Growing Taste for Organic Products in the United States
Driven by increased consumer awareness, the market for organic food and beverages is developing rapidly. In the United States, the world's largest market for this product group, analysts expect demand to continue growing in the short to medium term. While domestic production is strong, it is still not high enough to satisfy demand. Producers and traders of organic food and beverages in other countries have strong potential to tap into business opportunities.
Although the lack of specific trade statistics prevents a complete picture of international trade in organic products, retail sales figures provide some understanding of its magnitude. ITC research suggests that retail sales in Europe, Japan and the United States — the major markets for these products — more than doubled between 1997 and 2001 (from an estimated US$ 10 billion to about US$ 21 billion). With retail sales of around US$ 9.5 billion in 2001 (or 1.5% to 2% of total food sales), the United States is the world's largest market for this product group.
Strong growth potential
Sales figures alone for the sector are impressive. It is also interesting to look at organic food sales in terms of a percentage of total food sales (organic and non-organic). At present they are still quite small — varying between 1% and 3% of total food sales in the major world markets — and thus indicate a strong potential for growth.
Industry sources in the United States expect the strong growth of recent years to continue over the short to medium term. According to the Organic Consumer Trends 2001, published by the Natural Marketing Institute in cooperation with the Organic Trade Association (OTA), retail sales could reach US$ 20 billion in 2005.
Consumers want organics
Confident growth expectations are based on a strong and increasing consumer awareness of health and environmental issues, including a growing resistance towards food products made with genetically modified organisms. Food and beverage suppliers are catching on to the trend towards healthier eating and drinking — in fact, their actions make it likely that they will fuel greater demand. Many retailers have embarked on increasingly aggressive and targeted marketing and promotion for organic products. The marketing is likely to intensify as more mainstream retailers move into the organic trade. Major food manufacturers are also taking an increasing interest in developing organic product lines.
In the United States, recently introduced national standards on organic agricultural production and handling are likely to have a significant impact on the development of the industry. Throughout the value chain, from the farmer to the final consumer, the standards will increase the focus on organic products.
Although the overall picture looks very positive, suppliers should bear in mind potential risk factors. First, occasional or more regular oversupply of certain products or product groups may have immediate and longer-term negative effects. For example, prices of organic products could drop, leading to insufficient profitability for producers and traders. Second, other forms of environmentally friendly and sustainable agriculture may provide increased competition in the future. Integrated farming systems that combine the use of chemical and biological controls (for instance, for pest, nutrient or weed management) provide some examples. Buyers might see these integrated systems, which reduce but do not eliminate the use of chemicals, as an acceptable compromise between organic farming and conventional intensive agriculture.
Finally, media reporting of fraud, in the form of unscrupulous traders selling non-organic products for a higher price as organic foodstuff, could make the market more sceptical of products labelled as organic.
Even if, as is likely, time proves the forecast of market expansion to be accurate, growth rates in the United States are bound to slow down or stagnate at some stage. This would be similar to the slowdown that took place in certain European markets after years of rapid growth, such as in Denmark and Switzerland (although growth appears to be picking up again).
Opportunities for developing countries
On balance, there is little doubt that the United States market will continue to offer producers of organic products interesting business opportunities, whether they are domestic players or foreign traders who are looking for new markets. As far as developing countries are concerned, the product categories below should prove the most important:
Most import demand in the foreseeable future is likely to be for organic fresh produce (fruit and vegetables); bulk-packed organic raw material for repacking; or ingredients for further processing/packaging. Suppliers of other organic products, including processed and/or packaged items may also find buyers in the United States.
New standards define "organic"
The United States Department of Agriculture (USDA) will implement its new National Organic Program (NOP) in full by 21 October 2002. Based on national standards for organic production and handling, the NOP determines four categories of organic product:
From 21 October 2002, products in the first two categories can feature the "USDA Organic Seal" on their packaging, whether they are produced domestically or are imported, provided that they comply with NOP requirements.
Also from this date, any product labelled as organic, whatever its origin, will require certification based on NOP standards from an approved certifier.
Trade with certified partners
Any producer considering exporting to the United States should work with a reputable importer or trader who is associated with one or more USDA-accredited certification bodies, as this will greatly facilitate the process. The certification body does not have to be based in the United States.
The USDA NOP web site (http://www.ams.usda.gov/nop) provides more detailed information on the NOP, as well as full regulations and an application form for accreditation of certification bodies. Suppliers can also obtain information from the Independent Organic Inspectors' Association (http://www.ioia.net).
Distribution channels are widening
Traditionally, organic food products have been sold outside the conventional distribution system through alternative channels such as farm-gate sales, open-air markets, specialized grocery shops and natural product retailers. Likewise, small and medium-sized companies, rather than major food manufacturers, have carried out most processing and packaging.
However, due to the strong growth of the organic food market in recent years, sales have also moved into the mainstream retail trade, and the conventional food industry is becoming increasingly involved. The organic food sector is also undergoing a consolidation process through acquisitions, mergers and alliances.
Use specialized importers
Specialized importers or ingredient suppliers who supply distributors and food manufacturers usually handle imported organic products. The final consumer obtains organic food and beverages mainly through natural food stores followed by conventional supermarkets and other food channels, including food service (restaurants, schools, hospitals, etc.), street markets and Internet sales. ITC's new study provides names and addresses of importers and other companies in the organic trade. The Organic Trade Association and various trade directories also supply names of companies.
Market entry tips for developing countries:
The Organic Trade Association
The Organic Trade Association (OTA) is a membership-based business association representing the organic industry in Canada, Mexico and the United States. Members include growers, shippers, processors, certifiers, farmers' associations, brokers, importers, exporters, manufacturers, distributors, retailers and consultants. OTA encourages global sustainability and works to promote organic products in the marketplace and to protect the integrity of organic standards.
Information sources on organic markets, agriculture and standards
This article draws from the recent ITC publication, The United States Market for Organic Food and Beverages. It also follows up on an earlier Forum article on organic products (Issue 3/1998), which concentrated on major European markets. For more information, contact Rudy Kortbech-Olesen, ITC Senior Market Development Officer, at firstname.lastname@example.org.