case studies in this book show, of the countries studied for this publication, Argentina has the largest area under organic production, with an estimated area of around 3 million hectares (including pastures in the South which are certified organic but are not under production, see Table 2).

Table 2: Organic area under production in 2000
Organic production in 2000
	Area (ha)	% of total area under production	OFV area
United Kingdom	472 500	2.5	3 000
Germany	546 023	3.2	7 118
Italy	1 040 377*	-	-
France	371 000	1.3	27 945
Netherlands	27 820	1.4	2 100
Belgium	20 663	0.9	612
Austria	272 000	10.0	-
Switzerland	95 000	9.0	1 238
Denmark	165 258	6.2	1 912
Sweden	139 000	5.1	2 300
USA (1997)	544 000	0.2	41 266
Japan	1 000	0.02	-

Government policy and support

Most countries in western Europe have government policy and financial support for encouraging farmers to convert to organic production methods. In some countries, specific targets for organic agriculture have been set, e.g. to have ten percent of the agricultural area under organic production by 2010. Most market sources stated that the set targets are not very likely to be met within indicated timeframes. Nevertheless, it is clear that the production of certified organic fresh fruit and vegetables in developed countries is expected to continue to grow.

Demand continues to exceed domestic supply

As demand for organic fresh produce is expected to continue to exceed production in developed countries, imports will be needed to meet consumers' demand. The extent to which developing countries will be able to fill that gap depends largely on the factors described below (see: "Possible strategies to follow" below).

Consumers prefer organic products from their country or region

The surveys have shown that in virtually all markets, organic consumers have a clear distrust of the authenticity of certified organic imports. The case of Switzerland is most striking where the main domestic organic label (Bio Suisse) prohibits organic products to be transported by plane (Switzerland is a land-locked country). Consumers in Austria are said to strongly prefer domestic organic products (preferably bought directly at the farm) and only appreciate imports during off-season periods or for products which can not been grown domestically. If imports are needed, produce originating from nearby countries is favoured. The Danish market survey mentions that consumers' confidence in foreign organic products declines with geographical distance. Also, consumers in Japan and the United States have a strong preference for locally grown organic produce. In order to successfully introduce imported organic produce into these markets, specific marketing efforts might be needed to gain buyers' confidence. These efforts would clearly be linked to the organic importer, wholesaler and retailer. Use of the same domestic organic label in the country of consumption would help to make consumers familiar with imported organic produce, as they are more likely to recognize the equivalency of the product based on domestic standards.

A few exceptions

The United Kingdom and Belgium are two examples where the difference in trust between domestically grown and imported organic products is found to be relatively minor. This is probably explained by the fact that domestic organic production in these countries is not able to catch up with growing demand, and imports are therefore common practice.

Prices vary strongly among place, time and product group

Although there is a general lack of publicly available data on prices (at the producer, fob, cif and retail levels), some of the market surveys give some insight into this issue. For most countries, a sample of prices is given (mostly at retail level), but no price series or complete set of price data could be obtained. Since the organic sector in many countries is still dominated by a few traders, willingness to provide data has often been found to be limited, and market transparency is far from optimal. With the continuing growth of organic sales volumes in developed markets and progression to more transparent and competitive markets, most surveys indicate that this trend will probably result in a decrease in the price difference between organic and conventional products. The extent to which price differences will decrease, however, is not known and will depend largely on the respective growth rates of demand and supply.

However, observed price premia range generally between 20 and 40 percent

As expected, prices vary widely over time, due to seasonal trends in production (and consumption), but also from one market place to another within a country. Some non-representative samples of retail prices obtained by various authors of this publication suggest that price premia generally range between 20 and 40 percent above conventional prices, with price differences regularly exceeding that range. Part of this price premium is a result of differences in production and distribution costs.

Caution should prevail when drawing conclusions from these figures

One should be extremely cautious when drawing conclusions from the data. The lack of complete price series makes it difficult to draw reliable conclusions. Potential producers/exporters should have a close look at likely future producer prices, as these are key in deciding whether to convert to organic farming, especially bearing in mind the conversion period of up to three years. However, price developments are very difficult to project from an inconsistent set of data.

Exporters targeting a specific market are advised to make contacts with several importers and traders in order to get an idea of the prices that can be obtained, keeping in mind that these prices fluctuate.

Organic price premia and consumer behaviour

Groups of consumers are said to be willing to pay a certain price premium for organic foods. In many countries, most consumers are willing to pay 20 percent more than for conventional products, but no precise figures could be obtained. Organic sales through supermarkets are the fastest growing distribution channel in most markets. Some market sources stated that consumers buying organic produce in the conventional retail channels (e.g. supermarket) differ somewhat from other organic consumers, in the sense that environmental considerations are less important when purchasing organic produce. These purchases by less environmentally conscious consumers lend some support to the expectation of decreasing price premia in the next few years.

