Globalisation is having a profound effect on international business by bringing world markets closer together. The organic food industry is also becoming increasingly global – for better or worse. Organic Monitor’s Amarjit Sahota reports.
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The organic food industry is becoming global in that large multinational corporations (MNCs) like Heinz, Danone, and PepsiCo are wielding increasing influence. Most of these companies have entered the organic food industry via the acquisition route or by investing in dedicated organic companies. The recent announcement that Dean Foods, America’s largest dairy company, is to acquire Horizon Organic, the leading organic food company in the USA, epitomises the growing power of the MNCs in the industry.
The entry of the MNCs has received a mixed response from the organic community. Some companies question their loyalty to the organic food industry as many have entered because of the high market growth rates and the business potential. They are seen to threaten the survival of legitimate long-term organic food companies, especially small companies that cannot compete with their narrow margins and aggressive marketing of the MNCs.
Others in the organic food industry welcome their entry as they have raised the professionalism of the industry. The MNCs raise the profile of organic foods and they allow organic foods to become widely available to consumers. Companies like Heinz and Danone have large marketing budgets which are used to spread the message of what organic foods are and how they differ from conventional foods – something that benefits the whole organic food industry.
List of Selected Multinationas in the Organic Food Industry, 2003 |
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click on the table for an enlarged view |
| Source: Organic Monitor |
The entry of the MNCs is not really seen to confuse consumers as long as their organic products are clearly labelled as such. Problems may arise in countries like Germany and Australia where there are a number of organic logos and symbols and consumers are not able to distinguish between them. In countries like Germany, the supermarkets market organic foods under a different organic logo than those found in the specialist retailers. It is therefore possible to find identical organic products with different organic logos depending upon the retailer that you go to.
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By GlobalDataConvergence of consumer demand
Another facet of globalisation is convergence of consumer demand and this is also becoming increasingly evident in the organic food industry. Although consumers buy organic products for a range of reasons that vary according to geographic region, culture and socio-economic factors, we are seeing some commonality in consumer behaviour.
A picture of a global organic consumer is emerging, who typically has the following attributes:
- Location – lives in urban areas, usually in a big city;
- Buyer behaviour – discerning towards food and drink purchases, considering factors like quality, provenance and production methods;
- Demographics – typically well-educated and of middle-high social class;
- Purchasing power – belongs to a medium to high-income household, which gives them the purchasing power to pay a premium for organic products.
The latter attribute is very important and explains why demand for organic products is largely confined to the industrialised world.
Inhibiting factors
Two trends are dampening the rate of globalisation of the organic food industry. The growing importance of regional markets is causing an increasing number of consumers to shun organic products with high air miles. There will always be a need for imported organic fresh produce because of seasonality and product variety; however the transportation distance is becoming increasingly scrutinised during the buying process.
Secondly, a growing number of countries are introducing national standards for organic food production, which are being perceived as protectionist measures by some producers. For instance, the implementation of the Japanese Agricultural Regulations (JAS) in 2001 caused the vast majority of imported organic products to lose their organic status, as they did not meet the new standards.
The differences between organic standards make it difficult for many organic food growers to market their products at the global level. For example, an Indian grower of organic tea has to meet the organic standards of the EU, USA, and Japan in order to export to these regions.
Nitrofen scandal
From time to time concerns over the safety of organic food have had a negative impact on the reputation of organics, leading to a slump in sales. The Nitrofen scandal in Germany has had an adverse effect on organic food sales in Europe. It has shown to consumers that organic foods are just as susceptible to food scares as conventional foods.
Many organic food companies used to market organic foods as being less prone to food scares, and after the BSE crisis, many consumers were buying them for this reason. The Nitrofen scandal has shown that companies can no longer capitalise on consumers’ fears food for safety to generate consumer demand for organic food & drink.
Role of trading blocks
The formation of trading blocks is having a positive and negative effect on the organic food industry becoming global. Greater integration of regional markets is facilitating trade between member countries; however it is also making the trading block more fortified against non-member countries.
The entry of ten new members to the EU in 2004 will give organic farmers in Central & Eastern Europe access to a US$12bn market. It will also extend market opportunities to Western European organic food producers. At the same time there will be fewer opportunities for non-European organic food growers with Western European countries expected to replace Asian organic herbs & spices and North American organic cereals & grains with those from the new member countries.
Conclusion
In conclusion, globalisation of the organic food industry is to continue. The speed of globalisation is however to be at a slower rate than other sectors of the food industry, especially as differences continue in terms of organic standards and consumers prefer ‘to think local rather than act global’ when buying organic products.
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