Organic demand seen moderating

Posted by Daniel Palmer on 6th July 2009

The growth of Australia’s burgeoning organic food sector has stagnated this year, according to some of the country’s leading players.

Australian sales of organic products rose dramatically between 2004 and 2007, reaching around $600 million on growth of up to 30% per annum for some sectors. Farm-gate sales soared 80 per cent in the same period. However, despite reports of resilience just a few months ago, there are concerns that this year will see flat growth – a far cry from previous lofty growth rates. The fears are fuelled by the closures of four organic wholesalers and retailers this year – perhaps none more prominent than the sale of retailer Macro Wholefoods to Woolworths.

organic food basket

Macro had been the epitome of optimism in the organic industry – Australia’s first to operate a mainstream, large-format organic outlet, with plans to grow from eight stores to 35-40 in coming years and perhaps even export the concept to New Zealand and Asia. Their demise came about due to a deteriorating financial position as they failed to meet sales targets. As a result, Woolworths stepped in to pick up their sites and, importantly, the ownership of the Macro Organic private label brand for what many believe to be a bargain price.

Macro founder Pierce Cody still believed in the concept upon announcing the sale but noted that the economic climate had taken its toll.

“The areas that have been a little more difficult are those where shoppers have a little less discretionary income, because people are having to decide whether they can afford to buy an organic banana rather than a non-organic one,” he said.

Despite the concern regarding the takeover there is a silver lining for the industry. The purchase of the organic brand owned by Macro, indicates that Woolworths believes that there is a place for organic produce within mainstream supermarkets.

“The industry is moving from something ‘trendy’ to something that is becoming increasingly important to people for a range of issues, such as the ‘food miles’ required to deliver the food and the long-term sustainability of production,” David Dall, senior research manager at the Rural Industries Research and Development Corporation, told The Age.

Organic products used to prepare meals such as vegetables, grains, bread and meat have reportedly held up well, but the more expensive packaged grocery products have witnessed a slowdown in sales.

General Manager of the recently shut down Gentle Harvest wholesalers, Michael Goldsworthy, reported that his retail customers had largely seen a fall in organic demand driven by the rise of the frugal shopper.

“I don’t think (demand is) that strong at all and I can’t see it getting better soon. Because of the economic climate, a lot of people are worried about spending,” he said. “We serviced about 50 organic retailers in Melbourne and I don’t know any who are doing well enough to say they are growing. I think there is still an attitude among consumers that organics are overrated or even a rort.”

Dr Andrew Monk, a Director of the Biological Farmers of Australia, believes the industry as a whole will still see growth this year, albeit at a lower rate.

“Some people who see organics as discretionary have possibly pulled back,” Dr Monk said, according to The Age. “But at the same time you’ve got some of the horticultural wholesalers saying they are posting their best months ever. We’re expecting the industry to continue to grow, but maybe not at quite as cracking a rate as it did in the last four years.”

The potential for the future of organic in Australia has not been dented, however, with sustainability still in the forefront of the minds of many consumers and current sales being less than one per cent of total food sales – in America it is closer to 3.5 per cent.