Select Committee on Agriculture Second Report



International comparisons

23. Brookes West economic consultants estimated that the current size of the global organic market at retail level is about $20 billion.[46] Table 3 below sets out figures for key world markets since 1997.

Table 3: Key world markets for organic food and drink (US$ m)

1999 (1)
2000 (2)
Other EU

    1. Estimate
    2. Forecast
    3. N/A = not available
    Source: ITC, USDA, Economist (Ev. p. 178).

It can be seen from this table that the value of the UK organic market is lower in absolute terms than in several other EU Member States. Denmark, Sweden, Germany and Austria are examples of countries where organics enjoyed a larger market share of domestic consumption than in the UK.[47] These countries all have a higher relative proportion of organic farms and therefore higher production levels than the UK (see table 4 below). Sweden, missing from the table, had 11.2 per cent of its agricultural land in organic production in 1999/2000.[48]

Table 4: Organic food and farming in selected countries in Europe, 1998/99

Population (m)
Organic retail sales
Organic and in-conversion land area (ha)
Number of organic farms

Source: SA (1999), p. 3.

Factors affecting expansion

Reasons for expansion


  24. Organic production in the UK is chasing the booming consumer demand for organic food. The reasons for this demand obviously vary between individuals but some clear themes emerge. One is food quality; for example, the perception that properly-cured organic bacon tastes like "real" bacon. A second, and probably the strongest, theme is concern about food safety, driven by food scares such as E. coli, Salmonella, BSE and genetically modified foods, as well as by growing awareness of the pesticides and other chemicals, including antibiotics, regularly used in the production of conventional foodstuffs. These scares have increased the desire of consumers for knowledge about the food they eat. Similarly, growing interest in the environment, in animal welfare and in other ethical issues linked to food and farming have heightened the attraction of organic foods because of the values which they appear to represent. In addition, there are nutritional issues as some consumers perceive organic foods to offer health benefits over conventional products.

25. Another reason for the expansion of the retail market may be an economic one. Brookes West pointed out that there is "a strong link" between organic consumption and high GDP levels.[49] They also raised the interesting example of Austria where the rapid development of the organic market coincided with accession to the EU: at that time prices of foodstuffs in general fell with the removal of agricultural protection, with the result that "organic produce was sold at prices that many consumers were used to paying in the past for conventional food".[50] It is possible that similar factors are at work in the UK where conventional food in many sectors is now selling for less in real and absolute terms than it was a few years ago, thus allowing consumer to choose "to forego a cheaper alternative ... rather than ... actively choosing to pay more" in buying organics.[51] The supermarkets were keen to assure us that the whole range of their customers is now choosing organics and that the stereotype of the organic customer as middle class, urban and from the south east is no longer relevant. This change is as likely to result from the lower prices and higher visibility of organics as from other considerations.[52]

26. For farmers, the motivation behind organic conversion is primarily the attraction of commanding a premium price in a buoyant market, especially when set against the income problems in conventional agriculture. This is helped by the availability of Government grants. Farmers also share many of the consumer concerns referred to above as well as an interest in a more "natural" way of farming. Some see organic farming as a means of adopting greater extensification of production whereby they feel that they have more control over what they do and what they produce. Mr Watson, a farmer from Devon, explained that his family had converted "as most people do, for a combination of ideological and commercial reasons".[53] A processor with many years' experience of the industry added that if farmers "do get in it just for money, I think some of them will learn their lesson very quickly and come back out".[54] Organic farming was "a way of life",[55] as much as a route to a profitable business. While consumers may be buying into the whole dream of organic farming when they purchase organic foods in a supermarket, farmers are finding that conversion involves a change of attitude not just of practice. The philosophy of organic farming is clearly a key factor in conversion.

Prices and premia


  27. The high quality image of organic food is generally supported by high prices, offering producers a significant premium over conventional equivalents. The level of premium varies from sector to sector. For cereals and vegetables, it is around 50 to 60 per cent; for meat and dairy products, around 15 to 20 per cent.[56] The NFU attributed this difference to the balance between supply and demand for the product;[57] and it is certainly arguable that the premia have often been above the level needed to recover the additional costs involved in organic production and marketing.[58] We understand that premia are much lower (10 to 30 per cent) in more mature organic markets overseas[59] and recently we have also seen significant decreases here in supermarket prices. For example, ASDA has "an aspiration of [prices for organics] being no more than 30 per cent higher than the non-organic equivalents",[60] while Iceland has gone one better by announcing the wholesale conversion of its own-brand vegetables to organic without charging a premium. In order to do so, it has bought up 40 per cent of world supplies of organic vegetables, a further move away from the notion of organic farming as localised production.

28. These moves by the supermarkets have caused some concern among organic farmers who are anxious that the power of the multiple retailers could push producer prices down below sustainable levels. The fear is that the actual price received for organic produce will fall rapidly in line with the increase in supply and that the supermarkets will fail to keep their promise of paying for consumer reductions through economies of scale or out of their own profits rather than those of their suppliers. The difference between price and premium is a vital one. Organic farmers receive a price which may represent a premium over conventional products, but what they get is a price, not a guaranteed premium. For example, the ex-farm price of organic milk (c. 29.5 ppl) is significantly above the current ex-farm price for conventional milk (c. 18ppl) but not so much higher, particularly when the additional costs of production are taken into account, than that obtained by conventional producers in 1995 (c. 24.9 ppl). Mr Tucker of Yeo Valley Organic Company told us that the company had "been trying to get that message through to the farmers that it is not a premium, if the conventional price does start to rise again it will not push up the organic price".[61] The farmers we met recognised this fact and were seeking stability in contracts and pricing, rather than a guaranteed premium over conventional producers.