Some organic marketing trends

During the market surveys various market trends have been observed, including:

• Organic supermarkets. Many surveys report the introduction of small supermarkets which only sell fully organic products;
• Biodegradable packaging, in order to provide consumers with organic products which are packed in an environmentally-friendly manner;
• Convenience organic foods. Convenience foods have been among the fastest growing food items in conventional markets, and over the last years more and more organic convenience products, such as fresh pre-packed salads are to be found;
• Sales through the Internet, often combined with box schemes, are growing in importance. Many of the country reports provide detailed information on companies which trade organic produce through the Internet;
• Organic food sales through public canteens and catering. The food service sector and other sectors are becoming more and more involved in organics.

Opportunities for developing countries

Domestic production of organic products in developed countries is expected to rise within the next few years (there is usually a time-lag of three years between conversion and production of certified organic produce), but it is unlikely to meet demand for most products. Consumers' preference for locally or regionally produced organic fruit and vegetables indicates that the best opportunities are in counter-seasonal fresh organic temperate zone produce and non-temperate zone products. For products that cannot be produced in the colder climates in northern developed countries (e.g. oranges, kiwi, etc.) most organic supply comes from producing countries close to these markets, such as countries in the Mediterranean area for the EC (e.g. Italy, Spain, Israel, Morocco and Egypt). It is important to note that EC member countries or third countries on the Article 11 list of equivalence (for definition, see Chapter 1) have a clear advantage. For other countries, the highest potential is seen when domestic supply from these countries is absent or insufficient.

There may also be some opportunities in seasonal produce which is short in supply and in processed fruit and vegetables.

The basics for success

Basic requirements for success include a more competitive producer and fob price while meeting at least the organic and phytosanitary standards and providing the same quality as conventional products. Moreover, strong marketing efforts may be required to educate the organic consumer to mitigate the current distrust towards imported organic products. Some countries have already established a "green" or "fresh produce" export image (e.g. Costa Rica, Chile) which will help them enjoy marketing advantages in organics.

Required planning

When deciding on whether to convert to organic production, one should bear in mind the different (and many times difficult) production and management methods needed in order to succeed. The generally needed conversion period of three year makes long-term planning indispensable. For such planning, a careful cost-benefits analysis should be carried out. The size of the expected decrease in organic price premia, if any, is not well known; neither is the amplitude of the possible drop in yields during conversion and possibly after. Therefore, producers and exporters are advised to carefully assess the potential of their product in the targeted market, as well as to identify competing suppliers of that market. With the recent introduction of organic rules in two of the major organic markets, the USA and Japan, the legislative framework is in place to provide better information and guidance on import rules and, consequently, in theory, to reduce unpleasant surprises for potential organic exporters to those markets.

Possible strategies to follow

Before certified organic fresh fruit and vegetables can be successfully exported to developed countries, many steps have to be undertaken. The list below - although not exhaustive - gives some of the main conclusions and lessons learned from the country case studies carried out for this report.

• An important step is to establish national or regional organic standards and regulations and a reliable independent accreditation and control system to enforce those rules. When the domestic organic rules are recognized as equivalent to the organic rules of the country to which exports are sent, unnecessary additional certification costs are avoided. The case study of Argentina shows the impulse the organic sector received when national organic legislation was approved as equivalent by the EC. Although most developing countries do not yet have their own organic standards, they are often capable of exporting certified organic products through close cooperation with an accredited certification body and a specialized importer (see Chapter 1).
• Another fundamental requirement is the availability of know-how on organic farming and organic inputs. Organic farming is generally more labour intensive and requires a high level of management attention in order to avoid contamination and pests. Some of the interviewed organic producers stated that the highest initial costs of converting towards organic farming were not so much the costs of certification and control, but the huge losses during the first harvests, resulting from insufficient knowledge and capability to protect the crops from pests and plagues. Organic farming was said to be carried out on a trial-and-error basis until the appropriate techniques were developed through continuous adjustments. Moreover, during conversion towards organic agriculture, yields might drop significantly (and may remain lower even after the transition period), and there are higher risks of severe pest and disease attacks.
• Good post-harvest handling (e.g. cold storage), good infrastructure and logistics (including harbour or airports) will enable the fresh produce to arrive in good condition in the country of destination. The case study of Papua New Guinea shows that limited transport possibilities put a constraint on organic exports, while the case study from Madagascar shows the difficulty the organic export sector faced when the quality of exported organic apples was found low upon arrival in Germany. Quality problems finally led to discontinuing organic exports.
• In order to export successfully, good and reliable relations with an importer, trader or wholesaler in the target market are important. The importer has up to date information on the latest market developments.
• Supermarkets, the fastest growing sales outlet for organic produce, prefer to sell organic fresh produce year-round, with a constant quality and regular supply. International trade in conventional fresh fruit and vegetables shows increasingly characteristics of buyer-driven global commodity chains. In such commodity chains, the larger supermarkets in developed countries specify the requirements for price, quality, delivery and food safety for the fresh food produced in developing countries (without owning farms or processing facilities in those countries), in order to guarantee year-round supply. With the increasing importance of supermarkets as a sales outlet for organic fruit and vegetables in developed countries, supermarkets will increasingly establish such commodity chains in international organic trade, as well. The generally high requirements for produce to be purchased by foreign supermarket chains can act as a barrier for some organic producers who are not able to meet such levels. However, this situation can provide considerable rewards and income guarantees for those organic producers who do meet the standards and can operate at the supply side of such chains.