The extension of the EU eastwards is widely considered a momentous occasion with the addition of ten new member countries expanding a trading block that now houses more than 450 million consumers. EU enlargement will also bring opportunities to organic food producers, as Amarjit Sahota reports.
Entry into the EU has given organic growers in Central & Eastern Europe (CEE) access to the €11bn Western European market. Many farmers in CEE countries seem to have been preparing for EU accession with organic farmland in the three largest accession countries – Poland, Hungary and the Czech Republic – increasing by 150% between 1999 and 2003.
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There are about 514,000 hectares of organic farmland in the new member countries. The Czech Republic has the largest amount of organic farmland in the region with 235,136 hectares, comprising 5% of all farmland in the country. This is higher than the EU15 average of 3.5%.
Export-driven boom
Some of the increase in organic farmland in CEE has been export-driven with substantial volume of organic cereals, grains, herbs, spices, and vegetables exported to Western European countries. Polish producers have been successfully exporting organic vegetables, fruits and berries for a number of years. There are also a number of contractual arrangements in place between Western European companies and organic farmers in CEE countries to grow certified organic crops.
The single market has given organic producers in accession countries unfettered access to Western European countries. The absence of trade barriers enables organic products to be sold in the west without import tariffs. Producers in new member countries can also set up trading offices in the West so they have more control over marketing & distribution. Consumers in Western Europe will benefit from a wider selection of organic products at lower prices. EU regulations will ensure that there is some uniformity in organic standards.
Opportunity for processors
Trade of organic products between Western Europe and CEE countries however will not be unilateral. The majority of organic foods produced in the accession countries are primary products and there is a lack of organic food processing activity. Recognising this, organic food companies in Western Europe are targeting CEE markets. Some German firms have already made inroads into the Czech and Hungarian markets and they are expected to expand their market presence now that trade barriers have been removed.
Like conventional food manufacturers before them, some organic food companies will be setting up manufacturing plants in CEE countries. The German company Hipp has been the pioneer in this respect, setting up production facilities in a number of Central European countries. Its foresight has been responsible for Hipp becoming the largest organic baby food producer in the world, competing strongly with conventional baby food giants like Heinz, Nestlé and Numico in Europe.
Most organic food companies in the west will however undertake a low risk market entry route and seek importers and wholesalers. Slowing market growth rates and overcapacity in some sectors of the Western European organic food industry will allow excess capacity to be alleviated to the east. Other companies will expand to Eastern Europe for business growth.
Enlargement not all good news
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By GlobalDataEU enlargement will bring threats as well as opportunities. Agricultural reform will occur as CEE farms face great pressure from the large, more efficient farms of the west. This will be most keenly observed in Poland, the largest EU accession country, and home to some of the most fertile plains in Europe. The agricultural sector in Poland employs 28% of the country’s workforce. Agricultural reform will cause large intensive farms to emerge and thousands of small farmers could quit the profession bringing rise to high unemployment.
Finding it difficult to compete with the modern agricultural sector of the west, many farmers in CEE countries are expected to quit farming altogether. Others will modernise their farms and start producing on a large-scale. CE farmers should consider organic farming as a third option that allows them to maintain their small holdings and continue to produce agricultural crops on a small-scale.
Amarjit Sahota works at Organic Monitor. To view OM’s recent report on the Global Organic Food and Drink Market, click here.