29. It is likely that over time, even without pressure from the supermarkets, organic prices will fall. Mr Finney of Eastbrook Farm Organic Meats reminded us that at the moment "we have virtually no effective economies of scale to play with in a business of this size, in terms of transport, feed, packaging".[62] As the market grows and supplies grow, such economies of scale will be possible throughout the industry, a point made strongly by Iceland.[63] This might not affect farmers directly: Dr Lampkin was not convinced that "there will be a significant reduction in prices to farmers in the short to medium term", ie. three years, because increased production was likely to replace imports rather than add to the total supply, the market was continuing to expand and "there is a lot of potential for significant economies of scale in the processing and distribution system".[64] He also believed that farmers could afford to see their profits for organic produce cut,[65] although we tend to agree with the Minister, Mr Morley, that it is justified for those who wish to support organic farming to pay a premium to cover its extra costs.[66] We believe that as the market develops there will be some erosion of the current advantage over conventional prices paid to producers (not least because conventional prices may themselves recover as we have seen, albeit hesitantly, in milk) and that any farmer going into the business now would be wise to plan for prices lower than those that organics have commanded in the past.

Constraints on expansion


  30. We have already referred to some of the constraints on expansion of UK organic production within individual sectors, such as conversion times or technical difficulties in organic practices. There are, however, some constraints which are common to the whole organic farming industry. An obvious example is that Government funding for organic conversion is limited both in the overall budget and in the need for land to be IACS-registered before it can receive OFS assistance, an additional layer of bureaucracy for those sectors which would not otherwise be concerned with IACS. In addition, for nearly a year, Government funding has not been available at all (although we note that early organic producers, like Mr Watson, did not require this incentive). Other problems could be defined as gaps in the infrastructure, such as shortages in animal feed or organic seed; the declining number of small abattoirs (essential to the organic livestock industry); the shortage of processing capacity in general; or insufficient training.[67] There is also a need for more technical research to help farmers and growers address the consumer demand for a wide variety of choice in each food type, together with cosmetically attractive produce and year-round availability. This is again closely linked to the requirement for better marketing in order to meet or educate customers' expectations.[68] Finally, there is the impact of regional clusters on the development of organic farming. Where these emerge or are encouraged, they may create a dynamic towards even greater growth; where they are absent, expansion may be constrained in those geographical areas.

31. The constraints outlined above can be addressed by the industry and Government and we will discuss later in this Report strategies for doing so. However, there is another set of constraints which are less amenable to practical solutions. The organic boom is highly dependent upon consumer perceptions and is equally vulnerable to changes in those perceptions. There are two main threats here. The first is that the rapid growth of the market might encourage standards to be eroded, whether of imported produce where controls are inevitably more difficult to enforce or of domestic produce. If this happens and becomes a public issue, then consumer faith in the organic industry will be shaken and there could be a rapid fall in its fortunes. Even worse would be a major food scare involving organic foods. This underlines the importance of the regulatory approval and inspection systems in ensuring food safety, product authenticity and reassuring consumers that they are getting what they are paying for.[69]

32. The second threat, however, is that consumers will cease to be prepared to pay for organic foods. The impact of food scares may fall away; the general public might come to doubt the claims made for organic in the context of food safety or quality; or difficulties might arise over the popular perception of organic as chemical-free or environmentally benign. Public attitudes towards GM foods might also alter over time, with a potential impact upon the market for organic and conventional products.[70] It is therefore vital that the organic industry develops its ability to market its products effectively so that they appeal not to sentiment but to proven benefits. The industry may need to be less messianic and more marketing-orientated in its public presentations. The hard core which has always purchased organic food is very small; to appeal to the majority market beyond that in order to ensure a viable volume sector into the future, the organic movement must demonstrate the qualities which differentiate its products from conventional ones and must continue to respond to the market in offering the service and range demanded by consumers.

46  Ev. p. 177. Back

47  Ev. p. 18, para 6. Back

48  Ev. pp. 175-6, table 1. Back

49  Ev. p. 179. Back

50  IbidBack

51  IbidBack

52  Ev. P. 170, para 3.4. Back

53  Q 249. Back

54  Q 344. Back

55  IbidBack

56  Ev. p. 31. Back

57  Ev. p. 31. Back

58  Ev. p. 179. Back

59  Ev. p. 185, para 16. Back

60  Ev. p. 233. Back

61  Q 344. Back

62  Ev. p. 152. Back

63  Ev. p. 78, para 5.4. Back

64  Q 125. Back

65  Ibid.  Back

66  Q 597. Back

67  Ev. pp. 174-5, 4.1; Ev. p. 163, section 6. Back

68  Ev. p. 32. Back

69  Ev. p. 180. Back

70  IbidBack

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