Organic food not safe from downturn

Posted by Daniel Palmer on 10th November 2008

Despite more organic food and beverage products on grocery store shelves, all is not healthy in the world of pesticide-free, additive-free edibles.

Mintel, a global supplier of market and consumer intelligence, predicts that market growth rates for organic food and drink will decline, especially if the economy falters further.

According to Mintel, the market for organic foods and beverages should reach $7.2 billion in 2008, an increase of over 140% from the $3.0 billion recorded during 2003. But year-over-year, Mintel has seen sales growth slowing. And, until the economy improves, Mintel does not expect growth rates to rally. The trend has been picked up in America, where the economic downturn now borders on a recession. Australia*, like America, has witnessed organic become more mainstream in recent years but, more positively for local organic producers, Australia has yet to be gripped with economic turmoil similar to that seen in the US.

“Rising food and gas prices, the credit crunch and economic uncertainty have deeply affected people’s shopping habits,” Marcia Mogelonsky, senior analyst at Mintel, noted. “Across the board, Americans are spending less and ‘organic versus traditional’ is a decision many people are thinking about carefully.”

“To cope with higher prices, many shoppers are simply opting not to buy pricey organic or premium brands,” she added.

Ms Mogelonsky sees two major cost-related challenges for organic manufacturers; rising food prices and private label brands.

People are attempting to save money by reaching for private label organics, which have surged in recent years. Mintel’s Global New Product Database (GNPD) tracked over 540 new private label organic foods in 2007, a massive increase from the 35 new products seen in 2003. When Mintel asked survey respondents about the difference between name brand and private label organics, three in five (60%) said it didn’t matter, that they reached for “whatever is available” when shopping. Private label, as a result, posts an increasingly large threat to branded organic lines.

Despite Mintel’s concerns for the organic market in the coming year there is cause for optimism, as strong growth is likely to eventuate when prosperity returns.

“Economic struggles will undoubtedly change the way organic food and drink is sold. But we don’t expect people to completely stop buying organics,” Ms Mogelonsky advised. “We anticipate more subtle changes, such as the formerly all-organic shopper who returns to traditional cookie brands while sticking with organic produce. These small changes will slow market growth.”

Mintel’s survey of adults revealed that 47% said they purchased organic food in the past year, while 21% reported purchasing organic beverages.

*The Australia organic market has begun to bloom in the past four years, with data from the Australian Organic Market Report 2008 (the first local organic data available since 2004) revealing farm-gate organic sales in Australia have grown by 80% since 2004, with industry breaking through a $0.5B retail value mark for the first time.