Organic Articles: International Food Ingredients, May 2001

The Organic Consultancy

Organic Ingredient Supply – The Rate Limiting Factor For Organic Growth?

by Simon Wright

This article originally appeared in the May/June 2001 edition of International Food Ingredients and is reproduced by kind permission of the Editor, whose contact details are:

Organic Ingredient Supply – The Rate Limiting Factor For Organic Growth? Simon Wright The Organic Consultancy This article originally appeared in the May/June 2001 edition of International Food Ingredients. Introduction

Since our last look at organic food in IFI (September/October 2000) the market has continued to show impressive growth. In the UK sectors such as organic frozen foods and fresh/frozen meat have shown year-on-year growth of 226% and 590% respectively (1). Recent food scares such as the spread of BSE in Germany and foot and mouth in the UK have caused consumers to seek out organic food as a “safer” alternative. Governments too are now taking a more active role with the German Agriculture Minister Renate Kunast declaring that she wants to see 20% of German farmers organic by 2010 (2).

Consumers continue to ascend the organic adoption curve, moving from primary agricultural products such as fresh fruit and vegetables through milk and eggs to more highly-processed, multi-ingredient products such as organic ready meals and breakfast cereals (3). The entry of major players such as Heinz and Nestle into the organic arena has also brought about some major changes to supply-side dynamics. The net effect of all these changes is that for many parts of the organic market the rate-limiting factor to growth is sourcing organic ingredients of the correct quality, price, specification and certification. This article reviews the changes that are happening in key organic markets around the world and suggests future trends.

The UK
Community Foods are one of the relatively few organic ingredient supply companies operating in the UK. Key volume lines are dried apricots, raisins, sultanas, rice and sugar. Customer base is a combinaton of established organic processors who might only order one or two lines, plus new entrants who generally look for a wider range of organic ingredients, requiring Community to fulfill a “one-stop shop” function. Establishing good relations with its suppliers is a key factor in Community’s development and to that end they are part of The Good Food Foundation, an international partnership which collectively produces organic dried apricots, figs, nuts, seeds and pulses from farms in Turkey and Slovakia. Managing Director Tim Powell notes that the entry of larger processors to the market has resulted in a “massive” increase of paperwork to cover issues such as Due Diligence.

A different approach is taken by Rasanco, where MD Russell Smart has a philosophy of ‘from field to finished food’, emphasising the full traceability required by law in organic systems. Rasanco have formed a series of partnerships with organic suppliers such as Agrana organic starches, Markbeech coconut products and Synergy flavours. Rasanco aim to supply the larger manufacturers as they enter organics for the first time in addition to organic start-ups and multinationals. Sales in 2000 were 50% higher than the previous year, although Smart suggests that “there will be some consolidation and slowdown in the supply of organic ingredients” in the future.

Italy
Paola Cremonini of Cremionini Consulting in Bologna works to help develop the supply of organic ingredients in Italy. Fruit and tomato purees are Cremonini’s best selling lines, with sales for 2000 up 30% on the previous year. She has noted that the entry of larger companies has stimulated demand for more sophisticated part-processed lines such as freeze-dried organic fruit and vegetables. Recent food scares have stimulated demand for organic meat, and Cremonini predicts an under-supply of poultry, meat, soya and organic fish (a new sector) as a result.

The Netherlands
Tradin BV of are the largest dedicated supplier of organic ingredients in the EU, importing, storing and distributing a wide range of organic commodities. Half their turnover now comes from projects they directly control – bananas, sunflower seeds, peanuts, pulses and frozen red fruits. In 2000 their best-selling lines were rice, tomato products, sugar and sunflower seeds. Sales in 2000 were 50% higher than in the previous year, and to date sales in 2001 have been 50% higher than in 2000 indicating the continued strength in demand. Despite this sales manager Wouter Floot has some concerns. “When the UK supermarket Iceland withdrew from organics it left a lot of organic farmers with no market for their products and a surplus in areas like organic frozen vegetables. If these farmers now leave organics we could move into under-supply next year. On the other hand there a lot of new organic farming schemes starting up, so it is difficult to predict.”

Floot has strong views on the multiplicity of organic certification. “Every country has its own preferred certifier – for UK customers it is the Soil Association, Eco Cert in France, Skal here in Holland, BCS in Germany and KRAV in Sweden. We end up recertifying organic ingredients for each different country, even though there is no requirement in the EU organic legislation for this process. It takes a lot of time and is expensive”. Aleaxandra Thoring , an organic consultant in Germany echoes this view. “I prefer to work with certification bodies who are accredited by IFOAM, the International Federation of Organic Agricultural Movements”. Currently the IFOAM standards are the only system by which EU and non-EU organic standards can be compared. However it is as a voluntary system and currently major certifiers such as Skal and Eco Cert are not part of the system. The problems with re-certification that Floot has noted would be greatly diminished were all major international organic certifiers to become accredited by IFOAM.

The USA
Dave Alexander of Global Organics has found the organic situation in the USA changing rapidly. “Global Organics is based in the USA but does a lot of business in the EU. In the past, we’ve seen trends develop in Europe and roll across the pond about 18 months later, but now that’s changing rapidly with the pending implementation of the US Organic Regulations. Due to the fact there was no “official” regulation here for organics, many manufacturers just used a few relatively inexpensive organic ingredients and splashed organic across their label, but largely kept the same conventional processing aids and ingredients. Now the bar has been raised significantly and companies are searching for ways of converting as much of their product and processes over to organic as possible to meet the new stringent rules.” Global Organics specialises in organic sugars, sweeteners, chocolate, cocoa products, dried fruits and nuts, coffees and oils. Sales in 2000 were up 32% on the previous year, with a broad increase across all product categories.

Joseph Stern of Organic Ingredients reports that their organic ingredient sales increased in 2000 by 50%. Stern highlights convenience foods, baby foods, juices and dairy as the key growth sectors. Organic Ingredients biggest selling lines are organic citrus juices and fruit juice concentrates, organic oils, tomato products and IQF fruits and vegetables. Stern notes a current oversupply on some items. “Tomato paste, citrus juices, white grape juice concentrate are all in an over supply situation and it will hurt organic farmers as prices are coming down dramatically”.

Using The Internet
Many of the these organic ingredient suppliers state they have no plans to trade over the internet, with Floot, Alexander and Stern all taking the position that the internet is a useful way of providing information on their product ranges but lacks the human element to become a trading platform. One company who is uses the internet to provide more than just a virtual product list is London-based TradeOrganex, described by MD Fergal O’Mullane as providing “a totally integrated service for both suppliers and processors”. The company has evolved from the organic meat suppliers Finest Organics and the biggest selling lines are currently organic beef and lamb-based ingredients for further processing, although coming up fast are pasta, rice and tomato products. Although TradeOrganex has only been trading for 9 months, O’Mullane sees www.tradeorganex.com as a fundamental part of its business plan working in conjunction with non-internet trading operations. The Internet presence has been found to work well as a marketing tool, as an internal database and as a highly efficient communication method, creating a community of users. However O’Mullane admits the human touch is also required to build partnerships and assist good customer relations, to assess customer potential, to respond to problems as they occur and to allow TradeOrganex to be totally informed on changes in the organic marketplace.

O’Mullane favours offering a total solution to organic sourcing. “As mainstream manufacturers start producing ready meals they will be looking for total procurement solution with full technical back up. Because organic still represents a small part of their overall business they need TradeOrganex to reduce the strain on their resources. TradeOrganex is designed to cater for large manufacturers and their high procedural standards. This is why we recruit people from big manufacturer background so that they can talk the same language.”

Summary and Future Trends

  • Impressive year-on-year growth figures of 30-50% have been recorded amongst organic ingredient supply companies
  • Organic Certification equivalence continues to cause problems, with differing preferences between countries leading to increased enthusiasm for a more international standard such as IFOAM accreditation
  • The entry of major food processors into organics has lead to increased requirements for better quality systems and tighter product specifications amongst organic ingredient suppliers
  • Varying degrees of enthusiasm exist for internet-based organic ingredient trading
  • Whilst there are areas of concern amongst organic ingredient suppliers, the market for organic ingredients continues to look very promising with continued consumer demand driving ingredient sales for the forseeable future

Contact Details

The Organic Consultancy
simon@organic-consultancy.com
www.organic-consultancy.com

Community Foods
bill.henry@communityfoods.co.uk
www.communityfoods.co.uk

Rasanco
ras@rasanco.com
http://www.rasanco.com

Cremonini Consulting
info@cremonini.consulting.com

Alexandra Thoring
alexandra.thoering@t-online.de

Tradin
wouter@tradinorganic.com
http://www.tradinorganic.com

Global Organics
dave@globalorganicsltd.com
http://www.globalorganicsltd.com

Organic Ingredients
jstern@organic-ingredients.com
http://www.organic-ingredients.com

Trade Organex
fomullane@tradeorganex.com

References

  1. Simon Skeldon (February 2001) “Rewriting The Record Books” Organic Focus, p8
  2. Patrick Holden (March 2001) “New Beginnings In Germany”Natural Product News, p10
  3. Craig Sams, (2000) “Introduction” Handbook Of Organic Food Processing and Production, 2nd Edition, edited by Simon Wright and Diane McCrea, published by Blackwell’s Science, Oxford, pp12-13

SW 12.03.01